RM5bn for Valuecap – 2 questions

Deputy Prime Minister and newly-minted Finance Minister Datuk Seri Najib Tun Razak announced the government will provide an additional RM5bn to Valuecap Sdn Bhd. This will double its size to R10bn. Valuecap is to use the money to invest in undervalued stocks and protect investments in government-owned companies.

Two questions: 1) Where is the money coming from? See my previous post – government revenues will be down with lower oil prices and a slower economy. So how is the government going to raise this RM5bn for Valuecap? and 2) Is this the best use for that RM5bn?

The Sun yesterday also reported “Malaysia not in financial crisis: Najib.” I agree we are not in a financial crisis – our banks are unscathed by the happenings elsewhere, and confidence in the financial system is so strong that the local AIG operations didn’t suffer any significant aftermath from its parent’s collapse, unlike in Singapore.

So, if we’re not in a financial crisis, there is no need to support the stock market. Where would the RM5bn funds go anyway? If Valuecap buys, someone is selling. And some of those selling will be foreigners who will happily take the money out of Malaysia. Malaysians will not enjoy the full benefit of that RM5bn.

I think that RM5bn is better spent locally on small-scale projects that employ local businesses and Malaysians. How about redoing the drains in my neighbourhood for a start? They’ve not been changed since 1976 when we moved in here. Some are crumbling. Putting money to work here benefits local contractors, workers and raw material suppliers. Similarly school facilities. Don’t spend millions on laptops which may or may not be effectively used. But how about upgraded buildings, lab facilities, furniture ….

PS I know I had said the next post would be next Wed. But I just had to flag this. Next post (barring any other major news breaks) will be Sunday, when I contribute to 51 ideas for a better Malaysia.

If your pay were cut …. Your budget will have to change

Your pay has been cut by 40%. What do you do? First, cut back on non-urgent items. That new mobile phone will have to wait. Next, stretch your remaining ringgit further. Shop around for the best deal on groceries, rent a DVD instead of going to the cinema, have your coffee at the local coffee-shop instead of the fancy chain ….

Simple, basic economics that the Barisan Nasional government is denying. There is no point debating Budget 2009 as presented by the BN government. Its income forecast is hopelessly out-of-date. We need to stop pretending things will be fine and start making the hard decisions.

That Budget assumes oil at US$125/barrel. That Budget was also done at a time when crude palm oil (CPO) was closer to RM3,000/ton. Oil touched US$62 as I wrote this. CPO is at RM1,700 or so – down by nearly half. There will be far less income for Petronas and the government. Corporations will be earning less profit and paying less taxes; lots of people will also be earning less, paying less taxes and spending less.

Unfortunately, government options are limited. The normal response to a slowdown in external demand is to pump-prime, that is to run a Budget deficit, spending more locally to offset the smaller exports. But, Budget 2009, as presented and based on US$125 oil, is already in deficit to the tune of 3.6%. Government cannot spend any more. Quite the reverse. To maintain the deficit at 3.6%, it will have to cut back spending to match its smaller income.

Tough decisions must be made: Which items MUST the government spend on? What can wait? Perhaps we can do without the RM2.3bn helicopters for now. That money just goes straight to foreigners. Spend that RM2.3bn instead on local projects benefiting local businesses and employees. Yes, we should promote tourism. But RM18m to make 100 videos is probably not the most effective way.

Citizens must be informed and brought into the debate. Times will be tougher and money will be hard to come by. But times will be less tough if we can maximise the effectiveness of the limited resources we now have.

PS Next post will be the week of 26 Oct. I currently intend to post weekly, usually on Wed.

That’s palm oil in your teh tarik; when fresh milk is not whole milk

Take a closer look at the labels next time you’re shopping for fresh milk at the refrigerated section of the supermarket. I had assumed “Full Cream Milk” is made from fresh milk, especially since it’s sitting in the chiller compartment. But something made me look at the ingredients that day. I was shocked to find “Full Cream Milk” is made from milk solids, milk fat, something called choline chloride and permitted food conditioners.

