Scaling the heights of corporate Malaysia: Malay entry into business, post-1985 - Articles

Scaling the heights of corporate Malaysia: Malay entry into business, post-1985

Dr Thillainathan Ramasamy,¹ Board Member, IDEAS Policy Research Berhad

Reducing interracial economic differences between Malays and non-Malays—mainly ethnic Chinese and Indians—has been a major thrust of government policy since independence in 1957. A primary objective of the race-based affirmative action agenda of the New Economic Policy (NEP) of 1971 has been to promote the entry of Malays into business as managers, and later as owner-managers.

In a previous article I reviewed the role of government policy in promoting Malay entry into business across different sectors, largely pre-1985, with reference to how Malay managers emerged dominant in the plantation and banking industries (Thillainathan, 2024). The aims of this article are to assess the policies, programmes, and instruments that were used to promote Malay entry into business, the form of entry, including of rent-seeking, and the extent to which Malays have scaled corporate heights post-1985.

After the mid-1980s’ economic crisis, when primary commodity prices tumbled in global markets, the government used corporatization and privatization to promote Malay entry into business, specifically through:

government-linked investment companies (GLICs) or their subsidiaries, government-linked companies (GLCs); (GLICs are government-controlled and ultimately state owned or an institutional fund, such as Permodalan Nasional Berhad (PNB), established in 1978 as an implement of the NEP, and the Employees Provident Fund (EPF), set up in 1950 as a provident fund to manage a compulsory defined pension contribution plan for non-Civil Service Employees.)
Build, lease, maintain, and transfer (BLMT) and build, lease, transfer (BLT) models—more commonly referred to as private finance initiative (PFI) models—to promote entry as an owner-manager; and
multiple instruments to promote entry within an industry or sector.

To expand Malay ownership and entry into the corporate sector, reliance was increasingly placed on corporatization and privatization of state-owned enterprises (SOEs), as well as on the aggressive provision of government-supplied services and facilities on a corporatized and privatized basis on a build-own-operate model, or on a build-operate-transfer model. These services were previously provided by departmental enterprises or statutory authorities.

The term SOE is used to cover a business enterprise operated as a government department, statutory authority, company, GLIC, or GLC. As the GLICs are quasi-sovereigns, the extent to which their better credit standing gave them an advantage in bidding for businesses, including over Malay owner-managed enterprises, is also examined.

The 1997 Asian financial crisis (AFC), when there was a huge currency devaluation linked to a massive capital flight, led to the failure of several Malay-owned or controlled privatized enterprises, and their restructuring into Malay-managed corporatized enterprises. The controlling stakes in public listed companies (PLCs) were held through GLICs.

From 2006, the government also relied on PFI models to develop government premises and facilities to increase the opportunities of Malays to operate as owner-managers. Restrictive licensing practices and subsidies were used as policy instruments. The large GLICs and GLCs, especially those in the utility, mining, transport, and infrastructure sectors, were required to undertake ‘vendor development programmes,’ to award contracts to promote Malay business entry and to develop small and medium-sized businesses.

To quantify the size of Malay entry and the form it took, the most comparable data are for PLCs by market capitalization, by the scale of operation for an entity that is not a PLC, or by bond issue size for infrastructure ventures—the principal source of infrastructure borrowings (Thillainathan, 2021).

A PLC is taken to be Malay owner-manged or part-owner-managed, based on the Berle and Means (1932) methodology, popularized by La Porta et al., (2000). In applying this methodology, Hassan (2012) used 20 per cent as the minimum shareholding threshold to identify a shareholder of a PLC as its ultimate controlling shareholder (UCS), where the rest of the shares are held widely. With a few substantial shareholders, with no joint control by two or more of these large shareholders, the threshold has been set at a higher level to deem anyone the UCS.

An SOE is taken to be Malay managed if its chief executive and most board directors are Malays. Over time, the proportion of SOE Malay managers and employees may now be well above 50 per cent. The racial composition of managers and employees of an entity will be mixed, unless its customer base is exclusively of one race.

Scaling corporate Malaysia’s heights: Corporatization and privatization

In the face of Malaysia’s mid-1980s economic crisis, and its limited success to that point in promoting Malay entry into business, despite massive borrowings to support initiatives attempting to do so, a corporatization and privatization programme was launched (Thillainathan and Cheong, 2016). Attempts to build a Malay business and managerial class were boosted by the government’s policy decision to run its SOEs and to reorganize the provision of its facilities and services on a corporatized basis, to be operated by Malays as owner-managers, part-owner-managers, or as managers. This decision minimized adverse impacts on the private sector, as privatization targeted a government-owned or operated facility. It also reduced reliance on private enterprises to reserve shares to achieve the 30 per cent Malay equity ownership target and provided more opportunities for Malays to manage and operate businesses.

