The Malaysian Brain Drain & More Contractors Please!!!

This article is too important not to be read by more people. It is written by Koon Yew Yin. Who??? Well, if you like Mudajaya, IJM or Gamuda, Mr. Koon was one of the founders for all three companies. We certainly do not need more contractors - we must ensure that our resources are put into creating value to industry and economy, not creating layers after layers of profits being hived off.

The article was taken from Center For Policy Initiatives:
http://english.cpiasia.net/

Article by Mr. Koon can be linked to:

http://english.cpiasia.net/index.php?option=com_content&view=article&id=1783:bumiputera-contractors-a-wasteful-national-mission-to-date-&catid=211:koon-yew-yin&Itemid=156

I wish our government would take to heart what Mr. Koon has been saying. If you talk about 1Malaysia, this is the 1Malaysia most of us are thinking about - I don't know about the one some minority have in their minds. If you think the contractor article was timely, have a read of his piece on the Great Malaysian Brain Drain penned in July. We all share his sentiments.

Note on the Author

I am a 76-year-old chartered civil engineer and one of the founders of the three larger construction companies listed in Bursa Malaysia. These are Gamuda Bhd, Mudajaya Group Bhd, and IJM Corporation Bhd.

I was a member of the Board of Engineers, Malaysia for three terms. I was also on the Sirim Board responsible in writing the Malaysian standard specifications for cement and concrete. In addition, I was the Secretary General of Master Builders Association, Malaysia for nine years.

These days, I am completely retired. My intention in writing this article is honourable. Many people may not like reading what I have written and the truth may be difficult to accept. Nevertheless, this is my considered analysis for the benefit of my country, the Bumiputera contractors and the construction industry.

