A Small Part of Taib Mahmud & Family's Corporate Empire

Extracts from David Brown's doctoral dissertation "Why Governments Fail to Capture Economic Rent: The Unofficial Appropriation of Rain Forest Rent by Rulers in Insular Southeast Asia Between 1970 and 1999" (375 pages) will be posted in Sarawak Headhunter from time to time, but those who want to download, read, keep and distribute the whole dissertation will find it here or if the site is unavailable, just send an email to Sarawak Headhunter.

The Taib family group of timber companies has provided funds for the chief minister to become vastly wealthy and to reward or buy political loyalty, including that of Iban leaders. However, the sum total of the Taib family’s personal wealth seeking and patronage activities goes far beyond the timber sector. The family runs a well-diversified financial empire with interests in building materials, construction and finance.While timber holdings are important, it is in the context of their allowing the Taib family to multiply its wealth and satisfy patronage objectives that the family's control of 20 timber concessions should be understood. Detailing the Taib family’s non-timber economic activities is an important undertaking because it demonstrates the extent to which rent from Sarawak’s forests is recycled to meet the financial and political objectives of the Taib clan, rather than being formally captured by the government.

The flagship of the Taib's financial empire is the largest company in the state, Cahaya Mata Sarawak (CMS).[1] In 1993, the original owners of the company "acquired" on paper a valuable constellation of state-owned companies and a large Taib family holding company, but actually lost control of their company to the Taib family.

The three state-owned companies that CMS purchased were subsidiaries of the Sarawak Economic Development Corporation (SEDC). These companies quarry, manufacture, distribute, market and sell a wide range of steel, metal and aggregate building materials. With the acquisition of these companies, CMS obtained a monopoly over the manufacture and supply of virtually all non-timber building materials used in Sarawak.[2]

At the same time CMS purchased the three SEDC subsidiaries, it also purchased a large Taib family holding company, Syarakusa Corporation.[3] CMS's purchase of Syarakusa resulted in the Taib family obtaining majority control in CMS. According to Cheong, the financial writer, "At least three prospective substantial shareholders [of CMS] are presently disclosed, and they are the vendors of Syarakusa Corporation" (Cheong 1993: 56-60).[4]

Although the primary purpose of CMS appears to be the creation of wealth for the chief minister and his family, some leadership positions in the company are also reserved for political loyalists. For example, the Managing Directorship of CMS is Mohd. Effendi Norwawi whom Cheong says is,

one of the loyalists who stood by Taib Mahmud during the famous 'Ming Court Hotel' affair in 1987 when an aborted coup was staged to unseat the Chief Minister. Taib Mahmud survived the crisis and came out victorious in both the 1987 and 1991 state elections. As vacancies in powerful places were available after the political dissidents had made their exit, a few people like Effendi were said to be rewarded for standing by the Chief Minister in his hour of crisis (Cheong 1993: 58).

Taib also appears to be using managerial positions in, and contracts with, CMS to build stronger ties with the federal government. For example, one board member is Haji Ishak Ismail, a close political ally of the now-deposed but once powerful Deputy Prime Minister Anwar Ibrahim, leading to “rumours of a friendly . . . political tie up between nominees of a rising politician in West Malaysia and the Sarawak Chief Minister" (Cheong 1993: 57).

CMS has also awarded enormous contracts to Hock Seng Lee, a company which “will be undertaking a RM3 billion [$1.2 billion] turnkey project for the reclamation, infrastructure, and construction of an industrial park and integrated township at Demak Laut, Kuching” (Sarawak Securities 1997c: 23). Holding ten percent of the shares in Hock Seng Lee is Permodalan Nasional Bhd, a national income security trust fund which, although nominally containing the retirement funds of Malaysian citizens, is also reportedly used by national leaders to finance their own personal financial endeavors. In this way Sarawak's chief minister is able to gain national influence through CMS.

Also in the Taib family financial empire is Sarawak Capital. The owner and director of Sarawak Capital is Mahmud Taib, the eldest son of the chief minister. Mahmud’s wife, Shana, is in charge of day-to-day operations (11 November 1996 interview with a well-placed and knowledgeable source in Sarawak). Although Malaysia has many investment firms that could provide such services, about half of Sarawak’s timber conglomerates work with Sarawak Capital. The company acted in an advisory capacity to the state’s second largest timber conglomerate, Rimbunan Hijau, until Sarawak Capital severed the relationship on the grounds that Rimbunan Hijau had become a political liability after it ran afoul of the Malaysian prime minister's son. Sarawak Capital also provided advice to the KTS conglomerate (the state’s fourth largest timber conglomerate) on their planned public listing. Similarly, Sarawak Capital acts in an advisory role to the Ling family group of companies (the state’s ninth largest timber conglomerate). Sarawak Capital also brokered a deal between the state-owned Sarawak Timber Industrial Development Corporation and the Indonesian pulp and paper giant Sinar Mas for the now-defunct Borneo Pulp and Paper plant (11 November 1996 interview with a well-placed and knowledgeable source in Sarawak).

