Monday, June 1, 2009

Malaysian Economy: May 13 and 40 Years Beyond

May 13 and 40 years beyond – time for a new economic policy

The 13th day of this May, the 40th anniversary of an event that was a defining moment in Malaysian history, went by with little reflection. And yet, the May 13,1969 riots were what eventually resulted in the implementation of a new policy agenda that would profoundly shape economic and enterprise development in Malaysia.

Today, Malaysia is at another crossroads, confronted as we are with a crisis that clearly necessitates a review of our current form of economic and enterprise development. It is therefore probably opportune to review the history of development in Malaysia.

Looking East, Looking West

The most important consequence of May 13 was the New Economic Policy (NEP), an affirmative action endeavour to help, among other things, redistribute wealth more equitably. In the corporate sector, the NEP would come to involve targeting a select group as recipients of government-created concessions to promote the rise of bumi-putra-owned firms.

But other important development policies have simultaneously been employed by the Government over the past four decades to cultivate and support domestic enterprise. This included an attempt to replicate Japan’s economic and industrial development, which its government had nurtured exponentially over just a few decades after the end of World War II. This form of development, known in academic circles as the developmental state model, was first propagated by the Government from the early 1980s through buzzwords such as “Look East” and “Malaysia Inc”.

As with the NEP, under the developmental state model, the Government had to intervene actively in the economy to plan and structure industrial and corporate development. The Government’s primary intention was to employ this model to cultivate domestic enterprises, specifically to encourage the rise of large business groups. The Government, strongly influenced as it was by East Asian corporate models such as the South Korean chaebol and the Japanese zaibatzu, appeared particularly intent on developing huge, well diversified industrial firms.

But the Government was then also equally inspired by a vastly different development model: neoliberalism. The doctrine of neoliberalism, in deep contrast to the developmental state model, espoused limited government intervention in the economy and pushed for an endorsement of privatization and deregulation.

Neoliberalism had been vigorously and successfully pursued by influential politicians such as Margerat Thatcher and Ronald Reagan who had advocated the need for a “small government” and the virtues of allowing the private sector to drive economic growth. The active deployment of privatization and the stock market, pivotal features of neoliberalism, to foster big business had an immense impact on the pattern of development of publicly-listed companies in Malaysia.

This nix of development models, along with the implementation of affirmative action, was ostensibly a reflection of the Government’s pragmatism. Ideas, if viable, were acceptable, even if they were fundamentally different to each other. Our own version, if you like, of a “Third Way”.

Two key questions now need to be answered. First, what has been the impact of this mix of development and redistribution policies on the corporate sector? Second, have large publicly-listed firms been able to sustain their presence in the corporate sector over a protracted period given this mix of policies?.

The corporate sector, 1969-2009

A review of Malaysia’s corporate history over these past four decades reveals some astonishing facts. None of the top 20 publicly-listed firms in 1969 had managed to retain its position by 2009. No bumiputra has ownership of a top 10-quoted firm. The Government presently has majority ownership of more than half of the top 10 publicly-listed companies, through what is known as government-linked companies (GLCs), while the remaining are Chinese-held.

There has, however, been a considerable decline of foreign equity ownership since 1969, with only one of the top 20 being a foreign enterprise. And, very importantly, there is no evidence of wealth concentration, with wide dispersal of ownership of the top quoted companies. No group of companies under the control of one family or individual dominates the leading listed corporations.

But while these equity ownership and control outcomes are commendable, other important features of the corporate sector include the fact that no Malay-owned firm is among the industrial sector’s top enterprises, raising serious questions about the Government’s capacity to cultivate large competitive enterprises. Most Malay-owned firms are involved in finance, construction, property development and telecommunications, suggesting the failure of the Government’s long-standing endeavour to create a bumiputra industrial community.

