Will AirAsia’s Rights Issue Fly?

The highly-anticipated cash call from AirAsia Group Bhd has received different reactions from analysts.  Some are supportive of the mechanism involved, while others opined that the RM1.02 billion proceeds is not enough to support its cash flow requirement.

When it announced the fund raising exercise on July 12, AirAsia said it intends to secure the undertakings from the co-founders (Tony Fernandes and Kamarudin Meranun), who control 26.4% in the company and have the right to subscribe to RM257.27 million or 25.1% of the intended RM1.02 billion fund-raising. Concurrently, AirAsia is also seeking to secure underwriters for half of the rights issue not to be subscribed by the duo – representing RM358.62 million or 35% of the total fund-raising.

To recap, AirAsia has proposed a rights issue of two redeemable convertible unsecured islamic debt securities (RCUIDS) at 75 sen apiece for every six AirAsia shares held. The seven-year RCUIDS comes with a free warrant for every two RCUIDS subscribed.

Shares of AirAsia fell five sen or 5.65% to 83.5 sen the day after the announcement, valuing the group at RM3.24 billion. PublicInvest Research in its note maintains its concerns over the budget airline’s balance sheet weakness, even after taking into account the expected cash call, with target price of 19 sen per share. Notably, AirAsia had negative shareholder equity as at end-March 2021.

Whether the proposal is positive for shareholders depends on whether one buys into the recovery trajectory, and whether the low-cost carrier will be able to secure the rest of the funding required to support its operations through other borrowings or more placements in the future.

It’ll take until 2024 for international air travel across the region to reach pre-virus levels, according to the International Air Transport Association. Similarly, consultancy Energy Aspects says jet fuel consumption will reach pre-pandemic volumes only in 2023-2024.

In addition, a resurgence of Covid-19 new cases have been recorded not only in AirAsia’s home market in Malaysia, but also in all its other markets. Indonesia and Thailand are seeing new cases at record high, while Japan is also seeing another uptick. Across the region, cases are also rising in countries like Vietnam, Cambodia and the Philippines.

Vaccination rates have also been slower. Aside from Singapore, Cambodia and Malaysia, other key AirAsia markets in ASEAN are lagging behind, which may contribute to slower-than-expected reopening of borders and slower return to normalcy. Safe to say that the third quarter of 2021 is not when planes will fly again.

With RM336 million raised from past private placements and as much as RM1.02 billion from the latest rights issue, that leaves another RM1.14 billion to be raised by the company to support its operations.

In its recent press release on the cash call, AirAsia said “it is also well progressed in discussions to secure a number of other fundraising initiatives”. Fernandes, in his last interview with The Edge three months ago, had expected to secure RM1 billion in loans from three Malaysian banks, pending approval from local regulators under the Danajamin guarantee scheme.

However the RM2 billion to RM2.5 billion fund-raising proposed by AirAsia at the onset of the pandemic only saw funding until end-2021 – although some think the proceeds may last longer. This is considering AirAsia has reduced its cash burn rate to around RM29 million per month.

In the meantime, AirAsia is also seeking to raise US$300 million (RM1.26 billion) from a potential listing of AirAsia Digital in the US. The group is also in discussions with other suitors, including Malaysian and Indonesian private equity.

Indeed, AirAsia had been profitable most of the time since its listing in 2005, with dividends issued throughout the last decade – including two years of bumper dividends in FY18 and FY19 totalling RM1.54 per share.

Comparatively, a new capital injection of RM1.50 for every six shares held seems like a bargain. Can AirAsia secure all the financing needed for the next six to nine months? And will the aviation sector rebound by then? Borders will have to be reopened before everyone can fly again. (Wonder what is happening to MAS?).

                                                                      Source: www.thestar.com.my

References:

Many loose ends after AirAsia’s rights issue, Adam Aziz, TheEdgeMarkets, July 14, 2021

Asia’s air travel may take three years to recover from Covid-19 pandemic, Elizabeth Low (Bloomberg), CEO Morning Brief, July 16, 2021

5G Network: Why Ericsson over Huawei?

The Malaysian government awarded Sweden's Ericsson an 11billion ringgit ($2.6 billion) contract to design and build its 5G telecommunications network. This is a snub to the Chinese competitor Huawei Technologies. Malaysia aims to make 5G connectivity available by end 2021 and cover 80% of the population by 2024. Initially, services are to be rolled out in Kuala Lumpur and Putrajaya as well as multimedia hub, Cyberjaya, within 2021.

