It was such an unexpected outcome for the world largest democracy. Despite India’s sheer complexities - deep division along state lines, religious views and ideology, the Congress Party won just short of a simple majority to emerge with the strongest mandate in decades.
The stock market responded swiftly. It simply erupted, prompting the circuit breakers into action to control the surge in stock prices. Clearly, investors love the fact that with these strong win, the Congress Party can spend less time politicking in pandering to its myriad of lesser coalition partners, and focus on building the country’s economic fundamentals, especially during this deep economic slump.
Meanwhile, over in Malaysia, the Perak MB vs. MB crisis is still brewing with both political parties slugging out their political fight in the media, in the courts and in the hearts of the people.
At the same time, the Sedition Act is invoked to arrest one single activist who demonstrated against the political upheaval in Perak. His supporters too were arrested. In a blatant act of intimidation, the police even arrested their legal representatives. It was such a farcical sight captured on camera – dozens of stern-looking police barging out their compound and arresting peaceful demonstrators bearing candlelight vigils and lawyers who were simply seeking legal counsel for their clients.
These events played out as waves and waves of crime, some bearing most heartbreaking news, cause fear and anxiety among Malaysians. Even as the police declared crime rates to be down, it offers little solace to relatives and friend of victims who died as a result of petty crimes. It pains me when I read the news that a 5 year old, along with her mother and maid, were killed by a drug addict, all for the price of…one laptop.
On the economy side, Malaysian manufacturing figures for March fell 25.5% year on year, demonstrating that Malaysia is not out of the woods yet. There is no doubt Malaysia can withstand the slump, and come out with some decent growth for 2010. This is because of god-given strong fundamentals – Malaysia is blessed with rich natural resources and various commodities with no shortage of arable land and water.
However, there is no way Malaysia will continue to enjoy the high rates of growth which we took for granted in the past. Growth of 8% or more does not seemed possible because our political “leaders” are going to spend the next 3 years squabbling and campaigning for either the greatest victory or the greatest defeat in their political career and in Malaysian history, depending on which side of the divide you are on. Endless political wrangling; mudslinging; damaging personal attacks; etc – these “leaders” will continue to bleed Malaysia, instead of leading Malaysians.
The Opposition under Anwar Ibrahim is likely to continue to draw more support. The people, especially younger voters who will have a large say come the next elections, will no longer be swayed by the old BN mantra of “if it ain’t broken, don’t fix it”. Malaysia is broken. We may have the gleaming Petronas Twin Towers; the prestigious FI Sepang race; the Monsoon Cup (?). But our hearts are heavy with apprehension. We fail to understand why the ruling party still insist on dividing the people to carves out pockets of power for their own ambitions; why cases and cases of corruption are perpetually being investigated but no one important is ever brought to shame; why our legal system is in shambles with the alleged culprits still at large; why are we afraid of letting our kids go out into the streets without the supervision of a trusted adult. We wonder how is it that politicians stresses the importance of racial harmony, but fail to condemn those within their party who utters divisive remarks. Have they not learnt anything since the General Elections?
Anwar Ibrahim is riding this wave of discontent. The time is right – millions of young voters will come out strongly to cast their votes come the next General Election. And the ruling BN has given the Opposition plenty of ammunition to place the former on perpetual defensive mode. Given the consistent barrage of negative publicity on perceived transgressions of BN’s politics and politicians, Anwar will not let up the attacks and preserve his tag as “PM-in-waiting”.
PM Najib does not really have any choice. He cannot hope to ride out these negative sentiments by assuming the electorate will swing back by some token gestures. He has to act boldly and silence the Opposition’s guns. Repeal the ISA. Repeal the Sedition Act. Allow peaceful demonstrations. Political warlords and powerful businessmen who manipulated the legal system and/or abused their positions must be named and shamed and brought to justice. Revamp the police force by setting up the Independent Commission as recommended by the Royal Commission. A true leader must not be afraid of opposing views nor should they be afraid of making difficult decisions.
Particularly in the context of Malaysia, the PM must be seen to serve all interest of Malaysians, by levelling the playing field and espousing meritocracy and transparency. Stop this tyranny of the minority (the BN/UMNO elites) against the majority (the people!). It is time to put an end to this nonsense of pitting Malaysians against Malaysians, but to unite Malaysians to compete against the World. We wait with bated breath for a true Malaysian leader to show us the way.
Saturday, May 23, 2009
Wednesday, March 11, 2009
RM60billion mini budget, but little cheer for the man on the street
In the face of the global slump for exports, and coupled with the fact that exports accounts for 100% of Malaysia’s GDP, the stimulus need to have 2 basic ingredients – 1) boost domestic consumption to replace dwindling export demand; 2) reduce business costs especially for exporters which are facing shutdowns due to the sharp decline in foreign demand. While the government has announced measures to deal with the latter, little is being introduced to address the former.
Spurring Domestic Demand
There is little in the budget which raises disposable income for Malaysians. Instead, the Government opted to spend a subsidy of RM674m to AVOID PRICE INCREASE for necessities like bread, flour and sugar. Another RM480m is allocated to compensate toll operators NOT TO raise their rates. So, after RM1 billion of spending, it is still status quo for Malaysian consumers. The largest beneficiary of the RM1bn largesse is the toll companies, who despite the global recession, is still enjoying guaranteed profits. The only silver lining for Malaysian tax-payers is the tax relief given on housing loans.
The stimulus should have bold measures to put more money in the pockets of Malaysians IMMEDIATELY, as this is the fastest and most direct way to recycle more ringgit into the local economy, raising aggregate demand and via the multiplier effect, increasing incomes for everyone. This could be achieved by providing higher income tax relief for 2008, or better still, free spending coupons ala Taiwan-style to jump-start local spending.