The privatization drive led to a dramatic change in Malay business entry. By 1997 (before the AFC), some 13 of the top 20 PLCs were Malay owned and/or Malay managed (Table 1). Of these, seven were under the control of a Malay owner-manager, another two (Maybank and Sime Darby) were owned by PNB and Malay managed, and the other four were GLCs and Malay managed (Gomez et al., 2017). PNB, however, remained the UCS of two of the top 10 PLCs that were Malay managed. In 2010, no Malay individual was the UCS of a top 20 PLC.

Table 1: Number of PLCs by Malay participation as owner-manager or manager

Source: For 1997, Gomez (2017); for 2010, Hassan (2012).

Preferential access accorded to Malays in the property and construction sectors led to higher ownership stakes but not to more management control (Table 2). The share of the 86 PLCs in the property sector was 9 per cent, and by total market capitalization 4.3 per cent. The seven in the top 100 PLCs accounted for 52.4 per cent of the sector’s market capitalization. Of the property sector’s total market capitalization, Malay owner-managers accounted for just 5 per cent (Table 2). Managers under the control of GLICs accounted for 45 per cent. Of the seven property PLCs that ranked among the top 100, four were GLIC-controlled. Of the top government-controlled property PLCs, almost half by market capitalization were Chinese-managed.

Malay owner-managers accounted for just 3.6 per cent of the construction sector’s total market capitalization Table 2). Managers under GLICs accounted for 40.5 per cent. Of the top government-controlled construction PLCs, about 85 per cent were Chinese managed.

GLICs have been more willing to go for ownership and management control. Conversely, GLICs, such as EPF and PNB, have been less willing to risk their capital or push for more Malay management control. Unlike EPF and PNB, the government-capitalized GLICs have been more willing to deploy Malay managers in the property sector, probably because of the use of fixed price contracts that enabled a developer to pass on the price risk to the purchaser and the construction risk to the contractor.

Table 2: Share of Malay ownership and control of PLCs by market capitalization, 2010

Source: Hassan (2012).
Note: .. = negligible.

An analysis of construction-related contracts awarded in water and sewerage system projects found that the majority of the contracts in value terms awarded by the public sector had been to Malaysian-Chinese contractors (Tan, 2015). Of the contracts awarded to Malays, it was common for some to be sub-contracted to Chinese contractors.

In corporatized or privatized infrastructure, the overriding aim was to promote Malay entry into business, either as owner-managers or managers, without concern whether ownership is ultimately with the public or private sector, with differing degrees of relative success (Table 3). The port and water sectors are the exception: public sector ownership was minimal in 2019. Using public debt securities (PDS) outstanding as an indicator of size, Syed Mokhtar Al-Bukhary, MMC Corporation’s controlling shareholder, emerged as the dominant player with close to a 50 per cent interest. In 2021, he took MMC into private ownership after it was delisted on Bursa Malaysia. Mass rail transit, wholly Malay managed, accounted for 30.8 per cent of corporatized infrastructure activities (Table 3).

MMC Ports—Malaysia’s largest port operator
Source: www.mmcports.com.my, 2024.

Table 3: Entry of Malays into infrastructure activities, 2019

An example of the spillway of a tailings dam
Source: Greig, 1924, p. 31

Pre-AFC, the dominance of Malay-owned and or Malay-managed PLCs is evident from data on market capitalization of the top 20 PLCs. Post-AFC, data on the top 100 Malaysian PLCs show that the share by market capitalization of Malay owner-managed PLCs has shrunk sharply. That of Malay-managed PLCs, whether owned by SOEs or Malay-controlled institutional funds, has shot up (see below). Petronas which ranked 167 in the 2023 Global Fortune 500 List, is not a PLC, and therefore does not feature in the list of top 100 Malaysian PLCs. This makes a massive difference to the data on Malay entry into business as is evident from a comparison with Maybank, which has been the number one Malaysian PLC by market value. Based on annual reports, Petronas profits in 2023 were 5.9 times those of Maybank.

Petronas was the sole owner and manager of Malaysia's oil and gas reserves as granted by the Petroleum Development Act 1974 (PDA) until 2020 when, in a landmark development, Petroleum Sarawak Berhad (Petros) assumed control of the natural gas supply, sales, and distribution network in Sarawak. In 2021, SMJ Energy Sdn Bhd, Sabah's version of Petros, was formed to actively acquire equity in Petronas-owned upstream, midstream, and downstream activities in Sabah.

