Bumi equity hit NEP target 10 years ago
Malaysiakini
Nov  1, 2006
Beh Lih Yi

A university research paper has found that the 30 percent bumiputera equity ownership as targeted under the government’s New Economic Policy had been achieved about a decade ago.

The research, done by Universiti Malaya academician Dr M Fazilah Abdul Samad, was based on a 10-year analysis of bumiputera equity ownership between 1988 and 1997 of public listed companies on the Kuala Lumpur Stock Exchange (KLSE), now called Bursa Malaysia.

It found the 30 percent bumiputera equity ownership target was reached in 1997 when it hit 33.7 percent.

According to the 2002 study, the 33.7 percent figure was made up of bumiputera corporate equity ownership (30.6 percent) - which is equity held by bumiputera companies - and individual bumiputera share ownership (3.1 percent).

The remainder were held by ‘others’ (32 percent), those under foreign ownership (24.9 percent) and government-held ownership (9.5 percent).

However, the ‘others’ category consisted not just of non-bumiputera ownership but also nominee companies ownership. A nominee company’s sole function is to hold shares or securities on behalf of someone else.

Many economists would argue that nominee companies are not solely under non-bumiputera ownership as a number of them are held by bumiputeras.

Study by UM’s Dr Fazilah

The ground-breaking research was compiled into a 107-page report entitled ‘Bumiputeras in the corporate sector: Three decades of performance 1970-2000' and was published four years ago.

Dr M Fazilah said in her findings that in 1988, bumiputera corporate equity ownership was way below the NEP target.

The bumiputera share was then 12 percent, of which 11 percent was under bumiputera corporate equity ownership while one percent was under individual bumiputera share ownership.

In contrast, foreign ownership was then 27 percent while non-bumiputeras - which included nominee companies - collectively owned more than half of the total paid-up capital of public-listed companies.

“Nevertheless, the percentage of corporate equity owned by bumiputeras fluctuated between 16 percent in 1989 to 22 percent in 1995 and reached the NEP target only in 1997,” she stated.

Fazilah is also head of the finance and banking department at UM’s business and accountancy faculty.

Her research was commissioned and published by UM’s independent research unit, the Centre for Economic Development and Ethnic Relations.

Remarkable growth

Fazilah also found that bumiputera corporate ownership enjoyed the highest annualised growth rate - 27.9 percent - between 1988 and 1997 compared to that of non-bumiputeras.

The annualised growth rate of the total market was 15.6 percent - with foreign ownership at 18.2 percent, government (16.7 percent) and non-bumiputera and nominee companies (11.8 percent).

The research attributed the remarkable annualised growth rate to the high economic growth registered during the boom years after 1990.

The government’s privatisation programmes, which were actively implemented after 1987, had also given bumiputera entrepreneurs an added boost.

As the 10-year analysis on the bumiputera equity ownership did not cover the post-Asian financial crisis in 1997, it is not known how this has affected the corporate equity ownership since Fazilah’s research.

Nevertheless, the academician said based on monthly stock returns after the financial crisis, it indicated that the “... bumiputera-controlled companies were as badly affected as the rest of the market”.

“Thus, there was actually no ‘cushioning’ given by the government since the government was probably more concerned about the survival of the overall economy,” she argued.

No comment from researcher

Fazilah, when contacted by malaysiakini, declined to comment on her research.

She also refused to entertain questions on the issue of bumiputera corporate equity ownership, saying that as an university staff, she has to comply with the university’s ‘Akujanji’ (pledge of good conduct).

Under the ‘Akujanji’, academicians are barred from making media statements without prior approval from the university’s authority.

The government has always maintained that the country has yet to achieve the 30 percent bumiputera equity ownership target.

It's figure, calculated by the Economic Planning Unit, is based on the par value of shares of 600,000 registered companies.

Critics allege that the government underestimates the bumiputera share of corporate equity - which stands at 18.9 percent - to justify the continuation of the NEP and its related policies which give favourable treatment to bumiputeras.

Academicians also questioned the methodology used in the government’s computation as it is based on par value instead of market value of company shares, the latter generally considered as a more accurate measure of wealth.

Interestingly, the UM equity study was based on the par value of the KLSE companies, not their market value.

Controversial Asli study

In recent months, a study by a local think-tank which estimated the bumiputera equity ownership at about 45 percent - almost double of the government figures - had drawn widespread consternation from the authorities.

The government was quick to dismiss the findings, which was done by the Asian Strategy and Leadership Institute (Asli)’s Centre for Public Policy Studies. The public was also told not to question the credibility of the figures provided by the authorities.

According to the government, the Asli report’s methodology was flawed as its computation of corporate equity distribution was based on the market value of company shares.

The Asli research, said the government, had also attributed a 70 percent ownership of government-linked companies (GLCs) to bumiputeras.

On the other hand, the government said its statistics were derived from the calculation of par value of shares involving some 600,000 registered companies and this did not include the GLCs as under bumiputera ownership.

At the height of the controversy, the government said it was prepared to reveal its methodology in its computing of the statistics. However, there has been no new development on the matter.

The NEP was enacted in the 1970 as part of a bold blueprint to reduce income disparity among different ethnic groups in Malaysia.

It was given a life span of 20 years but the racially-based affirmative action policies continued after 1990 under a different name, the New Development Policy.

The government has recently announced that the NEP’s racially-based measures will remain for another 15 years until 2020.