Monday July 30, 2012
Refocusing Govtís role in business
Thatís the only way to get the private sector to spearhead growth and lead the charge towards higher income
ONE of the complaints that we regularly get about our economic transformation is that the Government is too heavily involved in business; it has too many Government-linked companies (GLCs) and that these companies are being given preference over others.
We are repeatedly told that the Government must roll back on its involvement in business and it must allow the private sector its rightful role in business and the overall development of the economy.
The bottom line is that under the New Economic Model, we agree to deal with these issues. We agree that the Government must focus on its role as policymaker and/or regulator and that it should not get involved in ventures where it has no business to be in and which the private sector can undertake better.
In fact, it is a key part of our strategy towards becoming a developed country with a high income that the Government reduce its role in many areas and pass it on to the private sector.
The private sector will be the key driver of growth with an estimated 92% of investments up to 2020, our target year to achieve high income and developed country status, coming from there.
We are serious about reducing Government involvement, especially in business, but are often disappointed that people out there donít realise that we are serious about it. That gives us a case of the blues sometimes but we will continue to do what we have to.
Having said that, we must simultaneously emphasise that we cannot have total non-involvement of Government in business. We need the Government to come in under a number of different circumstances. We have identified four. They are:
∑Private investor needs co-investor. This is when the Government needs to provide some capital to get the project going. Examples include corridor development, land reclamation and large destination resorts. Operations can be run by the private sector.
∑Businesses that need to be domestically owned. Examples are defence procurement and production of paddy to ensure food security. The Government will continue to own these projects.
∑When large growth capital is required, catalytic and new technology required. Basically, these are long-gestation and capital-intensive projects which wonít take root without initial Government involvement. But we will exit when the time comes.
∑National infrastructure such as roads, highways and mass rapid transit. There is no exit strategy for these Ė the Government will own them but the private sector can run them through concession agreements for instance.
It is worthwhile mentioning here that there is no exit strategy for the national oil corporation, Petronas. It was set up under the Petroleum Development Act to own, secure and exploit oil and gas assets for the country to maximise revenue and encourage conservation. Petronas may in fact have to expand its role by expanding abroad to secure more oil assets.
In short, it is a very successful model of an energy holding company for the Government and provides much money to the Government to undertake its projects. And it has done its part to promote entrepreneurship by encouraging Malaysian and especially bumiputra companies to get involved in the oil and gas sector, and quite successfully at that. We will leave well alone what is doing well.
There are some who will argue that the Government should remain in business. We partially agree for some of the projects as outlined just now. But there are strong reasons for reducing Government involvement.
The main one of course is economic growth which we want the private sector to spearhead. That will entail that the Government steps back, gives room for the private sector to expand and instead takes more of a regulatory role to see that all goes well without too much interference.
Such a move will have other attendant benefits. As is well known, GLCs account for some 30%-40% of the market value of Bursa Malaysia. This over-concentration leads to liquidity problems. Based on one of the recommendations under the New Economic Model, we have identified 33 GLCs (we canít disclose their names for reasons of information integrity) for full (21) or partial divestment (5) or via public listing (7).
To underscore our seriousness, the Prime Minister chairs regular meetings to review progress. To date, 13 companies have been already divested with 11 completed in 2011. Felda Global Ventures, IHH Healthcare, Pos Malaysia and EON Cap are some of the big names divested already.
Also, recommendations have been made for the divestment of companies held by the various states. We are further looking at companies being held by the various ministries to further reduce the Government role in business.
We hope to improve liquidity in Bursa Malaysia by selling down stakes or outright sale of large listed companies as well as encouraging the listing of Government-owned companies.
This and over time, the further sale of companies owned by the states and ministries will reduce the number of government companies which will compete with the private sector for contracts so that we do not crowd out the private sector. Meantime, we should not favour Government companies for contracts.
One key benefit that will accrue from this entire process is that the Government gets revenue for its development projects and if the private sector runs these businesses better than the Government itself, we can look forward to more tax income in future as well.
Our role in Government and particularly at the Performance Management and Delivery Unit (Pemandu) is to help set the conditions for the private sector to become the main engine of growth in future. We plan, we identify, we liaise with the private sector and encourage them.
The reduction of Government in business is an integral part of our aim to make us a high-income nation. At the heart of this transition is making Malaysia a much more market-oriented economy for that is the only way to ensure that we are in the long run competitive relative to the rest of the world.
Our transformation success requires that Government focus on its core functions and believe me, thatís what we are doing.
∑Datuk Seri Idris Jala is CEO of Pemandu and Minister in the Prime Ministerís Department. All fair and reasonable comments are most welcome at email@example.com