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Size matters as Malaysia opens
up
By Arun Bhattacharjee
KUALA LUMPUR - Malaysia is entering a second
phase of revamping its infrastructure, this time to
consolidate and increase the size of its corporations,
after a massive, almost decade-long privatization
thrust. And Prime Minister Mahathir Mohamad is keen to
see the process complete before he hands over the reins
in October after nearly 23 years to his chosen
successor, Mohamed Abdullah Badawi.
Apparently
the haste is interpreted as an effort to revive the
country's battered economy in time to face global
competition after 2005, when a World Trade Organization
agreement to open up Malaysia's markets takes effect.
Unlike the first phase, when some hasty privatization
measures had to be rolled back or bailed out by
government funds as the management in some of the major
privatized companies failed, the process is more
methodical this time and covers almost all sectors, from
oil-palm and rubber plantations to the automobile
industry, real-estate development and construction. The
list is a long one and the industry players are
proceeding carefully in their consolidation and
diversification effort. While the future will tell how
effective the consolidation has been, the immediate
impact is evident in the rise of the country's capital
market index.
Malaysia's consolidation effort
involves setting up manufacturing and servicing centers
in other Association of Southeast Asian Nations (ASEAN)
states by the automobile industry, a reshuffle in the
ownership pattern and share capital adjustment with the
principal technology suppliers in other sectors, and a
new concentrated focus on cash and food crops production
to reduce the country's hefty import bill.
The
tough stand taken by the government on real-estate
development and uncoordinated bank credits is already
showing results. Last Wednesday Mahathir made it clear
that the government would not allow any more property
development until the property overhang was balanced.
Empty condominiums, shopping plazas and office space
along the 60-kilometer stretch from Kuala Lumpur
International Airport to the city are testimony to the
huge non-performing assets.
In a clear message
to the developers as well as to the state governments,
Mahathir said the states must refrain from sanctioning
new building projects until the backlog is cleared. On
cue from Mahathir, Deputy Works Minister Mohamed Khaled
asked the contractors to seek overseas contracts and
compete with ISO 2001 certificates issued by the
Construction Industry Development Board. Only 84
contractors out of 49,000 in Malaysia hold ISO 2001
certificates.
The government's determination to
have a number of mega-corporate bodies to deal with
global competition is reflected in the pressure on
various business and corporate associations. For
instance on June 5, three of the 11 cable manufacturers
decided to form a consortium. It is expected that the
others will follow, as the cable sector suffers from 50
percent overproduction. The government-owned power
distribution company Tenega Nasional, the largest buyer
of cable during the business slump, wanted the cable
makers to form a consortium to reduce the cost of
production and become competitive.
The new
consortium is being formed by the three major cable
companies - Federal Power, Furukwa Electric Cables and
Central Cables. Mohamed Zainal Azirun, the vice
president of Tenega Nasional, said, "Consortiums are
necessary to face the more challenging globalized
business environment and the industry's overcapacity
problems." He said cable manufacturers were competing to
produce more irrespective of the fall in demand. Last
year production went up by 10.7 percent in the first
seven months against more than 33 percent during the
same period in 2001. "Even a 10.7 percent growth is more
than double the requirement," he said.
An
identical exercise is being conducted in the plantation
sector, where consolidation and diversification are the
buzzwords. One of the largest, the Guthrie Group, has
decided to consolidate and merge Guthrie Plantation
Kampulan, Highland and Lowlands and Guthrie Ropel in one
company, while the Ministry of Finance breathes down
their neck. The Finance Ministry says state-owned
companies should merge and consolidate "to enhance
shareholders' value, improve operational efficiency and
create stronger companies with greater stock liquidity
to attract both local and foreign institutional
investors". The Guthrie Group has acquired at $34.4
million the Laem Chabang Power & Co, a power plant
in Thailand. It is an effort to diversify into the power
sector from plantations, real-estate development and
construction.
Malaysia's second finance minister
(Mahathir is the finance minister), Dr Jamaludin Jarjis,
explains that Malaysia has only four state-owned
companies competing in the global capital market. They
are Tenega Nasional, Telecom Malaysia, Malaysia
International Shipping Corp and Malaysian Banking
Berhad. None of the country's private companies have any
worthwhile international presence.
Size has
become suddenly important, as foreign institutional
investors are still wary of investment in Malaysia,
partly because of Mahathir's strong views on foreign
portfolio investment and the so-far-limited scope of
investment. Now that Malaysia is set to open 35 sectors
for foreign investment by 2005, the government feels
that turnover and the size of the invested companies
need to be made attractive to foreigners.
Taking
the cue, the major automobile producer Proton has
diversified into four separate companies with overseas
presence so that international investors can invest in
any of the three. Earlier Proton invested $56.84 million
(RM216 million) in research and development (R&D).
Similar efforts are being made by the other Malaysian
automobile company, Perodua, which apart from setting up
production centers in other ASEAN countries is also
bringing out new models of cars and four-wheel-drive
vehicles to compete with foreign brands.
The
banking sector is also being spruced up. Malaysia's
central bank, Bank Negara, is asking the major private
banks to merge and consolidate. The merger by four
groups - Eon Capital, Arab Malaysia Bank, Maybank and
Commerce Asset Holding - will involve a capital
consolidation of $74.5 billion in an effort to achieve a
low operational cost.
The country's no-nonsense
minister of international trade, Rafida Aziz, spelled
out the situation: "We have received requests from 22
countries to come into the service sectors and we have
already announced the opening of 35 sectors for foreign
investment, so we need mega-banks and mega-companies to
compete with them to avoid being swallowed totally."
This is perhaps the most coordinated and focused
effort by the government to save Malaysia's economy and
prepare Malaysia for 2005, said Professor S Shamsuddin
of University Kebasang Malaysia.
(Copyright 2003
Asia Times Online Co, Ltd. All rights reserved. Please
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