AN early 15th general election (GE15) in 2H 2022 is poised to bring greater political uncertainty in the run-up to the elections, hence dragging slightly on private infrastructure investment (PFI) growth.
While the increased political uncertainty associated with the elections will likely slow down the recovery of private sector investment in the market, historical investor appetite nevertheless suggests that the downward pressures on private sector interest will be limited, according to Fitch Solutions Country Risk & Industry Research.
“Likely due to the commodity price crash in 2014-2015 and the 1Malaysia Development Bhd (1MDB) scandal, the nominal value of annually completed works on privately-owned projects in Malaysia’s infrastructure sector contracted by 7% in 2014 and 2015,” observed the research house in a commentary.
“Despite protests following the 1MDB scandal in 2015 and heightened political risk following the 2018 general election, private infrastructure investment grew by an average of 6.8% per year (nominal terms) between 2016 and 2019 until COVID-19 hit the sector in 2020.”
In the medium term, Fitch Solutions expects private sector participation in Malaysia’s infrastructure industry to expand beyond its pre-COVID-19 scope, supported by lower levels of political risk and a generally beneficial operational risk environment.
“If elections were to be called soon which remains our core view, we believe that UMNO and its BN (Barisan Nasional) coalition would be able to form a government with a stronger majority, thereby benefiting the policymaking process,” suggested the research house which is independent from Fitch Ratings.
“Nonetheless, we expect reform momentum to remain slow. Factional disputes are likely to continue in the background while the fact remains that the Malaysian electoral landscape is now much more competitive than when BN was dominant during the first 61 years of Malaysia’s independence and reforms.”
Accordingly, Fitch Solutions also expects political uncertainty to be higher than pre-2018 but lower than from 2018 to 2022.
“As we saw continued growth of private infrastructure investment throughout the politically uncertain environment of 2018 and 2019, we expect that private infrastructure investment will likely expand beyond its pre-COVID-19 levels in the medium term,” projected the research house.
“The Government will continue to pursue the 12th Malaysia Plan (12MP) which stretches from 2021 until 2025 and we expect that Government focus on the sector will serve to support private infrastructure investment in the sector in line with the Government’s aim to attract more private sector participation.” – July 14, 2022
