Buoyed by the enhanced investment climate, manufacturing investment approvals hit an all-time high last year, rising 30.3% year-on-year (y-o-y) to RM59.9 billion in from RM46 billion in 2006.

Approved investments in 2006 and 2007, surpassed the RM27.5 billion average yearly target set under the 15-year (2006-2020) Industrial Master Plan, said CIMB Research in a report yesterday.

A total of 949 projects were approved in 2007, which are expected to generate 97,673 employment opportunities. Domestic investment approvals rose 2.9% y-o-y to RM26.5 billion, comprising RM13.9 billion of new investments and RM12.6 billion for expansion or diversification of existing operations.

CIMB Research said domestic investments were concentrated in petrochemicals and basic metal industries in tandem with strong global demand and higher oil and steel prices, whereas in 2006, investments were driven by the biodiesel industry.

The research house noted that foreign investments registered a robust 65.2% growth last year, to RM33.4 billion, the third consecutive rise since 2005. Of the RM33.4 billion (55.8% of total approvals in 2007), RM17.3 billion went to new projects while the remaining RM9.2 billion was for expansion or diversification of existing operations.

“Despite the intensive competition for foreign investments, the unprecedented level of foreign investment approvals is a reflection of continued confidence in Malaysia as their investment location,” said the research house.

The electrical and electronics (E&E) industry absorbed the bulk of foreign investment approvals in 2007, contributing RM13.7 billion or 41.1%, followed by petroleum products and petrochemicals (RM5.3 billion) and basic metal products (RM5 billion).

CIMB also noted the trend towards more capital-intensive, high value-added and high-technology projects, spurring the capital intensity (measured by the capital investment per employee or CIPE ratio) of approved projects to increase to RM613,600 in 2007.

Approvals by major industry
By industry, investments in the E&E sector comprised 25.2% of total approvals at RM15.1 billion, a 50.8% rise from RM10 billion in 2006. Sub-sectors that made up the majority of E&E industry approvals were electronic components, consumer electronics, electrical products and industrial electronics.

“Notable projects approved in this sector were an expansion project worth RM 2.1 billon to produce fabricated wafers for power semiconductor devices and power semiconductor devices as well as a new project by Osram Wafer Technologies (M) Sdn Bhd to produce 4-inch fabricated wafers for light emitting diodes (LEDs),” said CIMB Research.

Petroleum products received the second largest number of approvals last year, notching RM13.8 billion, a 20.9% increase from 2006. CIMB Ressearch attributed the high levels to the approval of the RM9.8 billion investment by SKS Refinery Sdn Bhd for the expansion of production capacity of LPG, gasoline, kerosene and diesel diversification to produce coke and sulphur.

This was followed by the basic metal products industry, garnering RM12.2 billion, four times the approved investment in 2006. Domestic investments accounted for 59% of these investments, largely in the steel sub-sector.

Driving the increase in investments were Eastern Steel Sdn Bhd’s RM4.5 billion project to manufacture hot rolled coils, plates, cold rolled coils and hot rolled bars and Lion Group’s RM3.4 billion project to produce liquid hot metal, pig iron and iron ore pellets.

Other industries attracting large investments were chemicals and chemical products (RM3.8 billion), paper printing and publishing (RM2.9 billion) and food manufacturing (RM2.4 billion).

The six industries attracted RM50.2 billion, or 83.8% of total investments approved last year, said the research house.

Japan was the largest foreign investor in 2007, with RM6.5 billion or 19.5% of total foreign approvals followed by Germany (RM3.8 billion, 11.2% share), Iran (RM3.1 billion, 9.2% share) and the US (RM3 billion, 9% share).

According to CIMB Research, over 75% or 4,432 of the 5,911 manufacturing projects approved for 2002-2007 have commenced production while 259 remained at machinery installation stage.

A total of RM117.4 billion was invested in the 4,691 projects implemented, with implementation rates rising from 75.8% to 79.4% during the 2002-2007 period.

A sterling performance inservices sector
The services sector was a strong investment magnet, attractibg 2,439 projects worth RM65.4 billion in 2007, generating 49,770 employment opportunities.

Of these, domestic investments amounted to RM54.6 billion (83.5%) while foreign investments was RM10.8 billion (16.5%).

Real estate grabbed the lion’s share of services approvals with RM21.6 billion investments (33% of total services investments), followed by transport (RM16.7 billion, 25.6%), support services (RM6.2 billion, 9.5%), energy (RM5.5 billion, 8.5%) and telecommunications (RM3.9 billion, 6% ).

Given the highly uncertain global environment however, manufacturing investments are expected to moderate in 2008 rather than match the record pace of approvals in 2007.

“We foresee a normalisation of approvals in 2008 as the lumpy projects approved in 2006-07 may not be repeated this year. Hence, we estimate approved manufacturing projects to be around RM40-RM45 billion in 2008,” CIMB Research said.

Strong FDI inflows sustained
With foreign direct investments (FDIs) on the uptrend since 2001, reaching RM24.5 billion for the Jan-Sept 07 period, CIMB Research estimated full-year FDIs to hit an all-time high of RM32.6 billion in 2007.

In 2006, FDIs recorded RM22.2 billion, supported mainly by retained earnings of existing multi national companies (MNCs) for reinvestments and increased acquisition activities by foreigners.

The research house attributed the uptrend to investors’ increased confidence in the strength of economic expansion, as well as increase investments in the manufacturing, oil and gas (O&G) and services sectors.

“FDI prospects should remain favourable going forward, underpinned by a host of pull factors, namely strong economic fundamentals, favourable investment climate, the launching of five economic corridors, as well as the liberalisation of foreign acquisition of property,” it said.

“The strong foreign approvals of RM20.2 billion in 2006 and RM33.4 billion in 2007 should translate into sustained levels of FDI in 2008. We estimate FDI to sustain at around RM25 billion-RM30 billion in 2008, mainly in the services, O&G and manufacturing sectors,” it added.

Private investment to get boost
CIMB Research expected private investment to continue its upward trajectory. “In order to sustain 6% of GDP growth within the 9MP period (2006-2010), higher private investment growth of 11.2% per annum would be needed.”

Private investment, which grew by 7% in 2006, is expected to accelerate by 10% in 2008 and 11.4% in 2009, it added.

Catalysts for higher private investment growth include the reduction in corporate tax to 25% by 2009, the revamped public delivery system to ease the cost of doing business and the effective implementation of five regional economic corridors.

The corridors include the Iskandar Development Region (IDR), Northern Corridor Economic Region (NCER), East Coast Economic Region (ECER), Sabah Development Corridor (SDC) and Sarawak Corridor of Renewable Energy (SCORE).

The five economic corridors are expected to target a combined RM1.1 trillion investment over 2006-2030, CIMB Research noted.

The IDR, which is in its third phase of development, received over RM20 billion in 2006-07, more than 40% of the targeted total investments of RM47 billion for the five-year period (2006-2010). It is expected to attract RM10 billion in 2008, of which RM8 billion would be for the manufacturing sector.

Though there were some improvements in enhancing the public sector delivery system to more effective and reduce the cost of doing business, more needs to be done in areas of ensuring the speedy implementation of public projects under the 9MP, it said.

“Spending on the value-for-money projects must be closely monitored to avoid leakages and wastage of public funds. This year is the mid-term review of 9MP, and we expect a thorough review of project implementation status and if the need arises, some revision may be made to the original allocation of RM200 billion,” it added.

A report by CIMB Research