Wednesday, 17 August 2022

Malaysia’s Growth Prospects: Divergent Views

Opinions between economists at the International Monetary Fund (“IMF”) are divided over Malaysia’s growth prospects for this year. The IMF has cut its year-on-year gross domestic product (GDP) growth forecast for Malaysia to 5.1% in 2022 — down from 5.6% previously — as it warns of further downside risks for the global economy. The IMF’s latest forecast is lower than Bank Negara Malaysia (BNM)’s projected GDP growth range of 5.3%-6.3% for 2022.

In a contrast, S&P Global Market Intelligence is projecting a strong pick up in the country’s economic growth of 7% this year — an upward revision from 6.1% previously.
S&P Global Market Intelligence’s bullish view on the local economy is mainly due to the strengthening domestic demand, strong exports, as well as the reopening of international borders.


https://www.thesundaily.my


Nevertheless, in its latest World Economic Outlook Update published on Tuesday (July 26), the IMF insisted that the risks to global economic outlook are “overwhelmingly tilted to the downside. This has taken into consideration risks arising from the Russia-Ukraine war, inflation globally, the tight labour market and monetary policies, potential debt distress in emerging markets, the property sector crisis in China and geopolitical fragmentation, which could impede global trade and cooperation.

With increasing prices continuing to squeeze living standards worldwide, the IMF said taming inflation should be the first priority for policymakers.

The IMF opined that targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the Covid-19 pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending.

Meanwhile, S&P Global Market Intelligence chief economist for Asia-Pacific Rajiv Biswas highlighted that the Malaysian economy had staged a recovery in the first half of the year, after a significant economic disruption due to the Covid-19 waves.

Although global economic growth is expected to moderate, a global recession is not currently projected in the baseline scenario for 2022, Rajiv said. Global real GDP growth is expected to slow to 2.7% in 2022 and 2.6% in 2023, the economist noted.

Rajiv further said that BNM is expected to embark on a gradual path to normalise its monetary policy settings by further withdrawing the degree of monetary accommodation as the economic recovery continues.

In all of the above, many (economists) have not accounted for the lack of labour in manufacturing, construction and plantation. It is estimated that the shortage is 1.2 million workers. That is the crux for production and hence GDP. Then the inflationary effects are on us – BNM refuses to be aggressive on rate hike, because we want to balance growth. Hang growth! Fix inflation and don’t start on “demand-pull” and “cost-push” issues. We did massive stimulus packages (because of Covid) and it is a monetary phenomenon. So, please increase OPR by 1% and keep a differential with the Fed Fund rate or we will end-up with RM5 to the dollar! That will further spike imported inflation – net food bill is RM55-60 billion a year. That’s why consumers and the B40 (or B60) will feel the pain more than the elite!

Reference:
Contrasting view on Malaysia’s growth prospects, Chester Tay and Syafiqah Salim, TheEdge CEO Morning Brief, July 28, 2022

Tuesday, 16 August 2022

Is Big Oil Set for Record Profit?

Big Oil is poised for a record-breaking US$50 billion profit in the second quarter of 2022. The soaring earnings are direct result of the high energy prices that have stoked inflation, piled pressure on consumers, raised the risk of recession and prompted calls for windfall taxes. Amid this political and economic turbulence, shareholders may have to temper their expectations for rising returns. 


Exxon Mobil Corp, Chevron Corp, Shell Plc, TotalEnergies SE and BP Plc — collectively known as the supermajors — are set to make even more money than they did in 2008, when international oil prices jumped as high as US$147 a barrel. That’s because it’s not just crude that has soared during the crisis created by Russia’s invasion of Ukraine, natural gas prices and refining margins have also broken records.

Many major markets have found themselves critically short of refining capacity due to a combination of shutdowns, investments that were stalled by the pandemic, sanctions on Russia and a decision by China to limit petroleum exports.

The US Gulf Coast’s 3-2-1 crack spread, a rough measure of profit margins from refining a barrel of crude, exploded to average US$48.84 in the second quarter, more than double the level a year-earlier. A similar measure for Europe — TotalEnergies’ variable cost margin — rose threefold to US$145.70.
Refining now makes up 26% of the cost of a gallon of gasoline in the US, up from an average of 14% in the previous decade, according to the Energy Information Administration.

Shell is expecting to post a US$1 billion gain in refining results. Exxon, which has the largest downstream footprint of the supermajors, is expected to make more in the second quarter than the previous nine combined, according to estimates collected by Bloomberg.

Exxon will probably use its excess cash to lower debt, according to Citigroup Inc.. Chevron may increase the bottom end of its buyback range to US$10 billion for the year.

