Firstly, I would like to thank the organisers, MIBA for having me on this webinar and the opportunity to come back to an old haunt after a very long time. It does feel though like some of my old investment banking adversaries still have it in for me: Making me speak right after Tan Sri Andrew is like what we used to call in rugby a “hospital pass”; however good you are you still get flattened because of the setting and timing of the pass. In this case, taking the podium right after someone whose abundance of passion and knowledge, and incredible intellect always leaves the audience in awe. 

Thankfully I will be discussing a completely different topic: For a Better Malaysia Inc. My perspectives on Malaysia Inc and thoughts on the way forwards.

Malaysia Inc was introduced by Prime Minister Dr Mahathir back in 1983. In the 1970’s NEP had driven the expansion of government in the economy- proliferation of rules and regulations, as well as government companies and agencies. So, the Malaysia Inc policy signaled a tilt in relationship between the public and private sectors in favour of the latter. The emphasis on private enterprise was underlined a few months later with the announcement of the privatization policy. 

Malaysia Inc took after Japan Inc, the Japanese model of state support for development of private business conglomerates or Keiretsu’s. At the same time, Malaysia Inc also reflected the influence of neo classical economics and free market policies of the Reagan-Thatcher era; Malaysia of course went on to liberalise its investment environment and financial markets.  

Over the years the term “Malaysia Inc” has persisted, despite changes in policies and strategies, and is taken to refer to the nature of the collaborative relationship between government and the private sector.

Public-private sector collaboration is always in principle a good thing. It is also hard to find fault with the idea of mimicking what was driving Japan and other East Asian miracle economies in the early 1980’s and embracing western ideas of market liberalization and enhancing private enterprise.

The problem with Malaysia Inc and indeed many great ideas we had over the years was that it was imported into a setting where there roamed a three-headed monster. By three-headed monster I mean money politics, identity politics and concentration of power. The monster always finds a way to take control especially when we have a penchant for launching great ideas without robust execution plans: The Multimedia Super Corridor was genius; yet became largely a real estate project. The New Economic Model was written by our best minds to boldly address structural problems of the economy; yet remains on the shelf.   

I would broadly categorise Malaysia Inc as having 4 distinct era’s:

• 1.0: Early to mid-1980’s where there was a combination of new government companies (HICOM, Perwaja etc) and privatisations. Despite Mahathir’s partiality towards private enterprise, new government entities were needed to undertake heavy industries and compensate for the lack of bumiputra capacity.
• 2.0: The late ‘80s to mid ‘90s which saw the proliferation of privatisations, IPO’s of government companies and the evolution of tycoons – many chosen/significantly aided by political masters; mainly bumiputra (eg Halim, Tajuddin, Wan Azmi) but also only non-bumiputra (eg Ting Pek Khing, Yeoh Tiong Lay, Ananda Krishnan). Some businessmen were capable enough on their own but once you reach a certain degree of materiality you had to be part of the system or you find the system turning against you.
• 3.0: Post AFC to mid-2010’s: The failure of many bumiputra tycoons led to nationalisations (UEM, Celcom, MAS) appointment of professional managers and the GLC Transformation Program.
• 4.0: Since the rise and fall of 1MDB. The new era is still in its formative stage. I doubt the current unashamed politicisation of GLC’s can be a sustainable model.  

In all era’s though the implementation of Malaysia Inc always involved navigating the three-headed monster. Whereas in Japan (and the Korean Chaebols too) the primary driver was national economic development in itself complex, Malaysia Inc’s agenda was further convoluted by affirmative action and politics. The lack of a proper implementation framework meant that decision making became highly centralised and most times sub-optimal simply because there was never sufficient research, debate and oversight.

I have seen power at close proximity, not just with PM’s but others in government too. It is intoxicating for any mere mortal. It isn’t just about them being corrupt and making money for themselves, in relative terms we have been quite lucky that way. It is more about them wanting to make decisions without being challenged; the arrogance that comes with power. It is about the influencers that bear on them, clouding their thinking and manipulating information or analyses; the vested interests of the gate keepers. And it is about the incentives to build political war chests for the party and for themselves. 

Politicians almost always start off with the right attitude, to do good for the people. Then they find themselves in positions where they have to bend the rules a bit, and they justify it as a little necessity to stay in power in order to do the job they want for the rakyat. They get away with it and then the bending gets bigger and bigger as their personal ambitions grow or they or their party comes under pressure. By the end they are bending in order to not get caught for their past bends!

In short if power is unrestrained, unchecked, it will be abused. It is about the system, it isn’t about the individuals. Good people who refuse to bend usually don’t survive for long in politics. 

In the annals of our economic history, there have been plenty of corporate mishaps. The first major scandal was the BMF affair and the Perwaja Steel came after came soon after. In recent times we had Felda and of course the mother of them all – 1MDB. I will leave it to academia to quantify the scale of unnecessary losses suffered by Malaysia Inc but it has been massive!

