NEP will destroy the Malays
Malaysiakini
Oct  2, 2006
Bede Hong

Since joining Parti Keadilan Rakyat (PKR) as its treasurer in July, Khalid Ibrahim has called for the abolishment of the New Economic Policy (NEP) - an affirmative action scheme launched in 1971 to uplift the lot of poor Malays.

The call is surprising as it comes from a person once described as an ‘industry captain’.

Khalid, 60, is the former chief executive of Kumpulan Guthrie Bhd and former group chief executive of government-linked plantations company Permodalan Nasional Bhd (PNB). He stepped down from Guthrie in 2003. He also set up an asset-management company managing funds from licensed offices in Kuala Lumpur and Singapore.

After spending nearly two decades in fund management, most recently with Malaysia's National Equities Board (PNB), Khalid has made an about turn.

In part one of this two-part interview, Khalid tells malaysiakini about the need for the government to cut down on its operations costs, describes the NEP as ‘the devil’ and laments the lack of successful bumiputera entrepreneurs.

Malaysiakini: What do you think of the economy?

Khalid: With the likelihood of a world economic slowdown, coupled with the possibility of another rise in oil prices, which is quite the likelihood, I think the government needs to be concerned with reducing its operations costs. It’s more important than being cautious with spending.

It’s time for the government to re-look at the operating expenditure and how it can cut 10 to 20 percent of this to maintain a reasonable level of operation without excesses.

An operations cost of RM112 billion, which covers for example the expense of building Putrajaya and its maintenance, is taking a bite out of the budget.

I think after the 1997/98 economic crisis, the government has become the main agent to push the economy. There were enormous dependence on large projects to push the economy such as Putrajaya, Cyberjaya, KLIA (Kuala Lumpur International Airport), the twin towers.

You could have other more productive options, rather than just enhancing the construction industry. I say this because when the infrastructure is done, you still have the additional cost of maintaining them. These are projects that do not have value added income. Yes, you could say people come to the Petronas Towers to take photos and all that, but those kind of income contributions are negligible.

Why the sudden change of heart?

In the early years of my career, I was among the people who initiated the implementation of the NEP and also created the institutions that act as bumiputera distributing arms in the corporate sector.

Some people have been surprised as a former promoter of the NEP, I am now ignoring the vehicle to advance the Malays.

The concept of the NEP is really just affirmative action. Of course affirmative is trying to correct certain perceived imbalances in the economy. In fact, the definition for affirmative action is very clear - it’s called positive discrimination.

It’s when you discriminate against people to resolve the disparity between communities to reach a level of an even playing field. So I think it was quite clear back then.

But now, the NEP has been vulgarised by a small section of the bumiputera community in terms of corporate enhancement. The NEP now is becoming a scheme to enhance the income and also the wealth of certain selected members of the community through references to secure all the contract give-outs and so forth.

It becomes so embarrassingly clear that this vehicle of NEP has been catered specifically to certain sections and groups of people. For example, we see that in the contract to supply computers to schools; the people who got the contracts have no experience in handling computers. And yet they become the front runners and it is sub contracted out.

So there is abuse in terms of not getting the right products delivered, resources that have been thrown out due to inefficiency, distribution to these schools have not been fully utilised and as a result, it is an enormous waste. Now the selected people have become so-called world players in terms of cyber cities and so forth.

If the NEP is not doing what it’s supposed to do, then what is it being used for?

It is a known secret that all division heads of Umno have a chance to get contracts from the government in order for them to fund their political activities. They became Malay rent collectors used by non-Malays to become front runners to get these projects. And it becomes a habit and a norm rather than an exception.

Now the whole country is in a mess. In fact, if you take notice, the on-going exchanges between (Dr) Mahathir (Mohamad) and Dollah Badawi (Abdullah Ahmad Badawi) are centred on the failure of contract handouts rather than the poor or the marginalised people. The debate has left out the poor people of Sabah for example, where statistics show a very high percentage of poverty.

We do see that the NEP has become a tool for securing income, unearned income for those who don’t do work. It’s really a free income for those who have connections with the government.

The after effect is that there is so much loss in government expenditure that the taxpayers are not getting the value on the expenditure made.

The NEP is not being updated, compared to other institutions that were set up in the early days like PNB, Tabung Haji, Felda, Tabung Angkatan Tentera. Unlike the NEP, these other institutions are moving forward in a steady way.

They had wanted to create so-called Malay corporate leaders and entrepreneurs when in fact it’s very hard to find them now. Those who are the super corporate entrepreneurs now, in terms of world class standards, you don’t get bumiputera or Malay names.

You get names like T Ananda Krishnan, Yeoh Tiong Lay, Lim Goh Tong and Robert Kuok (laughs) ... I think the whole of Malaysia enjoys the NEP because the NEP is not going to the Malays.

In our discussion on the NEP ... participants were telling us since the early 1980s and 90s they (the top businessmen) were constructing companies and building real estates and so forth. They became major players, the companies grew from millions to billions. But until today, they are just sub-contractors in Malaysia.

But if you analyse them (the major players) in a cynical manner, their success (is founded on the ability) to use the Malays to get contracts, and they benefited enormously from that. This is the seed of corruption...These sub-contractors now have to increase their cost in order to compensate the bribe they pay the runners to get those contracts.

