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Demystifying Corporate Equity Calculations –Independent Panel of Experts to recommend new  EPU methodology  for 9MP  Mid-Term Review

by Lim Kit Siang  


(Parliament, Monday) :  The method of calculation employed by the Government and EPU has been shrouded in secrecy. The various five year plans, the mid-term reviews of these plans and official pronouncements have glossed over the methodological issues and the rationale for the actual methods used. It is only with the publication of the ASLI study that the public has become aware of some of the basis of these official calculations, which have been central to economic policy formulation in Malaysia for some three and a half decades.

It is most disappointing that Government leaders have rushed out to label the ASLI study as “rubbish”, “ irrelevant” and have questioned the academic authenticity of the study. Equally unacceptable is the fact that the integrity of those engaged in the ASLI study has been questioned. Furthermore, no attempt has been made to rebut the arguments or to lay out the full EPU methodology. Thus far there has been an orchestrated attempt to stifle debate.

This continued use of an inappropriate and flawed system of measurement (par values) has fundamentally distorted the estimation of the wealth of the nation over the past three and a half decades. The use of flawed and distorted data has undoubtedly impacted on the quality of decision making and on the direction of public policy. The cost of these distortions is incalculable. There should be little debate on this score.

There should equally be no question or argument about the need for changing the basis of calculation. The Government must abandon the present system of valuation and immediately move to the use of standard internationally accepted basic commercial accounting concepts that embed notions of TRUE VALUE based on concepts of net-worth, capitalization or universally accepted notions of equity value.

There can be no rational and objective argument to the continued use of par valuation, a valuation used neither in commercial transactions involving asset/share transfers nor in computing tax liabilities. The present charade must cease. Irreparable damage is being done to the credibility of the government in the eyes of potential investors and is yet another black eye for transparency and accountability.



Shifting NEP Goals

A second issue of concern is linked to the shifting nature of NEP goals. In the recent controversy regarding the ASLI generated estimates (based on market capitalization) justifications have been offered on behalf of EPU that the par value approach is justified because the EPU measures ownership, and not wealth. This is somewhat semantic.

The end goal of the NEP concerned the DISTRIBUTION OF WEALTH and the Ownership of Assets. Shares are for all intents and purposes units of measure and not wealth per see. It should be recalled that the 4th Malaysia Plan emphasized both ownership and control. Thus the key table in that Plan was titled “Ownership and Control of the Corporate Sector”.

If indeed this remains the goal, the valuation at market capitalization is the only robust methodology which should be used. If however, EPU now claims that ownership is the goal, with control playing no role, it represents a shift in policy.

This has never, to the best of my knowledge, been announced, discussed, or debated. Major policy shifts on the sly are clearly inappropriate and unacceptable. Accountability and transparency are demanded in all matters but more so in the case of areas of policy which are fundamental and represent the core strategies for creating an equitable and just society.

It must be recalled that the original objectives of the New Economic Policy (in the 2nd Malaysia Plan), the stated t target was for “ownership of productive wealth restructured so Malays and other indigenous people own and operate at least 30% of the total.” However, the only tables in subsequent Malaysia Plans that compute percentages of such “ownership of productive wealth” have been tables showing share capital ownership. These were thus proxy measures. To argue otherwise would be to argue that there has been an inherent flaw within EPU calculations from the start.

To define productive wealth in the narrow sense that the Plans have taken, ignores wealth in other forms e.g. land holdings, commercial buildings, housing other capital assets owned by individuals. No true accounting of the distribution of wealth can be based solely on the quantification of a part of national wealth - namely share ownership.

A close reading of the various Plans appears to suggest that there has been a clear shift in the targets set out within the Malaysia Plans. In the earliest Plans the focus was upon ownership and management of commercial and industrial activities/equity. However, in later Plans the target began to shift towards the “creation of wealth”, with particular emphasis upon “holding on and adding to their wealth”, “creating new wealth” for Bumiputras measured mainly by share ownership.

The Coverage Issue - GLCs

Beyond the system of valuation and the coverage employed there are other deeply troubling features connected with the manner in which these highly sensitive figures have been treated from one Five Year Plan to another Five Year Plan.

There has been an absence of transparency as the underlying concepts and methods have not been fully revealed. There have been changes in classifications and categories used over time without adequate explanations offered. These changes in definitions and scope have affected the comparability of data over time. No attempt has been made to reconcile or realign the classifications.

