Sunday, 3 March 2013

NEM at ground level: Same old model, no paradigm shift

NEM at ground level: Same old model, no paradigm shift
Written by Dr. Lim Teck Ghee Saturday, 02 March 2013 02:34
 When the New Economic Model (NEM) was first unveiled by the government, Prime Minister Najib Razak promised that it would be market-friendly, merit-based and transparent. Three years later, most business people have discovered that it is the same old model in new packaging — still not market-friendly, not merit-based and opaque. It is turning out to be little changed from the corrupt-ridden, crony-dominated, patronage-driven, racist-oriented system of doing business that came with Dr Mahathir Mohamad’s extension of the New Economic Policy (NEP).
Three nights ago, I had dinner with my brother, a commodity trader in Canada. He was on his annual Chinese New Year trip back, when he combines a family reunion with meetings with business clients. His line of trade is pork, which Malaysia imports at the considerable quantity of over 15,000 tonnes annually from around the world.
When I asked him how his business was in Malaysia, he said that it was down. He had finished a meeting with his main client and returned disappointed as the client had wanted to substantially reduce his purchases.
I was surprised by this disclosure since his client is a major meat importer, and from all accounts, the importation business in pork is booming according to trade data.
My brother explained that this slash in imports was not because of reduced demand or the client's lack of business acumen. According to my brother, he heard the common refrain “cronyism, corruption and rent-seeking at the highest level”. He offered to introduce me to his client so I could find out the real situation.
Politicians make profit from semi-monopoly
My informant's storyline and details (he asked that his identity be concealed to protect his business) is depressingly similar to that of other long-established practices of the NEP where the right to importation and the issue of licences has become a gold mine for the politicians, bureaucrats and the coalition of distributors who control them.
It is a tale of how pork importation has degenerated from a freer market with few entry barriers to a semi-monopoly controlled by a business-political mafia and which involves the highest level of leadership in the Ministry and agency responsible for the welfare of its constituency and the consumers.
According to my informant, complaints made to the relevant authorities, including the Prime Minister’s Department and MACC on the issue of import licences, quotas and the tight control by the cartel, the Malaysian Association of Pork Importers (MAOPI), fell on deaf years. Apparently the MAOPI, under the leadership of two Datuks, is closely linked to the political and bureaucratic wielders of power.
So powerful is this new cartel and the hidden hands that support it that even the MCA — for whom the issue of unfair pork importation licences and quotas is critical to the party’s political support — has been powerless to help my informant and his colleagues.
Incidentally, the MCA president's son who holds the position of Deputy Minister of Agriculture is either impotent or refuses to antagonize the more powerful vested interests involved in the operation of the scam. This is giving him the benefit of the doubt that the MCA and the Deputy Minister are themselves not beneficiaries of the scam.
Need to now out-bribe the competitors
Besides the award of licences and quotas to these mostly newcomer cronies that discriminate against long-established importers, a new consortium was formed to levy a new surcharge of 50 sen for each kilogram of pork imported. The surcharge apparently goes directly towards the consortium which he was reluctant to discuss, although he eventually provided me its name.
If 20,000 tonnes of pork are being imported into the country this year, the consortium skims off 10 million ringgit by passing on the surcharge to the intermediaries and final consumers.
The above example is only the tip of the iceberg of the rampant rent-seeking and cartelization occurring not only in the country's import sector but in other economic sectors regulated through licences, permits, quotas and other regulatory means.
Data on corruption shows a rising trend. Malaysia’s overall scores in Transparency International’s Corruption Perception Index have deteriorated for three consecutive years.
More worryingly, businesses have to indulge in bribery to outbid their competitors and stay ahead. A recent survey showed that half of the corporate executives surveyed in Malaysia by global corruption watchdog Transparency International believe that competitors had secured business deals through bribery and presumably by having to ‘out-bribe’ competitors.
The following table shows that Malaysia scored the worst in the 2012 Bribe Payers Survey.
NEM takes the same path as NEP
From pork consumed by non-Muslims to the provision of pharmaceuticals products, rice and other food items vital for all Malaysians, from basic supplies to luxury goods, this problem is the norm in the nation’s business life nurtured under Mahathir’s NEP and now nourished by Najib’s NEM.
No business person is immune from the big and little ‘Napoleons’ that are in cahoots with their business cronies, whether new entrants, established businesses, or small, medium or big enterprises.
As the case is with my informant, those that refuse to play ball or are unwilling to share their profits or those without political or bureaucratic patronage or immunity stand to lose their businesses competitiveness and livelihoods.
In part two of this article, the writer will discuss the two faces of the NEM – the ugly one for local small businesses and the benign sycophantic one for favoured foreign and local large concerns.
Various proposals will be provided to better protect small businesses against the underhand or corrupt practices of the distributional coalitions that are the major players in raising the cost of business for millions of small businesses in Malaysia. - CPI