oneworldtalk

New policy to make Malaysian economy more competitive

By IZATUN SHARI

KUALA LUMPUR: The bumiputra 30% equity objective will now be a macro target as the Government seeks to turn Malaysia into a more competitive economy, said Datuk Seri Najib Tun Razak.

The Prime Minister explained that the policy changes had to be made because of the drastic changes in the global economic scenario since the inception of the New Economic Policy (NEP) and the failure of the Foreign Investment Committee (FIC) to produce the desired results of increasing the bumiputra equity.
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On the doing away with the 30% quota for companies seeking listing, he said investors were dissatisfied with such a condition.

Najib pointed out that even the allotment of shares by the FIC to bumiputras in the past did not work as most of them would “straight away sell-down an enormous amount .... FIC will no longer exist. We will replace it with an investment instrument called Ekuiti Nasional Bhd (Ekuinas), which is a private venture capital focusing on helping bumiputra entrepreneurs who have the potential and capability to develop into huge players domestically, regionally and globally."

Ekuinas would have an initial capital of RM500mil and which would be enlarged to RM10bil depending on the needs of identified entrepreneurs.

Asked if he would expect a political backlash following his announcement on the new policy reforms, Najib said: “I believe it is fair. These new policy guidelines are designed to create a win-win situation. In other words, it will make global investors happy and address the need for a more effective instrument for bumiputra equity participation.

“The overall macro target of the 30% bumiputra equity remains. We will move along the line of achieving a balanced society. We have to be fair to all communities. It will be based on two important premises – that no one is marginalised or disincentivised. It’s a tricky balancing act but it’s do-able.”

To a question whether he was confident the Ali Baba practice (where bumiputra participation is in name only while non-bumiputras run the whole show) would be eliminated with the policy reform, he said: “I don’t think you can eliminate sleeping partners overnight but you will reduce it substantially. We are helping those who want to help themselves.”

“The new policy will make our economy more vibrant and dynamic and Malaysia will be high up in the radar screen of investors.”

Stephen Hagger, analyst at Credit Suisse :

It is a brave move. But the devil, of course, will be in the detail as to how that actually happens. There is a lot more work to be done.

Azrul Azwa, economist at Bank Islam :

This is a good move for the long term. But note that it extends only to new listings, so don’t expect re-distributions in Tenaga or Telekom or other government-linked companies to non-bumi groups.

I don’t think there will be much backlash from the ordinary Malay folk although some of the bigger beneficiaries may instigate some protest. But to the ordinary bumis , the feeling is that they don’t enjoy anything anyway under the NEP. It only helps the big boys, may as well dismantle it.”

Overall, the message is good but the impact may be muted. It will take more than this to revive investor confidence in Malaysia.

It is not just about lowering protectionist barriers but also about raising the integrity of our judiciary and the independence of our institutions. How good our system is will be every bit as important. Even if foreigners return, they will insist their contracts are signed in Singapore or another country and this is quite shameful for us.

Fuad Hassan, deputy president Persatuan Pribumi Perkasa :
Bumiputras should wake up and look at themselves to see how they can work with non-bumiputras to compete in the world market. Capable bumiputra entrepreneurs can form joint ventures with the Chinese to compete with players in big markets like China and India.

Yeah Kim Leng, chief economist at RAM Holdings :

Given the sharp drop in foreign direct investments, this move will put Malaysia in a favourable position to attract FDIs and sustain domestic investments which have been in the doldrums since the 1998 Asian financial crisis.

Maamor Osman, sec-gen Muslim Consumer Association of Malaysia :

As the proverb goes, if we want to fly a kite, we have to go against the wind. We are aware that the capability of local investors to develop the country’s economy is limited. We don’t want sleeping partners or brokers. I hope there will be genuine bumiputra and non-bumiputra entrepreneurs to partner with foreign entrepreneurs.

Minister in the Economic Planning Unit of the Prime Minister’s Department, Tan Sri Nor Mohamed Yakcop said ... the participation of Bumiputeras would now extend beyond equity in areas such as employment, senior positions, entrepreneur development, capacity building and development.

“We are being market-friendly so as to create a win-win situation,” he said.

Najib, who is also Finance Minister, announced a comprehensive deregulation of investment guidelines administered by the FIC at the Invest Malaysia 2009 conference.

Among others, the guidelines cover the acquisition of properties, acquisition of equity stakes, mergers and takeovers, and treatment of fund-raising by listed companies.

Nor Mohamed said that one major difference from here onwards would be the post-Initial Public Offering (IPO) conditions, which includes the 30 per cent Bumiputera (ownership) before approval is given for listing.

However, he said that when there was a dilution of Bumiputera equity, for example, three years after listing, there would be a need for a fund raising exercise and for the company to top up to the required equity.

