Under an overhaul of the Government’s economic policies, the 30% bumiputra quota requirement for companies seeking to list on the Bursa Malaysia has been done away with.
In what the Malaysian paper The Star described as “his most important announcement” since taking office, Prime Minister Datuk Seri Najib Tun Razak said there was a need for a new economic model that focus on participation instead of equity at the Invest Malaysia 2009 conference in Kuala Lumpur last Tuesday. In addition. all transactions on mergers and takeovers by local or foreign companies will no longer need Foreign Investment Committee (FIC) approval, and that the FIC would effectively “no longer exist”.
A 100% ownership would also be allowed for qualified and leading fund management companies to set up operations in Malaysia and foreign equity in existing stockbroking companies would be increased to 70% from 49%.
"The pie must expand. There is no point in having a larger share of a shrinking pie," said Mr. Najib in a tacit admission of the ineffectualness of pro-Malay affirmative action policies, which have hindered the economic potential of the economy by throwing up barriers to market entry for both foreign investors and non-Malay Malaysians alike.
Foreign businesses wishing to invest in Malaysian listed companies have had both ethical and legal issues in so doing. Many countries have laws that prevent racial discrimination – including positive discrimination. And the 30% ownership rule means that, for decisions requiring more than 70% majority, the power rests in the hands of a minority group which may act in concert to defeat the plans of the majority.
Domestically, businesses that had been family owned by non-Malay Malaysians were told they must allow set percentages of Bumi-ownership. Many resisted, some converted from limited companies to partnerships and some entered into deals that complied in law but not in spirit with shares held in trust by Bumiputras who took a stipend - but no part in the business. This defeated one of the primary objectives of the Bumiputra laws, transfer of skills to Bumiputras.
The loosening of bumiputra laws has political repercussions, in spite of its economic appeal.
Malaysia’s affirmative action policies have been instituted since the 1970s, and liberalization measures are likely to be unpopular with Mr. Najib’s political base, the ruling United Malays National Organization which has historically favoured pro-Malay policies.
Mr. Najib still has a ways to go in the liberalization of the market, which still stacks the deck in favour of ethnic Malays; to name but one instance, all Malaysian companies seeking listing would have to offer 50% of their public offering to bumiputra investors, which would work out to 12.5% of the total stake.
Commentators also note that the liberalization measures announced thus far do not apply to retail, utilities or other sectors with heavy Malay employment.
The Wall Street Journal, Najib's Affirmative Action – II , 2 July 2009, http://online.wsj.com/article/SB124647170231781583.html
The Star, Govt does away with 30% bumi equity requirement, 1 July 2009, http://www.thestar.com.my/news/story.asp?file=%2F2009%2F7%2F1%2Fnation%2...
The Chief Officers’ Network, Economies: Malaysia takes the brakes off, 1 July 2009,http://chiefofficers.net/888333888/cms/index.php/news/economies/economie...