Reducing Costs of Running a Business
The RM30billion or so worth of corporate/loan guarantees is a right step in enabling cash-strapped but otherwise healthy companies that are still seeing demand for their products to have access to fast and cheap credit. This will prevent companies who are still cost-competitive from collapsing simply because of the tighter credit market.
However, when a business is suffering from a slump in demand for its product or services, easier access to credit will not ensure survival if the recovery in demand does not come fast enough. In this aspect, it is more critical for these companies, many whom are exporters, to receive subsidies to reduce their operations costs or some form of export tax rebates. Otherwise, the only option left for these companies to slash costs is to fire staff. One way is to abolish the Human Resource Development Fund (HRDF). A cursory look at the balance in Fund would reveal hundreds of millions unutilised. It is perverse to force companies to continue to pay even 0.5% of their total wage bill to the HRDF, which then lay idle, when they are struggling to pay normal wages. And since the government is already spending billions on re-training and HRDF is a means to spur companies to train their existing staff, why the need to tax companies wage’ bill? The government should be subsidizing the companies’ costs of retraining, not taxing them.
There are also no incentives given to companies to retain their workers. In fact, companies now have an incentive to terminate their current workers and then re-employ those retrenched since they can enjoy double tax deductions equivalent to the annual salary of the re-hired worker.
The government has to remember this – Governments cannot create private sector jobs – it is the businesses that create these jobs. The governments’ role is to facilitate private businesses - by creating robust consumer spending and simultaneously reduce the operational costs of businesses. Instead of shuffling those retrenched or unemployed into temporary jobs or into some retraining schemes which may or may not match potential employers’ requirements, the funds for these schemes should instead be diverted to companies who are not retrenching workers to help them cope with the current slump.
On Equity Investments
There is also a statement in the Stimulus package which is kind of quirky. It states: The poor performance of Bursa Malaysia has also adversely impacted investor and consumer sentiment as well as the services sector, which normally is a high-growth sector “.
The cause and effect is reversed here. More accurately, it is the poor investor and consumer sentiments which caused the poor performance of the Bursa Malaysia. The poor sentiments are in turn caused by the falling demand for Malaysian goods/services and deteriorating corporate earnings. Indeed, while private think-tanks has been forecasting at best zero growth for Malaysia, the Government as recent as few weeks ago was still preaching the "fundamental strength" of the local economy. Investors clearly did not share in this optimism, which then sent the Bursa index falling.
In all, fiscal spending only amounts to RM15billion in this 2nd RM60 billion budget. The balance is in the form loan/corporate guarantees, etc. So lets not get wowed by the RM60billion figure being bandied about. The government should have opted to put more money directly into the rakyat’s pocket – the impact would certainly be more forceful in stimulating the local economy – vs. largely depending on public expenditure to boost local consumption. The latter, as we know, is prone to slow execution and leakages via corruption/rent seeking. Still, at least the government is now admitting that Malaysia, despite its “stellar fundamentals”, is not immune from the global economic malaise after all. Better late, than never, I suppose.
Spurring Domestic Demand
There is little in the budget which raises disposable income for Malaysians. Instead, the Government opted to spend a subsidy of RM674m to AVOID PRICE INCREASE for necessities like bread, flour and sugar. Another RM480m is allocated to compensate toll operators NOT TO raise their rates. So, after RM1 billion of spending, it is still status quo for Malaysian consumers. The largest beneficiary of the RM1bn largesse is the toll companies, who despite the global recession, is still enjoying guaranteed profits. The only silver lining for Malaysian tax-payers is the tax relief given on housing loans.
The stimulus should have bold measures to put more money in the pockets of Malaysians IMMEDIATELY, as this is the fastest and most direct way to recycle more ringgit into the local economy, raising aggregate demand and via the multiplier effect, increasing incomes for everyone. This could be achieved by providing higher income tax relief for 2008, or better still, free spending coupons ala Taiwan-style to jump-start local spending.
Reducing Costs of Running a Business
The RM30billion or so worth of corporate/loan guarantees is a right step in enabling cash-strapped but otherwise healthy companies that are still seeing demand for their products to have access to fast and cheap credit. This will prevent companies who are still cost-competitive from collapsing simply because of the tighter credit market.
However, when a business is suffering from a slump in demand for its product or services, easier access to credit will not ensure survival if the recovery in demand does not come fast enough. In this aspect, it is more critical for these companies, many whom are exporters, to receive subsidies to reduce their operations costs or some form of export tax rebates. Otherwise, the only option left for these companies to slash costs is to fire staff. One way is to abolish the Human Resource Development Fund (HRDF). A cursory look at the balance in Fund would reveal hundreds of millions unutilised. It is perverse to force companies to continue to pay even 0.5% of their total wage bill to the HRDF, which then lay idle, when they are struggling to pay normal wages. And since the government is already spending billions on re-training and HRDF is a means to spur companies to train their existing staff, why the need to tax companies wage’ bill? The government should be subsidizing the companies’ costs of retraining, not taxing them.
There are also no incentives given to companies to retain their workers. In fact, companies now have an incentive to terminate their current workers and then re-employ those retrenched since they can enjoy double tax deductions equivalent to the annual salary of the re-hired worker.
The government has to remember this – Governments cannot create private sector jobs – it is the businesses that create these jobs. The governments’ role is to facilitate private businesses - by creating robust consumer spending and simultaneously reduce the operational costs of businesses. Instead of shuffling those retrenched or unemployed into temporary jobs or into some retraining schemes which may or may not match potential employers’ requirements, the funds for these schemes should instead be diverted to companies who are not retrenching workers to help them cope with the current slump.
