Learning for Sri Lanka on SOE Reforms – Malaysia’s Khazanah Nasional Berhad

Continued from last Saturday

Board composition reforms. National Development – focusing on national development goals such as creating jobs and economic multipliers. Supporting government policy formation and adopting a long-term view in catalysing social progress in Malaysia to deliver high social impact in communities.

Good Governance –took a holistic and multipronged approach to measure how public institutions conduct and manage public resources.

2. National Support

A degree of national consensus is vital with all relevant stakeholder groups involved and powered by political will. The reform process was carried out over 10 years from 2005 onwards where the reform of Khazanah started under the 4th Prime Minister of Malaysia, the GLC Transformation (GLCT) Programme under the 5th Prime Minister and continued under the 6th Prime Minister.

3. Communications, transparency, public accountability

Transparency and consistent periodic reporting are vital to the success of the programme. KPIs were announced publicly with regular public updates, with internal KPIs being identical to external KPIs. This was followed by consistent and relevant stakeholder engagement across multiple categories.

4. Active, competent, and empowered Holding Company

Khazanah was revamped as an active and strategic SDF (Sovereign Development Fund). Khazanah was also tasked to come up with an overarching programme for other funds from 2005 to 2015. This programme was known as the GLC Transformation Program (GLCT) with Khazanah acting as its Secretariat.

5. A robust Programme Management approach over 10 to 15 years

The GLCT Programme was carried out for 10 years with a careful designed implementation structure. It consisted of 22,981 man days of programme management and 29 meetings were chaired by the Prime Minister to review progress over the 10-year period. It is imperative to stay the course since the prize of seeing it through and the price of not doing so is large. However, it must be ensured that it’s done correctly.

6. Talent and Leadership

Right leadership is critical. Therefore, the Chief Executive Officer. the Board and the Senior Management should be selected under specified criteria to appoint individuals based on their capacity and knowledge to deliver in their role. This should also be followed by a robust selection process.

7. Transformation Acupuncture

Targeted 10 critical areas for improvement in corporate restructuring in key companies. The critical areas included Board governance, CSR, procurement, leadership development, performance based compensation, regulation, operational improvement and finance.

8. Accountability

This included headline KPIs, performance-based compensation, senior management limited to 3-year performance based contracts and a robust appointment process, emulating a carrot and stick approach.

9. Getting key sectors right in terms of the policy mix

It is important to identify the critical sectors such as electricity, telecom, banks, aviation, infrastructure, etc. that play a vital role in the economy. Planning the sector strategy, regulation, pricing, social policy, etc. for the selected sectors instead of reforming all the sectors will also divert resources to effective and efficient use.

10. Using the levers of ownership, financing and controls

Sorting between principally commercial and principally social enterprises is also pertinent. Understanding which particular category enterprises come under will provide clarity on how to run these enterprises such as whether to list or delist, to conduct partial or full asset sales and to understand the required capital structure controls, debt discipline, and external audits.

How has it contributed to Development Goals?

Khazanah’s principal funding is from shareholder equity. It utilises debt financing and proceeds from divestment activities to fund its investment activities. Khazanah’s ultimate holding body and hence the sole shareholder, is the Ministry of Finance (MoF).

In terms of contribution, between 2004 and 2021, Khazanah paid RM15.6 billion in dividends to the government (or MoF) averaging RM 1.3 billion a year over the past five years. Dividends of RM2 billion each had been declared in 2020 and 2021.

Investment income contributed to 16.3% of total government revenue in 2021, of which Khazanah contributed to about 6% of investment income through its dividends. Though the contribution to government revenue through dividends remains marginal when compared to other tax revenue streams, Khazanah continued to deliver societal value and impact through various other initiatives.

During the pandemic, RM20 million was contributed by Khazanah as COVID-19 relief to the government. Therefore, Khazanah acts as a buffer against future pandemics and can assist the government in its relief measures.

One of Khazanah’s foundations – Yayasan Hasanah – directly and indirectly assisted 1.5 million people through Covid-19 relief efforts and various other programmes, with an allocation of RM554 million in 2021.

The Khazanah Research Institute was set up to undertake analyses and research on the pressing issues of the nation, and based on the research, provide policy recommendations to improve the well-being of Malaysians. A total of 30 publications were released in 2021.

Khazanah also works on development projects for the improvement of the Malaysian economy. This includes Dana Impak, which is a newly created project with an allocation of RM6 billion over 5 years. This is carried out to increase Malaysia’s economic competitiveness and build national resilience. This focuses on 6 areas namely; digital society and technology hub, quality health and education for all, decent work and social mobility, food and energy security, building climate resilience, and competing in global markets.

The full brief can be accessed at: Holding Company for SOEs: Learnings for Sri Lanka

This article was developed as part of the Strategic Insight Series of the Economic Intelligence Unit (EIU) of the Ceylon Chamber of Commerce (CCC) in collaboration with the Colombo Stock Exchange (CSE). The Strategic Insight Series are a series of briefs that focuses on key contemporary topics that matter to the private sector.