Freight forwarders and bumi equity: Looking beyond headlines

 

MP SPEAKS | When issues to do with “bumiputera equity” hit the headlines, most people will make a judgement about the issue before even reading the content of the news article in question.

So, when concerns over the issue of “bumiputera equity” regarding the logistics industry were raised by the Federation of Malaysian Freight Forwarders (FMFF) recently, I am sure that people would have taken sides on this issue just by reading the headlines.

I suspect that when the decision by the Finance Ministry to postpone the bumiputera ownership requirement was reported recently, not many people would have ventured to understand the implications (both positive and negative) of this decision. Again, headline reading only.

To find long-term solutions to these kinds of challenges, the relevant stakeholders need to be able to sit down and explain the details of these issues so that we can avoid the political back and forth of reading and responding to headlines and focus on the substantive points instead.

The chronology of this bumiputera equity issue for International Integrated Logistics Services or IILS, based on my own research, was the expiry of the bumiputera equity condition on Dec 31, 2020.

According to an internal circular from the Finance Ministry, dated Dec 23, 2020, the enforcement of this condition would be postponed until Dec 31, 2021. However, this condition would only be enforced for majority-Malaysian-owned IILS providers who are not listed and who are not bumiputera (more on the problems of these conditions later).

The enforcement of this condition was communicated to the IILS providers in January 2021, as stated in the letter by the FMFF to International Trade and Industry (Miti) Minister Azmin Ali on Sept 18, 2021.

The reason why FMFF sent the letter to the minister on this issue is because the initiative to promote IILS is part and parcel of Mida, the key Investment Promotion Agency (IPA) in Malaysia under Miti, to upgrade domestic logistics players and to encourage foreign investors to invest in the logistics industry in Malaysia.

Negative consequences

There will be many unintended negative consequences if the decision by the Finance Ministry to enforce the 51 percent bumiputera equity requirement is carried out.

FMFF has already outlined some of these consequences such as the short time frame and the challenge of finding suitable bumiputera buyers who are willing to pay a fair price when economic conditions are still very fragile.

Other negative consequences that have not been stated include the fact that some of the domestic IILS providers will move their holding company overseas to Singapore, for example, since the bumiputera equity requirement does not affect companies that are majority-owned by foreign companies.

In the longer term, these companies may even shift some of their logistics business away from Malaysia and this will decrease the flow of goods and services through Westport and Northport in Port Klang, PTP in Johor and Penang Port, just to name a few.

This kind of policy will also reduce the incentives for domestic logistic providers to grow their business in Malaysia because of the fear that once they grow to a certain size, they will be forced to sell a portion of their business and even lose control of their business.

This will also send the wrong signal for foreign investors in the logistics sector, including those who want to make Malaysia their regional transportation hub, because of the fear that they may be forced to sell a majority stake in their domestic operations.

This will mean a slowdown or even contraction in the overall logistic service providers economic output which also mean fewer jobs and less income for Malaysians of all races and backgrounds that are in the logistics sector and less income and corporate taxes for the government of Malaysia.

The decision by the Finance Ministry to postpone the enforcement of this equity rule to 2022 does not solve any of the problems highlighted above in the long run. It merely kicks the can down the road.

Stakeholder engagement needed

What is sorely needed is for the relevant stakeholders including Miti (and Mida), Transport Ministry, the port operators, the logistics operators, business chambers (both local and foreign), financial institutions and politicians from both sides of the aisle to sit down and have a proper dialogue and discussion.

Mida should show the overall positive economic impact and investments which the ILS and IILS policies have had on the logistics sector. Port operators, some of whom are bumiputera or GLC-owned and controlled, should also discuss the positive impact of the IILS policies in terms of growing the overall logistics sector.

I am sure that my colleagues and myself who have experience in Miti, Finance Ministry and the Transport Ministry would be willing to participate in an honest and open dialogue, in the spirit of the MOU that was recently signed by Pakatan Harapan and the “Keluarga Malaysia” government, so that we can have a mature discussion and avoid politicking via newspaper headlines. - Mkini

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ONG KIAN MING is Bangi MP and former deputy international trade and industry minister.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.