Economist expects recovery of domestic investments in Q2

The East Coast Rail Link project is among several mega projects that will continue albeit at a reduced cost. (Bernama pic)

PETALING JAYA: An economist expects domestic investments to show recovery in the results of the second quarter (Q2) of 2019 following the resumption of mega projects such as Bandar Malaysia and the East Coast Rail Link (ECRL).

Speaking to FMT, Universiti Tun Abdul Razak’s Barjoyai Bardai said he expects more positivity in terms of the country’s economic performance and market sentiment in Q2 compared to the first quarter of the year (Q1).

He was commenting on the 30.5% drop in approved domestic investments for Q1 2019 compared to the corresponding quarter of 2018.

He said the drop in approved domestic investments was likely due to the softer market for commodities and natural resources.

He said local players are probably reluctant to pump more money into their businesses as they do not expect the prices of these goods to be high.

He also spoke of policy issues which might affect domestic investors, although he said these are more applicable to small and medium-sized enterprises (SMEs) whose contribution to overall domestic investments is not as big as that of major companies.

“With the resumption of mega projects, it is likely that we will see domestic investors, particularly government-linked companies (GLCs), spending more. This will result in an increase in domestic investments,” he said.

Putrajaya recently announced the continuation of the Bandar Malaysia and ECRL projects.

However, Barjoyai cautioned against getting carried away with the approved investment figures, saying there is no guarantee that they will be realised.

“In the past, we had foreign investors committing to an investment but in the end, it did not materialise.

“So the focus of the government should be to ensure that the approved projects materialise.”

SME Association of Malaysia president Michael Kang told FMT that cash flow issues are among several factors causing many of the group’s 10,000 members to hold back from investing.

He claimed that many SMEs had been affected by delays in the refund of goods and services tax (GST) rebates.

He also said the new administration is “very rigid” in enforcing the rules, such as those concerning the enforcement of tax collection, adding that SMEs are used to more flexibility.

“We understand that the government has to collect revenue but for SMEs, if our cash flow is affected, we cannot grow our business.”

He also cited the weakened domestic buying power as another reason why local businesses are not keen to invest.

He said SMEs are foreseeing a drop in sales, which makes them more hesitant to spend.

“There is also uncertainty over some policy issues like those pertaining to foreign workers,” he said.

Kang said many of his members are also reluctant to pour more money into their businesses as the country’s political scenario is “not stable”.

“We don’t know who is going to be in power next, or when and what policies they will pursue.”

The Socio-Economic Research Centre previously urged Putrajaya to come up with a holistic plan to revitalise private investments in the wake of the recent decline in the sector.

The think tank cited domestic factors as well as external factors such as the US-China trade war.