On Equity Investments
There is also a statement in the Stimulus package which is kind of quirky. It states: The poor performance of Bursa Malaysia has also adversely impacted investor and consumer sentiment as well as the services sector, which normally is a high-growth sector “.
The cause and effect is reversed here. More accurately, it is the poor investor and consumer sentiments which caused the poor performance of the Bursa Malaysia. The poor sentiments are in turn caused by the falling demand for Malaysian goods/services and deteriorating corporate earnings. Indeed, while private think-tanks has been forecasting at best zero growth for Malaysia, the Government as recent as few weeks ago was still preaching the "fundamental strength" of the local economy. Investors clearly did not share in this optimism, which then sent the Bursa index falling.
In all, fiscal spending only amounts to RM15billion in this 2nd RM60 billion budget. The balance is in the form loan/corporate guarantees, etc. So lets not get wowed by the RM60billion figure being bandied about. The government should have opted to put more money directly into the rakyat’s pocket – the impact would certainly be more forceful in stimulating the local economy – vs. largely depending on public expenditure to boost local consumption. The latter, as we know, is prone to slow execution and leakages via corruption/rent seeking. Still, at least the government is now admitting that Malaysia, despite its “stellar fundamentals”, is not immune from the global economic malaise after all. Better late, than never, I suppose.
Monday, February 9, 2009
A Recession of Immense Proportions
Malaysia is definitely mired in its worst recession ever in its half a century of independence. No, not just the economic type – though our government is still re-assuring the people that the country’s engines are humming on nicely. No, we have a great recession of common sense and responsibility, a major slump in ideas and leadership.
While the US, Europe, China, Japan and a host of other nations are busy fighting against time to mitigate the biggest financial crisis and collapse of confidence since the 1930’s, our Finance Minister is surely displaying lack of judgement in his exercise of priorities and responsibility by his personal involvement in Perak's political upheavals.
The Finance Minister couldn’t hide his glee at the press conference announcing the defection of 3 assemblymen from Pakatan Rakyat. His Cheshire cat grin said it all. And no wonder. Shortly after assuming the leadership in Perak UMNO, he was able to engineer the fall of the PR government, and return the state to BN. He outfoxed Anwar Ibrahim in his own game, sending a message to all those within UMNO and the Opposition that he too can be a wily political strategist.
But what the country needs desperately now is an economic strategist, a role that surely falls to the Finance Minister. Shouldn’t he be busy chairing meetings with his advisors on formulating a comprehensive plan to get us out of the impending economic quagmire, rather than divert his focus to local state affairs? Which is of greater importance in these critical times - the role of the BN Chairman of one state or Financial Minister to an entire country?
Will this victory to UMNO and a huge personal one to the DPM come at a great cost to the nation? The front page news of the mainstream newspapers would have a reader believed that we all can now breath with ease now that an entire state is now back under the control of BN – this is the economic impetus we were waiting for to boost our economy which are by the way, sputtering with exports down, foreign reserves steadily declining; thousands of jobs already lost and more at risk. Perak has returned to the fold to save the country!
To the factory operator who have just lost his job; to the employer who is cracking his head on how to retain his staff when both orders and cash flow has dried up; to the mother who is stressed thinking of whether her husband will still have a job next month – our leaders, from BOTH sides of the divide, has truly let these people down by engaging in a non-conducive political fiasco while an entire country is sliding slowly but surely down a hole. Only our former PM seemed to display genuine statesmanship by bringing back the focus to how best to counter our greatest economic challenge.
It may be unimaginable to our perpetually- politicking leaders that Malaysia will ever slip into a depression with hundreds of thousands jobless; companies shutting down due to lack of competitiveness; budget deficits spiralling out of control and foreign investors fleeing our shores for better placed economies. With their current style of leadership (or rather lack of it), they may risk turning into reality what was once inconceivable (given Malaysia’s rich resources and once strong fundamentals) to one that is inevitable.
While the US, Europe, China, Japan and a host of other nations are busy fighting against time to mitigate the biggest financial crisis and collapse of confidence since the 1930’s, our Finance Minister is surely displaying lack of judgement in his exercise of priorities and responsibility by his personal involvement in Perak's political upheavals.
The Finance Minister couldn’t hide his glee at the press conference announcing the defection of 3 assemblymen from Pakatan Rakyat. His Cheshire cat grin said it all. And no wonder. Shortly after assuming the leadership in Perak UMNO, he was able to engineer the fall of the PR government, and return the state to BN. He outfoxed Anwar Ibrahim in his own game, sending a message to all those within UMNO and the Opposition that he too can be a wily political strategist.
But what the country needs desperately now is an economic strategist, a role that surely falls to the Finance Minister. Shouldn’t he be busy chairing meetings with his advisors on formulating a comprehensive plan to get us out of the impending economic quagmire, rather than divert his focus to local state affairs? Which is of greater importance in these critical times - the role of the BN Chairman of one state or Financial Minister to an entire country?
Will this victory to UMNO and a huge personal one to the DPM come at a great cost to the nation? The front page news of the mainstream newspapers would have a reader believed that we all can now breath with ease now that an entire state is now back under the control of BN – this is the economic impetus we were waiting for to boost our economy which are by the way, sputtering with exports down, foreign reserves steadily declining; thousands of jobs already lost and more at risk. Perak has returned to the fold to save the country!
To the factory operator who have just lost his job; to the employer who is cracking his head on how to retain his staff when both orders and cash flow has dried up; to the mother who is stressed thinking of whether her husband will still have a job next month – our leaders, from BOTH sides of the divide, has truly let these people down by engaging in a non-conducive political fiasco while an entire country is sliding slowly but surely down a hole. Only our former PM seemed to display genuine statesmanship by bringing back the focus to how best to counter our greatest economic challenge.
