The Zimbabwe-ization of Malaysia

Over the objections of every respectable economist who has heard of the idea, the new government headed by Prime Minister Ismail Sabri Yaakob is planning to force freight forwarding companies and small and medium enterprises across a range of industries to divest 51 percent of their equity to Bumiputeras – native ethnic groups, although in practice that means Malays.

That it is an idea that drove Zimbabwe into ruin appears not to have occurred to the UMNO-dominated coalition now running the country. The recently-installed UMNO-led coalition headed by Prime Minister Ismail Sabri Yaakob needs to take a look at how closely Malaysia is following Zimbabwe, once one of the most prosperous countries in Africa, down the economic drain.

Capital stampede

For instance, the empire headed by the late sugar king Robert Kuok has for a long time been slowly moving out their business interests outside of Malaysia. Air Asia decentralized across the region due to high costs in Malaysia and bigger traffic opportunities elsewhere. Liberty Shipping has moved to Singapore. Genting Bhd moved the head office to Singapore. Hyundai closed its Asia Pacific headquarters in Malaysia and relocated to Indonesia, due to lack of a policy roadmap for the creation of an electric car industry.

Tesco devested its assets in Malaysia. The IBM Global Delivery Center relocated its head office out of Malaysia. Malaysia-innovated ride-hailing service Grab set up its head office in Singapore rather than Malaysia. Other Malaysian high-tech companies that chose to start-up outside the country include Coin Gecko, a platform for multiple crypto-currency comparisons, and BigPay, a Malaysian banking app, also to Singapore.

Multinationals say no way

Malaysia has missed a host of opportunities for innovative multinationals setting up in the country. These include, Google, Amazon, Uber Technologies, Allianz, Vodafone group, and Akzo Nobel. Most moved to Singapore because of Malaysia's relatively poor infrastructure, the poor level of human capital skills, and the poor regulatory framework. Zoom Video Communications, has selected Singapore over Malaysia for their first R&D centre in the region.

Not least of the reasons for this is that Malaysia is one of the world's most highly regulated economies – regulated mostly to protect ethnic Malays -- stagnating in innovation as incentive drains from the business community and hampering an environment that should be primed for modernization. This is going to make it worse.

The equity pipe dream is a vestige of the New Economic Policy (NEP) implemented in 1971 in the wake of disastrous race riots which has granted vast privileges for Bumiputeras, mostly ethnic Malays, who make up nearly 70 percent of the population and has been a millstone around the economy's neck for 70 years.

In the public sector, Bumiputera companies have opportunities ahead of other concerns. They have exclusive ownership rights to Malay reserve land and business advantages through restricted licensing. Mostly they have used those opportunities to loot the public treasury through rent-seeking and outright corruption.

The NEP hinders the development of new innovative supply chain systems that could potentially bring the government sector savings and better-quality products and services, rather than relying on a cohort of suppliers that see the government sector as a captive market. An open market for procurement would save the government massive amounts on purchasing budgets. Malaysia is one of the few countries in the world where the government doesn't seem to have a concern about buying better.

Equity Rules