The Edge reported in April that Digital Nasional - a Finance Ministry entity entrusted with owning and operating the 5G network -- had invited eight vendors to participate in the tender: Ericsson, Huawei, ZTE, Cisco, NEC, Nokia, Samsung and FiberHome. Malaysia has not shown the same aversion to Huawei as the U.S. and several other Western countries, which have blocked it from bidding for government contracts and especially 5G projects over concerns about security and links to Beijing. In February, Malaysia decided to partner with Huawei on a cybersecurity lab.

Earlier, in October 2019, Huawei was brought in as a 5G hardware supplier for Maxis, Malaysia's largest mobile provider by subscribers. Under the deal, the Chinese company was to provide 5G radio equipment, services and expertise for Maxis' network.

But the Maxis agreement was reached assuming that 5G spectrum allocations would be awarded to individual telecommunications companies. Prime Minister Muhyiddin Yassin's government, however, shifted away from the traditional allocation method by establishing Digital Nasional to own the 5G assets and spectrums.

Digital Nasional said Ericsson will handle the design and development of the country's end-to-end 5G network. The agency said it will securitize future cash flows from its wholesale business via Islamic bonds to finance all other network operating expenses and repay all vendor financing arrangements. The 11-billion-ringgit arrangement includes tower rental and fiber leasing, of which more than 60% will benefit local contractors over the next 10 years.

Ericsson currently deploys 86 live 5G networks and has been involved in Malaysia since 1965.

Meanwhile, Anwar wants the government to make public details of the contract as the cost for it will be borne by the rakyat. He said he wants the project to be questioned so that there’s no chance of corruption, abuse of power, and excessive payment of commissions. Anwar also claimed that Huawei Technologies could have done the job for RM5 billion.

Digital News Asia reported that a source close to the matter claimed that the RM11 billion budget is lower than what Huawei had bid, and Ericsson had brought down their pricing substantially after negotiations.

The National 5G Task Force had estimated that the overall cost to deploy 5G would be about RM7.5 billion inclusive of other upgrading costs covering core network, radio and IT systems. The estimate assumed that a 5G radio costs RM510,000 per site and RM5.1 billion is required for 10,000 sites to achieve 90% population coverage on the 3.5GHz band.

Whether it is RM11 billion, RM7.5 billion or RM5 billion, it would be useful for the Government to be transparent on the details. Weren’t there some criteria? And what are the details of how the award came about on technical and commercial basis? Some independent body should have given a report on the award to allay fears of an over the top award. With no detailed review by Parliament, it is difficult to answer the question posed at the top!

    

        Source: https://1000logos.net

     

    Source: www.huawei.com

References:

Malaysia picks Ericsson over Huawei to build 5G network, P Prem Kumar, 1 July 2021, https://asia.nikkei.com

Anwar questions Ericsson’s RM11 billion 5G contract, claims Huawei could to the job for half the price, Alexander Wong, 7 July 2021, www.soyacincau.com

Rehabilitation from Cheap Foreign Labour?

An article in Starbiz, Saturday 17 July 2021 (Royce Tan) suggested that Malaysia has an addiction for cheap foreign labour. That road according to the author started in the 1980s. We were on the road to industrialisation then, hence the need for cheap foreign labour.

In a crisis, this gets amplified with many foreign workers forming the Covid clusters that weigh down the health system. Over 24% of all Covid cases are from the foreign labour force. The Malaysian Employers Federation (MEF) estimates that there are 1.38 million legal foreign workers in Malaysia as at end November 2020. The number of illegal foreign workers is estimated at three times the number of legal foreign workers. Over 5.5 million cheap foreign workers are therefore in Malaysia.

The issue is not about foreign labour. If there are enough jobs or Malaysians are not willing to do some of the more difficult, dirty or dangerous jobs then foreign labour force is helpful. To be fair, they add to Malaysia’s GDP even with remittance of funds to their home nations.