Policies, programmes, and instruments

GLICs: Opportunities and risks

In the post-1985 era, the government has ceased to own or operate corporatized enterprises, except for Bursa Malaysia Bhd. Ownership of existing enterprises has been handed over and new-venture concessions increasingly awarded to GLICs. Of the five government-controlled institutional funds, even the EPF, which operates primarily as a portfolio investor, has emerged as a substantial and controlling shareholder in several PLCs.

By 1981, PNB emerged as the dominant institutional fund after it acquired at cost all shares that the government had held as a trustee for Malays. PNB was allowed to take over Maybank in exchange for scandal-hit Bank Bumiputra, which Petronas had to buy under a ‘complex RM2.49 billion arrangement’ (Wain, 2012, p. 149). Since 1983, the other Malay-owned institutional fund manager, the Pilgrims Fund, was also operating the country’s first Islamic Bank, Bank Islam Malaysia.

Several key GLICs are continuing to invest funds, either singly or jointly, thus enabling Malays to emerge as substantial or even controlling shareholders in the top 100 PLCs. This has enabled most of these PLCs to be Malay managed and governed. Assessed below are the extent to which Malay management has been facilitated by funds mobilized from Malays, non-Malays, and the government; activities of GLICs; nature of the resulting risk; and effectiveness of the capital managed.

GLICs vary by size. Khazanah Nasional Berhad (KNB), Malaysia’s sovereign wealth fund, is a federal government agency. The Johor Corporation, Selangor State Economic Development Corporation and State Financial Secretary Sarawak are agencies of state governments. The fifth and largest, Petronas, has always been subject to the highest level of federal political influence. Three of the five institutional funds are retirement funds: EPF, Kumpulan Wang Persaraan (KWAP) and Armed Forces Fund (Lembaga Tabung Angkatan Tentera, or LTAT). And two are saving-investment vehicles: PNB and Pilgrims Fund. All five are federal entities.

In 2010, the investment of the GLICs, as a share of market capitalization, of the top 100 PLCs on Bursa Malaysia was 34.8 per cent. The total funds under management by private sector asset managers, as a share of market capitalization, was only 28.5 per cent (Securities Commission Malaysia, 2010, Table 1, pp. 6–50), equivalent to 34.9 per cent of the market capitalization of the top 100 PLCs. However, funds under private sector management include funds sourced from EPF, with some invested in other asset classes.

Funds invested by PNB, Pilgrims Fund, LTAT, and KWAP have been mobilized predominantly from Malays. Conversely, a substantial share of EPF’s retirement savings has been mobilized from non-Malays. Funding is less of an issue with KNB and Petronas. As owners and stewards of key national assets with proven cash flows and with the government’s balance-sheet support, they have less problem in accessing the debt market.

Former Headquarters of the EPF built in 1960, Jalan Gasing, Petaling Jaya
Source: Bernama.

PNB and the Pilgrims Fund are unique institutions. PNB was set up to manage unit trusts to mobilize retail savings of Malays, investing and trading in shares reserved for them. This was to ensure that such shares, which were acquired at below market value, were not sold for a quick profit. The much smaller Pilgrims Fund was established earlier in 1962 to promote savings and investment of members to undertake the Hajj pilgrimage. The LTAT Fund, set up in 1972, is akin to the EPF. It runs a defined contribution plan for Malay members of the armed forces, KWAP, with government financing of its pension obligations initiated in 1991, and manages the pension fund of the predominantly Malay civil service.

Malay-managed corporations among the top 100 PLCs are now owned by the GLICs (Table 4). These PLCs, including those in utilities and transport, which were wholly government owned before, are now government owned only indirectly. But the size of ownership of these PLCs by GLICs jointly, and in several cases even by an individual GLIC, is often well above 50 per cent, though this may not have been dictated by considerations of return or risk. Given the scarcity of capital, there is room for GLICs to invest their tied-up capital in more enterprises, without necessarily sacrificing control.

Table 4: Shares in top 100 PLCs as the UCS by a GLIC and Malay owner-managers, and shareholdings of all GLICs, 2010

Source: Hassan (2012).
Note: The @ symbol denotes ranking.

