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From: Tengku Intan
Date: 04 May 1999
Time: 02:55:01
ECONOMIES Malay Dilemma Recession hits state-aided entrepreneurs hard
By S Jayasankaran in Kuala Lumpur May 6, 1999
In the mid-1980s, the Malaysian government gave Tajudin Ramli's Technology Resources Industries an effective monopoly on the mobile-phone market. He used it to build the country's largest mobile-phone network. The government then allowed the entrepreneur to buy state-owned carrier Malaysia Airlines for 1.8 billion ringgit ($473 million) in borrowed funds. Today, the airline has debts of almost 10 billion ringgit and awaits restructuring. An ethnic Malay, Tajudin has gone from being a poster child of Malaysia's affirmative-action New Economic Policy to an example, in the eyes of NEP critics, of significant flaws in the policy that have been highlighted by the economic downturn. In particular, some analysts and businessmen say, the recession has shown that the government's efforts to nurture a class of indigenous, or bumiputra,entrepreneurs are not working. Bumiputra businesses have been especially hard hit by the slump, according to the government's recently released Mid-term Review of the Seventh Malaysia Plan (1996-2000). Although figures are hard to come by, there's a debate brewing in Kuala Lumpur about better ways to promote entrepreneurship among the Malays and, indeed, about how the goals of the NEP should be pursued in the future. Launched in 1971, the NEP aimed to redress the economic imbalance between the majority bumiputras--mostly Malays-- and the wealthier Chinese minority, among other objectives. At the time, bumiputras comprised 64% of the population but owned a mere 2% of national wealth, defined as ownership of company share capital at par value. The NEP sought to raise bumiputra ownership of national wealth to 30% by 1990. The target has yet to be met: Last year the figure stood at 19%, down from 21% in 1995, according to the Mid-Term Review. (The Chinese share was 39%, down from 41%.) Several major initiatives have been introduced to increase Malay ownership of corporate assets. In the 1970s and 80s, the government set up state trusts for bumiputras. The largest trust, for example, bought strategic companies such as Sime Darby, Malaysia Mining Corp. and Maybank, mostly from foreign interests. Then Daim Zainuddin, finance minister from 1984 to 1991, took the policy one step further. He sought to groom bumiputra tycoons by awarding privatization deals to handpicked businessmen so that they could compete not only with the Chinese but globally. Tajudin Ramli was one such protege.
Other Malay tycoons suffering from the recession include Halim Saad, whose Renong group now owes 28 billion ringgit--5% of Malaysia's total bank loans; Mirzan Mahathir, who sold the shipping assets of his flagship Konsortium Perkapalan to reduce debt estimated at 1.6 billion ringgit; Rashid Hussain, who may lose control of his financial empire; and Azman Hashim, whose holding company, Amcorp, is heavily indebted. That is not to say there are no capable bumiputra owner-entrepreneurs--there are quite a few on the Kuala Lumpur Stock Exchange, as well as many who aren't listed.
But the irony, say analysts, is that very few companies run by bumiputra tycoons can now measure up to those owned by the National Equity Corporation, the largest state trust, which leaves the management of its companies to professionals. "Too much has been given to a small group of selected people instead of having a wider agenda," says Ghazali Atan, an economist turned fund manager. "There should be some sort of means test of selection and people who don't perform should be punished." Another initiative to foster Malay entrepreneurs came in 1991, when the NEP was replaced by the National Development Policy, which retained the NEP's goals.
The new policy envisaged the creation of small and medium-scale bumiputra businesses--a Bumiputra Commercial and Industrial Class, in the official jargon. The BCIC was to be created through state-funded venture capitalism, the granting of franchises, appointment as parts suppliers for "anchor companies" like national car maker Proton, and other assistance programmes. Has the BCIC project worked? The Mid-term Review said BCIC businesses were hard hit by the recession because they "were inexperienced, had very little lead time to establish themselves and were highly dependent on the government, anchor companies . . . and others for their operations."
Government officials privately admit that bumiputra businesses are faring much worse than their Chinese counterparts in coping with the downturn. And a Malay businessman worries that many small bumiputra companies "are waiting for government help while their Chinese counterparts have slashed costs and closed unprofitable operations." He warns: "In two to three years, the productivity gap between the Malays and Chinese will become wide, because the Chinese will be in a position to rebound the fastest during recovery."