5x higher chance of being robbed, 7x raped, 8x murdered .. and we're focusing on rear seat belts??!!

I’ve just been reminded that back-seat passengers will have to belt-up starting 1 Jan. Otherwise the driver stands to be fined RM300.

Our authorities have their priorities all skewed. How important is this in the overall scheme of things? Surely our overburdened and undermanned police force has more important things to do than to harass the family man taking his family out for an evening drive? Like, for example, curbing snatch thieves, or burglaries, or Mat Rempit …. The crime rate in Malaysia is high. Here are some statistics per 100,000 population, as pointed out by Lim Kit Siang and Tony Pua:

Robbery: Malaysia 90.49 cases per 100,000 population, Japan 4.78, Hong Kong 17.56
Rape: Malaysia 11.47, Japan 1.62, Hong Kong 1.54
Homicides: Malaysia 2.12, Japan 1.09, Hong Kong 0.26

Put into layman's terms, a Malaysian is 5 times more likely to be robbed than a Hong Konger. The more serious the crime, the higher your chances - 7x better chances to be raped and 8x a murder victim! Higher chances are great if like me, you were trying for the Toto Jackpot, but certainly not to be a crime victim.

Not wearing rear seat belts is a personal issue. If Mum and Dad decide their precious ones don't need to belt up, that is their own decision and they can live with the consequences, if any.

Also, thanks to our horrible public transport and outmoded auto policy, many of us don't have alternatives. Large numbers of our national car, Proton, were fitted with only two rear seat belts when manufactured. Kudos to Proton for agreeing to retrofit rear centre seat belts on these cars, totalling 226k units made between 2004 and 2008, including 82k units of the Gen 2. But the whole exercise will take 13 months to complete! So what’s the family of 5 going to do until their car is fixed? Force someone to stay home every time the family goes out? Hardly great. One would think tough times like today call for even more family unity.

Most families would understandably decide to take the risk of being caught. Which brings me to the core issue – sowing the seeds of law-breaking. Break one law and breaking others become easier.

So how about this? Creating new laws is useless if they’ll not be obeyed anyway. Parliament should take a break from law-making. Our MPs can use the time to help monitor enforcement of existing laws instead. No more new laws until the existing ones are complied with.

It all starts with accountability

Accountability: /əkaʊntəbɪlɪti/ the state of being accountable, liable, or answerable; a state unknown to Malaysians.

I was among the speakers at “The New Economic Vision for Penang and Malaysia” International Conference in Penang over the weekend. It was heartening to see so many people who care about Penang and Malaysia and its future. About 350 participants registered and they were not just there to see the heavy-hitters – Datuk Seri Anwar Ibrahim, Penang Chief Minister Lim Guan Eng and the Menteri Besars of Perak and Selangor. The conference hall was fairly full throughout the entire 1.5 days.

Kudos to Penang Invest for running such a well-honed conference. Timekeeping was excellent, as were overall logistics. An achievement all the more impressive given the very short notice. I have attended many conferences in my previous banking career. The global banks have huge conference budgets and specialist teams to manage these affairs. Penang Invest punched well above its weight to deliver this event so smoothly.

There was lots of high level talk and aims and visions and strategies from the politicans and the heavyweight academics. I am jaded. No disrespect is intended to the learned academics. We were privileged to hear their learned thoughts. But lofty aims and visions and studies are all too prevalent in Malaysia. Execution is lacking.

We need accountability. Heads must roll when negligence is proved. University Malaya's Professor Rajah Rasiah who shared a panel with me said he had personally enticed leading specialists over to Malaysia under the “Brain Gain” programme (remember that?). Within 2 years, most had gone back overseas.

What went wrong? The government must follow-up on its policies instead of announcing a new one every few years. In this instance, investigations should have been done. Why did those specialists go back? Was the environment unsatisfactory? Did bureaucrats get in the way? Only if we know the answers can we fix the programme. And if someone was found to have been negligent, he or she should be punished. Not just transferred, but very publicly demoted and/or fired.

In my 38-year lifetime I have seen lots of plans proposed by the BN government ranging from the Malaysia Plans and Multimedia Super Corridor to Iskandar Development Region and the various Corridor Initiatives. I will agree some of the plans were decent, others less so. But the commonality is all failed – because of poor execution. Until we focus on execution, in another 38 years, we will still be saying the same things at conferences and talks, whether the government is Pakatan or BN.

Accountability works both ways. Reward those who deliver, like Penang Invest. Penalise those who don't.

5% 2008 GDP growth = sharp slowdown in 4Q08

“Malaysia to hit 5% economic growth, says Najib,” reported The Edge Financial Daily yesterday (2 Dec). Datuk Seri Najib Razak was commenting on 2008 GDP growth.

