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There’s no free lunch in economics — it’s who receives and who pays

Tong Kooi Ong and Asia Analytica
Tong Kooi Ong and Asia Analytica9/8/2022 01:55 PM GMT+08  • 18 min read
There’s no free lunch in economics — it’s who receives and who pays
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Malaysians just celebrated Merdeka Day, marking our 65 years of independence, last week. And Malaysia Day is just around the corner, on Sept 16. This should be the time to rejoice, to inspire, to be proud of the nation’s success. Hence, we understand that this article may upset some people, perhaps even raise questions about our agenda. Do we have one? You bet we do. Pretending to be an ostrich, burying your head in the sand, serves absolutely no purpose. Not acknowledging the underlying issues does not mean they do not exist. Problems will not be magically resolved. On the contrary, they create uncertainties and cautious expectations and, as we know, investors work on expectations. Indeed, to understand the enormity of the challenges the country is now facing — as we do — and to not speak up is the least patriotic thing any Malaysian can do.

We do not know if you have noticed, but many of our recent articles have focused on one key issue — investments. Investment is the single most important driver of economic growth in a nation. Investments create employment and raise the income level and well-being of the people. The role of the government is to facilitate a business environment that is most conducive to attract investments, be it by the domestic private sector or foreign investors.

The fact is Malaysia is falling behind in terms of attracting foreign direct investments (FDI) in the region. Our share of FDI flowing into Asean has fallen from 24% in 1977- 1997 to just 8% in 2000-2020. And the fact is Malaysians (corporates, institutions and individuals) have been sending money out of the country at an accelerated pace (after capital controls were lifted in December 2002 and the ringgit-US dollar peg removed in July 2005) for more attractive returns instead of investing domestically. Investment as a percentage of GDP has fallen sharply since the Asian financial crisis (AFC). We have written at length on why this is so — the failure to properly address underlying structural weaknesses that have persisted for years, all of which have made Malaysia increasingly less competitive as an investment destination.

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