Tuesday 31 August 2021

Are We Free?

 Are we free from discrimination?

Are we free from greed and corruption?

Are we from oppression and exploitation?

Are we free from prejudice and injustice?

Are we free from bondage of race and religion?

Are we free from authoritarian rule?

Are we free from power politics?

Are we free from muddling our way?

Are we free from miscarriage of justice?

Are we free from censorship?

Are we free from poverty?

Are we free from biased thought?

Are we free from hate and superiority?

Are we free from division of any kind?

Are we free from hypocrisy?

Are we free from indifference, malaise and apathy?

Are we from stealing, lying and cheating our people?

Are we truly free to celebrate our freedom?

If yes, then we are the Malaysian Family to celebrate Merdeka!  Otherwise, we need to reflect and pray for humility, compassion and love for this nation of ours. When we do that and return to Him the Creator God , He will be pleased to forgive and bless us! 

Merdeka!!





Selamat Hari Merdeka!


Monday 30 August 2021

Leading Firms Knowingly Pollute the World!

 In October 2019, The Guardian revealed the 20 fossil fuel companies whose relentless exploitation of the world’s oil, gas and coal reserves directly linked to more than one-third of all greenhouse gas emissions in the modern era.

New data from world-renowned researchers reveals how this cohort of state-owned and multinational firms are driving the climate emergency that threatens the future of humanity.

The analysis by Richard Heede at the Climate Accountability Institute in the US, the world’s leading authority on big oil’s role in the escalating climate emergency, evaluates what the global corporations have extracted from the ground, and the subsequent emissions these fossil fuels are responsible for since 1965 – the point at which experts say the environmental impact of fossil fuels was known by both industry leaders and politicians.

The top 20 companies on the list have contributed to 35% of all energy-related carbon dioxide and methane worldwide, totalling 480bn tonnes of carbon dioxide equivalent (GtCO2e) since 1965.

Those identified range from investor-owned firms – such as Chevron, Exxon, BP and Shell – to state-owned companies including Saudi Aramco and Gazprom.

Chevron topped the list of the eight investor-owned corporations, followed closely by Exxon, BP and Shell. Together these four global businesses are behind more than 10% of the world’s carbon emissions since 1965.






Sources: https://www.wikiwand.com and https://en.wikipedia.org


Twelve of the top 20 companies are state-owned and together their extractions are responsible for 20% of total emissions in the same period. The leading state-owned polluter is SaudiAramco, which has produced 4.38% of the global total on its own.





The great tragedy of the climate crisis is that seven and a half billion people must pay the price – in the form of a degraded planet – so that a couple of dozen polluting interests can continue to make record profits. It is a great moral failing of our political system that we have allowed this to happen – said Michael Mann, a climate scientist.

The study shows that many of the worst offenders are investor-owned companies that are household names around the world and spend billions of pounds on lobbying governments and portraying themselves as environmentally responsible.

A study earlier in 2019 found that the largest five stock-market-listed oil and gas companies spend nearly $200m each year lobbying to delay, control or block policies to tackle climate change.
They lack moral, legal and financial responsibility for the climate crisis and reluctantly accept responsibility for the problem. It is time for the global movement to act rather than talk of measures. A “climate” tax has to be imposed on them for polluting the earth.

Reference:
Revealed: the 20 firms behind a third of all carbon emissions, Matthew Taylor and Jonathan Watts, The Guardian, 9 Oct 2019

Friday 27 August 2021

Is Liquidity an Issue at Bursa Malaysia?

The Malaysian stock market is in dire need of liquidity (Starbiz, August 17, 2021). Without foreign investors, the market is in the doldrums. There is the other problem, it has become less attractive. Why? Government is in suspended animation, Covid cases continue to be above 15,000, and economic indicators like unemployment, property, retail, tourism, aviation and many others are in bad shape. The bright spots are export-oriented industries, like electronics or glove manufacturing and those in logistics and delivery. As a result, many stocks are trading below 2015-2019 average PE.

Up to August 11, 2021, Bursa Malaysia recorded a net foreign outflow of RM5.9 billion. In 2020, it was a high of RM24 billion. The situation is the same in Vietnam, the Philippines and Thailand.

As at July 2021, foreign ownership of Malaysian stocks is at an all-time low of 20.2%, according to UOB Kay Hian Malaysia Research. The market cap of the Main Market has declined by 4.5% between January and July 2021. The ACE market fell by almost 10%.

Foreign funds return will only be with a more responsive and stable Government in place, vaccination rates have improved significantly and businesses have resumed operation. That at best is around October 2021.

Meanwhile, look at a balanced portfolio with value stocks providing some bargains.