The Executive Director of the Economic Action Council (EAC) calls for a serious need to get rid of cheap foreign workers addiction. The 9^th Malaysian Plan recognised it but no one according to him looked at it! And without realising, the numbers have increased. This is an epiphany moment! Perhaps, the political masters could explain how the policy was formed and how they conveniently had agencies to recruit them from Bangladesh, Myanmar, Philippines, Indonesia and many other exotic places.

The nation wants to be advanced, to be high income, to embrace IR4.0 but these are laudable goals, but you need concrete steps to get there. We may never rid of all foreign labour. Countries in the West and some in the East, like Singapore, have foreign labour for the more rudimentary jobs.

In Malaysia, is there vested interest in perpetuating use of foreign labour? Will rent seekers accept change in the landscape? Is there a political will to change course? Then, are there industry groups who refuse to change?

To change, it will take some effort, say a decade of consistent policy initiatives and follow throughs. But how do we transform and where are these foreign labour force? They are in several sectors:

•  Agriculture – oil palm, rubber etc.
• Construction
•  Retail - coffee shops, barbers etc.
•  Other services - ports, airports, maids, cleaning services, security etc.

We need to use technology to change things. Take a coffee shop, do you need waiters? The process can be automated. Orders and selection are through an automated system. Delivery is by robots and payment is automated from the table. The labour requirement is minimal. Try to do a model kopitiam for others to view. Then reduce cost of system and robots by a subsidy – prices will drop with more usage.

In the 1980s, typists/clerks used to rule the output in a bank. But with computers, secretaries, typists and clerks are gone if not reduced significantly.

In the oil palm sector, it is said that there is a shortage of 40,000 harvesters. About five million hectares out of six million hectares are mature for harvesting. The optimum ratio is one harvester to every 20 hectares, so the total requirement is 250,000 harvesters. Of this, 90% are Indonesians.

The Government has established The Mechanisation and Automation Research Consortium of Oil Palm (Marcorp) recently for the purpose. It has an allocation of RM60 million to entice tech providers to find solutions for the industry. It is still work-in-progress and may take another two years to see its first fruits. This is a laudable move, but funding is too low for a sector that loses RM12 billion a year in revenue because of shortage of workers.

Source: https://www.thestar.com.my

We could similarly do this (automation) for domestic help, construction, security and other services. What’s holding us back? Money or vested interest?

Reference:

Hitting the reset on labour, Royce Tan, Starbizweek, 17 July 2021

Will Hospitality Sector Bounce Back in 2022?

 Half the year has gone. The inoculation rate could be better. The objective is to reach 80%, and we are at 7.3% as of July 1, an improvement from 5.8% a week earlier. There are states with first doses administered above 40% of its population – Sarawak and Kuala Lumpur. More needs to be done.

Meanwhile, the hotel industry (and others) must push back recovery plans further – now into 2022. Average occupancy forecasted for 2022 is 35% - that is another year of losses. Many hotels have closed temporarily or permanently – at least 120. Many employees are on “no pay” or “reduced pay” basis.

For 2021, Malaysian Association of Hotels (“MAH”) expects occupancy rates to improve from 14% in June to 28% by end 2021. The average daily rate (ADR) for 2021 is expected to be in the RM180-RM190 range, a drop of 20-30% from pre-pandemic levels. A domestic driven recovery could happen in 2022. Foreign tourists may take a little longer because of vaccination and protocols involved.

For the U.S., PwC anticipates improvements with increasing vaccinations and consumer optimism. In 2022, most hotels may reach 75-85% of pre-pandemic levels. Unemployment will improve substantially from 13.8% in April 2021. Occupancy level of 57.2% and daily rates up by 8% by year end.

For Malaysia, the Ministry of Tourism has come really short. It has allowed so-called market forces and incipient politics to take hold. So, recovery will take longer because there was no strategic or sector plan for tourism that may have helped owners, employees and other stakeholders to batten-down the hatches and prepare for a recovery in due course. It’s still not too late to work with hotel operators, tour agents and other stakeholders on a recovery plan.

Source: www.thestar.com.my

Reference:

Towards a better 2022, Eugene Mahalingam, The Star, 3 July 2021

G-7: An Anachronism on Display!

 

The G-7 countries are from a bygone era. It was about empire, colonies and how to drain them dry! (In some ways France is still at it, I mean the part about “draining dry” its former African colonies). The summit meetings began in the 1970s, when the seven – Canada, France, Germany, Italy, Japan, Britain and the United States – met and dominated the world. In 1980, they constituted 51% of the world’s GDP whereas Asian developing economies only 8.8%. In 2021, the G-7 produced only 31% of the world’s GDP, while Asian countries produced 33% of the world economy.

