Construction of a processing plant for rare-earth metals in Pahang state attracted much public attention in Malaysia and overseas in March. The facility at Gebeng, near the capital of Pahang state, Kuantan, will be one of the world's largest refineries of rare-earth metals. At present China is the world's biggest supplier of the metals, accounting for around 95% of global supply. Production at the new plant in Malaysia will start in the third quarter of 2011. The output will be strategically important as rare-earth metals are crucial to many high-technology and defence products. In 2010 China temporarily halted exports of rare-earth metals to Japan amid a territorial dispute. The Malaysian plant is being constructed and will be operated by an Australian mining company, Lynas, which will transport rare-earth ore from Western Australia's Mount Weld, claimed by the company to be one of the richest and largest rare-earth-metal deposits in the world. The new facility will benefit from a 12-year tax holiday offered to certain firms locating in the East Coast Economic Region, one of five development corridors announced during the tenure of the previous prime minister, Abdullah Badawi. At current high rare-earth-metal prices, exports could be worth several billion ringgits a year. Malaysia was keen to attract the production facility despite serious environmental concerns about radioactive waste, which typically results from the extraction of rare-earth metals from ore. The chairman of Lynas, Nicholas Curtis, has stated that it would cost four times as much to build and operate such a refinery in Australia.

The construction of the plant is likely to have deepened ties between the governments of Australia and Malaysia, both of which hope to conclude a bilateral free-trade agreement (FTA) in the next year or so. Trade talks between the two countries began in 2005 but were suspended in 2007 when the political emphasis moved to a regional deal between the Association of South-East Asian Nations (ASEAN), of which Malaysia is a founding member, and Australia. The impending FTA between the two countries will formalise long-established economic and diplomatic ties. Australia is Malaysia's 11th-largest trading partner, a supplier of raw materials and education services (ranging from secondary to tertiary), but more importantly, the pursuit of free trade will reinforce Mr Najib's liberal credentials, helping to attract greater foreign investment to the country.

In a progress report on the Economic Transformation Programme (ETP), the prime minister revealed that private investment was likely to exceed the target of M$83bn (US$27.5bn) set by the government for 2011. Mr Najib said that private investment could climb as high as M$127bn this year, made up of ETP projects worth an estimated M$76bn and another M$50.6bn pledged by other local and foreign companies. The M$50.6bn was based on a survey of local and foreign companies, with a relatively poor response rate of 30%. Mr Najib admitted that total investment outlays could be less than M$127bn, but he was confident that the M$83bn target would be met. He also drew attention to the fact that the Tenth Malaysia Plan (10MP), a spending plan for 2011-15, set a private investment target of around M$115bn a year over the period.

At the same briefing Mr Najib announced nine new projects under the ETP, representing some M$2.3bn of new investments. There are 60 projects that have been created under the programme since it began in 2010, with an accumulated monetary value of M$95.1bn, according to Pemandu, the government organisation charged with monitoring the scheme. The most important projects are in wholesale and retail trade, the oil, gas and energy sector, the palm oil industry, the communications sector and the infrastructure sector. The large number of investment plans that have been announced so far by the private sector suggest that Malaysia's investment climate is improving rapidly. More importantly, the projects serve as a reminder to the public of the government's goal of boosting economic activity in 12 areas, known as National Key Economic Areas (NKEA), and the authorities' prowess in policy execution. Mr Najib may be fortunate in terms of the timing of the programme, taking shape as regional economic integration, optimism about economic growth in Asia and growing foreign direct investment (FDI) in the region are making Malaysia an attractive location for both foreign and domestic investors. Progress on removing investment constraints may not be fast enough, but, given the latest trade data on inflows of FDI, foreign investors are beginning to be persuaded by the government's liberalising measures.