This article first appeared in The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

SINCE the introduction of the New Economic Policy (NEP) in 1971, the country’s socioeconomic agenda has been focused on developing the bumiputera community. The rationale is simple — a country where the majority of its population is left behind in terms of economic development will not be successful.

However, after more than 50 years, the bumiputera community which made up 70.11% of the population in 2023, still lags the other races economically.

According to data from the Department of Statistics, the gross monthly household income of the bumiputera community stood at RM7,599 in 2022, compared with RM10,656 for the Chinese and RM8,950 for the Indians.

The gap is even more glaring when it comes to the contribution of bumiputera entrepreneurs to the country’s gross domestic product (GDP). Despite the community being the majority, these entrepreneurs contributed just 8.1% to GDP in 2022, according to data from the Ministry of Economy.

Thus, it is clear that the bumiputera economic agenda has not achieved its aim of giving the community a more equitable share of the country’s prosperity.

Economists point out that execution of the bumiputera economic empowerment plans must be prioritised over coming up with new plans.

“It has become more about the process rather than the outcome,” says an economist who advises the government on economic matters. The absence of a minister in charge of the bumiputera agenda hampers the coordination of the implementation and execution of the agenda, he points out.

It is surprising that the bumiputera economic agenda has not been effectively executed. After all, since independence, many government agencies have been set up to focus either on bumiputera development or activities that benefit the community the most.

The Federal Land Development Authority or FELDA was established in 1956, a year before the British left Malaya. In 1965, Bank Bumiputra Malaysia Bhd — the precursor of CIMB Group Holdings Bhd (KL:CIMB) — was set up.

In 1966, Majlis Amanah Rakyat (Mara) was founded. Mara’s history can be traced to the Rural Industrial Development Authority that was established in 1951 to assist Malay farmers and rural inhabitants in then British-ruled Malaya.

Pilgrims’ fund Lembaga Tabung Haji was established in 1969, followed by the armed forces fund, Lembaga Tabung Angkatan Tentera or LTAT (which is predominantly bumiputera) in 1972, and fund management company Permodalan Nasional Bhd in 1978. In the new millennium, Pelaburan Hartanah Bhd was founded in 2006, Ekuiti Nasional Bhd (Ekuinas) in 2009 and Yayasan Peneraju in 2011.

These are just the more prominent agencies set up to assist the community. There are a number of smaller organisations operating below the radar.

Now, the government has launched yet another plan — the Bumiputera Economic Transformation Plan 2035 (PuTERA35) — to uplift the community. But this time around, it acknowledges that the execution is paramount.

“We can have great plans. However, the most important aspect is the efficiency of the implementation in order for the plan to be effective,” says Minister of Economy Rafizi Ramli in his keynote address during the launch of PuTERA35.

However, to do this, the civil servants and government-linked companies (GLCs) must be made more accountable and be empowered to execute the plan.

While large bumiputera-controlled companies may have access to funding, many other companies, including mid-sized ones, are finding it difficult to obtain capital to grow their businesses. This is one of the areas where the implementation of previous bumiputera agendas failed.

“In my experience, it is really hard [to get funding]. As for me, I already have RM700 million in debt. It has become harder for me to get funding,” says Datuk Guntor Tobeng, managing director of Gading Kencana Sdn Bhd, a renewable energy player focusing on solar photovoltaic systems.

“If I were to bid for solar projects, the banks would provide me with loans, no questions asked. But when I want to set up EV (electric vehicle) charging stations, they ask me if I have any clean assets, so they can charge those assets. It is like when I started back then!” he says on the sidelines of the PuTERA35 launch at Putrajaya International Convention Centre (PICC).

He laments that despite the establishment of Syarikat Jaminan Pembiayaan Perniagaan (SJPP) by the government to offer guarantee schemes to small and medium enterprises (SMEs), banks are still not approving loan applications by entrepreneurs despite their companies’ healthy cash flows.

SJPP was set up to administer and manage government guarantee schemes under the Second Stimulus Package announced under Budget 2009, with the objective of enabling SMEs to gain access to financing facilities from financial institutions.

It does not provide funding, but instead allocates a maximum amount that it will guarantee to the banks, in order to encourage the banks to lend to SMEs. In Budget 2024, the government allocated up to RM20 billion in funding to be guaranteed by SJPP.