It may be unimaginable to our perpetually- politicking leaders that Malaysia will ever slip into a depression with hundreds of thousands jobless; companies shutting down due to lack of competitiveness; budget deficits spiralling out of control and foreign investors fleeing our shores for better placed economies. With their current style of leadership (or rather lack of it), they may risk turning into reality what was once inconceivable (given Malaysia’s rich resources and once strong fundamentals) to one that is inevitable.
Friday, January 9, 2009
Small Businesses – The Quiet Heroes of Malaysia’s Economy
Every year, Fortune magazine celebrates big businesses’ accomplishments in the US by publishing its annual Fortune 500 rankings. Colossal companies like Exxon Mobil, are venerated as being the pinnacle of American innovation, hard work and risk-taking. We have seen how CEOs of these huge companies are being touted like rock stars – indeed, one might construed that the strength of the US economy is being driven by these corporate giants.
The true drivers of the American economy however, are the small business owners. It is often cited that US small businesses are responsible for half the US GDP, and more than three-quarters of new job creation. While the global financial crisis forced once revered CEOs to make a beeline to Washington for handouts in the billions to save their companies (and their own behinds), small businesses were toiling quietly for survival -they remain the best hopes of turning the economy around, with old fashioned hard work, agility and focus on business fundamentals.
In Malaysia, things are not that much different. Sure, we talked about the contributions of small businesses, but largely get seduced by mega-projects. The Malaysian Inc. model, first launched by Dr. Mahathir, looked good on paper since it espouses, among others, de-regulation, improvement to delivery systems, and last but not least, privatisation. The last of which, privatisation, held the highest promise. However, Malaysia Inc. soon resemble a “Big Boys Club” – as favoured business personalities are handpicked to purchase pieces of former national assets at lucrative terms. Concessions are given to the same circle of tycoons, enriching them further. Since then, big businesses and politics became entwined, with big businesses getting the lion share of the government’s largesse. The Malaysia Inc. Club did not want to let the SMEs into its party.
This is a costly mistake.
If one scrutinize the list of the largest Malaysian companies, on deeper analysis one will find that most often than not these companies has in their stable of subsidiaries a single corporate entity that acts as the group’s main (and only) cash cow. This cash-rich company – could be in the form of a toll operator; a power generator; a gaming license; a water monopoly, etc. These single entities form the bulk of the groups’ profits and cash flow – take these concessionaires away, and suddenly, these giant groups does not yield superior returns after all.
Take the example of toll concessionaires. From the limited information available, they are virtually guaranteed of a certain level of revenue, profits and even growth. Business-wise, these are manna from heaven – with the government backing you up - there is almost no risk to the venture. We know from finance studies that low risk corresponds with low returns, and vice versa. But instead, the converse is true – these toll operators enjoy disproportionate returns on their investments that outweigh the risk it is taking. In other words, they have a free lunch.
We see the phenomenon again from the power deals signed with the Independent Power Producers (IPPs). First off, they are getting subsidised gas. Secondly, prices are locked in, often much higher than what the market would dictate. Thirdly, they can sell as much as they want to TNB, who has to purchase from them regardless of actual market demand. Because of the low risk nature, financing is relatively cheap. However, the returns are super-normal. Who says you can’t have your cake and eat it too?
In a zero-sum game, someone has to lose in order for someone else to gain. In this context, the winners are the few “successful” companies that have secured these fantastic deals, while the losers are the millions of Malaysians that has to pay higher prices. In reality, most of these successful companies are little more than rent-seekers – their success are predicated on near zero competition, minimal risks and guaranteed profits which the government served to them in silver platters. Whether they can replicate their successes under real competitive conditions are questionable.
In a 2006 paper prepared by the National Statistic Department entitled “SMEs: Building Blocks of Economic Growth”; it reveals that SME’s form 99.2% of total business establishments in the three main economic sectors of manufacturing, services and agriculture. In the services sector alone, SMEs account for 86.5%. What’s more, employment generated by SMEs is approximately 65% of total employment in the three main sectors, and is the largest contributor in the services sector. The report also reveals that SMEs generally still face difficulties in accessing financing, with nearly 60% still relying on internally generated funds or borrowings from friends and families as their main source. Only 14% chose financial institutions or government loans as their first choice of funds.
It is time the Government focus more of its energies on these unsung heroes of the Malaysian economy. In the stimulus package announced in late 2008, only RM100m is specifically allocated to assist SMEs. Surely the government can do more. Take the proposal to borrow RM5bn from EPF and channel these funds to Valuecap for the purchase of shares. This stock purchase does not create jobs; it does not increase workers’ productivity; it does nothing to quickly spur domestic consumption directly. All it does is support share prices for the benefit of shareholders - mostly the big business owners themselves. Why not take this RM5bn and provide cheaper financing to SMEs, who are struggling with increased energy costs and falling demand? How about small exporters who are facing difficulties securing letters of credit (LCs) for their raw materials and others who are unable to obtain LCs from their buyers? Why not take this RM5bn and provide bridging loans at minimal costs so these small business owners have the necessary funds to run their businesses?
It is time that the Government re-model Malaysia Inc to favour small businesses. Small is beautiful. In our “Boleh” attitude to build the biggest this and the largest that, we should not forget hard-working entrepreneurs who are struggling to pay their small workforce as their products face dwindling demand. As we construct mega super-corridors to attract large overseas investors, do not neglect small business owners who are still facing hurdles in obtaining government support here at home. In an article “ The Big Deal about Small Businesses”, the US Federal Reserve stated plainly, “A healthy growing small business sector makes our economy more nimble, better able to respond to new market trends and needs, and ultimately more productive as the results of small business experimentation and innovation weave their way throughout the wider economy”. It is time for Malaysia to strongly revive SMEs and restore them to their rightful place in Malaysia’s business hierarchy, on top of the priorities of big businesses. The government must address this in its second stimulus package so that the true drivers of employment and value to Malaysia’s economy are quickly given ample assistance, particularly in the current economic malaise.
