In a 2013 Working Paper, the Asian Growth Financial institution (ADB) examined slumping overseas funding in Malaysia and concluded a possible barrier was the presence of government-linked firms crowding out non-public enterprise. These are corporations the place the federal government is the controlling shareholder, they usually have traditionally occupied a really substantial position within the Malaysian economic system.
In some instances, the federal government owns corporations outright, comparable to oil and gasoline large Petronas through which the state is the one shareholder. In others, state-owned funding funds are the controlling shareholders, generally as a part of a mixture of state and non-state possession. In 2004, Malaysia started a long-term program to try to consolidate the state-owned sector and enhance the effectivity and industrial viability of the most important government-linked firms.
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 firms might be crowding out non-public sector funding and standing in the way in which of realizing non-public 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 lead to 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 prepared 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 have been by no means significantly thought-about for privatization. And now the federal government is trying to leverage state-owned funding funds and their huge monetary assets to drive financial development in strategic sectors.
Final 12 months the Ministry of Finance introduced the six largest authorities funding corporations had pledged to take a position RM 120 billion (round $26 billion) within the home economic system over a five-year interval, with a watch towards high-value manufacturing. Malaysia has plans to turn into a key hyperlink in semiconductor and clear power provide chains, and is attempting 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 assist 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 Worker Provident Fund (EPF) is by far the biggest 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 belongings. Permodalan Nasional Berhad (PNB) is the second largest fund, with round $75 billion in belongings underneath administration in 2023.
Different funds embody the federal government worker pension fund (KWAP) and Khazanah Nasional, which is almost all proprietor of strategic nationwide belongings like electrical utility Tenaga Nasional Berhad. There’s additionally a pension fund for the army (LTAT) and a fund particularly earmarked for Islamic investing actions referred to as Lembaga Tabung Haji.
Cumulatively, these funds held or managed belongings of round $427 billion in 2023. As some extent of reference, Malaysia’s GDP in 2023 was $400 billion that means the belongings managed by these six authorities funding corporations have been price greater than the cumulative financial output of the complete nation that 12 months. And now they’re being directed to faucet a few of these assets 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, despite the fact that IHH went public in 2012 and Mitsui grew to become the controlling shareholder, Khazanah Nasional remains to be the second largest shareholder.
On the finish of 2024, I wrote that the rise of financial nationalism was the largest financial story of final 12 months, and I consider it should proceed to form the area’s trajectory for the foreseeable future. The mobilization of Malaysian state capital within the pursuit of business 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 at the least in 2012, they have 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 comfy brazenly telegraphing plans to mobilize state-owned and managed monetary assets 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 believe it is rather probably we are going to see comparable rhetoric and insurance policies emerge in and outdoors of Southeast Asia within the months and years forward.