The devil’s in the details

(First published in theSun on 25th September 2013 and can be accessed here).

WHEN Prime Minister Datuk Seri Najib Razak launched the Bumiputra Economic Empowerment Council (BEEC), it brought with it more questions than answers.
Since 1971, Malaysia has undergone numerous development plans with the same type of language and goals, starting from the New Economic Policy (NEP).

Each five-year Malaysia Plan had a table detailing the breakdown of ownership of share capital of limited companies by ethnicity. However, through the years, the level of detail in statistical breakdowns has deteriorated. Earlier documents provided richer data than later ones, which hampers comparisons between the plans.

For instance, in the second and third plans (1971-1975 and 1976-1980 respectively), classifications were broken down by “Malays”, or “Malay interests”.

Starting from the Fourth Malaysia Plan (1981-1985), this was replaced by “bumiputra” which included non-Malay bumiputras (with one exception for an ethnic breakdown of poor households in Sabah and Sarawak).

Today, all tables reflective of socioeconomic status under our Malaysia Plans (we are under the 10th Malaysia Plan, from 2011-2015) only show breakdown by bumiputra – this does not distinguish between Malays and non-Malay bumiputra (orang asli and natives from Sabah and Sarawak).

It would have been crucial to make this distinction, since one would expect these two communities to have different needs, within different contexts, and therefore requiring different programmes. Najib in his speech therefore quoted bumiputra corporate company equity rate having gone up to 23.5% in 2011.

This is coming close to, yet not having achieved, the original objective of the NEP launched under the Second Malaysia Plan, with the aim of “… within a period of 20 years, Malay and other indigenous people will manage and own at least 30% of the total commercial and industrial activities in all categories and scales of operation”.

The methodology of calculating this was not clearly spelt out within the plans. This resulted in a paper published in 2006 by a think-tank suggesting that this target had been surpassed, if one included the equity held in care of bumiputra by government-linked companies (GLCs) and nominee companies (the traces of which are extremely difficult to determine based on publicly available sources).

Related to this is whether or not publicly listed companies ought to be evaluated based on par value or market capitalisation – in 2006, the Economic Planning Unit held it ought to be the former when in fact the latter seemed to be a more sensible and accurate measure of equity ownership.

But say that the government’s official calculations are correct, and we take the figures given in Najib’s speech at face value. This would have spelt out tremendous achievements, since bumiputra monthly average household income has increased by 2,500% in 42 years, to RM4,457 in 2012, and bumiputra poverty rate has gone down from 64.8% in the 1970s to 2.2% in 2012.

The bumiputra from the Kadazan, Iban and orang asli communities would surely be delighted to learn of this.

With such stellar performance, one would have thought increased government aid would no longer have been necessary. Herein lies the problem of potential uneven distribution of wealth within the bumiputra community, and it does not help that we only have lump-sum figures to work with.

Strangely enough, Najib states that the 10th Malaysia Plan was aimed at “providing fair opportunities to all Malaysians, regardless of ethnic groups …” and “based on the principle of friendly market, need, transparency and merit”, but within the same paragraph also says that the meritocracy here meant “competition among bumiputra”.

It is only possible to mean one and not the other; both statements cannot be simultaneously correct.

The numerous studies of successful Malay entrepreneurs today ought to be testament to their ability to flourish in a competitive market. The BEEC assumes that the bumiputra needs more help than ever before.

This reverses the prime minister’s commitments made under the New Economic Model, to open up the economy through fairness in government tenders, fair competition, removing market distortions, among others.

In his administration’s efforts to establish greater competition among the bumiputra, he has also singled out bumiputra vendor development systems “based on merit” among “all ministries and GLCs”, including Petronas for the oil and gas sectors.

For instance, specific mention was made that bumiputra companies would benefit from contracts worth RM20 billion each year for upstream and downstream service work.

Petronas Licensing and General Guidelines 2012 does spell out strict procedures of obtaining licences from Petronas. This already requires that any company must have bumiputra involvement at the equity, directorship, management and employee levels at certain levels.

No details on the licensing process after negotiations is usually made available thereafter, apart from a media release published online on the successful contract awarded.

One concern here is the lack of transparency and accountability, since this usually involves large sums of money and the only oversight on Petronas being that of the prime minister, as stipulated by the Petroleum Development Act 1974. This is especially so if licensing changes are made without having to follow any approval process.

Transparency is a problem for issues of aid anywhere in the world. Even in the realm of international aid, charities and celebrity donors are told how many gunny-sacks of rice are being flown in to a Third World village. But they don’t know how much rice exactly is being given to whom.

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