Raking In The Bounty of FELDA's IPO

Raking in the Bounty of FELDA’s IPO
M. Bakri Musa
(www.bakrimusa.com)


In the run-up to the Initial Public Offering (IPO) of FELDA Global Ventures Holdings (FGH), there is little, in fact no discussion on how the exercise would benefit FELDA settlers. Surely that should be the foremost consideration. The only criterion upon which to judge the wisdom or success of any FELDA initiative, including this proposed IPO, would be to assess its impact on the settlers.

Instead the focus has been on bragging rights, as with trumpeting FGH to be the biggest IPO for the year, among the top 20 on the KLSE, and the world’s biggest plantation company. Such milestones are meaningful only if achieved as a consequence of the usual business activities and not through fancy paper-shuffling exercises. Apple recently surpassed Microsoft in market capitalization, but that was the consequence of Apple’s much superior products like iPads, iPods, and iPhones. Contrast that with earlier achievements of such now-defunct financial giants as AIG and Lehman Brothers that were based on fancy “financial engineering” instead of solid products and services.

Instead of delineating the potential benefits that would accrue on the settlers from this IPO, its proponents are content with dismissing the critics and imputing evil motives on their part. There are legitimate concerns that this exercise would prove to be nothing more than yet another fancy scheme for the politically powerful to cash out on a lucrative but under-priced government asset. We already have many ready examples of such greed.

Consider the National Feedlot Corporation (NFC) “cowgate” mess involving considerably much smaller sum of money. Despite the presence of high government officials on NFC’s board to safeguard the government’s interest, NFC’s senior managers still managed to subvert those publicly-subsidized loans to purchase luxury condominiums totally unrelated to the company’s activities. This oversight failure reflects both the incompetence of the government’s representatives in discharging their fiduciary responsibility, as well as the lack of integrity on the part of NFC’s management.

Such despicable omissions and spectacular failures are not unique only to NFC; they are endemic in government-linked corporations. Thus Malaysians have good reasons to believe that FGH would be no exception once the money starts rolling in.

It also does not escape the public’s attention that the man helming FGH, and thus whose hands would be at the till once the billions start pouring in from the IPO, is one Isa Samad, a former UMNO Vice-President. Not any VP however, but one who was found guilty by his party of “money politics” and subsequently suspended. UMNO is no paragon of virtue; to be found guilty by it would be akin to being called a slut by hookers. You have to be disgustingly gross.

It would be easy to blame Isa Samad. The bigger question, and one that has yet to be answered, is why did Prime Minister Najib choose such a shady character to helm this major corporation? That is as much a reflection of Najib as it is on Isa.

Peruse FGH current corporate structure. It has nearly over a hundred subsidiaries, associated companies, and joint ventures, many with overlapping functions, markets and products. Those units are created less in response to commercial needs, more to create opportunities for senior civil servants to be appointed to the many governing boards, and thus garnering extra income in the form of directors’ fees, in addition to their regular civil service pay. Ever wonder why these GLCs lack effective oversight and our government departments are shoddily run? You would think that their regular government jobs, diligently executed, would keep them fully occupied.

A more sinister reason for these GLC directorships is that they are an effective trick to trap the loyalty of civil servants. Be too critical of the idiotic ideas of your political superiors and you risk being left out on those lucrative board appointments. With Isa Samad, it is also a case of Najib buying Isa’s silence, for reasons best known only to the pair.


Corrupting A Noble Initiative

FELDA was the crown jewel of Tun Razak’s imaginative rural development scheme. It was to provide land to otherwise landless villagers, the equivalent of land grants homesteading to early American settlers. The other reason was to encourage Malays to undertake an internal migration of sorts by uprooting them from their tradition-bound villages to begin a new life unencumbered by prevailing non-productive cultural practices.

With the expertise of and financing from the government, those villagers would develop hitherto virgin jungles into productive rubber and palm oil plantations, with those settlers eventually getting title to their holdings. At about 14 acres each, those units were definitely economically viable. To make sure that those lands would survive the next and subsequent generations and not be endlessly subdivided, the settlers had to agree to dispense with their usual Islamic inheritance practices. Meaning, the property would be inherited by only one of the children.

The surprise was the absence of howling protests from the ulama to this clear departure from Islamic inheritance practices as everybody saw the wisdom of the move; to maintain the economic viability of these holdings.

If this IPO were to enhance the condition of the settlers, then it should be supported. FELDA is meant to serve the settlers, not the other way around. Isa Samad had it backwards when he dismissed the concerns of the settlers as voiced through their cooperatives.

In response to the settlers’ concerns, Isa suggested a portion of the proceeds be placed in a “Special Purpose Vehicle” specifically to meet their needs. Unfortunately he did not provide the specifics. Consequently this SPV risks degenerating into yet another honey jar to be passed around among the politically powerful bears.

In my forthcoming book, Liberating the Malay Mind, I put forth ideas on how to maximize the use of these GLCs in improving the lot of Bumiputras. The focus should be on investing in people – human capital – not companies. Companies are subject to business cycles; they can also be ruined by incompetent and corrupt managers. All you would be left with then are worthless stock certificates. Where is Bank Bumiputra today? Malaysia Airlines is in no great shape either, despite the billions expended through SPVs and other accounting gimmicks.

Invest in our people instead; the skills and knowledge they acquire would stay with them to benefit society through good and bad times. Thus I suggest selling these GLCs and putting the proceeds into an escrow account for the sole purpose of investing in and developing Bumiputra human capital.

Bringing the issue specifically to FGH, I would commit a third of the IPO proceeds to a special fund to be used to develop the human capital of the settlers and their children. That money would be used to air-condition their schools, build adequate laboratories and libraries, and to bring qualified teachers especially in English, science and mathematics. If you want the children of those settlers to be other than penorakas (homesteaders), the best route would be to provide them with superior education. That means their schools and teachers should be among the best; today they are among the worst.

I would use the funds to enrich the curriculum as with providing music classes. I would go further and provide free musical instruments and after-class music lessons, modeled after Venezuela’s highly successful El Sistema initiative. New York is modeling a similar Harmony program with its low-income students, and this week those students had the thrill of their lifetime when their orchestra was conducted by Placido Domingo. Gustavo Dudamel, the young conductor of the Los Angeles Philharmonic Orchestra, is a product of El Sistema, a tribute to Venezuela’s investment in human capital.

Similarly I would use the IPO funds to mechanize the operations on these plantations. Today palm nuts are still harvested in the same labor-intensive and back-breaking ways as they were 50 years ago; there is little innovation or mechanization. I fail to see why FELDA engineers could not design harvesting machines and trucks with hydraulic lifts like those used by utility repair workers to fix broken lines. Only through mechanization could the workers’ safety and health could be assured, and their productivity enhanced.

If through this IPO the lives of those FELDA settlers and their children were to be made better, then the initiative would find many ready supporters. What many fear is that this IPO would prove to be nothing more than a windfall for the likes of Isa Samad so they could acquire their luxury condos, fancy cars, and trophy wives.