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| Corporate Malaysia under Mahathir: Where have all the capitalists gone?
by Terence Gomez
Aliran Monthly 2003:10 Please support our work by buying a copy of our print publication, Aliran Monthly, from your nearest news-stand. Better still take out a subscription now. We also welcome donations.
Some of these policies were strongly opposed, not just by government critics but also members of his first cabinet, one reason why Mahathir moved to concentrate power within government in the office of the Prime Minister. Mahathir would later justify this concentration of power as a means to help him achieve industrialised nation status for Malaysia by 2020 and to fulfil his vision of creating this new class of dynamic, entrepreneurial Malay capitalists. To aid his vision of creating huge companies with international reputations led by Malay capitalists, Mahathir appointed his close ally, businessman Daim Zainuddin, as finance minister in 1984. Both men were captivated with business and developing the Kuala Lumpur Stock Exchange (KLSE) as an avenue to help create domestic capitalists and large conglomerates. The high degree of autonomy that the prime minister had within the state allowed him to selectively distribute government-created concessions to a select group of businessmen who, by the mid-1990s, were in control of a number of huge quoted conglomerates. These conglomerates were also rapidly built up through their relatively easy access to loans from government-controlled banks. As for the KLSE, between 1989 and 1993, equity market capitalisation as a percentage of gross domestic product (GDP) increased from 105 per cent to 342 per cent. By the mid-1990s, the KLSE�s market capitalisation relative to GDP had emerged as the highest in Southeast Asia. The KLSE had also emerged as the fourth largest bourse in Asia and the 15th largest in the world in terms of market capitalisation. By early 1997, Malaysia�s leading corporations included a number of firms controlled by Bumiputeras, almost all of whom were well-connected to one of the then three most powerful politicians in Malaysia � Mahathir, then deputy prime minister and finance minister Anwar Ibrahim, and then government economic advisor Daim Zainuddin. The Malays in control of major firms included Halim Saad, Tajudin Ramli, Wan Azmi Wan Hamzah, Samsudin Abu Hassan, Hassan Abas, Ahmad Sebi Abu Bakar and Amin Shah Omar Shah, who were closely associated with Daim; Ishak Ismail, Mohamad Sarit Yusoh, Kamaruddin Jaafar, Kamaruddin Mohd Nor and Rashid Hussain, who were linked with Anwar; while those who were close to the prime minister included his sons, Mirzan and Mokhzani Mahathir, as well as the late Yahya Ahmad, Basir Ismail and Mohd Noor Yusof. Among the more independent business figures in the corporate sector who had emerged as businessmen of some repute prior to Mahathir�s ascendancy to the premiership were Tunku Abdullah, Shamsuddin Abdul Kadir and Azman Hashim, but all three were known to be intimate friends of the prime minister. A number of well-connected non-Malays also quickly evolved as owners of large enterprises during Mahathir�s tenure. These businessmen included Vincent Tan Chee Yioun, Ting Pik Khiing, Francis Yeoh, Lee Kim Yew and T. Ananda Krishnan who were all reputedly aligned with Mahathir and Daim, while Tong Kooi Ong, Quek Leng Chan and T.K. Lim were associated with Anwar. Almost all these Malay and non-Malay businessmen who were among Malaysia�s leading corporate figures before the 1997 currency crisis had been privy to state patronage in some form, specifically the award of privatised contracts. However, since the rise of most key businessmen was linked to the patronage of influential politicians, wealth accumulation depended on whether their patrons remained in power. After Anwar was removed from office in September 1998, thus allowing Mahathir to concentrate even more power in the office of the prime minister, most Malay and Chinese businessmen associated with the ex-deputy prime minister have had to struggle to protect their corporate interests. Similarly, when Daim fell out of favour with Mahathir in 2001, corporate assets owned by his business allies and proxies were taken over by the government. These political fallouts between Malaysia�s leading politicians were sparked mainly by the impact of the 1997 crisis on the corporate sector. The currency crisis had a profound impact on domestic capitalists, especially well-connected businessmen. With the rapid fall in the value of equity quoted on the KLSE, many well-connected companies fell off the list of the top 100 Malaysian firms, far more rapidly than they got there. Chinese capitalists appeared to have fared better in the crisis, as did government-owned listed companies. 
By the beginning of 2001, according to one study of the wealthiest business people in Malaysia, no Malay figured among the richest 10 businessmen, in terms of the total value of corporate assets they owned (see Malaysian Business 1 February 2001). This study indicated that, apart from one ethnic Indian, the remaining top 10 wealthiest corporate figures were all ethnic Chinese. Of the top 20, only three businessmen were Bumiputeras, while 16 were ethnic Chinese.