Disclaimer
The information posted in this blog is for informational purposes only; and should not be interpreted, or relied upon, as financial or business advice; and any use for other than informational purposes is disclaimed.

Reference:

Bursa’s dire need of liquidity, Ganeshwaren Kana, Starbiz, 17 August 2021

Thursday 26 August 2021

Afghanistan: The Cost of War!

The Taliban, in a shocking blitzkrieg, swept through Afghanistan in less than a month. The 300,000-man Afghan army melted away in their path. Afghan President Ashraf Ghani fled in disgrace.

 And what of the honor and property of the United States of America? Gone missing. Thousands of interpreters and their families await visas to the U.S., while Taliban fighters parade triumphantly in captured tanks and humvees paid for by the U.S.

In the 20 years since September 11, 2001, the United States has spent more than $2 trillion on the war in Afghanistan. That’s $300 million dollars per day, every day, for two decades. Or $50,000 for each of Afghanistan's 40 million people. In simple terms, Uncle Sam has spent more keeping the Taliban at bay than the net worths of Jeff Bezos, Elon Musk, Bill Gates and the 30 richest billionaires in America, combined.

Those headline numbers include $800 billion in direct war-fighting costs and $85 billion to train the defeated Afghan army. U.S. taxpayers have been giving Afghan soldiers $750 million a year in payroll (some of whom are known as phantom fighters – only on paper but not real!). All told, Brown University’s Costs of War Project estimates the total spending at $2.26 trillion



And the costs are even greater in terms of lives lost:
American service members killed in Afghanistan through April: 2,448.
U.S. contractors: 3,846.
Afghan national military and police: 66,000.
Other allied service members, including from other NATO member states: 1,144.
Afghan civilians: 47,245.
Taliban and other opposition fighters: 51,191.
Aid workers: 444.
Journalists: 72.

Naturally, the United States has financed the Afghan war with borrowed money. Brown University researchers estimate that more than $500 billion in interest has already been paid (included in the $2.26 trillion total sum), and they figure that by 2050 the cost of interest alone on Afghan war debt could reach $6.5 trillion. That amounts to $20,000 for each and every U.S. citizen. 

America has not learnt its lessons on war – Vietnam, Iraq, Syria, Libya – all have drained resources. Only the elite and vested interest gained. Meanwhile, the U.S. has homeless families, unemployment and poverty. America could have been a more prosperous nation if it avoided the wars by negotiating smart regime change.

References:

The War In Afghanistan Cost America $300 Million Per Day For 20 Years, With Big Bills Yet To Come, Christopher Helman, www.forbes.com

Costs of the Afghanistan War, in Lives and Dollars, Associated Press, August 17, 2021

How much did the Afghanistan war cost the US? Aisha Majid, www.newstatesman.com

Wednesday 25 August 2021

GDP Forecast is Revised Downward for 2021

Bank Negara Malaysia revised (in August) its GDP forecast for 2021 to 3% - 4% from 6% - 7.5%, a 50% reduction in just five months!

Why? The blame is on our Full Movement Control Order (“FMCO”). The FMCO is expected to have a cumulative impact of 5% to 2021 growth, or an average of RM400m – RM500m in daily real output losses.

Headline inflation spiked to 4.1% in 2Q 2021 due to fuel prices while expectations are it will remain between 2.5% - 4% for the year. Unfortunate for savers – with deposit rates at 2% p.a.

For 2Q 2021 (April – June) GDP grew 16.1% year-on-year, but this is due to base effect. If you strip-off the base effect 2Q GDP contracted by 2% from 1Q 2021, reflecting weak domestic and business activities. Export-oriented industries in manufacturing sector have remained resilient. That’s because of global demand in electrical and electronics continued to be on the upswing.

People are battle-fatigued over the pandemic, political tensions and flip-flops on SOPs. That will disrupt recovery and survival of MSMEs. In a ACCCIM survey, respondents see 2H 2021 to be worse off than 1H 2021. Over 65% of respondents see no recovery in 2021 and others see conditions to worsen.

The inflection point is August. If vaccination rate is 40% - 60% of total population, then there is some hope. And if we could see inter-district and even inter-state travel, then a semblance of recovery by year end. A more conservative view is recovery in 2H of 2022 and a full recovery to pre-pandemic (2019) levels by 2023.

The critical points for recovery are:

Higher vaccination rates;

More relaxed SOPs;

Incentives/subsidies for employers to meet payroll, rental and debt obligations; and

Improved business sentiments with stable political landscape and accommodative economic policies.

Then there will be less white and black flags!

