3rd INTERNATIONAL CONFERENCE ON BUSINESS ...
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3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my
THE PERFORMANCE OF FOREIGN DIRECT INVESTMENT IN REAL ESTATE: A MALAYSIAN PERSPECTIVE Nurul Afiqah Ahmad & Abdul Hamid Mar Iman Faculty of Geoinformation and Real Estate Universiti Teknologi Malaysia [email protected] [email protected] ABSTRACT International competition poses significant challenges to the Malaysia as a host country in increasing their potential for foreign direct investment in real estate (FDIRE). The aim of this paper is to compare Malaysia performance in FDIRE with others ASEAN countries using a 20-year secondary data series over the 1990-2010 periods. To measure performance, graphs are used to describe FDIRE trend while coefficient of variation (COV) is used to measure FDIRE volatility. Besides, based on simple regressions of FDIRE on time, FDIRE elasticity and time-effect parameters are also used to explain country’s performance. The analysis shows that Malaysia has moderate FDIRE performance compared to other ASEAN countries. However, FDIRE in Malaysia seems has long-term co integration with FDI and shows the positive trend in 2010. Even though, this study does not indicate the attractiveness of a particular country for FDIRE. An analysis on the different factors of a country’s FDIRE attractiveness is suggested to extend the current study. Field of Research:
foreign direct investment, real estate, investment performance
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1. Introduction Foreign direct investment (FDI) has been increasingly seen as an important feature to the economic growth in developing countries as the drivers of globalization (Nunnenkamp, 2001: Karbasi,; Ayalp, Baykaler, Alsan & Özgünel, 2004; Makki & Somwaru, 2004; Mohamadi, & Ghofrani, 2005; Kokkinou & Psycharis, 2005). A study by OECD (2002) concludes the overall benefit of FDI for the developing economies such as triggering technology spill-over, assisting human capital formation, contributing to international trade integration, helping create a more competitive business environment and enhancing enterprise development. Moreover, beyond the strictly economy benefits, FDI may help improve environmental and social conditions in the particular country by, for example, transferring “cleaner” technologies and leading more socially responsible corporate policies. Based on these benefits, attracting FDI has become a fierce competition among developing countries in the last couple of decades (Ayalp, Baykaler, Alsan, & Özgünel, 2004) and ASEAN is one of them. Thirty years ago, all ASEAN countries except Singapore had adopted restrictive regulations to control FDI firms in order to alleviate the harmful effects of FDI to local economies. However, in the mid1980s due to the debt crisis of 1985 and the evocation of Newly Industrial Economies (NIEs), most ASEAN countries
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3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my
switched from inward to outward strategies of FDI (Ismail, 2009). A component of these strategies is offshore real estate investment, i.e. foreign direct investment in real estate (FDIRE). Foreign direct investment in real estate (called FDIRE hereinafter), however, is relatively new to the real estate sector in ASEAN and in the world alike. Significant cross-border investment in real estate by institutional investors did not occur until the 1980s (Spremann & Gantenbein, 2003). In China, it began after 1978 under the new economic and open-door policies (Hsieh, 1997; Tseng & Zebregs, 2002), but the actual date of FDIRE utilization in China was starting in 1997 (Chen, 2011). While FDIRE in India and Turkey began only in 2002 (Halkali, 2006; Sandesh, 2006). In 2005 to 2010, FDIRE in India was booming to 80 times than previous years (Mamata, 2011). This situation also happened in Thailand which is in 1993 to 1996, almost 40% of net FDI in Thailand was booming in real estate sector and FDI had shifted from manufacturing to real estate and infrastructure sector (Soontiens & Haemputchayakul, 2003). In FDIRE, there is a high-impact economic policy in terms of economic gains that it can bring about not only for the investors concerned but also for a country. The impact of FDIRE on U.S. and India shows that it influences the movement of domestic interest rates and directly contributes to the creation of new jobs in this sector. FDIRE also provides foreign and domestic investors with a diversification option that has a solid return without the volatility of stocks and also provides direct investment that helps support a healthy real estate industry. Moreover, FDIRE is important because it can create major inflows of funds that can enhance domestic investment to achieve a higher level of real estate development and triggering new technology advancement (REALTORS, 2003; Mamata, 2011). Although FDIRE creates some benefits, international investors have to face markets composed of many different factors such as different economies, cultures and regulations of the host country. A survey in the 1980s unveiled that there was a phenomenon of cultural and geographic proximities between origins and destination of international real estate capital. In order to cope with these significant factors and to make profitable investment decision on global market level, investors must assess the risk of the investment taking into consideration all these key factors while deciding on an investment opportunity (Hines, 2001; 1988). FDI by private equity funds and other collective investment funds have also been adversely affected by the financial crisis (UNCTAD, 2009). This situation has triggered a new challenge for investors to decide which country is better to put their investments. It is important to recognize that each country is different and each one has different factors of FDI attractiveness (Cabrera & Giraldo, 2009). These factors may differ significantly from one location to another depending on the attractiveness of a particular region or country. Thus, this paper attempts to provide a critical review of the growing body of literature focused on the determinants of foreign direct investment in real estate sector in ASEAN countries. To the best of our knowledge, studies on this topic are strictly limited in ASEAN countries and, thus, it sets a preliminary determinant of foreign direct investment in real estate sector. The rest of the paper is structured as follows. Section 2 focuses on the background to FDI in real estate. Section 3 discusses the methodology and section 4 and section 5 presents the results and discussion. Finally, Section 6 concludes this paper.
