Malaysia has embarked on sweeping reforms of its public sector. In September 2024, Prime Minister Datuk Seri Anwar Ibrahim articulated the government’s intention to rationalise statutory bodies, aiming to reduce their overall number and enhance operational efficiency. This announcement was followed by the establishment of the Federal Statutory Body Rationalisation and Streamlining Office, under the Ministry of Finance. The office’s mandate covers streamlining of federal statutory bodies, government-linked companies (GLCs), and companies limited by guarantee.
As per the 2025 Budget, this initiative is projected to affect 544 entities, including seven Government-Linked Investment Companies (GLICs)—namely, MoF Inc., Lembaga Tabung Haji (LTH), Retirement Fund (Incorporated) (KWAP), Employees Provident Fund (KWSP), Permodalan Nasional Berhad (PNB), Khazanah Nasional Berhad, and the Armed Forces Fund Board (LTAT)—along with their subsidiaries.
While reform is necessary to address inefficiencies and redundancies, the notion that the government must retreat entirely from business warrants scrutiny. Malaysia, as a developing economy, faces distinct structural economic realities. In this context, well-governed GLCs remain critical tools for optimising national resources and ensuring long-term socioeconomic resilience.
Malaysia’s strategic investments in GLCs must continue due to three interconnected realities unique to developing nations:
- Our historical reliance on finite natural resources, coupled with a growing, multi-generational population demanding more, necessitates sustainable revenue streams beyond potentially shrinking tax bases from a solely private sector-driven economy.
- Malaysia’s innovation ecosystem and talent retention capabilities lag behind established Western nations, leading to capital and brain drain, making exclusive reliance on organic private sector growth challenging.
- The dynamics of attracting foreign investment have shifted, with rising costs and unequal bargaining power requiring a more strategic approach that prioritises nurturing local champions over potentially transient foreign entities and low-value collaborations.
It is GLCs that can and have bridged this gap over the years, allowing us to drive national progress and enjoy continued prosperity.
The Multifaceted Roles of GLCs
One cannot overstate the pivotal role these institutions have played in shaping our socio-economic trajectory since their strategic development began in the 1980s with the privatisation of government assets. This initiative aimed to enhance efficiency, returns, and overall performance, creating entities free from cumbersome government bureaucracy. This period saw the nurturing of a nascent private sector, including through the establishment of GLCs, statutory bodies, and outright privatisation.
From this emerged GLCs that now serve several key functions:
1. Fulfilling specific social-business mandates
To address specific social-business mandates with the objective of generating profits or achieving sustainability for the benefit of the Rakyat, such as:
- Employees’ Provident Fund (EPF): Manages the compulsory savings and retirement planning for private sector workers. It provides retirement security to the private sector, reducing long-term public welfare costs.
- Retirement Fund (Incorporated) (KWAP): Created as an investment entity to generate returns that would finance public sector pensione
- Petroliam Nasional Berhad (PETRONAS): Formed upon the discovery of oil in Malaysia, PETRONAS secures national ownership over hydrocarbon resources while contributing to fiscal revenue.
- Lembaga Tabung Haji (TH): TH strategically invests members’ savings and uses the profits to subsidise Hajj costs, making it more accessible.
2. Wealth creation and asset maximisation
At their core, GLCs are designed to maximise returns by generating profits and accumulating funds to support their social objectives. Their operations must therefore be profitable alongside the fulfilment of their social/strategic objectives.
3. Job creation and talent development
GLCs have been significant drivers of job creation and talent development in Malaysia. Their substantial financial resources and mandates enable them to directly employ hundreds of thousands of Malaysians. Furthermore, their human resource departments often prioritise talent development programs and offer competitive compensation packages, generally surpassing those of most domestic corporations, except for certain multinational corporations.
4. Corporate Social Responsibility (CSR) and Societal Contribution
With access to significant resources, many GLCs historically invested in community initiatives, such as establishing foundations and universities aligned with their mandates, supporting environmental conservation, promoting educational opportunities, alleviating poverty, and fostering arts and culture. Admittedly, misalignments and misuses of funds have occurred, including utilising funds to serve the political agendas of ruling parties.