The true drivers of the American economy however, are the small business owners. It is often cited that US small businesses are responsible for half the US GDP, and more than three-quarters of new job creation. While the global financial crisis forced once revered CEOs to make a beeline to Washington for handouts in the billions to save their companies (and their own behinds), small businesses were toiling quietly for survival -they remain the best hopes of turning the economy around, with old fashioned hard work, agility and focus on business fundamentals.
In Malaysia, things are not that much different. Sure, we talked about the contributions of small businesses, but largely get seduced by mega-projects. The Malaysian Inc. model, first launched by Dr. Mahathir, looked good on paper since it espouses, among others, de-regulation, improvement to delivery systems, and last but not least, privatisation. The last of which, privatisation, held the highest promise. However, Malaysia Inc. soon resemble a “Big Boys Club” – as favoured business personalities are handpicked to purchase pieces of former national assets at lucrative terms. Concessions are given to the same circle of tycoons, enriching them further. Since then, big businesses and politics became entwined, with big businesses getting the lion share of the government’s largesse. The Malaysia Inc. Club did not want to let the SMEs into its party.
This is a costly mistake.
If one scrutinize the list of the largest Malaysian companies, on deeper analysis one will find that most often than not these companies has in their stable of subsidiaries a single corporate entity that acts as the group’s main (and only) cash cow. This cash-rich company – could be in the form of a toll operator; a power generator; a gaming license; a water monopoly, etc. These single entities form the bulk of the groups’ profits and cash flow – take these concessionaires away, and suddenly, these giant groups does not yield superior returns after all.
Take the example of toll concessionaires. From the limited information available, they are virtually guaranteed of a certain level of revenue, profits and even growth. Business-wise, these are manna from heaven – with the government backing you up - there is almost no risk to the venture. We know from finance studies that low risk corresponds with low returns, and vice versa. But instead, the converse is true – these toll operators enjoy disproportionate returns on their investments that outweigh the risk it is taking. In other words, they have a free lunch.
We see the phenomenon again from the power deals signed with the Independent Power Producers (IPPs). First off, they are getting subsidised gas. Secondly, prices are locked in, often much higher than what the market would dictate. Thirdly, they can sell as much as they want to TNB, who has to purchase from them regardless of actual market demand. Because of the low risk nature, financing is relatively cheap. However, the returns are super-normal. Who says you can’t have your cake and eat it too?
In a zero-sum game, someone has to lose in order for someone else to gain. In this context, the winners are the few “successful” companies that have secured these fantastic deals, while the losers are the millions of Malaysians that has to pay higher prices. In reality, most of these successful companies are little more than rent-seekers – their success are predicated on near zero competition, minimal risks and guaranteed profits which the government served to them in silver platters. Whether they can replicate their successes under real competitive conditions are questionable.
In a 2006 paper prepared by the National Statistic Department entitled “SMEs: Building Blocks of Economic Growth”; it reveals that SME’s form 99.2% of total business establishments in the three main economic sectors of manufacturing, services and agriculture. In the services sector alone, SMEs account for 86.5%. What’s more, employment generated by SMEs is approximately 65% of total employment in the three main sectors, and is the largest contributor in the services sector. The report also reveals that SMEs generally still face difficulties in accessing financing, with nearly 60% still relying on internally generated funds or borrowings from friends and families as their main source. Only 14% chose financial institutions or government loans as their first choice of funds.
It is time the Government focus more of its energies on these unsung heroes of the Malaysian economy. In the stimulus package announced in late 2008, only RM100m is specifically allocated to assist SMEs. Surely the government can do more. Take the proposal to borrow RM5bn from EPF and channel these funds to Valuecap for the purchase of shares. This stock purchase does not create jobs; it does not increase workers’ productivity; it does nothing to quickly spur domestic consumption directly. All it does is support share prices for the benefit of shareholders - mostly the big business owners themselves. Why not take this RM5bn and provide cheaper financing to SMEs, who are struggling with increased energy costs and falling demand? How about small exporters who are facing difficulties securing letters of credit (LCs) for their raw materials and others who are unable to obtain LCs from their buyers? Why not take this RM5bn and provide bridging loans at minimal costs so these small business owners have the necessary funds to run their businesses?
It is time that the Government re-model Malaysia Inc to favour small businesses. Small is beautiful. In our “Boleh” attitude to build the biggest this and the largest that, we should not forget hard-working entrepreneurs who are struggling to pay their small workforce as their products face dwindling demand. As we construct mega super-corridors to attract large overseas investors, do not neglect small business owners who are still facing hurdles in obtaining government support here at home. In an article “ The Big Deal about Small Businesses”, the US Federal Reserve stated plainly, “A healthy growing small business sector makes our economy more nimble, better able to respond to new market trends and needs, and ultimately more productive as the results of small business experimentation and innovation weave their way throughout the wider economy”. It is time for Malaysia to strongly revive SMEs and restore them to their rightful place in Malaysia’s business hierarchy, on top of the priorities of big businesses. The government must address this in its second stimulus package so that the true drivers of employment and value to Malaysia’s economy are quickly given ample assistance, particularly in the current economic malaise.
