Are GLCs and statutory bodies a crock of gold?

Two major policy shifts recently announced by the government can transform corporate Malaysia and government finances in one blow.

First, to set up a secretariat for the rationalisation study of federal statutory bodies and second the audit of 2,000 GLCs by the auditor-general.

Reform of statutory bodies is essential to rationalise government finances through eliminating overlaps, cutting operating expenditure and curbing leakage.

According to the Institute for Democracy and Economic Affairs, the 2022 Auditor-General’s Report lists 132 federal statutory bodies (FSBs) with many more agencies and subsidiary entities, including public universities, that can be rationalised.

They have assets of RM2.492 trillion and take 5.1% of government operational expenditure. Their debts, accounting for 6.4% of total public sector debt and 5.1% of GDP, are also guaranteed by the government.

This includes EPF which should not be included because the assets are owned by the account holders, not the government. A reasonable estimate now in 2024 would exceed RM1.2 trillion.

The savings from administration are significant but the most important savings will be through changing management approach to cut losses through wastage, leakages and corruption and bad investment management which have lost tens of billions across all FSBs.

For example the 2024 Auditor-General’s Report showed that Felda lost RM1 billion in 2022 alone and owed RM8.8 billion to external institutions.

There are also possible revenue options if some of the FSBs are privatised through a responsible privatisation strategy.

Cutting losses and revenue from responsible privatisation can reduce government debt and debt finance costs, and release money for priorities such as education, health and social protection.

A full cost-benefit analysis and assessment of how to achieve the best results is necessary and it is perfectly feasible.

The audit of 2,000 GLCs will identify viable going concerns and dormant companies that can be sold or closed. It will also highlight under-performing companies in need of new strategies and rationalisation.

The money raised and saved can then be put to better use. If the audits can find just RM1 million of savings and improvements in each company it would raise RM2 billion in extra resources that can be put to better use in innovation and growth.

The GLCs have thousands of subsidiaries which are under-performing and could be reformed through responsible privatisation, including sale to employees, community groups or others with a clear social agenda.

This can also raise revenue from underused assets, buildings and land. In a 2017 research, academic Terence Gomez suggested that the top 30 GLCs had 68,000 subsidiaries, if each was privatised for only RM1 million there would be RM68 billion in potential revenue.

In addition these subsidiaries are often preferred in tenders for GLC contractors above private companies and SMEs. Auditing them will help create an agenda to cut crowding out.

Additionally GLCs are often under-performing or dormant but still have board positions and senior managers appointed through patronage. Auditing and rationalising them cuts these patronage cascades and reduces corruption.

The change in criteria for GLC appointments is also important because it opens up opportunities for senior managers especially in under-represented groups such as women or young executives and makes appointments available on merit. This should help to improve the quality, credibility, accountability and transparency of GLC management and governance.

Eligibility for bonuses should be based on the performance improvements of GLCs across revenue, profits, employment, wages and incomes, investment returns and social and environmental indicators.

The opportunity for the government is to ensure that these quality improvements translate into value-add as well as raising income through business improvements or privatisation. This is the type of competitive, agile industrial transformation Malaysia needs. - FMT

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