The Subsidiary Sprawl: Why Trimming GLC Empires Is Malaysia's Next Structural Reform

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JoeGetz
19 Oct 2026
30
SubCategory | Economic Policies

The Subsidiary Sprawl: Why Trimming GLC Empires Is Malaysia's Next Structural Reform

by JoeGetz, 19 October 2026

Executive Summary

Malaysia's GLC ecosystem is not merely large; it is labyrinthine. Seven federal GLICs control over 68,000 companies directly and indirectly through minority interests. The broader GLC universe exceeds 1,800 entities, many of which are subsidiaries of statutory bodies with poorly defined policy objectives. These subsidiaries are not innocuous corporate structures. They are 68,000 channels through which patronage, corruption, and money laundering can flow, and they systematically crowd out the very SMEs they were ostensibly created to support. Reducing this sprawl is not an accounting exercise; it is a prerequisite for nurturing genuine SME competitiveness, freeing fiscal space, and restoring the nation-building purpose of state-linked capital.

Part 1: The Scale and Logic of Subsidiary Proliferation

How Big Is the Sprawl?

The figures are staggering. Research by Prof. Edmund Terence Gomez and others established that seven federal GLICs—including Khazanah, PNB, EPF, LTAT, Tabung Haji, KWAP, and MoF Inc.—control over 68,000 companies through direct and indirect holdings. The GLC universe more broadly exceeds 1,800 entities, many of which sit beneath statutory bodies and are not under the direct management of the Ministry of Finance, nor do they have well-defined policy objectives.

MOF Inc. alone controls 68 GLCs (as of this writing). Khazanah's annual reports list dozens of subsidiaries and associates spanning aviation, healthcare, infrastructure, and financial services. PNB's portfolio includes strategic holdings across banking, automotive, property, and energy. These are not marginal entities. They are core components of the Malaysian economy.

Why Do Subsidiaries Multiply?

Several structural incentives drive proliferation:

Political Patronage. Each subsidiary requires a board of directors and a senior management team. IDEAS has estimated that if each of the 68,000 subsidiaries had just ten directors and senior managers, this would create 680,000 opportunities for patronage appointments. These are not merely jobs; they are rewards for political loyalty, dispensed through a network that extends far beyond public scrutiny.
Procurement Evasion. Subsidiaries allow GLCs to channel projects through entities that are not subject to the same procurement scrutiny as the parent company. IDEAS notes that small projects channelled through GLC subsidiaries, often through preferential direct contracting, can disburse large amounts of money without triggering conventional audit concerns. If each of the 68,000 subsidiaries were given a RM1 million project, RM68 billion could be disbursed through these channels with minimal oversight.
Empire Building. Subsidiaries expand the scope, budget, and influence of the parent GLC's management. They justify larger headcounts, higher remuneration, and greater jurisdictional claims. They allow GLCs to operate across sectors—from property to hospitality to technology—without a clear strategic rationale.
Bailout Mechanisms. When a subsidiary fails, it can be quietly absorbed, restructured, or sold to another GLC, externalising losses while preserving the parent's balance sheet. This is the moral hazard that OECD has flagged: creditors assume the government will eventually intervene, allowing GLCs to accumulate debt that taxpayers ultimately bear.

Part 2: The SME Crowding-Out Effect

The Empirical Evidence

The OECD's 2026 Economic Survey of Malaysia is unambiguous: Malaysia's continued reliance on GLCs and GLICs in strategic sectors has created an uneven playing field for private firms, hindering competition and weighing on productivity. The OECD urged Malaysia to adopt competitive neutrality principles, ensuring GLCs operate on equal terms with private firms, particularly in procurement and access to finance.

The crowding-out effect is not theoretical. Panellists at a Konrad Adenauer Stiftung webinar heard directly that GLCs which initially sought to provide assistance to SMEs end up competing with those they were supposed to help, with Bumiputera SMEs reporting that they have had to compete with subsidiaries of GLCs and were eventually “crowded out”. The same pattern was identified in the 2026 parliamentary record : the Prime Minister himself has suggested that GLCs should not be allowed to create subsidiaries for the purpose of openly competing with local contractors who are trying to grow.

The Mechanism of Crowding Out

The crowding-out operates through several channels:

Procurement preference. GLC subsidiaries are often preferred in tenders for GLC contractors, meaning private companies and SMEs are systematically disadvantaged. SAMENTA has documented that despite making up more than 97% of businesses, SMEs continue to face barriers in accessing government and GLC projects, with tenders sometimes awarded to bidders previously unheard of in the industry, or to those with known political connections.
Talent absorption. The proliferation of GLC subsidiaries takes up talent and resources which may be better utilised by SMEs that are seeking to grow in the private sector. When the best engineers, managers, and finance professionals are absorbed into GLC subsidiaries—often at salaries inflated by government backing—SMEs struggle to compete for the human capital they need to scale.
Market distortion. GLCs operating in competitive sectors can cross-subsidise their subsidiaries from profitable monopoly or oligopoly operations, undercutting SME competitors on price. This is not competition on merit; it is competition backed by the state's balance sheet.
Dependency creation. Vendor Development Programmes (VDP) tied to GLCs have created a class of Bumiputera vendors that remain dependent on GLC contracts rather than developing independent market capabilities. A 2026 report found that 88% of Bumiputera companies remain micro-scale, with one key factor being continued reliance on contracts from GLCs.