Other issues of major concern arise is an assessment of the manufacturing sector. A comparison of the list of the top 100 in 1969 with that in the present period indicates that only one has managed to retain its top 20 position: foreign-owned Rothmans. In terms of domestic firms in manufacturing, of the top 100 firms, barely a fifth of them are involved in this sector. A majority of them are foreign-owned-in addition to Rothmans, there is Nestle, Malayan Cement, Carlsberg, Guiness Anchor, RJ Reynolds, Malaysian Oxygen and Shell.

Manufacturing’s decline

Most manufacturing companies in the top 100 are Chinese-owned, a distinguishing feature of this sector since independence. But, even here there is only one enterprise that has maintained a long and prominent presence in this sector- the Hong Leong group of companies, for example MPI (in electronics) and Hong Leong industries(a tiles manufacturer).

This clearly suggests that manufacturing firms of old have fallen behind in terms of investing in new plants and equipments, introducing new products or pursuing new markets. This provides further credence to the long-held view that Malaysian companies simply do not invest sufficiently in research and development (R&D).

For this reason also it is not surprising that none of the leading Bursa Malaysia firms is involved in new technologies or in chemicals, pharmaceuticals, electronics and computers, a common feature of many industrialised countries.

This is a point of much concern, especially in these times, given the contention that an economy’s growth is dependent not merely on its natural resources, labour and managerial skills, available capital and size of internal markets, but also on how its technologies are organised and developed.

The fact that no domestic firm in the top 20 in 1969 has managed to retain its position in 2009 draws attention to a number of crucial issues. The Government’s eclectic or “mix-and-match” approach to enterprise development has had serious repercussions on the corporate sector and the economy. The industrial sector has failed to flourish in spite of phenomenal government support.

Lesson of the past

Meanwhile, small and medium scale businesses have not been able to thrive because of the lack of attention, while the economy remains dependent on foreign firms to drive industries, seen in the latter’s control of the country’s leading industrial firms.

Malaysia’s foremost publicly quoted firms, in spite of privatisation and affirmative action, are the GLSs- another indication of the parlous state of privately-owned Malay capital.

Moreover, the prominence of the GLCs in the corporate sector has been achieved by default, partly attributable to the Government’s takeover of large Malay firms following the 1997 currency crisis.

While neoliberalism has now been seriously discredited, following the economic crisis in the United States, the same need not necessarily be true of the developmental state or of affirmative action in Malaysia. Many of the problems within the corporate sector may be due to the pattern of implementation of development and redistribution of these policies. But what is clear, given the current state of the corporate sector and the economy, is that a serious review is required of Malaysia’s future development agenda. It is, without doubt, the time for change, for a conception of atruly new economic policy.

Terence Gomez is with the Faculty of Economics & Administration, University of Malaya. He can be reached via e-mail at

Soure: ViewPoints, StarBizWeek, Saturday 30 May, 2009
Related Blog: Malaysian Economy Update

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Friday, August 31, 2007

Flexibility Key to Our Competitiveness

Flexibility Key to Our Competitiveness

A nation's 50th anniversary is perhaps a useful benchmark to take stock of the country’s 50 years of developments, in order to assess its future growth path.

Malaysia is a young and forward-looking nation, which has the essential qualities of ingenuity and enterprise to push the nation forward.

For the past 50 years, the checks and balances of a diversified economy have paid handsome dividends as well as provided the needed cushion to weather the swings and vagaries of external cycles. The facts and figures are compelling by international standards.

At the time of independence in 1957, per capita income was US$200. Fifty years later today, it is expected to hit US$5,806. Bank Negara Malaysia’s international reserves, a measurement of the country’s overall wealth accumulation, ballooned to US$98.4 billion as at end-May 2007, a multiple of 289 times of 1959’s US$340 million.

There were, of course, challenges, obstacles and problems that had to be overcome during the last 50 years. And the journey ahead will be even more challenging and demanding.

The Malaysian economy is still growing and undergoing structural changes. Globalisation has intensified interdependence and competition between economies. It is thus clear that a globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world.

