Understanding Sabah’s GLC ecosystem: Scale, performance and accountability

DISCUSSIONS about Government Linked Companies in Sabah often begin with what appears to be a simple question: how many are there? In reality, this question has never had a single answer, and the lack of clarity surrounding it has long diverted attention from more substantive issues of performance, accountability and reform. The numbers themselves are secondary to the underlying issues. Rather, it is the tendency to treat them as definitive indicators of success or failure that has clouded more meaningful debate about outcomes, governance quality and public value.

At the most formal level, Sabah has approximately 27 holding companies and 22 statutory bodies. Together, these amount to around 49 top tier entities that are either wholly owned by the State Government or established through legislation. These organisations form the core of Sabah’s state owned corporate structure. They appoint boards, approve strategies, sanction budgets and exercise oversight over subsidiary operations. As such, they represent the primary interface between public policy objectives and commercial execution. When official documents, State Assembly debates and audit reports refer to Sabah’s GLCs, they are generally referring to this group.

Beyond this formal layer lies a far larger operational universe. These 49 entities collectively own or control a wide array of subsidiaries, associate companies and joint ventures, many of which were created to pursue specific projects, enter niche markets or fulfil time bound policy objectives. Once these lower tier entities are included, the number of state linked corporate vehicles in Sabah expands significantly, commonly estimated at between 200 and 250 companies. This larger figure, frequently cited in public commentary, reflects the full commercial ecosystem through which the State conducts its economic activities across sectors such as plantations, energy, utilities, property development, tourism, insurance and industrial infrastructure.

Both figures describe different realities within the same system. The smaller number captures centres of ownership, governance and accountability while the larger number reflects operational reach and historical accumulation. Confusion arises only when these layers are treated as interchangeable, creating either an impression of excessive sprawl or deliberate opacity. Clarifying this distinction is essential before any meaningful discussion of performance or reform can occur.

Once the numerical issue is understood, attention naturally shifts to a more challenging question, how many of Sabah’s GLCs are actually delivering results. Measuring performance in the public sector is rarely straightforward, particularly where entities operate under mixed commercial and social mandates. Nonetheless, dividend contribution to the State Government remains one of the most objective indicators available. Dividends represent realised profits that are sufficiently robust to be returned to the public purse, rather than accounting gains that remain unrealised or contingent.

Using this conservative benchmark, recent state disclosures show that only 16 GLCs paid dividends to the Sabah Government in the most recent reporting period. These include Sabah Credit Corporation, Petronas Dagangan Berhad, Suria Capital Holdings Berhad, Keningau Agro Venture Sdn Bhd, FGV Holdings Berhad through state share receipts, Sabah Electricity Sdn Bhd, Progressive Insurance Berhad, Sabah Energy Corporation Sdn Bhd, Sawit Kinabalu Sdn Bhd, Borneo Development Corporation Sdn Bhd, Taman Perindustrian Kota Kinabalu Sdn Bhd, Innoprise Corporation Sdn Bhd, Desa Group Sdn Bhd, Qhazanah Sabah Berhad, Sabah Development Berhad and Sabah Economic Development Corporation.

Measured against the 49 top tier entities, this figure places the proportion of dividend paying GLCs at roughly 30 per cent. This figure is sobering but it must be interpreted carefully. Not all statutory bodies are designed to generate profits. Some exist primarily to deliver public services, regulate sectors or support strategic development goals where financial returns are secondary. Applying a purely commercial yardstick to such entities would be misleading and could distort policy priorities.

Even with this qualification, dividends remain the clearest signal of which state linked companies are contributing financially to Sabah. If performance were assessed across the entire 200 plus ecosystem, including subsidiaries and special purpose vehicles, the proportion of profitable entities would almost certainly be lower. Many lower tier companies are dormant, marginal or persistently loss making, yet continue to exist owing to legacy arrangements, institutional inertia or the absence of clear exit mechanisms.

A closer examination of the dividend paying GLCs reveals several shared characteristics. Most operate in sectors with strong underlying economics. Plantation companies benefit from Sabah’s natural endowments and established palm oil value chains. Energy related entities enjoy relatively stable revenue streams, often supported by long term contracts or regulated pricing frameworks. Utilities and selected industrial park operators generate predictable income from essential services and infrastructure.

These GLCs also tend to have clearer commercial mandates. Their objectives are well defined, and management performance is assessed against financial and operational outcomes rather than shifting political or social considerations. This clarity enables better strategic planning, more disciplined capital allocation and a stronger focus on efficiency.

Governance remains a decisive factor. Better performing GLCs generally have stronger boards, more professional management teams and clearer reporting structures. Recent improvements in audit requirements, financial oversight and internal controls have strengthened discipline in parts of the state linked sector, although progress remains uneven and capacity constraints persist in some entities.