Sky-high profits aren’t solely the result of the broad-based upswing in commodity prices. The supermajors are also spending much less than they did the last time oil was above US$100 a barrel. Capital expenditures is creeping to a forecast of US$80 billion in 2022, but that’s half the level of 2013.
The supermajors may not be able to keep capital expenditure this low for long, due to their need to ramp up spending in an inflationary cost environment. Schlumberger NV, the world’s biggest oilfield service company, last week said sales increased nearly 20% from a year earlier, and sees a “multiyear upcycle” in demand for its services.

This situation risks a political backlash. The UK imposed a windfall tax on oil and gas profits earlier this month. Italy has passed a levy on the energy industry, while in France some lawmakers are backing the idea of a special tax of as much as 3 billion euros (US$3.1 billion) a year. President Emmanuel Macron has so far resisted such calls, instead urging companies including TotalEnergies to extend rebates on fuel purchases.

In the US, Biden has criticized Exxon for making “more money than God” and accused other oil firms of exploiting high gasoline prices, but so far there has been no serious political pressure for a windfall tax.

Against this turbulent backdrop, the most profitable quarter in the supermajors’ history may not be cause for overt celebration.

For Malaysia, a windfall tax will help reduce the so-called subsidy cost of RON95 and diesel. It is time for oil companies to share the burden consumers/Government face. Anyway what is the point of super-profits other than to meet analysts’ expectations, reward shareholders or buyback shares?

Reference:

Big Oil set for record profit as world reels from high fuel cost, The Edge CEO Morning Brief, July 27, 2022[Kevin Crowley, Laura Hurst and Francois De Beaupuy, Bloomberg]

Monday, 15 August 2022

Money, Money, Money!

ABBA’s hit on the above will always be a topic that rocks Malaysia. And ABBA is not Muhyiddin Yassin (that’s “Abah”).

It’s all about money – illicit, fraudulent, unethically secured, deployed and even stashed away money that is rocking this nation. 

As you scan the news, millions of ringgit in cash paid out to so many individuals within the political circles (or circus), it is easy to understand why the people are suffering today. Some senior civil servants and politicians have been found to have gold bars, currencies, jewellery and branded bags stashed away in their homes.

Then you have invisible ships worth RM6 billion and no-one has as has been charged for the ships not appearing! (Pardon me if they are invisible and cannot appear – stealth technology?). The first ship (visible) will only delivered in two years time. That is according to the Minister of Defence (MoD). He was also the MoD in 2017 when he welcomed the first LCS into the Navy. This vessel was not fully completed, hence not operational to this day.

The NST in its report on 10 August 2022 reported that these things happen because:
“We have leaders who lack integrity”
“Malaysian voters are also at fault for electing ‘shady characters’”
Political parties keeping court clusters in leadership positions; and
Procurement process is far from being transparent


Source: Malaysiakini, 8 August 2022


Then we have MRT3 with RM1 billion per kilometre. How do we justify this RM50 billion project?

What is mind-boggling is that in Malaysia, you can return the stolen money and be absolved or have a reduced sentence.

How long more will we be dragged through the mud and slime of corrupt conduct?  How long more will we be able to cushion all the robberies, bearing in mind it is the people’s money that is being taken? The billions of ringgit now needed but unavailable to subsidise essential goods and fuel and to create meaningful jobs for the people have been stolen by corrupt politicians, political appointees, their kith and kin, and some civil servants. And there is no end in sight unless there is a drastic reset.

We have decades of stolen money, not just those cases languishing within the Palace of Justice or at the attorney general’s office or being investigated by the authorities, as is often claimed.  We are talking of the several decades-old culture of ‘What’s is in it for me?’ that has robbed this nation of a glorious past and future.  We are a rich, blessed nation that is impoverished today. 

But we continue to allow ourselves to fall prey to the mantras of religious divisiveness and intolerance, along with deepening racial animosity, that have proven to be the most effective political weapon of power. 

If we want to survive on daun ubi kayu (cassava leaves) and sambal belacan in the not-too-distant future, then let us, in our self-inflicted blindness, happily live with such blatant theft at all levels. 

How long more, oh Malaysia? How long more can we allow this nation, its resources and its people to be exploited? 

References:
Money, money and more money rocks Malaysia, JD Lovrenciear, ALIRAN, 1 August 2022

MPs remind Hisham he welcomed non-existent LCS into fleet in 2017, Malaysiakini, 
9 August 2022

NST Leader: Another 1MDB? New Straits Times, 10 August 2022




Friday, 12 August 2022

U.S. : Workers Wages Have Stagnated!