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Written by Koon Yew Yin

Wednesday, 18 November 2009

It is an indictment of our system that IJM is able to compete internationally for contracts but yet is required to work as a sub-contractor to Bumiputera companies on the North-South Highway in Malaysia. On Oct 25, 2009 our Second Finance Minister Ahmad Husni Mohamad Hanadzlah said that government has vowed to cut down on wasteful spending to lower its budget deficit and all major public projects must go through the open tender system. Earlier, the Auditor-General’s report for 2008 revealed continuing financial management weaknesses at every level of the government. Delays in project completion seem to be a perennial problem and the lack of oversight by various ministries and departments in the procurement of goods and services continue to cost the government hundreds of millions of ringgit. These statements indicate perhaps that our Prime Minister Najib Razak may want to reverse his announcement on January 9 in Kuala Teregganu that the government would always look after Class F contractors. (Non- Bumiputeras cannot register as a Class F contractor). The government had in fact already set aside RM900 million, which was RM300 million more than last year, for works to be undertaken by Class F contractors this year. Producing competitive Bumiputera contractors As reported on May 1, 2005, Malaysia had one contractor for every 614 persons. Most likely there are more contractors by now. This ratio is again likely to be amongst the highest in the world and is obviously costing the public a significant amount of money besides affecting our overall economic performance. I would like to pose a few questions which may appear unkind or insensitive but nonetheless need to be asked. Out of hundreds of high-rise buildings in Kuala Lumpur does anyone know of any Bumiputera contractor who has won any of the building contracts through an open competitive tender process? Out of hundreds of kilometers of highway in Malaysia, can any Bumiputera contractor who won any part of the highway contracts through open tender be identified? The answer to the above questions unfortunately is in the negative. The evidence is that all the government’s well-intentioned efforts in trying to produce competitive Bumiputera contractors since 1957 have failed. Why this has happened needs to be openly discussed rather than swept under the carpet. In this note, I share my experiences as a contractor and my knowledge of why Bumiputera contractors have failed in the past and what needs to be done by the government to correct this unhealthy situation. Facts of life in the contracting business Contracting is a very difficult business yet it is so easy to register as a contractor. To register as a Class F contractor one has only to show that he has RM5,000. He does not even require a pass in Lower Certificate of Education (LCE). But it will take at least 10 years to learn how to overcome all the inherent difficulties and become competitive and efficient. Continuously giving out lucrative and over-priced contracts without open tenders will only make the recipients less competitive. Secondly, studies have shown that there are more failures and bankruptcies in contracting than in any other business, and also almost all construction projects are NOT completed within the original scheduled time. The delay will cost the contractor more and that is why you can often see uncompleted buildings and abandoned projects which have been undertaken by inefficient contractors. There are many reasons for this peculiar phenomenon. 1. Open tender system Although this system is the best way to ensure completion of any project/contract at the lowest price, it is the most difficult obstacle any contractor has to face in the real competitive world. He must know his business very well and be efficient to face the open competition all the time. Like a good athlete, he has to keep fit and constantly be aware of the market conditions and his competitors. There is a classic saying, ‘a cheap thing is not good and a good thing is not cheap’. But contractors always have to produce good work at the cheapest price. In order to submit the cheapest tender, the contractor must be very optimistic in all his assumptions to get the cheapest rates. He must assume that he will not encounter any cash flow difficulties and that he will always get his progress payments on time to pay his creditors. He must also assume that he will not encounter any difficulty in getting all the required materials on time to avoid any delay and also that there are ample workers for him to pick and choose from. Furthermore, he must also assume that the heavens will be kind to him and he will not meet any inclement weather during construction. Invariably, many of these assumptions are proven wrong and thus completion delayed, and the infrastructure will cost more to complete than provided for in the contract. 2. The importance of teamwork Teamwork is important in all business endeavours. It is more so in the contracting business. Every contractor must realise that his success is not going to be determined by his own knowledge, talent or abilities. It is going to be determined by his ability to develop a great team. Those who are closest to him will help determine the level of his success. Every efficient contractor must have a reliable team comprising managers, sub-contractors, material suppliers, foremen and skilled workers. All the team players must cooperate with one another, bearing in mind that the main contractor’s survival depends on their contribution. Their main goal must be saving cost. If they cannot complete the contract within the tender price, all of them will also be affected. 