The Contradiction of Purpose

IDEAS CEO Tricia Yeoh framed the fundamental question precisely: if a GLC does not perform an economic development role, is not involved in infrastructure or public service, and is not there for recapitalisation or developmental financial assistance, then why is the government still in that sector at all? Her conclusion: if there is no strategic need for the GLC to exist, divestment should be seriously considered.

This is not an argument against all state intervention. It is an argument against using state capital to do what private capital—particularly SME capital—can do better, while pretending it is nation-building.

Part 3: The Fiscal Case for Reduction

Direct Operating Cost Savings

Each subsidiary carries its own board, senior management, finance function, HR department, legal counsel, office space, and administrative overheads. The direct operating cost of maintaining 68,000 subsidiary entities is impossible to calculate precisely, but the scale is evident. IDEAS has estimated that if audits of GLCs could find just RM1 million of savings and improvements in each company, this would raise RM2 billion in extra resources that could be put to better use. The same logic applies to subsidiaries: rationalisation at scale would generate savings that are currently dissipated across thousands of duplicate overhead structures.

Indirect Fiscal Risk

The fiscal risk extends beyond operating costs. Each subsidiary represents a potential liability on the government's implicit balance sheet. When subsidiaries fail, the parent GLC—and ultimately the taxpayer—absorbs the losses. The Tabung Haji crisis is the most vivid recent example: a reported RM3.4 billion “profit” in 2017 was, in reality, a RM1.4 billion loss, masked by creative accounting and sustained by political pressure. The RM19.6 billion rescue through Urusharta Jamaah Sdn Bhd was the fiscal consequence of governance failure at a single statutory body. Multiply that risk across thousands of subsidiaries and the contingent liability becomes systemic.

Revenue from Responsible Divestment

Responsible privatisation—selling viable subsidiaries to employees, community groups, social enterprises, or qualified private operators—can generate revenue while simultaneously reducing the state's fiscal exposure. If each of the 68,000 subsidiaries were privatised for just RM1 million, this would generate RM68 billion in potential revenue. Even a fraction of that—through the disposal of non-core, non-competitive subsidiaries—would represent a substantial injection of resources for development priorities.

Khazanah's own divestment record demonstrates the model : since 2004, it has divested RM18.4 billion in non-core holdings across 30 transactions, generating gains of RM8.4 billion. The proceeds were redirected to strategic priorities. This is not anti-development; it is a reallocation of capital from low-value to high-value uses.

Part 4: Beyond Cost Savings — The Additional Benefits of Reduction

We have rightly identified SME nurturing and fiscal savings as primary benefits. But reducing subsidiary sprawl delivers a broader set of structural advantages that are equally consequential for nation-building.

Restoring Competitive Neutrality

The OECD has explicitly recommended that Malaysia adopt competitive neutrality principles so that GLCs operate on equal terms with private firms. Reducing the number of GLC subsidiaries in competitive sectors is the most direct way to achieve this. When GLC subsidiaries no longer have privileged access to government contracts, subsidised capital, or regulatory forbearance, SMEs can compete on the basis of productivity, innovation, and price. This is not a retreat from the state's developmental role; it is a correction of a distortion that has suppressed private-sector dynamism for decades.

Dismantling Patronage Channels

The 68,000 subsidiary network is, as IDEAS has documented, 68,000 channels through which patronage, corruption, and money laundering can flow. Each subsidiary requires a board and management team, creating multiple opportunities to reward well-connected individuals with directorships, consultancies, and contracts. The corruption risk is not incidental; it is structural. Auditing and rationalising the subsidiary network—closing dormant entities, merging overlapping functions, and divesting non-strategic operations—cuts these patronage cascades and reduces corruption. This is the governance dividend of reduction.

Talent Reallocation to the Private Sector

GLC subsidiaries absorb talent that could be deployed more productively in SMEs and private enterprises. The best and brightest are often drawn into GLC subsidiaries by the promise of stability, prestige, and government-backed remuneration, leaving SMEs—which are the engines of job creation and innovation—starved of managerial and technical expertise. Divesting non-core subsidiaries and allowing their management teams to transition into private ownership or independent operation would release this talent into the wider economy. The employees themselves often become owners through employee buyouts, aligning incentives and unleashing entrepreneurial energy.