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3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my
2. Background to FDI in Real Estate Foreign direct investment (FDI) has been increasingly seen as an important feature to the economic growth in developing countries as the drivers of globalization (Nunnenkamp, 2001: Karbasi,; Ayalp, Baykaler, Alsan & Özgünel, 2004; Makki & Somwaru, 2004; Mohamadi, & Ghofrani, 2005; Kokkinou & Psycharis, 2005). A study by OECD (2002) concludes the overall benefit of FDI for the developing economies such as triggering technology spill-over, assisting human capital formation, contributing to international trade integration, helping create a more competitive business environment and enhancing enterprise development. Moreover, beyond the strictly economy benefits, FDI may help improve environmental and social conditions in the particular country by, for example, transferring “cleaner” technologies and leading more socially responsible corporate policies. Based on these benefits, attracting FDI has become a fierce competition among developing countries in the last couple of decades (Ayalp, Baykaler, Alsan, & Özgünel, 2004). Thus, Malaysia and others ASEAN countries also have to face it. Thirty years ago, all ASEAN countries except Singapore had adopted restrictive regulations to control FDI firms in order to alleviate the harmful effects of FDI to local economies. However, in the mid1980s due to the debt crisis of 1985 and the evocation of Newly Industrial Economies (NIEs), most ASEAN countries switched from inward to outward strategies of FDI (Ismail, 2009). A component of these strategies is offshore real estate investment, i.e. foreign direct investment in real estate (FDIRE). FDIRE however, is relatively new to the real estate sector in Malaysia and in the world alike. Significant cross-border investment in real estate by institutional investors did not occur until the 1980s (Spremann & Gantenbein, 2003). In China, it began after 1978 under the new economic and open-door policies (Hsieh, 1997; Tseng & Zebregs, 2002), but the actual date of FDIRE utilization in China was starting in 1997 (Chen, 2011). While FDIRE in India and Turkey were beginning in 2002 (Halkali, 2006; Sandesh, 2006). In 2005 to 2010, FDIRE in India was booming to 80 times than previous years (Mamata, 2011). This situation also happened in Thailand which is in 1993 to 1996, almost 40% of net FDI in Thailand was booming in real estate sector and FDI had shifted from manufacturing to real estate and infrastructure sector (Soontiens & Haemputchayakul, 2003). In FDIRE, there is a high-impact economic policy in terms of economic gains that it can bring about not only for the investors concerned but also for a country. The impact of FDIRE on U.S. and India shows that it influences the movement of domestic interest rates and directly contributes to the creation of new jobs in this sector. FDIRE also provides foreign and domestic investors with a diversification option that has a solid return without the volatility of stocks and also provides direct investment that helps support a healthy real estate industry. Moreover, FDIRE is important because it can create major inflows of funds that can enhance domestic investment to achieve a higher level of real estate development and triggering new technology advancement (REALTORS, 2003; Mamata, 2011). Although FDIRE creates some benefits, international investors have to face markets composed of many different factors such as different economies, cultures and regulations of the host country. A survey in the 1980s unveiled that there was a phenomenon of cultural and geographic proximities between origins and destination of international real estate capital. In order to cope with these significant factors and to make profitable investment decision on global market level, investors must assess the risk of the investment taking into consideration all these key factors while deciding on an investment opportunity (Hines, 2001; 1988). FDI by private equity funds and other collective investment funds have also been
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3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my
adversely affected by the financial crisis (UNCTAD, 2009). This situation has triggered a new challenge for investors to decide which country is better to put their investments. It is important to recognize that each country is different and each one has different factors of FDI attractiveness (Cabrera & Giraldo, 2009). These factors may differ significantly from one location to another depending on the attractiveness of a particular region or country. 3. Methodology The Malaysian experience is examined in the wider global context using a 20-year secondary data series over the 1990-2010 periods, obtained from various sources. Data on FDI and FDIRE are obtained from the Statistics on FDI in ASEAN 2006, World Investment Reports 2008, 2009 & 2010, ASEAN Statistical Yearbook 2008 and National Property Information Centre (NAPIC) Malaysia. Figures on FDIRE among the individual ASEAN countries, except for Cambodia, are derived from Statistics on FDI in ASEAN for the 1999-2005 periods only due to data limitation. To measure performance, graphs are used to describe FDIRE trend while coefficient of variation (COV) is used to measure FDIRE volatility. Besides, based on simple regressions of FDIRE on time, FDIRE elasticity and time-effect parameters and are also used to explain country’s performance. 4. Results and Discussion This section presents the results and discussion of the findings according to three sub section. The global phenomenon of FDI in real estate is discussed in section 4.1. This is followed by the overview of FDI and FDIRE on Malaysia in section 4.2. Finally, section 4.3 ends the section with sources of FDIRE in Malaysia. 4.1 The Global Phenomenon of FDI in Real Estate The trends and patterns of FDI inflows can be global and regional. Global trends involve a number of countries together while regional trends involve a particular country over a defined time period. Thus, this section focuses specifically on FDI inflows to compare FDI trends in Malaysia by focusing on ASEAN region first with other regions to gain global perspectives. Figure 1 shows global FDI inflows into the world, developed countries and developing countries over the past two decades. During that period, there were two distinct long cycles as follows: 1990-2000 (10 years) and 2000-2009 (10 years). The first long cycle indicates the increase of FDI inflows until 2000, in spite of the financial crisis in 1997-1998. Remarkable differences can be noted during the second long cycle which had decreased in 2000-2003 then started to recover in 2004 until 2007. Total global FDI inflows declined from US$134 billion in 2000 to US$83 billion in 2001, US$72 billion in 2002 and US$63 billion in 2003, recovering marginally in 2004 at US$65 billion. However, FDI flows had declined in 2008 except developing countries and in 2009 after recession.
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3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my
Figure 1: Global FDI Inflows, 1990-2009 (World Investment Report, 2010) Globally, FDI has remained fragile after a decrease of 37% in 2009 on top of a similar decline in 2008. The global economic downturn has seen global FDI flows declining in absolute value terms to US$1,770,873 million in 2008 and US$1,114,189 million in 2009, from a record US$2,099,973 million in 2007 (see Table 1). The declines of FDI in 2008 and 2009 came mainly from a significant reduction in FDI flows to developed countries, whereas flows to developing countries remained resilient with an expansion of 12% in 2008 despite a decline of 24% in 2009. Table 1: Global FDI Inflows by Region, 2005-2009 (Millions of Dollar) Region World Developed Countries Europe Developing Countries Africa Latin America and the Caribbean Asia and Oceania Asia West Asia South, East and ASEAN East Asia South Asia ASEAN Oceania South-East Europe and the CIS
2005 985 796 624 529 509 148 330 166 38 197
2006 1 459 133 970 098 628 420 434 366 55 382
2007 2 099 973 1 444 075 988 422 564 930 63 092
2008 1 770 873 1 018 273 551 059 630 013 72 179
2009 1 114 189 565 892 378 388 478 349 58 565
75 955
94 557
163 612
183 195
116 555
216 014 215 769 44 477 171 292 116 190 14 368 40 734 245 31 101
284 426 283 113 67 160 215 953 131 774 27 771 56 408 1 314 54 669
338 226 336 922 78 092 258 830 150 991 33 868 73 971 1 303 90 968
374 639 372 739 90 299 282 440 185 497 49 653 47 289 1 900 122 588
303 230 301 367 68 317 233 050 154 838 41 406 36 806 1 863 69 948
Source: World Investment Report, 2010 On the contrary, the financial crisis in 1997-1998 seems had affected FDI inflows across regions in developing countries. Figure 2 shows ASEAN, East and South Asia had negative inward FDI growth of
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35%, 6% and 27% respectively. ASEAN region is the most affects compare with other regions. In contrast, the FDI environment in developed countries was much more resilient during the crisis with an expansion of 91% in Europe region. Even though developing countries had remains resilient during financial crisis in 2007-2008, however it still affects FDI inflows in ASEAN region with reduction of 36%. Compared with East and South Asia regions had positive inward FDI growth of 23% and 47% respectively. In short, the global financial crisis had affecting the poor FDI performance in ASEAN region.
Figure 2: FDI Inflows by ASEAN, East Asia and South Asia, 1990-2009 Source: World Investment Report, 2010 While FDI in the ASEAN real estate sector has grown considerably during the last decade. From Figure 3, ASEAN FDIRE flows have grown positively from a record low of US$624.28 million in 1999 to its peak of US$6094 million in 2007. During the 2000-2001, FDIRE flows to ASEAN fell from US$722.2 million to US$590.17 million due to the Asian financial crisis in 1997. This was in tandem with FDI flows that dropped from 16% to 15% (US$23541.3 million to US$20372.4 million). In 2002, FDIRE flows in ASEAN rose to 57% (US$1369.43 million) from the previous level of 22% (US$722.2 million), however, FDI flows fell to a 13% level (US$18022.6 million) from the previous 15% level (US$20372.4 million). In 2003, FDIRE flows in ASEAN declined 51% to US$906.83 million, in contrast with FDI flows that have increased 25% to US$24234.7 million. FDIRE and FDI flows have been rising continuously from 2004 until 2007. However in 2008, FDIRE and FDI flows in ASEAN dropped 43% (US$4248 million) and 15% (US$60596 million) in the global crisis aftermath. In short, the FDIRE slowly rose in 2001 before reaching a small peak in 2002. The rise in FDI lagged behind not until 2002 before reaching a small peak in 2004. However, both FDIRE and FDI were catching up each other in 2007. With this backdrop of event, both series seemed to have shown a long-term co-integration. However, this issue is beyond the scope of our paper.