Given that joint GLIC ownership is still well above 50 per cent, dilution may have led to the purchase of these shares by other GLICs. To that extent, and that the purchases have been dictated by considerations of control, the purchasing GLIC may be forced to remain a long-term shareholder. If the buying is by a retirement fund or unit trust, this may not match the risk–return profile of its members or investors, as it is then taking a business risk and not a portfolio risk. PNB is the UCS of a few PLCs. PNB and EPF are also the sole or substantial investor in a few major infrastructure and property development ventures (Thillainathan, 2021).

Nor are these forays in the interests of their unit holders or contributors, as this business risk leads their managers to spend a disproportionate amount of time managing such ventures, instead of acting more as a portfolio manager. Taking such a business risk may, for example, expose PNB's unit trusts to a run on its limited liquid funds, strain its role as a manager to be the buyer of last resort to its unit holders, and may force it to divest the underlying shares, thus undermining its capacity to keep the shares within its stable.

Empowering the GLICs—and by extension GLCs—to invest in business enterprises has advantages. Budget and borrowing constraints are likely to be more binding, especially if the government imposes on itself restrictions on the balance sheet support that it can provide. Decentralized decision-making by managers on a more specialized basis can also make for better outcomes and less concentration in risk taking, especially if there is alignment in the goals set, the incentives provided, and the penalties imposed.

Abuse of PFI concessions

The facilities constructed under the PFI programmes carry a significant markup relative to awarding the contracts on a competitive basis. The lease rentals charged provide the PFI concessionaire with an effective internal rate of return (less maintenance charges) at least twice as high as the equivalent yield that the government would have incurred had it issued bonds (Thillainathan and Cheong, 2019).

The number of Malays who made it as owner-managers, even with privatized concessions, are few. More corporatized infrastructure activities are now undertaken by SOEs and some are even awarded through competitive tenders (Thillainathan, 2022). Since 2006, the BLMT concessions have been used to increase the number of Malays entering business as owner-managers, but with less than stellar results. Considerations of rent-seeking and rent sharing may have led to the increased reliance on BLMT concessions. Post–2006, the risk–return profile of a typical BLMT concession is much more favourable than that of a privatization concession, although increased scrutiny to which such concessions have been exposed after the 2018 electoral defeat of the Najib administration has led to the award of fewer BLMT concessions.

Multiple instruments to target multiple goals: Pitfalls

The government has used four key instruments in promoting Malay entry into business as owner-managers and managers: restrictive licensing practices, control of price and margins, directed vendor development programmes, and financial support and subsidies. These instruments have been used widely in many areas of the economy and are illustrated with reference to Malaysia’s totemic automobile industry.

In building an auto industry, the twin goals were to develop a national champion in manufacturing and assembling that is substantially governed and managed by Malays, and to promote a vendor development programme where most of the auto-component parts manufacturers are Malays. To achieve these goals, the government imposed tariffs and quotas on the auto industry over a 20-year period until 2004—in non-compliance with its global and regional trade commitments (Segawa et al., 2014) and on a dramatically different scale from those in the policies it had been adopting for integrating its traded goods sector with the global economy.

An important restrictive licensing practice in the auto industry is the approved permit, which is required to import a motor vehicle, whether a completely built unit or completely knocked-down pack. The use of import tariffs and approved permits to protect and enrich assemblers, manufacturers, and vendors is neither performance based nor time bound (Tan, 2008; Segawa et al., 2014).

Price controls have been imposed selectively. The most glaring is fuel, as its retail price and its generous refining and distribution margins are subject to control, subsidized by taxpayers. Per industry sources, the income of a retail dealer selling 300,000 litres of petrol [gasoline] and diesel fuel a month is RM20,000 or above. Fuel subsidies, which amounted to about RM30 billion, or 1.6 per cent of GDP in 2023 (Ministry of Finance, 2023) benefits the car-owning population, the auto industry, and the toll-road sector, but is a drag on the rest of the economy.

Malay entry into micro- and small-business ventures—aggressively promoted through restrictive licensing and by providing access to credit, seed capital, and equity, as well as extensive support services in training, marketing, and technical know-how—has led to a rapid rise in the earnings of more resourceful individuals, and is a less costly way to promote Malay entry into business than some of the other programmes. But as with any preferential programmes, if not performance based or time bound, the cost of such programmes can mount, owing to missed, lost, or denied opportunities.

Promoting Malay entry into business: Owner-managers versus managers

Where Malay entry into business has been promoted as an owner-manager of a privatized venture, there is no misalignment in incentive if ownership and management rights are vested in the same individual. Problems can arise if the scale of the venture allows the concessionaire to be only a part-owner, or requires the party to borrow excessively at the enterprise or even shareholder level.