Source: freemalaysiatoday.com


References:

BNM revises down Malaysia GDP forecast range to between 3% and 4% for 2021, Ahmad Naqib Idris, TheEdgeMarkets, August 13, 2021

High 2Q 2021 GDP growth, beware of the base effect! Lee Heng Guie, Focus Malaysia

Better 2Q 2021 envisaged even as growth slowed to a 4-month low in June, Cheah Chor Sooi, Focus Malaysia, August 11, 2021


Tuesday 24 August 2021

Car Sales Plunge Under FMCO!

Car dealers posted total losses of more than RM14 billion in June and July this year. Why? Sales of vehicles crashed with the MCO. Production plants, distribution centres and sales centres were closed from June 1, 2021.

The Malaysian Automotive Association (“MAA”) who have about 1,300 dealers said that there are repercussions on the entire automotive eco-system. Sales of motor vehicles was only 1,921 units and 7,086 units in June and July respectively. In the first seven months of this year, 256,215 units were sold, up 23,792 units (10.2%) from 232,423 units recorded in the same period last year. Total industry production for June and July were 276 units and 2,775 units respectively.




Many smaller car dealers are severely impacted by the lockdowns. Cash flow and retaining employees are their key problems.

With the reopening activities on August 16, 2021 there is some hope. Although there will be some pent-up demand, many will defer purchases of new cars with the uncertainties prevailing. The Government could engage with MAA and others on how best the sector could move forward. Financing for buyers will be another key issue with many banks taking a very prudent view by rejecting “marginal” borrowers.

Perhaps, this is a good time to review the National Automotive Policy (“NAP”) and address the way forward for electric vehicles (EV). Malaysia must speed-up its implementation of EVs or we will be playing “catch-up” to other nations like Singapore. The new Government may have many things on its plate, but reviewing and injecting new zeal in the industry and commerce will be a welcome move.

Source: https://www.freemalaysiatoday.com



Reference:

MAA: July vehicle sales rebound 270% m-o-m, with easing of restrictions in Sabah, Sarawak, Justin Lim, theedgemarkets.com, August 17, 2021

Monday 23 August 2021

Are the New MM2H Conditions “Bizarre”?

The MM2H (“Malaysia My Second Home”) Programme was started in 2002 and was promoted by the Malaysia Tourism Authority and the Immigration Department. It was primarily marketed as a retirement programme. Those under the programme reportedly expended RM10,000 per month and over half had purchased property – 33% bought homes below RM1 million and another 25% paid RM2 million or above for their property.


Source: http://www.mm2h.gov.my


With the pandemic the programme was suspended in October 2020, causing consternation for many expats. The programme, between 2002 and 2019 had generated RM11.9 billion in cumulative income for the nation. This was in terms of fee, visa charges, purchase of properties and vehicles, fixed deposits and monthly household expenditures.

On August 11, the Home Ministry Secretary General announced changes to MM2H. The objective is to secure high-income participants. The key changes are as follows:



Participant numbers under the programme is set at 1% of the Malaysian population. That translates to 320,000 on current population estimates.

Many expatriates are convinced the Government is trying to remove them from the country. It is suggesting non-citizens do sell off their assets, remove all fixed deposits and perhaps move to Thailand – its Elite Visa is valid for 5 years and costs about RM100,000 for two people.

We have 57,478 holders of MM2H passes and another 1,000 are pending approval. Existing holders will have to comply with new conditions if they wish to renew.

The move will impact negatively real estate agents, vendors, tourism operators, retailers and many more. In a severe downturn with a property overhang, don’t we want investors? If that is not true, why don’t we cancel the programme? And how can Immigration Department be the driver replacing the Tourism Authority of this “still born” idea? Immigration personnel are trained to detain people not welcome foreigners! Could we not have two programmes – one is the basic programme with lesser benefits, and another is a premium programme with higher incentives? Are we the only country with a MM2H? There are several in the region and the world. In short, from October 2020 to August 2021, we have come up with a poor piece to be criticised severely by potential residents/investors. Could we stop this insular thinking and try to welcome people who contribute to our GDP?

 

References:

They’re kicking us out: expats decry MM2H changes, Rachel Yeoh, The Vibes, 13 August 2021

“Requirements too stringent”, Rashvinjeet S. Bedi, The Star, 13 August 2021



Friday 20 August 2021

What is the Short-term Crude Oil Price Energy Outlook?