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- - - - - - - FDI ______ FDIRE
Figure 3: Trends of FDI and FDIRE in ASEAN, 1999-2008 4.2 Overview of FDI and FDIRE on Malaysia FDI in Malaysia has been growth rapidly over the past decades. Total FDI inflow to Malaysia has increased from US$2.6 billion in 1990 to US$7.2 billion in 1996 with minor declined in 1994 (US$4.5 billion), the year before the onset of the Asian financial crisis (1997-1998). Afterwards, the impressive record was disrupted with 57% reduction from US$6.3 billion to US$2.7 billion in 1997 and 1998 (see Figure 4). However, the magnitude of FDI during the crisis period (1997-1999) also affected Indonesia and Thailand, make Malaysia not the only country have affected. The crisis has continued until 2001 (US$0.5 billion) and this magnitude largely reflects a large overall decline in global FDI flows during 2000-2003 (UNCTAD, 2005; Anthukorala and Wagle, 2011). Malaysia’s FDI performance has begun increased 478% (US$3.2 billion) in 2002 until 2007 (US$8.5 billion) with minor declined in 2003 (US$2.4 billion) and 2005 (US$4.0 billion). However, FDIRE in Malaysia seems not very affected with the crisis and had increased continuously from US$92 million in 2000 to US$712 million in 2008 (see Figure 5).
Figure 4: FDI inflows to Malaysia, 1990-2009 (US$ Million)
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Source: World Investment Report, 2010 In 2008 and 2009, FDI in Malaysia had declined 14% (US$7.3 billion) and 81% (US$1.3 billion). Compared with others ASEAN countries, the volume of FDI inflows in Indonesia and Vietnam has surpassed to Malaysia in 2008 (Athukorala & Wagle, 2011). Based on the trends (see Figure 4 and Figure 5), 2009 seems a very difficult year for Malaysia as a host country and foreign investors in FDI and FDIRE aftermath crisis economy in 2007-2008.
Figure 5: FDIRE inflows to Malaysia, 2000-2010 (US$ Million) Source: National Property Information Centre (NAPIC) Malaysia However, the environment would begin to improve slightly in 2010 and gaining momentum in 2011. This situation based on the provisional data for 2010 shows that FDI in Malaysia was increased sharply to US$9.2 billion (Athukorala & Wagle, 2011) and FDIRE had increased to US$627 million in 2010. The apparent increase could also reflect the achievement of Malaysia's Economic Transformation Program (ETP) which proposed in the New Economic Model (NEM) to raise the awareness on the availability of ready-to-investment projects such as Iskandar Malaysia projects (World Bank, 2011). In short, FDI and FDIRE in Malaysia also have shown a long-term co-integration and is one of the attractive prospects to discuss. Moreover, compared with others ASEAN countries, Malaysia had experienced decline in FDIRE including all ASEAN countries except for Indonesia, Singapore and Vietnam in 2002 (see Figure 6). Malaysia has plunged more than 100% in FDIRE; so with Myanmar, Philippines and Thailand. The largest proportion of increase in FDIRE in ASEAN in 2002 was accounted for mainly by Singapore followed by Indonesia and Vietnam (see Table 2). However, during 2003-2005, Malaysia, Indonesia, Myanmar and Philippines saw a significant increase in FDIRE. During the 2002-2005 periods, FDIRE in Brunei dropped slightly while FDIRE in Lao PDR dropped severely. This was in contrast to Vietnam that has shown rising FDIRE over the same
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3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my
period. Singapore and Thailand seemed to have moved up and down rapidly in FDIRE over the 20022005 periods and have a high volatility compared to other ASEAN countries. Figure 6: ASEAN FDIRE Growth (%), 2000-2005
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4.3 Sources of FDIRE in Malaysia The main sources of FDI to Malaysia have changed over time and not dominated by any single country (Tsen, 2006; Masud, Yusoff, Hamid, & Yahaya, 2008). In the 2000-2008 periods, United States of America (USA) (US$10.5 billion), ASEAN countries (US$8.4 billion), European Union (EU) (US$7.9 billion) and Japan (US$7.4 billion) were the main sources of FDI in Malaysia. Among the ASEAN countries, Singapore (US$167.4 billion) is the largest recipients of total FDI and followed to Thailand (US$61.4 billion) and Malaysia (US$41.2 billion). However, ASEAN countries would prefer to invest FDI in Malaysia (US$8.4 billion) and Thailand (US$16 billion) compared to Singapore (US$6.3 billion). Table 2: The elasticity of FDIRE to ASEAN countries by source countries, 1999-2005 Country Malaysia Brunei Indonesia Lao PDR Myanmar Philippines Singapore Thailand Vietnam
Japan 1.4547 1.0721 -1.2772 0.8793 0 0.6294 -1.8575 2.4724 0
USA 2.5911 2.3333 0 0 0 2.4512 -0.0976 1.3170 0
EU 4.2536 1.4907 -2.0146 3.0000 0 2.2662 0.3825 1.8712 2.9161
ROK 0 0 -1.0910 0.5000 0 1.6000 1.8969 2.3528 2.3505
HK 1.9157 3.0000 2.3047 0 -1.0000 1.2688 -0.2277 1.8011 2.6493
Taiwan 0 3.0000 3.0000 0 0 1.5714 -5.9348 0.0482 2.2498
China 0 2.0000 0 0.2143 0 3.0000 1.0008 -0.4762 0
ASEAN 2.5303 1.7735 -2.1552 2.3111 -1.4487 -0.0554 0.5215 0.9922 0.9167
However as shown in Table 2, Malaysia’s FDIRE was more elastic to the changes in investment by the USA, European Union (EU) and ASEAN countries. Thailand’s FDIRE was most sensitive to the changes in investment by Japan and the Republic of Korea (ROK). Meanwhile, Brunei and Indonesia have shown most elasticity to the changes in investment by Taiwan. Philippines were most sensitive to the changes in FDIRE by China and Vietnam was most sensitive to the changes in FDIRE by Hong Kong (HK). Table 3 shows the stability of ASEAN countries in FDIRE by source countries. Based on the pattern of COV in FDIRE, Malaysia, Indonesia, Philippines and Singapore can be grouped together. Further, within this group, Singapore and Philippines have comparable fluctuations with more number and greater magnitudes of positive COVs. Indonesia was the worst performer with more number of negative COVs. Malaysia's COV in FDIRE was very modest with more number but small magnitudes of positive COVs. Brunei, Thailand, Vietnam, and Lao PDR can be classified together in another group for their greater magnitudes of positive COVs. Within this group, Thailand has shown a better FDIRE performance over time with declining COVs. Brunei and Vietnam were rather comparable with greater fluctuations in FDIRE. Comparing both groups of ASEAN countries, Singapore performed best with smaller magnitudes of COVs while Indonesia performed worst due to lack of FDIRE. Myanmar cannot effectively be compared for the lack of FDIRE. Perhaps, it was slightly better than Indonesia for its positive COVs.