Guntor is not alone in this regard. Surya Effendi, founder of UMORIE Graphene Technologies Sdn Bhd, says banks will not provide funding to start-ups. The tendency of Malaysian venture capitalists (VCs) to be risk averse aggravates the situation.

“We are trying to raise funds to commercialise our product. We already have an off-taker, and we are partnering with Sirim (formerly known as the Standard and Industrial Research Institute of Malaysia, and which is under the purview of the Ministry of Investment, Trade and Industry) for this project, by renting both their battery lab research centres in Kulim and Permatang Pauh,” he says when met by The Edge at PICC.

“In Malaysia, VCs have a low risk tolerance. The banks are totally [averse to] funding start-ups. Second, because we are a pioneer in super battery technology in Malaysia [which is recognised by the Malaysian Investment Development Authority, or Mida], people are scared to invest [because they do not understand our credentials].”

UMORIE is developing a “super battery”, which can be charged from 0% to 70% in just 12 minutes when using a supercharger, compared with the standard 0% to 80% in 30 minutes.

With the bumiputera economic community saying it has a hard time securing capital to grow, the government is responding by setting up more funds.

PuTERA35’s three thrusts are strengthening the foundation of the country’s economy, ensuring good governance of institutions and upholding social justice.

Under the second thrust on good governance of institutions, the role of GLCs and government-linked investment companies (GLICs) has become more pronounced.

Among measures to expand funding to the community, the government has pledged to increase funding to start-ups to participate in high-growth, high-value (HGHV) sectors. For starters, the Bumiputera Agenda Steering Unit (Teraju) is providing RM1 billion in funds to scale up 1,000 bumiputera companies in emerging and HGHV sectors by 2030.

However, this will be done together with the private sector. Teraju will act as a super scaler for bumiputera companies, including start-ups and mid-size companies, through a more sustainable and targeted approach.

The RM1 billion fund is provided together with Bank Muamalat Malaysia Bhd, RHB Islamic Bank Bhd, Malaysian Industrial Development Finance Bhd, MBSB Bank, Maybank Islamic Bank Bhd, SME Bank, Bank Pertanian Malaysia Bhd (Agrobank) and Bank Kerjasama Rakyat Malaysia Bhd, among others.

Ekuinas, a state-owned private equity firm, is committing another RM100 million to its Dana Asas II fund. The second tranche of Dana Asas, which launched with RM100 million in March 2023, will support more high-growth, mid-market bumiputera companies, Ekuinas said in a statement. It also aims to expand into private credit with the establishment of an RM800 million fund, it added.

One of the recipients of funding from the Dana Asas fund is Mizou Holdings Sdn Bhd, an industrial machinery manufacturer involved in research and development (R&D), sales, distribution and support services for specialised agricultural machinery designed for the upstream palm oil sector.

Mizou developed and commercialised tractors used by oil palm plantation groups, including Boustead Plantations Bhd. Ekuinas invested RM37 million in the company in May this year.

Ekuinas has been criticised in the past for selling its stakes in its investee companies to non-bumiputera investors and entrepreneurs, when its mandate is to create the next generation of leading companies while promoting equitable and sustainable bumiputera wealth creation and economic participation.

For example, the private equity firm sold its 50.2% stake in Icon Offshore Bhd (KL:ICON) to Liannex Corp (S) Pte Ltd, the investment vehicle of Yinson Bhd’s (KL:YINSON) controlling shareholder Lim Han Weng, in April for RM172.2 million. In August 2015, it sold its interest in Rancak Selera Sdn Bhd, which holds the franchise for Burger King in Malaysia and Singapore, to Newscape Capital Sdn Bhd for RM74.6 million.

Newscape is an investment company led by Datuk Chua Tia Guan and Lee Thiam Wah, the founder of the 99 Speedmart convenience store chain that is going for a listing on Bursa Malaysia.

Under PuTERA35, the government has introduced three targets over and above the six established pillars of the bumiputera agenda. One of the targets of previous bumiputera economic plans that has been retained under PuTERA35 is the 30% equity ownership target.

The 30% equity target has been used as a barometer to measure the success of the bumiputera community when it comes to economic participation. This has been the target since the NEP was launched in 1971.