Market exposure also matters. Several better performing GLCs are listed companies or joint ventures with private sector partners. This exposure subjects them to market scrutiny, minority shareholder expectations and external audits, imposing a level of discipline often absent in wholly owned entities operating within closed governance environments.

Many dividend paying companies operate within broader state investment structures, including subsidiaries of the Sabah Economic Development Corporation, alongside entities such as Sabah Development Berhad, Innoprise Corporation and Qhazanah Sabah, as well as plantation groups like Sawit Kinabalu. Within these groups, however, performance is frequently concentrated in a small number of strong subsidiaries while others continue to underperform, drawing resources and management attention away from more productive uses.

If only about one third of top tier entities are delivering dividends, the reasons the remainder fail to do so are neither obscure nor unique to Sabah. A central issue is governance weakness, particularly at the subsidiary level. While public attention often focuses on parent boards, many operational and financial decisions occur within subsidiaries that receive far less scrutiny. Historically, board appointments at this level have sometimes been influenced by non commercial factors, including political considerations, resulting in weak oversight and blurred accountability.

Legacy structures also weigh heavily on performance. Over several decades, Sabah established numerous companies to pursue specific projects or policy objectives. When circumstances changed, many of these entities were never consolidated or wound up. They remain on the books, incurring administrative costs and occasional losses despite outliving their original purpose.

Financial control has been uneven across the ecosystem. Past audit findings have highlighted weaknesses in reporting systems, procurement practices and internal controls. While recent reforms suggest improvement, the cumulative effects of earlier lapses continue to burden performance and erode confidence.

External shocks further complicate matters. Tourism related companies, property development vehicles and certain manufacturing ventures are inherently cyclical. The Covid-19 pandemic exposed the fragility of business models that lacked diversification, resilience or adequate financial buffers, reinforcing the importance of balance sheet strength and risk management.

Many GLCs also operate under conflicting objectives. They are expected to be commercially viable while simultaneously fulfilling social or political roles such as employment creation or regional development. Without transparent mechanisms to recognise and account for these non commercial obligations, profitability is inevitably compromised and accountability diluted.

Against this backdrop, expectations from the State leadership have become more explicit. Sabah Chief Minister Datuk Seri Hajiji Noor has publicly indicated that prolonged non performance among GLCs can no longer be treated as an open ended condition. In particular, entities that fail to record profits over a continuous period of five years, and that are unable to demonstrate a credible path to recovery, may face closure.

This position represents a shift from past practice, where loss making state entities were often allowed to persist indefinitely owing to legacy considerations or political sensitivities. The introduction of a five year performance horizon reframes prolonged losses as indicators of deeper structural challenges rather than temporary setbacks. This expectation is directed, crucially, at entities whose non performance has become entrenched rather than at companies experiencing short term disruptions or cyclical downturns.

The warning also clarifies accountability. Boards and management are reminded that continuity can no longer be assumed indefinitely, and that stewardship of public capital carries clearer expectations regarding sustainability and results. At the same time, the emphasis on recovery prospects signals that reform and turnaround remain viable where fundamentals exist and corrective measures are undertaken in earnest.

One of the more important insights from examining Sabah’s GLC ecosystem is that underperformance is often concentrated below the top tier. Parent companies may appear stable or profitable, yet this appearance can mask weaknesses within subsidiary portfolios. Profits from a few strong units are frequently used to offset losses elsewhere, obscuring the true financial position and delaying corrective action.

This reality explains the reason attention is increasingly focused at the subsidiary level, where dormant companies, failed joint ventures and loss making vehicles have historically accumulated. Any meaningful response to the five year expectation must therefore extend beyond holding companies and into the operational layers where performance is actually generated or eroded.

The present juncture offers Sabah’s GLCs an opportunity to take stock of their position. For boards and management, this is a moment to reflect candidly on outcomes, reassess business models and consider whether existing structures, mandates and governance arrangements remain appropriate. Where weaknesses have persisted, there is scope for recalibration through improved governance, clearer strategic focus and stronger financial discipline.

For entities with viable fundamentals, the five year horizon provides both a boundary and an opportunity for renewal. For others shaped by legacy circumstances that no longer apply, consolidation or orderly exit may be part of a natural process of institutional evolution. As expectations around accountability continue to mature, Sabah’s GLCs face an environment that increasingly rewards adaptability, transparency and responsible stewardship. The challenge ahead is not simply to respond to scrutiny but to demonstrate the capacity to evolve and contribute meaningfully to the State’s long term development objectives.

Dr Richard A. Gontusan is a Human Resource Skills Training and Investment Consultant. The information presented in this article is sourced from the public domain. His views expressed in this article are not necessarily the views of The Borneo Post.