3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING
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Table 3: The coefficient of variation (COV) of FDIRE to ASEAN by source countries, 1999-2005 Country
Japan
USA
EU
ROK
HK
Taiwan
China
ASEAN
Malaysia
-173.7428
177.6789
-1007.6144
0
149.3970
0
0
219.6101
Brunei
253.2785
183.5857
162.5055
0
264.5751
264.5751
264.5751
150.9464
Indonesia
-124.2348
0
-145.5618
-248.3847
188.1418
-264.5751
0.0000
-142.7706
Lao PDR
157.7782
0
264.5751
170.7825
0
0
184.3407
187.0675
Myanmar
0
0
0
0
264.5751
0
0
179.0814
Philippines
118.0127
161.9399
135.9404
-238.6071
204.8785
152.7525
-264.5751
160.9874
Singapore
430.0075
210.3082
108.8866
117.8477
-177.0796
339.1197
64.8178
50.2964
Thailand
289.4584
187.6782
189.1988
143.6945
178.7523
87.9300
151.2295
140.5396
Vietnam
264.5751
0
256.0476
181.1531
224.6087
180.8874
264.5751
126.6957
In terms of time effect on FDIRE among the ASEAN by source countries, Indonesia showed a larger annual increase in FDIRE from the rest of ASEAN and Japan while Philippines showed biggest rising FDIRE annually from the USA (Table 4). Vietnam has an overall small time effect on annual FDIRE from other countries while Thailand has shown a rising annual FDIRE from EU, USA, and HK. Singapore has shown a growing annual FDIRE largely from the rest of ASEAN, followed by EU, and China. Based on the time effect of FDIRE, Singapore and Thailand are close competitors. While Malaysia shows a moderate time effect by source countries. Table 4: The effect of time on FDIRE among ASEAN countries by source countries, 1999-2005 Japan USA EU ROK HK Taiwan China ASEAN
Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t)
Malaysia
Brunei
1.4714 -1.1768 -10.6129 4.3207 3.1886 -1.0421 0 0 -0.3414 0.1786 0 0 0 0 -15.3443 6.3429
-0.0471 0.1754 -0.0057 0.0025 -0.0757 0.0575 0 0 -0.0171 0.0064 -0.0171 0.0064 -0.0357 0.0179 -1.0443 0.5986
Indonesia -92.1014 12.9143 0 0 -41.2571 6.8929 -15.7543 2.0550 -0.2386 0.1054 0.0343 -0.0129 0.0000 0.0000 -120.4686 20.5718
Lao PDR 0.0100 0.0182 0 0 -0.0143 0.0054 0.0029 0.0007 0 0 0 0 0.0471 0.0032 -0.0843 0.0371
Myanmar
Philippines
Singapore
Thailand
0 0 0 0 0 0 0 0 1.1600 -0.1450 0 0 0 0 22.2829 -3.2957
0.5586 0.2371 -34.6329 14.6246 -3.2143 1.4382 0.0129 -0.0086 -0.0357 0.0421 -0.0171 0.0118 0.0314 -0.0118 0.4357 -0.0057
84.9086 -13.7986 53.9800 -1.2000 70.6100 10.9343 -6.9229 3.6604 -61.1029 2.8332 24.1429 -5.1654 -0.0357 10.9261 203.5814 55.4643
-7.5029 3.1496 -13.0857 13.5907 -66.5843 35.7532 -1.1943 0.5193 -21.5900 12.1350 4.3714 0.0554 0.5314 -0.0429 0.1643 5.2196
Vietnam 0.0129 0 0 0 -6.5586 2.4954 -1.8714 0.8143 -1.7671 0.7096 -2.4300 1.0936 0.0071 0 0.0114 0.0314
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5. Conclusion This study attempts to analyze Malaysian FDIRE performance through a comparative perspective. Among the ASEAN countries, Singapore has a much higher performance in FDIRE compared to other ASEAN countries on the basis of magnitude of growth, elasticity, and time effect. While Malaysian FDIRE have a moderate volatility volume, moderate stability in FDIRE by source countries with more number but small magnitudes of positive COVs, also moderate time effect by source countries and most elastic to USA, EU and ASEAN countries. However, FDIRE in Malaysia seems has long-term co integration with FDI and shows the positive trend in 2010. Even though, these outcomes do not show the level of countries attractiveness among ASEAN countries for FDIRE. There are several factors that should be analyzed to determine the attractiveness of a particular country in FDIRE. In order to be more attractive, ASEAN countries have to compete with each other in offering the best environments for foreign investors, encompassing various specific factors that influence investment decisions such as real estate investment opportunities, socio-cultural and technological advantages, political stability and favourable macro economy of host country. This study has one important implication that, at the outset, competition for FDIRE is very much geography- and time-related and, thus, strategies that capitalize on both factors are critical to each country. Nevertheless, these results do not indicate anything about the attractiveness of a particular country for FDIRE. Various specific factors need to be analyzed to resolve this issue and this needs a specific study in future.
Acknowledgement This paper was funded by the MyPhD Financing Program provided by Ministry of Higher Education of Malaysia.
References
ASEAN Statistical Yearbook 2008. Jakarta: The ASEAN Secretariat. Athukorala, P., & Wagle, S. (2011). Foreign Direct Investment in Southeast Asia: Is Malaysia Falling Behind? Asean Economic Bulletin , 28 (2), 115-33. Ayalp, T., Baykaler, D. Ö., Alsan, A., & Özgünel, Y. (2004). FDI Attractiveness of Turkey. A Comparative Analysis. Turkey: The Turkish Industrialists and Businessmen's Association (TÜSİAD) International and Foreign Investors Association of Turkey(YASED). World Bank (2011). Malaysia Economic Monitor. Washington DC: World Bank. Bardhan, A., & Kroll, C. A. (2007). Globalization and the Real Estate Industry: Issues, Implications, Opportunities. Sloan Industry Studies Annual Conference, (pp. 1-36). Cambridge.
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Cabrera, L. R., & Giraldo, G. E. (2009). A Multiple Criteria Decision Analysis for the FDI in LatinAmerican Countries. IIE Annual Conference. HighBeam Research. Hines, M. A. (1988). Guide to International Real Estate Investment. Westport, Connecticut: Quoroom Books. Hines, M. A. (2001). Investing in International Real Estate. Westport, Connecticut: Quoroom Books. Hsieh, C.-i. (1997). A note on Corporate Overseas Investment Decision Priorities of Taiwanese Direct Real Estate Investors. Journal of Real Estate Research , 13 (3), 359-368. Karbasi, A., Mohamadi, E., & Ghofrani, S. (2005). Impact of Foreign Direct Investment and Trade on Economic Growth. ERF 12th Annual Conference: Reform-Made to Last (pp. 1-14). Cairo, Egypt: Economic Research Forum (ERF). Kokkinou, A., & Psycharis, I. (2005). Foreign Direct Investment and Regional Attractiveness in Southeastern European Countries. 45th European Congress of the Regional Science Association, (pp. 1-24). Amsterdam. Liu, L. (2011). The Impact of Foreign Direct Investment on China:An Empirical Analysis based on the Chinese Real Estate Sector. China: Southern Illinois University Carbondale. Makki, S. S., & Somwaru, A. (2004). Impact of Foreign Direct Investment and Trade on Economic Growth: Evidence from Developing Countries. American Agricultural Economic Association , 86 (3), 795-801. Mamata, T. (2011). Impact of Global Financial Crisis on FDI Flows in India-A Special Reference to Housing Sector. International Journal of Trade, Economics and Finance , 2 (1), 32-38. Masud, M. R., Yusoff, Z. M., Hamid, H. A., & Yahaya, N. (2008). Foreign Direct Investment in Malaysia- Findings of the Quarterly Survey of International Investment and Services. Department of Statistics Malaysia . National Property Information Center (NAPIC). Putrajaya, Malaysia. Nunnenkamp, P. (2001). Foreign Direct Investment in Developing Countries. What Policymakers Should Not Do and What Economists Don't Know. Kiel Discussion Papers (pp. 1-18). Institut fur Weltwirtschaft an der Universitat Kiel. OECD. (2002). Foreign Direct Investment for Development: Overview. OECD Publication Service. REALTORS®. (2003). Foreign Investment in U.S. Real Estate. Current Trends and Historical Perspective. United States: The National Association of REALTORS® (NAR).
