Further roadblocks to the operation of the Australia-owned Lynas Advanced Materials Plant (LAMP) in Gebeng, Pahang, will trigger lowering of investor confidence and slow the inflow of foreign direct investment (FDI) into Malaysia to levels seen during the Global Financial Crisis of 2008-2009.
Malaysia’s FDI inflow fell from RM23.4 billion in 2008 to a mere RM4.43 billion in 2009 as a result of the financial crisis which also placed the country in the red for the first time in 15-years.
The nation’s FDI inflow for 2012 may be on track to exceed the RM32.9 billion, in 2011 that was underpinned by the aggressive promotions and incentives by the Ministry of International Trade and Industry, but the embattled implementation of LAMP will curtail Malaysia ’s attractiveness as a leading trading nation in the ASEAN region.
Against the backdrop of the LAMP protest, foreign investors that have been eying Malaysia as an investment destination will have second thoughts to place their money here as they will be under the impression that implementation of an industrial operation can be on hold despite having the green light from federal and state governments and complying with safety requirements.
LAMP has received the nod from regulatory and independent bodies including the Atomic Energy Licensing Board (AELB) Malaysia, Malaysian Nuclear Agency, Department of Environment, Parliamentary Select Committee and the United Nations’ nuclear watchdog International Atomic Energy Agency (IAEA) albeit conditions such as long term waste management disposal and radiological monitoring were recommended from a technical perspective.
The fate of LAMP, a state-of-the-art RM2.5 billion rare processing plant, now hinges on the High Court which will deliver its judgment on November 8 on whether to grant a temporary operating licence (TOL) to two groups of Kuantan residents. Lynas was granted a two-year TOL by the AELB in September but the TOL has been challenged.
While November 8 is crucial, LAMP may not be able to fire up its long completed rare earth refinery until all legal avenues have been exhausted. As such, a protracted legal battle and protests by Kuantan residents will not be in line with Malaysia ’s recent ranking as the 12th most business friendly country globally by a World Bank report.
Malaysia’s FDI stands to dwindle if the Australian public-listed Lynas Corporation Ltd pulls-out and heads to another destination in ASEAN to start its plant rolling. Such an abrupt end to the LAMP here will also put a dent to the Malaysia-Australia Free Trade Agreement (FTA) that will take effect January 1, 2013 following conclusion of negotiations between the two countries earlier this year.
The LAMP operation is expected to bring substantial benefits to the Malaysian economy. The facility will create 400 skilled jobs plus a multiplier of 5-8 times in secondary jobs through the economic ecosystem created by the plant. LAMP will also have 200 permanent contract workers and 1,000 indirect workers provided services to its facility. The capital investment to build the LAMP is RM2.5 billion while operating expenditure will total RM600 million per year.
Lynas prides its plant in Gebeng as the most technologically advanced rare earth plant in the world that enables production to be done in a safe and environment ally friendly manner. According to the company, rare earths were crucial for “autocats” in vehicles that could convert harmful gasses into inert gas, thus enabling increased thermal stability and reduction in precious metals.
Among others, rare earths are components to produce high power neo magnets for disk drives and speakers as well as polishing powders that are used for TV and computer screens.
The granting of incentives such as a 12-year tax exemption to Lynas for its LAMP operations will be academic should the company exits its project in Gebeng. Malaysia ’s credibility as a choice investment destination will be affected in the near term and the possibility of the economy taking a dip may surface as steady FDI inflows have been widely accepted to provide increased competition, technological spillovers and innovations, and rise in employment.
FDI is considered necessary to stimulate the economies of developing countries but with stiff competition in the ASEAN region and the controversial LAMP project, Malaysia’s FDI can return to that of the financial crisis levels of 2008-2009 as foreign investors often look for destinations that have attractive fiscal and non-fiscal incentives such as tax holiday, government support, and fast turnaround time.
Malaysia was ranked third for FDI inflow into ASEAN in 2011 with US$11.97 billion, while Singapore and Indonesia positioned at the top with US$64 billion and US$18.91 billion respectively.
The LAMP protest can not afford to go on at the expense of affecting Malaysia ’s economic fundamentals. Malaysia ’s economic performance registered a 5.1% growth in 2011 while it is projected to grow between 4.5% and 5% in 2012. In 2013, the economy is forecast to grow between 4.5% and 5.5% underpinned by domestic demand as proposals implemented under Budget 2013 picks up pace.
As the government continues to create a healthy business environment to sustain FDI inflow and promote private investment particularly in increasing the manufacturing and services sectors, a deadlock in LAMP’s operations will put a bump to intensified efforts in attract investors to new growth areas and drive private investment amounting to RM115 billion by 2015 as per the 10th Malaysia Plan.
In October, Prime Minister Dato’ Sri Najib Tun Razak described the RM13 billion FDI recorded in the first quarter of 2012 as a clear signal of investors' confidence in Malaysia despite a gloomy global economy and criticisms from Opposition parties.
The “feel-good factor” for the economy should not fizzle simply due to LAMP protest as Malaysia ’s stock market this year has been above the crucial 1,600 point level and is among the best performers in the world with huge listing such as the RM10.5 billion Felda Global Ventures Holdings now on board.
The launch of the Tun Razak Exchange in July also positions Kuala Lumpur as a leading global centre with more than RM3.5 billion worth of FDI expected to flow into the country under phase 1. The Exchange is a national initiative to spur sustainable growth in new areas and lead the way for the federal capital to be a sustainable, smart and liveable city.
The LAMP operations must kick-off soon so as not to affect the government’s long term plan to spearhead Malaysia into a developed nation which will see productivity levels that are on par with industrialised economies. The government, through the implementation of 12 National Key Economic Areas (NKEAs), is committed to transform Malaysia into a high-income status by 2020 that will see the per capita income at US$15,000.