Government investment scheme set to boost Malaysian economy

The RM120 billion (£21bn) domestic direct investment (DDI) boost from government-linked investment companies (GLICs) under the Gear-up programme will benefit the Malaysian economy and enhance global competitiveness, according to leading economists.

But they warned that the initiative, driven by the Ministry of Finance (MoF), needs to be well-structured and carefully implemented, and that the six GLICs in the programme should possess relevant financial expertise to manage high-risk investments.

The first phase of the programme will see the six leading GLICs collectively pledging RM120 billion in DDIs over the next five years, on top of RM440 billion in public market investments under their steady state investment programmes.

These investments are primarily directed towards high-growth high value industries such as the energy transition sector and advanced manufacturing, as well as investments across all life cycles of firms from start-ups, venture capital to mid-tier companies.

The six GLICs are Khazanah Nasional; the Employees Provident Fund; Retirement Fund Inc; Permodalan Nasional; Lembaga Tabung Haji; and Lembaga Tabung Angkatan Tentera.

OCBC Bank senior Asean economist Lavanya Venkateswaran told the Malaysian Star that the Gear-up programme “sounds promising because GLICs serve as a natural link between the public and private sectors”.

Incentivising GLICs to increase domestic investments, in a thoughtful and well-structured programme, can catalyse private sector investments, she said.

Venkateswaran added: “However, there is a risk that some investments will not materialise as anticipated. That said, the six GLICs chosen for the first phase of the programme have a strong track record and hence, risk and investment management mechanisms are likely to remain prudent.

“These new schemes will be work-in-progress at least during the initial periods and there will be room to fine tune investment criteria, increase collaboration and further mitigate risks.”

UCSI University Malaysia associate professor of finance Liew Chee Yoong said supporting businesses across all life cycles, from start-ups to listed companies, would foster entrepreneurship, improve access to capital and enhance the overall business ecosystem, potentially leading to long-term economic growth.

However, he warned that focusing heavily on domestic investments might potentially increasing vulnerability to domestic economic shocks.

Additionally, he said fostering partnerships with private sector entities and implementing innovative investment strategies could enhance the overall impact of the GLICs’ investments.

Liew added: “This initiative represents a significant step toward achieving Malaysia’s economic aspirations. However, careful implementation and ongoing evaluation are critical to ensuring that the GLICs’ investments deliver the intended benefits without compromising their financial stability.

“Engaging with industry experts and stakeholders throughout the process will also be essential to assist the GLICs to navigate the complexities of their high risk investments,” Liew said.

Commenting on the GLICs investment in DDI, Bank Muamalat chief economist Mohd Afzanizam Abdul Rashid said what the country needs is quality of economic growth.

He said this would mean more investment among the private firms to upgrade themselves, scale up and venture into high value added and complex business.

In terms of any drawbacks to the economy from these investments, Afzanizam said ⁠investment should be highly diversified and on this note, under this programme, each GLIC has been assigned with specific task.

“Therefore, risks of over concentration in specific investments could be mitigated since each GLICs are assigned with specific areas, so there should not be overlapping in sector exposure,” Afzanizam noted.

He also stressed that the GLIC role as enabler is highly critical to promote domestic investment. However, he said by doing this, there must be a conscious decision that any investment would not crowd out “the true blue private sector”.

“I think we need to acknowledge that managing investment funds and running a business are two different disciplines. The latter tend to be more risk taker and the former tend to optimise their risk-return profile. So decision making and dynamics can be quite different,” he said.

Meanwhile, CME CEO Carmelo Ferlito said although DDIs are a key driver for any economy, the direction of the investments should be a response to market signals rather than a response to what the government believes to be strategic. “Investments can be successful and bring long-term benefits to the economy only if they are placed in a direction dictated by the market,” Ferlito said.