Malaysia’s FDI Concerns

Murray Hunter


Malaysia’s FDI Concerns


Aug 18, 2025




Foreign direct investment (FDI) has been touted by Malaysian prime minister Anwar Ibrahim as a key achievement of his government.

Yes, net FDI in 2024 grew at 33.4% in comparison to 2023, but this figure hides the realities. FDI has really just been fluctuating rather than showing a definite upward trend.

In 2023, Malaysia recorded a net FDI of RM 40.4 billion. Although the gross FDI was recorded at RM 926 billion at the end of 2023, substantial outflows distorted the real picture. In 2024, net FDI was RM 51.5 billion, a 33% increase from 2023. The gross FDI inflow of RM 995.5 billion passed outflow of some RM 900 billion during the year.

However, the FDI result for the 2nd quarter of 2025 was just RM 1.61 billion. That’s a massive drop from RM 9.59 billion in the first quarter of 2025.

This fluctuating FDI position is being balanced out by a 10% increase in government investment. Digital and electronic project investments are flowing into the country, but investment in other sectors is flat.

Although the pundits suggest the investment cycle is fragile due to global uncertainties, there could be deeper root causes that need consideration.

Malaysia’s comparative advantage for investors is steadily eroding. The cost base of business in Malaysia is rising. A large proportion of road transport is tollway, labour rates are relatively high, as is electricity, while fuel prices are rising. ESG compliance is increasing costs. Malaysia is now an expensive country to manufacture in.

Slowing investment has less to do with national Islamization than a highly regulated economy. Malaysia may be attractive to foreign investors in terms of its legal and financial system, but markets are too regulated.

With government investment in the economy growing, this is at the cost of free enterprise activities. Although the stock market indicators are not a perfect reflection of economic activity, Malaysia’s equity markets lag behind most of the rest of the region. Bank Negara Malaysia’s recent lowering of the OPR indicates a slowing economy.