NEM still carrying through the affirmative action (NEP) agenda?

Prime Minister VI Dato’ Seri Mohd. Najib Tun Razak announced his ‘New Economic Model’ (NEM) on 30 March 2010, as a transformation plan for Malaysia to move forward, especially in the challenges of globalisation and dynamism of the ‘innovative economy’. Malaysia is set to be a ‘high income economy’, which is on the third phase of socio-economic development strategic plan since Merdeka a little over 52 years ago. The agenda of ‘Vision 2020’ for Malaysia to be developed nation status still stands.

The media, especially mainstream carried the announcement across the board. Many are bullish about the prospects of the NEM transforming the economy to be more than double, within 10 years. The ‘broad-strokes’ are promising, to a point of inspiring for the optimists. However, the fine graphical lines have yet to be seen. Needless to say, many are willing to give the NEM a chance despite that some Malay NGOs already crying foul that the ‘Malay Agenda’ is feared to be excluded, whether in spirit or practice. This is something potentially emotional which the skepticism is already gathering momentum.

Yesterday, MSMs carried the story the agenda of the affirmative action plan, designed to alleviate the socio-economic status of majority of Malaysians especially in the rural areas and eradication of poverty seen from New Economic Policy (launched by Prime Minister II Tun Abdul Razak Hussein in 1971) and later renewed and adrenalised further in New Development Plan (launched by Prime Minister IV Tun Dr. Mahathir Mohamad in 1990) is to be carried through in the NEM.

Bernama report:

Affirmative action policy to be more merit-based
‘Let’s create sense of belonging,’ says PM Najib

2010/04/04

KUALA LUMPUR: The government will not do away with its affirmative action policy but will carry it out in a fairer and more transparent manner to improve the lives of Malaysians in the bottom 40 per cent of the population, Datuk Seri Najib Razak said last night.

The prime minister said the implementation of the policywould be more market-friendly, more merit-based and more on a needs basis.

“For example, I say if you want to eradicate poverty, if you want to address the lower 40 per cent population with income below RM1,500 a month, you must take care of the non-Malays or non-Bumiputeras as well.

“When you talk about Bumiputeras, it is not synonymous with Malays. What about the Iban, Kadazan, Bidayuh and the like? They are also Bumiputeras and they have the same rights,” he said in an exclusive interview aired by Bernama TV in conjunction with his first year in office.

The special interview on “Setahun di Aras 5: Temubual Khas Bersama Perdana Menteri” (One Year on Level 5: Special Interview with the Prime Minister) was helmed by Bernama deputy editor-in-chief Zulkefli Salleh and economic service editor Mikhail Raj Abdullah.

Najib took office on April 3 last year as Malaysia’s sixth prime minister
and, in the last 12 months, has introduced a slew of measures, including the 1Malaysia “People First, Performance Now” concept, the Government Transformation

Programme and, on March 30, the first part of the New Economic Model (NEM).

“Let us not be too corrupt with a certain way of looking at things, but let us look at ways that really create the sense of belonging that we are together as one nation and one people.”

Najib was responding to a question on Perkasa, a Malay non-governmental organisation that had said that 67 per cent of the country’s wealth should belong to the community.

He said the government’s goal to raise per capita income from US$7,000 to US$15,000 in 10 years, as outlined in the NEM, referred to average income.

“Obviously, not everyone will earn US$15,000. It is the same in any country. There will be rich people and there will be poor people. But the poor should not be overly poor to the point of being destitute.”

He also called on employers to improve their working environment and set higher salaries to entice Malaysians to take on jobs considered dirty and dangerous.

“Employers should do this and not make it too easy for them to hire foreign workers. And if we can increase the levy on foreign workers to be commensurate with the number that they want to hire, then there comes a point where it makes more business and economic sense to engage Malaysians, not foreigners.”

He spoke of a paradigm shift to move Malaysia from being a low-cost producer to an innovative economy to draw talent, including Malaysians working abroad because of better wages.

On the 1Malaysia concept, he said it was an idea mooted following discussions with groups to create a new instrument to strengthen solidarity.
“I frequently invite groups for discussion and exchange of ideas and when I outlined the idea, when we had a brainstorming, the idea of 1Malaysia came up.

“They (the opposition) dare not attack the 1Malaysia concept. They cannot dispute it, so they try to destroy and tarnish the concept by alleging that the idea came from another country. This is slander.” — Bernama

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NEP and NDP managed to bring up the Bumiputeras’  (as the 65% of the populous) ‘ownership’ of wealth from below 2.4% in 1970 to 19.8% in 2000. Programs like unit trusts such ASN and ASB under Permodalan Nasional Berhad (PNB) consolidate wealth previously owned by foreigners and galvanised strength of the full potential of these corporations and eventually managed to spread the ownership of high value and blue-chip corporations to the masses. Bumiputeras are encouraged to be in SME/Is in various specific programs, intensified after NDP was revved up into high gear. During Fourth Prime Minister Tun Dr. Mahathir’s tenure, essential services and several Government operations were corporatised and Malay professionals were exposed to corporate management and games, which proven to be very successful in the expansion of Bumiputera controlled PLCs.

Malaysia Inc. was born. A lot of the nation’s infrastructure was privatised and Bumiputeras who were allowed to developed themselves in these corporations, prevailed. Government Linked Companies (GLCs) were born and went through an exponential growth rate in form and substance. Malay controlled corporations grew into giants and world class conglomerates. Some even made it into the Fortune 500 list. The public sector-private sector successful partnership is now being revived back in the NEM. Within 30 years of NEP, Malay professionals now have proven themselves to be world class managers and owners of PLCs.