There has been this idea, the G-20, which includes India, Indonesia, China primarily and constitutes over 80% of the world output. But that is just a bigger “talk shop” with no concrete output expected to improve the poor, the marginalized, the climate and the environment.

It is time for Asian nations to form its own G-6 or the A-6 (Asian G-6 of China, India, Japan, South Korea, Taiwan and Indonesia). The key problems are with China’s “wolf warrior” foreign policy, tensions with its neighbors and the possible U.S. objections to its formation.

Source: https://news.cgtn.com

 

The wolf warrior diplomacy is characterized by Chinese diplomats’ use of confrontational rhetoric as well as the diplomats’ increased willingness to rebuff criticism of China and court controversy in the media. The term “wolf warrior” is derived from a 2015 Chinese-produced military action film that depicts a mythical special forces unit of the PLA, called “Wolf Warriors”, pursuing foreign mercenaries led by ex-U.S. Navy SEAL. In diplomacy, it is characterized by being more nationalistic, assertive and critical (of other countries). China believes it is too strong to be pushed around. So, dressing down foreign counterparts and the media are part of this “wolf warrior” mentality. In the Trump world this may have been appropriate. But to other peace-loving Asian neighbors? The assertiveness of China on the 9-dash line in the South China Sea, the skirmishes in Ladakh are negatives for any BRI initiative.

So, what does China really want? To replace U.S. in the east and the Pacific? To lead Asia in the 21^st century? Or, to dominate economies with its debt financing? China can lead Asia fruitfully (and the world) by being more pragmatic in its foreign policy. Peaceful collaboration and cooperation with Asian nations where feasible and where they depend on China whilst “wolf warrior” tactics on those who seek to re-assert the age of the “Opium Wars”.

An Asian G-6 economic bloc will lead to the realization of the 21 century as an Asian century. It may be to the chagrin of the U.S. But so be it. Nothing should stop Asia from rising to its full potential unless wounds are self-inflicted.

And so, what about the G-7? “Let it be”, as the Beatles will say, for it to fold-up with the wisdom of Mother Mary?

 

Reference:

We don’t need any more useless G-7 summits, Jeffrey D Sachs, Sunday Star, 20 June 2021

Is Our EPF Retirement Pot in Trouble?

During this pandemic, Malaysians have been cash-strapped. The bright idea from the Government was tap on members’ savings in the Employees Provident Funds (“EPF”). This is using one’s own money to save oneself, and forsaking the retirement nest.

The i-Lestari scheme started in April 2020 up to March 2021. Members were allowed to withdraw RM500 per month for twelve months or a maximum of RM6,000.

The i-Sinar was introduced in late 2020 but was effected in 2021. Members were allowed to withdraw up to RM10,000 over a period of six months. If their Account 1 balance is at RM100,000, they were allowed to withdraw up to 10% of the balance but subject to a maximum of RM60,000 (also over a period of six months).

According to EPF, almost RM58 billion of i-Sinar withdrawals have been approved for 6.49 million applicants. And RM20.8 billion has been paid out to 5.27 million members under the i-Lestari facility. Total withdrawals is about RM78.8 billion from these two schemes. Now you have i-Citra, to withdraw RM5,000 over next five months (i.e. RM1,000 per month).

Of all EPF members, 6.3 million of them have less than RM100,000 in Account 1 and 9.3 million members have less than the same amount in Account 2. About 4.6 million members have less than RM5,000 left and 2.19 million members have less than RM1,000 left.

Why has this happened?

The pandemic has left the Government with no room to manoeuvre. For rating reasons or the self-imposed debt ceiling constraint they are unable to help. Fiscal injection in the current lockdown is only RM10 billion. The current lockdown has not flattened the curve. Why? It is not really a lockdown! Then again, we could have been more targeted on factories, construction sites, dormitories and prioritise vaccination of the labour force.

All these withdrawals from EPF has consequences:

1. Lesser sum available for retirement; and

2. EPF needs to make provision for withdrawal- RM6 billion a month for five months. But its own

    liquidity is adequate.

