New economic model for PPP in Malaysia — Jason Loh

FEBRUARY 3 — There is a need to relook at the current public-private partnership (PPP) model in Malaysia which has not been adequately inclusive and sustainable.

In the past, the focus has been on an infrastructure-driven economy, and hence the approach has been indirect and relying on the spill-over and multiplier effect.

For example, the past government’s preoccupation and attitude is exemplified by the conventional models and practices of build-operate-transfer (BOT), build-lease-transfer (BLT), build-operate-own (BOO), build-lease-maintain-transfer (BLMT), land swap, contract management, corporatisation, etc.

The inherent bias in the model has been geared towards the government-linked companies (GLCs).

But under the Pakatan Harapan government, there is now a recognition that as part of the strategy to foster an entrepreneurial economy (third focus under Budget 2019), small-and-medium sized enterprises (SMEs) should form the bedrock and backbone of the national economy.

Malaysian SMEs comprise 98.5 per cent of all businesses. They contribute to about 40 per cent of the GDP and the figure is expected to rise to 50 per cent by 2030.

Both the SME-friendly Budget 2019 and Budget 2020 allocated RM17.4 billion and RM13.1 billion, respectively — to ease the SME’s access to financing and credit alongside enabling them to make the transformational leap towards digitalisation of their business processes and system as well as productivity.

Among the highly commendable list of the Pakatan Harapan government’s — through the Ministry of Finance — initiatives are Budget 2019:

• The allocation of RM70 million for the Malaysian Digital Economy Corporation (MDEC) to set up 14 one-stop Digital Enhancement Centres for capacity- building of SMEs; and
• The setting up of the Industry Digitalisation Transformation Fund (RM3 billion) and the Business Loan Guarantee Scheme (RM2 billion) to help small SMEs invest in digitalisation (IoT, automation, robotics).

Budget 2020:

• A 50 per cent matching grant of up to RM5,000 per company for subscription to and upgrading of business solutions software. It is worth RM500 million over five years — limited to the first 100,000 SMEs applying to upgrade their systems.
• The government will also allocate a further RM550 million to provide smart automation matching grants to 1,000 manufacturing and 1,000 services companies. This grant will be given on a matching basis of up to RM2 million per company.
• Loans up to RM1 million to women entrepreneurs combined with an annual interest subsidy of 2 per cent under a RM200 million fund.

However, what is also and further needed is for the government to refocus and reconceptualise its policy attitude towards being a strategic partner of the SMEs.

Firstly, specific industries and sectors that SMEs could participate in should be identified in strengthening the domestic supply chain.

For example, the government should expand its PPP model to target the manufacturing of certain products with the potential of driving the new growth sectors such as green and renewable energy in the production of, for example, lithium-ion batteries (18650 cells), components of an electric vehicle (EV) charging stations, photovoltaic modules and cells, etc.

Secondly, from being providers of goods and services to the government, under the new economic model of PPP, SMEs should further step up to its role as provider of public delivery services (currently at 35 per cent vis-a-vis the GLCs).

Government procurement programmes could be redesigned and expanded so as to ensure that the supply of essentials is included.

Ownership of the supply of controlled items such as cooking oil, diesel fuel and cement should be in the hands of the government with the production and manufacturing continuing to be in the private sector.

Under this PPP model, it means that the government or the State intervenes at every level of the streams of activities (up-, mid-, and down-) but without disrupting the supply chain.

The government also ensures that costs are kept low throughout the supply chain.

This can also be one of the measures to combat bid-rigging under the purview of the Malaysia Competition Commission of Malaysia (MyCC).

There is also another PPP model that the government should be focussing on in terms of the public service delivery, namely on the provision of affordable housing.

The government’s collaboration with the Construction Industry Development Board (CIDB) rolling out of the Vendor Development Programme (VDP) in particular in the industrialised building system (IBS) value chain provides the right footing and solid foundation in this regard.

Ideally, under this VDP, public housing design, specification, standards and quality should be set and determined by the government where not only the urban planners but the urban designers and architects are public sector employees.

However, raw materials provided by participating SMEs for affordable (public) housing projects could be partly subsidised by government via a special fund. The fund set aside is to help the SME contractors and sub-contractors in the construction industry to absorb the costs when, for example there is fluctuation in the ringgit vis-a-vis the US dollar.

Otherwise, for certain raw materials, the government could purchase in bulk quantities to be distributed for discounted prices to the SMEs.

All construction work carried out by SMEs should be under the joint-supervision by both the SME construction consortium and the officials from the Ministry of Housing and Local Government who will perform monitoring and supervising roles which include ensuring quality control and assurance.

GLICS and GLCs should be restructured to focus more on areas and fields which the private sector does not currently dominate.

Areas which GLICs and GLCs should focus more — where they would have strong government backing and support — would be in green technology and renewable energy, aerospace, high-technology industries, defence, mega-projects, strategic primary commodities, etc.

And GLCs should not be competing intensely with the private sector, especially the SMEs for instance in the steel, cement and gypsum production industry except as "buyer-of-last resort" and "stockpiler."

Driving the role of the SMEs in the new economic model of PPP are bodies such as the SME Corporation, Small and Medium Enterprises Association (Samenta), SME Association of Malaysia, Perbadanan Usahawan Nasional Berhad (PUNB), Bumiputera Agenda Steering Unit (Teraju), etc. to enhance and consolidate the local supply chain in the manufacturing industry/sector such as electrical and electronics, and oil and gas — both of which constitute major drivers of the country’s exports.

With Malaysia’s desire to ratify the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), measures should be put in place to ensure that the phasing out of the tariffs benefits the local supply chain.

For example, the government should take advantage of the reduction and elimination of tariffs for raw, intermediate and finished products to formulate tax incentives to support the investment of capital into fixed assets (e.g. accelerated capital allowance).

At the same time, local industries and supply chain should forge ahead with the manufacturing of import substitutes for parts and components as well as weaning away from over-reliance on imported "higher order" goods for production functions and assembly lines.

Close partnership between the government and private sector to forge and foster the local supply chain should also extend to other areas such as the digital and smart technology.

Bodies such as Ekuinas (the government-linked private equity company) should be deployed to invest in start-ups and SMEs involved in both the offering of digital services such as in the realm of financial technology (fintech) as well as advanced precision engineering (e.g. for digital retrofitting and additive manufacturing).

The new economic model in PPP would serve to complement and supplement the Shared Prosperity Vision (2030) with strategic precision, and ensure the sustainability of the job creation agenda including higher skills and income levels, and therefore in turn would propel the nation towards achieving a high-income status also.

* Jason Loh Seong Wei is head of Social, Law & Human Rights at EMIR Research, an independent think tank focussed on strategic policy recommendations based on rigorous research.

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.