That full year number is irrelevant – it is heavily influenced by the record oil prices and benign global economy earlier this year. The pertinent figure is what’s happening currently. And going by our Finance Minister’s 5% number, it’s not looking good.

GDP growth was over 6% for the 9 months up to Sept 08 (9M08). Now we’re told it’ll be 5% for the full year. Simple maths tells us this suggests just 1.2% growth for the last 3 months of the year (4Q08) – a very sharp slowdown!

Our GDP growth has been decelerating:
1Q08: 7.4%
2Q08: 6.7%
3Q08: 4.7%
4Q08: 1.2%?

The BN government targets 3.5% growth in 2009. Against this backdrop, do you think that’s achievable? I take no pleasure in bearing bad news. But pretending things are fine will not help us. The crunch will be much worse when it hits if we are unprepared. The sooner we accept reality and the faster we take remedial measures the higher the chances for us to alleviate some of the pain.

PS: I'll be participating at "The New Economic Vision for Penang and Malaysia" conference at the Traders Hotel this Friday and Saturday. My panel slot at 2pm Friday is on "Moving up the Value Added Ladder." And after hours I look forward to the Jazz Festival and Alleycats!

A primer on subprime (5 of 5): Who’s to blame?

Culprits as I see it:

1) Greed by everyone in the chain: The people who took out loans they really shouldn’t have, the bank officers helping to falsify loan information to meet their performance targets, the CEOs out to make their big bonuses, shareholders hungry for profit growth, ratings agencies focused on fee income, investors looking for a free lunch ….

Borrowers were encouraged to over-state their income to qualify for bigger loans; or even to qualify for loans in the first place as banks rushed to hand out credit. A senior officer at Washington Mutual, one of the failed US banks said, "At WaMu it wasn't about the quality of the loans; it was about the numbers … They didn't care if we were giving loans to people that didn't qualify. Instead, it was how many loans did you guys fund."

They were facilitated by a false sense of security after years of benign economic conditions. Over-optimistic assumptions were built into financial models. Bankers and ratings agencies conveniently assumed recent low default rates were sustainable in the long-term. Those who argued against were told, “This time it’s different”.

Some senior bankers knew it was a house of cards – remember former Citigroup boss Chuck Prince saying, “As long as the music is playing, you’ve got to get up and dance?” But bank bosses were under pressure to show profit growth. Banks competed fiercely to lend, and often dispensed with the usual covenants meant to secure such credits – ie the “cov-light” loan. Ratings agencies gave unwarranted AAA ratings.

2) The market failure was facilitated by regulatory failure. Alan Greenspan’s Federal Reserve refused to deflate the mortgage bubble. He argued that markets had efficiently found ways to diversify the risks. But regulators failed to look deeply enough into the institutions that had supposedly took on the risks. The risks appeared to have been off-loaded, but really weren’t as the insurers were not well capitalised. It turned out that even large AAA-rated firms like AIG were over-extended and could not pay up when defaults rose.

Quite frankly though, I don't think the soul-searching is worth much. History is useful if only we would learn from it. And yes, for a while, lending standards will be tighter, banks will focus on risks and regulators will be stricter.

But as the good times roll again, politicians and businessmen will push for relaxed standards. Risk managers don’t earn revenue. Loan salesmen do. We'll again hear “This time it's different. We've learnt our lessons.” We shall see.

Look deeper into IOI cancelling its Menara Citibank purchase …

At the last minute, IOI Corporation decided not to complete the RM587m acquisition of the Menara Citibank office tower in Kuala Lumpur. IOI forfeited its RM73m deposit - 12% of the purchase price. Here are 3 potential reasons:

1) It is an IOI problem. IOI cannot afford the deal because crude palm oil prices have collapsed. But a quick check with my analyst friends finds most of them forecasting about RM2bn pa of operating cashflows with CPO around RM2,000/ton. So, it doesn’t look like IOI itself has issues;

2) Which takes us to … IOI thinks the Malaysian economy will get a lot worse. And it thinks property prices will fall by at least another 20%. (Otherwise, why would it forgo the 12% deposit?);

3) Or, IOI thinks Citi is in serious trouble and will be forced to do a fire-sale later.

Any thoughts? Comments welcome.

A primer on subprime (4 of 5): What we can do

It's a given Malaysians will suffer too in this global slowdown. Anyone suggesting Malaysia will be unaffected is living in dreamland. All of us – government, businesses and employees – have to contribute to mitigate the pain:

1. Government in the next few months has to spend to cushion the local economy and protect society's poorest;
2. In the longer-term economic policy has to be reevaluated to attract investment, both local and foreign;
3. Businesses and employees must use the breathing space afforded by the government handouts to improve efficiency and productivity.
   