Where entry takes place as a manager, the key problem is due to separation of ownership from control, which can cause misalignment of incentives and is open to abuse if there are no effective checks and balances on the party exercising governance and management oversight. There is also the risk that an SOE that has credit support from the government will enjoy an unfair advantage on its borrowing over an owner-managed entity that has no such support. More generally, whether an entity is under an owner-manager or manager, it will enjoy an advantage over any other enterprise if accorded favoured treatment by the government.

With respect to the corporatized or privatized provision of government facilities and services in the infrastructure and utility sectors, especially pre-2010, it was not uncommon for concessions to be awarded favourably, for assets to be taken over at well below market value, or for concessions to be accorded generous financial support and subsidies. Some concessionaires, as in the transport sector, did not have a guaranteed offtake contract, whereas others, such as independent power plants and water-treatment plants, faced no such demand risk. In transport, for instance, there was a lot less uncertainty about toll-road demand, if privatization entailed an upgrading or redevelopment of an existing route. In contrast, the demand uncertainty faced by the light rail transit sector was much more substantial. The failure to introduce road congestion pricing to deal with externalities, and continued fuel subsidies, made matters worse for light rail transit operators.

With the impact of the AFC, several Malay-owned privatized enterprises, such as those engaged in toll roads, water distribution, sewerage, shipping lines, and car manufacturing, failed. Failure was caused by undercapitalization; overexpansion; overborrowing; asset–liability mismatches; restrictions on pricing on an unsubsidized basis; inadequacies in know-how, ability to compete or even manage; or governance shortcomings (Tan, 2008; Thillainathan, 2021 and 2022).

Even to present, failures have not necessarily been caused by the ownership structure of the enterprise. Constraints have often arisen in the financing of the investment and sale. For example, with water-treatment plants and water distribution, pricing and underinvestment were serious issues. The water distributor was able to sell to end consumers at the controlled price so long as it did not have to overpay for its treated water. The most serious problems arose when the two lines of business were operated as separate businesses, rather than on a combined basis where they were able to generate a small operating surplus, irrespective of ownership, as in Penang, which was state owned, and in Johor, which was privately owned (Pua, 2011; Tan, 2012).

With the onset of market liberalization, the automotive, steel, and aviation industries have performed poorly, whether state or privately owned. Inadequacies in management and know how have at times compounded the problem. This has been more so with Proton, Malaysia’s first national car manufacturer, as the pace of technological change was rapid and it was unable to achieve economies of scale resulting in prohibitively high costs. In 2018, however, the parent company of Proton formed a strategic partnership with China’s Geely to build on its technological expertise, management know how, and other advantages. Enterprises, in particular Perwaja Steel and to an extent Malaysia Airlines, have also been beset by mal-governance and financial irregularities (Tan, 2008; Segawa et al., 2014; Wain, 2012).

Proton City, Tanjung Malim—the expansion of Malaysia’s auto industry in the 1990s
Source: EHM website, 2024.

Petronas, with its huge annual profits, is an exception to the many failed Malay-managed enterprises in manufacturing and trading. It entered downstream activities in the oil and gas industry, as a refiner, manufacturer, distributor, and shipper, without enjoying either any special breaks from government or cross-subsidies from the huge profits from its petroleum franchise. The success of Petronas in its specialized ventures may be due to the employment of managers with the required know-how and top management efforts to minimize abuses.

Thillainathan (2024) noted the spectacular failure of banks during the AFC, whether owner-managed or managed by GLICs, and the significant underperformance of state-owned plantations during the Covid-19 pandemic. Still, Malays have also emerged as a dominant force in mobilizing and managing funds. PNB remains the biggest fund manager after EPF. It enjoys a preferential allocation of reserved shares at below market value, but much less so post-1997. A PLC’s share-issue price is now more market determined. A failure by the GLICs, which are institutional funds, to minimize risk through diversification just emerged as a more serious problem.

Owing to the glaring failures of key privatized enterprises after the AFC, and to an extent owing to rising wealth inequality, there was a shift in the goal of Malay entry into business from promoting Malays as owner-managers to promoting their entry as managers or as part-owner-managers. The failed privatized ventures were renationalized and restructured, and subsequently managed as corporatized and/or part-privatized government entities by the fast-growing group of Malay managers (Wong, 2011; Gomez et al., 2017).