3. Construction material pricing There was no material price escalation clause in the conditions of contract before I became the Secretary General of the Master Builders Association. During the unprecedented oil crisis, building material prices shot through the roof. As a result, many contractors could not complete their contracts for schools and other projects. After several appeals the Public Works Department (PWD), now known as Jabatan Kerja Raya (JKR), eventually allowed only cement and steel for price variation reimbursement. This was only a partial solution as hundreds of other items were excluded. Without a protective price fluctuation clause for the other items, contractors are exposed to risk. At the same time, knowing that they have to undercut their competitors during the tender process, contractors would normally under-price to achieve the lowest tender. Invariably, most materials would increase in price due to inflation and other reasons. Contractors require many years of experience to be able to anticipate such price changes and to make adequate provisions for them whilst at the same time not overpricing their tenders and losing the bid. 4. No contract is exactly the same No two high-rise buildings in KL are the same. Construction of a building, a bridge or a stadium is always akin to making a prototype. The process is much more difficult than manufacturing any product where there is repetition. For example in making cars, the first prototype and the initial few cars may be more difficult to make but once everyone gets used to the routine, the manufacturing process will normally proceed smoothly. However, in the construction of buildings or any civil engineering works, there is very little repetitive work. Every construction site is different and most of the people involved have never worked together before. On top of this, there may also be inexperienced supervisory staff that can create a lot of difficulties for the contractors. Invariably, by the time all parties get used to the routine, the scheduled time is over. 5. Financing Most contractors do not have sufficient capital to finance their undertakings. Contractors generally do not have fixed assets like most manufacturers. They usually do not have land and buildings but, instead, they have construction equipment. Unfortunately, banks do not accept these moving assets as collateral for a loan. Without bank financing, contractors will obviously find it more difficult to undertake their business. Beginning at the bottom: The key to success I have provided some insight into why contracting is not a business that is as easy or profitable as it is commonly perceived to be. There are other factors explaining why or how some of the most successful tycoons associated with the building or construction industry have managed to get where they are. Firstly, it should be noted that the majority of listed companies were started by Chinese merchants most of whom incidentally did not have tertiary education. For example, Lim Goh Tong of Genting began his working career as a scrap iron dealer and a contractor; and Yeoh Tiong Lay of YTL Corp. started off as a small contractor. Generally, Bumiputeras are not interested in working long hours in managing small businesses earning marginal profit. Because of the NEP, many have hopes of securing permits or concessions for big deals so that they can become instant millionaires. There are relatively few Bumiputeras involved in small and medium-scale enterprises (SMEs). More Bumiputeras should follow the humble footsteps of the Chinese to become traders and merchants for building materials and similar goods. The business skill they can learn from these humble beginnings will carry them a long way. I am very sure some of them will eventually become good contractors and successful businessmen if they learn the trade at the bottom and not try to parachute into the contracting business. The importance of skilled workers Although there are already many Bumiputera engineers unable to find employment, most of the universities are still producing more and more engineers every year. But without a sufficiently skilled workforce, all the engineers in the world would not be able to complete a single project. There are so few Bumiputera construction foremen, carpenters and other skilled workers. If you were to go into any building construction site, you would see the truth of what I am saying. How many Malay carpenters have you seen in KL? Without skilled Bumiputera workers, it would be more difficult for Bumiputera contractors to succeed. In fact, most of the Chinese contractors started as apprentices and rose from the bottom to become successful contractors. More Bumiputeras should be encouraged to work as apprentices in construction sites. This is a necessary good practice to produce really good Bumiputera contractors. The role of trade schools There should be more trade schools and more Bumiputeras should be encouraged to learn construction skills like carpentry, welding, plumbing, bricklaying, etc. Very soon, skilled tradesmen will be able to earn more than degree holders as is the case in Australia or England. The government should build more trade schools and not hesitate to offer scholarships to Bumiputeras to be trained in these trade schools. Presently, the construction industry is not short of engineers but it is very short of skilled workers and supervisors. If more Bumiputeras are properly trained in various crafts and blue collar skills, some of them will go on to become good contractors. Time and more time They say Rome was not built in a day. It is easier to produce engineers, doctors and other professionals than to produce efficient and competitive contractors who do not need government financial aid. Just giving out lucrative contracts to Bumiputeras is not the answer; in fact it is counter-productive as it simply makes them more inefficient and less competitive. IJM Corporation Bhd has taken more than 40 years to attain a competitive level of competence. The record shows that IJM has secured on competitive tenders five toll road concessions in India. Three are currently in operation and two are under construction. The total length of the roads exceeds 1,000 kilometres, longer than our North-South Highway. In addition, IJM completed a toll bridge in Kolkata and sold its interest for RM65 million profit after a short period of three years. IJM is also a very reputable LRT builder, having to date completed 15km of the elevated sections of the New Delhi Metro and it was recently awarded another 8km. Based on open competitive tender, IJM won the contract to build the tallest building, a prominent