Khazanah Nasional says IDEAS research paper "misleading"

PETALING JAYA: Malaysia's sovereign wealth fund Khazanah Nasional Bhd has rebutted news reports that government-linked companies' (GLCs) growing presence has been crowding out private investment, saying the claim is incomplete and requires more details.
In responding to the policy paper entitled "Government-Linked Companies: Impacts on the Malaysian Economy" by Asian Development Bank (ADB) lead economist Jayant Menon, a research piece under the Institute for Democracy and Economic Affairs (IDEAS), Khazanah said "the evidence put forth by this policy paper is weak and, often, missing altogether thereby lending itself to misleading conclusions."
"Moreover, the paper fails to provide adequate contextualisation to its arguments, leading to unbalanced perspectives," it added.
The sovereign wealth fund pointed that it would be more useful if Jayant provides proof on a specific basis for his remarks that "GLCs are seen to have preferential access to government contracts and benefit from government regulations."
Additionally, it said the paper makes no mention of the "crowding out" of GLCs such as in the case of the first generation independent power producers (IPPs) on Tenaga Nasional which has been well-documented, among others.
"To be sure, our position throughout the whole transformation programme and beyond is that we strongly believe that fair and proper competition is good for the economy and companies. To say, without presenting credible evidence, that GLCs have crowded out others due to favourable regulatory capture is not consistent with reality," it said.
Moreover, Khazanah said GLCs have played a positive role in catalysing investments into sectors or ventures that the non-GLCs were either not willing or not able to invest for various reasons including high risk, long gestation periods or large financing and a requirement for difficult coordination capacity.
On the claim that investments among private companies tended to decrease in sectors with higher presence of GLCs, Khazanah justified that GLCs tend to be involved in sectors which new investments are difficult to do, in general.
Furthermore, to prove that "crowding out" is occuring, Khazanah said the evidence needs to show that absent the presence of big GLCs in a given sector, private investment in that sector must be increasing.
"If there was no significant increase in private investment in so called less GLC-dominant sectors (as was the case in the paper), it could be the case that private companies may not be able to identify suitable investment opportunities and have instead chosen to return cash via dividends and buybacks to shareholders."
"Therefore, what I would recommend the author to do is to consider industry structure; perhaps the problem is not GLCs per se but on monopolies or oligopolies, which need not be government-owned," it added.