With the new policy, “there is no longer the requirement to top up,” he said. “This is a major announcement because much of the complaints was about this need to top up as it was a hindrance to the fund raising exercises,” he said.

He said the government would continue to support and develop successful Bumiputeras by welcoming others as well to participate which would enhance investments.

“To make it very clear, the FIC has eliminated that 30 per cent Bumi equity ruling,” he said. “As far as we are concerned, FIC is no more.”

However, he said: “We should not confuse it with the 25 per cent spread by the SC (Securities Commission).

“SC’s 25 per cent spread earlier still exists. Fifty per cent of (the 25 per cent) now will go to the Bumiputeras” which will effectively work up to 12.5 per cent of total equity. SC chairman Datuk Zarinah Anwar that the 12.5 per cent was the minimum requirement but if more Bumiputeras were able to subscribe to the shares, the equity could be more than 12.5 per cent.”

If the company going for listing already has significant Bumiputera shareholders, the Bumiputera equity level in that company could even exceed 30 per cent, she said.

“So, if the company going for the listing already has 20 per cent Bumiputera equity and you plus the 12.5 per cent, it becomes 32.5 per cent,” she said. – Bernama

YK : UMNO is just going through the motions -- a polite way of saying they are swimming in shit.

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KM : 30% not abolished ... still 12.5% ... strategic sectors remain. Malaysia has fallen behind Singapore, Indonesia and Thailand in investment flows. Markets barely moved with this change. It should have been done some 25 years ago ... Malaysia is playing catch-up when it comes to foreign investment fund flows ... private equity funds ... only invest if there are exceptional cases in Malaysia.

The policy instruments that are available to the Prime Minister who is also our Finance Minister are limited because of the nature of the problem that we have to confront.
When the government announced recently that the Foreign Investment Committee would be abolished, as its principal role of ensuring the 30% equity ownership by Bumiputeras of the Malaysian corporate cake has failed, it brought cheers from some quarters and deep anxiety and worries from bumiputeras and other stakeholders who were the primary beneficiaries of the “discarded” policy. But the first tier bumiputera elites have no complaints.

I appreciate that there is a desire to effect change and a serious attempt has been made towards that end, but the bullet fired has been wasted, because I take the view that the so-called policy change has not resulted in any fundamental shift in addressing the underlying social and economic issues.

Common sense tells us that this instrument of the NEP is an inaccurate measure of the share of the national corporate wealth and has in fact caused unnecessary friction and misunderstanding between the bumiputera and non-bumiputera communities in Malaysia. It is one of the root causes of the continuing racial tensions between the various communities in Malaysia.

The policy sounds good, looks good but its effects were far from being good for Malaysia, specifically the bumiputera community.

The majority of the natives have no idea how this 30% equity participation is to be allocated but it can be said that they were happy and contented that a huge effort has been made to address the problem. It did not really matter to the farmer in Kedah or the Felda settler in Pahang as to who got what and how much. It felt good that efforts have been made to address poverty. As they say, some are more equal than others.

It has now been revealed that RM54 billion worth of this 30% equity stake allocated and owned by the selected bumiputera representatives were in fact sold i.e. they cashed out for a cash gain. Only RM2 billion worth of this 30% equity stake remained in the hands of the selected bumiputera representatives.

These bumiputeras exercised the option to have cash instead of shares. Thus, they realised the equivalent in cash the 30% stake.

Therefore, it is scandalous and seditious to say that these bumiputeras did not achieve and acquired the 30% equity target. That 30% equity stake acquired over the years amounted to RM56 billion, of which only RM2 billion worth of equity are still held by the selected bumiputera representatives.

in a free market economy, cashing out is a valid option in any business. Even a majority shareholder may one day cash out for his much awaited retirement.

the selected bumiputera representatives had the 30% stake but they literally sold out the community for a cash gain and immediate gratification.

From an economic point of view, this compulsory 30% equity stake is in fact a tax on all taxpayers, regardless of race, creed and culture. The only people who benefited from this gigantic social and economic tax are the selected bumiputera representatives, the elites.

The policy has not been abolished as such, but curtailed. The devil is in the details. Those of you who are driving Kancils, you should be happy as this huge tax have been reduced to 12.5% from the previous 30%. The second and third tier elites have been sacrificed so that the first tier elites can survive the coming financial fiasco.

Let us not debate or fight on racial lines, but rather we should collectively turn the spotlight on all those who have been selected to live off this gigantic tax fraud!

[Matthias Chang is aa barrister of 31 years standing and was once Political Secretary to former premier Mahathir Mohamad. He is also the author of three novels Future FastForward; Brainwashed for War, Programmed to Kill; and The Shadow Money Lenders and the Global Financial Tsunami.]