Hence, it is crucial for policymakers to plan and formulate economic, fiscal, monetary or social policies with more certainty and confidence.

The writing is already on the wall. Our economy has to move into fast-growth gear and economic and financial transformation needs to be accelerated. Malaysians must be bold and brave enough to adapt radical policy changes and reforms in order to become a truly competitive global player. The key for the future is whether the economy is flexible enough to adjust and adapt. There is no easy way out.

From today’s vantage point, I would like to see the following transformations take place over the next 50 years. The next 10 to 15 years are important milestones for Malaysia to make a quantum leap in its quest to attain developed nation status by 2020.

First, a nation blessed with well-being, equitable wealth and income distribution, and balanced development between growth and the environment.

The yardstick of a developed country is not only benchmarked against real GDP growth and income per capita, but most importantly, against the attainment of good quality of life, strong human capital development, a caring society, the sharing of economic prosperity, credible public institutions and solid corporate governance.

Second, high quality economic development to be spearheaded by a dynamic, competitive, innovative and risk-taking private sector.

Malaysian indigenous companies continue to make a strong presence as competitive contenders in the global sphere, covering plantation, Islamic finance, construction as well as other services providers.

Central to the government’s strategy to promote private sector investment is the liberalisation of restrictive laws and practices, as well as the deregulation of cumbersome rules and regulations.

Third, an accelerated pace of transformation within sectors of the economy. Malaysia was already sufficiently diversified in the manufacturing and agriculture sectors. We need to accelerate the pace towards building a modern, dynamic, as well as competitively priced service-oriented economy. Having the world class hardware and software infrastructure is not good enough.

What is lacking is getting the right person to do the job. The challenges ahead are related more to our efforts at deepening and value adding to the broad-based services sector, backed by a knowledge-based, information savvy and versatile workforce.

Fourth, a world class education system that produces knowledge workers with the right attitude, mindset and character for our nation building. We must be open-minded, practical and creative.

Lee Heng Guie, TheSun, Thursday, August 30, 2007
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In the League of Advanced Economies

In the League of Advanced Economies

For a country that began its independence in 1957 as a culturally and ethnically diverse nation of 6.3 million people, Malaysia has much to celebrate 50 years on with an enviable and internationally recognised record of social, political and economic achievements.

What will the country be like come 2057? What will future generations, who will descend from the present 26 million Malaysians, be toasting about in 50 years’ time?

The answer to this crystal ball gazing lies in how well political stability is maintained and national unity forged around an economic development agenda that harnesses the forces of globalisation, competition and various other technological, economic and environmental changes towards becoming an advanced economy. Conversely, it could be subsumed by these forces, leading to a status quo scenario that perhaps may be just slightly better than present day conditions.

Twin Curses Avoided in the First 50 Years
Well-endowed with natural resources, including crude oil, Malaysia avoided the “resource curse” that trapped many natural resource-rich countries. Either the oil, timber or mineral resources were squandered, benefited a few who re-invested their wealth in safe havens overseas or there were little incentives to diversify or upgrade the economy as long as the windfall from the resource extraction continued.

Malaysia escaped being caught in such a “low equilibrium” development trap due in part to visionary leadership and to the adoption of appropriate development policies – rural development, outward-orientation and a foreign direct investment-based export thrust that transformed a larger part of its subsistence agriculture and almost non-existent manufacturing sector into large modern industries that were plugged into the global production and supply system.

Another curse skirted so far is the “Winner’s Curse” akin to a Pyrrhic victory where the fight for political or economic supremacy results in devastating cost to the victors.

Such hollow victories are exemplified by many strife-torn countries around the world caught in a vicious cycle of poverty-violence-political instability.

Initial Conditions for the Next Half Century
Having overcome the twin curses, what Malaysia will be like in 2057 will be determined firstly by the current initial conditions, endowments and institutional setup.

Secondly, the development strategies and policies being pursued to harness the endowments and resources to the fullest will in turn shape the country’s destiny as a First Tier or a Middle Tier economy. Finally, the ability to cope with the forces of change and competition will determine where the country will stand in the global arena.

