Published in Free Malaysia Today

by Wan Saiful Wan Jan


Malaysia is a country that has been dominated by government intervention in the economy, especially since Tun Abdul Razak introduced the New Economic Policy (NEP). Today, even the government led by his son knows that the government’s role in the economy needs to be curbed.

In the early years of Najib Razak’s premiership, the New Economic Model (NEM) was touted as the policy that would help us graduate into a high income nation.

The NEM was explicit in its demand for the government’s role in business to be reduced. It states that dominant state participation in the economy through large direct public investment, including through state-owned enterprises (SOE) is an “old approach”.

The “new approach” envisaged by the NEM is one that is led by the private sector, through the promotion of competition to revive private investment and market dynamism.

The NEM comments specifically about the roles of SOEs in the economy. It argues that domination of SOEs is “unlikely to provide the dynamism needed to spur the country to developed country status”.

The NEM even says that we should be worried about the size of these SOEs because “their mere presence may inhibit expansion of new firms”.

After the NEM was published, the Performance Management and Delivery Unit (Pemandu) developed their Economic Transformation Programme (ETP). They took on the challenge of trying to reduce the government’s role in business.

The latest Pemandu Annual Report was released in April this year and the government has claimed that they have fully achieved their target on this matter. By logic, this should have meant that the role of government in business has been reduced.

When we checked the government’s claim, we found that this claim is not true. Our calculation shows that the government’s share in the KLCI increased from 43.7 percent to 47.1 percent, indicating that government control of the largest companies in Malaysia has actually increased.

On top of that, the government has also increased its investments in private companies as compared to its disposals. Data indicates that the total SOE acquisition value of RM51.7 billion dwarfs the total disposals at RM29.5 billion.

This made me very curious about what else is the government whitewashing when it comes to government domination of the economy.

Therefore, Ideas commissioned Dr Edmund Terence Gomez, professor of economics at University Malaya and former Research Coordinator at the United Nations Research Institute for Social Development (UNRISD), to study Malaysia’s SOEs further. Our findings were released on Thursday, July 21 at a seminar that was attended by almost 300 people.

This study is the first of its kind on Malaysia’s seven Government-Linked Investment Companies (GLICs), namely the Minister of Finance Incorporated (MOF Inc), Permodalan Nasional Berhad (PNB), Khazanah Nasional Berhad (KNB), the Employees Provident Fund (EPF), Lembaga Tabung Angkatan Tentera (LTAT), Lembaga Tabung Haji (LTH) and Kumpulan Wang Persaraan (Diperbadankan) (KWAP). We studied their ownership, control of the economy and their positions in the Top 100 Malaysian companies.

In his presentation, Professor Gomez explained that the government of the day uses various methods to direct SOEs to drive socio-economy development in the direction of current government policies.

In terms of performance, the seven GLICs have been performing relatively well in recent years, despite a spate of scandals. Results have been good and this demonstrates their robustness.

But it is very interesting to note the significant shift in the methods by which SOEs are controlled. In the early years, and especially during the time of Dr Mahathir Mohamad, the SOEs were controlled mainly through the appointment of Umno proxies to hold important positions in the companies.

But today Umno is no longer very dominant in the SOEs. Under Najib’s administration, control of the SOEs has shifted to bureaucrats and former bureaucrats.

For example, in 1996 during Mahathir’s time, we detected 29 individuals linked to Umno who held important posts in 120 companies. But in 2013 under Najib, we found just 12 Umno leaders and former leaders who held positions in only 10 companies.

Umno’s control has dropped tremendously. To be frank, I am not sure if Umno itself is aware of this major shift in control.

More importantly, we also found the reason why it is unlikely for the Prime Minister to appoint someone else as the Finance Minister. Mahathir started this practice and it is likely to continue until someone who believes in good governance and separation of powers takes over as Prime Minister.

The reason is, the Finance Minister is also the head of a super-structure called the Minister of Finance Incorporated (MOF Inc). This is a huge and powerful SOE.

We found that MOF Inc controls 64 subsidiaries, and has shares in two associate companies and two minority companies.

More importantly, it holds the golden share in 32 companies, a power that none of the other GLICs hold. By holding the post of Finance Minister, the person controls a huge amount of corporate power, unrivalled by anybody else in the country.

This is only the first stage of our study and our resources were insufficient to delve any deeper in the topic. We hope to raise more money to pay for the research work and I am sure there will be more revelations to come.


Wan Saiful Wan Jan is the CEO of Institute for Democracy and Economic Affairs (Ideas), a contributor to Sin Chew Daily.

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