Opportunities And Challenges For Fdi In Tourism Industry In Malaysia

Opportunities and Challenges for FDI in Tourism Industry in Malaysia

CONTENTS

1 Introduction 2

2 Overview of the tourism industry in Malaysia 2

2.1 Arrivals and Receipts 2

2.2 Composition of visitor arrivals 4

2.3 Performance of sub-sectors and new investments 5

2.3.1 Hotels and Lodgings 5

2.3.2 Special Tourism Products and Services 6

2.3.3 Related transportation service 6

3 Opportunities for FDI in tourism industry in Malaysia 6

3.1 Healthy tourism business environment 6

3.2 Attractive potential market 8

3.3 Policies and incentives 9

4 Challenges for FDI in tourism industry in Malaysia 10

4.1 Competition between countries and industries 10

4.2 Political risks 11

4.3 Force majeure 11

5 Promote inward FDI 12

6 Conclusion 12

References: 13

1 Introduction

Consistent with the overall improvement of the global tourism market, the tourism industry in Malaysia also experienced a positive increase in recent years, supported by the strong government policy thrust. This essay will look into the opportunities and challenges for foreign direct investment in this sector in Malaysia, and put forward suggestions for the government on how to promote inward FDI.

2 Overview of the tourism industry in Malaysia

Malaysia has a wide range of tourism destinations. With its blessing of diverse cultures, traditions and histories, coupled with various landscapes and natural resources, the country has a strong appeal for both domestic and international tourists. Tourism industry, therefore, is of great importance to MalaysiaЎЇs economy as one of the major foreign exchange earners second to the manufacturing industry.

2.1 Arrivals and Receipts

The tourism industry reported an increasing trend in the last 5 years. ÐŽoTourist arrivals are expected to grow at an average rate of 6.9 per cent per annum to reach 14.3 million by 2005. Tourism receipts are targeted to grow at an average annual rate of 9.5 per cent to reach RM 29.5 billion in 2005.ÐŽ± (Eighth Malaysia Plan2001-2005, pp.445) The plan for tourism was generally realized except for the falling down to 10.6 million in 2003 which was due to the Severe Acute Respiratory Syndrome (SARS). However, the arrivals increased tremendously by 49% reaching 15.7 million in the following year. And arrivals in 2005 were also spurred despite of the exchange rate events in the first six months-ÐŽothe continued depreciation of the US dollar on global markets, and ringgit appreciating against the greenback (the Malaysian currency was pegged to the US dollar at a fixed rate until July 2005), as well as the declining cost of air travel in the countryÐŽ±. (Tourism forecast Q4-2005, pp.2)

Table 1 Arrivals in Malaysia: 2000-2005

'000 people

% growth

2000 10,221.6 -

2001 12,775.1 25.0

2002 13,292.0 4.0

2003 10,576.9 -20.4

2004 15,703.4 48.5

2005 16,723.1 6.5

Source: Euromonitor International from trade interviews and official sources (including Tourism Malaysia Key Performance Indicator 2004), cited in Travel and Tourism in Malaysia, 2006, pp.22

With the increase of arrivals, the incoming receipts from tourism enjoyed substantial growth from 2001 to 2005 as well, that is, from RM 17 billion to RM 34 billion, generally an increase of 160%, except only one year downturn in 2003. Tourist receipts in Malaysia accounted for approximately 7% of its GDP in 2005, which means the tourism industry has been identified as a key driver in the growth of the economy during the Eighth Plan period.

Table 2 Incoming Tourist Receipts: 2000-2005

RM million

Current Constant

2000 17,335.4 17,335.4

2001 24,221.5 23,883.1

2002 25,781.1 24,969.5

2003 21,291.0 20,405.0

2004 29,651.4 28,011.3

2005 34,071.3 31,313.4

Source: Euromonitor International from trade interviews and official sources (including Tourism Malaysia Key Performance Indicator 2004), cited in Travel and Tourism in Malaysia, 2006, pp.23

2.2 Composition of visitor arrivals

The composition of visitor arrivals was changing slightly, with the most growth from within Asia, especially from ASEAN (Association of South-East Asian Nations), followed by Europe, the USA, Oceania and Africa. ÐŽoThe top three countries of origin for incoming tourists remained unchanged over the review period. The results of an established communication network between its neighboring countries, Indonesia, Singapore and Thailand accounted for over 70% of total tourist arrivals in 2005.ÐŽ±(Travel and tourism in Malaysia, pp.24) Besides, the increase of Middle Eastern arrivals during this period was also one of the reasons for the expanding.

Table 3 Arrivals by Country of Origin: 2000-2005

'000 people

2000 2001 2002 2003 2004 2005

Australia 236.8 222.3 193.8 144.5 204.1 288.2

Brunei 195.1 309.5 257.0 215.6 453.7 454.2

China 425.2 453.2 557.8 350.6 550.2 294.4

Hong Kong 76.3 144.6 116.4 72.0 80.3 73.7

India 132.1 143.5 183.4 145.2 173.0 224.1

Indonesia 545.1 777.4 769.1 621.7 789.9 972.5