In 2022, Malaysia attracted RM 264.6 billion of approved investments and Foreign Direct Investment (FDI) remained the major contributor to the total approved investments at 61.7% or RM163.3 billion, an increase of 12% compared to last year.
 

FDI is a crucial aspect of Malaysia's economy, contributing significantly to its growth and development. However, there are several lesser-known facts about FDI in Malaysia that many people may not be aware of.
 

Specific Industries in Malaysia That Are Attracting FDI
 

In Budget 2023, the Malaysian government is giving tax incentives for the aerospace industry that will be extended to 31 December 2025 and tax incentives for manufacturers to move operations to Malaysia will be extended to 2024.
 

Malaysian Investment Development Authority (MIDA) will intensify its efforts in 2023 with 7 Trade Investment Mission commended with strike-force and working visits, 47 Specific Project Mission (SPM) and benchmarking stay in more than five regions.
 

FDI will continue to be the catalyst for Malaysia's economic development and is expected to remain steady in 2023, looking at the trend from the preceding year of 2021 and 2022. Some industries have become more appealing to foreign investors due to their potential growth.
 

Manufacturing Sector
 

Malaysia has maintained its solid fundamentals, which have attracted high-quality foreign direct investments. In 2022, foreign investors contributed predominantly to the total new investments of RM 84.3 billion or 31.9% in the manufacturing sector.
 

Read more: How to Get a Manufacturing License in Malaysia.
 

Malaysia's manufacturing sector has been a critical player in its economic development, contributing significantly to its export earnings and job creation. Despite global economic uncertainties, this sector has enabled Malaysia's sustained growth.
 

1. Electrical and Electronics (E&E) Industries - The electronics sub-sector significantly contributed to Malaysia's manufacturing industry by around RM 29.3 billion in 2022 and has been attracting FDI from countries such as China, United States, and Netherlands. Malaysia's electronics industry is well-known for its production of semiconductors and it has been a significant driver of the country's economic growth. The presence of Intel, Dell, and Hewlett-Packard is a testament to the country's attractiveness to foreign investors.
2. Petroleum Products Industries - The country's well-developed petrochemical industry and abundant natural resources make it an ideal location for petroleum manufacturing by RM 5.9 billion in 2022. Major chemical companies such as Petronas Chemical, BASF, and Pengerang Integrated Petrochemical Complex (PIPC) have operated in Malaysia, contributing to economic development.
3. Machinery Industries - The machinery sub-sector is another significant contributor to Malaysia's manufacturing industry which contributed RM 8.4 billion. These industries attract foreign investors from China, United States, Netherlands, and Germany.

 

Service Sector

 

The services sector in Malaysia's economy contributed 58.2%, RM154 billion to its GDP in 2022. As Malaysia adapts to the 5IR, which refers to people working with smart machines, its services sector is becoming more knowledge-intensive and productivity-driven.
 

Many foreign companies have recognised Malaysia's opportunities and have established their hub here to cater to their regional and beyond operations. As in Budget 2023, The Tun Razak Exchange will become the country's international financial hub.
 

1. Information and Communications Industries - The information and communication subsector is contributing RM 84.2 billion through FDI. In recent years, Malaysia has seen a significant increase in investment in software development, mobile applications, and e-commerce, among others. Foreign investors from countries such as Japan, Singapore, and the United States have been significant players in Malaysia's information and communication sector, taking advantage of the country's favourable business environment and potential for growth. 
2. Real Estate Industries - Real estate is another sub-sector attracting FDI in Malaysia's services industry. The country's strong economic growth has increased the demand for real estate. Foreign investors have invested in Malaysia's real estate industry, contributing RM 28.8 billion in 2022.
3. Financial Service Industries - Finance has contributed total new investments of RM11.2 billion in 2022. The country's well-developed financial services industry and robust regulatory framework make it an attractive destination for foreign investors looking to establish financial operations in the region. Major financial institutions such as Citigroup, HSBC, and Standard Chartered have established a presence in Malaysia, contributing to the growth of the country's financial services sector. 
4. Green Technology Industries - Malaysia is committed to reducing carbon emissions through initiatives such as the Green Technology Master Plan to tap into the growing demand for the green technology subsector. Malaysia's commitment to the green technology subsector is the establishment of the Green Technology Financing Scheme (GTFS), which provides financing for projects related to green technology and energy efficiency. As in Budget 2023, the government proposes extending the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) incentives until Dec 31, 2025. The good news in 2023 is Bank Negara to provide RM2 billion in loans to support green technology startups and help SMEs embrace low-carbon practices.

