Wednesday, November 22, 2006

What ASLI report ?

This is what I dig from the ASLI report:

• Although the equity holding by Bumiputera has declined, the volume of wealth may not necessarily decline.
• Although the Chinese owns more than 40% of corporate equity, the Chinese have learned to create smart partnerships with influential Bumiputeras to protect their interest. Conclusively, the Chinese do not own a substantial amou
nt of the economy as widely speculated.
• Market cap is not a true representation of wealth because of fluctuation of share prices. Private wealth must also be taken into consideration.
• The capital ownership of Bumiputera is 18.7%, which includes foreign interest of 28.8% and nominee companies of 9.2%. Not a true representation of ethic ownership. If these ownerships are taken out, Bumiputera equity holding is 30.2%.
• The decline of Chinese direct participation in sectors such banking, oil & gas, education and the more apparent presence of Bumiputera in key positions.
• The actual ownership of Bumiputera on the bourse is 45%, which means that the NEP has achieved its goal.
• ASLI has found that the NEP’s goal to nurture a selected few has failed.
• The NEP does not allow true entrepreneurial spirit and does not promote foreign investment.
• Non-Bumi
putera enterprises have cherished in Malaysia because they are open to competition during the NEP implementation.
• SMEs of all races must be developed.
• Malay agenda has to be replaced with Malaysian agenda to futher grow the economy.

It’s hard to argue with reports churned by established institutions. However, after reading this report, I think more than half of the report is just plain rubbish (Tan Sri Muhyiddin, you da man). When the report argues that the Bumiputera usually benefit from divesting interest during public offerings and channeling their wealth to other avenues such as real estates and trusts, we have to also measure what is the current volume owned by the Chinese. Amanah Saham Nasional is not the only trust agency in Malaysia! You want to compare apple to apple, let’s open up all the accounts in all financial bodies and look at the true volume.

One contradiction I find in this report is that first it talked about how the Chinese usually look for influential Malays as partners to protect their interest. Then it talked about the rise of smart partnerships between Chinese and the Melayu Baru especially in manufacturing that contributes to the economy. Which is which??? So first kutuk the Malays because the NEP has not worked, and then puji the Malays again because we’re afraid that the Malay political masters will whack us?

The decline of ownership in anchor banks by the Chinese needs to be looked at from the perspective of market penetration, not
ownership of individual banks. In other words, we don’t know whether 3 out of 10 banks are controlling the majority of the market or not.

It’s sick reading this report. It undermines the intelligence of the Malaysian community. I hope ASLI does not think that the Melayu Baru are as gullible or naïve. If we counter this report with another report, this will only start a chain reaction of academic discussions.

The MAJOR point of this whole issue is that we see the rise of the Chinese trying to speak up more about Malay rights in our Tanah Melayu or ‘Malay’sia. What are we going to do about it fellow Melayu Baru or Lama?????

ASLI's Major Finding

• The ownership of Bumiputera equity is largely contributed by participation of GLCs
• Corporate growth through debt was Government’s main strategy prior to 1997 crisis. Bumiputeras running large conglomerates took a big fall after.
• There is a new breed of Bumiputera from the middle class with sound education and access to human development opportunities to climb up in the private sector.

ASLI believes that the Government’s intention to redistribute wealth through affirmative action may jeopardize economic growth. ASLI says that the Government should focus on the growth of SMEs in the Ninth Malaysia Plan to promote genuine entrepreneurial capacity.

The objective of the NEP was to eradicate identification of race by economic functions. The NEP was to increase the economic ownership ration of 2.4:33:63 (Malay:Chinese:Indian) to 30:40:30. However, the Government was unclear of the method to be used to redistribute wealth. This would suggest that should one Bumiputera hold most of the 30% and other Bumiputera hold little or nothing, the goal would have been achieved. Following the implementation of this policy, the Bumiputera equity increased from 2.4% in 1970 to 18.7% in 2004 through GLCs and Government agencies. ASLI believes that the 18.7 percentage is deceiving.

The Malaysian Government through its numerous trust agencies and GLCs such as Khazanah, Petronas, PNB, MOF and others have acquired equity in companies as investment. Most are now major equity shareholders in these companies. The acquisition exercise includes participation by various State Economic Development Corporations (SEDC).

The Government has also used Bursa Malaysia as a platform to increase Bumiputera equity. During Tun Mahathir’s premiership in 1981, Tun Mahathir was of the opinion that the stock market was the avenue to create wealth for the Bumiputera by selectively choosing a small group of Malay businessmen and enabling them to use government-linked assets into the stock market. This resulted in swift corporate growth.