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Report, W. I. (2008). Transnational Corporations & Infrastructural Challenges. Geneva, United Nation: UNCTAD. Soontiens, W., & Haemputchayakul, S. (2003). Sustainanle Globalisation and Emerging Economies: The Impact of Foreign Direct Investment in Thailand. In C. Jayachandran, & P. Himangshu (Ed.), Proceedings of the 7th International Conference on Global Business and Economic Development Strategies for Sustainable Globalization: Business Responses to Regional Demands and Global Opportunities (pp. 371-384). Montclair, USA: Montclair State University. Spremann, K., & Gantenbein, P. (2003). Factors Driving International Real Estate Investment. Doctoral Seminar in International Finance. Statistics of Foreign Direct Investment in ASEAN (2006). 8th. ed. Jakarta: The ASEAN Secretariat. Tsen, W. H. (2006). Foreign Direct Investment in Manufacturing Industry of Malaysia: An Empirical Study. UNITAR E-Journal , 2 (2), 20-29. Tseng, W., & Zebregs, H. (2002). Foreign Direct Investment in China: Some Lessons for Other Countries. IMF Policy Discussion Paper. UNCTAD. (2009). World Investment Report. Transnational Corporations, Agricultural Production and Development. United Nations Conference on Trade and Development (UNCTAD). UNCTAD. (2010). World Investment Report: Investing in a low-carbon economy. Geneva, United Nation: United Nations Conference on Trade and Development. Zull Kepili, E. E., & Masron, T. A. (2011). Real Estate-Foreign Direct Investment-Growth in Malaysia. International Conference on Economics, Trade and Development. 7, pp. 110-114. Singapore: IPEDR.
3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING 12 - 13 MARCH 2012. GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: 978-967-5705-05-2. WEBSITE: www.internationalconference.com.my
THE PERFORMANCE OF FOREIGN DIRECT INVESTMENT IN REAL ESTATE: A MALAYSIAN PERSPECTIVE Nurul Afiqah Ahmad & Abdul Hamid Mar Iman Faculty of Geoinformation and Real Estate Universiti Teknologi Malaysia [email protected] [email protected] ABSTRACT International competition poses significant challenges to the Malaysia as a host country in increasing their potential for foreign direct investment in real estate (FDIRE). The aim of this paper is to compare Malaysia performance in FDIRE with others ASEAN countries using a 20-year secondary data series over the 1990-2010 periods. To measure performance, graphs are used to describe FDIRE trend while coefficient of variation (COV) is used to measure FDIRE volatility. Besides, based on simple regressions of FDIRE on time, FDIRE elasticity and time-effect parameters are also used to explain country’s performance. The analysis shows that Malaysia has moderate FDIRE performance compared to other ASEAN countries. However, FDIRE in Malaysia seems has long-term co integration with FDI and shows the positive trend in 2010. Even though, this study does not indicate the attractiveness of a particular country for FDIRE. An analysis on the different factors of a country’s FDIRE attractiveness is suggested to extend the current study. Field of Research:
foreign direct investment, real estate, investment performance
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1. Introduction Foreign direct investment (FDI) has been increasingly seen as an important feature to the economic growth in developing countries as the drivers of globalization (Nunnenkamp, 2001: Karbasi,; Ayalp, Baykaler, Alsan & Özgünel, 2004; Makki & Somwaru, 2004; Mohamadi, & Ghofrani, 2005; Kokkinou & Psycharis, 2005). A study by OECD (2002) concludes the overall benefit of FDI for the developing economies such as triggering technology spill-over, assisting human capital formation, contributing to international trade integration, helping create a more competitive business environment and enhancing enterprise development. Moreover, beyond the strictly economy benefits, FDI may help improve environmental and social conditions in the particular country by, for example, transferring “cleaner” technologies and leading more socially responsible corporate policies. Based on these benefits, attracting FDI has become a fierce competition among developing countries in the last couple of decades (Ayalp, Baykaler, Alsan, & Özgünel, 2004) and ASEAN is one of them. Thirty years ago, all ASEAN countries except Singapore had adopted restrictive regulations to control FDI firms in order to alleviate the harmful effects of FDI to local economies. However, in the mid1980s due to the debt crisis of 1985 and the evocation of Newly Industrial Economies (NIEs), most ASEAN countries
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switched from inward to outward strategies of FDI (Ismail, 2009). A component of these strategies is offshore real estate investment, i.e. foreign direct investment in real estate (FDIRE). Foreign direct investment in real estate (called FDIRE hereinafter), however, is relatively new to the real estate sector in ASEAN and in the world alike. Significant cross-border investment in real estate by institutional investors did not occur until the 1980s (Spremann & Gantenbein, 2003). In China, it began after 1978 under the new economic and open-door policies (Hsieh, 1997; Tseng & Zebregs, 2002), but the actual date of FDIRE utilization in China was starting in 1997 (Chen, 2011). While FDIRE in India and Turkey began only in 2002 (Halkali, 2006; Sandesh, 2006). In 2005 to 2010, FDIRE in India was booming to 80 times than previous years (Mamata, 2011). This situation also happened in Thailand which is in 1993 to 1996, almost 40% of net FDI in Thailand was booming in real estate sector and FDI had shifted from manufacturing to real estate and infrastructure sector (Soontiens & Haemputchayakul, 2003). In FDIRE, there is a high-impact economic policy in terms of economic gains that it can bring about not only for the investors concerned but also for a country. The impact of FDIRE on U.S. and India shows that it influences the movement of domestic interest rates and directly contributes to the creation of new jobs in this sector. FDIRE also provides foreign and domestic investors with a diversification option that has a solid return without the volatility of stocks and also provides direct investment that helps support a healthy real estate industry. Moreover, FDIRE is important because it can create major inflows of funds that can enhance domestic investment to achieve a higher level of real estate development and triggering new technology advancement (REALTORS, 2003; Mamata, 2011). Although FDIRE creates some benefits, international investors have to face markets composed of many different factors such as different economies, cultures and regulations of the host country. A survey in the 1980s unveiled that there was a phenomenon of cultural and geographic proximities between origins and destination of international real estate capital. In order to cope with these significant factors and to make profitable investment decision on global market level, investors must assess the risk of the investment taking into consideration all these key factors while deciding on an investment opportunity (Hines, 2001; 1988). FDI by private equity funds and other collective investment funds have also been adversely affected by the financial crisis (UNCTAD, 2009). This situation has triggered a new challenge for investors to decide which country is better to put their investments. It is important to recognize that each country is different and each one has different factors of FDI attractiveness (Cabrera & Giraldo, 2009). These factors may differ significantly from one location to another depending on the attractiveness of a particular region or country. Thus, this paper attempts to provide a critical review of the growing body of literature focused on the determinants of foreign direct investment in real estate sector in ASEAN countries. To the best of our knowledge, studies on this topic are strictly limited in ASEAN countries and, thus, it sets a preliminary determinant of foreign direct investment in real estate sector. The rest of the paper is structured as follows. Section 2 focuses on the background to FDI in real estate. Section 3 discusses the methodology and section 4 and section 5 presents the results and discussion. Finally, Section 6 concludes this paper.