Wednesday, December 31, 2008
Forces of Creative Destruction in 2008
2008 has been deemed by many to be a woeful year. Yet I see it differently. I see it as a year where excesses is finally curtailed; where the arrogant is humbled; and where great despair is slowly replaced by small glimmers of hope for better days ahead.
Global financial markets suffered huge volatility and trillions of market capitalisation were wiped out. Giant financial institutions once thought to be too big to fall, fell. We are all Keynesians now – as governments are now looked upon as the only saviours able to save their countries’ economies from further collapse. Massive government stimulus; re-regulation and ultra loose monetary policies are now the flavour of the day. The free market ideologies of the Chicago School are being quietly discarded as its disciples presided over the worst financial turmoil and scandals, brought about by their over-zealous beliefs that markets are self-regulating.
Politics-wise, well, some bad, some good. Zimbabwe is still ruled by a President who is perversely spending his energies in a desperate bid to cling to power, by instituting brutal oppression of any opposition. Meanwhile, epidemics, runaway inflation and hunger ravaged the country. The Middle East could not see a ceasefire last beyond 2008 between Israel and Hamas – and greeted the new year with hundreds dead and thousands injured in Gaza. On a brighter note, US saw the election of the first non-white President, which cast a warm glow of optimism around the world as many countries partake in the hope of a new era after the destructive foreign adventures of George Bush.
In Malaysia, we too had our ups and downs. BN losts its two-thirds majority. Five states, which together accounts for the major portion of the country’s GDP, fell to the Opposition. The destruction of BN saw the birth of a viable two-party system, and the emergence, hopefully, of a true democracy, where the people are the masters, not their political representatives. However, the BN seemed to have decided that its setback was only momentary, and that the people will come back to its senses in the next General Election. So out comes the usual “divide and conquer” politics – racially-charged statements; senseless use of ISA (for its detainee’s protection); and instructions to the media “to behave”.
President Ronald Reagan, in the 1992 GOP Convention, said, “Whatever else history may say about me when I am gone, I hope it will record that I appealed to your best hopes, not your worst fears, to your confidence rather than your doubts.” I certainly hope that for 2009, our new Prime Minister will echo the same thoughts – that in the face of immense challenges facing Malaysia, if the government insists on instilling fear by emphasizing what we can lose, instead of what we can gain, from meritocracy, transparency and the courage to reform our many failed institutions; then the seeds of opportunities brought about by the “creative destructive” forces of 2008 will be forever squandered. Malaysia will be further left behind, as governments around the world re-tool their economies and restructure their institutions in the face of a new global reality caused by the near collapse of the global financial system.
I prefer to remain optimistic that change is in the air for 2009. After all, we Malaysians are lucky in that there is still so much to hope for in this country of plenty.
Happy New Year to all you hopeful Malaysians out there.
Global financial markets suffered huge volatility and trillions of market capitalisation were wiped out. Giant financial institutions once thought to be too big to fall, fell. We are all Keynesians now – as governments are now looked upon as the only saviours able to save their countries’ economies from further collapse. Massive government stimulus; re-regulation and ultra loose monetary policies are now the flavour of the day. The free market ideologies of the Chicago School are being quietly discarded as its disciples presided over the worst financial turmoil and scandals, brought about by their over-zealous beliefs that markets are self-regulating.
Politics-wise, well, some bad, some good. Zimbabwe is still ruled by a President who is perversely spending his energies in a desperate bid to cling to power, by instituting brutal oppression of any opposition. Meanwhile, epidemics, runaway inflation and hunger ravaged the country. The Middle East could not see a ceasefire last beyond 2008 between Israel and Hamas – and greeted the new year with hundreds dead and thousands injured in Gaza. On a brighter note, US saw the election of the first non-white President, which cast a warm glow of optimism around the world as many countries partake in the hope of a new era after the destructive foreign adventures of George Bush.
In Malaysia, we too had our ups and downs. BN losts its two-thirds majority. Five states, which together accounts for the major portion of the country’s GDP, fell to the Opposition. The destruction of BN saw the birth of a viable two-party system, and the emergence, hopefully, of a true democracy, where the people are the masters, not their political representatives. However, the BN seemed to have decided that its setback was only momentary, and that the people will come back to its senses in the next General Election. So out comes the usual “divide and conquer” politics – racially-charged statements; senseless use of ISA (for its detainee’s protection); and instructions to the media “to behave”.
President Ronald Reagan, in the 1992 GOP Convention, said, “Whatever else history may say about me when I am gone, I hope it will record that I appealed to your best hopes, not your worst fears, to your confidence rather than your doubts.” I certainly hope that for 2009, our new Prime Minister will echo the same thoughts – that in the face of immense challenges facing Malaysia, if the government insists on instilling fear by emphasizing what we can lose, instead of what we can gain, from meritocracy, transparency and the courage to reform our many failed institutions; then the seeds of opportunities brought about by the “creative destructive” forces of 2008 will be forever squandered. Malaysia will be further left behind, as governments around the world re-tool their economies and restructure their institutions in the face of a new global reality caused by the near collapse of the global financial system.
I prefer to remain optimistic that change is in the air for 2009. After all, we Malaysians are lucky in that there is still so much to hope for in this country of plenty.
Happy New Year to all you hopeful Malaysians out there.
Sunday, December 7, 2008
Petrol Tax at the Worst Possible Time
It is a fact that current pump prices are higher than what the market would dictate. This indicates that the government is effectively imposing a sales tax on petrol. The government has admitted to pocketing windfall revenue from the differential. The quantum of RM16m per day reported by the Star may be over-stated. But that is not important. The crucial issue here is that – is this the right time to collect petrol tax?