These functions would not have been possible if the shareholders of the GLCs were private individuals. The corporate structures of today emphasise value creation for shareholders, which in the case of most privately owned companies means maximising profits.
Despite past failures and scandals like 1Malaysia Development Berhad (1MDB), it’s vital to acknowledge the generally positive impact of GLCs on Malaysia’s development, particularly compared to similarly resource-rich nations that gained independence around the same time.
Maximising GLCs
Despite this, and in light of the rationalisation exercise being undertaken by the government, there is considerable scope for improvement, especially when one considers the increasing scarcity of resources and the rise of corporatocracy, where vast corporations whose wealth surpasses that of nations attempt to dictate terms.
Moving forward, rationalisation and institutional reforms should focus on the following four key areas:
1. Balancing revenue generation with public purpose:
Every GLC that is maintained must identify and develop a clear understanding of the key purpose of its revenue generation. At present, GLCs face two common pitfalls: an excessive pursuit of profit at the expense of the original social mandate, and an overemphasis on the social aim with insufficient attention to financial sustainability.
Ultimately, GLCs are businesses that should strive for self-sufficiency, minimising reliance on government funding. They should be generating surpluses that can be reinvested in their social objectives or contribute to government revenue. However, there are some situations where expecting a surplus would be unrealistic considering GLCs’ social benefits.
For example, Prasarana Malaysia Berhad was established to own and develop public transport assets and restructure Malaysia’s public transport system. Thus, it has an interest to ensure affordable public transport while developing the public transport infrastructure in the country – the question for this GLC is therefore not about growing profits yearly, but how the profits generated continue to sustain cheap public transport for the Rakyat. EPF, in contrast, manages the compulsory savings plan and retirement planning for private workers and thus should focus on ensuring the funds are kept safe and growing.
The appropriate balance between profit and social purpose will vary depending on the specific mandate of each GLC, requiring a clear understanding and alignment among both GLC management and government oversight bodies.
2. Establishing an overarching framework with clear exit strategies
A strategic oversight and planning framework is needed at the government level, within the Ministry of Finance or at the level of the GLICs that oversee the majority of GLCs.
This framework should assess the relevance, impact, and performance of each GLC beyond financial metrics and considering its social purpose. For example, if the social aim of the GLC is to develop local industry in a specific sector, how is it doing this?
Regular assessments could determine the continued relevance and effectiveness of a GLC’s social aim, informing discussions about potential divestment versus continued government involvement in that GLC.
3. Realigning CSR to the social mandate
Clear guidelines on how GLCs approach their corporate social responsibility (CSR) initiatives should also be developed. Ideally, GLCs should adopt a strategic approach to their CSR initiatives, aligning them closely with their core social mandates.
For example:
- Where a GLC is tasked with industry development, a crucial responsibility is understanding its impact on the existing ecosystem. Their CSR initiatives must be strategically aligned to actively support and strengthen this ecosystem, fostering growth rather than hindering local enterprise.
- Even when a GLC mainly aims to make money, like EPF, its community work (CSR) should still strongly connect to its main purpose. For example, since EPF was created to help people save and manage their money for retirement, its CSR could focus on teaching people how to manage their finances.
Ultimately, CSR efforts should be maximised to directly support the core social objectives of each GLC.
4. Appointing the right people with expertise and ideology
The effectiveness of GLCs depends on appointing capable leaders who truly understand and are committed to the GLC’s core purpose, not just those with political connections. It’s crucial that these leaders are clearly briefed on their social mandate to prevent prioritising profit over that purpose. Their success should be judged not only by financial gains but also by how well they achieve their social goals.
Nurturing GLCs for National Prosperity
Ultimately, a nation’s success hinges on its government’s ability to drive both revenue and development that benefits its people. To secure a prosperous future, Malaysia, facing finite resources and increasing demands across generations, must recognise the crucial role of well-managed GLCs. Instead of diminishing GLCs, we must reform, refocus, and empower them to deliver lasting value for the entire nation.
Author
Amir Isyam Abdul Rahim