Brent crude oil prices averaged $73/b in June 2021, up $5/b from May (as at 11 August 2021, Brent was at $70.60/b). June was the first month when Brent crude oil prices averaged more than $70/b since May 2019. The increase likely reflected market expectations of continuing near-term tightness in the global oil markets. This was evident in ongoing declines in global oil inventories. As vaccination rollouts have continued to ramp up in parts of the world, personal travel and mobility have been rising during much of 2021. Increasing oil consumption combined with production restraint from OPEC+ and relatively flat crude oil output in the United States have kept global oil consumption above global oil supply, draining inventories. Although global oil inventories during May and June fell at a slower rate than earlier in the year, the inventory draws of 1.2 million b/d over the past two months indicate the oil market was still in a structural deficit. Crude oil prices received additional support from increasing global economic activity and decreasing global Covid-19 cases. These factors have also contributed to rising prices across a wide range of assets including equities and other commodities.



The (US) Energy Information Administration (EIA) expect the recent increases in crude oil prices along the OPEC+ decision to raise production will help meet the expected increase in global oil demand. Despite strength in oil prices during 1H21, EIA expects moderate downward oil price pressures to emerge beginning in 2H21. Why? Global oil production is expected to rise and cause inventories to draw at a slower pace. Global oil inventories will fall by 0.2 million b/d in 2H21, compared with an average draw of 1.7 million b/d in 1H21. Brent spot prices are forecasted (by EIA) to average $71/b during 4Q21 compared with the average of $73/b in June.

Although oil markets are expected to be fairly balanced in 2022, global oil production will outpace global oil demand in 2022. This may put moderate downward pressure on oil prices. In addition, more barrels from OPEC+ members are expected to reach the market. US crude oil production will increase by 0.8 million b/d in 2022 and OPEC crude oil production to increase by 1.8 million b/d in 2022. With deceleration in global oil demand growth to 3.7 million b/d in 2022 and rising oil production, Brent crude oil spot prices will average $67/b next, as forecasted by EIA.

This has implications for oil-producing countries like Malaysia – government coffers (from petroleum royalties) could be lower and the ringgit may not strengthen in 2022 as some may expect. It is also not terrific news for companies in the oil sector. Caution is the word, as many countries come out of lockdowns and recover slowly from this pandemic. The year 2022 is a time for consolidation and reflection. It’s in 2023 that we may recover to pre-pandemic levels. Meanwhile, we should remain vigilant and agile to changes.

Reference:
Short-term energy outlook, U.S. Energy Information Administration, July 7, 2021

Thursday 19 August 2021

Reverse Mortgages: Do They Work?

A reverse mortgage is a type of loan that is used by homeowners at least 62 years old who have considerable equity in their homes. By borrowing against their equity, seniors get access to cash to pay for cost-of-living expenses late in life, often after they’ve run out of other savings or sources of income. Using a reverse mortgage, homeowners can get the cash they need at rates starting at less than 3.5% per year.

Think of a reverse mortgage as a conventional mortgage where the roles are switched. In a conventional mortgage, a person takes out a loan in order to buy a home and then repays the lender over time. In a reverse mortgage, the person already owns the home, and they borrow against it, getting a loan from a lender that they may not necessarily ever repay.
In the end, most reverse mortgage loans are not repaid by the borrower. Instead, when the borrower moves or dies, the borrower’s heirs sell the property in order to pay off the loan. The borrower (or their estate) gets any excess proceeds from the sale.
In the U.S., most reverse mortgages are issued through government-insured programs that have strict rules and lending standards. There are also private, or proprietary, reverse mortgages, which are issued by private non-bank lenders, but those are less regulated and have an increased likelihood of being scams.

The process of using a reverse mortgage is fairly simple: It starts with a borrower who already owns a house. The borrower either has considerable equity in their home (usually at least 50% of the property’s value) or has paid it off completely. The borrower decides they need the liquidity that comes with removing equity from their home, so they work with a reverse mortgage counsellor to find a lender and a program.

Once the borrower picks a specific loan program, they apply for the loan. The lender does a credit check, reviews the borrower’s property, its title and appraised value. If approved, the lender funds the loan, with proceeds structured as either a lump sum, a line of credit or periodic annuity payments (monthly, quarterly or annually, for example), depending on what the borrower chooses.
After a lender funds a reverse mortgage, borrowers use the money as provided for in their loan agreement. Some loans have restrictions on how the funds can be used (such as for improvements or renovations), while others are unrestricted. These loans last until the borrower dies or moves, at which time they (or their heirs) can repay the loan, or the property can be sold to repay the lender. The borrower gets any money that remains after the loan is repaid.

In the U.S., in order to qualify for a government-sponsored reverse mortgage, the youngest owner of a home being mortgaged must be at least 62 years old. Typically only certain types of properties qualify for government-backed reverse mortgages. Eligible properties include:
  • Single-family homes
  • Multi-unit properties with up to four units
  • Manufactured homes built after June 1976
  • Condos or townhomes

There are two primary costs for U.S. government-backed reverse mortgages:
  • Interest rates: These may be fixed if you take a lump sum (with rates starting under 3.5%—a rate comparable to conventional mortgages and much lower than other home equity loan products). Otherwise, they’ll be variable based on the London Interbank Offered Rate (LIBOR), with a margin added for the lender.
  • Mortgage insurance premiums: Federally backed reverse mortgages have a 2% upfront mortgage insurance premium and annual premiums of 0.5%.

