A RENOWNED economist has voiced alarm at the high rate of foreign ownership of Malaysian equity, describing the situation as being similar to the “last days of the British colonial era”.

Former United Nations assistant secretary-general Jomo Kwame Sundaram said the large presence of foreign owners did not bode well for the country’s coffers.

“If you have more foreigners owning capital then more of the money made in Malaysia is taken out of the country. It’s not funnelled back into the nation’s income,” said Jomo, a visiting fellow at the Khazanah Research Institute (KRI).

“We may be in a situation that is like the last days of colonialism when there was a strong foreign ownership in the Malaysian economy,” Jomo said the forum “Malaysian Income Distribution in a Global Context”.

Jomo’s warning echoes that of Universiti Malaya’s Prof Edmund Terence Gomez, who said Malaysian equity was in the hands of more foreigners than locals for the first time since 1969.

Foreign ownership of share capital in local limited companies rose from 30.1% in 2006 to 37.9% in 2008.

In terms of ownership according to race, Chinese ownership declined from 42.4% in 2006 to 34.9% in 2008, while Malay ownership remained at 21.9% in 2008, Gomez had said.

The government stopped releasing data on ownership breakdon in 2008.

In 1969, foreign ownership stood at 62.1% before dropping to 26% in 1985.

The resurgence of foreign ownership in the local economy was an issue that needed to be urgently addressed, Jomo said, as it impaired the country’s ability to reduce income inequality and create more wealth for citizens.

Although income inequality has dropped since the 1970s, the drop is partly due to a de-industrialisation process that is unsustainable in the long run, Jomo said.

The manufacturing sector’s contribution to the economy has steadily declined since its heyday in the 1980s and 1990s, giving way to traditional services such as retail and wholesale, he said.  

According to the Statistics Department, in the second quarter of 2017, services contributed 54.2% to gross domestic product (GDP) and manufacturing, 23.5%.  

The Najib administration aims to build up the services sector in the economy to make Malaysia a high-income country.

De-industrialisation, if it gave rise to modern services such as business and legal consulting or information technology, would not be a problem as it meant the country was moving up the value chain, Jomo said.

“But we are moving to traditional services;  it’s the formula for getting into the middle-income trap,” said the former UM economics professor.  

The problem is compounded, he said, by the country’s over-reliance on low-skilled, poorly paid foreign workers. 

“The consequence of easy foreign labour is that you slow down technical change and the progress you should be making as a middle-income country.” – January 18, 2018.