When the price of petrol was raised by a whopping 40% back in June, the government took a “shock therapy” approach – by announcing one huge price hike instead of a series of smaller increases, or the gradualist approach. Perhaps it was the spiralling costs of the subsidy that prompted the government to brave public backlash. Whatever the reasons, in one single day businesses saw their costs soaring as a result of higher energy costs while consumers have less money to spend after filling up their car. There was no adjustment period given.
In the 6 months since the 40% price hike was announced, crude oil prices has tumbled from above USD120 per barrel to about USD42 per barrel today. That is a fall of over 65%. In contrast to the manner in which petrol price was raised in one big swoop, the price reduction was announced in a series of small instalments. Traders were then taken to task for not reducing their prices quickly enough in tandem.
But can you really blame local businesses, whom the government hit with a double whammy – 1) unexpected huge increase in operating costs overnight; and 2) while reducing domestic spending power– for being cautious in re-adjusting their prices less crude oil prices reverse course and the government singularly increase price again? Without information on the government’s pricing mechanism, how does it expect businesses to plan their pricing strategies?
With the global economic crisis, the only silver lining for businesses and consumers is falling energy prices. Every penny counts for cash-strapped business owners and middle class Malaysians. Expectations of the future are bleak among most Malaysians. Under such dire circumstances, the responsible family head or company CEO will want to save more cash and spend less. Finance Minister Najib must find ways to put more money in these worried Malaysians’ pockets fast, as the only catalyst left for our economy’s growth is strong, sustained domestic consumption.
The government knows this – which is why they announced the 3% reduction in employees’ contributions to the EPF. But it is hypocritical to ask Malaysians to spend more now by dipping into their retirement savings fund, while the government sits on millions of windfall tax collected on a daily basis. We do not need more tax now. We need fewer taxes, and more government spending on those items which has high multiplier effect. If the government has no clue how to spend these windfall proceeds, let us have our money back by charging market prices for petrol in these difficult times. Responsible Malaysians are unlikely to be rushing out to drive more or switch en masse from public transportation to private ones as a result of substantially lower fuel prices. More likely, it will be a welcome relief for millions struggling to balance their stagnant real incomes against the significant increase in costs of living, caused by the fuel price jump in the first place.
Granted, petrol subsidy is not good for the economy – it distorts consumption choices and it is not particularly equitable. The billions should be spent on health care or education where everyone can benefit. But swinging from a petrol subsidy to a petrol tax just when every Malaysian is looking to tighten his or her belt is perverse, and does not make economic sense. With so many bad economic reports out there, give Malaysians a break – let us enjoy some savings, while the market still allows.
When the price of petrol was raised by a whopping 40% back in June, the government took a “shock therapy” approach – by announcing one huge price hike instead of a series of smaller increases, or the gradualist approach. Perhaps it was the spiralling costs of the subsidy that prompted the government to brave public backlash. Whatever the reasons, in one single day businesses saw their costs soaring as a result of higher energy costs while consumers have less money to spend after filling up their car. There was no adjustment period given.
In the 6 months since the 40% price hike was announced, crude oil prices has tumbled from above USD120 per barrel to about USD42 per barrel today. That is a fall of over 65%. In contrast to the manner in which petrol price was raised in one big swoop, the price reduction was announced in a series of small instalments. Traders were then taken to task for not reducing their prices quickly enough in tandem.
But can you really blame local businesses, whom the government hit with a double whammy – 1) unexpected huge increase in operating costs overnight; and 2) while reducing domestic spending power– for being cautious in re-adjusting their prices less crude oil prices reverse course and the government singularly increase price again? Without information on the government’s pricing mechanism, how does it expect businesses to plan their pricing strategies?
With the global economic crisis, the only silver lining for businesses and consumers is falling energy prices. Every penny counts for cash-strapped business owners and middle class Malaysians. Expectations of the future are bleak among most Malaysians. Under such dire circumstances, the responsible family head or company CEO will want to save more cash and spend less. Finance Minister Najib must find ways to put more money in these worried Malaysians’ pockets fast, as the only catalyst left for our economy’s growth is strong, sustained domestic consumption.
The government knows this – which is why they announced the 3% reduction in employees’ contributions to the EPF. But it is hypocritical to ask Malaysians to spend more now by dipping into their retirement savings fund, while the government sits on millions of windfall tax collected on a daily basis. We do not need more tax now. We need fewer taxes, and more government spending on those items which has high multiplier effect. If the government has no clue how to spend these windfall proceeds, let us have our money back by charging market prices for petrol in these difficult times. Responsible Malaysians are unlikely to be rushing out to drive more or switch en masse from public transportation to private ones as a result of substantially lower fuel prices. More likely, it will be a welcome relief for millions struggling to balance their stagnant real incomes against the significant increase in costs of living, caused by the fuel price jump in the first place.
Granted, petrol subsidy is not good for the economy – it distorts consumption choices and it is not particularly equitable. The billions should be spent on health care or education where everyone can benefit. But swinging from a petrol subsidy to a petrol tax just when every Malaysian is looking to tighten his or her belt is perverse, and does not make economic sense. With so many bad economic reports out there, give Malaysians a break – let us enjoy some savings, while the market still allows.
Wednesday, November 5, 2008
Daring Us to Dream Once More
America has every reason to celebrate the historic election of Barack Obama as President. It is important to remind ourselves again just how insurmountable the odds were against Obama when he decided to launch his presidential bid. Within his own Democratic Party, he has to secure nomination against what once assumed to be the Party’s natural choice – Hillary Clinton. Even after his party’s nomination, with the Democratic base deeply split, Barack has to face off against the candidate from Republican Party, traditionally, the party that has access to huge funds from businesses; a huge (some might say fanatical) religious base, and more critical, a party that tend to whip up religious and even racial overtones in order to secure the Presidency. What does a junior Senator who is of mixed blood, who is without political pedigree, has against McCain, an American war hero whose family has been in the service of the American Navy for generations?
