Cheap power may benefit foreign workers and rich more than ordinary Malaysians

The Penang state government has been actively meeting businesses to see how it can help mitigate the economic downturn and minimise retrenchments. A very common refrain is to please cut electricity tariffs. Pakatan MPs in other states are also getting similar feedback from industrialists and entrepreneurs, “The cost of business is going up, we're facing challenging times, please cut power tariffs.”

The subsidy mentality permeates all levels of our society. Cheap power is a subsidy too. And like all subsidies, we should look closely to see if it truly benefits those most in need. Before we cut power tariffs, we should find out: 1) How many Malaysians the companies actually employ and 2) What will the companies do with the savings?

“How many Malaysians the companies actually employ” is particularly pertinent. When Indonesia liberalised fuel prices, including gas prices a few years ago, many manufacturers who depended on gas left Indonesia. It used to be a major player in the latex glove market – one where Malaysians such as Top Glove and Supermax complete. They quit, Malaysia ramped up market share.

But how many Malaysians did that really benefit? Top Glove, the world's biggest maker of latex gloves, was hit with a RM11.4m fine for having 1,769 illegal foreign workers on Aug 16, 2006. It has not reduced its dependence on foreign labour. The IHT reports that it employs 3,500 migrants - about half its work force - at 12 factories across the country. 

Why are we subsidising this company and all these foreign labourers? Subsidies should go towards developing core Malaysian skills and improving productivity, not employing low-skilled low-valued add foreign labour.

Which brings me to the next question, What will the companies do with the savings? Any bets it'll tell workers you're lucky to stay employed; and the owners will happily pocket the additional profit? That doesn't help Malaysia – it just means another long-term subsidy which we cannot afford. No pure handouts please. Companies must earn the cheaper power by coming up with better ways of doing business.

Malaysians subsidising foreigners (2) – Astro spends RM1.2bn on Indons …

Investment analysts note that Astro has incurred RM1.2bn (that's right RM1,200,000,000) of write-offs so far on its foray into providing satellite tv to Indonesians. Ever thought about how Astro can afford such a large loss? It's paid for by you and me, ordinary Malaysians who have to suffer high subscription fees and poor service thanks to Astro's monopoly on satellite-tv in Malaysia.

Because there's no competition in Malaysia, we have to pay whatever Astro demands and accept its over-priced packages offering us channels we don't want nor need, and we have to accept frequent service breakdowns in the rainy season. Astro then takes that money to offer cheap services to Indonesians. If Astro had not burnt that amount away in Indonesia, it could afford to give you a 50% discount on your subscription fee for one year!

But it doesn't look like it's going to happen since it has a cosy, secure monopoly granted by the BN government. 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.

2009 GDP growth to slow tremendously, says EIU

Remember my piece on there barely being any GDP growth in Oct-Dec 2008? While the mainstream media and the BN crow about 5%+ growth for the WHOLE of 2008 and continue to live in la-la land with expectations of 3.5% growth next year, the Economist Intelligence Unit expects just 1.5%.

I've said it before: 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.

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.