In a 2013 Working Paper, the Asian Improvement Financial institution (ADB) examined slumping international funding in Malaysia and concluded a possible barrier was the presence of government-linked companies crowding out personal enterprise. These are corporations the place the federal government is the controlling shareholder, and so they have traditionally occupied a really substantial position within the Malaysian economic system.
In some instances, the federal government owns corporations outright, reminiscent of oil and fuel large Petronas wherein the state is the one shareholder. In others, state-owned funding funds are the controlling shareholders, typically as a part of a mixture of state and non-state possession. In 2004, Malaysia started a long-term program to attempt to consolidate the state-owned sector and enhance the effectivity and business viability of the most important government-linked companies.
Again in 2013, the ADB was hopeful that Malaysia’s state-owned sector had turned a nook writing that “the federal government seems to acknowledge that government-linked companies might be crowding out personal sector funding and standing in the way in which of realizing personal funding targets. The Financial Transformation Program has referred to as for a decreased position of presidency in enterprise, and a program of divestment is already in place.”
This system, which resulted in 2015, did end in some sizable divestments. IHH Healthcare, a state-owned firm and one of many area’s largest hospital operators, was publicly listed in 2012 and raised over $2 billion. The controlling shareholder of IHH is not the Malaysian state, however Japanese conglomerate Mitsui. This reveals the federal government is keen to pare down its holdings in sure sectors.
Nevertheless, no matter momentum there was for getting the state out of the economic system a decade in the past has seemingly stalled. Though some sectors noticed divestment, key companies like Petronas had been by no means significantly thought of for privatization. And now the federal government is trying to leverage state-owned funding funds and their huge monetary sources to drive financial progress in strategic sectors.
Final 12 months the Ministry of Finance introduced the six largest government investment companies had pledged to speculate RM 120 billion (round $26 billion) within the home economic system over a five-year interval, with an eye fixed towards high-value manufacturing. Malaysia has plans to develop into a key hyperlink in semiconductor and clear power provide chains, and is making an attempt to carve out a foothold for itself in particular niches such because the meeting and design of laptop chips. Authorities funding funds are being directed to help these efforts with stepped-up monetary commitments, in what seems to be a pivot towards a extra assertive industrial coverage.
Let’s take a fast take a look at the important thing gamers. The Employee Provident Fund (EPF) is by far the most important public funding fund in Malaysia. It’s a compulsory retirement fund that receives contributions from all staff and employers in Malaysia. As of 2023, the EPF had over $253 billion in property. Permodalan Nasional Berhad (PNB) is the second largest fund, with round $75 billion in property beneath administration in 2023.
Different funds embrace the federal government worker pension fund (KWAP) and Khazanah Nasional, which is almost all proprietor of strategic nationwide property like electrical utility Tenaga Nasional Berhad. There may be additionally a pension fund for the navy (LTAT) and a fund particularly earmarked for Islamic investing actions referred to as Lembaga Tabung Haji.
Cumulatively, these funds held or managed property of round $427 billion in 2023. As some extent of reference, Malaysia’s GDP in 2023 was $400 billion which means the property managed by these six authorities funding corporations had been value greater than the cumulative financial output of all the nation that 12 months. And now they’re being directed to faucet a few of these sources to spend money on precedence areas like semiconductors and clear power.
Though we’d name this the return of Malaysia’s authorities funding funds, the reality is that they by no means actually went anyplace. Regardless of the reform efforts kicked off in 2004, the Malaysian state has continued to carry substantial possession in lots of strategic sectors, together with power, prescription drugs, actual property, transportation, agriculture and manufacturing. For example, although IHH went public in 2012 and Mitsui turned the controlling shareholder, Khazanah Nasional continues to be the second largest shareholder.
On the finish of 2024, I wrote that the rise of financial nationalism was the most important financial story of final 12 months, and I consider it can proceed to form the area’s trajectory for the foreseeable future. The mobilization of Malaysian state capital within the pursuit of commercial coverage is an efficient instance of what I’m speaking about. It’s not that the Malaysian state ever actually exited the home economic system, however not less than in 2012, they had been making concessions towards liberal market reforms, giving the impression that they understood the state wanted to get out of the way in which of personal market forces.
These days, public officers seem extra snug overtly telegraphing plans to mobilize state-owned and managed monetary sources to speed up the event of strategic sectors, like semiconductors. That is indicative of the broader political and financial shift that’s underway within the area, and I feel it is vitally probably we are going to see comparable rhetoric and insurance policies emerge in and outdoors of Southeast Asia within the months and years forward.
