The Zimbabwe-ization of Malaysia

The pending imposition of the 51 percent Bumiputera equity rule in the freight forwarding industry has signalled that successful businesses are not wanted. There are already stories of non-Bumiputera freight forwarders preparing to relocate to Indonesia, Singapore, and Australia. Some are reconstituting their businesses as foreign companies which can be 100 percent owned. This will bring an outflow of profits, and Malaysian ports will be treated eventually as nothing more than feeder and trans-shipment points. Restriction of who can own a business is not conducive to innovation. Restrictive equity laws just encourage the best and most innovative companies to leave and go off-shore.

Loss of Incentive

The requirement for 51 percent Bumiputera equity in SMEs across a number of industries, along with the requirement of companies dealing with government to have at least 30 percent Bumiputera equity has lasting consequences.

Having a business idea, the capital required, and access to potential markets is not enough. Non-Bumiputera entrepreneurs must also find a suitable partner to invest. This is highly impractical, if innovation is to be nurtured from the enterprise start-up, where entrepreneurs must undertake tireless work, risk, and uncertainty for months or even years, most often without any wage or income.

In such situations it is difficult if not impossible to find willing investors not used to gargling at the public trough who won't exploit the situation. History has long proved thar Bumiputera investors won't be willing to take the same risks. Most want a guaranteed income, regardless of the stage of growth of the company, or performance. There are very few Bumiputera venture capitalists within Malaysia's population.

The equity rules are totally unsuitable if Malaysia seeks to become a creative nation, using the engine of innovation to grow and add value to the economy. The rhetoric of Malaysia transforming from a low cost, low technology economy to an innovation-led Industry 4.0 economy just doesn't match the regulations in place today. There is no incentive, it is just not going to happen.

Equity Rules are Promoting Inequality

Malaysia's GINI index, a measure of the inequality of income is 41, according to the World Bank. If income was distributed perfectly equally, the score would be zero, while 100 would represent perfect inequality. According to World Bank data, the lowest 10 percent of national population earned 1.8 percent of household incomes, while the top 10 percent of households earned 34.7 percent of income. With the poverty rate at 5.6 percent in 2018, and growing quickly due to the pandemic, the income gap is widening even more.

The equity policy requiring either 30 or 51 percent Bumiputera equity, depending upon the circumstances, favors wealthier Bumiputeras to invest and get richer, thus further widening the wealth gap. There is little, if any benefit of equity requirements in assisting their poorer brethren increase their income and wealth. They are the forgotten Bumiputeras in the government's over-regulation of equity. The equity rules will help the rich get richer and the poor become relatively poorer.

The Super Makmur Tax on Companies

A one-off super tax on companies with RM100 million turnover or more from 24 percent to 33 percent in 2022 is a concerning precedent. Unfortunately, governments have poor credibility when they make promises about tax. This could potentially accelerate the exodus of large local companies exiting Malaysia and discourage foreign head offices to locate to Malaysia.

Brain Drain