Cover Story: Rebooting the bumiputera agenda

This article first appeared in The Edge Malaysia Weekly, on September 17, 2018 - September 23, 2018.
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AS 2,500 delegates gathered at the Kuala Lumpur Convention Centre on Sept 1, on the agenda was the future of the bumiputeras and the nation.

The 2018 Congress on the Future of Bumiputeras and the Nation (KBN 2018), organised by the Ministry of Economic Affairs, was the first such congress in nearly five decades since the previous two in 1965 and 1968.

And the unmistakable message was that the upliftment of the bumiputeras must be a nationalised drive — as it was originally meant to be — with the collective prosperity of all in mind.

That was the spirit of the New Economic Policy (NEP), a national affirmative action programme adopted in 1971. Its 20-year lifespan was followed by numerous other policies, and hordes of implementation agencies, with the same broad aims.

Five decades on, with hundreds of billions of ringgit poured into the drive, warped policies and entrenched abuses have yielded mixed results.

While the historic change in government presents an opportunity to start again, clearly, any rebooting attempt is far easier said than done.

To chart the way forward, it is therefore crucial to understand what went wrong over the decades and how to avoid the same pitfalls going forward.

“The problem with what went wrong is that we should have nationalised the bumiputera agenda, but instead what was a national agenda became a bumiputera thing,” says economist and former MP for Balik Pulau, Dr Nungsari Ahmad Radhi.

 

Mixed outcomes

It was not always a bumiputera-specific agenda. Rather, the entire proposition began as a national conversation, but it slowly warped and, eventually, disconnected from the national discourse.

The backdrop to the NEP were the racial riots of May 13, 1969, which followed electoral gains by non-Malay parties in a general election that same month.

What arose in the aftermath was the recognition that national unity should be premised on shared prosperity.

That meant that the majority of bumiputeras across Peninsular Malaysia, Sabah and Sarawak needed to catch up since their economic participation and share of wealth was far disproportionate.

That was why the overriding goal of the NEP (1971 to 1990), and its successor the National Development Policy (1991 to 2000), was to eradicate poverty, irrespective of race with affirmative action that would offset the handicaps of poverty.

Prior to the NEP, the Malaysian economy was pretty much laissez-faire.

The idea was that since the bumiputeras were the majority, they would reap most of the benefits anyway. And as the group caught up, the national economic pie would expand to benefit everyone.

Apart from the eradication of poverty, the other core aim of the NEP was to restructure the Malaysian society by developing the bumiputera commercial and industrial community (BCIC), to create a proportionate representation of the community across major economic sectors.

That is where the mixed results are evident now. The push to improve access to healthcare and education among the bumiputeras has been successful, leading to a sizeable Malay middle class today, which includes professionals such as doctors, accountants, lawyers and engineers.

“The bumiputeras are better off today [than 50 years ago], but we have still been left behind in all aspects. Worse, we have lost [some] political power yet economically, we have not made it,” says economist Dr Rais Saniman, who was involved in drawing up the NEP five decades ago.

Rais also co-authored Growth and Ethnic Inequality: Malaysia’s New Economic Policy, which is an authority on the NEP, alongside Norwegian political economist Tan Sri Just Faaland, who was also among the original formulators of the policy.

Here’s a snapshot: 65% of the Malays were in poverty back in 1970, twice the incidence among the Chinese (26%).

By 1990, the gap had widened. Malay poverty incidence had decreased to 20.8% while the corresponding percentage for the Chinese was 5.7%, nearly three times less.

Bumiputeras make up 71% of the bottom 40% (B40) of society in terms of income, the government said this month. Worse, the average monthly household income of the B40 bumiputeras is RM2,600 — RM900 less than that of the non-bumiputera B40.

Back in 2016, the B40 group was defined as having a median monthly income of RM3,000.

In the corporate world, bumiputera equity ownership was 2.4% back in 1970 when the non-bumiputera equity proportion was 34.3%, according to the Economic Planning Unit (EPU).

By 2008, the non-bumiputera share had improved to 40.2%, yet the bumiputera equity proportion was 21.9%, far disproportionate to their 69.1% composition of the population.

In fact, bumiputera enterprises comprise less than a 10th of Malaysian companies earning revenue of RM5 million or more, based on recent research by the Malay Economic Action Council (MTEM) using data from the Companies Commission of Malaysia (CCM).

The research excluded government-linked corporations, which would reflect government control rather than private bumiputera shareholding.

Malay professionals are also over-represented in the public sector and grossly under-represented in the private sector, particularly in some segments such as finance, insurance and ICT, says MTEM CEO Nizam Mahshar.

“We can see that we have not really solved the growing gap among the races because of corruption, leakages and things like ‘Alibaba’ practices,” says Nizam.

“Alibaba” arrangements are essentially the use of bumiputeras as the frontmen for non-bumiputera interests, aiming to take advantage of affirmative action opportunities and access.

 

Hijacked and warped

The achievements of the NEP and subsequent policies with the same goals belie the fact that in many other respects, the affirmative action programmes strayed from their original objectives.

“The NEP was meant as an inclusive socioeconomic policy to reunite Malaysia, but the implementation later deviated [from the original purpose]. That is why we are here today,” says Rais.