Transparency and Accountability

The sheer number of subsidiaries makes meaningful oversight impossible. The Auditor-General cannot audit 68,000 entities. Parliament cannot scrutinise them. The public cannot trace the flow of funds through them. Reducing the number of subsidiaries to a manageable, transparent set of strategically justified entities would allow real parliamentary scrutiny, real audit, and real accountability. As one commentator put it: “Have you noticed no one is charged for misdemeanours?”. Rationalisation creates the conditions for accountability by making the perimeter of state involvement visible and bounded.

Sharpening the Nation-Building Mandate

Subsidiary proliferation has blurred the distinction between commercial and developmental objectives. Many GLCs now operate in sectors with no clear nation-building rationale—hospitality, property speculation, retail—while their original developmental mandates languish. A GLC that runs hotels and shopping malls has lost sight of its purpose. Reducing subsidiaries forces a return to first principles: what is the strategic justification for state ownership in this sector, and does this entity serve it? As one analysis argued, substantial government ownership should become the exception rather than the default, with a clear presumption toward divestment where the private sector can compete. This is not a retreat from nation-building; it is a rediscovery of it.

Reducing Moral Hazard

Every additional subsidiary creates another entity whose creditors assume government backing. When these entities fail, taxpayers bear the cost. This moral hazard is corrosive: it encourages excessive risk-taking, weakens market discipline, and socialises losses while privatising gains. Reducing the subsidiary footprint shrinks the perimeter of implicit government guarantees, reducing fiscal risk and restoring market discipline to a broader segment of the economy.

Enhancing SME Supply Chain Participation

The government has already recognised the need to channel at least 30% of government and GLC procurements to local SMEs. But this target is difficult to achieve when GLC subsidiaries themselves compete for the same contracts. Reducing the number of subsidiaries—particularly those operating in sectors where SMEs are capable—frees up procurement opportunities for genuine private-sector players. The Government Procurement Bill 2025, which SAMENTA has welcomed for its provisions on open tenders and fair competition, will be far more effective if the GLC subsidiary layer is thinned.

Part 5: The Political Obstacle and the Path Forward

Why Hasn't This Happened?

The answer is uncomfortable. Prof. Terence Gomez has stated it plainly: there is no political will to “deconstruct the GLC monster” because the GLC world is closely linked to the policy world, and the policy world is closely linked to politics. When Pakatan Harapan came to power in 2018, it did nothing to dismantle the structure—it realised it could utilise GLCs to its own benefit. The same pattern has repeated across administrations. The subsidiary network is not a policy failure; it is a political asset.

What Would Real Reform Look Like?

A mandatory ownership register. Every significant company owned directly or indirectly by federal and state governments must be publicly listed, with its purpose, board composition, financial performance, and procurement record disclosed. This is the foundation of accountability.
A strategic purpose test. Each subsidiary must be reviewed against a strict criterion: does it serve a defined developmental, strategic, or public-service purpose that cannot be met by the private sector? Entities that fail this test face a presumption of divestment.
Responsible privatisation, not fire sales. Divestment should prioritise employee buyouts, community ownership, social enterprises, and sales to qualified SME operators—not to politically connected cronies. The goal is to widen capital ownership, not to recycle patronage.
A cap on subsidiary creation. New subsidiaries should require Cabinet-level approval and a published business case demonstrating that the function cannot be performed within the existing GLC structure. This is a simple, enforceable brake on sprawl.
Performance-linked board appointments. Board seats must be filled on merit, with clear expertise requirements and cooling-off periods for politicians, as the OECD has recommended. A board seat should never be compensation for political service.

Conclusion: From Sprawl to Strategy

The question is not whether Malaysia can afford to reduce GLC subsidiaries. It is whether Malaysia can afford not to. The current structure wastes public funds on duplicate overheads, crowds out the SMEs that should be driving innovation and job creation, creates 68,000 channels for patronage, and obscures the very nation-building purpose that justified state ownership in the first place.

The evidence is unambiguous. The OECD has called for competitive neutrality. IDEAS has documented the patronage channels. Panellists have identified the crowding-out of Bumiputera SMEs. SAMENTA has documented the barriers SMEs face in GLC procurement. Even the Prime Minister has acknowledged that GLCs should not compete with local contractors through subsidiaries. What is missing is not diagnosis, but execution.

Reducing subsidiary sprawl is not an anti-GLC agenda. It is a pro-SME agenda, a pro-taxpayer agenda, and a pro-governance agenda. It is the structural reform that makes all other reforms—fiscal consolidation, anti-corruption, SME development, talent retention—possible. Every subsidiary that serves no strategic purpose is a monument to a political economy that has placed patronage above nation-building. Every one that is responsibly divested is a step toward the competitive, accountable, and dynamic economy that Malaysians deserve.

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