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2. Background to FDI in Real Estate Foreign direct investment (FDI) has been increasingly seen as an important feature to the economic growth in developing countries as the drivers of globalization (Nunnenkamp, 2001: Karbasi,; Ayalp, Baykaler, Alsan & Özgünel, 2004; Makki & Somwaru, 2004; Mohamadi, & Ghofrani, 2005; Kokkinou & Psycharis, 2005). A study by OECD (2002) concludes the overall benefit of FDI for the developing economies such as triggering technology spill-over, assisting human capital formation, contributing to international trade integration, helping create a more competitive business environment and enhancing enterprise development. Moreover, beyond the strictly economy benefits, FDI may help improve environmental and social conditions in the particular country by, for example, transferring “cleaner” technologies and leading more socially responsible corporate policies. Based on these benefits, attracting FDI has become a fierce competition among developing countries in the last couple of decades (Ayalp, Baykaler, Alsan, & Özgünel, 2004). Thus, Malaysia and others ASEAN countries also have to face it. Thirty years ago, all ASEAN countries except Singapore had adopted restrictive regulations to control FDI firms in order to alleviate the harmful effects of FDI to local economies. However, in the mid1980s due to the debt crisis of 1985 and the evocation of Newly Industrial Economies (NIEs), most ASEAN countries switched from inward to outward strategies of FDI (Ismail, 2009). A component of these strategies is offshore real estate investment, i.e. foreign direct investment in real estate (FDIRE). FDIRE however, is relatively new to the real estate sector in Malaysia and in the world alike. Significant cross-border investment in real estate by institutional investors did not occur until the 1980s (Spremann & Gantenbein, 2003). In China, it began after 1978 under the new economic and open-door policies (Hsieh, 1997; Tseng & Zebregs, 2002), but the actual date of FDIRE utilization in China was starting in 1997 (Chen, 2011). While FDIRE in India and Turkey were beginning in 2002 (Halkali, 2006; Sandesh, 2006). In 2005 to 2010, FDIRE in India was booming to 80 times than previous years (Mamata, 2011). This situation also happened in Thailand which is in 1993 to 1996, almost 40% of net FDI in Thailand was booming in real estate sector and FDI had shifted from manufacturing to real estate and infrastructure sector (Soontiens & Haemputchayakul, 2003). In FDIRE, there is a high-impact economic policy in terms of economic gains that it can bring about not only for the investors concerned but also for a country. The impact of FDIRE on U.S. and India shows that it influences the movement of domestic interest rates and directly contributes to the creation of new jobs in this sector. FDIRE also provides foreign and domestic investors with a diversification option that has a solid return without the volatility of stocks and also provides direct investment that helps support a healthy real estate industry. Moreover, FDIRE is important because it can create major inflows of funds that can enhance domestic investment to achieve a higher level of real estate development and triggering new technology advancement (REALTORS, 2003; Mamata, 2011). Although FDIRE creates some benefits, international investors have to face markets composed of many different factors such as different economies, cultures and regulations of the host country. A survey in the 1980s unveiled that there was a phenomenon of cultural and geographic proximities between origins and destination of international real estate capital. In order to cope with these significant factors and to make profitable investment decision on global market level, investors must assess the risk of the investment taking into consideration all these key factors while deciding on an investment opportunity (Hines, 2001; 1988). FDI by private equity funds and other collective investment funds have also been
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adversely affected by the financial crisis (UNCTAD, 2009). This situation has triggered a new challenge for investors to decide which country is better to put their investments. It is important to recognize that each country is different and each one has different factors of FDI attractiveness (Cabrera & Giraldo, 2009). These factors may differ significantly from one location to another depending on the attractiveness of a particular region or country. 3. Methodology The Malaysian experience is examined in the wider global context using a 20-year secondary data series over the 1990-2010 periods, obtained from various sources. Data on FDI and FDIRE are obtained from the Statistics on FDI in ASEAN 2006, World Investment Reports 2008, 2009 & 2010, ASEAN Statistical Yearbook 2008 and National Property Information Centre (NAPIC) Malaysia. Figures on FDIRE among the individual ASEAN countries, except for Cambodia, are derived from Statistics on FDI in ASEAN for the 1999-2005 periods only due to data limitation. To measure performance, graphs are used to describe FDIRE trend while coefficient of variation (COV) is used to measure FDIRE volatility. Besides, based on simple regressions of FDIRE on time, FDIRE elasticity and time-effect parameters and are also used to explain country’s performance. 4. Results and Discussion This section presents the results and discussion of the findings according to three sub section. The global phenomenon of FDI in real estate is discussed in section 4.1. This is followed by the overview of FDI and FDIRE on Malaysia in section 4.2. Finally, section 4.3 ends the section with sources of FDIRE in Malaysia. 4.1 The Global Phenomenon of FDI in Real Estate The trends and patterns of FDI inflows can be global and regional. Global trends involve a number of countries together while regional trends involve a particular country over a defined time period. Thus, this section focuses specifically on FDI inflows to compare FDI trends in Malaysia by focusing on ASEAN region first with other regions to gain global perspectives. Figure 1 shows global FDI inflows into the world, developed countries and developing countries over the past two decades. During that period, there were two distinct long cycles as follows: 1990-2000 (10 years) and 2000-2009 (10 years). The first long cycle indicates the increase of FDI inflows until 2000, in spite of the financial crisis in 1997-1998. Remarkable differences can be noted during the second long cycle which had decreased in 2000-2003 then started to recover in 2004 until 2007. Total global FDI inflows declined from US$134 billion in 2000 to US$83 billion in 2001, US$72 billion in 2002 and US$63 billion in 2003, recovering marginally in 2004 at US$65 billion. However, FDI flows had declined in 2008 except developing countries and in 2009 after recession.
