— Ong Kian Ming and Teh Chi-Chang | August 09, 2012
REFSA (Research for Social Advancement)

At PEMANDU, perception trumps reality. This very powerful government agency values perception and spin above genuine transformation. Starting with the headlines, its rosy communiqués trumpeted strong economic numbers in 2011 rather than admit that real gross national income (GNI) growth was below target, let alone explain the causes or articulate measures to close the gap.

PEMANDU lied in its annual report. It took “100 per cent” credit for the construction of a RM1.9 billion wafer fab plant that was never built. Malaysian official statistics have, until now, been accepted as reliable. This is crucial for investor and public confidence. We hope PEMANDU is not pressuring other government agencies and EPP owners to also dress up their numbers, which will ultimately lead to a catastrophic collapse in confidence in Malaysia.

Agreed-upon-Procedures (AUP) are not worth much. Contrary to general public perception, PricewaterhouseCoopers (PwC) did not conduct a full audit. It conducted AUP, the ambit of which was so loose that PwC failed to detect a huge RM1.9 billion wafer fab plant that was never built. How many other less audacious lies slipped through the net?

PEMANDU is driving a delusion. The very foundations of the ETP are doubtful now that PEMANDU has confessed to errors that slashed 45 per cent off the incremental GNI claimed. Also, some so-called transformative EPPs were chosen based on exaggerated numbers. However, PEMANDU’s biggest “success” is manipulating Malaysians into believing that the ETP is transformational, when in fact, workers will take a mere 21 per cent of the incremental income the ETP promises to create, down from their 28 per cent share currently.

• PEMANDU is misrepresenting economic performance. The fact is, real growth in 2011 was below PEMANDU’s target.

• Even worse, PEMANDU is guilty of telling lies, including the whopper of taking “100 per cent”‘ credit for the construction of a RM1.9 billion wafer fab plant that was never built.

• PEMANDU is transforming Malaysia for the worse. It values style over substance, glosses over important issues and misrepresents and deceives.

• PEMANDU’s biggest success is manipulating Malaysians into believing the ETP will transform their lives. The reality is the bulk of the incremental national income that PEMANDU promises to generate will go to the elites.

Masters of Perception Manipulation and Deception

PEMANDU has continued to misrepresent information and deceive the Malaysian public in its communiqués and responses to our critiques of the Economic Transformation Programme (ETP) Roadmap and 2011 ETP Annual Report. It has accused REFSA of “nit-picking” and being “an old broken record” but failed to address very crucial points in its convoluted and verbose replies:

PEMANDU still refuses to acknowledge that real economic growth last year was below its target. Instead, it misleads Malaysians by highlighting nominal growth, which was boosted by inflation. Inflation makes us poorer, not richer. It is real economic growth that makes us richer, not nominal growth and PEMANDU has not articulated any measures to get real growth back on track;

PEMANDU has not retracted the blatant lie in the ETP Annual Report where it took “100 per cent” credit for the “construction of a 200mm wafer fab” plant that was never built. This is an audacious lie, pretending there was a huge RM1.9 billion investment that never existed.

Misdirection is endemic at PEMANDU, even in the face of hard facts and analysis. It still has not explained the extremely slow pace of actual investments in the ETP in its first year.

Truth has been the biggest casualty in PEMANDU’s drive to deliver “Big Fast Results”. Huge, audacious lies are told, goalposts shifted and targets retrospectively set at arbitrarily low levels following which “outperformance” is claimed. Failed projects are still kept “in the books” to boost the headline numbers.

But the facts can only be suppressed for so long. It is now becoming increasingly apparent that PEMANDU is driving a delusion — that the government can drive the economy.

PEMANDU manipulates perception on economic reality

The perception manipulation by PEMANDU starts with the headline data. It is extremely worrying that this powerful agency within the Prime Minister’s Department prefers to shift the goalposts (by quoting GDP instead of GNI) and misrepresent performance (using US$ and nominal numbers; and dragging in irrelevant 2010 data) rather than face the issues honestly.

If development and transformation are the genuine aims, then Malaysians would be far better served if PEMANDU acknowledges the reality that economic performance is weaker than it targeted, determines the causes and suggests remedial measures to help economic growth get back on track.

Here are two examples of PEMANDU’s manipulation of economic data to create the perception that it is performing well.

PEMANDU: GDP grew by an average of 6.2 per cent in 2010 and 2011; we are meeting our ETP target.

Fact: Real GDP grew by only 5.1 per cent in 2011, below PEMANDU’s 6 per cent target. 2010 GDP growth was stronger, but should not be included by PEMANDU because the ETP was launched only in October 2010.