Thus the numbers reported in each of the plans and the mid term reviews lack comparability, consistency and have discontinuities. Assessing progress or the lack thereof cannot be attempted as the goal posts keep being shifted. This is best illustrated by the manner in which the assets of institutions and in-trust agencies have been treated in the various Plans. For instance, the 5th Malaysia Plan, trust agencies were listed as follows:

National Equity Corporation (PNB),


Council of Trust for Indigenous People (MARA),


Development Bank of Malaysia (BPMB),

Urban Development Authority (UDA),

Bank Bumiputera Malaysia Bhd,

Kompleks Kewangan Malaysia Berhad (KKMB),

Food Industries of Malaysia (FIMA).

Also includes amount of equity owned by the Government through other agencies and companies that have been identified under the transfer scheme of government equity to bumiputera.


The 9th Malaysia Plan departs from that classification and limits the coverage to PNB, Perbadanan Usahawan Nasional Bhd, Perbadanan Nasional Bhd, MARA, Bank Pembangunan Malaysia Bhd and the SEDCs. No explanations have been offered as to why there has been a considerable reduction in the named institutions and trust agencies. It would appear that many agencies, including the GLCs are being systematically excluded from the equity calculations.

The exclusion of the GLCs from the calculation of share capital ownership according to ethnicity has been justified by the authorities on the grounds that they are “for the benefit of all Malaysians alike”. This argument can be countered on several counts.

First and foremost, the objective has been to measure the OWNERSHIP OF SHARE CAPITAL covering ALL shares in limited liability companies; EXCLUDING OWNERSHIP by the Government or government linked institutions leads to the understatement of the total value of corporate based wealth in the economy.

Secondly, the approach taken deviates from the underlying intent when the NEP was formulated. Government ownership, representing an “in-trust” role was a critical part of the NEP strategy. The following paragraph in the Mid-Term Review of the 2nd Malaysia Plan clearly laid out the rationale for the treatment of Government owned shares.

“The task ahead is indeed formidable but by no means impossible to accomplish. While there will be greater Malay private savings to finance expanded share capital ownership as the economy grows and as Malay participation in economic activity expands, a significant part of the financial resources required in the earlier years will have to come from the Federal and State Governments and institutions which harness Malay savings. These resources will have to be used to acquire a significant part of the increases in the growth of the total financial stock of the economy and to hold them in trust for the Malays and other indigenous people until they are in a position to acquire them from their own savings… “ (Para 238)

The same document went on to state:

“The degree of restructuring which is required in the ownership of assets will not result in loss and deprivation on the part of other Malaysians, as the process of restructuring is to be undertaken in the context of a rapidly expanding economy. There should, therefore, be no grounds for fear or anxiety on the part of other Malaysians that Government intervention in the private sector on behalf of the Malay community will lead to deprivation of the rights or prospects of non-Malays.” (Para 239)

These statements show that from early on, government intervention in the private sector and government acquisition of share capital was seen as holding assets in trust for the Malays. It is clear that had these policies been strictly applied, the GLC shareholdings would not be excluded from the overall calculations, as the 9th Plan does, but would have been wholly attributed to the Bumiputra category. It should be noted that the ASLI study assigned only 70% of the total GLC holdings to Bumiputeras.

To reinforce the point, it should be noted that the sly shifting of goal posts and distortion of the original objectives and strategies of the NEP has occurred in a number of ways. For instance, in the 2nd and 3rd Malaysia Plans a category “Other individuals and locally controlled companies” was computed. This category continued to be included up till the 5th Malaysia Plan, defined as “total value of share capital of limited companies whose ownership could not be disaggregated further and assigned, beyond the second level of ownership, to specific ethnic groups”.

However, starting from the 7th Malaysia Plan this value has been omitted and no explanations have been offered. The seeming omission of the shares of locally-controlled companies which could not be disaggregated further and assigned constituted a substantial amount of 11.8% of total share capital in year 1985, or RM9.2 billion; and 13.6% in year 1990, or RM15.15 billion. The exclusion of these amounts without any explanations raises fundamental concerns and demands a response from the Government.

The tables on Ownership of share capital of limited companies by ethnic group and sector, between years 2002 and 2004 contained in the 9th Malaysia Plan raise a number of troubling issues. The changes reported have not been explained. It would appear that classifications have been changed and the coverage has been altered thus affecting the comparability of the data.

For instance, within the utilities group, the share capital ownership for both Bumiputera and Chinese have fallen significantly from 12.4 to 6.3%, and from 37.1 to 8.9% respectively. Foreign ownership of share capital, however, has increased from 32.1% to 67.3%. How and why was there such a large disinvestment by Malaysians. Who were the foreign interests that acquired such a sizable increase?

Similarly, within the finance group, share capital ownership of Bumiputera has reduced from 20.7 to 12.5%, whereas foreign and nominee companies ownership have increased tremendously.

