Outward Foreign Direct Investment: The Malaysian Experience Emeritus Prof. Dr. Mohamed Ariff and Greg Lopez Malaysian Institute of Economic Research

MIER2 Presentation Outline Key OFDI Trends Key Factors –Push Factors –Pull Factors –Strategic Reasons Conclusion

MIER3 OFDI as a % of South, East and SE. Asia Total FDI Stock Source: UNCTAD

MIER4 OFDI as % of GDP Source: UNCTAD

MIER5 OFDI Flows Source: UNCTAD US million

MIER6 OFDI Flows Source: UNCTAD US million

MIER7 OFDI - Top Ten Locations ( ) RM million

MIER8 Trends - Destination ( ) Source: BNM 2006

MIER9 Trends - Sectors Source: BNM 2006

MIER10 Trends - Investment Type Malaysian controlled companies (GLCs & RCCs) - 61% of OFDI ( ) Mainly through equity & joint ventures Funded internally (62%)

MIER11 Trends - Investment Type OFDI by NRCCs - 39% ( ) NRCCs investment were essentially extension of inter - company loans to related companies abroad (91%)

MIER12 Structural Push Factors Economic growth - RGDP grew at 6.5% on average from GDP per capita (at current prices) grew on average at 7.0% ( ) Gross domestic savings increased from 29% of GDP in 1981 to 43% in 2005.

MIER13 Push Factors - Tight Labour Market Source: Nambiar 2007 Unemployment

MIER14 Push Factors - Private Sector Development No. of listed companies on the MSE grew at an average of 5.6% per annum ( ). KLCI grew at an average of 3.1% per annum ( ) Prior to crisis, MSE was the 4th largest in Asia (market capitalisation)

MIER15 Cyclical Push Factor Recession of 1985 and Financial Crisis of 1998 Market saturation in certain sectors

MIER16 Institutional Push Factors Government policies –Economic Nationalism and affirmative action ( s) –Tax exemption, tax incentives & special funds ( present)

MIER17 Key Determinants Rising cost of labour especially in relation to the cost of labour in the region Wealth accumulation (individuals & companies) Raise capital cheaply in the MSE

MIER18 Structural Pull Factors Low cost of factor (labour, raw material) prices in the region (labour intensive companies - manufacturing & textiles); Markets; Resource seeking (PETRONAS, plantation companies

MIER19 Institutional Pull Factors Investment and Trade Agreements –Investment Guarantee Agreements; –ASEAN Free Trade Agreement; –The WTO Agreement; Institutions –MIDA, MATRADE and EXIM Bank –MASSA & MASSCORP

MIER20 Strategic Pull Reasons South - south co-operation –Diversifying markets (moving away from the U.S., E.U. and Japan) Access to resources (oil & gas)

MIER21 Findings No conclusion can be made as the nature of the study is limited Two trends can be identified –State led –NRCCs (inter - company loans) State involvement in OFDI significant –GLCs are significant players –Other push and pull factors similar to general reasons for OFDI More in depth research using firm level data is needed.