U.S. unemployment is low in nearly two decades (3.9% as of July) and the nation’s private-sector employers have been adding jobs for 101 straight months – 19.5 million since the Great Recession.

But despite the strong labor market, wage growth has lagged economists’ expectations. In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers.




The disconnect between the job market and workers’ paychecks has fuelled much of the recent activism in states and cities around raising minimum wages, and it also has become a factor in at least some of this year’s congressional campaigns.

Average hourly earnings for non-management private-sector workers in July were $22.65, up 3 cents from June and 2.7% above the average wage from a year earlier, according to data from the Federal Bureau of Labour Statistics (“BLS”). Year-over-year growth has mostly ranged between 2% and 3% since the beginning of 2013. But in the years just before the 2007-08 financial collapse, average hourly earnings often increased by around 4% year-over-year. And during the high-inflation years of the 1970s and early 1980s, average wages commonly jumped 7%, 8% or even 9% year-over-year.

After adjusting for inflation, however, today’s average hourly wage has just about the same purchasing power it did in 1978. In fact, in real terms average hourly earnings peaked more than 45 years ago: The $4.03-an-hour rate recorded in January 1973 had the same purchasing power that $23.68 would today.

A similar measure – the “usual weekly earnings” of employed, full-time wage and salary workers – tells much the same story, albeit over a shorter time period. In seasonally adjusted current dollars, median usual weekly earnings rose from $232 in the first quarter of 1979 (when the data series began) to $879 in the second quarter of this year, which might sound like a lot. But in real, inflation-adjusted terms, the median has barely budged over that period: That $232 in 1979 had the same purchasing power as $840 in today’s dollars.




Meanwhile, wage gains have gone largely to the highest earners. Since 2000, usual weekly wages have risen 3% (in real terms) among workers in the lowest tenth of the earnings distribution and 4.3% among the lowest quarter. But among people in the top tenth of the distribution, real wages have risen a cumulative 15.7%, to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426).




Wage stagnation has been a subject of much economic analysis and commentary, though perhaps predictably there’s little agreement about what’s causing it (or, indeed, whether the BLS data adequately capture what’s going on). One theory is that rising benefit costs – particularly employer-provided health insurance – may be constraining employers’ ability or willingness to raise cash wages. According to BLS-generated compensation cost indices, total benefit costs for all civilian workers have risen an inflation-adjusted 22.5% since 2001 (when the data series began), versus 5.3% for wage and salary costs.

Other factors that have been suggested include the continuing decline of labour unions; lagging educational attainment relative to other countries; non-compete clauses and other restrictions on job-switching; a large pool of potential workers who are outside the formally defined labor force, neither employed nor seeking work; and broad employment declines in manufacturing and production sectors and a consequent shift toward job growth in low-wage industries.

Remarkably, we are no better, wages for entry level graduates remain in the RM2,500-RM3,500 range over (perhaps) the last 10 years. A Bank Negara study shows that Malaysian workers are paid less than other benchmark economies. For a Malaysian worker who produces output worth USD1,000, he would be paid USD340. The corresponding wage in a benchmark economy is higher at USD510. This is applicable in most sectors in Malaysia. Why? Bargaining power, foreign workers and Government biasness to employers, amongst others. We need a productivity-linked wage structure that incentivises workers and provide “fairer” remuneration package to output.

Reference:
For most U.S. workers, real wages have barely budged in decades, Drew Desilver, Pew Research Center



Thursday, 11 August 2022

The 7 Values of Servant Leadership

What do leaders like George Washington, Abraham Lincoln, and Martin Luther King Jr. have in common? It’s not one thing, but rather a commitment to the key values that constitute being not just an effective leader — but a servant leader committed to helping others and transforming the world for the better.

The results of servant leadership are exponential: by leading as a servant, you multiply success and satisfaction — personal and professional, for you and your colleagues — above and beyond the limits of traditional leadership outcomes. There are 7 key principles of Servant Leadership:

1. Honour Others
2. Inspire Vision
3. Choose Ethics
4. Empower Others
5. Prioritise People
6. Balance Focus With Flexibility
7. Serve With Humility

Source: https://chiefexecutive.net



1. Honour Others (Before Yourself)

Albert Einstein once said, “I speak to everyone the same way, whether he is a garbage man or the president of the university.” This simple statement perfectly encapsulates the concept of purposefully honouring others before yourself. By speaking to everyone as if they are genuinely important, no matter their position in life, Einstein is demonstrating genuine respect for all people. Respect defines the underlying attitude of a servant leader.