Some of the initial conditions and assumptions about the changing trends include human capital development, savings and investment efficiency, market liberalisation and the integration of natural resources, ICT and environment as drivers of future industries and businesses.

Malaysia’s “young” population profile with a declining dependency ratio is projected to continue until mid-way around the 2020 to 2025 period before it begins to rise as the 65-and-above age group increases above 10% of the total population. Meanwhile, female participation rate should continue to rise till then. By 2057, the country would have an estimated 55 to 58 million people with a mature profile where senior citizens comprise around 17% to 18% of the population.

Rather than numerical advantage in the global competition for trade and investment, human quality, skills and innovativeness will drive national competitive advantage for mid-sized economies like Malaysia. While the country’s oil and gas reserves will be inadequate to meet domestic demand by 2020, its other natural resource endowments, particularly the biodiversity and gene pools of its tropical rainforests, will become a major source for economic and scientific advancements because of growing scarcity and its importance to global environmental stability.

Another key driving force is the country’s high savings rate, which currently averages above 35% of GNP. Although projected to decline gradually to between 28% and 32%, it is still more than adequate to finance healthy domestic growth if invested efficiently and coupled with efforts to raise productivity growth and deepen the financial and capital markets.

From Developed Nation Status to the League of Advanced Economies
Out of 173 countries in the world, there are 30 advanced economies with per capita income estimated at US$36,160 based on purchasing power parity prices in 2007.

Over the last 20 years these advanced economies grew at 5.3% compared to 6.6% per annum for Malaysia.

In like terms, Malaysia’s per capita income is estimated at US$12,582 in 2007. If the same growth rates are maintained over the next 50 years, Malaysia’s income gap will narrow from 35% to 66% of the advanced economies’ income level. However, if Malaysia can widen the growth differential by another percentage point, our future generation could toast the closing of the income gap by 2057.

Based on the current favourable initial conditions, Malaysia could join the league of advanced economies in the next half century. First and foremost, it will need to overcome the complacency of middle age and leap over the “middle income squeeze” caused by the rapid advancement of other developing economies. Public sector efficiency, public-private sector collaboration in education, training and research, and the shift to private sector-led growth will need to be stepped up.

Besides accelerating policy and market reforms to enhance growth, productivity and competitiveness, the road to an advanced economy will include capitalising fully on its diverse resources, talents and culture, and harnessing the global winds of change. These include fostering technological change and innovation, nurturing global enterprises, talents and skills, integrating into a borderless world, tapping opportunities in globalised markets, and creating a culturally rich, environmentally safe and secure place to live and for talents to thrive in.

If the urgency of facing the external competitive threat is raised and parochial interests marginalised, Malaysia is envisioned to find a niche as a seedbed for innovation of new products and services involving technology, natural resources, people, arts and culture which are expected to dominate the social and economic landscape in a borderless Asian community that is likely to emerge by 2057.

Source: Dr Yeah Kim Leng, The Sun, Thursday, August 30, 2007
Related Blog: Malaysian Economy Update

Malaysia Among the Ranks of the Developed

Malaysia Among the Ranks of the Developed

Looking 50 years into the future is like star gazing with a touch of science fiction, and is actually a dizzy activity in hazardous guessing. Half a century from now, Malaysia in all probability, will be a post-industrial society which will increasingly be knowledge-based, that is, we have attained, possibly by 2020, what is now considered the status of a developed country, joining the ranks of the high income group, and moved beyond that for another more than 30 years of industrial growth. The pace of economic growth for the 2021-2057 period could be in the 3-3.5% per annum range, compared with the expected slightly more than 6% per annum growth for the 2006-2020 phase - halving the average gross domestic product (GDP) expansion rate as the growth curve tapers off.