The very purpose of EPF is being defeated if we allow members to withdraw retirement savings. If the average life expectancy is 75-76 years, a retirement sum of RM240,000 is required. And most members have failed to do that. To re-dress, we could raise the contribution levels which is then a “tax” – i.e. less disposable income in a pandemic.

Malaysia’s direct tax revenue as a percentage of GDP is one of the lowest in the world. Direct taxes constituted RM115.1 billion in 2020, while total tax revenue was RM227 billion. More than 80% of the working population and up to 85% of registered companies are not paying taxes. This is a structural issue.

With more freelance workers and the gig economy, it is difficult to bring them under the EPF fold. EPF has some 15 million members but only half are active.

For retirement, the best is to have a fixed monthly payment for the rest of your life while the entire retirement savings is left intact. But under current conditions most members are left with little to nothing. EPF is not in trouble but many members have no “nest egg” to live by in their retirement.

What can be done? Increase dividend payment for those with less than RM100,000 in their accounts? May not fly with those with strong balances and have not touched their EPF. The Government could issue a bond of up to RM80 billion and restore the members’ accounts that were impacted by the withdrawals? That suggests a bail out!  Any other ideas?

Reference:

Regaining our retirement nest, Pankaj C Kumar, Starbiz Week, 10 July 2021

Amazon.com Inc. Under Threat?

The key challenges for Amazon.com Inc’s next CEO, Andy Jassy, are probably cloud computing and retail dominance. Bezos, who is stepping down as CEO, has generated USD1.7 trillion of value for investors – by creating new products, e-commerce, online marketplace and services on the web cloud. The transfer of power comes amid Congress considering anti-trust laws.

The key concern is whether Amazon Web Services (AWS) can maintain its leadership in cloud computing. AWS has high profit margins and good growth prospects. Global spending on cloud services will approach USD1 trillion over the next 10 years. AWS growth in 2020 was 29% compared to 41% for the entire market. Microsoft Corp’s Azure and Alphabet’s Google Cloud Inc had approximately 60% growth. Microsoft offers better integration and Google has open source free software technologies.

The other issue is the threat from Wal-Mart Stores Inc (Wal-Mart). Having eclipsed its rivals in brick-and-mortar retailing, it is now “a two-horse” race in retailing dominance. Amazon is the landlord and anchor tenant in the virtual shopping mall context. But Wal-Mart is making successful forays into Amazon’s online domain.

Wal-Mart is ahead in profit margin (2.6%) and operating margin (4.6%) while Amazon is only at 1.3% and 2.3% respectively.

The major advantage Wal-Mart has over Amazon is its vast network of physical locations. Wal-Mart stores are close to consumers nationwide. Amazon is investing heavily in its own distribution centers.

Wal-Mart is also a formidable adversary in e-commerce. It has made heavy investments in technology in making in-store returns fast. In the Chinese market, Wal-Mart has forged an alliance with online merchant, JD.com Inc (JD). Using Wal-Mart stores, delivery times have been brought down to 30 minutes. The China market accounts for 33% of Wal-Mart’s non-U.S. sales.

 

Meanwhile, Amazon is moving aggressively into swift delivery for online buyers. Amazon’s use of robots, cuts costs and improves speed of delivery.  Wal-Mart has also begun decreasing human capital and re-developing others into more value-added services.

Overall, the challenges facing the new Amazon CEO is not entirely new. He must find new ways of doing things while Bezos focuses on outer space!

 

References:

Amazon’s ‘business miracle’ under threat, Tae Kim, Starbizweek, 3 July 2021

Why Amazon’s biggest threat may be Wal-Mart, Mark Kolakowski, Investopedia, May 2, 2021

 

Mass Unemployment by Year End?

A coalition of over 100 Malaysian business and trade groups has warned of mass unemployment in the country. Industries Unite (IU), which comprises 115 business and trade groups said that it would be counterproductive to overcome Covid-19 if Malaysians were to die of starvation.

Minister of Entrepreneurial Development and Cooperatives said almost half of MSME (Micro, Small and Medium Enterprises) could collapse by October 2021 if operations do not resume by then. According to his Ministry, a recent survey found that around 580,000 businesses or 49% of MSME sector could collapse by Q4. Should these close, more than 1.7 million Malaysians could become unemployed, with each MSME having an average of 3 workers. The survey conducted by the Ministry involved 6,664 respondents. Of this, one-third did not receive the various aid measures announced by Putrajaya. In addition, the survey revealed 60% of the entrepreneurs were suffering from mental health issues during this lockdown. Why? Because of loss of income, financing issues and risk of closures. More than 90% had no insurance while 70% did not have a safety net.