Reverse mortgages aren’t good for everyone. Only certain borrowers qualify, but their structure also only makes them appropriate for certain borrowers. A reverse mortgage may make sense for:
  • Seniors who are encountering significant costs late in life
  • People who have depleted most of their savings and have considerable equity in their primary residences
  • People who don’t have heirs who care to inherit their home

Most people who take out reverse mortgages do not intend to ever repay them in full. In fact, if you think you may plan to repay your loan in full, then you may be better off avoiding reverse mortgages altogether.

As Malaysia becomes an ageing society by 2030, this product may make sense to some. Otherwise, workout a scheme with a family member that actually performs like a reverse mortgage. In this case, the house remains with the family even if one dies.

Source: https://www.aarp.org


References:

Reverse mortgages: How they work and who they’re good for, Dock David Treece, July 24, 2020 (www.forbes.com)

Selling versus reverse mortgage: which should you use? (www.99.co)

Wednesday 18 August 2021

Foreign Fund Outflows and the Ringgit’s Future!

There are several factors that influence currency movements. These may include interest rate differentials (local and overseas) inflation differences, trade balances, services contribution or otherwise, foreign funds flow (FDIs) sentiments on GDP growth, perceived political stability, currency quantum and velocity, amongst others. A factor not usually quantified is speculation – the trading perceptions of forex institutions/banks.

In more recent years, foreign fund flows have proven to impact Malaysia’s ringgit. A net inflow of foreign funds will strengthen the currency and conversely a net outflow weakens it. Foreign fund flows can be semi-permanent form like investments into factories, offices or other assets. The fluid form is “hot” money – funds into equities or bonds on the Bursa. This moves with perceived returns between developed and emerging markets.

Since the 1MDB crisis in 2015, Bursa has faced more outflows than inflows. Only 2017 saw a net inflow. Up until July 2021, net selling by foreign investors on the Bursa has stretched to 18 consecutive months. In the first seven months of 2021, Malaysia recorded a total of RM5.5 billion in net outflow of foreign funds. The market cap of the Main Board has been erased by 4.5% over the same period. Average daily trading volumes have fallen by 15% to 5.1 billion units while daily trading values fell by 10% month-on-month to RM3.1 billion in July 2021. This is according to CGS-CIMB Research.

Over next 12 months, the ringgit may trade in the RM4.20-RM4.30 to the dollar. This is the view of Alliance Bank’s chief economist. There are external and internal factors for this, but we can somewhat control the internal ones – political stability, MCOs, interest rates, economic recovery and so forth. The external ones include oil price, US Fed’s stance on rates, recovery plans and GDP growth differentials of major developed markets and others.




We need to review re-opening plans (of the economy), recovery measures, have more accommodative private sector investment policies and more clarity on the political situation. Unless we have a good mix that releases private sector entrepreneurial flair we will have muted, mediocre growth in 2022.

Reference:

The ringgit’s future, Cecilia Kok, Starbizweek, 7 August 2021

Tuesday 17 August 2021

Is Our National Automotive Policy Jinxed?

The most recent version of the National Automotive Policy (NAP) was launched in February 2020. This was by the then PM, Dr Mahathir Mohamad. Then he gladly resigned. Is that a jinx?

Today the NAP for 2020-2030 is in the dustbin of history or in suspended animation. With an acronym like NAP, it is unlikely to move forward.

Source: https://www.malaysia-today.net



The objectives of NAP were to contribute to high-value employment and upgrade Malaysia’s manufacturing capability. The global trend is towards electric vehicles (EVs) to reach carbon neutrality.

Thailand and Indonesia are in sync with regard to EVs. China’s Great Wall bought GM’s plant in Rayong, Thailand and will make mid-size SUVs powered by internal combustion engines, hybrids and EVs. The starting price for these vehicles is competitive at RM126,000.

LG and Hyundai have a joint venture to manufacture traction motor batteries in Indonesia to support global exports of Hyundai’s EVs.

Malaysia doesn’t have the scale of Thailand, Indonesia or Vietnam to attract investors. The combined ASEAN market of 600 million people produces 4.15 million vehicles (2019). But each nation vies for investments from the same carmakers. So, we end-up with scale inefficient local assembly plants.