However, it has yet to be achieved, partly due to the fact that the market has grown as a whole, highlighting the failure of the past plans to inculcate a more vibrant and dynamic bumiputera economic community.

According to the Ministry of Economy, bumiputera individuals and mandated agencies owned 18.4% of the total equity traded on Bursa Malaysia in 2020.

But is the 30% target a good barometer for measuring meaningful contributions by the community to the economy?

“Perhaps there should be more empirical studies in this respect, [as to] whether it has effectively helped to promote bumiputera economic empowerment, especially in areas related to business,” says Afzanizam Abdul Rashid, chief economist at Bank Muamalat.

He says that from an investment point of view, Amanah Saham Bumiputera (ASB) has seen a steady rise in the number of unitholders, as well as the number with savings of RM500,000 and above. In that sense, bumiputera wealth has grown, he adds.

According to ASB data, the total number of unitholders has been growing at a seven-year compound annual growth rate (CAGR) of 2.5%. However, the number of unitholders with savings of RM500,001 and above had grown by a seven-year CAGR of 6.5% to 30,946 in 2023.

“The key point here, bumiputeras that are well to do are rising. In some sense, the past policies work but we need to constantly review and relook to suit the current and future economic landscape,” says Afzanizam.

“Ideally, government assistance should be on a need basis and economic development strategies should be inclusive so that everyone would benefit with equitable income and wealth distribution.”

Datuk Abdul Rashid Musa, group chief mobility and innovation officer and president of the aerospace division at UMW Holdings Bhd, says the lack of focus on the gap between rich and poor in the community should be given priority.

“The dispersion between the rich and poor … you cannot take the theory of averages because if you take that as a measure, of course you will see that the average wealth and income has risen in the bumiputera community. But in reality, the rich have become richer while the poor have become poorer. The gap is the issue. One of the key parameters that needs to be included [in government plans] is the Gini index [which determines the level of income inequality in a country by measuring the income distribution or wealth distribution across its population],” says Rashid when met on the sidelines of the PuTERA35 launch.

Under PuTERA35, social justice is one of the priorities. It aims to achieve a target of 0% hardcore poor in the community and improve the bumiputera median household income, as well as raise the median monthly income to be at almost the same level as the Chinese by 2035.

While retaining the 30% equity target could be a way to promote economic equitability among the races, it should not be the be-all and end-all target. This is because the economy is more than just equity participation.

Rafizi realises this and said in a speech in March that the country must re-evaluate the 30% bumiputera equity goal as it is not an effective way to judge the community’s participation in the economy.

In fact, under PuTERA35, the target is not being discussed as much as increasing the capabilities of bumiputeras and providing more access to supply chains, markets and industries, as well as funding for growing bumiputera companies.

When it comes to uplifting the bumiputera community, Nungsari Radhi says it must be made a national agenda, rather than one that focuses on the community. This is because a national agenda will benefit bumiputeras the most while not excluding other groups.

Nungsari serves as a member of the Policy Advisory Committee to the Prime Minister, which advises the prime minister on matters pertaining to national development and economic resilience.

He says there are two key takeaways from the failure of past bumiputera economic plans — national human capital development and national unity and national institutions.

“What is the state of our human capital development capabilities? The institutions involved? The quality of the process? The quality of output and level of outcomes? Just the publicly funded ones,” Nungsari asks.

“A strong effective publicly funded national school system will benefit bumiputeras the most, especially those among them with no option but to use national schools. So, develop strong effective national schools.”

He adds that improving national schools is the key bumiputera agenda and successive governments have so far failed to raise the level of bumiputera human capital to be sufficiently creative, productive and therefore competitive, not just domestically but internationally too.

“The bumi agenda can only succeed if it is a national agenda. We have to nationalise the bumi agenda, not bumi-ise the national agenda. This is not a minority agenda, it is a majority agenda, thus it is a national agenda, and it must be inclusive,” he stresses.

Under PuTERA35, talent development and strengthening the education ecosystem is one of the policy drivers. It seeks to have at least 70% of the country’s skilled workforce to be made up of bumiputera talents by 2035 and 97% of the bumiputera workforce to be made up of graduates.

PuTERA35 is the sixth bumiputera development plan since Malaysia was formed in 1963. Will it achieve wealth and social equitability where previous ones failed? 

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