How to Honour Others
Affirm dignity by recognizing and responding to the needs of your team
Actively resolve issues; never wait for things to just get better
Respect people of all positions through word and behaviour

2. Inspire Vision (Before Setting The Course)

In a humbling moment that will forever be preserved, Helen Keller wrote, “The only thing worse than being blind is having sight with no vision.”
Daily, leaders around the world are going 100 miles per hour in no specific direction and getting nowhere. But great leaders work to establish a vision that goes far beyond what they can see — and full buy-in from their team. Vision from leadership and buy-in from teams produce an inspiring atmosphere where nearly any goal becomes possible.

How to Inspire Vision
Model the way for your team
Help your team realize how each person’s role contributes to a larger picture
Be sure to share not only the “what” and “how” of your vision, but also the “why”

3. Choose Ethics (Before Profit)

“A good name is to be chosen over great riches,” according to the book of Proverbs. Over the last 2,000+ years, millions of successful leaders have learned the practical truth of this proverb.

There is no price you can pay for integrity, but a lack of integrity can be costly. While Christian teachings emphasize this virtue, almost every other major religion also has a proverb or parable promoting this concept. This leads us to the conclusion that integrity counts.

So, what are the major and minor non-negotiables that you can hold onto as you lead your organization?

How to Make Ethical Choices
Be clear on non-negotiables that define your integrity (especially with yourself)
Identify how integrity will increase your long-term profitability or success
Remember ethical business practices reduce long-term risk

4. Empower Others (Before Personal Gain)

“It’s amazing what you can achieve if you don’t care who gets the credit.” This quote by former President Harry S. Truman exemplifies how leaders achieve their greatest success — through the empowerment of the staff surrounding them.

Leaders who care about leveraging and empowering their teams create a safe environment that encourages confident decisions. This type of safety gives a team permission to take smart risks (with your guidance) and, more often than not, achieve greater outcomes.

Lincoln recognized the waste in having a team of “yes men,” instead choosing strong and insightful men who felt respected and safe to raise unpopular concerns. Because of this, he was able to form a powerful team that never got out of control, with strong and growing leaders in every department of his administration.

How to Empower Others
Create a safe environment for employees to grow
Allow for risks to be taken with growth and development of team members in mind
Uncover and cultivate shared goals that inspire ownership of work responsibilities

5. Prioritise People (Before Tasks)

Simon Sinek, a visionary in the field of living out purpose, said, “When people are financially invested, they want a return. When people are emotionally invested, they want to contribute.”
There is no greater value than a team that desires to carry out their responsibilities with passion. Such a team originates with leadership that understands and expresses the individual and collective value of their teams.

How to Put People First
Show tangible appreciation for your team — through both word and deed
Put people first (over money and time)
Be proactively kind to your team, routinely finding ways to encourage them and support them

6. Balance Focus With Flexibility 

In business, the expression “out with the old, in with the new” has become a cliché. But how often do we use that phrase to justify the implementation of new programs that are already out of date or misaligned to the new organizational or industry reality? Leaders too often self-destruct when they are unwilling or unable to innovate and adapt to meet new circumstances. It is too easy for an organization to find itself “out with the old” because of a stubborn and inflexible attachment to “the old way.”

Very often, the education sector slides into this category when funding falls. Becoming technologically behind through inertia, a school’s students end up learning on outdated software or business models that can hold them back as they try to break into a high-tech workplace.

How to Keep a Flexible Focus
Be willing to abandon a path when it proves futile (recognize when decisions are being shaped by path dependency)
Maintain the essential “10,000-foot view,” but keep track of the “on-the-ground” work
Pay attention to market trends and proactively respond before you are forced to react

7. Serve With Humility (Before All Else)

“Humility is not thinking less of yourself, it’s thinking of yourself less.” Pastor and author Rick Warren articulates a valuable lesson for influential leadership. Pride becomes a poison to a team and a repellent to those you would seek to influence. Humility is not mere self-deprecation or a focus on shortcomings, but rather purposeful care and concern for the world around you.

How to Serve with Humility
Recognize that every leader has room for improvement, including yourself
Always ask others how you are doing and never stop re-evaluating your performance
Look for boring tasks you can do and opportunities to connect with others that demonstrate you are truly approachable

The above 7 traits for leadership is the route to success. There are others and perhaps you know them from your own experience or observance of others. When a nation or company does well it has got its “true north” right.

The world will suggest greed, self-importance and profit before other things. It is the conscious effort of a leader not to fall into this trap that differentiates a good leader from a poor one. So transform daily by the renewing of your mind!