By 2020, the manufacturing sector’s share of GDP will be slightly more than a quarter (28%), agriculture 7% and services about two thirds. Beyond 2020 in a post-industrial society, agriculture in the economy will keep on shrinking but what remains will be very modernised and producing new high-tech agricultural products, as rural industrialisation picks up pace. Employment in agriculture will decline as farms are expected to be much larger and technology use will displace labour.

Employment in the manufacturing sector will also fall but it will produce much more high-tech products, especially non-resource based products. New products, for example, for semiconductors, industrial electronics and consumer electronics, will appear and new technologies will be utilised as we move up the value-added chain.

We will still remain an open economy and be dependent on exports to world markets but the shape of the world’s trading pattern will change. China and India will be new economic forces, and other emerging, but as yet unidentified economies and competitors, will appear.

Services will probably take up more than 72% of GDP by 2057 and Malaysia will be a service economy. Financial services and wholesale and retail services will be even more important. New services will certainly crop up to meet new and changing tastes with the rise in incomes. Foreign direct investment in services has been increasing and this trend will probably persist. The liberalisation in services to increase the competitiveness of the economy will be a key determinant for the long-term growth of the economy.

Over the past 50 years, Malaysia’s population increased almost fourfold from about seven million in 1957 to 26 million in 2006. In 50 years time, with the decline in population growth rate, there will probably be about 52-55 million people in Malaysia.

Far more Malaysians than now, irrespective of race, will be residing abroad as they become more global and rootless in outlook. The bumiputra population will rise to more than two thirds of the total population while the number of non-bumiputra will decline. Urbanisation will continue to rise, and there will be a convergence of urban agglomeration and industrial conurbations, and the share of rural population will shrink.

Average life expectancy is likely to increase further and reach 76-78 years in the post-industrial society.

These developments will mean that absolute poverty, as we know it today, will disappear but new forms of relative poverty and deprivation will emerge, even in high income countries. Structural changes in the economy will mean that new sources of wealth will emerge, especially for income earned from financial and physical assets as income from labour will be reduced.

However, there is no certainty, as income increases in the post-industrial growth phase, that this will be a linear trend. There can be episodes of widening inequality, as the top 5%-10% of households increase their share of total income. In absolute terms, however, income disparities will be persistently large. What all these will mean for the welfare and happiness of Malaysians is anyone’s guess.

Source: Datuk Zainal Aznam Yusof, The Sun,Thursday, August 30, 2007
Related Blog: Malaysian Economy Update

Monday, August 13, 2007

Silver Lining in 'Golden Crop'

Silver Lining in 'Golden Crop'

If you ask anyone on the street where Malaysia stands as a producer of quality information and communications technology (ICT), or which company comes to mind when they think of ICT and Malaysia, chances are they will draw a blank. It'd be the same thing if you did this with the subject of biotechnology even though there are 25 listed ICT companies on the Main and Second Boards on Bursa Malaysia, and 100 more on the Mesdaq Board.

To put this into perspective however, ICT and biotech were not on the national agenda till 1984 when Tan Sri Dr Omar Abdul Rahman was appointed science adviser in the Prime Minister's Department.

It was only then that the government slowly started emphasising on ICT but even then, things moved at a snail's pace as heavy industry and industrialisation dominated the development agenda. Any focus on ICT then was strictly about getting the Intels and Motorolas of the world to Malaysia to build their large factories and employ locals.

The few times Malaysia tried to fast track its ICT agenda by hiring foreign scientists to help spur local innovations, proved unsuccessful.

Many will remember the InventQjaya case where a Libyan-born US scientist, Dr Sadeg Mustaffa Faris, was wooed to Malaysia in 2003. Faris promised revolutionary breakthroughs but two years later and with little to show for it, the cost to taxpayers was an estimated RM300 million.

It was only in 1996 with the July groundbreaking of the Multimedia Super Corridor (MSC) initiative that the domestic ICT agenda started gaining a toehold in the national consciousness.

The MSC is located in what used to be a vast oil palm plantation. It was an apt place to launch the catalyst for the nation's drive to become a technology developer, for it was in palm oil that Malaysia first gained global recognition for its efforts in research and development.