Another method was privatization. This involved the sale of government entities to selected Bumiputera businessmen. This resulted in a massive increase of Bumiputera equity in the early 1990s.

Legislation and enforcement agencies were established to maintain to enforce equity distribution among ethnic communities such as the Industrial Co-ordination Act 1975 and Securities Commission and Capital Issues Committee. The regulation includes a minimum equity holding of 30% by Bumiputera. MIT was responsible to ensure that companies going for listing either sell 30% of the equity to approved Bumiputera companies or 30% of the paid up capital is already owned by Bumiputera before listing.

Through these mechanisms, Bumiputera equity increased from 2.4% in 1973 to 20.6% in 1995 and 18.7% in 2004. Chinese equity went from 27.2% to 40.9% in 2004. In terms of value, Bumiputera held equity amounting to RM73.2billion in 2004 compared to RM447 million in 1970.

However, many recipients of share equity divested their interest for a huge profit. Much of the proceeds are rechanneled to Government trust agencies which provide a return of 12-18% per annum, much higher that commercial banks fixed deposits of 3-4%.

Some divestment found its way into the property sector. Value of properties owned by Bumiputera especially in prime areas have appreciated considerably. Bumiputera also enjoy discounts from purchase of real estates. Although the equity holding by Bumiputera has declined, the volume of wealth may not necessarily declined.

A survey of market capitalization of top companies in Bursa Malaysia done in 1993 indicated that the Government owns 40.5% of this equity. Another report indicated GLCs’ market cap amounted to RM260billion, or 36% of total market cap.

Although the Chinese owns more than 40% of corporate equity, the Chinese have learned to create smart partnerships with influential Bumiputeras to protect their interest. Conclusively, the Chinese do not own a substantial amount of the economy as widely speculated.

There is also a dispute in the NEP figures, that the true Bumiputera ownership of equity is 50%, according to Ramon Navaratnam. This is because equity owned by politicians in UMNO and other influential figures are hidden in nominee companies to conceal from scrutiny.

Bumiputera apportioned stock during public offerings are usually sold for a profit. The companies involved need to maintain the 30% Bumiputera equity as part of regulation. This means that although the Bumiputera ownership is seen to have dropped, the actual volume has increased.

Incentives and privileges for Bumiputera are prone to abuse. The access to wealth is usually privileged to middle and upper class Bumiputera, thus hindering the under-priveleged Bumiputera to improve their standard of living. Equitable distribution of wealth can only be done effectively if distributed based on income level.

The regulation of ensuring 30% of Bumiputera equity in foreign companies wanting to conduct business in Malaysia hinders foreign investment. This does not allow the company to truly reflect its true fund raising ability because of this artificial requirement. Not only that, hypermarkets are instructed to have 30% of their shelves allotted for Bumiputera SMEs. Numerous foreign companies are not keen of such regulation.

Bumiputera presence is also more apparent in emerging sectors, such as oil & gas, finance, banking and education. The staffing for big enterprises are usually Bumiputera. A number of large firms originally owned by foreigners or non-Bumi are now owned by Bumiputera or government control such as United Asian Bank, MISC, UMW, NSTP, MMC, Sime Darby, Golden Hope, UEM, Guthrie and others.

Bumiputera presence in executive positions is also more apparent especially in large enterprises such as PETRONAS, MAS and Maybank.

A huge decline of influence of non-Bumiputera is in the banking sector. Because of consolidation exercise, numerous non-Bumiputera-owned banks were under the direct control of less enterprising banks owned by Bumiputera, despite public outcry. Now there are only 3 Chinese-owned anchor banks. Among the ten anchor banks, the Government and Bumiputera own the rest of them.

The conventional method of Government’s initiative to boost up Bumiputera equity ownership through debt has taken a tremendous backlash, in particular, after the economic crash in 1997.

There is also an encouraging increase of inter-ethnic partnership since the 90’s. Because the NEP has so far uplifted the Bumiputera status and the creation of more well-educated middle and upper-class Bumiputera, Bumiputeras now are at par and have the ability to compete better. This now wealthier and smart Bumiputera are creating smart partnerships with non-Bumiputera especially in the area of manufacturing, suggesting that the trend of ‘Ali-Baba’ alliances are diminishing and a more productive business partnerships are being created.

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