You might have heard of the ‘Ali Baba’ business practice, causing a ripple effect in our economic landscape. Before we go further, do not be confused with China’s online e-commerce platform, the Alibaba Group.
You might be wondering what this “Ali Baba” business practice is.
Picture yourself as a restaurant owner who serves the best Nasi Lemak in Kampung Baru. Still, due to specific policies, you cannot bid for a lucrative catering contract at a local Sekolah Kebangsaan. Now, enter your friend, a Bumiputera, in the picture. Being a Bumiputera, this friend is eligible for the contract.
You (the ‘Baba’) team up with your friend (‘the Ali’), and then this Ali places his bid. That is it. You have just set up an ‘Ali Baba’ arrangement. Your Bumiputera friend, Ali, becomes the public face, winning the government contract reserved for Bumiputera, even though you, a non-Bumiputera (‘the Baba’), do most of the work behind the scenes. You take your cut based on the agreed profit, usually counted in %. (this is what we called as “untung atas angin”).
Rent-seeking and Ali Baba
Let’s examine the concept of rent-seeking. According to Investopedia, rent-seeking is an economic concept that refers to increasing one’s share of existing wealth without producing new wealth. These rent-seeking practices often involve pulling the strings around one’s economic or political connection to gain advantages without actually doing any productive activity.
Derived from Malay folklore, the term ‘Ali Baba’ is a phenomenon in the business practice where the Bumiputera (indigenous people of the land) lend their names to companies owned by non-Bumiputera to gain access to government contracts and licenses reserved for the Bumiputera.
Ali Baba’s business model is specific to a cultural and governmental context (Malaysia) where policies are designed to address historical imbalances. On the other hand, rent-seeking is a broader economic concept applicable in various contexts where individuals seek to multiply their wealth through the establishment or maintenance of their monopolies in certain industries.
Downside of Ali Baba Culture
The Ali Baba business practice, while it has its merits, is not without its downsides.
- Potential for exploitation: Under the guise of a Bumiputera front, Non-Bumiputera businesses can take advantage of the preferential treatment and benefits intended for Bumiputera businesses. This can lead to a distortion of the market and an unfair distribution of resources.
- Inequality and resentment: Another downside is the potential for fostering resentment and tension between ethnic groups. The Ali Baba business models focus on gaining access to opportunities, subsidies, and licenses that are not available to others. This can give birth to feelings of inequality and resentment among non-Bumiputera businesses.
- Inefficiency of end product or services: From an economic perspective, the Ali Baba practice can lead to inefficiencies. Prioritizing ethnicity over merit can result in less competent businesses receiving contracts and benefits.
- Manipulation occurs when individuals or companies use the name of another to gain access to government contracts and licenses. This manipulation often involves lobbying and bribery to secure favourable conditions.
Ali Baba today
While this Ali Baba business model was rampant among Chinese and Malay many moons ago, in today’s decade, this practice has spread its wings to include foreign residents, including individuals from Indonesia, Bangladesh, Pakistan, and Myanmar.
As reported by Harian Metro, several Malay traders lodged complaints to the members of Parliament in Hulu Langat on the Ali Baba phenomenon in their constituency. They claimed that foreigners have been operating their business by using local business licenses borrowed from Bumiputera business owners.
Such a scene should bring the attention of lawmakers as local traders must undergo strict requirements before getting their licenses. This includes registering their business, attending food preparation courses and receiving typhoid vaccinations upon applying for a business license.
Then came Baba, who easily did their business without the hassle of going through all those necessary procedures.
Regulatory Initiatives and Legal Reforms
The Malaysian government has been taking steps to address the issue of Ali Baba’s business practices.
In 2020, the Malaysian Anti-Corruption Commission (MACC) proposed amendments to the MACC Act 2009 to include provisions specifically targeting Ali Baba practices. This proposal was in response to the widespread abuse of Bumiputera status in business transactions.
The proposed bill aims to make it an offence for any company to misuse the Bumiputera status for economic or financial gain. This includes using a Bumiputera company as a front or figurehead to secure government contracts and tenders.
The proposal ramps up the consequences for those caught in the act, hitting them with tougher penalties. But let’s not jump the gun—these amendments aren’t yet set in stone. But there’s concern these amendments, still not law, may inadvertently put a damper on the ambitions of genuine Bumiputera business people to collaborate with their non-Bumiputera counterparts.
Beyond legislative changes, the government has also been imposing stricter measures to improve the transparency and accountability of the tender process. This includes the introduction of e-procurement system and more stringent auditing.
Despite these efforts, critics argue that more needs to be done to address the root causes of Ali Baba’s practices, such as economic inequality and the lack of access to capital and resources for Bumiputera businesses.
Future of Ali Baba in the Malaysian business landscape
Looking ahead, it remains to be seen how these proposed laws and measures will impact the prevalence of Ali Baba practices in Malaysia. Whether these new rules actually rein in shady business tactics hinges on how well they’re put into play and if companies step up to the plate.
Thus, while including foreigners in the Ali Baba practice reflects Malaysia’s evolving economic landscape, it also underscores the need for a more comprehensive and nuanced understanding of this practice, its implications, and how it can be regulated to ensure fairness and inclusivity.
