Thread: Malaysia caught between a rock and a hard place

Tiwari ji, it's not Dharthi Putra, native malays are called BhumiPutra...
Recently the Singapore leader Lee Kuan Yew got into a spat with Malaysia over the marginalization of the Malaysian Chinese......

Thanks Longshot, this is so true. I noticed it when I went to Malaysia, I couldnt control my smile. Same thing with Petronas towers, the guide was telling us that they built the towers in record time or something like that, some one in the group immedieatly asked, is the office space so much in demand here at KL and whats the occupancy rate in the towers at present, the guide did not like that question, nor he answered it

This all happens in the context of Malaysia's grossly inflated sense of its place in the world.

Ive read about the Bhumi Putra led companies, which were given billions of dollars by Mahathir's govt to stay afloat and finally almost all of them went belly up. Only very few of Mahathir's handpicked Business Captains were able to turn around the ship, I think Francis Yeoh and T. Ananda Krishnan did well, incidently they both are non-malays and Ananda Krishnana went on to become a billionaire.

From Wikipedia..
Certain pro-bumiputra policies known as the Bumiputra Laws exist as a means of affirmative action for bumiputras. Such policies include quotas for the following: admission to government educational institutions, qualification for public scholarships, positions in government and ownership in business. Most of them were established in the Malaysian New Economic Policy (NEP). Examples of such policies include:

* Companies listed on the Kuala Lumpur Stock Exchange (Bursa Saham Kuala Lumpur) must find Bumiputras to take up a minimum 30% of equity to satisfy listing requirements. MSC status companies listed on MESDAQ (Malaysia's latest stock exchange, modelled on the NASDAQ and other 'tech' stock exchanges) are not subject to this requirement.

* A certain percentage of new housing in any development has to be sold to Bumiputra owners. Housing developers are required to provide a minimum 7% discount to Bumiputra buyers of these lots. There is no bumiputra discount on established housing.

* A basket of government guaranteed and run mutual funds are available for purchase by Bumiputra buyers only.

* Many government tendered projects require that companies submitting tenders be bumiputra owned. This requirement has led to non-Bumiputras teaming up with Bumiputra companies to obtain projects in a practice known as "Ali Baba" where Ali (the Bumiputra) exists solely to satisfy this requirement and Baba (the non Bumiputra) gives Ali a certain sum in exchange.

* Projects were earmarked for Malay contractors to gain expertise in various fields. Often these projects would be sold as the bidders were not interested in the work, only in the gains that could be made from winning such a tender.

* Approved Permits (APs) for automobiles preferentially allow Bumiputra to import vehicles. Automotive companies wishing to bring in cars need to have an AP to do so. APs were originally created to allow Bumiputra participation in the automotive industry since they were issued to companies with at least 70% Bumiputra ownership. In 2004, the Edge (a business newspaper) estimated that APs were worth approximately RM 35,000 a piece. They also estimated that Nasimuddin Amin, chairman of the Naza group received 6,387 for 2003, making him the largest recipient of APs. 12,234 APs were issued in 2003. In addition to APs, foreign car marquees are required to pay between 140% to 300% as an import duty.

From Business Week:
For more than three decades, anyone doing business in Malaysia has needed to understand at least one word of Malay: Bumiputra. Literally, it means "son of the soil," but it refers to Muslim Malays, who make up just over half of Malaysia's population and who enjoy big advantages over the country's ethnic Chinese and Indian minorities under sweeping affirmative-action regulations. Universities reserve seats for Bumiputras. When you set up a company in Malaysia, Bumiputras must own 30%. When a Malaysian company goes public, 30% of the shares must go to Bumiputras--at a discount. Can't find a partner? The International Trade & Industry Ministry will give you a list of "approved Bumiputras" to whom you must sell--or give--a stake.


Affirmative action, better known as the New Economic Policy (NEP), has been carved in stone in Malaysia for 32 years. It was implemented in 1970, the year after Malays in Kuala Lumpur rioted for five days, attacking ethnic Chinese businesses and killing nearly 200 people. A primary cause of their rage: Virtually every sizeable Malaysian company was under ethnic Chinese ownership or management.

That bedrock policy may now be shifting. In June, Prime Minister Mahathir Mohamad stunned Southeast Asia by disclosing his plans to retire next year. But a Mahathir speech two days earlier has kept Kuala Lumpur equally abuzz: On June 20, he hinted it may be time for affirmative action to give way to "meritocracy." Why? Because the NEP hasn't created the economic advancement he had hoped. "I feel disappointed because I achieved too little of my principal task of making my race a successful race, a race that is respected," Mahathir said. Mahathir's office didn't respond to calls, e-mails, and faxes seeking comment for this article. Yet analysts, executives, and diplomats in Kuala Lumpur have been parsing the meaning of his speech. The general conclusion: Mahathir wants to phase out the NEP.