Yamin Wong from FMT (1 August) suggested four ways for the Malaysian automotive industry to grow:
  1. encourage sales of EVs with tax waivers, subsidies and other instruments that have been adopted and proven effective in China, Norway, Holland, Germany and the U.K.;
  2. realise EVs need new skills including computer hardware and software;
  3. develop environmental policies that reflect EU’s Green Deal and EC’s Fit for 55 so that components qualify for exports; and
  4. achieve alliances with carmakers to develop green hydrogen economy for commercial fleets (Japan is a possibility). Toyota has championed hydrogen fuel-cell EVs.

MOSTI, MITI and the Malaysian Green Technology and Climate Change Centre should work with Toyota and Hyundai on hydrogen fuel. After all, Malaysia has the first hydrogen bus service in ASEAN. Launched in January 2020, three Sarawak metro buses operate in Kuching.

So, what could we do with the NAP? Nothing with the present Government, they are presently napping. We need to organise a more solid picture of the future with incentives for local and foreigners to invest and consumers to change their purchase pattern. Perhaps a more “inspiring” Government could do that!


Reference:

A jinxed National Automotive Policy besets Malaysia, Yamin Wong, August 1, 2021, www.freemalaysiatoday.com

Monday 16 August 2021

Match Fixing and Money Laundering in EPL?

The English football season has just commenced. Is it Manchester City, Manchester United or Liverpool that will be the new champions?

Football is the most targeted and manipulated sport by international organised crime groups. Why? Because of its popularity, financial dimension and a large betting market. The size of the global betting market is estimated at €1.7 trillion with football accounting for €895 million.

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

Europol warned that South-East Asian, and particularly Chinese, networks were trying to acquire smaller football clubs in financial difficulty for the purpose of sport manipulation.

Europol said the more ‘professional’ method used by certain crime groups was to buy a club, or sponsor it to an extent of gaining effective control over the team. The targeted club is bought for the sole purpose of fixing matches and to launder money.

This is an increasing trend especially in football, where clubs of lower divisions, sometimes beset by heavy financial problems, are taken over by foreign individuals and companies.

It is commonly observed, according to Europol, that the new investors of a club will transfer specifically selected foreign players in the targeted teams and use them to execute match-fixing schemes. They also said the current intelligence picture indicates the existence of indigenous crime groups that originate from, and operate in the EU, in addition to other international organisations from Asia, Russian-speaking countries and Armenia.

The legal structures are most often players’ agent companies, organisers of sporting events, gambling-related companies, or even football clubs that are partially or fully owned by top individuals involved in sports corruption, Europol warned.

The criminal structures are multi-layered with the financers sitting at the top of the pyramid that also includes intermediaries at national and local level. At the bottom of the structure are the players, referees and officials, who are paid off to fix matches.

Al Jazeera in an investigative report, released on August 10, 2021 confirmed the same. Offshore trusts and dirty tricks are used to deceive the football authorities. It is a malaise that is in the EPL as much as it is in Malaysia Super League. The problem is also in FIFA, although that was a few years ago. There must be ways to tackle this disease, otherwise fans, clubs and players will lose heart and “walk away”. 

An independent agency could be established to “hear” allegations of match fixing, has the authority to investigate and able to monitor matches where performance of players/clubs “yo-yo” – win, lose, win and lose – may warrant further investigation. Then, credibility is restored in the system. Otherwise, a slow and sure decline in interest will follow.


References:

Football is money laundering paradise for organised crime groups (www.maltatoday.com.mt)

Al Jazeera exposes “money laundering” in English football clubs, FMT Reporters, August 10, 2021 (www.freemalaysiatoday.com)




Friday 13 August 2021

Zomato IPO Fully Sold!

Bloomberg on July 16 2021 reported Zomato Ltd’s US$1.3 billion initial public offering was fully subscribed on its first day. Zomato, an Indian online food delivery platform, got bids for about 749 million shares against 719.2 million shares on offer. Its IPO is set to be India’s biggest since March 2020.

Internet-based consumer companies have become more popular as the pandemic fueled the adoption of digital technologies. The high investor recognition is a boon. Blackrock Inc and Fidelity International Ltd were among the dozens of anchor investors that piled into Zomato’s float, resulting in the company receiving about 35 times more bids than it had expected to sell.

 

Another closely watched initial public offering from India is the pending deal by digital payment startup Paytm, also backed by Jack Ma’s Ant Group. With investors SoftBank Group Corp and Berkshire Hathaway Inc, India’s leading fintech firm is seeking around US$3 billion in what could be the country’s largest debut ever. Its shareholders approved a resolution to sell 120 billion rupees (US$1.6 billion) of new shares.

