KEB 3103– Malaysian Economics and Policy
Prepared by: Mardziah Hanim Mahazir
KEB 3103 – Malaysian Economics and Policy
Learning Outcomes
At the end of this topic,
students will be able to:
5.1 Explain
the nature of
privatization.
5.2 Explain
the reasons
for embarking
the
privatization
5.3 Recognize
the Malaysia’s
privatization
process
5.4 Identify
the success
and criticisms
of Malaysia’s
Privatization.
5.1 Defining Privatization
• Privatization is defined as the transfer of the public sector
activities and functions to the private sector.
“Divestiture or transfer of enterprise ownership from the public
to the private sector, or the change in status of a business,
services or industry from public to private ownership
• The importance of privatization:
…con’t
5.1 Defining Privatization
• The importance of privatization:
1. As an economic panacea
• Reduce public spending
• Effective public sector
• Efficient services
2. Improve role of public sector
3. Stimulate private sector and competition
…con’t
5.1 Defining Privatization
• The importance of privatization:
4. Achieve economic policy targets
• New economic policy (NEP)
• Divestiture of assets
• Reduce government expenditure
…con’t
5.1 Defining Privatization
• Before privatization:
– The proliferation of State-owned-enterprises
• Tin mining
• Rubber
• Agriculture
…con’t
5.1 Defining Privatization
• Modes of privatization:
– Sale of equity
– Sale of assets
– Lease of assets
– Management contract
– Management Buy Out (MBO)
– Build-Operate-Transfer (BOT)
– Build-Operate
5.2 Malaysia’s Privatization
• Partial divestiture (govt retaining majority ownership)
• Public-private sector ventures
• License to operate services that were previously exclusively
public
…con’t
5.2 Malaysia’s Privatization
• Objectives of Malaysia’s Privatization:
– To relieve the government’s financial burden
– To improve work efficiency and productivity
– To facilitate economic growth
– To reduce the size and presence of the public sector in the
company
– To meet the New Economic Policy (NEP)
5.3 How Far Malaysia’s Privatization
Been Successful
• Malaysia Incorporated, launched on 25 February 1983, aims
to establish and strengthen cooperation to benefit both the
private and public sectors.
• Privatization Master Plan
– Sale of govt equity would generate RM 1.18 billion
– BOT projects to save govt some RM 8.2 billion
– Provide govt with a revenue stream from lease payment
and corporate taxes
– Reduced demands on government finances with the
availability of private loan financing arrangements
…con’t
5.3 How Far Malaysia’s Privatization
Been Successful
• Privatisation Master Plan
– Sale of govt equity would generate RM 1.18 billion
– BOT projects to save govt some RM 8.2 billion
– Provide govt with a revenue stream from lease
payment and corporate taxes
– Reduced demands on government finances with
the availability of private loan financing
arrangements
5.4 Criticisms of Malaysia’s Privatization
• Underpricing of IPOs
• Heavy discounting of asset prices, ostensibly to encourage
privatization policy
• Revenue from sale of assets not fully realized due to tax
exemptions
…con’t
5.4 Criticisms of Malaysia’s
Privatization
• Does it promote competition?
– Results patchy?
– MAS
• Govt exercising sizeable control
• Does it improve consumer welfare?
– Postal Services
…con’t
5.4 Criticisms of Malaysia’s
Privatization
• Malaysian privatization program has been successful
• Privatization
– improved total profits
– double real sales
– increase dividend payout
5.5 Privatization: Healthcare
• Started in 1982
• Private healthcare
– State development corporations
– Conglomerates
• Owned by conglomerates and state corporation
– KPJ
– SMC
– Mediiman
– T’ganu State Economic Development Corporation
– Pantai Holdings (Khazanah)
…con’t
5.5 Privatization: Healthcare
• Promote healthcare tourism
• After privatization nominal expenditure (MOH) reduced from 11.9%
(1972-82) to 5.4% (1983-2004)
• Outflow of medical practitioners from public to private healthcare
• Overly concerned with profits than medical care
• Public funds used to purchased outsourced private services
• Negligent cases
…con’t
5.5 Privatization: Tourism Indusrty
• The tourism industry has contributed significantly to the
Malaysian economy over the last 30 years, particularly in
terms of foreign exchange earnings and job creation.
• Contribution of tourism:
– Tourist receipts and contribution to GDP
– Creation of employment
– Stimulation of infrastructure investment
– Growth in other related activities
– Contribution to local economies
CONCLUSION
• What is the objective of privatization?
• Has privatization bring in the desired results?
• Has privatization lead to better consumer welfare?
KEB 3103– Malaysian Economics and Policy
Thank You 