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Figure 1: Global FDI Inflows, 1990-2009 (World Investment Report, 2010) Globally, FDI has remained fragile after a decrease of 37% in 2009 on top of a similar decline in 2008. The global economic downturn has seen global FDI flows declining in absolute value terms to US$1,770,873 million in 2008 and US$1,114,189 million in 2009, from a record US$2,099,973 million in 2007 (see Table 1). The declines of FDI in 2008 and 2009 came mainly from a significant reduction in FDI flows to developed countries, whereas flows to developing countries remained resilient with an expansion of 12% in 2008 despite a decline of 24% in 2009. Table 1: Global FDI Inflows by Region, 2005-2009 (Millions of Dollar) Region World Developed Countries Europe Developing Countries Africa Latin America and the Caribbean Asia and Oceania Asia West Asia South, East and ASEAN East Asia South Asia ASEAN Oceania South-East Europe and the CIS
2005 985 796 624 529 509 148 330 166 38 197
2006 1 459 133 970 098 628 420 434 366 55 382
2007 2 099 973 1 444 075 988 422 564 930 63 092
2008 1 770 873 1 018 273 551 059 630 013 72 179
2009 1 114 189 565 892 378 388 478 349 58 565
75 955
94 557
163 612
183 195
116 555
216 014 215 769 44 477 171 292 116 190 14 368 40 734 245 31 101
284 426 283 113 67 160 215 953 131 774 27 771 56 408 1 314 54 669
338 226 336 922 78 092 258 830 150 991 33 868 73 971 1 303 90 968
374 639 372 739 90 299 282 440 185 497 49 653 47 289 1 900 122 588
303 230 301 367 68 317 233 050 154 838 41 406 36 806 1 863 69 948
Source: World Investment Report, 2010 On the contrary, the financial crisis in 1997-1998 seems had affected FDI inflows across regions in developing countries. Figure 2 shows ASEAN, East and South Asia had negative inward FDI growth of
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35%, 6% and 27% respectively. ASEAN region is the most affects compare with other regions. In contrast, the FDI environment in developed countries was much more resilient during the crisis with an expansion of 91% in Europe region. Even though developing countries had remains resilient during financial crisis in 2007-2008, however it still affects FDI inflows in ASEAN region with reduction of 36%. Compared with East and South Asia regions had positive inward FDI growth of 23% and 47% respectively. In short, the global financial crisis had affecting the poor FDI performance in ASEAN region.
Figure 2: FDI Inflows by ASEAN, East Asia and South Asia, 1990-2009 Source: World Investment Report, 2010 While FDI in the ASEAN real estate sector has grown considerably during the last decade. From Figure 3, ASEAN FDIRE flows have grown positively from a record low of US$624.28 million in 1999 to its peak of US$6094 million in 2007. During the 2000-2001, FDIRE flows to ASEAN fell from US$722.2 million to US$590.17 million due to the Asian financial crisis in 1997. This was in tandem with FDI flows that dropped from 16% to 15% (US$23541.3 million to US$20372.4 million). In 2002, FDIRE flows in ASEAN rose to 57% (US$1369.43 million) from the previous level of 22% (US$722.2 million), however, FDI flows fell to a 13% level (US$18022.6 million) from the previous 15% level (US$20372.4 million). In 2003, FDIRE flows in ASEAN declined 51% to US$906.83 million, in contrast with FDI flows that have increased 25% to US$24234.7 million. FDIRE and FDI flows have been rising continuously from 2004 until 2007. However in 2008, FDIRE and FDI flows in ASEAN dropped 43% (US$4248 million) and 15% (US$60596 million) in the global crisis aftermath. In short, the FDIRE slowly rose in 2001 before reaching a small peak in 2002. The rise in FDI lagged behind not until 2002 before reaching a small peak in 2004. However, both FDIRE and FDI were catching up each other in 2007. With this backdrop of event, both series seemed to have shown a long-term co-integration. However, this issue is beyond the scope of our paper.
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- - - - - - - FDI ______ FDIRE
Figure 3: Trends of FDI and FDIRE in ASEAN, 1999-2008 4.2 Overview of FDI and FDIRE on Malaysia FDI in Malaysia has been growth rapidly over the past decades. Total FDI inflow to Malaysia has increased from US$2.6 billion in 1990 to US$7.2 billion in 1996 with minor declined in 1994 (US$4.5 billion), the year before the onset of the Asian financial crisis (1997-1998). Afterwards, the impressive record was disrupted with 57% reduction from US$6.3 billion to US$2.7 billion in 1997 and 1998 (see Figure 4). However, the magnitude of FDI during the crisis period (1997-1999) also affected Indonesia and Thailand, make Malaysia not the only country have affected. The crisis has continued until 2001 (US$0.5 billion) and this magnitude largely reflects a large overall decline in global FDI flows during 2000-2003 (UNCTAD, 2005; Anthukorala and Wagle, 2011). Malaysia’s FDI performance has begun increased 478% (US$3.2 billion) in 2002 until 2007 (US$8.5 billion) with minor declined in 2003 (US$2.4 billion) and 2005 (US$4.0 billion). However, FDIRE in Malaysia seems not very affected with the crisis and had increased continuously from US$92 million in 2000 to US$712 million in 2008 (see Figure 5).
Figure 4: FDI inflows to Malaysia, 1990-2009 (US$ Million)
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Source: World Investment Report, 2010 In 2008 and 2009, FDI in Malaysia had declined 14% (US$7.3 billion) and 81% (US$1.3 billion). Compared with others ASEAN countries, the volume of FDI inflows in Indonesia and Vietnam has surpassed to Malaysia in 2008 (Athukorala & Wagle, 2011). Based on the trends (see Figure 4 and Figure 5), 2009 seems a very difficult year for Malaysia as a host country and foreign investors in FDI and FDIRE aftermath crisis economy in 2007-2008.
Figure 5: FDIRE inflows to Malaysia, 2000-2010 (US$ Million) Source: National Property Information Centre (NAPIC) Malaysia However, the environment would begin to improve slightly in 2010 and gaining momentum in 2011. This situation based on the provisional data for 2010 shows that FDI in Malaysia was increased sharply to US$9.2 billion (Athukorala & Wagle, 2011) and FDIRE had increased to US$627 million in 2010. The apparent increase could also reflect the achievement of Malaysia's Economic Transformation Program (ETP) which proposed in the New Economic Model (NEM) to raise the awareness on the availability of ready-to-investment projects such as Iskandar Malaysia projects (World Bank, 2011). In short, FDI and FDIRE in Malaysia also have shown a long-term co-integration and is one of the attractive prospects to discuss. Moreover, compared with others ASEAN countries, Malaysia had experienced decline in FDIRE including all ASEAN countries except for Indonesia, Singapore and Vietnam in 2002 (see Figure 6). Malaysia has plunged more than 100% in FDIRE; so with Myanmar, Philippines and Thailand. The largest proportion of increase in FDIRE in ASEAN in 2002 was accounted for mainly by Singapore followed by Indonesia and Vietnam (see Table 2). However, during 2003-2005, Malaysia, Indonesia, Myanmar and Philippines saw a significant increase in FDIRE. During the 2002-2005 periods, FDIRE in Brunei dropped slightly while FDIRE in Lao PDR dropped severely. This was in contrast to Vietnam that has shown rising FDIRE over the same
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period. Singapore and Thailand seemed to have moved up and down rapidly in FDIRE over the 20022005 periods and have a high volatility compared to other ASEAN countries. Figure 6: ASEAN FDIRE Growth (%), 2000-2005
