Thursday 28 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on December 17, 2018

KUALA LUMPUR: Canned pineapples, sugar and tobacco may seem to have little in common, but they are the products of Malaysia’s least competitive manufacturing industries.

For the pineapple canning industry as well as sugar factories and refineries, there are only four firms or fewer that control the total output. This, said Universiti Utara Malaysia senior lecturer Muhammad Ridhuan Bos Abdullah, indicates that these industries are governed by perfect monopolies.

Muhammad Ridhuan has undertaken a research analysing the concentration ratio (a ratio that indicates the size of a firm in relation to its industry) of manufacturing industries in Malaysia.

Sectors such as tobacco manufacturing and the manufacture of rubber footwear were found to have a high concentration of output from the top four firms. (See table).

The lack of competitiveness in the manufacturing sectors is not isolated to Malaysia. A 2014 report by the World Bank found that over half of the manufacturing industries lacked trade competitiveness.

Muhammad Ridhuan acknowledged that some of the manufacturing industries had high barriers to entry due to their capital-intensive nature.

That being said, his research shows a number of manufacturing industries with high levels of competitiveness, including rice milling, manufacturing of refined palm oil, and the manufacturing of motor vehicle parts and accessories.

“My recommendation to policymakers is that they should look at [all] industries. [Find out] which ones are driven by technological innovation and those which, at the same time, [encourage] competition,” Muhammad Ridhuan told The Edge Financial Daily.

Factors that may affect the concentration ratio include economies of scale, regulatory frameworks, and the industry’s size and life cycle, he said.

The Competition Act 2010, which came into effect on Jan 1, 2012, appears to have had a positive impact. Between 2010 and 2015, there was a growth in the number of firms in competitive industries and a decline in non-competitive ones. (See table).

According to Professor Dr Saadiah Mohamad, a member of the Malaysia Competition Commission (MyCC), the introduction of competition policies has been found to improve market efficiency, consumer welfare and, ultimately, economic growth.

“These studies were not confined to Western economies, but also Japan, South Korea and other developing economies,” she said at the National Economic Outlook Conference organised by the Malaysian Institute of Economic Research last week.

 

MyCC lacking in expertise, jurisdiction

Governed by the Competition Commission Act 2010, MyCC has the power to investigate and enforce the act on all companies, except in a number of “natural monopolies”, such as energy, aviation and upstream petroleum revenue, as well as multimedia and communications.

Although MyCC has taken action in cases such as MyEG Services Bhd’s supply of foreign worker permits in 2016, its lack of action in relation to ride-sharing giant Grab’s merger with Uber’s Southeast Asian operations has been questioned.

In contrast, Singapore’s competition regulator, the Competition and Consumer Commission of Singapore, fined both parties a total of S$13 million (close to RM40 million) in September, just six months after the merger was announced.

According to Saadiah, the reason why Malaysia has been unable to take any action against the merger itself is because the law does not include provisions that empower MyCC to investigate mergers.

“If there is evidence of the abuse of dominant positions, then the law provides for that, [and we] can investigate [the case],” she said.

However, she noted that the advancement of digital technology had also been a challenge. “Competition authorities need to be well versed in the algorithms used to [price Grab’s services],” she said, adding that the man on the street may not be knowledgeable enough to file complaints regarding the ride-hailing firm’s pricing mechanism.

Apart from private players, the competitiveness of government-linked companies (GLCs) must also be scrutinised, said Ali Salman, the chief executive officer of the Institute for Democracy and Economic Affairs.

“If GLCs are subject to competition, then I think they can be under government ownership and still perform. But Telekom Malaysia Bhd (TM) and Tenaga Nasional Bhd still receive some sort of protection from the government. That means they are not efficient in terms of market exposure,” he told The Edge Financial Daily.

Ali acknowledged that certain government-backed firms serve the dual functions of supporting social welfare and delivering financial returns.

However, comparing the investments made by national oil firm Petroliam Nasional Bhd (Petronas) and companies like Norway’s Equinor, a government-backed public listed company formerly known as Statoil, he noted that Petronas had filed fewer intellectual property rights than its peers.

“We haven’t seen research and development to be very helpful for industrial growth, [in what is] otherwise a very good business environment,” he said.

On the telecommunications scene, Malaysia ranks 74 out of 167 countries for fixed broadband services, according to the World Bank. It noted that the nation’s high-speed broadband prices are also relatively high compared with other countries.

The bank attributed this to the fact that TM holds a significantly larger market share versus its peers in other countries.

Meanwhile, Ali has compared the figures to Malaysia’s 15th ranking last year for ease of doing business, concluding that any analysis of GLCs operating in inefficient markets is restricted by a lack of opportunities for empirical analysis.

“Because GLCs are not fully exposed to market factors, we cannot truly evaluate the efficiency and economic [effects] on them,” he said.

      Print
      Text Size
      Share