Getting real on bumiputera industrial development

COMMENT Keeping bumiputera industrial development and social development as distinct policy objectives and instruments can help us critically examine the Pemerkasaan Ekonomi Bumiputera (PEB) agenda in at least four ways.

First, we should take note that programmes pursuing different objectives utilise different instruments, and draw on different resources.

Much attention has fixed on the RM30 billion or so that can be tallied from Najib's (left) PEB speech.

The biggest ticket is RM20 billion per year of Petronas contracts for upstream and downstream projects, followed by RM9 billion of MRT contracts that have already been allocated.

Actually, there's not much new here. Petronas has consistently promoted bumiputera vendors; The MRT packages have already been sealed. Najib seems to baiting his audience for applause.

And in terms of cost to society, the problem is not so clearcut. The contracts and the funds cannot easily be rechanneled to poor communities and social spending, so these do not present alternatives.

You cannot carve up a Petronas contract to one firm and offer it instead to masses of people - they cannot deliver. Likewise, these funds are tied up in particular projects and cannot simply be appropriated for other purposes.

Inflated prices and substandard quality do incur social cost, but this raises challenges to the amounts spent and selection process, not the entire policy.

So let's not get too wrapped up with the RM29 billion in Petronas and MRT contracts as a cost to society.

Scrutiny and objections

There are other plans that potentially come at expense of society's greater interest and that take away public funds from better alternatives. These warrant scrutiny and objection.

The PEB promises to create an Amanah Saham Bumiputera 2 fund with 10 billion units to be offered. Ownership of ASB is exceedingly skewed. At end 2011, 20 percent of ASB unit holders held 94% of ASB units, and just 7% of the largest ASB unit holders owned 70%.

This is clearly not going to benefit most people, and deserves reproach for masquerading as community empowerment programme when it is mostly elite enrichment.

The RM700 million allocated to Tekun, shoots this small and micro enterprise support agency to prominence. This programme has enjoyed a meteoric rise in Putrajayan generosity, with its federal budget allocation growing from RM120 million in 2011 to RM300 million in 2012 and RM350 million in 2013.

Notably, RM50 million was designated for the Indian community in the 2013 budget speech. Immediately one must question why another drastic increase is proceeding before any impact study of its efficacy has been presented.

And why was there an allocation for the Indian community a year ago but not this time? If another small allocation is announced in the upcoming budget, that will smack of crass tokenism.

The PEB proposals pertaining to housing have not been allocated funds, but are arguably the most objectionable. The unaffordability of housing is a peoples' burden, not one unique to low- or middle-income bumiputera.

Affordable housing, something that by definition is hinged to income levels, should have no grounds at all as an ethnically defined policy. And not only is this omitting a basic provision to other groups, but also potentially engineering social segregation by building and selling properties only for the privileged group.

Second, we should put preferential treatment and meritocracy in proper context, and pose critical questions on the efficacy of bumiputera industrial development policies.

I believe that many Malaysians, including non-bumiputeras, do support the cause of bumiputera industrial development.

As I argued in the previous article, it is more sensible and constructive to think of effective ways to target and monitor bumiputera beneficiaries of such preferential policies, than to dwell on social spending which is really not offering an alternative for this specific purpose.

'Indisputably discriminatory measures'

At the same time, Malaysians, especially in the bumiputera community, ought to come clean that these are indisputably discriminatory measures. Therefore, they should not be implemented in a casual, cavalier and unbridled manner.

Deputy Prime Minister Muhyiddin Yassin (right) on  Sept 30 remarked that folks should not complain about the PEB because it is not discriminatory, since non-bumiputeras are doing ok.

This is nonsense. When opportunities are reserved for one group, or preference is given to some over others, it is discrimination in clear daylight.

Such policies need to be scrutinised and rationalised in terms of whether the discrimination, in principle and as much as possible in practice, plays a socially positive, empowering role.

Another common view these days, it seems, is that the government contracting system is merit-based. Well yes to an extent, but as a matter of fact, only partially.

Najib noted in his PEB launch speech that MRT contracts were allocated to bumiputera firms through meritocratic selection. What this actually means is that more deserving bumiputera firms were chosen over less deserving bumiputera firms.

I raise this issue more to set the record straight than to fault the policy. Meritocracy can play a role in reinforcing the bumiputera industrial development programme, by striving to find the most capable ones that can excel.

Importantly, though, this is not full-fledged open competition between all firms, but only among bumiputera firms. So the policy, by excluding others from participating, remains discriminatory - hence we should do it effectively but with a view to transition away from its current practice, which is not desirable in perpetuity.

How might the public procurement system be made more effective? Some procedural enhancements took effect this January, including a scoring system for registered contractors, which can help regulate standards.

Criteria for this merit-based selection among bumiputera contractors, though, have not been publicly disclosed.

There is much also scope for improvement. For instance, companies that upgrade technology and skills, or that graduate especially from G1 (formerly F) to G2 or higher, could also be awarded bonus points.

Perhaps some rounds of contract allocation can be reserved for contractors that graduate within the previous two years.

Analysis by Research for Social Advancement (REFSA) shows that about three quarters of Malay contractors remain in class G1.

One current practice raises a clearer case for modification, concerning bumiputera preference when bidding against non-bumiputera contractors.

The current system of granting price handicaps to bumiputera bids for contracts valued between under RM15 million, in place for about 20 years if not longer, is doing a disservice to both contractors and society but presenting perverse incentive of being less efficient.

We could do better, say by according bumiputera preference to competing bids only if they are of comparable price and quality.

In larger and specialised projects, perhaps we can, in cases where a bumiputera bid is judged second best but is within a certain range of first place, allow the top two firms to bid again in a two-way contest.

Third, some policy instruments may still be useful, even if Malaysia has failed in previous executions. In particular, grants can be effective means for starting new ventures that involve risk and uncertainty but offer potential breakthrough.

Much technological progress, including recent green innovations around the world, have spun off from research or start-up grants. Recipients of a grant, unlike a loan (even a discounted one), can get straight to work instead of scrambling for finances.

The PEB's Superb project (Skim Permulaan Enterpreneur Baru bumiputera, or new bumiputera entrepreneurs start-up scheme), with a RM100 million endowment, appears to be adversely received.

Political interests

Of course, many Malaysians including myself have misgivings over the selection and monitoring processes, and whether it will be corrupted by political interest. However, as an instrument for bumiputera industrial development - and there aren't many tools out there - it holds out more promise than other methods.

We ought to draw more attention to true success stories, especially of those who have received public assistance then graduated out of it, as well as independent bumiputera businesses that never received help from the government.

Fourth, corruption and political patronage can bring ruin, underscoring the case for the restraint to be exercised on bumiputera industrial development programme.

Najib's speech showcased a plethora of huge projects, especially the upcoming big four of Menara Warisan Merdeka, Bukit Bintang City Centre, Matrade Exhibition Centre and the RRI-Sungai Buloh project, with no assurance of the integrity of conduct or caution against political interest lunging for the spoils.

This gives little confidence that the necessary change will happen to make bumiputera industrial development effective, particularly when a lot of money is at stake, and with Umno-BN in charge.

Oh yes, how things turn out depends on not just on clearer thinking and better policies, but even more critically on political will, integrity and audacity to make clean breaks from the past.

YESTERDAY: Asking the right questions on bumi development

LEE HWOK AUN is senior lecturer in Development Studies at Universiti Malaya.