Only “Fresh Milk” is actually made from fresh cow’s milk without additives. And those of you thinking you’re being healthier by going for “Low Fat Milk” – be aware that it also contains choline cloride and food conditioners.

Condensed milk has already disappeared from our shelves. Will whole milk also become impossible to find? Wait, I hear you say. You must be wrong. How do they make my teh tarik if there is no condensed milk?

Teh tarik now contains palm oil! It’s Condensed Creamer being sold nowadays. And look at the ingredients – palm oil is in it. Now, I am a strong supporter of palm oil and am dismayed by the unfair western lobby against it (Remember the misinformation that palm oil is bad for the heart? And now they’re bringing orang utans into the argument? Oops. I might have just antagonised some greenies. Let me say upfront that I’m a member of the Malaysian Nature Society and we’ll save this for another blog another time).

I like palm oil; I use it to cook at home and it’s great for deep-frying my chicken chop. But I absolutely hate palm oil in my tea! I noticed the emergence of palm oil two years ago, when my favourite coffee-shop drink, teh-C-kosong started tasting odd. Because there is no sugar to mask the taste, the “funny” taste of the “milk” quickly became apparent. That was when I started looking more closely and realised that most manufacturers were selling Evaporated Creamer instead of Evaporated Milk. The difference – palm oil is used instead of milk.

What are the health implications? Are we sowing the seeds for a whole generation of calcium-deficient adults? How many parents realise that the ‘milk’ they are putting into the Milo/Horlicks/Nescafe/tea/coffee is actually creamer? Nutrition is not my forte; so comments here would be very welcome.

From the economic perspective, it is clear evidence that price controls do not work. Condensed milk is a “controlled-price” item. If the controlled price is too low, there will first be lower quality as poorer ingredients are used, then shortages as less efficient producers pull out and ultimately no product at all when it is unprofitable for anybody at all to make it.

Next, it also leads to a misleading inflation (CPI) number. If the price is controlled and does not change, then the CPI shows no inflation. But the product itself is also not available in the market, so consumers either have to settle for inferior substitutes, or more-expensive products. Minister of Domestic Trade & Consumer Affairs Shahrir Samad had honestly and sensibly pointed out in March that price controls are in place on products that do not exist! He said he was working on resolving these. I do hope he does, at the very least so that I will be able to get decent teh-C-kosong again.

(With thanks to Lulu for help with background).

MIC-A for Malaysia

I received an email chain-letter the other day. The writer fumed about the various pro-bumiputera policies in place and the ever-shrinking share of non-bumis in Malaysia.

Titled “WAKE UP!!!” the email contained 55 assertions along the lines of “12% is what ASB/ASN (Malays Own banks) got per annum while banks fixed deposit is only about 3.5% per annum”, "99% of 2000 Petronas gasoline stations are owned by Malays”, “0 Chinese or Indians were sent to Japan and Korea under 'Look East Policy'” (assertions reproduced here verbatim for context and to give an indication of the tone of the email. I have not confirmed the assertions)

The writer concluded with “FIGHT FOR YOUR OWN RACE”. I understand the angst, but believe we should step up from this “Us” against “Them” attitude. All Malaysians should work together to grow the economy for all, and a helping hand should be extended to those most in need.

It is an unfortunate fact that after 38 years of the NEP and its successor policies, bumiputeras are still, on average, the poorer section of society. The average bumi household earns RM2,711/month, Chinese RM4,437, Indians RM3,456 and Others RM2,312 (Source: 9^th Malaysia Plan, data for 2004). If we believe in social justice and measures to help the poorest, then by design the policies will benefit bumiputeras and others more than Chinese or Indians, because they are the ones in greater need.

The pertinent issue is, who benefited from all the pro-bumiputera policies if the average bumiputera did not? The wealth transfers over the last 30 years were immense. Consider one example – all companies going for listing on Bursa Malaysia have to allocate 30% of their shares to bumiputeras. And another example – APs to import cars, given primarily to bumiputeras, were reportedly worth tens of thousands of ringgit EACH. Why then is the average bumiputera income still lagging so far behind after all these efforts?