We have to acknowledge that Malaysia Inc had success stories; to name a few- the PLUS highway was well built and has had massive multiplier effects on the economy, Sapura Energy became a global oil and gas player from the genesis of RM1.5bn or so worth of telecommunications contracts awarded to 4 bumiputra companies in 1984, YTL is a well-known international conglomerate largely built on the lucrative first IPP project awarded in 1994. 

The question one has to ask is whether it could have been better. Even in these success cases. Chunks of the huge cashflows from PLUS tolls were used to bail out Renong shareholders during the AFC, three out of four of the beneficiaries of the telecoms contracts disappeared soon afterwards and YTL’s gain was too much of a loss to Tenaga Nasional.

In the course of my IB career I was involved with all those situations in some way. PLUS was of course awarded to an UMNO linked company led by an anointed businessman Halim Saad. In my view, while Halim delivered the highway and on many other things, Renong was over leveraged because of both his own over-ambitions and the demands of his political masters that led him to take on unviable projects like bailing-out National Steel in Philippines. Renong was the epitome of Malaysia Inc 2.0 funding UMNO and growing bumiputra presence in business. It was ultimately overwhelmed by its conflicting priorities.

In the telecoms contract it would be interesting analyse why only one company built on the large profits from the contract. In my view, Sapura grew because they set out to build a long-term business. They hired Japanese management initially for knowledge transfer to their local staff at the expense of their profit margins and then ploughed back most of the profits back into the business. Could there have been a better selection process of the contract recipients or conditions set to ensure that they build on their good fortunes as it were?

As for YTL, it was quite apparent that the fixed price take or pay off take was considerably higher than what it should have been and indeed what it would have been had a competitive tender taken place. 

Competition is a great discoverer of true value. It is glaring how we continuously sought to minimise competition. How many reforming PM’s have talked about the implementing open tenders only to find themselves approving direct negotiations one after the other? In the case of the implementation of the NEP, why is it that we never developed a process of restricted tenders, for bumiputra to compete with one another? Instead, in the name of NEP the winner has to be a chosen one and the process of choosing is opaque. 

In Malaysia Inc 2.0 bumiputra tycoons were mainly chosen ones and then the government bureaucracy and banks were cajoled into helping them succeed. Why did we think that these people would be able to build robust business conglomerates? What did we do to ensure that easy access to contracts and capital would not make them entitled instead of competitive businessmen? 

It wasn’t just bumiputra businessmen as I said. I still cannot fathom why Ting Pek Khiing was awarded the massive contract to build the Bakun Dam in the mid 1990’s. Based on a track record of building Langkawi hotels in quick time; of course that led ultimately to him launching a massive RM 750m rights issue for the project just before the AFC. When the project was cancelled and he was meant to return to cash to shareholders CIMB, the rights issue lead manager, discovered that the cash was spent on other things. We reported him to the authorities and lo and behold, no one wanted to take any action. In Malaysia Inc businessmen backed by power could act with impunity, creating a big moral hazard. 

I spent almost 30 years doing deals in Malaysia Inc 1.0 to 4.0. I could spend all day sharing stories. What is more important is the way forwards to a Better Malaysia Inc. 

The first point is that as investment bankers you all have a role to play. Firstly, don’t compromise on ethics. Secondly don’t compromise on ethics even when the money is huge. Thirdly, shun unethical businessmen and companies collectively so they have to change or not be investment-banked. And I say all this without claiming the high road for myself or for CIMB during my time. We made mistakes, we shunned 1MDB of course but there were “regretables” before that.  

Secondly, to make Malaysia Inc great, I think the 3 headed monster has to be slain in one go. I think it is hard to do this piecemeal because there has to be inter-communal trade-offs and the vested interests in preserving the system is very deeply entrenched. At the heart of reform is our political system. As I always quip, Malaysia doesn’t have an economy, it only has a political economy. 

If you look at the GLC Transformation program it is telling. Khazanah was never able to incorporate all GLC’s, we advocated the inclusion of Felda and 1MDB but they were off limits. And with recent political turmoil, politics has returned to GLC’s with a vengeance.

I have spoken a length elsewhere about the need for another national reset, like we had in 1970 spearheaded by the National Consultative Council. I won’t go into the details here but one area that we must redesign is of course Malaysia Inc. Amongst others we need to reset the role of government, what licensing and permits are really necessary, how government procurement is done, how competition is ensured and regulated in every sector and the role and limits to presence of GLC’s. 

I do subscribe to the view that we need government involvement in companies. But we must be very deliberate about why and how. At the end of the GLCT in 2015. I recall arguing that ‘transformed’ companies should graduate and no longer be called GLC’s. They are merely government investee companies, so CIMB and Axiata should be called Government Investee companies and be left to operate fully under the supervision if their boards. Instead since then, listed companies and development agencies have all been lumped together and mainly led by politicians/political appointees. I hope this is not Malaysia Inc 4.0!

Let me end by summarising as follows - The introduction of Malaysia Inc was well-intended and sound but much was lost in its implementation because of the three headed monster. The relationship between government and business must be a big part of the national reset that I believe Malaysia so desperately needs. Until then as investment bankers please do not compromise on imposing ethical standards on your clients; that in itself is a small but important start towards a better Malaysia Inc.

Thank you.