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4.3 Sources of FDIRE in Malaysia The main sources of FDI to Malaysia have changed over time and not dominated by any single country (Tsen, 2006; Masud, Yusoff, Hamid, & Yahaya, 2008). In the 2000-2008 periods, United States of America (USA) (US$10.5 billion), ASEAN countries (US$8.4 billion), European Union (EU) (US$7.9 billion) and Japan (US$7.4 billion) were the main sources of FDI in Malaysia. Among the ASEAN countries, Singapore (US$167.4 billion) is the largest recipients of total FDI and followed to Thailand (US$61.4 billion) and Malaysia (US$41.2 billion). However, ASEAN countries would prefer to invest FDI in Malaysia (US$8.4 billion) and Thailand (US$16 billion) compared to Singapore (US$6.3 billion). Table 2: The elasticity of FDIRE to ASEAN countries by source countries, 1999-2005 Country Malaysia Brunei Indonesia Lao PDR Myanmar Philippines Singapore Thailand Vietnam
Japan 1.4547 1.0721 -1.2772 0.8793 0 0.6294 -1.8575 2.4724 0
USA 2.5911 2.3333 0 0 0 2.4512 -0.0976 1.3170 0
EU 4.2536 1.4907 -2.0146 3.0000 0 2.2662 0.3825 1.8712 2.9161
ROK 0 0 -1.0910 0.5000 0 1.6000 1.8969 2.3528 2.3505
HK 1.9157 3.0000 2.3047 0 -1.0000 1.2688 -0.2277 1.8011 2.6493
Taiwan 0 3.0000 3.0000 0 0 1.5714 -5.9348 0.0482 2.2498
China 0 2.0000 0 0.2143 0 3.0000 1.0008 -0.4762 0
ASEAN 2.5303 1.7735 -2.1552 2.3111 -1.4487 -0.0554 0.5215 0.9922 0.9167
However as shown in Table 2, Malaysia’s FDIRE was more elastic to the changes in investment by the USA, European Union (EU) and ASEAN countries. Thailand’s FDIRE was most sensitive to the changes in investment by Japan and the Republic of Korea (ROK). Meanwhile, Brunei and Indonesia have shown most elasticity to the changes in investment by Taiwan. Philippines were most sensitive to the changes in FDIRE by China and Vietnam was most sensitive to the changes in FDIRE by Hong Kong (HK). Table 3 shows the stability of ASEAN countries in FDIRE by source countries. Based on the pattern of COV in FDIRE, Malaysia, Indonesia, Philippines and Singapore can be grouped together. Further, within this group, Singapore and Philippines have comparable fluctuations with more number and greater magnitudes of positive COVs. Indonesia was the worst performer with more number of negative COVs. Malaysia's COV in FDIRE was very modest with more number but small magnitudes of positive COVs. Brunei, Thailand, Vietnam, and Lao PDR can be classified together in another group for their greater magnitudes of positive COVs. Within this group, Thailand has shown a better FDIRE performance over time with declining COVs. Brunei and Vietnam were rather comparable with greater fluctuations in FDIRE. Comparing both groups of ASEAN countries, Singapore performed best with smaller magnitudes of COVs while Indonesia performed worst due to lack of FDIRE. Myanmar cannot effectively be compared for the lack of FDIRE. Perhaps, it was slightly better than Indonesia for its positive COVs.
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Table 3: The coefficient of variation (COV) of FDIRE to ASEAN by source countries, 1999-2005 Country
Japan
USA
EU
ROK
HK
Taiwan
China
ASEAN
Malaysia
-173.7428
177.6789
-1007.6144
0
149.3970
0
0
219.6101
Brunei
253.2785
183.5857
162.5055
0
264.5751
264.5751
264.5751
150.9464
Indonesia
-124.2348
0
-145.5618
-248.3847
188.1418
-264.5751
0.0000
-142.7706
Lao PDR
157.7782
0
264.5751
170.7825
0
0
184.3407
187.0675
Myanmar
0
0
0
0
264.5751
0
0
179.0814
Philippines
118.0127
161.9399
135.9404
-238.6071
204.8785
152.7525
-264.5751
160.9874
Singapore
430.0075
210.3082
108.8866
117.8477
-177.0796
339.1197
64.8178
50.2964
Thailand
289.4584
187.6782
189.1988
143.6945
178.7523
87.9300
151.2295
140.5396
Vietnam
264.5751
0
256.0476
181.1531
224.6087
180.8874
264.5751
126.6957
In terms of time effect on FDIRE among the ASEAN by source countries, Indonesia showed a larger annual increase in FDIRE from the rest of ASEAN and Japan while Philippines showed biggest rising FDIRE annually from the USA (Table 4). Vietnam has an overall small time effect on annual FDIRE from other countries while Thailand has shown a rising annual FDIRE from EU, USA, and HK. Singapore has shown a growing annual FDIRE largely from the rest of ASEAN, followed by EU, and China. Based on the time effect of FDIRE, Singapore and Thailand are close competitors. While Malaysia shows a moderate time effect by source countries. Table 4: The effect of time on FDIRE among ASEAN countries by source countries, 1999-2005 Japan USA EU ROK HK Taiwan China ASEAN
Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t) Intercept Time (t)
Malaysia
Brunei
1.4714 -1.1768 -10.6129 4.3207 3.1886 -1.0421 0 0 -0.3414 0.1786 0 0 0 0 -15.3443 6.3429
-0.0471 0.1754 -0.0057 0.0025 -0.0757 0.0575 0 0 -0.0171 0.0064 -0.0171 0.0064 -0.0357 0.0179 -1.0443 0.5986
Indonesia -92.1014 12.9143 0 0 -41.2571 6.8929 -15.7543 2.0550 -0.2386 0.1054 0.0343 -0.0129 0.0000 0.0000 -120.4686 20.5718
Lao PDR 0.0100 0.0182 0 0 -0.0143 0.0054 0.0029 0.0007 0 0 0 0 0.0471 0.0032 -0.0843 0.0371
Myanmar
Philippines
Singapore
Thailand
0 0 0 0 0 0 0 0 1.1600 -0.1450 0 0 0 0 22.2829 -3.2957
0.5586 0.2371 -34.6329 14.6246 -3.2143 1.4382 0.0129 -0.0086 -0.0357 0.0421 -0.0171 0.0118 0.0314 -0.0118 0.4357 -0.0057
84.9086 -13.7986 53.9800 -1.2000 70.6100 10.9343 -6.9229 3.6604 -61.1029 2.8332 24.1429 -5.1654 -0.0357 10.9261 203.5814 55.4643
-7.5029 3.1496 -13.0857 13.5907 -66.5843 35.7532 -1.1943 0.5193 -21.5900 12.1350 4.3714 0.0554 0.5314 -0.0429 0.1643 5.2196
Vietnam 0.0129 0 0 0 -6.5586 2.4954 -1.8714 0.8143 -1.7671 0.7096 -2.4300 1.0936 0.0071 0 0.0114 0.0314
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5. Conclusion This study attempts to analyze Malaysian FDIRE performance through a comparative perspective. Among the ASEAN countries, Singapore has a much higher performance in FDIRE compared to other ASEAN countries on the basis of magnitude of growth, elasticity, and time effect. While Malaysian FDIRE have a moderate volatility volume, moderate stability in FDIRE by source countries with more number but small magnitudes of positive COVs, also moderate time effect by source countries and most elastic to USA, EU and ASEAN countries. However, FDIRE in Malaysia seems has long-term co integration with FDI and shows the positive trend in 2010. Even though, these outcomes do not show the level of countries attractiveness among ASEAN countries for FDIRE. There are several factors that should be analyzed to determine the attractiveness of a particular country in FDIRE. In order to be more attractive, ASEAN countries have to compete with each other in offering the best environments for foreign investors, encompassing various specific factors that influence investment decisions such as real estate investment opportunities, socio-cultural and technological advantages, political stability and favourable macro economy of host country. This study has one important implication that, at the outset, competition for FDIRE is very much geography- and time-related and, thus, strategies that capitalize on both factors are critical to each country. Nevertheless, these results do not indicate anything about the attractiveness of a particular country for FDIRE. Various specific factors need to be analyzed to resolve this issue and this needs a specific study in future.
Acknowledgement This paper was funded by the MyPhD Financing Program provided by Ministry of Higher Education of Malaysia.
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