Even then the story of how Malaysia ventured down that path was almost accidental, recalled Tan Sri Dr Augustine Ong, former Palm Oil Research Institute of Malaysia director-general. "The first vice-chancellor of Universiti Sains Malaysia, Tan Sri Hamzah Sendut, told me in the early 70s to do something useful for the country and go into basic research, and so I said I would look into palm oil.

"Indonesia was starting to go into oil palm planting in a big way and Malaysia did not have any research institutes yet. Mardi (Malaysian Agricultural Research and Development Institute) was doing some research but it had only a small oil and fats laboratory then."

As Ong had no special knowledge of the palm oil industry, he started by taking his family for a holiday to Singapore and along the way, visited oil palm estates and spoke to managers about the problems they faced.

"That is the best way to start. You ask the industry about the problems they face and conduct research to solve that problem," said Ong in an interview. The immediate problem then was an informal trade barrier by Japan and the US which barred entry of palm oil that had been separated using detergent.

Ong felt a technique to separate palm oil from the fruit using liquid could be developed and told Hamzah, who rightly asked, "If it is so simple, how come it has not been discovered?" A gleeful Ong recalled replying, "Your question presupposes that all simple ideas have been discovered!"

This proved to be quite a landmark in Ong's illustrious career as he went on to develop a technique which received a patent in the UK. "We did not have a patent office back in the 1970s and it had to be done in the UK, although [it was] very expensive."

The patent was for a Gradient Density Centrifugation method; the discovery was made in 1974 and the patent received a year later. But it was only in 1979 that the Palm Oil Research Institute of Malaysia (Porim) was formed with the late Tan Sri B.C. Shekar as first chairman of the board.

Today, research in palm oil is labelled under the sexy heading of biotechnology but it used to be all about beakers, test tubes and centrifuges in the old days, powered by sweat and tears.

"I remember we used to devote our time and passion to palm oil research. Those were challenging times," said Ong, recalling that the private sector was initially sceptical that a government-funded research centre could offer any help. "They used to say, 'What can those eggheads do that we cannot?' but after a few years, we managed to convince them that we could offer solutions to their problems," he said.

One of Porim's strengths was that it adopted the right strategy for its research from the start. "We introduced a multi-disciplinary approach to research where we staffed the institute with people who had effluent treatment skills, who were microbiologists, chemists and even engineers. We were not brilliant. We just had the right strategy for conducting our research."

Another highlight for Ong was being part of the Malaysian delegation to the US in 1987 to help counter the aggressive anti-palm oil campaign waged by the soya bean industry. "It was just a scam! They claimed that palm oil acted like saturated fats and could harden the arteries. Before going on the tour, I actually wrote a will as I was quite scared for my life!" he recalled.

The team went on an eight-city tour to counter the claims. The trip culminated in an appearance at the US Congress which held a hearing on the matter.

The delegation had at first wanted a Westerner to represent the case but he was not available. This thrust Ong into the limelight. "We had only five minutes to present our case but there was no limit to the question time," he said.

Malaysia came out looking good as it also had the US Food and Drug Administration data that showed palm oil did not behave like saturated fat.

The lesson from Ong's experience over the years has led him to advise Malaysians to learn to think for themselves and not be influenced by foreign lobbyists, the latest being that virgin forest and peat swamps are being cut to grow oil palms.

"Palm oil is the golden crop of Malaysia. There is much more we can do to extract value from it," he noted.

Source: Karamjit Singh, TheSun, Monday, August 2007

Master of Our Own Destiny

Master of Our Own Destiny

The year 1974 was a landmark year for the oil and gas industry. Seventeen years after Merdeka, through the passing of the Petroleum Development Act (PDA) and later the initiation of a production sharing contract (PSC), Malaysia finally got its chance to manage its own hydrocarbon resources and participate directly in the industry.

