Bumi Equity for International Integrated Logistics Services (IILS) – When Politics gets in the way of Policy Discussion

When issues to do with “Bumiputera Equity” hit the headlines, most people will make a judgement about the issue before even reading the content of the news article in question.

So, when concerns over the issue of “Bumiputera Equity” regarding the logistics industry was raised by the Federation of Malaysian Freight Forwarders (FMFF) recently, I am sure that people would have taken sides on this issue just by reading the headlines recently, I am sure that people would have taken sides on this issue just by reading the headlines

I suspect that when the decision by the Ministry of Finance to postpone the Bumiputera ownership requirement was reported recently, not many people would have ventured to understand the implications (both positive and negative) of this decision.^[2] Again, headline reading only…

To find long term solutions to these kinds of challenges, the relevant stakeholders need to be able to sit down and explain the details of these issues so that we can avoid the political back and forth of reading and responding to headlines and focus on the substantive points instead.

The chronology of this Bumiputera equity issue for International Integrated Logistics Services or IILS, based on my own research, was the expiry of Bumiputera Equity condition on the 31^st of December 2020.

According to an internal circular from the Ministry of Finance, dated 23^rd of December 2020, the enforcement of this condition would be postponed until the 31^st of December 2021. However, this condition would only be enforced for majority Malaysian owned IILS providers who are NOT LISTED and who are not Bumiputera (more on the problems of these conditions later)

The enforcement of this condition was communicated to the IILS providers in January 2021, as stated in the letter by the FMFF to the MITI Minister, Azmin Ali, on the 18^th of September 2021.

The reason why FMFF sent the letter to the MITI Minister on this issue is because initiative to promote IILS is part and parcel of MIDA, the key Investment Promotion Agency (IPA) in Malaysia under MITI, to upgrade domestic logistics players and to encourage foreign investors to invest in the logistics industry in Malaysia.^[3]

There will be many unintended NEGATIVE consequences if the decision by the Ministry of Finance to enforce the 51% Bumiputera Equity requirement is carried out. FMFF has already outlined some of these consequences such as the short time frame and the challenge of finding suitable Bumiputera buyers who are willing to pay a fair price when economic conditions are still very fragile. Other negative consequences which were not stated is that some of the domestic IILS providers will move their holding company overseas to Singapore, for example, since the Bumi equity requirement does not affect companies which are majority owned by foreign companies. In the longer term, these companies may even shift some of their logistics business away from Malaysia and this will decrease the flow of goods and services through Westport and Northport in Port Klang, PTP in Johor and Penang Port, just to name a few.

This kind of policy will also reduce the incentives for domestic logistic providers to grow their business in Malaysia because of the fear that once they grow to a certain size, they will be forced to sell a portion of their business and even lose control of their business.^[4] This will also send the wrong signal for foreign investors in the logistics sector including those who want to make Malaysia their regional transportation hub because of the fear that they may be forced to sell a majority stake in their domestic operations.

This will mean a slowdown or even contraction in the overall logistic service providers economic output which also means less jobs and less income for Malaysians of all races and backgrounds that are in the logistics sector and less income and corporate taxes for the Government of Malaysia.

The decision by the Ministry of Finance to postpone the enforcement of this equity rule to 2022 does not solve any of the problems highlighted above in the long run. It merely kicks the can down the road. What is sorely needed is for the relevant stakeholders including MITI (and MIDA), MOTransport, the port operators, the logistics operators, business chambers (both local and foreign), financial institutions and politicians from both sides of the aisle to sit down and have a proper dialogue and discussion. MIDA should show the overall positive economic impact and investments which the ILS and IILS policies have had on the logistics sector. Port operators, some of whom are Bumiputera or GLC owned and controlled, should also discuss the positive impact of the IILS policies in terms of growing the overall logistics sector.

I am sure that my colleagues and myself who have experienced in MITI, MOF and MOT would be willing to participate in an honest and open dialogue, in the spirit of the MOU that was recently signed by PH and the Keluarga Malaysia government, so that we can have a mature discussion and avoid politicking via newspaper headlines.

Dr. Ong Kian Ming

MP for Bangi