Getting private investment flowing again

Thursday April 15, 2010

Getting private investment flowing again

Making a Point - By Jagdev Singh Sidhu

ENGINEERING a structural change in any economy is difficult but is asking the private sector that has lost its desire to drive economic growth to reprise its previous role any easier?

No, if one considers the alarming drop in private investment to around 10% of gross domestic product (GDP) compared with over 30% prior to the Asian financial crisis.

There are many reasons why private investment in Malaysia has dried up. Inhibitive policies, favouritism towards government-linked companies or even better prospects in neighbouring countries are cited among the causes for the private sector taking its foot off the accelerator.

While these may be true, maybe the fault also lies in just how high the dividend rates in Malaysia are.

With the initial public offering gravy train now a dust bowl for the country’s large funds, it’s not inconceivable that such funds, namely Permodalan Nasional Bhd and the Employees Provident Fund, have now resorted to asking the large companies they own stakes in to declare a hefty percentage of their net profit as dividends.

Prior to the crisis, the concept of dividend policy was virtually unheard of. Companies routinely spoke of how large and grand their investment plans were.

In the past, such profit would have gone into re-investment, pursuing new business areas but with large chunks of profit now being channelled into the pockets of shareholders instead of being spent on new factories, products or research, it’s no wonder that private investment numbers have dropped.

Today, talk is on how much of such companies’ net profit is being distributed to shareholders.

There is no reason why companies in Malaysia should be more conservative in investing compared with their regional counterparts.

If there are problems causing this, then policy needs to be changed to accommodate private businesses seeking to invest their profit in the country.

That’s why when the Prime Minister announced that Khazanah Nasional Bhd was to divest of its 32% stake in Pos Malaysia Bhd, an immediate reaction was that such a move would get private investment flowing again.

By allowing the private sector to take control of and drive a company that has an extensive distribution channel and is an essential provider of mail services, the new owners would now be tasked to drive innovation and grow the business.

More of such stake divestments need to happen. If government-owned companies have shown lethargy in investing and growing their business, maybe it’s time that control of those businesses fall in the hands of the private sector. The one caveat is that the change of ownership must be accompanied with a fresh impetus towards investment and growth.

The other thing that needs to happen is allowing more competition in the economy.

As we have seen with the cellular phone segment, competition breeds innovation, growth and profit. If other areas where monopolies are entrenched and have proved to be an impediment, the onus is on the Government to free up competition in these sectors.

Deputy news editor Jagdev Singh Sidhu wonders what would be worth watching after the season finale of the addictive series Spartacus: Blood and Sand this weekend.

http://biz.thestar.com.my/news/story.asp?file=/2010/4/15/business/6057524&sec=business