Do Bumi businesses need less government?

 

During the seventh Bumiputera Economic Congress, Bursa Malaysia chairman Abdul Wahid Omar revealed that only one of 97 new listed companies in the last three years was Bumiputera-owned.

Although this is a headline catcher, it is not really alarming because a large percentage of the 995 companies on Bursa Malaysia are Bumiputera-owned and managed, and 81.5% are shariah compliant.

In 2013, when Wahid was a minister, 60% of top management in listed companies were Bumiputera.

From an economics perspective, the ethnicity of ownership of listed companies is largely irrelevant to commercial performance or economic impact and will not in general predict good or bad businesses or management.

The main impact of ethnicity is via preferential schemes which exclude others. This is distributional, not additive, so increasing the number of Bumiputera-owned listed companies does not have much meaning in economic terms.

It also presupposes that listing companies is a sign of success, whereas many listed companies underperform non-listed companies, and Bursa Malaysia has underperformed other stock markets for decades.

In the last three years, IPOs on Bursa have raised RM9.8 billion in direct financing. By comparison Yayasan Pelaburan Bumiputra (YPB) and Permodalan Nasional Berhad (PNB) established in 1978 to promote Bumiputera share ownership have RM343 billion of assets under management.

Restructuring will consolidate RM11 billion from Pelaburan Hartanah and RM4 billion from Ekuiti Nasional into this group and provide RM1.6 billion worth of finance facilities to Bumiputera entrepreneurs.

Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP) will ring-fence RM5 billion specifically for Bumiputera companies according to second finance minister, Amir Hamzah Azizan.

In other words, listing is not the only option nor is it the best way for Bumiputera companies to finance their businesses.

Wahid said the low number of Bumiputera-owned companies is due to an excessive focus on public sector policies over private sector development.

No doubt, decades of affirmative action have influenced these outcomes because that is partly what they were designed to do, but whether it is bad or not is subjective.

If affirmative action policies over 50 years have achieved only 18.4% Bumiputera equity instead of the target of 30% then have these policies failed? If they have, why continue with affirmative action in the same form or at all?

A caveat is that even though Bumiputera equity has not reached the 30% target, adding in the Bumiputera share of GLC and GLIC equity owned by all Malaysians helps raise this share. So government agencies may be crowding out private Bumiputera equity ownership.

Rafizi Ramli has a better perspective in his new 10-year Bumiputera economy plan to be launched in June. This will encourage the Bumiputera community to widen its aspirations, take a bigger role as private sector entrepreneurs and rely less on the government.

Too much reliance on government policy and dependency on affirmative action have contributed to the low representation of Bumiputera-owned companies.

Bumiputera companies are also actively choosing not to use stock markets to finance growth because of preferential government schemes.

Wahid also called for the introduction of the Equitable Opportunity Act to ensure that all citizens have fair business opportunities. This would imply that all Malaysians have equal access to opportunities including the Chinese, Indian and other communities.

If so, it is a good idea. If an Equitable Opportunity Act applies only to one group it is not equitable by definition.

Rather than have more “equitable” interference of the type that has failed for 50 years, it is better to deregulate, open up markets and let Bumiputera-owned companies stand on their own feet. They are more than capable of this. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.