Like most things, these are easier said than done. Unfortunately, government fiscal options are limited. We had already been running Budget deficits for the past 12 years, through the good times. In fact, the deficit for this year, 2008, will hit 4.8%, higher than the 3.6% initially forecast, even with record high oil and crude palm oil prices. Next year, in 2009, there will be a lot less government revenue with oil prices down by more than half and lower corporate and income tax collections.

Fortunately, and ironically, there has been plenty of fat in the system. Most would agree that there is tremendous leakage when the Barisan government spends money. Cut out the fat, and spend what we have on projects with the maximum impact on the local economy – so small scale grassroots projects please. Mega projects with high foreign input costs should be carried out only if truly necessary.

Besides the short-term spending, the Barisan Nasional government must reconsider its economic policies. The government has been increasing its role in the economy over the years. The federal budget has increased 57% over the last three years! That is not healthy. Sustainable economic growth is always private sector-led.

The amount of capital investments in Malaysia is very low poor. We were the only Asean nation to record net capital outflows last year . And if foreign exchange rates are any indicator, we are considered a worse risk than Thailand, where quite literally there was blood in the streets. The ringgit has depreciated against the baht in the past year.

Now is the time to ask the hard questions and implement the solutions. Why is investment lagging in Malaysia? Why has the perception of our country deteriorated so much? We were once seen as close to Singapore in terms of stability and prospects; we are now compared with lesser peers.

Create a conducive environment for private sector investment. And don't just focus on the foreigners. Remember the locals too. There are many Malaysian millionaires and billionaires with cash to spare. What will it take to get them to put it back into the Malaysian economy?

As for what businesses and individuals can do, Tan Sri Ramon Navaratnam said, “Be lean and mean.” Time was short and he was closing the discussion at the open forum on The Global Financial Crisis and its Implications on Malaysia. Elaborating on his behalf, we should all be looking at ourselves and asking how we earn our income. No-one owes us a living, and in my working life, my guiding philosophy was “My employer must consider me good value.” That's the only way to job security, no matter what you do. If you're a businessman, it's “My customer must find me good value.” I'm not saying cut prices – there is a difference in price and value, which can be the subject of another blog – I'm suggesting there's also substantial room for customer service, productivity and efficiency improvement in Malaysia.

For those lucky enough to have spare cash, I personally believe this is a buying opportunity . Traditional financial theory says markets are efficient. My experience is that markets are made up of people. These people may be smart, may be very highly qualified, may be very intelligent but they are humans with very human emotions. There will be periods of euphoria and periods of pessimism.

We are entering a period of pessimism. I had drinks with a friend recently. He used to be a happy punter in the stock market. Conversation turned to personal portfolios and I recommended a stock at 1.5x P/E. His first reaction – what will earnings be next year? I said, even if earnings go down by half, the stock would be at 3x P/E. But still he wasn’t convinced – and this was a guy happily buying in the bull market when P/Es were well in the teens or 20s.

It won't be an easy ride. Warren Buffet last month said, "…. the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary … ..…… Let me be clear on one point: I can’t predict the short-term movements of the stock market.”

But he added, “…fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now..”

The plunge in share prices has been indiscriminate. Prices of shares in good, and bad, companies are cheap. Hunker down for tough times, do your homework, find companies you’re comfortable with and put your spare cash in the stock market. “Be fearful when others are greedy, and be greedy when others are fearful.”

It will be hard to maintain equanimity in the coming months. News flow will be more negative than positive. Tan Sri Ramon at the forum reminded us that economic cycles come and go. He's seen 6 in his lifetime. We will survive this; the good times will roll again, and I’m sure we’ll see another crisis after that.

Finally, on Sunday: Who's to blame?

Malaysians subsidising foreigners …

Picking up on the likes of Maybank, Telekom, Astro, Genting, Maxis and YTL investing chunks of money overseas ….

It can be argued they have grown too big for Malaysian markets and this is part of normal corporate development. Some would say we should be proud that Malaysia has been able to grow such large companies.

I see no reason to be proud - all these companies are either monopolies or operate in cosy oligopolies with limited competition in Malaysia. All the extra funds they have are from the supernormal profits they reaped from you and me, the average Malaysian, thanks to the government protecting them from competition.

Take Astro, which has a government-granted monopoly on satellite tv. While it was operating in highly competitive Indonesia, it was charging Indonesians less than Malaysians. And consider Telekom, spending huge sums overseas while giving us atrocious Streamyx service, charging us RM25/month minimum fixed line charges and crying to the government that it cannot afford to spend on broadband in Malaysia (and successfully getting a subsidy!).

Investments overseas don’t generate that many jobs for Malaysians. But the investments are paid for by Malaysians through inflated prices and poor service in Malaysia due to the lack of competition. Government policies need rethinking. If our companies are big enough to go overseas, they are big enough to face competition here in the local market. Local consumers will then benefit from lower prices and better services.