Wednesday, April 14, 2010

NEM: Anti-Competitive Circulars

Datuk Seri Najib Abdul Razak must first get his own Finance Ministry to join the New Economic Model (NEM) transformation, or the NEM will be doomed to fail

Among the various strategic reform initiatives proposed by the New Economic Model announced by Datuk Seri Najib Abdul Razak is to “re-energise the private sector to drive growth” and to “create a competitive domestic economy” while at the same time implement “transparent and market-friendly affirmative action”.

While there are plenty of reforms needed to achieve the above goals, the biggest single impediment to achieve the noble goals of the NEM is none other than the Finance Ministry helmed by Datuk Seri Najib Abdul Razak himself.

For the past decade the Ministry of Finance has issued “Treasury Contract Circulars” which clearly specifies panel contractors which all Ministries, state governments, statutory bodies and local authorities must employ for purchase of specific goods and services.

As an example, I had revealed yesterday an extraordinary contract whereby the Ministry of Defence is disclosed as having purchased RM27.5 million worth of ladies leather shoes from Syarikat Visi Footwear Sdn Bhd in the MyProcurement Portal. At the same time, I've also been made aware that Visi Footwear is one of the only 3 companies nationwide which forms the panel of companies who can supply leather shoes to the Government as dictated in the Treasury Contract Circulars dated 29 Nov 2006 and 3 Jun 2008. The other 2 companies are Pearl Crown Trading and Maranocorp Industries Sdn Bhd.

It is almost laughable that the circular had stated that the panel was to “mewujudkan satu persaingan positif dalam perniagaan semasa”, when it in effect do the very opposite by entrenching rent-seeking and patronage, and promoting oligopolistic collusion which results in higher prices at the expense of the tax-payers.

It is beyond comprehension why the Finance Ministry has to come up with such a specific circular on “qualified companies” on items as specific as “kasut/but kulit dan barangan lain yang diperbuat daripada kulit”, and there is no justifiable and transparent rationale as to how these companies are chosen.

A further check with the Treasury portal (http://www.treasury.gov.my) revealed that there are hundreds of similar circulars in force for very specific products ranging from seminar bags made from PVC or canvas, metal beds, lubricants, wood furniture, metal furniture, cloth furniture, mattresses and pillows, instant coffee powder 500g, flavoured cordials, chilli sauce, envelopes, spices and many more.

The above shows in no uncertain terms that the Finance Ministry has intentionally or otherwise, created oligopolies (寡头垄断) controlling all forms of supplies to the Government enriching a selected few. Those who benefited are companies like Maranocorp whose factory is located in Bangunan UMNO Maran, Pahang.

The government is the single largest consumer of the Malaysian economy accounting for RM95.1 billion or 21.7% of total consumption in 2009. It is also single largest investor in the country with its investment spend of RM82.1 billion or 55.5% of total investment in 2009.

Hence by creating high barriers of entry into the government's procurement sector, the Finance Ministry is in fact directly dampening our private sector from investing locally and retarding the competitiveness of our domestic economy. These are the objectives of 2 of the strategic reform initiatives of the NEM.

The Finance Ministry cannot even qualify these circulars a type of “market-friendly affirmative action” acceptable under the NEM for they are completely not transparent as there are no information at all as to how these companies are selected to become “panel” suppliers, and such rigid listings are definitely not “market-friendly”.

We call upon Datuk Seri Najib Abdul Razak, who is both the Finance and Prime Minister to immediately cancel these anti-competitive “treasury contract circulars” for they will stifle entrepreneurship in the private sector, creating inefficient and fat oligopolies, and serves to breed rent-seeking and patronage, benefit only a selected few. This continued practice by the Finance Ministry will only ensure that the NEM will become another well-intended document branded as a failure and buried in the sands of time.
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