All of these managed to create a pool of Bumiputera controlled asset based conglomerates and PLCs, which is now the bulk of the 19.6% of wealth of the nation now in the hands of the 65% of the citizens. Besides GLCs led by Khazanah Holdings Bhd.(TNB, TM, Axiata, Malaysia Airlines, CIMB etc), PNB (Maybank) and conglomerates such as Sime Darby, Johor Corp, Bukhary Group, Sapura Holdings, Emkay Holdings, UEM and Naza Holdings became training grounds to multiply and expand the talents of Bumiputera professionals, especially amongst the Malays.

However, the practice in the market even by GLCs is not reflective of the ‘agenda’. In fact, it is very much contrary to PM Dato’ Seri Najib’s announcement that the affirmative action plan as a national policy is here to stay, for the same spirit that NEP and NDP were devised and implemented. Malaysia have seen change of policies before. However, the ‘interegnum’ period of PM ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi (2003-2009) saw so many that have been put in place and worked by previous administrations, especially the industrial transformation boom during Tun Dr. Mahathir Mohamad’s tenure (1981-2003).

Every time after new policies have been announced, television news reports are quickly followed by heap of praises by some not too unfamiliar faces on how the policies are timely, exactly what are needed by everyone, how the policies will further improve our country and so on. In all fairness, sound policies should be encouraged and praised.

Setting the right policies are of course very important. Get them right, we will even be what so many are dreaming of right now – being a truly ‘high income economy’ with high degree of competitiveness, economic liberalization, transparency, social equalities and what ever benefits associated with them.

What many people conveniently forget is that these policies often require for employment of right resources that must be steered into the right direction. This is the part where we must thread very carefully and it is rather worrying that none of those who heap praises on the PM Dato’ Seri Najib’s recent announcement of the NEM have cautioned the side-effects of the newly announced policies.

In his speech on the NEM, the PM Dato’ Seri Najib talked about accelerating the rate of divestment of GLCs in order to “enhance private sector opportunities and appropriately recalibrate the relationship between the public and private sectors”.

Every now and then, it is inescapable that, when policies (and the top people) are changed, there appears to be resources that are classified as ‘non-core’ or ‘non-competitive assets’. How does assets classification work? It is never terribly difficult to come up with the convention on what are deemed as ‘non-core’ or ‘non-competitive’. One may just need to redefine the present situation.  In reality, such classification depends on the degree of difficulties of justifying their divestment.

Take for example scandal of the sale of MV Augusta, during PM ‘Flip-Flop’ Abdullah’s and ‘Level Four Boys’ watch. The sale consideration for 1 Euro was spun in such a way that in the end, the spin doctors even made it look like the previous management were at fault for buying the motor cycle builder in the first place. The initial act of purchase was deemed so bad that in the end, the sale for 1 Euro should be easily considered as a smart move. Never mind about subsequent resale of a unit of Huqsvarna, a unit of MV Augusta to BMW for undisclosed sum  and the subsequent sale of MV Augusta to Harley Davidson for USD100 million. How strange that very little is said about the deal maker of that 1 Euro sale. It is not hard to imagine that such deal maker extraordinaire undoubtedly never needs to work for his living again for the rest of his life.

Currently, they are not very visible at the moment. Not much appears on the corporate radar. Nevertheless, this is the time when the vultures are fully awake and busy at work looking for delicious deals. With the help of some ‘sympathetic’ parties, it would not be too difficult to pry on assets of GLCs and it is even easier when the regulators are looking the other way. It happened to Avenue Capital and this episode even reminded us that the vultures can even resort to share swapping transactions aided by accounting hocus pocus of goodwill and assets impairment. The vultures in this case need not even have a respectable war chest before devouring their meal.

The NEM, will no doubt be used by some people to justify the sale of assets of GLCs in the manner that it is easy to forget the reason for their existence. It is true that there are some GLCs that are competing with private Bumiputera business. There are even some that are (consistently) loss making and uncompetitive and their propose disposals are therefore academic.

The bulk of the GLCs however have exposed many Bumiputera professionals to corporate and international business. They would not have otherwise been able to horn their corporate and management skills and many of them have, later on, added to the pool of capable professionals that private sectors have tap into. Some of the GLCs have also made it possible for Bumiputera to involve themselves in businesses that otherwise would entirely be the playground of those other than Bumiputera. For instance,  ‘Non Mandarin speaking’ professionals are working in companies that are colonial legacies which, prior to them being GLCs, were already competing as private businesses. They are used to competing with others and they even do so at international level. It is these types of GLCs that are actually worth more than their monetary value due to their contribution in enhancing the interest of Bumiputera in the corporate world.

The NEM therefore must not be used to justify the sale of GLCs and their assets just because some vultures say they are to ‘enhance private sector opportunities and appropriately recalibrate the relationship between the public and private sectors’. The vultures will no doubt spin their way, pay for sums that will be glossed as ‘way above the market value’ and their sales are pacified by virtue of  ‘releasing the GLCs of non-core and uncompetitive businesses’.

The funny thing is that no matter how these assets are considered as ‘non-core’ or ‘non-competitive’, there will always be some who are drooling to land these assets. Vultures, by nature, always do!

Published in: on April 6, 2010 at 10:22  Comments (7)