 

Primary Sector

 

While the services and manufacturing sectors have been Malaysia's primary recipients of FDI, the primary industries sector has also attracted investment from various countries while contributing RM 26.3 billion or 9.9% in 2022.
 

1. Agriculture Industries - The main sources of FDI in Malaysia's primary sectors are Japan, Australia, and Singapore. These countries have been investing in Malaysia's agriculture sector, particularly in palm oil production, which is a significant contributor to Malaysia's economy. Malaysia is one of the world's largest palm oil producers, and foreign investment has helped increase production and improve the quality of the product. In 2022, the agricultural sector contributes RM 154.4 million. 
2. Mining Industries - Another sub-sector is mining, contributing RM 24 billion, and Malaysia has a wide variety of mineral resources. Major mining companies such as Vale and Sumitomo Corporation have established operations in Malaysia.
3. Plantation and Commodities Industries - Malaysia's well-managed forestry industry and its abundant natural resources make it an attractive destination for foreign investors. Companies such as Asia Pulp & Paper and APRIL Group have established a presence in Malaysia, contributing to economic development.

 

 

Political Stability Impact on Malaysia Foreign Direct Investment
 

Malaysia has a relatively stable political environment, with a democratic system of government and peaceful transitions of power. This has helped to create an environment that is conducive to investment, providing a level of confidence for foreign investors.
 

In recent years, the Malaysian government working towards improving the country's business climate and attracting foreign investment. This has led to an increase in FDI in the country, particularly in the manufacturing and services sectors.
 

Regardless, the new government's commitment to maintaining political stability and improving the business climate has helped to reassure foreign investors, leading to a rebound of FDI in the country. 
 

FDI Opportunities in Malaysia's Halal Industry
 

The halal industry presents significant opportunities for Malaysia to attract FDI due to the country's reputation as a leading global halal hub. Malaysia has been proactive in promoting its halal industry and become one of the top exporters of halal products globally.
 

Read more: Halal Hub in Malaysia.
 

Halal Food Manufacturing

 

The halal food industry is a significant contributor to Malaysia's economy, and it presents opportunities for FDI in food manufacturing. Malaysia's robust supply chain network and the country's reputation for halal products make it an attractive destination.
 

The Malaysian government has been proactive in supporting the growth of the halal food industry, including providing incentives for halal manufacturers and establishing regulatory bodies to oversee halal certification and compliance.
 

Halal Logistics and Transportation
 

Malaysia is already a leader in the global halal logistics and transportation market, with companies such as ERL Cargo Logistics providing halal-compliant transportation and warehousing services.
 

Malaysia is also home to several major ports and airports, including the Port of Klang and the Kuala Lumpur International Airport (KLIA), which are well-equipped to handle the transportation and storage of halal products.
 

Halal Certification and Standards
 

Halal certification and standards are becoming increasingly important in the global market. As a predominantly Muslim country, Malaysia has a long-standing reputation as a leading producer of halal products and services. 
 

The government has a well-established halal certification and standards infrastructure, with the Department of Islamic Development Malaysia (JAKIM) responsible for ensuring that products and services meet the required standards.
 

This infrastructure has helped to position Malaysia as a key player in the global halal market. Malaysia has implemented various initiatives and incentives to encourage investment such as tax incentives and streamlined processes for obtaining halal certification.
 

The government has also established the Halal Industry Development Corporation (HDC), which serves as a one-stop centre for halal certification and standards and investment and business development in the halal industry.
 

Implications for Businesses Looking To Attract FDI to Malaysia

 

 

Malaysia has a lot to offer to potential foreign investors. With its strategic location, well-developed infrastructure, and skilled workforce, the country presents an attractive destination for businesses seeking to expand their operations in Southeast Asia. 
 

Additionally, Malaysia should focus on developing its digital economy, encouraging innovation and entrepreneurship, and investing in education and training programs to build a highly skilled workforce.
 

With the right strategies and policies, Malaysia can position itself as a leading investment destination in the region, driving economic growth and creating more job opportunities.