While the initial steps — access to education and healthcare — went reasonably well, the long-term game led to lost perspective, made worse by the allure of doing what was popular with voters as opposed to sticking to the original nation-building plan.

In other words, the manner of implementation was hijacked for the political and business agendas of a select few, at the expense of the majority of bumiputeras.

“We lost the plot, we went for the sexy stuff. The focus went from developing to be part of a national picture to just distributing [economic rent],” remarks Nungsari.

The skewed implementation is an open secret. One glaring example was the system of approved permits (APs), which were needed for the importation of foreign cars. These were meant to encourage bumiputera participation in the automotive industry. But its flawed execution saw many flipping the APs for quick profit instead of leveraging them to build lasting enterprises.

The distribution was also skewed towards the well connected. As a snapshot, over half the 66,277 AP issuances in 2004 and 40.1% of 68,330 APs issued in 2005 went to four individuals, based on government data.

Another stark example is in government procurement. In the 20 years up to 2015, the government had spent RM1.1 trillion on development and procurement, with bumiputera entities getting the lion’s share of RM674.4 billion in contracts over the period.

Yet, the proportion of bumiputera small and medium enterprises (SMEs) contributing to the national gross domestic product (GDP) is less than 9%.

The question is, what happened to the contract winners? Were they unable to leverage the contracts to build their capabilities?

Here’s a hint: Prime Minister Tun Dr Mahathir Mohamad announced on Sept 1 that Alibaba practices would be curbed by ensuring that government contracts subsequently sold will be nullified.

In effect, the system became a way of giving quick riches to well-connected individuals instead of providing deserving bumiputeras with access to opportunities for economic development and growth. The same is seen across many other industries with similar interventionist policies.

“The policy to create a vibrant BCIC had been hijacked by a group of very powerful Malay business interests, and it had not trickled down to Malay entrepreneurs,” says associate professor Dr Azeem Fazwan Ahmad Farouk, director of the Centre for Policy Research and International Studies at Universiti Sains Malaysia.

And the result? “The wealth disparity in the Malay community itself has widened between the top 20 and B40. This is the unintended result of the so-called bumiputera policies in the economic dimension,” adds Azeem.

The top echelons are also better positioned to gain access to limited affirmative action opportunities, such as boarding schools and scholarships for their children.

That unfortunately meant the same access is denied to the less fortunate bumiputeras, making economic mobility more difficult.

This disparity is also clear in instruments meant to provide access to wealth creation, such as Permodalan Nasional Bhd (PNB), a bumiputera-only unit trust manager that accounts for 10% of Bursa Malaysia’s market capitalisation.

According to some estimates, as much as 80% of some PNB funds is owned by about a 10th of the unitholders, which means the well-to-do are gaining disproportionately more benefit.

Meantime, the follow-through from the improved access to education and economic opportunities is lacking. For example, one major programme was the mass resettlement of poor bumiputeras by the Federal Land Development Authority (FELDA) to create smallholder farms that focused on cash crops.

While the programme was relatively successful, it was subsequently warped into what could amount to economic enslavement for political purposes.

Economic mobility prospects beyond the first generation were lacklustre. Meantime, politicians continuously pandered to the popular but counter-productive whims of settlers, given that FELDA settlements are consti­tuents of more than 50 parliamentary seats.

Beyond FELDA, bumiputera graduates accounted for an outsize 80% of jobless public university graduates back in 2016. While there are many dimensions as to why, one key factor is the disconnect between what the education prepared them for and what the economic engine needed.

 

Charting the way forward

So, with five decades’ worth of perspective and lessons, where does Malaysia go from here?

The first step must be to get a clearer data-based picture of where the bumiputera community stands in the larger economy. Only then can more specific policies be formulated to ensure the right segments are given help in developing themselves.

“Otherwise, we would be shooting in the dark. We don’t have the same resources we used to have, so we can’t be assisting everybody, but those who are still far behind,” says Azeem.

In turn, that endeavour must be a national discourse rather than a communal one, says Nungsari. The aim should return to the upliftment of the bumiputeras to become part of the economic pie, to enlarge said pie and allow everyone to gain as a result.

In the end, the upliftment of the bumiputeras should be tied to the direction of economic growth because, ultimately, the aim is to enhance the participation of bumiputeras in national economic activities.

“If the bumiputeras grow, as their income gets higher and higher, domestic demand in the economy will grow, so it’s a win-win situation for the nation,” says Rais.

To do that, the implementation must be separated from the kind of political subversion that happened in the past.

One interesting proposal presented at the congress was for a law against economic sabotage. Essentially, the aim is to incorporate into law safeguards against subverting the affirmative action policy for personal gain.

This is where the political will of the current government will be tested. At KBN 2018, Economic Affairs Minister Datuk Seri Azmin Ali joked that there was now even a lobbying industry in Malaysia, a testament to just how far off the track the agenda had gone.

It is vital that the government, with the private sector and other stakeholders on board, does not succumb to the political and lobbying pressure of continuing past corrupt practices that subverted the overall agenda.

“We should strive for shared prosperity. By curbing corruption, leakages and Alibaba practices, most of the problems can be solved. We should not let this reboot be a wasted opportunity,” says MTEM’s Nizam.

 

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