Bumiputera-controlled companies comprised a quarter of the 800,000 registered companies in Malaysia, according to Lee’s report. — Reuters pic

KUALA LUMPUR, Dec 21 — Preferential access to government contracts has failed its objective of grooming Malay businesses and even stifled the process in some ways, a study has shown.

The report by Lee Hwok-Aun from ISEAS — Yusof Ishak Institute titled “Malaysia’s Bumiputera preferential regime and transformation agenda: Modified programmes, unchanged system” said that 75 per cent of Bumiputera contractors licensed under the Finance Ministry were in the smallest G1 class (formerly F) reserved for the ethnic group.

Those in the G1 category need only have RM5,000 minimum paid-up capital and are eligible for projects below RM200,000 in value. Out of 41,000 such contractors accredited by the ministry, 94 per cent were Bumiputera.

In contrast to the construction industry as a whole, only 44 per cent of contractors in the Construction Industry Development Board’s (CIDB) registry were at the G1 level. Only 47 out of 29,000, or 0.2 per cent, of class F contractors had upgraded to a higher class.

“Bumiputera contractors’ political partisanship is marked; the Malay Contractors Association is formally aligned with the ruling Barisan Nasional (BN) coalition.

“Umno connections have been intertwined with the contracting system, although recent changes — particularly, e-procurement, competitive tenders, and balloting for small contracts — have brought more integrity and transparency to the system,” said Lee’s study.

According to Lee, the number of contractors swelled from about 2,000 in 1972 to 41,000 by 2010. A total of 6,500 and 8,200 class F contractors were registered in 2002 and 2003, respectively, in response to government allocations of small projects in parliamentary constituencies.

Citing CIDB data, Lee’s study found that government construction projects awarded to local contractors amounted to RM23.8 billion in 2015 and RM41.4 billion in 2016.

“This scale of disbursements affords the state considerable leverage for enterprise development. However, public procurement has lacked attention to dynamic reforms or equitable distribution,” said the report.

Lee’s study said small and medium enterprises (SMEs) contributed around 30 per cent of Malaysia’s economy; Bumiputera SMEs contributed 13 per cent. The government has targeted an increase to 20 per cent in 2020.

By 2015, Bumiputera SMEs only comprised 38 per cent, or 247,900 out of 645,100 SMEs. Among these, 88 per cent were classified as micro, 11 per cent small and only 1 per cent medium. This was in contrast to 70 per cent, 26 per cent and 4 per cent of non-Bumiputera SMEs.

Bumiputera-controlled companies comprised a quarter of the 800,000 registered companies in Malaysia, according to Lee’s report.

Lee’s study noted that various programmes promoted Bumiputera micro and small business, such as those by government agency MARA that mostly provide training and funding.

“MARA’s Strategic Transformation 2011–2020 aspires to take enterprise development to the next level, beyond dispensing opportunity and funding. However, the extent that this spurs capability and competitiveness remains to be seen,” said Lee’s report.

“Perbadanan Usahawan Nasional Berhad provides SME support to a large pool, but evidence suggests a considerable distance to go in cultivating truly dynamic enterprise.”

Government agency Tekun disbursed RM4.29 billion in financing to 473,982 entrepreneurs from 1992 to mid-2016, according to the report.

“However, there is limited evidence of beneficiaries being induced towards higher competitiveness. Tekun is also mired in heavy losses and debt, with a former CEO on trial for corruption.

“On the whole, SME support through these channels is not as impactful as desired, with substantial scope for building capability through selection and monitoring processes,” said the report.

Lee observed that although there has been more effort in building capability and competitiveness of Bumiputera firms in recent years, the shift was not systematically integrated into various interventions granting preferential access to funding and contracts.

“Emphatically, the scope and scale of regime-wide reform demands implementation of sufficient magnitude and authority. Teraju has been designated this role, but is under-resourced, and lacks authority to replicate success, overhaul underperformance and overcome territorialism,” said the report, noting that various public bodies implementing Bumiputera empowerment generally operated in isolation.

“Political and bureaucratic resistance persists towards incorporating more merit-based selection, rolling back preference and replicating merit-enhanced selection. Nonetheless, empowered Bumiputera elites and competitive firms are positioned to demonstrate, visibly and constructively, graduation from preferential treatment.”