Archive for April, 2011

Revisiting the ASLI report

April 8, 2011

Some of you may remember that back In 2006, the Asian Strategy & Leadership Institute (ASLI) published a report entitled “Corporate Equity Distribution: Past Trends and Future Policy”. The report claimed that the NEP target of 30% Bumiputera ownership of corporate equity had been exceeded and the the EPU’s figure of 18.7% was wrong. In fact, the report boasted that its calculation “unequivocally refutes the contention that Bumiputera equity ownership presently amounts to less than 20%.”

It, of course, caused a huge controversy. In the end, ASLI’s President, Mirzan Mahathir, retracted the report, saying its methodology was flawed. The author, one Dr Lim Teck Ghee, resigned in protest, thus becoming something of a martyr amongst his supporters. Probably bitter from the experience, Dr Lim has since become a vocal critic of the government. He would, from time to time,  bring up the report (recently here), perhaps not wanting this intellectual masterpiece of his forgotten.

So, let’s revisit the ASLI report, shall we? Although  the report was 40 pages long, all the headlines focused on its claim that the Bumiputera share of corporate equity actually stood at 45%. Most folks assumed that to come up with this number, Dr Lim had assembled many experts and gathered much data in doing an exhaustive study of the ownership of companies listed on Bursa Malaysia. That was certainly the impression that I had back then.

So, I was more than a little surprised when I read the report and saw how he actually arrived at that number. My reaction was one of incredulity. I remember thinking, “Eh? Is that all?”.

The calculation in its entirety is as follows:
0.2 + (RM260bn * 0.7  / RM715.4bn)  = 45.4%

The whole “methodology” made use of only 4 numbers:
– 0.2 is the proportion of Bumi equity as calculated by the EPU (18.7% rounded up to 20% for some reason)
– RM715.4bn is the total market value of all companies listed as at Sep 30 2005, as reported by the Bursa
– RM260bn is the total market value of GLCs listed on the Bursa, taken from Malaysian Business magazine (16-30 August 2005)
– 0.7 is their estimate of the proportion ownership of GLCs by Bumiputeras. No proper justification of this figure was given. Why 70% and not 60% or 80%, I have no idea.

So, it seems that Dr Lim’s big revelation was based on one number that he said was wrong anyway, 2 numbers that he had gotten off someone else’s publications,  and a final one that he plucked seemingly out of thin air.

One might argue that there is nothing wrong with keeping things simple as long as it paints an accurate picture of the situation. But does it? I would argue no, in this case it doesn’t. I will explain why in my next post.  In it, I will talk about some of the problems I have with this methodology including sampling bias, arbitrariness,  an embarrassing mathematical error and a logical fallacy called “begging the question”.