Fact: PEMANDU’s use of GDP (Gross Domestic Product) here is odd. The ETP uses GNI (Gross National Income) to measure economic performance, not GDP.

Fact: Real GNI grew by just 4.7 per cent in 2011, even lower than real GDP growth and well below PEMANDU’s 6 per cent target.

The use of GDP instead of GNI is particularly insidious, because PEMANDU, in an earlier response to a REFSA critique, said that “comparing GDP to GNI is incorrect” since “this is comparing apples and oranges, and this begs the question as to why REFSA is choosing to compare two different measures”.

Subsequently, PEMANDU decided to go back to GNI, but shifted the focus to nominal instead of real growth:

PEMANDU: Our GNI per capita rose to US$9,508, a 17 per cent increase in 2011. We are well on track to reach our high-income target by 2020.

Fact: Exchange rate movements will change our income in US$ but make no real difference to our quality of life. For example, a salary of RM3,000 per month could be US$900, US$1,000 or US$1,100, depending on how weak the US$ is against the ringgit. However, that fluctuation in US$ makes no difference to the ordinary Malaysian on a day-to-day basis.

Fact: In ringgit, GNI per capita rose by 11.2 per cent. This may appear impressive, but nominal growth includes inflation, which makes us worse off, not better off. Nominal growth looked high, but it is real growth that matters, and that was very slow. How will real growth be speeded up? PEMANDU has not said anything.

Liars roam free at PEMANDU

PEMANDU: “100 per cent” credit for the construction of a 200mm wafer fab plant.

Fact: The RM1.9 billion plant was never built.

More than two months after we unearthed the shocking case of PEMANDU taking “100 per cent” credit in its Annual Report for a RM1.9 billion wafer fab plant that was never actually built, PEMANDU still has not formally retracted that barefaced lie.

Subsequent to our exposé, PEMANDU said in its ETP blog that capacity increases were facilitated via other companies.

PEMANDU’s response following our exposé of the non-existent wafer fab

At the project level, we rejoiced at having a promising early Entry Point Project, L-Foundry Malaysia, a Malaysian-German joint venture that was to move and relocate expensive European wafer fabrication operations to the more economical climes of the Kulim High Tech Park …

Due diligence was done. The JV management team went all out, and this involved German, Malaysian, Japanese, and American stakeholders. And all the support agencies were in high gear too. But as Murphy would have it, the German partners ran into operational difficulties which obviously they had not anticipated, and were forced to pull out.

The project as originally envisaged was scrapped. But that was never the end game. The L-Foundry Malaysia project was a means to an end. Our intended “true north” was to increase Malaysia’s wafer fab capacity to create a more balanced semiconductor manufacturing ecosystem, and MIDA did precisely that. They shifted to Plan B, and facilitated capacity increases via other companies.

Excerpt from http://etpblog.pemandu.gov.my/posts/2012/04/17/keeping-it-real-the-etp-as-a-microcosm-of-life/ Written by Chris Tan, Director, Electrical & Electronics NKEA, PEMANDU. Retrieved 27 July 2012

There is a huge difference between a gleaming new RM1.9 billion wafer fab plant and “capacity increases via other companies”. “100 per cent” credit is not deserved if the total investment is less than originally targeted. Furthermore, increasing capacity at existing companies is less valuable than introducing a new player which can broaden and deepen the industry.

The officers involved in this shameless act must be severely sanctioned. PEMANDU is a unit within the Prime Minister’s Department, which means it represents the prime minister himself, the leader of our government. The integrity of the information emanating from this department must be beyond reproach. A clear message must be sent that the government, and especially the prime minister himself, will not tolerate falsehood.

Data and information integrity is of paramount importance for any government undertaking, and even more so for an ambitious programme such as the ETP. Given PEMANDU’s clear bias towards rosy data, and its unwillingness to admit to misreporting even when confronted, can we be sure that this extremely powerful agency did not and will not pressure other government departments as well as the EPP project owners to overstate their data and “achievements” in order to boost PEMANDU’s apparent performance?

We must be wary of going down the old Soviet-style path of arbitrary target setting and professed achievements, or more recently, of Argentinean-style suppression of reported inflation to delude ourselves into thinking that our economy is in better shape than it actually is.

Misdirection is endemic at PEMANDU

PEMANDU seems to be driving the nation through smoke and mirrors. One minute dazzling reports appear with a poof, but when questions are raised, they are adroitly deflected with a puff.

We are incredulous that PEMANDU continues to misdirect and misrepresent in the face of hard facts and analysis. We had revealed that actual investments under the ETP were just RM12.9 billion — a mere 7 per cent of the RM179 billion committed that PEMANDU trumpets. However, rather than address the issue, PEMANDU chose to misdirect.

