For decades, Malaysia’s government-linked companies have functioned as a major instrument of government policy as well as a gift that goes on giving endlessly, providing slush funds for political parties, boodle for corrupt officials, a place to stash incompetent political pals, and a continuing drag on the country’s economy.
This has been true across a string of political dynasties that accelerated with the arrival in 1981 of former Prime Minister Mahathir Mohamad, who turned them into a cashbox for the United Malays National Organization, and re-accelerated with the current prime minister, Muhyiddin Yassin, who has refined the practice considerably to the point where Russian-style oligarchies are slowly taking hold, totally against the spirit why GLCs were formed in the first place.
Although GLCs like Maybank, Petronas, and Sime Darby have been run extremely well by a groomed professional Malay class, countless thousands of these companies are inefficient, mismanaged, embezzled, insolvent entities accumulating massive losses. State GLCs tend to be heavily involved in land development, leading to many irregularities and scandals, of which only a very few ever reach public attention.
Over recent decades, SPV GLCs specifically set up to exploit rising hi-tech opportunities in multi-media and biotechnology have been dismal failures. Many of the corridor authorities set up under former prime minister Abdullah Ahmad Badawi to develop rural regions and bring investment have actually hindered it, pushing out private enterprise in favor of public enterprises.
Many GLCs, especially within the northern states on the peninsula, are places to domicile retired politicians. These positions are seen more as seats on a gravy-train rather than as a catalyst for development and attracting private investment. Not all state SEDCs have been as successful as the Penang Development Corporation (PDC), or the Johor SEDC, known as JCorp.
Just as a new Malay professional class has been nurtured within the best-run GLCs, a class of dishonest and opportunistic officers has been unintentionally nurtured in many others, particularly those within the states. Cases of dishonesty and embezzlement are most often covered up to avoid scandals. The poor financial position of a number of state economic development corporations, points to the regions, this culture of cover up is most prevalent.
The apparent mission, lines of control, and management of GLCs has changed over successive administrations. After the infamous race riots of May 1969, the New Economic Policy (NEP) was aimed at boosting bumiputra participation in agriculture, eradicating poverty among bumiputra communities, and redistributing equity towards bumiputras.
Under the administration of Najib Razak, there was only a selective interest in GLCs, such as CIMB Bank, run by Najib’s brother. It was with the finance-ministry-backed new sovereign wealth fund One Malaysia Development Berhad, that UMNO hit its stride, leading to US$4.2 billion in debt, misuse and theft, the embezzlement of RM 2.67 billion in favor of Low Taek Jho, and the conviction and jail term for Najib Razak himself, over the scandal although Najib is free on appeal.
The Pakatan Harapan opposition campaigned on the promise that upon coming to power in May 2018, no political appointments would be made to GLCs. However, upon succeeding to power in the 2018 general election, a second-term Mahathir once again made political appointments. The then minister for Rural and Regional Development, Rina Harun appointed a number of Parti Pribumi Bersatu Malaysia (Bersatu) politicians to boards of GLCs under the ministry’s control, thus bringing back political patronage.
In addition, Mahathir set up a new Ministry of Economic Affairs (MEA), appointing Anwar Ibrahim’s archrival Azmin Ali as minister in charge. The MEA took control of numerous GLCs that were within the Ministry of Finance (MOF), headed by Democratic Action Party (DAP) leader Lim Guan Eng, with Khazanah and PNB moving to the Prime Minister’s Department and Mahathir appointing himself as chairman. This gave Mahathir ultimate control over firms like Maybank, CIMB, Tenaga Nasional, Axiata, Sime Darby and Petronas, and the healthcare conglomerate IHH.
With voices within Pakatan Harapan calling for disinvestment, Mahathir once again began moving companies out – to a group of close associates. In particular, Syed Mokhtar Al-Bukhary increased his holdings in Media Prima, which controls broadcaster TV3 and the New Straits Times. These are just a few of the corporate interests he has picked up from the Malaysian government, which include stakes in Bernas, which holds an extended monopoly on rice trade, Pos Malaysia, MMC Berhad, and DRB Hicom.
Muhyiddin Yassin upon coming to power in February 2020, utilized board positions on GLCs to develop enough political patronage to prop up his slim majority government. Very quickly into his tenure as prime minister, Muhyiddin disbanded the ministry of Economic Affairs (MEA), which Azmin Ali had controlled, moving numerous GLCs under the Prime Minister’s Department and Muhyiddin’s personal control, providing him with more control than Mahathir even had during his two tenures as prime minister. GLCs within the Ministry of Rural Development were put under Bersatu member of parliament for Mersing, Abdul Latiff Ahmad, within Muhyiddin’s home state of Johor, who is said to be a close confidante.
This is strategically important because GLCs under this ministry can greatly assist in garnering the rural vote during elections. These include MARA, FELCRA, and other regional development authorities. Powerful GLCs that the Ministry of Finance controls such as the EPF, KWAP, are in the hands of Zafrul Abdul Aziz, from the financial sector, as an independent minister.
Muhyiddin, also appointed Zafrul as a director of the state-owned investment fund Khazanah, while Azmin Ali is still a director as well. Three of nine directors on the board of Khazanah are prime minister and ministers.
This means that politicians now have increased their control over a massive part of the Malaysian economy. Many, if not almost all appointments to the boards of GLCs were made to shore up Muhyiddin’s government without any considerations of meritocracy.
This brings a number of concerns.
As most activities of GLCs are rent-seeking in lucrative and regulated sectors, value is not being created. Innovation within the Malaysia economy is suffering, as bureaucrats and politicians have not shown themselves to be capable of managing change. This destroys the potential dynamism of the economy. In addition, GLCs are taking away opportunities for potential local and foreign investors, leaving a very subdued private investment environment. Special concessions and privileges to GLCs completely deter private investment within many sectors.
Monopolies and oligopolies created by the government are creating inefficiency, with consumers forced to pay above parity pricing for goods and services relative to the rest of the region.
The signs of inefficiency and lack of dynamism are there. The agriculture sector lacks diversity, the manufacturing base is lopsided, services are high-priced and the telecommunications sector lags the rest of the region.
Lack of transparency both within GLCs and the marketplace has nurtured a fertile environment for corruption and embezzlement. Many scandals never reach the public arena, where those working within GLCs know that there is little chance of getting caught, and a very low risk of prosecution, should they ever get caught. This also creates an environment where nepotism thrives, where certain employee candidates are favored, and contracts dished out to favored vendors. The government has demonstrated that it has failed at picking winners, costing billions of ringgit from failed projects which become economic white elephants.
Originally published in the Asia Sentinel