Reference:
7 Values of Servant Leadership, Point Loma Nazarene University

Wednesday, 10 August 2022

Where is Malaysia’s Inflation Headed? Up?

Malaysia’s June 2022 Consumer Price Index (CPI) increased to 3.4% (on an annualised basis). The increase surpassed the average inflation in Malaysia for the period January 2011 to June 2022 (1.9%), according to the Department of Statistics Malaysia (DOSM). Malaysia’s inflation rate (3.4%) was higher than China (2.5%) but lower than Thailand (7.7%), the Philippines (6.1%), South Korea (6%) and Indonesia (4.4%).

Food index increased 6.1% and remained as the main contributor to the rise in inflation during June 2022, according to the Chief Statistician of DOSM.

Other groups except communications also recorded increases and led headline inflation to 3.4%. Transport rose 5.4% followed by restaurants & hotels (5%); furnishings, household equipment & routine household maintenance (3.4%); miscellaneous goods & services (2.2%) and recreation services & culture (2.2%).




Elaborating further on the food index, the DOSM’s Chief Sstatistician said all subgroups in food & non-alcoholic beverages recorded increases between 2.8% and 11.9%.

Meanwhile, food at home and food away from home inclined 6.1% and 6.65 respectively, contributing to the increase in food inflation. Among food away from home that showed increases were roti canai (10.5%), rice with side dishes (9.7%), cooked beef (7.8%) and noodles-based food (7%).

Meanwhile, chicken which is the largest weight in the subgroup of meat (46.1%) rose 17.2% after rising 13.4% in May 2022. The average price of processed chicken in June 2022 was RM10.02/kg as compared to RM8.55 in June 2021. The increase in chicken prices is in line with the increase in global food production inputs such as maize (14.8%), wheat (60.9%) and soybean (19.9%) which are the largest composition in the preparation of chicken feedstuff.
Additionally, pork also recorded an increase of 14.6% from 10.2% in the previous month. This was contributed by the rise in the price of animal feed. Moreover, the spread of African swine fever has also affected pork supply.

For July, inflation could exceed 4% and there are no signs it has peaked. Overall, for 2022 it may average 3.1% according to some analyst. This is a “tax” on the poor and savers who rely on interest from fixed deposits.

Reference:
Pricier roti canai, pork as Malaysia’s June 2022 inflation surges to 3.4%, Cheah Chor Sooi, Focus Malaysia, 22 July 2022

Tuesday, 9 August 2022

How Much Grain is Stuck in Ukraine?

About 20m tonnes of grain meant for export is trapped in Ukraine. Its president Volodymyr Zelensky has said this could rise to 75m tonnes after the 2022  harvest. The war also means that this year's harvest will be smaller. As much as 30% of the 86m tonnes of grain Ukraine normally produces will not be harvested, says Laura Wellesley, a food security specialist at think tank Chatham House.

Ukraine’s grain goes to Asian and African nations as shown below:



Ukraine is usually the world's fourth-largest grain exporter. It normally produces 42% of the world's sunflower oil, 16% of its maize and 9% of its wheat. In addition, wheat exports from Russia - the world's largest exporter - is down.

Western sanctions do not target Russian agriculture, but the Kremlin argues they have hindered exports by hiking insurance rates and affecting payments. Russian ships carrying agricultural products are not barred from EU ports.

Ukraine and Russia usually supply over 40% of Africa's wheat, according to the African Development Bank. But the war has led to a shortage of 30 million tonnes of food in Africa. This has contributed to a 40% rise in food prices across the continent.

In Nigeria, it has helped increase the price of staples such as pasta and bread by as much as 50%.

The EU is trying to help - setting up "solidarity lanes", so that Ukraine's grain can be shipped from ports on the Baltic Sea, and also from the Romanian port of Constanta. For part of the journey to Constanta, the grain can be transported by barge along the Danube.



However, one major problem is that Ukraine's train tracks are wider than those in the rest of Europe. That means grain be unloaded from one set of wagons at its border and reloaded onto others. It has been taking as much as three weeks for grain to cross Europe and reach ports on the Baltic. The Ukrainian Grain Association, a trade body, says only 1.5m tonnes of grain a month at most has been exported. Before the war, Ukraine had been exporting as much as 7m tonnes of grain a month

This war has brought untold misery for people of Ukraine, Russia and the world. There is no convincing reason for the war. If the U.N. is a functioning body, it has to embark on securing a ceasefire and then through dialogue find a solution that meets key issues of the conflicting parties. Otherwise, the world will face rising inflation and food shortages in the poorest parts of the world. Is that what the warring parties want?

Reference:
Why does the world need grain to be shipped from Ukraine? BBC News