Thursday, April 23, 2009

Scrapping of 30% bumiputra quota for 27 sub-sectors

With the recent announcement by Prime Minister (and also Finance Minister) Najib Razak, there will be no more 30% bumiputra equity requirement for 27 sub-sectors in the service industry with immediate effect, which covers the health and social services, tourism services, transport services, business services and computer and related services.

The 27 liberalized sub-sectors are:

Computer and related services

  • Consultancy services related to installation of computer hardware
  • Software implementation services – systems and software consulting services; systems analysis services; systems design services; programming services and systems maintenance services
  • Data processing services – input preparation servies; data processing and tabulation services; time sharing servies and other data processing services
  • Database services
  • Maintenance and repair services of computers
  • Other services – data preparation services; training services; data recovery services; and development of creative content

Health and social services
  • All veterinary services
  • Welfare services delivered through residential institutions to old person and the handicapped
  • Welfare services delivered through residential institutions to children
  • Child day-care services including day-care services for the handicapped
  • Vocational rehabilitation services for the handicapped

Tourism services
  • Theme park
  • Convention and exhibition centre
  • Travel agencies and tour operators services (for inbound travel only)
  • Hotel and restaurant services (for 4 and 5 star hotels only)
  • Food serving services (for 4 and 5 star hotels only)
  • Beverage serving services for consumption on the services (for 4 and 5 star hotels only)

Transport services
  • Class C freight transportation (Private carrier license – to transport own goods)

Sporting and other recreational services
  • Sporting services (promotion and organization services)

Business services
  • Regional distribution centre
  • International procurement centre
  • Technical testing and analysis services – composition and purity testing and analysis services, testing and analysis services of physical properties, testing and analysis services of integrated mechanical and electrical systems and technical inspection services
  • Management consulting services – general, financial (excluding business tax), marketing, human resources production and public relations services

Rental/Leasing services without operators
  • Rental/leasing services of ships that excludes cabotage and offshore trades
  • Rental of cargo vessels without crew (Bareboat Charter) for international shipping

Supporting and Auxiliary Transport Services
  • Maritime agency services
  • Vessel salvage and refloating services
This policy of 30% bumiputra equity requirement for companies listed publicly in Kuala Lumpur Stock Exchange (KLSE) and also for foreign companies that wish to operate in Malaysia has long be criticized by both local and foreign investors, and deemed as the major hindrance for them to invest and run business in Malaysia. It was also one of the major cause for certain existing investors to exit their business from Malaysia and gone to other places like Singapore, Vietnam, China, Thailand, etc.

Nevertheless, with effect from 17 June 2003, the 30% bumiputra equity requirement has been no longer applicable to all sub-sectors of manufacturing sector for foreign investors. It is good that another 27 service sub-sectors are free now.

Over the last decade, Malaysia has lost too much opportunities to neighbouring countries due to certain protective policies. This has been a barrier to the performance of KLSE as well as the economic growth of the country. I believe the bumiputra should have good wisdom to reason that instead of insisting on "guaranteed" 30% of a small cake, why not invite more investors to come in and make the cake grow bigger and bigger by releasing the restrictions on them? They might need to work harder to obtain a "non-guaranteed" 30%, but what you prefer? A "guaranteed" 30% of 100 or a "non-guaranteed" chance of 30% of 1000? Even in the worse case scenario, you only managed to get 10% of that 1000, it is still much much more better than the insisted 30% in the 100, isn't it?

Therefore, I view this move as a win-win-win situation, for the bumiputra, non-bumiputra, as well as the foreign investors. It would be better if the 30% requirement be totally scrapped for all sectors to bring back live to the KLSE as well as the economy activities.


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