No end seen to GLC juggernaut as top 20 firms triple share worth

KUALA LUMPUR, April 30 — The skyrocketing shares in Putrajaya-linked firms in the past decade are a worrying indication that the government is reversing its pledge to reduce its role in the private sector, according to observers of the economy.

Dr Lim Teck Ghee cautioned that the rise in Malaysia’s top 20 GLCs’ value on the share market — tripling to RM431.1 billion in the last ten years — would also further worsen the nexus between business and politics in Malaysia.

“The tripling in GLC capitalization is a worrying sign. It shows not only that there has been little or no success with trimming GLCs back as recommended by the National Economic Advisory Council in the New Economic Model but that the reverse trend is taking place.

“Not only is this crowding out private investment — local and foreign — but it is also preventing the de-politicisation of the economy which is badly needed if the economy is to progress to a higher level,” the former World Bank senior social scientist told Malay Mail Online recently.  

Last November, Putrajaya reportedly divested its interest in 30 out of the 33 GLCs targeted in 2011, with divestment measures including selling off, cutting down stakes in or listing the firms.

Jayant Menon, an economist at Asian Development Bank (ADB), noted Putrajaya’s plans to divest GLCs was due to its recognition that these firms could crowd out private investment, adding that the idea has been backed by empirical evidence.

But the the move is being eclipsed by the growth of the so-called G20, he noted.

“Instead of reducing the role and presence of GLCs in the economy, the opposite has happened,” he told Malay Mail Online recently.

“This can only further crowd out private investment, and reduce the attractiveness of the domestic investment climate for both local and foreign firms,” the ADB lead economist in trade and regional cooperation added.

In April 2013, Menon had together with another ADB economist Thiam Hee Ng issued the findings on their study of GLCs in Malaysia, with their paper titled Are Government-Linked Corporations Crowding out Private Investment in Malaysia?.

The two economists had suggested that the GLCs’ growing dominance in many sectors and special access to government and regulatory agencies to their favour may deter competition and entry of new private firms.

Now, Menon is cautioning that the GLCs could also strain the government’s resources as Putrajaya must continue investing in and financing the firms, while dealing with a large budget deficit and lower revenue owing to the recent sharp fall in oil prices.

“Apart from crowding out private investment, which is the major negative impact of the growing presence of GLCs, they are also placing a further burden on scarce fiscal resources.  

“In addition, their growth further promotes a culture of corruption and crony capitalism, fuelling further increases in income and asset inequality,” he said.

Lim described GLCs as a “double-edged knife in the Malaysian economy”, saying that the quality of management would dictate if these firms will benefit or dampen the economy.

“When well managed and with high governance standards, they can help stimulate the economy and provide public goods and services at competitive prices. When riddled with inefficiency, graft and clueless leadership, they are a major drag on the economy,” the Centre of Policy Initiatives think-tank director said.

The negative assessment was not universal, however, with Universiti Malaya senior lecturer Dr Lee Hwok Aun saying there has not been any substantive study of whether GLCs were a positive or negative factor on private investment levels.

“Beyond issues of market structure, the extent to which GLCs may be preferred by financial markets and hence reduce funds available for private sector players also warrants attention,” the academic attached to the university’s Faculty of Economics and Administration said.

Last week, Putrajaya said the top 20 GLCs or G20 have boosted their international and regional presence in over 42 countries, now gaining 34 per cent of its revenue from abroad instead of 28 per cent in 2004.

Putrajaya also said the GLCs contributed significantly to the national economy by pumping in RM153.9 billion in domestic investment in the same 10-year period, where they paid out RM108.3 billion in total dividends and RM63.5 billion in total taxes.