Govt has failed to reduce its role in business, says report

KUALA LUMPUR: Has the government succeeded in achieving its aim – announced on Sept 21, 2010 – of reducing its involvement in business?

The answer, provided by a report in The Edge, is: No. Seven years on, the report said, the goal had not been “meaningfully achieved”.

Many observers, it added, argued that the government’s involvement in business had, in fact, increased over that period, despite official numbers showing it had divested 33 identified government-linked companies (GLCs).

As an example, the report noted that between 2011 and 2015, the government — via various government-linked investment companies (GLICs) — saw its share of the benchmark FBM KLCI companies’ market capitalisation rise from 43.7% to 47.1%, according to data compiled by the Institute for Democracy and Economic Affairs.

The Edge quoted political economist Prof Dr Edmund Terence Gomez as saying that while there were many factors at work, one was the nature of Malaysian politics, especially that of Umno, which had a culture of rent-seeking and patronage.

Selective patronage due to affirmative action goals

Another challenge was aligning this goal with the affirmative action goals under the Bumiputera Commercial and Industrial Community (BCIC) agenda.

“It’s difficult to get [the reduction push] to conform to the BCIC policy — there are very few bumiputeras who have the capacity to take over these companies and turn them around. And if you start channelling them to a select group, it raises concerns about selective patronage,” he was quoted as saying.

Apart from opacity, the depth of the government’s involvement in business presents potential issues, including the inherent room for patronage and potential abuse.

Much of the influence is concentrated in both the prime minister’s and finance minister’s roles. Since 2001, in Malaysia, the prime minister also holds the post of finance minister.

“Since then, no prime minister has bothered to give up the finance minister’s post. Whoever controls the ministry of finance has an enormous source of patronage,” The Edge quoted Gomez as saying.

Appointment of politicians to directorships a prevalent practice

Another prevalent practice, the report added, was the appointment of politicians to directorships at some GLCs.

A 2013 paper by the Asian Development Bank, co-authored by Jayant Menon, who is lead economist for trade and regional cooperation at the ADB, highlights how GLC dominance in a sector negatively affects private investment, which has been sluggish since the 1997 Asian finance crisis.

Also, state-owned enterprises running into difficulties drain public resources, which could be better used elsewhere, The Edge quoted Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC), as saying.

The way forward, insofar as the government’s involvement in business is concerned is to ask some hard questions.

These questions, according to Gomez, were: “Is it in the interest of driving economic growth, is it in the interest of nurturing domestic firms? Is it in the interest of ensuring equitable growth and just development? Or is it in the interest of patronage and rent-seeking, or in the interest of targeting certain groups only because they serve political interests to win elections?”

The importance of special oversight committees

The report said a logical way forward was to have the GLICs and GLCs accountable to Parliament via special oversight committees as proxy for the people.

“The management of public funds in carrying out nation-building objectives requires greater scrutiny. It is proposed that the GLCs be subject to checks and balances by the parliamentary oversight committees,” SERC’s Lee was quoted as saying.

Agreeing, Gomez added: “And I would also argue that the select committees must be run by opposition members of parliament so that there is real check-and-balance.”

Another is defining the government’s role in business in the Malaysian context.

The report said the government needed to be more transparent about the extent of its reach in the economic sectors, as only then would the public have a better understanding of what the impact was on the private sector and what further reforms were needed.

On the private investment front, the government also needed to expedite its divestment programme, in addition to addressing its growing fiscal deficit, ADB’s Menon was quoted as saying.

“While a growing fiscal deficit and rising dominance of GLCs may both be crowding out private investment, a genuine privatisation programme designed to reduce the role of GLCs would also address the fiscal constraint, providing a further boost to the investment climate,” he said.

To the question as to the future of the nation if things remained as they were, Gomez said: “Our politicians are failing us because they are letting political issues dictate the way we move forward.”

There are seven GLICs at the federal level, including the Finance Ministry’s corporate vehicle — Minister of Finance Incorporated (MoF Inc) — Employees Provident Fund (EPF), Permodalan Nasional Bhd and Lembaga Tabung Haji (TH).

The Edge reported that MoF Inc alone had a majority shareholding in 65 companies, according to the Finance Ministry’s website. It was unclear if the list was exhaustive and included subsidiaries controlled by the 65 firms, it added.

MoF Inc also has one golden share each in 33 other companies, which gives special rights that include the appointment of their executive managements.

“These are GLCs at the federal level. We have not even gone down to the state entities,” The Edge quoted SERC’s Lee as saying.

The Edge report also gives a list of federal government-linked investment companies and companies linked to MoF Inc. -FMT