Productivity, Efficiency and Privatization in the Malaysian Water Industry

This paper analyses efficiency within the Malaysian water sector using the Data Envelopment Analysis (DEA) approach and the Malmquist Total Factor Productivity (TFP) Index. The results of the DEA show that the sector’s mean technical efficiency was about 65 per cent over a ten-year period (1999 to 2008), which means that there is significant room for improvement in the area of resource utilization, whereby the sector can expand by 35 per cent whilst continuing to use the same amount of resources. The findings also indicate that Pulau Pinang state has the most efficient utilization of water and can therefore serve as a benchmark for optimal performance. The TFP analysis shows that the sector lags behind in the area of technological improvements, confirming an ongoing problem of inadequate capital investment. The findings indicate a positive relationship between efficiency and profitability and a negative relationship between efficiency and tariff rates. The relationship between privatization and efficiency, however, cannot be ascertained solely from the findings of this paper.