Turning to another important Taib family business, the shipping of all timber exports in Sarawak goes through Archipelago Shipping (Dauvergne 1997: 109), a company almost entirely owned by the Chief Minister’s family.[5] Because shipping a cubic meter of timber to foreign markets costs about $40, and because Sarawak exported an average of ten million cubic meters of timber each year during the 1980s, the company’s cash flow was four billion dollars during the 1980s.[6] Hence, in addition to timber industry holdings, the chief minister and his family are enriched by this shipping monopoly. As Table 4.9 shows, the entire management and 92 percent of the shares in Archipelago Shipping are held by relatives of the chief minister or companies owned by them.

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[1] The head of Sahabat Alam Malaysia, the country’s oldest and best known environmental NGO, encouraged me to include a short section on CMS in my dissertation (22 August 1996 interview with Muniandy Thayalan).

[2] A well-placed and knowledgeable source in Sarawak characterized the companies as "among the few profitable subsidiaries of the SEDC" (5 October 1996 interview). According to the source, after SEDC sold these companies, it assumed "a low profile" due to the fact any companies it was left with "were languishing" (8 October 1996 interview).

[3] The fact that Syarakusa is a Taib family company is verified by a financial writer who notes that “the vendors of Syarakusa are Mahmud Abu Bekir Taib, Onn bin Mahmud and Sulaiman Abdul Rahman Taib who are related to the Chief Minister of Sarawak” (Cheong 1993: 56-60). These three are, respectively, the eldest son, the brother, and the youngest son of the chief minister.

[4] The CMS deal was put together by the Taib family’s Sarawak Securities, a subsidiary of the family-owned Syrakusa Corporation. Prior to CMS's acquisition of Syrakusa Corporation, Sarawak Securities used the news of CMS's forthcoming acquisition of value-laden SEDC subsidiaries to drive up the price of Syrakusa Corporation beyond its actual value, and hence increase Syrakusa Corporation's level of ownership in CMS in the final instance. A well-placed and knowledgeable source in Sarawak observed that, “The Chief Minister used Sarawak Securities to bid up the value of Syrakusa prior to Syrakusa's being injected into CMS. The value of the three SEDC companies, drove up the value of Syrakusa Corporation, the Taib-family company” (14 November 1996 interview). The source’s argument, that the value of the SEDC shares drove up the value of the Taib family company, appears to be borne out by looking at the relative sums paid by CMS for the two sets of companies. CMS paid nearly twice as much for the Taib family’s holding company (RM 210 or $84 million) as they did for the three well-functioning SEDC companies (RM117 million or $45 million) according to Cheong (1993: 56-60). When asked to summarize the reason for the existence of CMS in its current form, the source said, "the personal desire for wealth of Sarawak's Chief Minister" (14 November 1996 interview).

[5] Readers will recall that roughly the same is true in Indonesia, where for many years the shipping of all plywood exports had to be done through Karana Lines, a company owned by presidential proxy Bob Hasan. In Sabah as well, two successive leaders personally controlled a log shipping cartel called Archipelago Shipping (the same name as the log shipping cartel in Sarawak, although the two companies are not thought to be related).

[6] This four billion dollar figure assumes that Archipelago Shipping maintained its monopoly throughout the 1980s.

Comment by Sarawak Headhunter: Of course there was corruption involved in all of these deals, but if the ACA does not have the expertise to ascertain this, Sarawak Headhunter volunteers to do the job for them. Once corruption is established, then everything else becomes money-laundering.

Table 4.9 Taib family ownership of Archipelago Shipping

Name of board member or shareholder	Position in or percentage of shares held in company	Relationship to Taib Mahmud, Chief Minister of Sarawak
Onn Bin Mahmud	Director	Chief minister’s brother
Achi Corporation	52 percent shareholder	Company 100 percent owned and controlled by Onn Bin Mahmud, the chief minister’s brother
Fredahanam Bte Mahmud	Director	Chief minister’s sister
Serira	15 percent shareholder	Company 100 owned percent owned by the three sons of the chief minister’s sister, Fredahanam Bte Mahmud.
Mohd. Arip Bin Mahmud	Director and 10 percent shareholder	Chief minister’s brother
Haji Mohd. Tufail Bin Mahmud	Director and 10 percent shareholder	Chief minister’s brother
Grand Shine Trading	8 percent shareholder	No obvious connection to the chief minister
Masba Holdings	5 percent shareholder	Company 100 percent owned by Abdul Aziz Haji Hussain, who is married to the sister of the chief minister, Fredahanam Bte Mahmud.