Can you imagine this in Malaysia that wants to have more corporate governance, to become a highly regarded transparent nation? I think the NEP has in fact destroyed us, corrupted the whole thing. That’s why we say, hey, it doesn’t please a lot of Malays, it also doesn’t please the Chinese or Indians, and it also destroys the good character of how we to do business. People have been saying it’s only about implementation, but it has already taken the character of the devil (laughs). We cannot do with this. That’s why it deserves to be cut off.
This instrument is going to be one that will kill us and kill the nation. It has became a cancer of society. And to solve the problem of cancer, we cut it off.

The fight within Umno is on how they’re getting the best of the NEP. The 3,000 (Umno delegates) control the destiny of the nation. Ask people in the villages, they’ll tell you they wouldn’t know that they have big contracts waiting for them.

How would things be like if the NEP is abolished or modified ...

Now, if it wasn’t for the NEP, we could have achieved better growth because of the better ability to use resources. We could have an additional three or four percent in annual growth.

If you look at Singapore or Malaysia, they started off about the same time, that means the per capita income in both countries were about the same. Now, Malaysia’s just below US$5,000 but Singapore’s US$21,000.

What does this mean? Should we be discussing about the NEP? The logic of the technical economic argument shows that the NEP hindered growth, while the proponents of the NEP during my period (said it ) was to create political stability. Without political stability, there is no environment for industrial growth.

But the environment has changed, foreign investors are afraid of coming in. Investors have to consider this renter class that is going to tax you 30 percent.

I think the NEP has also condoned the lack of professionalism in governing and management, meaning it doesn’t care whether you are efficient or not, when you distribute to your friend. You can charge a higher price.

In order to hide all these mismanaged activities, the government is not being transparent. The government still relies on the OSA (Official Secrets Act) to hide the inefficiencies. Now there is no separation between the executive, legislature and judiciary in order for there to be check and balance.

In fact, the government has become a collusion with everybody rubbing each other’s back. Certain ministries and civil servants must be cunning enough to adjust some of the requirements of general order in order to accommodate the giving of these concessions.

And of course the politicians have to collude with the executive in order for them to have free trips to play golf in exotic places under the pretext of trying to set up real estate investment and study tours.

During the Anwar (Ibrahim) case, you can see this relationship (between the executive, legislature and judiciary). They became one team. That’s where we are now, the result of trying to implement the NEP ... a creature that is going to destroy the future generation of Malays.

There has yet to be a realistic alternative proposal to the NEP ...

DAP may have their own agenda, and PAS their own agenda to ensure that taxpayers will not be discriminated. I think the whole character of this needs to be stopped. Let’s come up with a new national agenda that caters for the needy and the masses. And in fact that was the original intent of the NEP. NEP has become an income sourcing tool in the most vulgarised manner.

We are working on a proposal so that all parties (can get) involved to improve the welfare of Malaysia. The NEP cannot subscribe to this because it is racially discriminatory.

We must create an income and opportunity based discrimination, that is the different way of looking at it. We want to explain to the people in Malaysia that they have been shortchanged. Let us wake up and demand for change. Of course don’t expect the government to think like this. The reason is this, the political nature is such that they are blinded. They are blinded as they have so much vested interests. It will be as though they are killing the goose that lays the golden eggs.

How will the government be coerced into doing what you want them to do?

The voters will have to decide. We talked to DAP and all, they have different agendas ... now we have to work together.

But come election time, the government will come up with sweets and all the goodies. But we are going to tell the voters that all these sweets will eventually cost you more [laughs]. You have taken the bribe in order to destroy your future generations. This is poison ...this is going to kill you.

But you must remember, this is not theoretical or speculative because we have already experienced it. You can take the goodies because they’re rightfully yours as taxpayers, but don’t give your vote. (laughs).

What do you think of the Asli (Asian Strategy and Leadership Institute (Asli) Centre for Public Policy Studies) statistics?

(Asli estimated that bumiputera corporate equity ownership was around 45 percent, when based on September 2005 Bursa Malaysia figures) 

Analysts must be very careful about this. Academicians cannot see the political intrigues of it. If you are not careful you might be catching your own tail.

You solve one problem - the statistical connotations but the implications are wide ranging. If a declaration is made that Petronas, for example, is categorised officially as bumiputera equity, then demands would be made by certain sections that the entire shares be diverted.

I saw the (Asli) statistics given, but it is not going to be helpful in arguing that the NEP is no longer relevant. It could backfire. Of course these discriminatory practices happen in all countries. The UK has got it, France has got it, people are cursing Australia for not doing it.

If you are in Malaysia, it means that you are being seen as taking advantage of the elements. The real issue is how you would harness the skills and abilities to compete in the international arena.

Just like Temasek, 70 percent is international - giving a return of 18 percent annually. That’s the benchmark. Otherwise, you are just a kampung player.

We must tell all the managers of GLCs (government-linked companies) ... to let the shareholders make the distribution decision. When we make profit we will decide how. You make the profit, you do it in the most professional manner with the best corporate governance but when the profit comes in, then the question of distribution comes in. In fact, it is high time for Malaysia to conduct the so-called good way of solving this problem.

If the CEO (chief executive officer) of a GLC says ‘I cannot perform because I was being disturbed by my boss who is politically influenced’. I will say this: ‘We don’t care. You don’t look at us for pity. We will kick you because it’s your duty to kick the other person and you didn’t do your job.’