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(Bloomberg) — Overcoming foreign investor misconceptions that Malaysia harbors Islamic extremists and lacks infrastructure is Zainal Amanshah’s biggest challenge.

The chief executive of InvestKL, a state agency created to lure foreign investment, laments the lack of knowledge about the country. When he meets global site selection or tax executives from multinationals, they tell him they’ve been to Singapore and Hong Kong, with few having visited Kuala Lumpur.

“So how can you make a decision for KL? That is a problem,” Zainal said in an interview in Singapore on May 13. “Some don’t even know we have infrastructure.”

Malaysia started offering a new package of tax breaks this month aimed at luring more companies to set up regional headquarters in the country. InvestKL has convinced 48 multinationals to locate hubs around Kuala Lumpur since it was started in July 2011, about half the target of 100 by 2020.
While total approved investments in the country reached a record 236 billion ringgit ($66 billion) last year — of which 27 percent was foreign direct investment — Malaysia’s international image has been dogged by concern that the drop in crude prices will hurt the oil-producing nation’s finances.
Business and consumer confidence weakened in the second half of 2014 after the mysterious disappearance of Malaysia Airlines Flight 370 and the loss of Flight 17 over the Ukraine. This year saw the unpopular introduction of a goods and services tax and rising concerns over state investment company 1Malaysia Development Bhd.’s debt, which prompted calls by former leader Mahathir Mohamad for Prime Minister Najib Razak to resign.

Longer Cycles

“The decision cycles are now much longer,” Zainal said, referring to the headwinds. “Whilst the pipeline is strong and the interest is strong because it’s driven by Asean, all this talk about GST and this and that probably does stretch the investment decisions a bit longer.”

Malaysia has still been able to win over companies, and those who are already in the country understand what it offers, he said. “We are an example of a moderate Muslim country.”
While the government previously offered sweeteners to multinational companies, they were industry specific and not as comprehensive as the new program, Zainal said.

“This is game-changing for us,” said Zainal, who has been InvestKL’s head since it was started.
Schlumberger Ltd., the world’s largest oilfield services company, said this month it opened two global support centers near Kuala Lumpur to focus on procurement and human resources transactions for Asia, the Middle East, Europe and Africa. The U.S. company already has a global finance and information technology enterprise management hub in Malaysia.
International Business Machines Corp., the world’s biggest computer services company, announced a plan to invest 1 billion ringgit in 2011 in a technology center outside the capital.
The efforts to entice regional headquarters have helped diversify the economy away from oil and commodities, Zainal said. Fiscal revenue from oil declined to 30 percent last year from 41 percent in 2009, he said.

To contact the reporter on this story: Lars Klemming in Singapore at lklemming@bloomberg.net To contact the editors responsible for this story: Stephanie Phang at sphang@bloomberg.net Shamim Adam