PP 7767/09/2011(028730)

Malaysia
Economic Highlights
•MARKET DATELINE

20 October 2010

Decline In Manufacturing Investment Approvals

Narrowed In The 2Q

◆ Total approved manufacturing investment fell by a smaller magnitude of 4.1% yoy to RM8.0bn in the
2Q, compared with -30.3% or RM5.2bn in the 1Q. This was due to a pick-up in domestic manufacturing investment
approvals, which rebounded to increase by 258.8% yoy to RM3.7bn in the 2Q, from -51.9% or RM2.0bn in the 1Q.
A sharper drop in foreign direct manufacturing investment (FDI) approvals, which fell by 41.2% to RM4.3bn in the
2Q, compared with -2.9% or RM3.2bn in the 1Q, however, offset part of the gain.
◆ In 1H 2010, total approved manufacturing investment fell by a smaller magnitude of 16.4% yoy to
RM13.2bn, compared with -51.3% or RM15.8bn in the corresponding period of 2009. This was on account of a
rebound in domestic manufacturing investment approvals and a smaller drop in foreign direct manufacturing
investment (FDI) approvals during the period.
◆ Singapore became the largest investor, accounting for 38.2% of the total approved FDI manufacturing
investment in 1H 2010. This was followed by Japan, Switzerland, Taiwan, China and Hong Kong. The bulk of the
approved FDI manufacturing investment would be channelled into electronics & electrical products, basic
metal products, fabricated metal products, chemical and chemical products, food manufacturing and transport
equipment.
◆ As a whole, the approved manufacturing investment has improved in 1H 2010, albeit slowly, given that the
global economy has just emerged from a severe recession in 2009. Also, efforts have been undertaken by the
Government to encourage private investment. As a whole, we expect private investment to sustain its
increase, albeit at a more moderate pace of 7.8% in 2011, compared with +8.6% estimated for 2010.

Total approved manufacturing investment fell by a smaller magnitude of 4.1% yoy to RM8.0bn in the 2Q,
compared with -30.3% or RM5.2bn in the 1Q (see Table 1), the Malaysian Industrial Development Authority’s (MIDA) data
showed. This was due to a pick-up in domestic manufacturing investment approvals, which rebounded to increase by

Table 1 Manufacturing Investments

Applications Received Applications Approved

Local Foreign Total Local Foreign Total

RMbn %yoy RMbn %yoy RMbn %yoy RMbn %yoy RMbn %yoy RMbn %yoy

2003 14.0 98.8 11.6 -0.9 25.6 36.5 13.5 114.4 15.6 35.1 29.1 63.0
2004 16.3 16.6 13.0 11.4 29.3 14.2 15.6 15.7 13.1 -16.2 28.7 -1.4
2005 n.a n.a n.a n.a 37.3 27.4 13.2 -15.7 17.9 36.1 31.1 7.9
2006 n.a n.a n.a n.a n.a n.a 25.8 95.6 20.2 13.1 46.0 48.1
2007 n.a n.a n.a n.a n.a n.a 26.5 2.9 33.4 65.2 59.9 30.3
2008 n.a n.a n.a n.a n.a n.a 16.7 -37.0 46.1 37.9 62.8 4.8
2009 n.a n.a n.a n.a n.a n.a 10.5 -37.1 22.1 -52.0 32.6 -48.0
2009 Q 1 n.a n.a n.a n.a n.a n.a 4.2 -37.4 3.3 -79.4 7.5 -67.0
Q2 n.a n.a n.a n.a n.a n.a 1.0 -60.4 7.4 0.5 8.4 -15.5
Q3 n.a n.a n.a n.a n.a n.a 2.2 -58.3 1.9 -88.0 4.1 -80.8
Q4 n.a n.a n.a n.a n.a n.a 3.1 39.4 9.6 43.9 12.7 42.8
2010 Q1 n.a n.a n.a n.a n.a n.a 2.0 -51.9 3.2 -2.9 5.2 -30.3
Q2 n.a n.a n.a n.a n.a n.a 3.7 258.8 4.3 -41.2 8.0 -4.1
2009 1 H n.a n.a n.a n.a n.a n.a 5.2 -43.9 10.6 -54.2 15.8 -51.3
2010 1 H n.a n.a n.a n.a n.a n.a 5.7 10.0 7.5 -29.4 13.2 -16.4

Peck Boon Soon

(603) 9280 2163
Please read important disclosures at the end of this report.
bspeck@rhb.com.my