Meanwhile, the SME Association has warned massive retrenchments or wage cuts from July 2021 as uncertainties over Covid-19 continue. Most companies could only sustain staff salaries and operations up to middle of last month (June). Michael Kang, the President of SME Association echoed the Minister’s findings.

To add to our woes, three international business communities in Malaysia have expressed their concerns towards the Government’s poor Covid-19 response. These are the Japanese Chamber of Commerce and Industry Malaysia (JACTIM), Japan External Trade Organisation (JETRO); the Malaysian-German Chamber of Commerce and Industry (AHK) and the Malaysian Dutch Business Council. The issues raised include:

•    Halting production lines will take long periods for recovery;
•  Supply chains are impacted;
•  Security issues; and
• Loss of revenue with production interruptions.

 AHK has suggested, amongst others, the following measures:

•  Clear SOPs and standard enforcements;
•  Increased effort to vaccinate;
• Re-open industries with strict SOP guidelines; and
• Increased controls in facilities and dormitories

The threat is that they may leave Malaysia! Our MITI may of course respond that we only want quality investments!

Source: jactim.org.my

The impact of massive unemployment is severe and may include, amongst others, the following:

 Increase in crime rate;

•  Destitution of families;
•   Loss of property or assets, like cars to banks;
•   More people living on the streets;
•   Social unrest; and
•   Children and young adults traumatised.

We hope this could be averted by the Government engaging with relevant parties and drawing-up practical measures to save the people. It takes Ministers to move about during the day and the night to understand ground level problems. Otherwise, we will have people who can only speak of warm water and Spanish fly as solutions for Covid-19!!

 

References:

Micro SMEs on verge of collapse, 7 million could lose jobs, FMT Reporters, July 7, 2021

Malaysian business groups warn of mass unemployment as Covid-19 lockdown stretches on,

Ram Anand, https://www.straitstimes.com, July 6, 2021

Japanese, German and Dutch investors tell Mahiaddin: “We may leave Malaysia”, Malaysia Sentinel, July 11, 2021

Bosses warn of massive layoffs, wage cuts as uncertainties continue, Minderjeet Kaur, FreeMalaysiaToday, July 10, 2021

 

Musang King: A Smelly and Thorny Saga

On July 3, the Pahang Forestry Department launched “Ops Pamah” – cutting down 15,000 Musang King trees planted in 101 hectares of forest reserve. The illegal cultivation has been going on for over 20 years. They did this (cutting the trees) in 9 days!

Source: www.says.com

In any developed nation, cutting of trees will be a big “No-No”. But not here in Malaysia, especially if it was planted originally by clearing a forest reserve. Where was the Forestry Department then? Sleeping soundly?

The intention is to replant the area with 20,000 saplings of the Meranti Temak Nipis. And then to partrol the area like never before! Do you believe this? What started this mess?

Prickly, creamy and pungent, durian (Durio zibethinus) is regarded by many in Southeast Asia to be the king of fruits. Durian’s commercial value has risen in recent years, especially since it became popular in China. In 2019, China imported some US$1.7 billion worth of durians. Although Thailand dominates supply in this market, the Malaysian government aspires to increase the country’s market share to well beyond the current 10 per cent. Two factors are likely to increase Malaysia’s durian exports to China in the future. First, Malaysia secured the rights to export frozen whole durians to China in August 2018. Second, there is an increasing demand for Malaysia’s premium durian, especially the ‘Musang King’.

The Covid-19 pandemic has adversely affected the demand for durians in China in 2020. But the long-term constraint is likely to come from the supply-side. Not only is there a long gestation period for durian trees (more than five years), the Musang King variety only thrives in specific geographical areas in Malaysia. One of these areas is the district of Raub, Pahang. As the durian industry booms, durian plantation lands in Raub have become of interest to various parties. This is because many of the affected farmers (over 1,000) have been cultivating durian on land that is state-owned.