Patronage, cronyism, and rent-seeking were rampant in the award—on a non-competitive or restrictive basis—of procurement and construction contracts, in licensing of certain imported goods for instance, as well as in the award of BLMT and privatization concessions, including of choice pieces of land at well below market values, benefiting a few well-connected individuals. There was, however, a lot less abuse with the issue of shares at IPO prices, which until 1996 were at a significant discount to their market values, as they were allocated substantially to more widely held Malay institutional funds.

Given Malaysia’s power structure, the ultimate control of SOEs rests, even today, with politicians. Aggravating matters are inadequacies in checks and balances on the executive arm, delegation of SOE management to politicians (not professionals), and weak regulators, leading to some glaring abuses (Vithiatharan and Gomez, 2014; Thillainathan, 2021).

In setting up an SOE as a company, from 1985 there was less parliamentary oversight and control, exposing the entity more to the abuse of power, especially if regulatory oversight is weak. But this must be weighed against the gains in business flexibility from overzealous bureaucrats, as attested to by the business history of the National Electricity Board and the Port Kelang Authority (Tate, 1989 and 1990; Rajasingam, 2020). The Pilgrims Fund also suffered from malgovernance and underperformance, but not its listed key Islamic Bank subsidiary, Bank Islam Malaysia.

In the post-AFC period, complaints by Malay owner-managers of crowding out by the SOEs have become commonplace (Thillainathan, 2021). Malay managers are now competing with non-Malay businesses on almost a level playing field in plantations and banking. Levelling it, however, can be up or down: in power generation, for example, the playing field will not be at all on the horizontal if the national power utility—Tenaga Nasional Berhad—is allowed to bid for a concession as a monopoly in transmission and distribution (Thillainathan, 2022). Because an SOE can have an advantage over a private enterprise in accessing capital, to level the playing field, at the minimum, that SOE should not be accorded any credit support or preferential treatment in capitalizing it or when facing bankruptcy. A case can also be made for some preferential treatment for entry of Malays into small and medium-sized businesses, provided that this is performance based and time bound and that the quota set for Malay entry is reasonably quantified.

Concluding remarks

The policy to promote Malay entry into business as a class of managers, whether through an entity owned by the government or an institutional fund, has generally been successful, although the costs and benefits have varied over time and across sectors. Without protection or subsidies, progress would have been limited to promoting their entry as a class of owner-operators. Extensive government support, however, led to a higher incidence of rent-seeking and the use of more public resources in capturing that rent. Malaysia’s experience in promoting Malay entry into banking as an owner-manager has been an exception. Despite setbacks during the AFC, the two part-owner bankers Rashid Hussain of RHB and Azman Hashim of Ambank acquired their banks at market value, competed on a level playing field, and have performed well post-AFC restructuring.

With the launch of corporatization and privatization, Malay business entry took the form of owners or part-owner-managers of corporatized entities. There was no misalignment in incentives where the owner was also the manager. But the huge scale of the projects undertaken led to high gearing, both at enterprise and shareholder level. After the AFC, and the failure of several Malay-owned privatized entities, Malay business entry was again promoted via management of corporatized enterprises but now owned singly or jointly by GLICs. With this change in entry from owner-manager to manager of a business operated by an SOE or institutional fund, the risk profile of such a business was higher owing to the separation of ownership from control—and hence misaligned incentives.

Where the government relied on PFI contracts to promote Malay business entry, as it did from 2006, the opportunity cost to the economy was far higher as the risk-return terms on which contracts were awarded were much more generous than concessions awarded during the first two decades of the privatization era. And where Malay entry was promoted into business as owner, manager, or vendor, its opportunity cost to the economy was also much higher where it was undertaken through the imposition of highly restrictive practices, or through the award of substantial financial support and subsidies, or through the control of prices and distribution margins, as in the motor industry.

Through to 2025, two top institutional funds—PNB and EPF—have been willing to acquire a controlling interest in a PLC even where this did not entail a transfer in management control. This has involved three well-performing but more widely held PLCs, namely Gamuda, IJM, and S P Setia, in the property and construction sectors, with the acquirer keeping to a minimum its acquisition costs by working with a friendly party. There is also a need, however, for a rethink by the UCS of a PLC in sectors such as plantations, banking and asset management, to consider also appointing non-Malays as top managers or reducing their shareholding, provided that does not jeopardize its UCS status.

Key policy lessons to minimize spectacular failures and keep costs from spiralling are to scale down the owner-manager entry goal and extend the time horizon, so as to ensure that there is no excessive borrowing, and that the support is performance based and time bound. For Malay-managed enterprises, a regime of effective checks and balances still needs to be adopted and institutionalized.