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 20 October 2010

258.8% yoy to RM3.7bn in the 2Q, from -51.9% or RM2.0bn in the 1Q. A sharper drop in foreign direct manufacturing
investment (FDI) approvals, which fell by 41.2% to RM4.3bn in the 2Q, compared with -2.9% or RM3.2bn in the 1Q,
however, offset part of the gain. Qoq, total approved manufacturing investment bounced back to increase by 54.6% or
RM2.8bn in the 2Q, from -59.0% or -RM7.5bn in the 1Q. This was due to a pick-up in FDI manufacturing investment
approvals, which rose by 35.2% qoq or RM1.1bn in the 2Q, a rebound from -66.6% qoq or -RM6.4bn in the 1Q. Similarly,
approved domestic manufacturing investment grew by 85.5% qoq or RM1.7bn in the 2Q, after falling by 35.9% or -
RM1.1bn in the 1Q.

In 1H 2010, total approved manufacturing investment fell by a smaller magnitude of 16.4% yoy to RM13.2bn,
compared with -51.3% or RM15.8bn in the corresponding period of 2009. This was on account of a rebound in domestic
manufacturing investment approvals to +10.0% yoy or RM5.7bn in the 1H, from -43.9% or RM5.2bn in the corresponding
period of 2009. A smaller drop in foreign direct manufacturing investment (FDI) approvals, which fell by 29.4% to
RM7.5bn in the 1H, compared with -54.2% or RM10.6bn in the corresponding period of 2009, also helped. In the first
seven months of 2010, MIDA revealed that total approved manufacturing investment stood at RM16.6bn with approved
FDI manufacturing investment accounting for 57.5% of it.

In terms of FDI, Singapore became the largest investor, accounting for 38.2% of the total approved FDI manufacturing
investment in 1H 2010. This was followed by Japan (9.6%), Switzerland (7.2%), Taiwan (7.0%), China (6.4%) and Hong
Kong (6.1%) (see Chart 1). The emergence of investors from Asian countries to become major foreign investors in the
country since 2009 came as no surprise, as investors from the US and Europe were badly hurt by the global credit crisis.
The bulk of the approved FDI manufacturing investment would be channelled into electronics & electrical products
(27.8%), basic metal products (10.4%), fabricated metal products (10.3%), chemical and chemical products (10.0%), food
manufacturing (8.5%) and transport equipment (7.5%) (see Chart 2).

Chart 1: 1H 2010 FDI Applications Approved Chart 2 : 1H 2010 FDI Applications Approved
By Country By Industry

Rubber Others Electronics

Others 14.8% & electrical
products
21.4% Singapore products
5.3%
38.2% 27.8%
Scientific &
US measuring
4.1% equipment
5.4%

Hong Transport
Kong equipment
6.1% 7.5%
Basic metal
China Food products
6.4% manufacturing 10.4%
Taiwan Switzerland
Japan 8.5% Chemical & chemical Fabricated metal
7.0% 9.6% products products
7.2% 10.0% 10.3%

As a whole, the approved manufacturing investment has improved in 1H 2010, albeit slowly, given that the global
economy has just emerged from a severe recession in 2009. Furthermore, it remains challenging for Malaysia to attract
FDI into the country given the keen competition and shortcomings faced by Malaysia. As it stands, the performance of
private investment in the country has remained lackluster over the last 15 years, resulting in its share of GDP falling
from a high of 36.3% in 1997 to a low of 8.2% in 2002, before rising to 10.1% in 2009. At this level, the private
investment remains not satisfactory. As a result, efforts have been undertaken by the Government through the launching
of new economic model and various initiatives in order to transform the country’s economy and to encourage private
investment. Indeed, in the 2011 Budget, the Government has made allocation to encourage electrical & electronics
industry to invest in high value-added activities, extended tax incentives for another 5 years to 2015 to encourage
companies to undertake food production activities, cut import duties to boost tourism and provided incentives to develop
green technology. We believe infrastructure and property developments are expected to drive private investment in 2011
as well. As it stands, the Government has allocated RM1.0bn for the Facilitation Fund to drive the Public-Private
Partnership projects, targeting construction of highways, power plant and healthcare related projects. It also indicated
that the Mass Rapid Transit (MRT) which cost about RM40bn will be implemented in 2011. The Government-linked
investment corporations such as the 1Malaysia Development Bhd, the Employees Provident Fund and Permodalan National
Bhd, have also been earmarked to undertake some huge development projects. Similarly, the Government will offer
three new stock broking licences to increase retail market participation. As a whole, we expect private investment
to sustain its increase, albeit at a more moderate pace of 7.8% in 2011, compared with +8.6% estimated for
2010.

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