future landmark for the Delhi Municipality, in New Delhi. It is an indictment of our system that IJM is able to compete internationally for contracts but yet is required to work as a sub-contractor to Bumiputera companies on the North-South Highway in our own country. Conclusion: Half-baked contractors are not in our national interest Contracting is one of the most, if not the most, difficult business and it takes a very long time to produce competent contractors. It is very dangerous to quickly produce half-baked ones as they will soon find themselves in financial difficulties and require bailouts. The bankruptcy record shows that a large number of debtors are Bumiputera contractors with many of them unable to pay back the loans given by government-controlled financial institutions. The government must change its methods and policies which have proven unworkable. There is no urgency in producing more Bumiputera contractors as many of the key industries e.g. the banks, plantations, motor vehicles, taxis, rice etc are already under the control of Bumiputeras. Our government must not be narrowly communalistic and should make use of all the groups, irrespective of race, that are more efficient in the contracting business. Giving out contracts without a full tender process is akin to corruption. I urge the government to stop this corrupt practice and to utilize the savings from these enormous sums to implement the options suggested above. ---------------------- The Great Malaysian Brain Drain JULY 11 – There is a boy I know who scored 10 A1s. His mother is a primary school teacher and Andrew has two younger brothers. His father, a civil servant, had already passed on by the time the son sat SPM in 2006. Armed with his excellent result, Andrew applied for a scholarship to study mechanical engineering. The government rejected his application. Petronas rejected his application too. Can you imagine how disappointed and frustrated he was? As soon as I learned of Andrew’s difficulty, I offered him financial assistance to do accountancy in Utar. He has been scoring top marks in every exam to earn a scholarship from the university. Although Andrew is now exempted from paying fees, I still bank him RM400 a month to cover cost of living. I have given assistance and allowances to more than 40 poor students to study in Utar in Kampar, Perak. Andrew is typical of their calibre; he prefers to get what is his due on merit, and his university has seen fit to waive his fees. On my part, I expect nothing from those that I’ve supported except for them in future to help young people in similar circumstances, and to hope that they will all stay back in Malaysia so that they can lend their talents to building up our nation. There are others with deeper pockets who have extended a helping hand to our youngsters. One of them offers the cost of school and exam fees, hostel accommodation, RM5,800 a year for expenses, RM1,200 settling-in allowance, and transport/air ticket. Furthermore, the recipient is not bonded. In other words, the giver asks for nothing back. I’m talking about the pre-university Asean scholarship extended to Malaysians by ‘the little red dot’ Singapore. Of course, Singapore is not doing it for purely altruistic reasons. The country is giving these much coveted Asean scholarships to build up her national bank of talent. Some Malaysians accuse them of ‘poaching’ the creme de la creme of our youngsters. I don’t look at it as poaching. Their far-sighted government is doing it in their national interest. And why not? Singapore can afford it. It has three times our GDP per capita. On another comparative note, the GDP per capita of Taiwan and South Korea are 2.5 times and double ours respectively. Before the NEP’s introduction in 1970, the four countries were at parity. The big question is why are we surrendering our assets which Malaysian parents have nurtured but the state neglected? Tens of thousands of young Malaysians have left our shores on the Asean scholarship. I am not sure if Singapore is willing to give out the figure. But I am pretty sure the Malaysian authorities do not give two hoots about this, whatever number they may have arrived at. If they do, there seems to be no policy change to stem the outflow. Malaysia is optimistically indifferent to the continuous brain drain, little caring that it is detrimental to our aspiration of becoming a developed country (I hate to say this) like Singapore. Behaving like a failed state Consider this startling statistic: There are more Sierra Leonean doctors working in hospitals in the city of Chicago than in their own homeland. More Malawian nurses in Manchester than in Malawi. Africa’s most significant export to Europe and the United States is trained professionals, not petroleum, gold and diamond. The educated African migration is definitely retarding the progress of every country in Africa. Today, one in three African university graduates, and 50,000 doctoral holders now live and work outside Africa. Sixty-four per cent of Nigerians in the USA has one or more university degrees. If we carry out a study, we are likely to find a very large number of non-Malay graduates emigrating to Singapore, Australia and other countries that is proportionately similar to the African exodus. However the compulsion is different, seeing as how some African countries are war-torn and famished, which is certainly not the case with Malaysia. The push factors for our own brain drain lie in NEP policy and this needs to be addressed with urgency. State Ideology: Be grateful you’re Malaysian Try putting yourself in the shoes of an 18-year-old. This young Malaysian born in 1991 is told that Umno was very generous in granting citizenship to his non-Malay forefathers in 1957. Thus as a descendant of an immigrant community – one should be forever grateful and respect the “social contract”. Gratitude is demanded by the state while little is reciprocated. Under the NEP – and some say this policy represents the de facto social contract – every single Vice Chancellor of every single Malaysian public university is Malay. Promotion prospects for non-Malay lecturers to full professorship or head of department are very dim, hence we