Malaysia top Investor in Africa ahead of China

As the Chinese President Xi Jinping visits the UK this week, the media spotlight has been on the country’s remarkable economic growth and its growing investment worldwide, including in Africa.


 

But many could be forgiven for thinking that China is the topmost investor in Africa, given the high profile nature of the country’s presence on the continent.

However, according to a UN Conference on Trade and Development (UNCTAD) report in 2013, Malaysia was ranked as the top Asian investor in Africa in 2011, the latest year for which figures were available.

The report revealed that after France and the US, Malaysia was the third largest foreign investor in Africa followed by China.

“China has received the most attention by policymakers, academics and the media alike as having the most involvement in Africa,” notes Whalan Kazombiaze, a Legal Executive, Azmi and Associates, a Malaysian firm of solicitors specialising in foreign investment.

Malaysia’s investment in Africa in 2011 totalled $19.3 billion, accounting for about a fifth of the country’s total foreign direct investment (FDI) portfolio, which stood then at $106 billion.

In 2011, China’s investment in Africa was $16 billion, followed by $14 billion held by India.

While Brazil, Russia, India, China and South Africa (BRICS) increased their investment in Africa from nothing in 2002 to four per cent of the FDI between 2009 and 2011, Malaysia saw its investment flow to the continent reach a massive 24 per cent of FDI in 2011.

This huge investment in Africa is seen by the Malaysians as a good mechanism to build trade links.

For example, total trade between Malaysia and South Africa in 2012 was worth £946.5 million – up from £663 million in 2008.

This means South Africans buying more things from Malaysian companies and helping support jobs back in Malaysia.

One reason that has been attributed to Malaysia’s bullish investment in Africa has been the strong leadership of Malaysian Prime Minister Najib Razak who has been encouraging this financial and commercial links.

Mr. Razak took a leading role at the inaugural Asia-Africa Summit in Bandung in Indonesia in April this year, arguing that the time was ripe for an era of “prosperity through South-South co-operation”.

According to the Malaysian Investment Development Authority (MIDA), FDI from the country in Africa covers a wide-range of sectors such as sectors such as hotel and tourism, housing, shipping, banking and financial services, palm oil plantations and refining, oil and gas and telecommunications.

This cooperation between Malaysian and African companies has helped to boost of African economic growth and opened new markets to Malaysian companies, notes to the MIDA.

Some of the deals in Africa include the construction of 300km of roads in Meru County in Kenya by Malaysian firm Probase Manufacturing at a cost of $146 million.
Malaysian conglomerate Sime Darby is building a palm oil mill in Grand Cape Mount in Liberia.

Petronas is actively exploring new oil projects in Algeria, attending a bidding session run by the government held in Algiers in April 2014. Other countries where Petronas are active include Egypt, Zimbabwe and South Africa.

Pacific Inter-Link, which is involved in manufacturing and commodity trading, has a long-established presence on the continent with offices in Ethiopia, Nigeria and Ghana.

“The Malaysian government supports these investment initiatives and views them as a means to share knowledge, skills, expertise and resources to meet mutual development goals through concerted efforts,” Kazombiaze of Azmi and Associates points out.

“In addition, the government of Malaysia has conducted a series of Third Country Training Programme (TCTP) for African countries to further facilitate the sharing with other developing countries the technical and systems skills that Malaysia has learned and acquired over the years. Technical assistance focuses on training and increasing the skills of a nation,”Kazombiaze adds.

With the exponential growth of Islamic finance worldwide, Malaysia is playing a pivotal role in helping African countries to access funds for infrastructure projects by linking them with Islamic financiers in Kuala Lumpur, according to the Malaysia International Islamic Financial Centre.

According to the S. Rajaratnam School of International Studies in Singapore, several African nations have already successfully turned to the global sukuk (Islamic bond) market for funding.

“When considering the ongoing $31 billion per year funding gap for infrastructure on the continent, Malaysian underwriting could play a relevant role in advancing the continent’s broader economic development agenda,” the educational institution pointed out.

“With Africa currently accounting for less than three per cent of global Islamic banking assets, this is the next frontier for Islamic finance.”

One of the recommendations in a recent report by the Islamic Corporation for the Development of the Private Sector (ICD) was that Islamic finance could act as the catalyst to fund African economic growth and sustainable development.

It is estimated that Africa needs $93 billion a year to finance large-scale infrastructure and manufacturing projects, while external funding is also needed to offset ballooning fiscal deficits.

In addition, there is a significant funding potential opportunity for Islamic banks in view of the increasing emergence of small-to-medium enterprises (SMEs) across Africa. In light of relatively low-income levels, a large informal sector and the prevalence of small businesses in Africa, Islamic microfinance is also a growth area worth looking into.

In all this, Malaysia under Prime Minister Razak appears well placed to surge further ahead of China in Africa.

Earlier this year experts were speculating about the effect the devaluation of the Chinese currency would have on African economies.

But one financial analyst in London told the GNA: “Malaysia does not have such problems, which could adversely affect Africa’s economic progress.

“For instance the country has moved from 20 last year to 18 on the World Economic Forum’s Global Competitive Report for 2015/2016 covering 140 countries.

“Now, with Malaysia targeting 2020 for becoming a high-income developed country, African countries would do well to follow the Malaysian route to economic well-being,” the analyst added.