KUALA LUMPUR (July 28): Malaysia should place greater emphasis on capability development rather than relying primarily on ownership-based policies to advance Bumiputera economic participation, the Organisation for Economic Co-operation and Development (OECD) said on Tuesday.

The OECD said affirmative action policies have historically relied on ownership quotas and preferential treatment in public procurement and licensing. While these measures have expanded Bumiputera representation in corporate ownership, they could also distort market signals and reduce economic efficiency.

It recommended that Malaysia adopt more market-oriented approaches, including targeted capacity-building programmes, skills upgrading and access-to-finance schemes that are transparent and performance-based rather than ownership-based.

The OECD suggested measures such as competitive grant schemes, open innovation funds and supplier development programmes linked to clear productivity benchmarks to help Bumiputera firms scale up without undermining competition.

"Digital platforms for procurement and MSME financing could also ensure equal access while maintaining affirmative action objectives through transparent scoring systems rather than discretionary exemptions," the OECD said in its latest Economic Survey of Malaysia.

Malaysia's affirmative action policy, introduced in 1971, was designed to increase Bumiputera participation in the economy, including through greater wealth creation, equity ownership and corporate representation.

In 2024, the government launched the Bumiputera Economic Transformation Plan 2035 (PuTERA35), which aims to raise Bumiputera equity ownership by individuals and through Bumiputera-mandated agencies to 30% by 2035.

The OECD said Malaysia could draw lessons from countries such as South Africa, Canada and Australia, where affirmative action policies have sought to promote inclusion without undermining competition.

It highlighted South Africa's Broad-Based Black Economic Empowerment framework, which uses enterprise development scorecards and skills training incentives to encourage firms to build supplier capacity and invest in workforce development.

In Canada, the Indigenous Procurement Strategy sets targets for Indigenous-owned businesses in federal contracting but relies on transparent bidding processes and capacity-building initiatives rather than preferential pricing.

Meanwhile, Australia's Indigenous Business Directory and mentoring programmes combine market access with performance-based support.

The OECD said these approaches share common features, including transparent eligibility criteria, competitive processes and an emphasis on developing capabilities rather than creating permanent structural advantages.

"Malaysia could adapt such mechanisms by linking affirmative action to productivity benchmarks and innovation outcomes to broaden Bumiputera participation while preserving efficiency and contestability," it said.

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