The trillion-ringgit estimated cost of Malaysia’s corruption cabals

In a TEDx KL presentation, Apurva Sanghi, the World Bank’s lead economist for Malaysia in Kuala Lumpur, said that despite admirable economic growth, the nation remains “stuck in a middle-income trap”.  

He referenced Gunter Frank’s development of underdevelopment and Mohammed Hussein’s missed nation-building opportunities.

The structural impediments arise from a deeply entrenched relationship between political survival and economic patronage, where corruption is not just a series of isolated crimes but a fundamental part of the governance architecture.

Malaysiakini has published a deep dive into why over half of the 28 corruption cases since 2018 have fallen through.

According to Emir Research estimates from 2023, Malaysia is estimated to have lost about RM4.5tn to corruption and leakages over a 26-year period (1997–2022). This is a model-based estimate – combining both direct losses (estimated at RM2.2–2.3tn) and the multiplier effect of lost economic opportunity – rather than a forensic audited total.

More recently, the Malaysian Anti-Corruption Commission (MACC) reported that Malaysia may have suffered RM277bn in economic losses due to corruption between 2018 and 2023, averaging RM55bn annually (based on macroeconomic estimation methods rather than case-by-case loss accounting).

Political–government-linked companies complex

The critical structural impediments ensure prevailing cabals of corruption as collaterals in the crises of capitalism.

A significant and apparent impediment is the lack of separation between the state and the national economy.

Government-linked companies dominate the Malaysian economy, often doubling as vehicles for political patronage rather than focusing purely on national development.

Executive control is one instance. Many government-linked firms and government-linked investment companies are under the direct control of the Ministry of Finance, the prime minister’s office or specific ministries, making these entities vulnerable to grand corruption and political interference.

Crowding out innovation is another phenomenon where state-backed firms receive preferential treatment in licensing, approval permits and selective quotas.

These entities tend to stifle the growth of independent, yet innovative micro, small and medium enterprises (MSMEs), thereby preventing the organic development of a competitive private sector.

MSMEs accounted for 96.1% of all business establishments in Malaysia, totalling 1,086,386 firms. They collectively contributed RM652bn to Malaysia’s gross domestic product (GDP), representing 39.5% of the national economy (Department of Statistics) while employing 8.1 million workers, accounting for 48.7% of total employment in the country.

The rent-seeking system

Corruption in Malaysia has historically been tied to the implementation of affirmative action policies (from the New Economic Policy to the New Economic Model and the Bumiputra Empowerment Agenda).

While aspiring to bridge ethnic wealth gaps, these policies have frequently been criticised for being subverted into rent-seeking mechanisms.

As reported by the World Bank, although the inter-ethnic poverty gap has narrowed, the Global Poverty Lab (Paris) stated that the intra-bumiputra community wealth-sharing gap has widened.

Selective patronage is one issue. Often, contracts and licences are awarded to ‘preferred’ individuals with political ties rather than those with technical merit.

Leakage and inflation are another suite of problems. Anti-corruption research suggests that project costs can be inflated by an estimated 10–30% due to kickbacks and bid-rigging. As a consequence, these processes divert billions from essential public services like education and healthcare into private pockets.

Weak checks and balances

Systemic corruption persists – and survives – by weakening the very institutions designed to stop it.

This creates a structural dominance that makes reform difficult.

Concentrated executive power is a reality. The centralisation of power in the executive branch limits the independence of the judiciary and the MACC, thereby ensuring and enabling the cabals of corruption to sustain.

Normalisation of extractive practices is another issue. When corruption is pervasive at the top, it trickles down, creating a wealth-worshipping culture where ‘money politics’ is seen as a prerequisite for political mobilisation and electoral success (see Weiss, Gomez and Fakri).

Indeed, corruption through the decades has directly impeded nation-building by alienating the country’s most talented citizens.

Meritocracy versus connections is especially predominant when career advancement in the public and corporate sectors is perceived to depend on ‘who you know’ to pull the cables rather than ‘what you know’.

This contributes to the emigration of highly skilled professionals.

The World Bank Malaysia Economic Monitor: Brain Drain (2011) and World Bank Report 2023 suggest that ongoing emigration of highly skilled people in Malaysia reduces the country’s potential GDP growth by 0.2–0.4 percentage points.

The Ministry of Human Resources Report (2023) found that 5.5% of Malaysia’s working-age population was living and working abroad in 2023 – nearly double the global average of 3.3%.

Erosion of social trust is another consequence. Scandals like Perwaja Steel forfeited the country RM10bn. The ongoing littoral combat ships scandal from 2011 to the present has resulted in potential losses of RM890m to Boustead Heavy Industries.

The cases involving 1MDB have also eroded the people’s faith and trust in the government’s integrity.

Under these circumstances, it is nearly impossible to rally the public around long-term, painful structural reforms needed for national commonwealth wellbeing.

As Italian political theorist Antonio Gramsci once observed, crises arise when the old order can no longer lead and the new lacks the courage to be reborn. The future of Malaysia’s fiscal management depends on a well-managed path being taken – grounded in transparent institutions, credible enforcement and the political will to dismantle entrenched patronage networks.

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