The answer is the increasing gap between the richest and the poorest. Malaysia's gini coefficient (a measure of income disparity between the richest and the poorest) has been rising. The higher the number, the greater the disparity. And for bumiputeras, the Gini coefficient rose from 0.433 in 1999 to 0.452 in 2004 (Source: 9^th Malaysia Plan). These pro-bumiputra policies, which were intended to help poor bumiputras, were and are still being reaped mainly by an elite few instead. And I am sure you will agree, most of this elite few are UMNO-related.

Malaysia economic policy should not be about Malays, Chinese, Indians dan lain lain fighting for a share of the pie. It should not be each community hunkered into our own silos and scheming to deprive the other of their assets. The issue should be all of us working to grow the pie, and giving a share to those most in need. It should be all of us standing up against UMNO corruption and arrogance. Hmmm ... how about a Malaysian political party ... MIC-A – Malays, Indians, Chinese ... ALL for Malaysia.

Malaysia Boleh: Only ASEAN country to experience net capital outflows

Foreign direct investment (FDI) outflow from Malaysia nearly doubled to RM38bn in 2007 from RM21bn in 2006, according to the United Nations Conference on Trade and Development World Investment Report. The RM38bn outflow was far higher than the RM29bn inflow, leading to a net outflow of RM9bn.

This is the first time ever that Malaysia has experienced net outflow, and Malaysia is the only one among 10 ASEAN countries to suffer net outflow. The poor numbers are even more disappointing given that 2007 was the year that the southeast asian region recorded it highest ever FDI inflow, up 81% to RM209bn.

Malaysia is rich in oil and agricultural potential and should be gaining large investments due to the boom in commodities. Instead we are not just lagging behind, we are in negative territory. There are myriad explanations for this, but they all boil down to one core reason: lack of confidence in the government.

Investors seek stability, transparency, and rule of law.

1. On stability, Barisan has a clear majority in Parliament and needs only 8 more seats to have a 2/3^rd majority, Anwar needs 30 MPs to take over. Who should be in the stronger position? And yet Barisan appears busier reacting to Anwar than actually governing. Stability also applies to government policies, which right now seem capricious – take the latest U-turn over the windfall tax for IPPs. Announced in June to very adverse market reaction and now removed. On one hand the government can say it is responding to market feedback. On the other hand, perhaps the implications of the action were not properly thought out in the first place.
2. Transparency – the efforts to root out corruption do not seem to be working. Malaysia fell in Transparency International’s Corruption Perception Index from 43rd place (out of 179 countries) in 2007 to 47th (out of 180 countries) in 2008.
3. Rule of law – ISA detentions of journalists and elected MPs which are not subject to judicial review give the impression of authoritarian government ignoring civil liberties. It also appears the law is selectively applied – Opposition politicians are quickly investigated when reports are lodged but action seems slower when it involves government personalities.

Investors have to be reassured that their investments will not be subject to sudden policy changes, they have access to independent judicial redress in the event of contractual disagreements and that their dealings with the government can be on open and transparent terms. What we need: 1) An Independent Commission Against Corruption and open court trials and jail terms for the corrupt. Not just “transfers” to another department, 2) The ISA to be used only as a last resort and certainly not against journalists reporting facts, 3) The police force acting as and being perceived as neutral, independent enforcers of the law.

Inflation soars at 8.5% yoy: Barisan mismanagement and corruption not helping

Prices in August this year are nearly 9% more expensive than one year ago, according to the just-released Consumer Price Index (CPI). Our CPI has been at 8.5% for two consecutive months now. The last time Malaysia saw such high inflation was 27 years ago in Dec 1981.

Food prices alone are up nearly 12%, and transport costs have been rising rapidly too. In contrast, our southern neighbour Singapore saw its CPI moderate to a 6.4% hike in August.

High fuel and food prices are a global phenomenon, but it’s surprising that tiny Singapore, which has to import everything, is suffering less than oil and agriculture-rich Malaysia. Or is it?

Over here agriculture has been neglected while the Barisan chases high profile “development” projects like the Port Klang Free Zone scandal, dropping Protons on the north pole and sending a Malaysian into space (great headlines; but what’s been done since then to develop science and technology in Malaysia?). ….

