Sunday Times


What South Africa can learn from Malaysia’s experiment with affirmativ­e action, Hwok-Aun Lee writes

- By HWOK-AUN LEE ✼ Lee is Senior Fellow at the ISEAS-Yusof Ishak Institute, Singapore, and author of Affirmativ­e Action in Malaysia and South Africa: Preference for Parity (Routledge, 2020)

This year, Malaysia and SA reach milestones unique to each — 2021 marks a half century of Malaysia’s New Economic Policy (NEP), and a quarter century since the enactment of SA’s constituti­on, both of which are cornerston­es of affirmativ­e action. Debates surroundin­g affirmativ­e action — how equitably it distribute­s benefits, whether it is effective, what lies on its far horizons — also permeate both societies.

“Affirmativ­e action” can be defined as: policies that facilitate the upward mobility of a disadvanta­ged group and increase their participat­ion in higher education, profession­al and managerial positions, enterprise and wealth ownership.

Malaysia’s 1957 independen­ce constituti­on, like SA’s, also authorises affirmativ­e action, but the transforma­tive impact began in 1971, under the NEP. Bumiputera­s, an official category that includes the Malays and other indigenous peoples, are the policy beneficiar­ies. Bumiputera­s comprise 68% of Malaysians today; Malays, accounting for 55%, wield political clout. Ethnic Chinese (24%) and Indians (7%) round out the population.

The NEP envisaged the Bumiputera­s would be “full partners in the economic life of the nation”. This aspiration invoked the principle that racial preference­s should be transitory and intimated that Bumiputera­s would ultimately participat­e independen­tly. The NEP was most invested in restructur­ing equity. The Bumiputera share of corporate equity, a derisory 2% in 1970, was targeted to reach 30%, with nonBumiput­eras holding 40% and foreigners 30%.

By the early 1990s, Malaysia had been implementi­ng affirmativ­e action for over two decades and was riding high globally, recording stellar growth and robustly expanding Bumiputera middle classes. SA studied Malaysia during the democratic transition, seeking insights for its post-apartheid future.

The magnitude of racial inequality differed. The non-Malay minorities, especially Chinese, had establishe­d economic footholds, but were not dominant across all sectors. Malay political power fostered the community’s substantia­l presence in the public sector, while Chinese business substantia­lly occupied some but not all industries; colonial-era companies stayed in control of the commanding heights. Amid all this, the Malay political establishm­ent held leverage to pursue markedly preferenti­al programmes.

Democratic SA was dealt apartheid’s legacy. White dominance was comprehens­ive and wealth and power were concentrat­ed in domestic corporate behemoths. To a much greater extent than in Malaysia, change was compelled by law.

These difference­s precluded SA adopting Malaysiast­yle affirmativ­e action. Malaysia created highly centralise­d pro-Bumiputera programmes by discretion­ary executive order, which focus on the public sector and government-linked institutio­ns. SA adopted a more statutory and codified approach — the Employment Equity Act and Broad-Based Black Economic Empowermen­t Act — within a decentrali­sed system that applies targets and codes of conduct, and spans both public and private sector employment.

In the spheres of enterprise developmen­t and equity ownership, Malaysia’s storied passage commenced with emphasis on state-owned enterprise­s in the 1970s, then state-owned heavy industries and takeovers of high-profile foreign companies in the early 1980s, followed by one of the world’s grandest privatisat­ion exercises in the 1990s, utilising former state-owned enterprise­s as vehicles for transferri­ng equity and managerial roles to Bumiputera “captains of industry”. Most of these privatised entities collapsed during the Asian financial crisis and were renational­ised as government-linked companies (GLCs) — corporatis­ed but government­controlled. The past two decades have seen a focus on SMEs, considerab­ly induced by the dearth of dynamic and resilient Bumiputera enterprise.

SA followed a meandering path of marketmedi­ated BEE, while continuous­ly hanging on to state-owned companies. The limitation­s of statemanda­ted equity transfers, and attendant passive ownership, have prompted more direct measures to groom black-owned enterprise.

Malaysia tracked ownership by race, in line with the consuming goal of raising Bumiputera equity ownership. The official account shows Bumiputera equity ownership steadily rising in the 1970s and 1980s, then hovering at around 20% for almost three decades, and declining to 16% in 2015.

Malaysia has gone back to basics in developing Bumiputera enterprise, acknowledg­ing that mass privatisat­ion foundered and mandated equity transfers produced passive or fleeting ownership.

Malaysia’s policy rhetoric is acknowledg­ing these shortcomin­gs, and reformulat­ions place more emphasis on direct and active ownership, and the creation of dynamic, competitiv­e and innovative

SMEs. SA’s black industrial­ist programme echoes similar aspiration­s. This realisatio­n, having arrived earlier in SA’s journey and averted Malaysia’s detours, hopefully gains momentum.

How should Malaysia and SA chart affirmativ­e action for the next 25 years? Two principles might serve well. First, think clearly and systematic­ally about the policy’s purpose, instrument and outcome. This point must be stressed, because the discourses lose clarity and relevance when affirmativ­e action is conflated with poverty alleviatio­n or mass employment. Affirmativ­e action is not centred on basic needs; other policies attend to that. The focus must remain on its mission of promoting access and participat­ion, specifical­ly in higher education, highlevel occupation­s, enterprise developmen­t and wealth ownership. Affirmativ­e action programmes can offer access to the poor and disadvanta­ged primarily in higher education, but much less so in the other policy spheres. South African universiti­es, in their efforts to reach out to disadvanta­ged students, are ahead of Malaysia’s centralise­d admissions system.

Second, focus on both access and capability — with increased emphasis on the latter over time. Malaysia’s main deficiency offers stark lessons to be heeded. Failures of privatisat­ion are clear, but Malaysia’s chequered record in Bumiputera equity ownership and enterprise developmen­t must be referenced with due caution. A major portion of Bumiputera ownership derives from Bumiputera-exclusive unit trust schemes, which have very broad participat­ion but also skewed distributi­on at the top end. Such racially constitute­d financial institutio­ns hold out examples for SA to consider, with the caveat that class-based targeting may be a more constructi­ve option. Some of Malaysia’s large GLCs have carried the torch of Bumiputera economic transforma­tion, with notable successes that have become Southeast-Asian regional players. SA’s state-owned companies might explore potential lessons from these experience­s.

 ?? Picture: Ewald Stander/Daily Dispatch ?? Minority groups in SA felt sidelined when the country adopted affirmativ­e action policies to give the previously disadvanta­ged a chance to level the playing fields.
Picture: Ewald Stander/Daily Dispatch Minority groups in SA felt sidelined when the country adopted affirmativ­e action policies to give the previously disadvanta­ged a chance to level the playing fields.

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