Prior to the PDA, the country's hydrocarbon resources, in this case oil, which it had been producing in Miri, Sarawak since 1910, was managed through the concession system that was practised and accepted worldwide.

Lack of expertise and financial resources among many host nations in the developing world had allowed major oil multinationals like Shell, ExxonMobil and British Petroleum to dictate better business terms for themselves. They were normally granted long-term concessions and large tracts of areas to explore.

In the case of Sarawak, Shell's concessions there had been granted by the then colonial government for "as long as the moon, sun and stars are in the sky." In short, the concession was in perpetuity.

And once oil was discovered, the multinationals became the owner of the commodity. Without active participation by the host nations, the respective governments only benefited through royalty payments and corporate taxes, a meagre sum compared to the returns the oil companies got.

For Malaysia, the PDA was a political mechanism that fulfilled the aspirations of an independent nation. But foreign critics likened it to "nationalisation" via the back door. The PDA paved the way for the establishment of a national oil corporation - Petronas, which became the sole custodian and owner of the nation's hydrocarbon resources.

Under the PSC, first signed in 1976, oil and gas discovered in any exploration areas would belong to Petronas, and the multinationals - now serving as investors and contractors and not as owners Ð would only be entitled to a percentage of what was discovered. On top of this, they had to pay income tax to the government.

The PDA was one of then Prime Minister Tun Abdul Razak's aggressive efforts to broaden the country's economic base and lessen its dependence on agriculture and commodities like rubber, tin and timber, and ensure that national assets like oil, gas and plantations remained in the hands of locals.

It also coincided with the early years of the introduction of the New Economic Policy (NEP), under which the government's priority was to redistribute national income fairly among the different races in an environment of an expanding economic cake and corporate sector.

To reap maximum return from the oil and gas sector, Petronas, the custodian, also became an active commercial participant. In 1975, it marketed its own crude oil to the Japanese and two years later, started airport refuelling activities at the Senai Airport and bunkering services at Pasir Gudang Port in Johor.

The year 1978 was a momentous year as Petronas set up its own exploration and production arm Carigali and a gas joint venture company MLNG - which in later years would become major revenue components of its domestic and international businesses. In 1981, it opened its first service station in Taman Tun Dr Ismail, Kuala Lumpur.

Getting into the industry, learning the trade and participating in the upstream and downstream sectors like its multinational counterparts was a farsighted move on the part of the government (the shareholder) and the pioneering managers of Petronas. The dedication shown by the pioneers and subsequently, those who worked with the company during its expansion years must be commended.

As the nation celebrates its 50th anniversary, Petronas' success in growing from a domestic company into a full-fledged oil and gas multinational should rank as one of the country's greatest achievements.

The success story is there for us to see. The company set up in 1974 with shareholders' funds of RM10 million had by 2007 grown by 17,000 times. This feat was achieved without Petronas going back to the government to ask for a single ringgit more to be added to its shareholders' funds.

When Petronas announced its financial results for the year ended March 31, 2007 on June 28, the RM10 million investment had turned into the following staggering figures: shareholders' funds (RM170 billion), assets (RM295 billion), revenue (RM184 billion) and net profit (RM46.4 billion). During the same financial year, it contributed RM48.3 billion to the government's coffers in terms of taxes, dividends, royalties and export duties. Since its inception, RM366 billion has been returned to the government.

Today, Petronas contributes about 35% to federal government revenue. The company has operations and investments in more than 30 countries and was ranked by Fortune as the 120th largest company in the world last year.

Certainly the government would not have earned this much if the PDA was not put in place and the concession system had remained. The attractive returns were also made possible by the excellent civil servants and professionals who have managed and served Petronas with a high level of integrity.

Source: Azam Aris, TheSun, Monday, August 13, 2007

A Gold Mine in Tin

A Gold Mine in Tin

Head on over to the heart of Kuala Lumpur, and you'll find yourself immersed in a metropolitan hub, pulsing with energy and life. Rewind back 150 years earlier, however, and you'll find that Kuala Lumpur once lived up to its name as being the "muddy river mouth".