The most recent struggle over land for durian cultivation was in March 2020, when the Pahang state government’s agency for agriculture development, Perbadanan Kemajuan Pertanian Negeri Pahang (PKPP) signed agreements with a private company, the Royal Pahang Durian Group (RPD). This was to form a joint venture to develop a durian processing centre and to legalise durian farming on encroached state lands.

On 24 June 2020, the Pahang government awarded a 30+30 year lease and the right to use over 5,357 acres of land in Raub to the joint ventures. A month later, the affected durian farmers in Raub were given the ultimatum of accepting a sub-lease of 10+10 years with the joint venture company or risk being evicted for illegal land occupation. The proposed sub-lease contract requires each farmer to pay a levy of RM6,000 (US$1,473) per acre and to sell their Grade A Musang King to the joint ventures at a fixed price of RM30 (US$7.40) per kg for two years starting from 2021. As for rates for 2023 through to 2029, the price per kg would be set upon discussions with the farmers, with the lowest rate maintained at RM40 per kg including the levy, and the highest at RM45 per kg.

Not surprisingly, the ultimatum and proposal were met with stiff resistance by the durian farmers. They felt that the state had colluded with a private company to unfairly extract their hard-earned profits. The state and the private company have not previously invested any time and resources in the farmers’ ventures. The case has since gone to the courts with the farmers seeking a judicial review on two matters – the state government’s order to vacate their lands and its decision to award the lease and the right to use to the joint venture company. A temporary reprieve was obtained by the farmers when the court ordered the state authorities to cease all enforcement and eviction measures against the durian farmers until the judicial review.

Under the Federal Constitution, land-related matters are dealt with under state jurisdiction. It would perhaps be less controversial if the entire 30+30 year lease is given to PKPP because the land does belong to the state. PKPP can then provide a sub-lease to each durian farmer. Why should another private company (RDP) be a beneficiary of  the lease? As a state-owned agency, PKPP should have sufficient resources to develop the industry including financing the proposed durian processing plant. As part of a sub-lease agreement with farmers, the PKPP could also assist them in obtaining the Malaysian Good Agricultural Practices (MyGAP) certification, which is required by China for durian imports. After all, it is the role of the government to assist the private sector to overcome such non-tariff barriers. If the state government does not have the expertise nor the human resources to provide direct technical assistance to farmers on matters relating to MyGAP, it could encourage private provision of such services.

The Pahang MB expressed fears that this Musang King saga may spill into a racial issue. The land grabbing is by Malays and Chinese business persons and those poor farmers are Chinese and Malays. Raub had been a MCA stronghold up to 2013. Now it is represented by DAP.

What arrangement would allow the durian industry in Raub to flourish whilst ensuring that the state government receives its fair share of revenues (lease payments, quit rents and tax revenues)? To do this, the courts should stay the ‘grabbing hands’ of the state and allow the ‘invisible hand’ of the market to do what it does best in commerce. This would require the court to recognise the right of the farmers to be fairly compensated (for past investments, should they choose to exit farming) or to a fair revenue-sharing contract (should they choose to continue farming). Such a contract should be negotiated without the threat of eviction.

The boom in Malaysia’s durian exports has brought about a conflict between major players and institutions in the country – farmers, state and the royalty. A fair solution to this conflict can only be obtained through negotiations without any threat of eviction. Otherwise, it will remain a smelly and thorny issue.

 

References:

A thorny dispute over land and profits. Durian plantations in Raub, Malaysia, Cassey Lee, https://www.iias.asia

Forestry Dept clears 15,000 durian trees in Raub, operation almost complete, Mohd Rafi Mamat, www.nst.com.my, July 11, 2021

Company refutes Pahang’s Musang King farmers’ “modern slavery” accusations, says scheme protects Malaysia’ durian industry, Emmanuel Santa Maria Chin, www.malaymail.com, 22 Aug 2020

Why Are We at the Bottom of Recovery Index?

 

Lockdowns, lack of mass testing, poor compliance with rules, and the slow rate of vaccinations are viewed by economists as the cause of Malaysia being ranked last among countries making a recovery to normal life.

Constant politicking and the lack of coordination are other reasons that has thrown the government off track in the battle against Covid-19.

The ranking was published last week by the Economist weekly. Malaysia finished at the bottom of a list of 50 countries ranked by their progress towards a return to normal life. The Economist “normalcy index” measured the level of activities in travel, leisure time and commercial activity.

