KUALA LUMPUR, Nov 11 — Government-linked companies (GLCs) can better develop Malaysia through innovation if they did not have additional social responsibilities like the Bumiputera agenda, according to the Organisation for Economic Cooperation and Development (OECD).
The OECD Reviews of Innovation Policy: Malaysia 2016 report released today cited the GLC Transformation Programme, which was launched in 2004, that said GLCs were expected to improve productivity through their role in implementing government policies and in building capacity in key sectors like automotive and semiconductors.
Although local GLCs contributed to knowledge-based and service industries and sectors, according to the Putrajaya Committee on GLC High Performance, most of them also contributed to socio-economic development goals like the Bumiputera Empowerment Agenda through their employment and sourcing policies.
“This goes against one of the main lessons learnt from international experiences, i.e. the need to define well the specific development goals assigned to each state-owned enterprise and avoid mixing them with other broader issues, such as social equity.
“The multiplicity of objectives, including some that span far beyond the development of the sectors they intervene in, was seen as one of the main weaknesses of the way the Malaysian state has attempted to use its state-owned enterprises as development agents,” said the OECD report.
National news agency Bernama reported last May Prime Minister Datuk Seri Najib Razak as saying that key performance indicators (KPIs) in the Bumiputera Empowerment Agenda, which was introduced in 2014, would be raised for government-linked investment companies and top 20 GLCs this year.
The OECD report highlighted the success of state-owned enterprises as “development agents” in Asian countries like Japan, Korea and Taiwan that helped boost some of those nations beyond middle-income levels.
The report identified three conditions for successful state-owned enterprise-based development strategies, such as applying world-class corporate governance rules, freeing areas in which such enterprises operate of commercial and financial interests, and clearly defining their developmental objectives.
“Conditions of relative equality are proven to yield better results and avoid risks of corruption or capture of developmental objectives by specific existing interest groups.
“The developmental objectives state-owned enterprises are expected to contribute to should be clearly defined and, in particular, not intermingled with broader social policy objectives unrelated to their initial, sector-specific purpose,” said the OECD report.
The OECD report identified Singapore as a successful example with its use of state-owned enterprises that generally followed those three conditions, citing the creation of Temasek as a holding company to rationalise management practises across all of the state-owned enterprises in its portfolio and to separate their governance from state regulation.
OECD noted that Malaysia’s Khazanah Nasional was clearly modelled after Temasek, except that the direct role of the state was preserved in the company’s governance.
“Singapore has also clearly defined the development objectives of its state-owned enterprises and refrained from overburdening them with multiple objectives.
“State-owned enterprises are, in particular, relieved from broader social objectives (health, social equity, housing, etc.), which remain under the responsibility of the state alone through dedicated institutions,” said the OECD.
