Malaysia: Asia’s Top Investor in Africa?

By Tianyi Wang & Andy Lim

Zuma & Najib

President Jacob Zuma of South Africa attends bi-lateral talks with Malaysia Prime Minister Najib Razak and his delegation in 2011. Source: Government of ZA’s flickr photostream, used under a creative commons license.

On March 25 the UN Conference on Trade and Development (UNCTAD) released a report, “The Rise of BRICS FDI and Africa.” Published during China’s new President Xi Jinping’s first visit to Africa and before the BRICS summit, the report caught many Asia experts by surprise because it finds that Malaysia is ahead of China in the amount of foreign direct investment (FDI) in Africa.

Malaysia’s FDI flows into Africa in 2011 ranked third among the top 20 investing countries in Africa, pushing China and India to fourth and fifth. In terms of the 2011 FDI stock, China’s total of $16 billion stock falls behind Malaysia and South Africa by $3 billion and $2 billion respectively. By the end of 2011, Malaysia’s portfolio of global FDI reached $106 billion, of which $19.3 billion went to African states.

Although much of the Malaysian investment remains energy-driven, the breadth of Malaysian investment has broadened from oil, gas, and oil palm plantations to industries such as telecommunications, banking and finance, infrastructure and property development, manufacturing, power generation, and more. Malaysian oil giant Petronas is active in both upstream and downstream activities of Egypt’s oil sector. In Zimbabwe, Malaysia took over the petroleum distribution business from Royal Dutch Shell in 2008. Royal Dutch sold its stake to Engen, South Africa’s largest refined petroleum firm, and Petronas owns 80% of the company shares. Malaysia’s leading multinational conglomerate, Sime Darby, has refineries in South Africa and also owns 220,000 hectares of land for palm oil and rubber plantations development, acquired through a 63-year concession agreement signed with the Liberian government in 2009.

Although Malaysian FDI in Africa is undeniably significant in size, it is possible that the UNCTAD report does not account for the total amount of China’s investment in Africa. Ambassador David H. Shinn points out in his recent blog post that official figures of Chinese FDI into Africa tend to substantially understate the actual amount of investment, for they only represent investment reported to and by the Chinese government. Private investments by Chinese companies remain largely underreported. Combining the official figures with estimates of unreported investments, China’s FDI may still lie ahead that of Malaysia.

For years, China’s search for resource security in the African continent has received criticism. For instance, the international community condemns China because its demand for oil enables Sudan’s despotic regime to buy Chinese arms, which are then used against the rebels in Darfur. Although Chinese companies are the main investors in Sudan’s oil fields, they are followed by Malaysian multinational corporations. The Malaysian FDI thus may have also exacerbated conflicts in Sudan.

Much like Chinese investment in Africa, Malaysian investment in Africa has fueled resentment and made a controversial impact on the region. Sime Darby’s $3.1 billion investments in Liberia initially trumpeted with greetings of a “New Liberia.” But later on the investments ran into serious trouble with their plantation project when villagers rioted against the company’s investment in December 2011. The villagers accused Sime Darby of cutting a private deal with the government without consultations and taking away their sacred lands. They complained that the promised jobs are too few and too poorly paid, and their crops are now gone.

Engen Uganda Ltd, an affiliate of Engen Petroleum Ltd (South Africa) and also 80% owned by Petronas, was charged with tax evasion worth 12 billion Uganda shillings by the Uganda Revenue Authority in January 2013. The alleged tax evasions came in the form of failures to pay withholding tax on payments made to Engen. The Uganda National Security Fund also accused the company of falling short of its social security contributions for employees. It stopped operation in June 2012 and was sold to the Kenyan oil company Addax. Eleven company employees filed a lawsuit against the South African company for unlawful termination, citing illegal employment practices such as discriminatory treatment and violation of privacy and dignity.

On the other hand, it must be recognized that Africa is in dire need of foreign direct investment, and the technology, jobs and linkages to world markets that is brings with it.  In this sense, both Chinese and Malaysian investment is welcomed by many and clearly has significant positive impacts on economies and the lives of many Africans.

Whether or not China is actually ahead of Malaysia in terms of FDI in Africa, Malaysia’s surprisingly significant FDI flows to Africa are worth examining. Information on the influence of Malaysian investment in Africa remains substantially obscure. The most recent Malaysia FDI data used in the UNCTAD report were from 2011. The current literature provides little information on the influence of Malaysian investment on African laborers, the environment, or the well being of local African communities. China’s rise has put all its action under the microscope of the international community. It is time for researchers, economists, and policy makers to closely track other emerging trends of investment.

Ms. Tianyi Wang is a researcher with the Freeman Chair in China Studies and Mr. Andy Lim is a researcher with the Korea Chair at CSIS.