 

These two unicorns — or privately held startups valued at at least US$1 billion — are coming to a market already enjoying blockbuster listings. About US$5.6 billion has been raised in initial public offerings on Indian stock exchanges so far in 2021. UBS Group AG expects the annual tally to be more than double last year’s US$4.6 billion.

 

Stocks that have debuted this year are up by an average of 62%, according to data compiled by Bloomberg — buoyed by a liquidity-fueled stock market that has defied one of the world’s worst Covid-19 outbreaks.

 

Already, Zomato and Paytm’s popularity among institutional investors is prompting the other unicorns in India. Among those are cosmetics retailer Nykaa E-Retail Pvt and Policybazaar Insurance Web Aggregator Pvt Ltd. A Credit Suisse Group AG report this year found there are about 100 unicorns in India with a combined market value of US$240 billion, in sectors from e-commerce and fintech to education, logistics and food delivery.

 

Zomato’s losses stood at 6.82 billion rupees (US$91.7 million) for the nine months ended December 2020, according to the IPO draft prospectus it filed with the Indian market regulator. Paytm parent, One 97 Communications’s consolidated losses for the financial year ended March 2021 were at 17.01 billion rupees.

It is all about revenue these days and not so much about profits – Facebook and Amazon are examples. Will we do that in Malaysia? Allow listings of high-growth stocks?


Source: https://www.facebook.com/zomato/

Reference:

Zomato US$1.3b IPO fully sold as India unicorns line up, Nupur Acharya & Baiju Kalesh, Bloomberg, July 16, 2021, (https://ceomorningbrief.theedgemalaysia.com)

Thursday 12 August 2021

Why Do People Hate Jeff Bezos?

Born and raised in Albuquerque, N.M., Jeff Bezos didn’t enter the world rich. However, he has since accumulated $199.6 billion. On the surface, he seems like a very successful businessman. He was the CEO of Amazon, a very successful online shopping company which has now grown to one of the most powerful companies on the planet. Not only did he bring himself up from nothing and start Amazon at the golden age of 30, he is also the first person in modern history to accumulate a fortune of over $200 billion. Wouldn’t the world love him? Wrong. Why? If you look on any social media platform you will always see a ton of hate towards Jeff Bezos.


Source: CNBC.com

Let’s first start off with how he treats his employees. In the book The Everything Store, author Brad Stone depicts Jeff Bezos tendency to go ballistic when an employee doesn’t meet his expectations. The businessman has a pattern of throwing bitter insults at any unfortunate employee. Amazon Veterans have actually thrown together a list of the harshest things Jeff Bezos has said ranging from “Why are you wasting my life?” and “I’m sorry, did I take my stupid pills today?” to even going as far as labelling his employees as incompetent. Some of these attacks are justified such as when someone tries to take credit for someone else’s work, but there are cases where employees could get yelled for not answering a question fast enough. Not only is Jeff Bezos foul to his employees, he encourages them to be harsh towards their co-workers too. According to the New York Times, Bezos and Amazon have thrown the concept of teamwork right into the trash. He wants his employees to be against each other so much that he even included a feature in the company’s internal phone directory that instructs how to give secret feedback on certain employees to bosses. The system is called the Anytime Feedback tool. Using it to betray your fellow co-worker is easy. The tool even includes sample texts such as: “I felt concerned about his inflexibility and openly complaining about minor tasks.” Numerous employees say the tool is used to sabotage colleagues.

Bezos might have upped the minimum wage for Amazon employees to $15.50 per hour, but his overall treatment of his people hasn't improved. Employees are forced to stand on their feet for 10–12 hours per day, and any unscheduled breaks longer than five minutes can result in immediate termination.

For a man estimated to make $149,353 a minute, Jeff Bezos seems to have a strange relationship with charity. In 2018 in an interview with Mathias Döphner, Jeff Bezos said that the only way he can see his money being used is spending it on his space company, Blue Origin. Out of the four richest Americans, AOL says Jeff Bezos is the most elusive about charity. Although being the richest man in the world he is the only one out of the four that has not signed the Giving Pledge. The Giving Pledge makes the world’s richest people use the majority of their wealth for good causes. Bezos however has made some charitable donations over the years. In 2018 he started the Day One Fund, which aims to donate $2 billion to address homelessness and education issues. However, Vox points out that the fund is rather vague and could be ineffective and many people like Recode are suspicious that Jeff Bezos is not doing this with good intentions, but just to get out of the public’s eye. Putting all of Bezos integrity aside even if the Day One Fund turns out to be successful, its still pennies compared to the rest of his wealth.