Weaning 11 million Bumiputras off affirmative action is likely to be a delicate task. For starters, the program hasn't been a total failure, despite Mahathir's dismay. The World Bank credits it with reducing poverty among Malays to 8% in 1995, from 50% in 1973. The NEP "was a partial success, [but] not a complete success. There is still a lot of unfinished work," says Mohamed Ariff, executive director of the Malaysian Institute of Economic Research.

Then there's the political dimension. Malays are probably not angry enough to take to the streets and attack ethnic Chinese. But some still fear that the youth wing of Mahathir's party, the United Malays National Organization (UMNO), could forment unrest. If the NEP were to be dismantled, "there would be a lot of resistance from the Bumiputra community," says the head of research of a Malaysian brokerage.

Yet if Mahathir can pull it off, phasing out the NEP could do Malaysia far more good than harm. Many argue that the NEP has discouraged investment and stifled job creation. And it hasn't helped raise the profile of Bumiputra businessmen. Of the top 10 companies listed on the stock exchange, seven are state-controlled and three are ethnic Chinese family businesses. Only 19% of corporate equity in Malaysia is in Bumiputra hands--far shy of the NEP's 30% target.

The NEP has also cost the government plenty. Since its inception, Malaysia has spent billions of dollars on public-works projects in Bumiputra-dominated rural areas. Discounts given to Bumiputra shareholders on equity in state-owned enterprises that went public in the 1980s cost billions more. But few of the companies are internationally competitive. "We did not create businessmen who could cope with the crisis that emerged in 1997," says Edmund Terence Gomez, professor of economics at the University of Malaya. Privatized state companies such as Malaysia Airlines and automobile assembler Perusahaan Otomobil Nasional (Proton) have been driven into the ground by CEOs whose chief qualification appeared to be that they were Bumiputras. The recent near-collapse of engineering company Renong--a bastion of Bumiputra patronage--spurred a purge of Bumiputra businessmen by Mahathir himself.

Mahathir has long recognized that foreign investors might object to the Bumiputra rules. In the late 1980s, the government created special export manufacturing zones where multinationals such as Intel Corp. and Motorola Inc. set up shop. Among the attractions: They don't require Bumiputra partners.

Raising enough support from within Mahathir's party to dismantle the NEP may be tough. Half of Malays voted against UMNO in the last election, in November, 1999. Today, party leaders fear losing even more ground by revoking the NEP, Western diplomats say. And with Mahathir stepping down, his anointed successor, Deputy Prime Minister Abdullah Ahmad Badawi, may not be strong enough to take the political heat for such a dramatic change.

But Mahathir has started dismantling the NEP on his own. In April, he shot down a proposal that private universities--mainly serving non-Bumiputras--reserve 10% of their seats for Bumiputras. At the same time, he proposed that the language of instruction in math and science be changed from Malay to English. Mahathir also discontinued quotas that guaranteed Bumiputras 55% of the seats at national universities. But in June, on the first day of classes for the new academic year, professors were dismayed to find that 60% of their students were Malays. That led some to conclude that even if Mahathir wants to ditch affirmative action, bureaucrats--virtually all ethnic Malays, due to the NEP--are still clinging to it.

Even with reform in place, it will take years to reverse the policy's effects. Many young non-Bumiputras simply don't bother to apply for higher education. Other ethnic Chinese and Indians go to school overseas--and sometimes don't come back. Those who do return are often unhappy that they had to leave in the first place. "You tolerate the situation partly because you look for an excuse not to hate it," says Stephen Gan, an ethnic Chinese who studied in Australia and is now editor-in-chief of Malaysiakini, a Kuala Lumpur-based news Web site.

Once young Malaysians, whatever their race, graduate, their opportunities can be limited by the NEP. Some foreign companies are forced to put their projects on hold because they can't find a suitable Bumiputra partner, says a Singapore lawyer who works in Malaysia. And some initial public offerings have been postponed because the companies can't find enough Bumiputra investors to absorb 30% of the issue.

The toughest battle lies ahead. But Mahathir has taken a major step simply by pointing out the failings of affirmative action in a country where he may be the only person with the political clout to even broach the subject. Of course, Mahathir won't be around when the time comes to dismantle the NEP. "That's for future prime ministers to deal with," says a Western diplomat. "His role is to start the debate." Start it he has.
By Michael Shari in Kuala Lumpur