In 1857, a member of the Selangor royal family, Raja Abdullah, brought in prospectors to the Klang river in search of alluvial tin deposits. It was right here in Ampang, where the Gombak and Klang rivers meet, that the prospectors struck what was to be the land's proverbial gold.

Once a swampy site prone to incidence of malaria, it would have been hard to imagine that this very place would grow exponentially over the years to become present-day KL. The city's growth was a result of being the production hub for tin Ð especially at the Langat, Klang and Selangor river valleys. The tin industry's epicentre, however, lay in the Kinta and Perak river valleys near the city of Ipoh.

With the discovery of large tin deposits in the states of Perak and Selangor, a large influx of migrants from the southern provinces of China came to then-Malaya to seek their fortunes.

Tin was used chiefly to produce tinplate (steel coated with tin) for food products, as it could preserve food in the absence of air. The most common and effective way of mining tin was with the use of gravel pumps, introduced in the late 1800s by the Chinese, who used this method in their native country. Gravel pumping involved spraying high-pressure streams of water onto tin-bearing rocks to break them up.

The end product would then be pumped into a plant for recovery of tin and other materials. Gravel pumps were advantageous as they were inexpensive, and required low capital cost to set up.

In the heyday of tin, dredge operations were a common sight Ð the first was installed in the Kinta Valley in 1913. Seven years later, 30 units were installed, and by 1940, 123 dredges were in operation. Dredges had a floating, flat-bottomed platform, which was where the digging, washing and processing of the ore was performed.

The towns surrounding these tin mines benefited both socially and economically from this lucrative industry. Ipoh, for example, transformed into a more structured and planned town with wide streets, and brick and stucco shophouses. Many of its buildings had neo-classical designs, and the streets were lined with stylish and well designed two- and three-storey buildings.

Not only did these mining hubs profit from the tin industry's boom in the 70s - the workers did, too.

Leong Yoke Soo, 78, a former dredge master with the Malaysian Mining Corporation Bhd at Tronoh, Perak, recalled this period of time: "It was the peak of tin mining production, and dredges were building up like nobody's business." What made him stay in the industry for 35 years, he said in an interview, was the treatment and the benefits he was given.

"I was paid very well, about RM5,000 to RM6,000 a month. A teacher, in comparison, would earn RM1,000 a month - but we really worked very hard.

"My family and I stayed in the mines, and there was transportation for our children to go to school. I was even sent for seminars and management training courses - we were all very well looked after."

Historically, the Malay Peninsula became synonymous with tin, and grew rapidly in 1883, when Malaya overtook Britain to become the largest tin producer in the world. According to the Malaysia Smelting Corporation Bhd (MSC), in the late 1970s, Malaysia had ,ore than 1,000 tin mines, producing an average of over 70,000 tonnes a year.

In 1990, following the collapse of the industry in 1985, yearly production was recorded at 20,700 tonnes - with Malaysia being the world's fourth largest tin producer. Just eight years later, Malaysia's tin industry took a sharp decline, producing only 5,800 tonnes of tin per year. China, in comparison, churned out a whopping 79,000 tonnes of tin, and was ranked the No. 1 tin producer worldwide.

Why did the industry decline? First, the International Tin Council collapsed in 1985, leaving gross debts of almost US$1.5 billion (RM5.19 billion), and causing world tin prices to fall by almost 57%.

Malaysia was greatly affected, and coupled with the 1985 economic crisis, tin prices tumbled from RM32,000 per tonne in the late 1970s to less than RM17,000 per tonne in 1985. Newer mines in both Indonesia and China were also able to produce the metal at a lower cost, and soon, Malaysia was unable to compete.

Today, according to MSC, Malaysia produces only 5,000 tonnes a year - 1.8% of the global output of 270,000 tonnes.

Source: Joyce Au-Yong, TheSun, Monday, August 13, 2007