Tuesday, August 3, 2010


The recent hullabaloo over negative foreign direct investment (FDI) trends in Malaysia has, understandably, generated a lot of excitement.

Some have trivialised the negative FDI trend, saying that it's not a big deal for Malaysia.

Others have called time on the negative FDI trend, saying that Malaysia is headed for trouble.

Some other people have pointed to the negative FDI trend as an indicia of a confident and robust set of Malaysian corporates who have embarked offshore to make some money.

And, there are also others who say that the negative FDI trend is tantamount to capital flight.

Which view is true?

It does sound terribly like one of those stupid multiple choice questions inflicted on Malaysian students, doesn't it?

Middle-income trap

As I have pointed out in previous blog postings, Malaysia is in a "middle-income trap". The negative FDI trend is indicative of that.

It cannot be our local politics because multinational companies are completely amoral. They have invested in apartheid South Africa and strongman dictatorial states. They obviously have no problems with corrupt states. That explains why Thailand is still an attractive destination for FDIs.

The challenge is how to get out from the middle-income trap.

Getting out from the middle-income trap

Some have pointed to the need for innovation and creativity as the catalyst for positive economic change.

Others have agreed and, point to the prior need for a robust education system to feed the innovative and creative human capital required for positive economic change.

I agree with those views.

I only add a caveat (a fancy word for "but").

To be innovative and creative, one needs to read, read, read and read.

Then, one must make every effort to understand what one has read.

This means asking a lot of questions to more experienced people.

The creative spark can only come from that level of intense commitment and passion.

The question is, are enough Malaysians hungry enough for knowledge and self-made success?

Or, are most Malaysians still happy to sit under a tree laden with low-hanging fruits?

This is the challenge Malaysia faces.

Creativity, innovativeness and fire-in-the-belly must come from within each Malaysian.

So, are we, each, hungry enough?


walla said...

Let's hope the inbound FDIs were actually landed investments and not just application approvals otherwise a precipitous eighty one percent drop in one year alone would indicate investors are not even bothered to file applications with view to incentives.

Furthermore it's not just a middle-income trap. It's also an investment policy trap. We want to upscale but don't have the skills base ready.

If we are choosy during this climate of uncertain global capital flows, we will be losing many job-creating industries albeit saving on incentive subsidies.

We can only afford to do so if we have the solution ready on how to more quickly create a bigger pool of technical personnel.

But that in turn will depend on a number of factors:

- the equilibrium between public and private training institutions as regards technical trainers, tools, methods and standards;

- the quality of the national feeder system, with its shift in the input demographics of technical course applicants;

- the business ecosystem at the other end to create a more fertile climate of curiosity, creativity, inventiveness, openness and competitiveness.

We know for instance that private institutions are profit-oriented so they don't invest in technical personnel who can teach, or in the technical equipment upon which the teaching is to be demonstrated for skills building; if they are to ramp up, they will charge higher fees but most local technical students, even those doing tertiary engineering courses, come from poorer families.

What remain thus are the public institutions but they have declining standards and disjointed training facilities even if they may have the physical equipment.

As for things like business ecosystem, we have feedback like:


In the example cited, a policy multiplier loads a one thousand percent margin on an imported product. Sellers who might later be FDI contributors will treat this as indirect tariff.

They will wonder if we don't even care about how we use our own funds, then how will they know we will care about their future investments in bigger local projects?

They certainly can't be expected to put ten times more capital into their investments here if such policy is maintained.

walla said...


So we actually have a lot of challenges - human resource supply not meeting demand in both quantity and quality, and disincentives for people to park their money, knowhow and equipment here.

If this be not honestly solved, it won't matter whether we are talking about low-tech and high-volume, or high-tech and premium-value. FDI will just peter away. And not just from the international community.

Without investments, there can be no funds to create a better education system. Without such a system, there can be no better inputs to feeder the training institutions, public or private, to produce the people to run the investments, creative enterprises for that matter. It will be a vicious cycle.

And we don't have equivalent options for that situation. Which implies the overall national condition will disintegrate as others race ahead even from lower-skill base - because they have the numbers and the market size.

We may need to remodel our way forward. Perhaps Malaysia as an offshore international onshore. Oxymoron aside, this spells massive import of foreign technical skills from everywhere.

But that will need a proper business ecosystem first. Otherwise they won't come because our wages are not attractive and our costs of living are increasing.

We should consider that how we define our country will have to be drastically changed. We may not survive based on present remits and profiles. We need movers, energizers, creators and global marketers. Presently our numbers are too small. Moreover we are constrained one way or other by sentiments and policies. We want to pay heed to the messages coming out from the labs, yet we don't have time or means to groom new players.

And i agree, we should read, think and cogitate more, not let unthinking determine and project the landscape of this nation to repel investors and productive people away, increasing the strength of competitors, reducing our own future capability to play to advantage.

As we have already lost almost all our first-mover advantages amongst newly-emerging nations, this bears candid and honest assessment over and above all prevailing sentiments.

Let's start with some reading (and listening) [patience is a virtue]:

http://is.gd/e2Cpy (3.6mb)
alternative: http://is.gd/e2Csz