FDI outflow surpasses inflow

KUALA LUMPUR, Sept 25 - Malaysia's foreign direct investment (FDI) outflow surpassed inflow for the first time last year, with net outflow amounting to almost RM9 billion as local firms accelerated cross-border acquisitions to fulfil regional dreams.

FDI outflow in 2007 surged 82 per cent to RM38 billion from 2006, according to the United Nations Conference on Trade and Development's (Unctad) World Investment Report 2008. FDI inflow was also higher, by some 39 per cent to just over RM29 billion. Since early 2000, the gap between FDI inflow and outflow has been narrowing, reaching near parity in 2006.

Economists see the increase in reverse investments as a "healthy" development, given many sectors of the Malaysian economy have reached near-maturity or maturity and surplus domestic funds require an outlet.

They also see regional competition as a good training ground for toughening local companies. And because most of Malaysia's reverse investments were in Asean, they believe it will put the country at the forefront of the region's plans for economic integration by 2015 under the Asean Economic Community initiative.

In terms of FDI stock, the trend towards reverse investments was also reflected in a 61 per cent spike in outward stock to RM201 billion last year, from RM125 billion in 2006. In the same period, inward stock grew 42.5 per cent to RM265 billion. Inward stock refers to the value of stock acquired by foreign firms in Malaysian firms, while outward stock is the value of stock acquired by local firms in overseas companies.

The Unctad report says developing nations have significant transnational companies (TNCs) and these TNCs are becoming prominent investors in other developing economies. In the top 100 infrastructure TNC list, for example, Malaysia and Singapore each boast three companies. Malaysian giants Petronas, YTL Corporation, Genting, Telekom, Sime Darby and Maxis made the list of the top 100 non-financial TNCs from developing countries, ranked by foreign assets.

Economic Council of Malaysia member Zainal Aznam Yusoff attributes the sizeable increase in reverse investments to cross-border acquisitions, especially in the areas of finance and services such as telecommunications.

Even so, Malaysia's fall on the Inward FDI Performance Index to 71st position last year from 67th in 2006, could be a cause for concern.

Ratings Agency Malaysia chief economist Yeah Kim Leng said larger reverse investments are acceptable, but there would be a concern if domestic investments and FDI inflow declined sharply in future. - Business Times Singapore