PEMANDU: We have been clear in differentiating committed investment and realised investment in our announcements. To suggest we are misleading the public is irresponsible.

Fact: The seminal ETP 2011 Annual Report, which was the document we analysed and quoted, made absolutely no mention at all of realised investments, let alone acknowledge that they were exceptionally low. Instead, the Annual Report focused on how investments were well ahead of target.

It was only in ONE ETP Update last year that realised investments were mentioned.

Trotting out misleading comparisons and statistics is unproductive and intellectually dishonest. If transforming our nation is the goal, PEMANDU must take the bull by the horns and address the root causes of why the private sector is so slow to invest, especially since many of the ETP projects are so-called “shovel ready”.

Were dodgy projects chosen as EPPs?

Our analysis forced PEMANDU to confess to erroneous assumptions that resulted in the GNI and job creation numbers being slashed by a shocking 45 per cent and nearly 20 per cent respectively.

The whopping 45 per cent reduction in GNI contribution means that the original forecast was nearly double the level that is now considered realistic. It appears that some EPPs had presented forecasts that extremely exaggerated their potential.

This throws into question the whole selection process and the very foundations of the ETP. PEMANDU’s much vaunted “labs” selected EPPs based on their economic projections. Now, it might be surmised that some EPPs with exaggerated forecasts were chosen instead of other projects which were more realistic and honest.

This massive error in the GNI impact calculations was discovered during the Agreed-Upon-Procedures (AUP) method of validation that independent professionals PricewaterhouseCoopers (PwC) conducted with PEMANDU for the 2011 ETP Annual Report.

The terms of the AUP have never been made public, but it appears that they were so loose that PwC could not compel PEMANDU to clearly admit to the error. Even more worrying is the fact that the procedures and/or PwC’s examination were so cursory that they failed to detect the massive lie of taking “100 per cent” credit for the construction of a multi-billion ringgit wafer fab plant that was never built. One wonders how many more cases of undeserved credit slipped through the AUP validation process.

PEMANDU is driving a delusion

PEMANDU is driving a delusion — that the government can drive the economy. There is nothing intrinsically wrong with setting ambitious targets. Ambitious targets underpinned by realistic plans, a ruthless focus on execution and good people take us to levels we would not have thought possible. But it is somewhat hubristic, not to mention delusional, to think that a government agency comprising 80 or so people can boost the economic growth rate by 20 to 50 per cent annually!

This is even more so when the agency in question, PEMANDU, claims that it is merely an aggregator expediting the real work which is being undertaken by the private sector. Malaysia does not operate under a command economy system whereby production can be cranked up by a percent or two in order to meet designated KPIs given from “above”.

PEMANDU is now failing for the same reason that command economies and central planning failed. Modern economies are far too complex for any single agency to administer. PEMANDU is now coming up against that economic reality. The splendid plans and EPPs developed and approved in the much vaunted PEMANDU labs are not so easily implemented, even with the red tape cutting skills of the highly-qualified and well-paid professionals at PEMANDU.

Private sector plans are dynamic and change according to economic conditions. Some projects may grow bigger, some may be downsized and, yes, entire companies may go bankrupt, as was the case with LFoundry and the wafer fab project. But PEMANDU sweeps such economic realities under the carpet in its drive to deliver “Big Fast Results”. Blatant lies are perpetrated and targets are arbitrarily set at low levels so that they can be shown to have been “exceeded”. Projects which have gone awry still remain ‘in the books’ to boost the headline numbers.

2 + 2 = 5

The phrase “two plus two equals five” or “2 + 2 = 5” is a slogan used in George Orwell’s “1984” as an example of an obviously false dogma one must believe, similar to other obviously false slogans by the Party in the novel. It is contrasted with the phrase “two plus two makes four”, the obvious — but politically inexpedient — truth.

The Party interrogator of thought-criminals, O’Brien, says of the mathematically false statement that control over physical reality is unimportant. So long as one controls one’s perceptions to what the Party wills, then any corporeal act is possible, in accordance with the principles of doublethink (“Sometimes they are five. Sometimes they are three. Sometimes they are all of them at once”).

“In the end the Party would announce that two and two made five, and you would have to believe it. It was inevitable that they should make that claim sooner or later … Not merely the validity of experience, but the very existence of external reality, was tacitly denied by their philosophy.

“The heresy of heresies was common sense. And what was terrifying was … that they might be right. For, after all, how do we know that two and two make four? Or that the force of gravity works? Or that the past is unchangeable? If both the past and the external world exist only in the mind, and if the mind itself is controllable — what then?”