Firdausi and Juita Mohamad of think tank Institute of Strategic and International Studies (Isis) agreed that lockdowns had been detrimental to the country’s economy and affected the livelihood of the people. Firdausi believes the main problem is the absence of mass testing. Other factors were non-compliance with SOPs across the board, be it politicians, policymakers or the common man, and the “very slow” vaccination rate, which he said inadvertently led to more new cases.

Constant politicking and the lack of coordination contributed to the rising number of cases which then reinforced the government’s need to impose the various movement restrictions.

Lockdowns – a “necessary evil” at a particular time – should have been treated by Putrajaya as a temporary measure. The current level of daily infections has proven that lockdowns are ineffective.

The strict and relatively early lockdown last year (2020) for around two months had been effective as it led to a decrease in cases and subsequently saw movement restrictions lifted. The current one, which sees selected sectors allowed to operate has seen workplace clusters mushroom. And this could mean a prolonged FMCO.

Economist Madeline Berma, an honorary professor at Universiti Malaysia Sarawak (Unimas), said the lockdown had prevented a return to normal life. Madeline, who previously warned of severe economic setbacks if lockdowns were to last more than two weeks, said the Economist index did not indicate the effectiveness of measures implemented against the virus. She said other Asean countries such as Indonesia and the Philippines had scored a higher ranking although they had more Covid cases and deaths than Malaysia.

Source: https://www.centralbanking.com

The ranking does not bode well for investors, businessmen, employees – they see our efforts prolonging the agony rather than curing the disease.

We need a proper plan, coordination, decentralisation to state/district levels, mass testing, vaccination (with mobile units), engagement with chambers of commerce, business associations and experts in disease control.

Where is MITI in all of this?

For a SME like mine, MITI’s response to my application to operate was “Permohonan Diterima”. No further development for the last 30 days. The saving grace is the Securities Commission has granted us approval to operate in a MCO area. So, we do operate partially with majority on WFH. But others don’t have approvals or receive rejections (from MITI) and end-up closing their businesses temporarily or permanently.

No wonder we are at the bottom!

 

Reference:

Four reasons for Malaysia finishing at bottom of recovery index, Sean Augustin, FreeMalaysiaToday, July 6, 2021

Pemulih: Expecting Recovery with Placebo?

The PM made a grand appearance and outlined his Pemulih package on 28 June 2021. Essentially it is supposed to have the following:

 

·         Direct fiscal injection of RM10b which is 7% of the total package of RM150b;

 

·         There is no sector help like hotels, property, aviation etc. Many of these and SMEs are going under. Even Syed Mokhtar has given up on Istana Hotel;

 

·         A paltry one-off cash assistance of RM500 in August to B40 is woefully inadequate;

·         M40 households are to receive RM250 in August – that assumes they can survive for the rest of the year;

·         RM500 to those who have lost their jobs (based on EPF/Socso data);

·         Government allows withdrawal of RM1,000 per month over five months under EPF’s i-Citra – that wipes out the retirement savings;

·         MPs get RM300,000 for food basket assistance. Will they support the white flags?

·         RM10m for food basket program for indigenous peoples – no mention when they will receive this;

·         Micro SMEs to receive RM500 in September and another RM500 in November – a token display for Makcik Kiah;

·         RM3,000 “one-off” assistance to 5,300 registered travel agencies in Phase 3 – that assumes we can move from Phase 1; and

·         Then there are others on mobile banks, free daily data, vaccination centers and the like – which will not help the ordinary folks or SMEs;

 

A lot of “smoke and mirrors” that even ordinary people can sense the deception. Businesses need a loan moratorium to year end or when Phase 3 begins; rental support or moratorium on rental/evictions; a targeted Wage Subsidy Program that assists SMEs to keep employees on payroll.

And with the new EMCO for Selangor/Kelang Valley, which contributes 40% of the nation’s GDP, there will be greater collapse of SMEs. Unemployment will exceed one million and under-employment twice that. Then the predicted GDP growth of 4.5% by The World Bank will look like more wishful thinking!

Source: https://www.penagraduan.com/2021/06/pakej-pemulih-senarai-pakej.html

Reference:

Highlights of the Pemulih Package, theedgemarkets.com (June 28, 2021)