When you read headlines such as the one in the title, have you ever wondered what they really mean? “Our aim is to attract investments and improve everyone’s likelihood” or “Attracting investment to modernize the Malaysian economy”.

These taglines have always been thrown around in the media that we read. As fast as that, the laymen will just start to ask “What does it mean?” and “How will it affect us?”.

Even I, a trained economist and investment analyst, struggle to understand exactly what to make of such statements and policies.

Hence, here are 5 explanations of the contribution of investment to economic growth and jobs that I think might be useful for you to understand!

#1: Investments in the GDP equation

Here’s an Economics 101 – the GDP equation. GDP means gross domestic product and measures how much the economy is producing. Think of it like how much you produced and sold in a given year.

GDP is measured by how much consumers spend (C), companies invest (I), governments spend and invest (G), and how much the country export and import.

GDP = C + I + G + ( X – M )

When the statistician measures economic growth, how much companies invest in the economy is included in the equation. The more the companies invest, the higher the GDP is.

This is the explanation from an equations point of view but for you and me, what does investments actually mean?

#2: Investments are important to develop new technology and expertise

What do companies invest in? That’s the big question. If you thought back to the factories that you saw when you were young for school trips, you would have seen machinery and equipment in them.

Those are some of the investments companies undertake. For that milo factory, you saw, the machines grind the coco down to powder making it faster to produce milo. You also need equipment to can the milo tins.

Companies invest in technology to make their production process faster and cheaper. What about you as an employee then?

Companies would invest in software that could make your job easier. Can you imagine having no Excel or Word to do your work? Or no computers? These investments could make you more productive.

Furthermore, companies also send you to training courses (if the company is long-term enough to do this) to acquire new skills and expertise to be better at your job or do a completely different job.

#3: They are also part of constructing places for people to come together

Most of the investments in Malaysia are actually in building spaces and places. This means constructing that apartment, office, factory, commercial, and other physical spaces.

Why is this important? Economic growth and jobs are created by people coming together to create ideas and produce meaningful things and services.

Consider a place like Tanjung Malim. Before this, there weren’t many economic activities there before Proton decided to shift most of their factories there and they are even planning to bring in RM30 billion in investments in the next 5 to 10 years.

Many automotive engineering and research companies and workers inevitably moved there as it was much closer to Proton’s factories. The business was easier to do as they were just down the road, and collaborations between the businesses there made it possible to higher more people.

The same can be said about building houses, malls, and offices together. It is debatable what should be built first but generally, when there are more people around, there is more demand for things and services.

When there is more demand, businesses and shops will enter the market to fulfill that demand. If there is demand, there is supply.

#4: Enable transfer of foreign technology

This is a subject of intense debate even on a global scale. Attracting foreign investments into Malaysia could enable foreign technologies to be transferred.

This model has been in place in many countries since the 1970s. China attracted Japanese train companies to come into its domestic markets and is now also one of the world’s biggest producers of trains.

The Chinese managed to get some of their Japanese counterparts to transfer some of the train-making technologies. The same can be said about U.S. investments in South Korea and Taiwan.

For Malaysia, the making of Proton cars was born from the collaboration with Mitsubishi cars. Without Mitsubishi, Proton would have a tough time building its local technology capabilities. The same can be said about Perodua also.

Foreign technologies, if they are more efficient, could drastically improve local companies’ capabilities but whether they want to share them is another matter.

#5: Basic infrastructure improves everyone’s job prospects

What is the basic infrastructure I am talking about here? To me, it consists of education, healthcare, electricity, water, and transportation.

Let’s start with education. More investments into providing education for primary and secondary goes a long way in improving the skillsets of Malaysians.

Some have said that a university education is becoming a necessity also. I agree but that is only because most companies now want a degree. I argue that you don’t necessarily need a university education to be successful judging on how I only used 10% of my university education in my current job.

Healthcare. A healthy body and mind enable Malaysians to find jobs and contribute. Without adequate healthcare services, many Malaysians will miss work or be unable to find work.

Electricity and water are widely available to many Malaysians, but expensive electricity and water will prevent many from performing daily tasks. Hence, investments need to be made to reduce the cost of these basic services for all Malaysians.

Transportation. Without the means to go to other places, how would Malaysians be able to find higher-paying jobs? If going to work is expensive, why would Malaysians go?

Conclusion

Next time, a politician or government figure talks about investments, bear these 5 explanations in mind to consider whether what they are talking about contributing to the economy or jobs in reality.