have the dichotomy of non-Malays predominant in private colleges while correspondingly, the academic staff of public institutions proliferate with Malays. The civil service is staffed predominantly by Malays, too, and overwhelmingly in the top echelons. The government-linked corporations have been turned into a single race monopoly. Hence is it any surprise that almost all the scholarships offered by government and GLCs seem to be reserved for Malays? Youngsters from the minority communities see that Malays are the chosen ones regardless of their scholastic achievement and financial position. Some are offered to do a Master although they did not even apply (but the quota is there to be filled, so these disinterested Malays are approached). Our lesson today is ... How the government apparatus conducts itself and the consequences of its policy implementation will upset an individual’s innate sense of justice. The government pays about RM1.8 billion in annual salaries to teachers. A child is taught moral studies in class but he learns in life that adults condone and conspire to immorality by perpetuating the unfairness and injustice which impacts on Malaysia’s young. On the other hand, the favoured group is given more than their just desserts without either merit or need. When one is bred to think that privilege is only his rightful entitlement, we would not expect this young person to pay back to society in return. Our Malaysian education system has been flip-flopped, pushed and pulled this way and that until standards dropped to alarming levels. The passing mark for subjects in public exams have fallen notoriously low while the increasing number of distinctions have risen fatuously high with SPM students notching 14As, 17As and 21As. With top scorers aplenty, there will not be enough scholarships to go around now that the Education Ministry has decided to put a cap on the SPM, limiting takers to 10 subjects. The human factor It’s unrealistic that the education system can be effectively overhauled. Even tweaking one aspect of it, such as the language switch for Math and English, created havoc. It’s not that our educational framework is so bad as, after all, a lot of study and planning did go into it. It’s only when the politicians dictate from on high and overrule the better judgment of the educationists – Dr Mahathir Mohamad being case in point – that we slide deeper into the doldrums. The politicisation of education and the hijacking of the country’s educational agenda has clearly cost us heavily in terms of policy flip-flops and plummeting standards, and the loss of a good part of our young and talented human resources. Matters become worse when Little Napoleons too take it upon themselves to interfere with teachers. For instance, the serial number assigned candidates when they sit public exams. Why is a student’s race encoded in the number? What does his ethnicity have to do with his answer script? There is further suspicion that the stacks of SPM papers are not distributed to examiners entirely at random (meaning ideally examiners should be blind to which exam centres the scripts they’re marking have originated from). A longstanding complaint from lecturers is that they are pressured to pass undergrads who are not up to the mark, and having to put up with mediocre ones who believe they are ‘A’ material after being spoilt in mono-racial schools. Letting teachers do their job properly and allowing them to grade their students honestly would arrest the steep erosion of standards. And, unless we are willing to be honest brokers in seeking a compromise and adjustment, the renewed demonising of vernacular schools is merely mischievous. Either accept their existence or integrate the various types of schools. But are UiTM and its many branch campuses throughout the length and breadth of the country, Mara Junior Science Colleges and the residential schools willing to open their doors to all on the basis of meritocracy if Chinese, Tamil, and not forgetting religious schools, were abolished? Not open to a token few non-Bumiputera but genuinely open up and with the admission numbers posted in a transparent manner. Finally, there are teachers genuinely passionate about their profession. There are promising teachers fresh out of training college who are creative and capable of inspiring their students. It’s not only Form 5 students who have been demoralised. Teachers are human capital that we seem to have overlooked in the present controversy. Conclusion: Ensuring fairness for the future well-being of our young A segment of Johoreans cross the Causeway daily to attend school in Singapore. Many continue their tertiary education in Singapore which has among the top universities in the world. Eventually, they work in Singapore and benefit Singapore. Ask around among your friends and see who hasn’t got a child or a sibling who is now living abroad as a permanent resident. I can’t really blame them for packing up and packing it in, can you? It’s simply critical at this juncture that we don’t let our kids lose hope and throw in the towel. The system might be slow to reform but mindsets at least can be changed easier. It starts with the teachers, the educationists and the people running the education departments and implementing the policies. Please help Malaysian youngsters realise their full potential. Just try a little fairness first. – cpiasia.net Note on the Author I am a 76-year-old chartered civil engineer and one of the founders of the three larger construction companies listed in Bursa Malaysia. These are Gamuda Bhd, Mudajaya Group Bhd, and IJM Corporation Bhd. I was a member of the Board of Engineers, Malaysia for three terms. I was also on the Sirim Board responsible in writing the Malaysian standard specifications for cement and concrete. In addition, I was the Secretary General of Master Builders Association, Malaysia for nine years. These days, I am completely retired. My intention in writing this article is honourable. Many people may not like reading what I have written and the truth may be difficult to accept. Nevertheless, this is my considered analysis for the benefit of my country, the Bumiputera contractors and the construction industry.