At this juncture, we come full circle and draw attention once again to the document that started it all, the Economic Transformation Programme: A Roadmap for Malaysia released by PEMANDU in October 2010. At that glitzy launch, and in the ensuing months, we too were enamoured with the velvety presentations and carrot of high-income nation status that PEMANDU dangled in front of us.

But here’s the rub. Cast aside our critiques and assume that PEMANDU achieves all it says it will as per its Roadmap. The lives of ordinary Malaysians will still not be transformed. Workers will take a mere 21 per cent of the new wealth, down from 28 per cent currently. The fact that the ETP benefits corporations and the elites more than ordinary Malaysians has been very “professionally” glossed over.

We close this series with another extract from “1984”:

“The name of every organisation was cut down into a single easily pronounced word that would preserve the original derivation. For example, the Records Department was called Recdep, the Fiction Department Ficdep, the Tele-programmes Department Teledep and so on.

This was not done solely with the object of saving time. Even in the early decades of the twentieth century, telescoped words and phrases had been a characteristic of political language; and it had been noticed that the tendency to use abbreviations of this kind was most marked in totalitarian countries and totalitarian organisations. Examples were such words as Gestapo, Comintern and Agitprop.

It was perceived that abbreviating a name narrowed and subtly altered its meaning by cutting out most of the associations that would otherwise cling to it. The words Communist International, for instance, called up a composite picture of red flags, barricades, Karl Marx and the Paris Commune. The word Comintern, on the other hand, suggests merely a tightly-knit organisation and well-defined body of doctrine.

Comintern is a word that can be uttered almost without taking thought, whereas Communist International is a phrase over which one is obliged to linger at least momentarily. In the same way, the associations called up by a word like Minitrue are fewer and more controllable than those called up by Ministry of Truth. This accounted not only for the habit of abbreviating whenever possible, but also for the almost exaggerated care that was taken to make every word easily pronounceable.”— The Principles of Newspeak

Try saying Performance Management and Delivery Unit instead of PEMANDU. What connotations come to you? Do share on our Facebook page and/or tweet us at @inforefsa.

Previously, in our dissection of the 2011 Annual Report of the ETP …

Part 1 (The “D”ata in our DEEDS framework) highlighted how PEMANDU very adroitly masked the fact that real national income growth last year was below its target;

Part 2 (“E”xecution) unearthed the shocking case of PEMANDU lying and taking “100 per cent” credit in its Annual Report for a RM1.9 billion wafer fab plant that was never built;

Part 3 (“E”nterprise) uncovered the startling gap between committed and actual investments. The RM12.9 billion of actual investments is a mere 7 per cent of the RM179 billion committed investments that PEMANDU prefers to emphasise;

Part 4 (“D”iversity) revealed that PEMANDU’s “recalibration” of the ETP figures is better described as a massive collapse. The incremental GNI (Gross National Income) and job creation numbers were slashed by 45 per cent and nearly 20 per cent respectively. Were some EPPs selected based on grossly exaggerated forecasts?

Part 5 (“S” Socio-economic impact) showed that capital investment per employee (CIPE), an indicator of the quality of jobs created, is very low under the ETP. We see this as reflecting the fact that many ETP projects are “recycled projects” that are not fundamentally transformative.

Part 6 summarised our recommendations for PEMANDU’s benefit, and highlighted the positive outcomes of our analyses and critiques, which PEMANDU had characterised as “nit-picking”.

DEEDS was conceived earlier this year when we published a series assessing PEMANDU and the ETP on the goals, plans and targets stated in the ETP Roadmap document. In keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, and GNI surrounding the entire GTP, we evaluated PEMANDU and the ETP on its DEEDS — Data transparency, Execution, Enterprise, Diversity and Socio-Economic Impact. The 8 Focus Papers in this Critique of the ETP Roadmap Series, together with related infographics and a powerpoint presentation can be found at www.refsa.org. — REFSA

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* Dr Ong Kian Ming holds a PhD in Political Science from Duke University and Economics degrees from the University of Cambridge and the London School of Economics. He is attached to UCSI University, which has been named as the project owner of two entry point projects (EPPs). To avoid any potential conflict of interest, he will not make references to or analyse these two EPPs. He can be reached at [email protected].

* REFSA (Research for Social Advancement) executive director Teh Chi-Chang holds a first-class degree in Accounting & Financial Analysis from the University of Warwick, an MBA from the University of Cambridge and the CFA (Chartered Financial Analyst) charter. Prior to joining REFSA, he headed highly-regarded investment research teams covering Malaysia, and was himself highly-ranked as an analyst. He can be reached at [email protected].