Even worse, we have seen attempts that would have destroyed agriculture – for instance, the plan for a massive padi complex in Selangor that would have entailed building over the most productive padi fields in Malaysia. That plan was ultimately aborted … but how about moves to learn best practices from these farmers and propagate across Malaysia so we no longer have to import rice. No need for a MPs’ study tour to Taiwan … just send farmers from less productive areas to a tour in Sekinchan!

Besides producing food, transporting the food to the markets is a significant cost. Government policies here have deterred investment in efficient trucking and transport equipment. Real transport operators have to rent their licenses from connected parties who add no value besides their ability to get the licence. The recent Puspakom scandal is another example of how corruption increases the transporters’ cost of doing business. Yamin Vong of NST’s Cars, Bikes, Trucks has written extensively on these issues over the past months. Also check out “Much Soreness in the Transport Sector”.

Moving on to the subject of fuel. I agree that fuel prices should reflect global realities, but the impact on the people can be mitigated by efficient public transport. This, the Barisan government has failed to achieve in over 50 years of rule. Just yesterday, two LRT trains crashed, injuring 6 people. I use the LRT fairly regularly. It is not a nice ride – airconds sometimes don’t work in the mid-day sun, occasionally trains run late without explanation – just the generic announcements along the lines of “We apologise for the delay …

Everyday, the people risk their lives on poorly maintained and managed trains, buses and taxis while Barisan exco members enjoy their Mercedes cars. PM Abdullah promised way back in 2004 that savings from reducing fuel subsidies would go towards improving public transport. I have yet to see improvements. In fact, I see the reverse - increasingly crowded and dilapidated trains. How about less talk and massive plans and some implementation that we can actually feel on the ground?

A little more about me

I was born in Ipoh in 1971. My parents moved to PJ in 1976, but we continued to make many balik kampung trips, so I have lived some of Lat’s “Kampung Boy” and “Town Boy”.

I had excellent teachers at Methodist Primary School and a great education at La Salle PJ (thank yous, some posthumous, to Puan Maimon, Mrs Murugesu, Mrs Cheah, Tiger Thong, Mrs Chan, Mrs LC Choong, Mr Clement, Mr Rex Michael …..). I learnt discipline and diligence at MPS and acceptance and a broader view at La Salle, a melting pot of ethnic groups and social classes – the No 1 student of my year was in my class, so was the barely-literate last. I wish my children would be able to have a similar education, but that’s a pipe-dream after years of education policy mismanagement.

I have “done well” in the conventional sense, winning two scholarships for study in the UK (for which I am grateful to the University of Warwick and the British government), having lots of paper qualifications (a first-class honours B Sc degree from Warwick, a Cambridge MBA and the CFA charter) and a career which involved jetting around the world business-class and being whisked around Stockholm, Milan, London and New York in chauffeured cars.

Malaysia is my home, and has been home for my family ever since my great-grand father boarded a ship from China. I am third-generation born in Malaysia, which makes my roots deeper than some very senior UMNO politicians. My grandfather, my grandmother, my mother and all my parents’ siblings were teachers or civil servants contributing to nation-building while some of today’s bumiputeras were still growing up in Indonesia.

My family tries to practise low impact living. We do our best to minimise plastic usage – we use our own containers to “ta pau” food and take plastic bags to the pasar malam, we recycle where we can and make compost at home (which is a modest 2-storey terrace), I drive a diesel car (and continue to yearn for better-quality diesel), … but I’m far from a pleasure-denying ascetic. I enjoy teh tarik, canai and daun pisang, sambal belacan, ayam masak merah and nasi kerabu, and yes …. siew yok and wine .. my musical tastes range from AC/DC to Ramli Sarip, Search, Jackson Browne and Theresa Teng …. My guitar heros include Bala, Julian Mokhtar and Angus Young …

Everything in moderation is my philosophy … and I wish all of us can get together AGAIN and ENJOY Malaysia’s diversity rather than just tolerate the differences. “AGAIN”, because my childhood fun included so many birthday parties in so many homes with everyone eating and playing without thought of immaterial differences.