This pattern can be seen within the transportation and finance groups, where foreign ownership has ballooned from 17.0 to 31.3% and from 27.1 to 59.5% respectively.

Nominee shareholdings have increased significantly, which is evident from the mining and finance groups, increasing from 6.5 to 25.4% and from 9.7 to 17.5% respectively.

Has ownership of share capital in certain sectors been transferred from Bumiputera to foreign and nominee companies between the years 2002 and 2004?

Answers to these questions must be forthcoming. Such answers are unlikely until there is full transparency about the methodology employed by EPU.

Getting the Numbers Right

Following the release of the ASLI study there has been a vigorous debate about the equity ownership numbers in terms of the methodologies, the interpretation of trends and outcomes. Some of that debate has been emotional and heated and has not addressed the core issues. Charges and counter-charges have created a fog of confusion.

EPU and the other agencies responsible for the computations have failed to come forth with a full disclosure of the detailed numbers, the sources used and the methods employed to compute what can only be described as the most important statistics in Malaysia. The thunderous wall of silence has not served the Government well. It has added to the already charged and polarized atmosphere and heightened concerns about the level of transparency and accountability practiced by the Government.

The markets have clearly drawn their own conclusions and it is more than likely that there will be a price to pay in terms of lowered confidence, a further erosion of the competitiveness of the Malaysian economy with consequences for the successful implementation of the 9th  Malaysia Five Year Plan.

The Plan, as it has been repeatedly stressed, is critically dependent on the private sector playing its due role as the engine of growth. It is imperative that the Government recognizes that a distrustful and disillusioned private sector is unlikely to take on that role. It needs reassurance that the Government is pursuing policies that are built on solid evidence-based information flows, data that are reliable and are not manipulations for short term political gains.

It is in this context that I cautiously welcome the recent statements by the Prime Minister and Deputy Prime Minister concerning the need for transparency concerning the statistics relating to the ownership of corporate equity. The Prime Minister, in remarks to the media on his return from Mecca two weeks ago (Oct. 16), indicated that Malaysians have the right to question the government or to seek answers on issues when referring to calls for the public disclosure for the EPU methodology and data.

When the Prime Minister  returned from Mecca two weeks ago (Oct. 16), he  said that Malaysians have the right to question the government or to seek answers on issues when referring to calls for the public disclosure for the EPU methodology and data.

Abdullah said: “If people question, then we must have answers. We do not have a problem. If we are transparent, what is the problem?”

A day earlier, Najib said that the government’s methodology to calculate bumiputera equity ownership was no secret and could be disclosed.

The thunderous silence and failure in the past two weeks to make public the EPU methodology and data seem to indicate that the government is having very serious problem in “walking the talk” about transparency.

Abdullah and Najib must realize that both of them would lose all credibility if they fail to honour their public undertaking to make public the EPU methodology and data, especially after the Malaysiakini exclusive report of a 2002 University of Malaya research study and finding that the 30 per cent bumiputera equity ownership as targeted under the NEP had been achieved a decade ago in 1997.

It is imperative that the Prime Minister take immediate steps to direct EPU to make public in full the methodologies, classifications and assumptions it used in estimating the equity ownership numbers incorporated in the Ninth Malaysi8a Plan. Concurrently, EPU should be asked to publish the underlying detailed data sets it used.

The Prime Minister should as a matter of urgency establish an independent Panel of Experts to review the current methodologies and practices used by the EPU and other Government agencies, and evaluate the data sources used in computing the ownership of corporate equity. The Panel should, based on its review, make comprehensive recommendations concerning methodological modifications that are needed, taking into account professional statistical and accounting best practices and standards.

The Panel's terms of reference should be wide enough to permit it to consult with knowledgeable professionals and appropriate bodies in developing new standards of measurement. The Panel, to enable it to enjoy credibility, includes professional accountants, economists, corporate analysts, academicians and statistical experts and be representative of both the public and private sectors. The Panel should be charged with completing its work speedily and new agreed estimates should be available for use by the EPU in the preparation of the Mid Term Review of the Ninth  Malaysia Plan.


These steps should be announced by the Prime Minister in the course of the winding up of the debate on the 2007 Budget. It is important that these steps are taken immediately with the objective of defusing unhealthy speculation and braking the polarization trends associated with this issue. What the nation needs is a set of clear and agreed set of yardsticks that contribute to building national unity rather than as tools for fueling divisiveness. Let the corporate equity calculations by EPU be demystified.



*  Lim Kit Siang, Parliamentary Opposition Leader, MP for Ipoh Timur & DAP Central Policy and Strategic Planning Commission Chairman

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