This article first appeared in Forum, The Edge Malaysia Weekly on March 27, 2023 - April 2, 2023

Last week, Scientex Bhd, a listed company that failed to acquire land to build more affordable homes in Johor, announced its maiden venture into Indonesia through a joint venture (JV).

The foray into Indonesia came just two weeks after its RM518 million proposal to acquire land from S P Setia Bhd to build affordable homes in Johor was turned down by the Economic Planning Unit (EPU) because it did not meet the bumiputera equity condition.

Scientex, which is a packaging company but has carved a niche in the affordable homes market outside the Klang Valley, is looking beyond Malaysia’s shores to grow in that segment. Its next frontier is the entire region, which it is exploring with its JV partners.

Scientex is not the only company that has left Malaysia to go where the investment laws and regulations are more transparent and probably less restrictive.

Venturing abroad comes with more risk, but it provides another avenue for growth if there are restrictions in the company’s home base. The likes of the Genting Group, YTL Group and Kuok Group have overseas businesses that are larger than their holdings in Malaysia. Smaller groups such as Scientex have started to go that way as well. And nobody can blame them.

Companies go to countries where their capital can flow in and out easily, where laws regulating investments are clear and there is no ambiguity when it comes to fulfilling local partnership conditions.

For instance, Malaysian companies can own and operate highly regulated assets such as airports overseas. But in Malaysia, regulated assets are out of bounds to foreigners.

Malay-owned businesses need investments — both foreign direct investments (FDIs) and domestic direct investments (DDIs) — for economic growth to reflect national targets for the community. However, the ministries driving investments are already having a hard time getting investors to come to Malaysia.

It is so difficult that even getting Tesla to open a marketing office in the country is considered a triumph.

It is a victory of sorts because the car importation segment is a lucrative one that has been the domain of a select group of bumiputera business owners who are awarded Approved Permits (APs) to be in this trade. The group is well connected to Malay-based political parties and has lobbied successfully to keep the AP system intact so that they can continue to enjoy the benefits of being AP holders.

The AP system prevents global brands such as Mercedes-Benz and BMW from entering the local market directly. Instead, they have to partner with a bumiputera company to bring in the cars.

Many of the owners of companies with APs to import cars have gone on to amass much wealth, some of which has been diversified into other areas. But the wealth is acquired by individuals and the benefits do not flow down to the community as a whole.

More than 10 years ago, the government stated that the AP system would be done away with by 2015 because it was being abused. But the AP system remained intact — until the entry of Tesla into the country.

Tesla’s entry broke down the AP system for battery electric vehicles (BEVs).

Early this month, Tesla International BV set up 100%-owned subsidiary Tesla Sdn Bhd to distribute, maintain and repair Tesla cars. Tesla does not work with partners. Even in China, its distributorship and maintenance chain is entirely its own.

Never mind that the licence was given under the BEV category — the future of the automotive industry is veering towards electric vehicles.

What this means is that Tesla has forced Malaysia to break new ground in the automotive import segment that has long been dominated by beneficiaries of the AP system. It underlines the fact that, for the first time, an automotive giant has received the approval to operate as a local company without having to give a stake to a local bumiputera partner.

Did the Ministry of International Trade and Industry have any choice in dealing with Tesla?

No, it did not. Without an unrestricted licence, Tesla would not come here. And that would have been a major blow to the local automotive industry.

Tesla represents the new world order in the automotive industry. All automotive players are producing battery operated vehicles and in time to come, they would demand the same privileges as Tesla.

The same could happen to other industries as well, from telecommunications to banking and many other sectors in the real economy. The writing is already on the wall. Barriers to entry into strategic industries and sectors in Malaysia would have to be broken down.

The requirement for the government to impose conditions such as bumiputera equity will come under pressure.

That is why a convention to discuss the economic plight of the Malays may not yield the desired results, other than being a stage for political rhetoric.

Former prime minister Tun Dr Mahathir Mohamad of all people should know that. His highlighting of a 12-point declaration on the alleged economic, social and political inequality of the Malays does not have the same impact as in the past.

When his book The Malay Dilemma was published, it was in the 1960s and it depicted the plight of the Malays who were left behind in a country where they were the dominant race. It brought about affirmative action policies to help the Malays and bumiputera.

But after 50 years, affirmative action to help one particular race cause more grief than it produces benefits. The unequal wealth distribution among the Malays is glaring. That is one of the main reasons for the downfall of Umno, the party in which money dictates the party elections.

In the 1970s, the world was operating in silos. Information flow was not efficient and technology did not rule industries. Today, information flows within seconds and it is technology that dictates industries. Tesla is an example.

Talk of race and religion scares away serious investors. Moreover, capital flows, whether FDI or DDI, can help with economic upliftment and the well-being of a population as a whole.

However, narrowing it down to uplifting a particular race does not produce the expected outcome.

Policies to force capital flows to help uplift one particular race are not sustainable. They will not be successful. What happens is a few become millionaires and the rest are eventually worse off, going back to the government for more handouts.

The failed AP system to import cars is evidence of what happens when too many privileges are handed to one particular group of businessmen.

The non-Malays in the country have long gone past the need for government intervention to improve their economic status. Even if there are conventions to talk about the plight of the non-Malays, they will draw little interest and there will be no tangible outcome.

Many Malays have moved on to progress without crutches from the government. The scores of riders delivering food after regular working hours to earn extra income is ample evidence that the deprived are already fending for themselves through opportunities that came about due to the new economy.

Dr Mahathir’s 12-point declaration is not saying anything that the previous and present governments do not already know. The Malays need help, but so do others. Affirmative action policies to help one race alone do not work.

In current times, it is policies that tailor to investors’ needs and capital flows that are more effective. Otherwise, Malaysia would continue to lose out to neighbouring countries such as Indonesia, whose large domestic market is already a big attraction for the multinational corporations.

M Shanmugam is a contributing editor at The Edge

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