Anwar said GLCs and GLICs should look into employee welfare and human capital development instead of merely focusing on profits.
PETALING JAYA: Prime Minister Datuk Seri Anwar Ibrahim’s call for government-linked companies (GLCs) and government-linked investment companies (GLICs) to allocate more resources for domestic direct investments (DDIs) and to have a larger corporate role in developing the country, has been commended by economists.
However, it has raised the question as to whether GLCs like the Employees Provident Fund (EPF) – which garnered 37.7% of its consistent returns from overseas investments, should be diverting more of its funds into local endeavours.
Speaking at the monthly Finance Ministry assembly yesterday, Anwar, who is also Finance Minister, said both groups of corporations should also be looking into employee welfare and human capital development instead of merely focusing on profits.
That would include supporting the country’s economic growth and stepping up DDIs, especially those that are in line with Putrajaya’s New Industrial Master Plan and the National Energy Transition Roadmap.
It is only natural to ask if earnings growth could be affected if GLCs and GLICs, with the EPF being an outstanding example, were to amend their investment strategies to focus more on social pursuits.
Although agreeing with Anwar on his suggestion that GLCs and GLICs embark on noble causes, particularly those that are in line with the government’s vision, economists said profits have to remain the bread and butter concern of any corporate entity.
This is more so for returns-focused institutions including the EPF.
Anwar has suggested that he could be looking at reviewing the portfolio percentage that GLCs and GLICs would be allowed to invest outside of Malaysia.
Economics expert at the Malaysia University of Science and Technology Prof Geoffrey Williams said for the EPF to maintain its commendable 6% dividend and for other institutions looking to perform similarly, they would need to invest overseas.
This view is also echoed by another economist of a local bank, who is of the opinion that the EPF, being responsible for the retirement welfare of millions of Malaysians, should maintain its selective approach with its investments, if not improve them.
“The more profitable the EPF is, the better the dividends it can declare. For us, this is being socially responsible to Malaysians above all else,” said the economist.
At the same time, Williams told StarBiz that GLCs and GLICs are sources of DDIs but there are drawbacks, particularly as Malaysia is a small market and GLCs will need bigger markets.
Citing a couple of examples, he said Indonesia has a market that is nine times larger than Malaysia, while Vietnam is three times bigger, and as such, branching out regionally would build good business opportunities for the GLCs and GLICs.
Moreover, Williams said if the government-linked entities dominate the local market, there is a risk they could crowd out private local companies and investors.
He emphasised that it is not wrong to focus on profits because this is a prime incentive for good business and efficiency, particularly since maximising profits requires cost efficient business models.
On the other hand, he said: “Long-term profits must be sustainable and good business models will focus on medium-to-long-term returns.
“Social considerations and good governance also go hand-in-hand with good profits and are not competing aims.
“Nonetheless, profits must be a key metric of any successful business.”
Concurring with Williams, chief executive of Centre for Market Education and entrepreneur Carmelo Ferlito opined that it is impossible to pursue other objectives without profit, and that it is a misconception to believe profit-hunting is not a socially acceptable target.
“A profit is basically the difference between revenue and costs. Without that difference, any economic venture will end, with the ultimate consequence of producing negative consequences on labour and the entire supply chain,” he said, adding that profits make the pursuit of other “higher ends” possible.
Ferlito said ostensibly, honourable social goals such as the upskilling of employees, social mobility, research and development as well as energy transition objectives would require GLCs and GLICs to turn in strong profits.
Of interest, he pointed out that the issue of whether the GLCs and GLICs should invest more domestically or overseas arose because by partially operating outside of the market, they might be less responsive to market stimuli and are, therefore, less alert to price signals.
“Price signals dictate investment decisions,” he said.
Meanwhile, Socio-Economic Research Centre executive director Lee Heng Guie said to bring about catalytic and tangible drivers to spur DDIs, GLCs and GLICs, the government should re-evaluate their level of participation in overseas investment, as well as assets portfolio, including scaling back foreign investments that are not making profits.
Concurring with Williams, he said government-linked corporations should not crowd out and compete with the private sector especially in non-strategic businesses.
One noteworthy mention is Permodalan Nasional Bhd – fresh from delivering a total distribution of 5.25 sen for its flagship fund Amanah Saham Bumiputra for the year ended Dec 31, 2023. Since 2017, it had gradually increased its overseas investment portion and as at the end of 2022, it had allocated up to 19.2% of its total asset under management or RM341.6bil outside the country.