By 2003, all these three Malay businessmen, Tajudin Ramli (right), Halim Saad and Rashid Hussain, had lost control of their corporate assets. The currency crisis, as Mahathir would fervidly stress, was the primary reason for his failure to develop domestic capitalists. It was, however, questionable if the prime minister had helped nurture entrepreneurial companies that could weather crises. Enterprise reform in the post-crisis period Despite this further concentration of power in the office of the executive in the post-crisis period that facilitated, among other things, controversial �bailouts� of select businessmen, the government also introduced new policy initiatives and corporate governance measures to deal with the problems exposed in the corporate sector. In February 1999, the government proposed the Malaysian Code of Corporate Governance which has two primary objectives. First, to encourage disclosure to ensure that investors are aware of the way their company is being managed. The second objective of the Code is remind company directors of their responsibilities. The four principles of corporate governance set out in the Malaysian Code refer to:
In Malaysia, the institutions established to ensure proper corporate governance have the capacity to perform effectively, have a good reputation for regulating the financial market. But because of the hegemony of the executive over the state, the relevance and effectiveness of these institutions depends primarily on the will of key government leaders to enforce corporate governance. Simply put, regulatory institutions can - and usually - act independently but are also used as tools by powerful politicians for vested interests. These politicians can ensure that these regulatory institutions do not act against favoured businessmen, in spite of evidence of corrupt practices.
Political conflicts, policy response, and wealth deconcentration Although the development of the Corporate Malaysia has been strongly influenced by Mahathir�s policies, and he alone dominated the state, this concentration of political power has not contributed to concentration of corporate equity in the hands of an elite group. Towards the end of Mahathir�s tenure, there was evidence not of wealth concentration but of rather wide dispersal of ownership of corporate equity of the top 100 quoted firms. In 2001, a list compiled by Malaysian Business (2 January 2001) of the country�s 20 wealthiest business people indicated that their combined wealth amounted to RM41.7 billion, only about 10 per cent of the KLSE�s market capitalisation. More importantly, it does not appear that any of these 20 wealthiest business people hold corporate equity in trust for influential politicians. This lack of wealth concentration is primarily due to conflicts among Malaysia�s political elites. Between 1997, when the currency crisis occurred, and 2001, two influential politicians, Anwar and Daim, who had significant indirect control over important corporate enterprises, had been marginalized by Mahathir. The vast corporate assets owned by their business allies have been re-allocated to government institutions or other private individuals, an indication of the capacity of the former prime minister to control how companies are developed. Businessmen, particularly Chinese entrepreneurs, who had little or no links with politicians, appear to have been able to retain control over their companies, mainly by conforming to state policies. But the fall of the Anwar-linked T.K. Lim, for example, suggests that it is not too difficult for the government to remove corporate assets at will. This indicates that even those firms that are sustainable in spite of their rentier origins could be dismantled or taken over following power struggles in UMNO. Another example of a prominent businessman who is widely believed to have relinquished control of his corporate assets because of a fall-out with Mahathir is Rashid Hussain. By the beginning of this decade, a review of the top 10 firms listed on the KLSE, in terms of market capitalisation, indicated that the government has majority ownership of six of these quoted firms. These companies include former public utilities like Telekom Malaysia (at number 1) and power supplier Tenaga Nasional (at number 3), the country�s leading bank, Malayan Banking (at numnber 2), the national oil corporation Petronas� gas producer, Petronas Gas (at number 4), the national shipping line Malaysian International Shipping Corporation (MISC) (at number 6), and the well-diversified, but predominantly plantation-based Sime Darby (at number 7). Government firms also have a stake in Commerce Asset-Holding (at number 8), which owns Malaysia�s second largest bank, Bumiputra Commerce Bank, an enterprise that emerged out of the merger between government-owned Bank Bumiputra and Bank of Commerce. The other three firms in the top ten � Resorts World (at number 5), Genting (at number 9) and YTL Corporation (at number 10) � are owned by ethnic Chinese. Genting and Resorts World, involved in the casino and leisure industries, are part of the same group owned by Lim Goh Tong. The YTL group, involved in the construction, property development and power secctors, is owned by Yeoh Tiong Lay and his family. Two other conspicuous points about the top ten companies is that, first, one of them is owned by a foreign enterprise. Second, in spite of phenomenal state support for the development of Malay capital, no Bumiputera individual has emerged with a controlling interest in any of the top 10 companies. The failure of the government�s policy to develop Bumiputera entrepreneurs, in spite of the phenomenal amount of privileges accorded to a select number of businessmen, was due to the manner of implementation of this policy. The government had selected these so-called �winners� in a non-transparent manner, and accorded them numerous concessions, particularly privatised projects, to facilitate their rapid expansion. Moreover, since there was little clear focus in enterprise expansion by many well-connected Bumiputeras, and since political patronage also involved easy access to loans and government privileges, there appeared to be little caution in the manner they developed their companies. This style of growth contributed to their rapid collapse when the currency crisis occurred in 1997. Link to senior politicians Another key reason for the decline of most leading Bumiputera businessmen is that since most of them were closely linked to � and dependent on � senior politicians, their corporate activities were often influenced by politicians and affected by political crises. In 1993, for example, Daim ensured that Renong, controlled by Halim Saad, divested ownership of the then highly profitable media companies, NSTP and TV3, to businessmen linked to Anwar. Anwar had then forged close ties with Daim to mount his bid for the post of deputy president of UMNO. When Anwar and Daim fell from power, so too did businessmen linked to them. Malay capitalists that have remained relatively independent appear to have fared better. Shamsuddin Kadir, for example, who developed Sapura Telecommunications and Uniphone Telecommunications, remained unaffected by the 1998 political crisis in UMNO. Tunku Abdullah, who controls the Melewar group, has not been very dependent on any leading UMNO politician for continued business support and privileges. Moreover, Malaysian Assurance Alliance (MAA), Abdullah�s main listed enterprise, has remained focused on the insurance industry. Another factor contributing to the failure to develop Bumiputera businessmen is that many of them were involved in sectors most affected by the currency crisis. This point also highlights another crucial fact � none of the Malay businessmen who had emerged as owners listed in the KLSE top 100 have shown a capacity to venture successfully into manufacturing. Most of them have focused instead on finance, construction, property development and telecommunications. Shamsuddin Kadir�s telecommunications enterprises were probably the only Bumiputera firms actively involved in manufacturing. Shamsuddin, however, has since divested his interests in this sector. A further important feature of the largest publicly-listed firms is that, even among the top 100, barely 20 list manufacturing as a primary activity. Most of these 20 companies are foreign-owned � Rothmans, Nestle, Malayan Cement, Carlsberg, Guinness Anchor, RJ Reynolds, Malaysian Oxygen, Kedah Cement and Shell. Three of these 20-odd firms belong to Hong Leong group � MPI (electronics), OYL (air-conditioning), Hong Leong Industries (tiles) � probably one of the few entrepreneurial conglomerates in Malaysia. Ethnic Chinese own most of the other domestic manufacturing firms in the top 100 KLSE list. There is, however, no evidence of intra-ethnic business cooperation involving members of the Chinese community, though it is widely believed they work together to protect common economic interests. The key factor that explains their capacity to thrive in the Malaysian economy is that they have been forced to compete, especially after the introduction of affirmative action through the New Economic Policy (NEP). This point was clear to Mahathir, who of late had been persistently counselling Malay businessmen to emulate the �Chinese-way� of doing business, a style characterised by exposure to competition. Mahathir would also eventually acknowledge that those businessmen privy to government patronage had failed to live up to the faith he had in them to serve as the vanguard of Malaysian capital. Probably in recognition of this fact, there has been a recent shift by the government from support for the creation of conglomerates to the promotion of small and medium-scale enterprises (SMEs). Taiwan�s economy, dominated by SMEs � nearly 98 per cent of all firms in this country fall under this category � which had also apparently weathered the currency crisis well, became the new model for enterprise development. There was also growing attempts by state to encourage firms to reduce their dependence on loans to generate growth. In this regard, Taiwanese firms were again seen as models to be emulated. Corporate debt in Taiwan was among the lowest in East Asia. Moreover, while the average overall debts of Taiwanese firms was only about 30 per cent of equity, corporate debt of South Korean companies was sometimes four times the value of assets. Although there is now this new found emphasis to aid SMEs, this is not to mean that Mahathir has dispensed totally with his desire to create Malay capitalists. By 2003, a hitherto obscure, reclusive businessman, Syed Mokhtar Al-Bukhary, had quickly emerged as a major corporate figure, building up a highly diversified corporate base, akin to the UMNO-linked Renong group, controlled by the party�s proxy, Halim Saad. Apart from having a major interest in Malaysia Mining Corporation (MMC), Syed Mokhtar is reportedly a shareholder of Pernas International Holdings (32%), IJM Corp (20%), Padibernas Nasional (33%), Malakoff (23%), Johor Tenggara Oil Palm (36.5%), Fiamma Holdings (18.7%) and Amtek Holdings (50%) (see The Star 30 August 2003). Syed also controls Port of Tanjung Pelepas and Johor Port and is set to participate in the construction of another of Mahathir�s pet projects, the multi-billion ringgit Bakun Dam project (see Asian Wall Street Journal 3 September 2003). Syed Mokhtar has claimed that �by the time I met the PM, in early 1997, I was already a successful businessman.... But we have never abused the relationship. He gives us a fair hearing but there is no green lane with him� (quoted in Far Eastern Economic Review 26 May 2003). Mahathir, meanwhile, continues to call on Malay businessmen to aspire to become major corporate figures like Syed Mokhtar. With Mahathir�s departure as prime minister, and although his successor, Abdullah Ahmad Badawi, has openly stated that he intends to deal with corruption, this is unlikely to put an end to the development of well-connected firms. Abdullah�s son has recently � and quickly � emerged as a prominent figure in the domestic corporate scene. Moreover, in spite of the promotion by the press of the idea that corporate governance in Malaysia will improve appreciably, structural reforms necessary to promote transparency and accountability in government are not being implemented. The concentration of power in the executive and the lack of autonomy of regulatory institutions to act against corruption and business activities not in the interests of Corporate Malaysia do not serve to inspire confidence that genuine reforms are imminent after Mahathir�s retirement as prime minister. Now e-mail us and tell us what you think. Your comments might be published in the Letters section of our print magazine, Aliran Monthly. Alternatively, post your comments to the message board. | |||||||||||||||
Abdullah�s son has recently � and quickly � emerged as a prominent figure in the domestic corporate scene. 