Investments will take a hit during election, economists say

Raevathi Supramaniam

Analysts believe a coalition government similar to the incumbent will put off investors due to the constant infighting. – The Malaysian Insight file pic, October 13, 2022.

INVESTOR confidence in Malaysia will take a hit as they wait for the outcome of the general election, economists said.

They said whoever forms the next federal government will have to come up with clear policies that will be investor-friendly.

Should a similar government to the current coalition arise, the political infighting will also put off many investors, they said.

“The broader aspects (of whether to invest), will be driven by the current economic conditions and expectations, rather than on the influence of politics,” Sunway University economist Yeah Kim Leng told The Malaysian Insight.

“Decisions, especially for significant and large investments, will be put on hold.

“Investments that are deemed exposed to political risk or how a change in government could have an impact on the country’s economic outlook and expectations, will also be put on hold.”

Lim Kim Hwa, fellow in finance at the University of Cambridge Judge Business School, also agreed that in the short term, investors’ confidence will be affected.

“However, should one party win a clear majority, this would clear a lot of the investors’ concerns,” Lim said.

“Should it be a hung parliament, the uncertainty will increase. While the global outlook is also very uncertain, investors will be very concerned if Malaysian politics become more unstable.

“This will affect investment and consumption. With a global recession predicted, any political uncertainty will compound the problem.”

Despite assurances to the contrary from Finance Minister Tengku Zafrul Abdul Aziz, Budget 2023 remains in limbo at the very least until a new government is formed. – The Malaysian Insight file pic, October 13, 2022.

Prime Minister Ismail Sabri Yaakob dissolved parliament on Monday after receiving the consent of Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah.

Budget 2023, which was tabled on October 7, will remain on paper until a new government is sworn in.

According to the Malaysian Investment Development Authority, between January and June this year, Malaysia attracted RM123 billion in investments in the manufacturing, services, and primary sectors for at least 1,700 projects.

Foreign direct investment remained the major contributor, at 70.9% (RM87.4 billion), while investments from domestic sources contributed 29.1% (RM35.9 billion).

Investor-friendly economic policies needed

Yeah said while both sides of the political divide are investor friendly, effective governance and social reforms are needed to guide Malaysia’s economic direction.

“Investors are looking for a stable, strong and competent government that is able to chart the long-term economic direction, infuse investor confidence in Malaysia’s growth prospects and rebuild the economy to achieve sustainable growth.

“These are more important, given our lagging performance in the region. However, in Malaysia, being strong and stable do not necessarily result in sustainable growth.”

Yeah said much of Malaysia’s unfavourable economic conditions arise from its weak policies.

“Investors are looking forward to economic restructuring and institutional reforms that will enable Malaysia to leave its scandal plagued legacy and forge a new direction that is efficient, competitive and free from governance issues.”

In line with this, Yeah said Malaysia needs to reduce vulnerabilities in the economy.

“Malaysia needs to improve public finance and reduce the over dependence on low-end, low-value economic activities to a high-value economy that is competitive at an international level.

“There is also a need to reduce imbalances, such as the over reliance on unskilled foreign labour, low wages and depressed skill wages, and other vulnerabilities that involve improving financial sustainability and industrial upgrading, along with strengthening education and training to create a higher skill and knowledge-based employees that will help accelerate the workforce,” Yeah added. – October 13, 2022.

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