Columnists

Thinking Liberally

Tuesday, 24 May 2016

State more dominant in business

The Government has a stronger grip on the largest companies in Malaysia, owning about 47% of the KLCI.

THE New Economic Model (NEM) was among the important documents published in the early years of Datuk Seri Najib Tun Razak’s premiership.

It was produced by the National Economic Advisory Council (NEAC), which was set up to formulate a plan to drive Malaysia’s transformation into an advanced nation by 2020.

The two-part document is specific when it comes to the role of Government in business. Let me quote directly from the documents.

The NEM says, “Malaysia’s economic engine is slowing. Since the Asian financial crisis of 1997, growth has been lower than other crisis-affected countries, while investment has not recovered.

“Private investors have taken a back seat. In some industries, heavy Government and government-­linked company (GLC) presence has discouraged private investment.”

It then says that one of the “old” approaches that is still prevalent in the economy is “Dominant state participation in the economy, large direct public investment (including through GLCs) in selected economic sectors” and hints that the NEM will change this.

The NEM adds, “While this ap­proach may have served the country well in the past, it is unlikely to provide the dynamism needed to spur the country to developed country status.”

It goes on to say, “The Government as both business owner and regulator of industries faces conflicts of interest that can give GLCs an unfair advantage over private firms.”

To spur private sector investments, the NEM says we will “divest GLCs in industries where the private sector is operating effectively.”

And further, “In sectors where the private sector is operating effectively, GLCs will be privatised. Remaining GLCs will be required to operate on a commercial basis without Government preferential treatment.”

I could go on and quote much more from the two NEM documents, but I think the above is sufficient to illustrate how the Govern­ment knows that GLC dominance in the economy is bad for our future.

In 2011, the Performance Manage­ment and Delivery Unit (Pemandu) included in their Eco-no­mic Transformation Pro­gramme a Strategic Reform Ini­tiative (SRI) called “Reducing Govern­ment’s Role in Businesses.”

In their 2014 Annual report, Pemandu said that the Government is committed to shifting the Government’s role in business from investor to facilitator.

They also said that they want to do three things, namely “clearly establish the Government’s role in business, develop a clear divestment plan, and establish clear governance guidelines for Government and state-owned companies.”

However, in Pemandu’s 2015 Annual Report that was released last month, the whole target of reducing the Government’s role in business was reduced to just a small footnote on page 10 of their annual report, which reads “divestment had been completed by the 33 companies that had committed to do so at the launch of the SRIs in 2011.”

There was no mention of the three things they wanted to do, but they implied complete success in achieving this SRI.

I checked what actually happened in the markets. Unsur­prisingly, I found that the commitment to reduce the Government’s role in business remains unfulfilled and the Government has in fact gone the opposite way.

The full findings can be found in the paper entitled “Lesser Government in business: an unfulfilled promise?”, available from Ideas’ website.

Pemandu claims a 100% achievement rate when it comes to divestment of companies under GLCs and government-linked investment companies (GLICs).

This is true only if we talk about the 33 companies Pemandu identified in 2011 and nothing else.

But if we talk about the actual state of Government’s role in business as envisioned by the NEAC in the NEM, the Government has not succeeded.

From 2011 to 2015, the Government’s share in the 30-stock FBM KLCI actually increased from 43.7% to 47.1%, indicating that the Government now has a stronger grip on the largest companies in Malaysia.

The Government has also increased its investments in private companies as compared to its disposals.

We found that the total value of GLC acquisition was RM51.7 billion, and this dwarfs total disposals, which only stands at RM29.5 billion.

To illustrate how bad it is, did you know that when you eat at Popeyes, Tony Roma’s or Manhattan Fish Market, you are actually eating at restaurants that are majority-­owned by the government?

Frankly, this is really weird because as far as I know, the only other Governments actively building restaurant chains are either Marxist or totalitarian, like North Korea with their Pyongyang Restaurant brand.

Pemandu hides the bigger story, which is that the Government has actually not reduced its overall role in business. Their grip has actually increased.

In fact, Pemandu itself has set up a new GLC called the BFR Institute, entering the consulting market which was previously free from direct Government interference.

They may have even gained an unfair advantage because they used the Prime Minister’s Office as their official address, until I alerted them about it. They have since changed their address.

There is a lot of work that needs to be done if the Government is still committed to achieving their own target.

Claiming to have achieved it when they haven’t is not the right thing to do.

Wan Saiful Wan Jan is chief executive of the Institute for Democracy and Economic Affairs (www.ideas.org.my). The views expressed here are entirely the writer’s own.

Tags / Keywords: Wan Saiful Wan Jan , columnist

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