PRIME Minister Anwar Ibrahim’s recent announcement that domestic direct investments will be a main performance indicator is a good move that should be lauded.

This move will indirectly reduce the country’s large dependence on foreign direct investments (FDIs), which has sparked fierce competition among developing countries especially in Southeast Asia.

The total investment approved in the manufacturing sector for Malaysia in 2021 is RM195.1 billion, of which 92% were FDIs, while for 2022, the total investment approved was RM84.3 billion, of which 78% were FDIs.

Of course, as a developing country, Malaysia still needs FDIs, especially to offer quality job opportunities and encourage technology transfer, but it is time for the country to encourage local companies to improve their own technologies and capabilities and be comparable with foreign multinational companies.

It is because local companies are rooted here and will remain operating in this country, while foreign companies tend to move their operations to other countries after the period of tax exemption incentives they enjoy is over.

This noble effort, if implemented, will encourage local companies, especially small and medium enterprises (SMEs), to thrive and will indirectly help them contribute more to the country.

In comparison, SMEs in Malaysia contribute 38.9% to the national economy and 48.4% to total employment, whereas in China, SMEs contribute 60% to the national economy and 75% to total employment. In Germany and Japan, SMEs contribute 55% to the economy and contribute 60% and 70% to total employment, respectively.

To make this effort a success, several proactive steps need to be taken by the government. Among them is the reactivation of the Domestic Investment Strategic Fund (DISF) by the Malaysian Investment Development Authority (Mida), which focuses on accelerating the shift of Malaysian-owned companies in targeted industries into high value-added, high technology, knowledge-intensive and innovation-based industries.

The DISF aimed to harness and leverage outsourcing opportunities created by multinational corporations operating in Malaysia, intensify technology acquisition by domestic companies, and allow them to obtain international standards in strategic industries.

This incentive was similar to the incentives offered in Singapore, such as the Research and Innovation Scheme for Companies and the Centers of Innovation offered by the Singapore Economic Development Board to support technology development and innovation activities.

As a result, many local companies in Singapore succeeded in boosting business through the acquisition of foreign companies and technology. Among them was the acquisition of MRA Systems LLC by ST Engineering, which made ST Engineering a globally prominent manufacturer of aircraft components and equipment.

In view of this, the proposed incentives and initiatives aforementioned need to be given serious attention by the government as they will encourage local companies either SMEs or large local companies to continue to grow and innovate, which in the end will not only leapfrog the country to the top 30 list of largest economies, as targeted in Madani Economy, but more importantly, it will put the country the top 20 nations in the global innovation index, where Malaysia is currently ranked 36th. – August 24, 2023.

* Ahmad Shahir Abdul Aziz is senior manager at InvestPerak.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.