Obama pulled of this momentous win because his campaign, as one political commentator put it so succinctly – was inclusive, engaging and empowering. He organized his support from the grassroots up. He uses the internet to reach out to young voters. Whereas the Republican Party continues to rely on big donors/businesses for funds, Obama democratize his campaign contribution receipts by actively seeking funds from everyone, whether $10 or $20, who yearned to see change through him. He dared Americans to embrace change, telling the young and old, the cynical and the apathetic, that they can restore the American dream by voting – that they have a role to play. Believed him they did – first time voters and the young came out in droves, braving long queues because they really believed they can make history by securing a better future for America and for themselves.
Obama’s closing statements in his victory speech, “…And where we are met with cynicism and doubts and those who tell us that we can't, we will respond with that timeless creed that sums up the spirit of a people: Yes, we can”. Doesn’t this remind us of our very own failed leadership who is always holding us back from embracing a truly united Malaysia, without regard to colour and race? A tarnished political entity that has no courage to overturn its ludicrous beliefs that 50 years after Independence and into the 21st century, we Malaysians are not ready to be Malaysians first, and our respective race, second?
It is thought that Malaysia ushered in a new era when for this first time in Malaysian politics we created a viable 2 party system after the March general election. Though it was a clear message to the ruling elite that Malaysians have found their voice, and that we have, and will, exercise our right as citizens to accord power only to those that uses them for the good of the country, alas, the ruling party continues to practice a divisive brand of politics. In his speech, Obama immediately reached out to those who had not voted for him, saying, “I will be your President too”. In contrast, the National Front is sidelining the PKR-ruled states, creating disunity within our own state borders, while trying to undermine the PKR by harping on the perceived racial/religious differences between its partners.
Meanwhile, the country slides into deep economic uncertainty. We are still waiting for judicial reforms; tougher legislation against corruption; lower crime rates. Changes we the people have been promised but yet to be delivered. We may have a change of leadership next year but great skepticism persists whether a PM-in-waiting whose name has been dragged into a sensational murder case and a questionable billion-dollar helicopter deal can effectively inspire change. While America may face a steep economic recession next year, it will be fighting with a sense of renewed purpose that in the midst of gloom, it can emerge with a bright future if they stand together, rallied on by an inclusive new President. For Malaysia, in 2009, we would most probably still be breathing in the same stale air of zany economic policies that encourages rent-seeking; backward politicians that still bicker how to divide a rapidly shrinking pie when other nations are busy expanding it; and the delusion that Malaysia is not ready for change simply because they themselves are not prepared to.
“We are ready for Change. We are one Nation, We are One People” so exclaimed the new US President-Elect. Malaysians are still waiting for a leader that has the courage to espouse this dream. Congratulations, America. You have once again given us hope and dared us to dream.
Obama pulled of this momentous win because his campaign, as one political commentator put it so succinctly – was inclusive, engaging and empowering. He organized his support from the grassroots up. He uses the internet to reach out to young voters. Whereas the Republican Party continues to rely on big donors/businesses for funds, Obama democratize his campaign contribution receipts by actively seeking funds from everyone, whether $10 or $20, who yearned to see change through him. He dared Americans to embrace change, telling the young and old, the cynical and the apathetic, that they can restore the American dream by voting – that they have a role to play. Believed him they did – first time voters and the young came out in droves, braving long queues because they really believed they can make history by securing a better future for America and for themselves.
Obama’s closing statements in his victory speech, “…And where we are met with cynicism and doubts and those who tell us that we can't, we will respond with that timeless creed that sums up the spirit of a people: Yes, we can”. Doesn’t this remind us of our very own failed leadership who is always holding us back from embracing a truly united Malaysia, without regard to colour and race? A tarnished political entity that has no courage to overturn its ludicrous beliefs that 50 years after Independence and into the 21st century, we Malaysians are not ready to be Malaysians first, and our respective race, second?
It is thought that Malaysia ushered in a new era when for this first time in Malaysian politics we created a viable 2 party system after the March general election. Though it was a clear message to the ruling elite that Malaysians have found their voice, and that we have, and will, exercise our right as citizens to accord power only to those that uses them for the good of the country, alas, the ruling party continues to practice a divisive brand of politics. In his speech, Obama immediately reached out to those who had not voted for him, saying, “I will be your President too”. In contrast, the National Front is sidelining the PKR-ruled states, creating disunity within our own state borders, while trying to undermine the PKR by harping on the perceived racial/religious differences between its partners.
Meanwhile, the country slides into deep economic uncertainty. We are still waiting for judicial reforms; tougher legislation against corruption; lower crime rates. Changes we the people have been promised but yet to be delivered. We may have a change of leadership next year but great skepticism persists whether a PM-in-waiting whose name has been dragged into a sensational murder case and a questionable billion-dollar helicopter deal can effectively inspire change. While America may face a steep economic recession next year, it will be fighting with a sense of renewed purpose that in the midst of gloom, it can emerge with a bright future if they stand together, rallied on by an inclusive new President. For Malaysia, in 2009, we would most probably still be breathing in the same stale air of zany economic policies that encourages rent-seeking; backward politicians that still bicker how to divide a rapidly shrinking pie when other nations are busy expanding it; and the delusion that Malaysia is not ready for change simply because they themselves are not prepared to.
“We are ready for Change. We are one Nation, We are One People” so exclaimed the new US President-Elect. Malaysians are still waiting for a leader that has the courage to espouse this dream. Congratulations, America. You have once again given us hope and dared us to dream.
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