In addition, he attacks book publishers like “sickly gazelles.” In the beginning when Amazon was just starting out, many small publishers took this as a new opportunity to distribute their books. Unfortunately, it was too good to be true. The Everything Store reveals that Jeff Bezos doesn’t think of those small publishers as equals, rather he views the publishing business and industry as helpless animals just waiting for a predator. Soon enough the small publishers started to become very reliant on Amazon for sales, so the company took advantage of that and started demanding more favourable contracts. It became so bad that The Everything Store even called this straight-up sadistic. This treatment came directly from the CEO himself, Bezos had ordered his employees to “approach these small publishers the way a cheetah would pursue a sickly gazelle.” As a result of this mandate, some Amazon executives took pleasure in abusing the publishers. It got so bad that the Amazon’s lawyers started to feel a little worried about the situation. Eventually, they stepped in and made Amazon rename the program from the Gazelle Project to a more cooperate-friendly Small Publishers Negotiation Program. The fact that Amazon’s lawyers had to get involved shows how badly the situation had become.

Putting all of Jeff Bezos bad characteristics aside, Amazon is one of the most convenient online places to shop, no matter how bad the CEO is. It has a wide variety of products to choose from and rather quick shipping. What do you think? After learning about Jeff Bezos negative tendencies, will you work in Amazon?


References:

Why does everyone hate Jeff Bezos? Kalkidan Legesse, https://jacksonjournal.news

Why do people hate Jeff Bezos? Well, it’s complicated, Rachel Curry, https://marketrealist.com



Wednesday 11 August 2021

Will the Economy Open by October?

 Hopes are pinned on the National Recovery Plan (NRP). Under Phase 4, we could do so – that assumes the immunization program meets target. And the key is to get Klang Valley, Penang and Johor on track because 50% of GDP contribution is from them.

Source: www.themalaysianreserve.com

But is that optimism? MIDF Research in a July 28 report, said that the prospect of recovery could commence by Q4 of 2021. However, Malaysia University of Science and Technology (MUST) believes Malaysia is in a long-haul recovery. Their estimates suggest Q1 of 2022 and to pre-crisis levels by Q1 of 2024. The micro, small and medium enterprises (MSME) sector took a big hit in 2020, RM40.7b in losses. It continued into 2021 with larger companies also seeing impact of the lockdowns. Labor market is weak with over 728,000 unemployed or an unemployment rate of 4.5%. In addition, 2.1 million persons were under-employed.

RHB Bank’s view is that there are positive points for recovery with exports moving up and may improve further in the months ahead. These are largely electronics and pharmaceutical sectors. Consumer sentiment may even show an uptick with lockdown over. The months to watch are August and September.

Will private sector consumption pickup? MCOs have suppressed demand. And re-opening of sectors may release pent-up demand. But is that true? Savings are exhausted. EPF contributions have been wiped-out for 9 million account holders, debt has risen and repayment of loans ahead. In 2021, average salaries fell 15.6% and more than half of salaried employees earn less than RM2,062 per month. And if 20% of the workforce is unemployed or under-employed, where will this pent-up demand come from?

If fully vaccinated people are allowed interstate and even international travel then we may have brighter prospects for tourism, restaurants, bars and shopping malls. Otherwise, we are looking at more closures and bankruptcies.

The key is for the Government to engage actively, with industry groups and others to map-out strategies. Re-opening must also include sectors that have linkages, otherwise it is a muted recovery. A stable Government, a listening Government and a responsive Government will enable the private sector to perform and revive the economy. Even then, we may only see recovery by mid-2022 and a full restoration to pre-pandemic levels by late 2023 or early 2024.



Reference:
All hopes pinned on the National Recovery Plan, Ganeshwaran Kana, The Star, 31 July 2021





Tuesday 10 August 2021

Hotel Industry Hardest Hit?

Of the many businesses impacted by Covid-19, the hotel industry is an obvious victim. Low occupancy in 2020 has led to massive losses. This will continue in 2021. The outlook could only improve with MCO being lifted and travel restrictions removed.

Many owners are looking at sale, merger or closure. Those cash-rich buyers are waiting for further price collapse. Listings for hotels for sale in Malaysia have jumped 40% while prices have dropped by 35% from pre-pandemic days, according to Zerin Properties. Buyers are looking at hotels in Kuala Lumpur, Penang, Langkawi, Kota Kinabalu, Johor Bahru and Desaru.

The Malaysia Association of Hotels (“MAH”) notes average hotel occupancy stood at 32% in 2020. This is as compared to 64% in 2019 and 61% in 2018. For 2021, occupancy will drop further to 23%. The hotel sector has lost RM300 million in revenue for every two weeks of MCO. The total loss for 2020 was RM6 billion in 2020. For first half of 2021, the loss is estimated at RM5 billion. If travel restrictions are allowed, occupancy levels may improve to 35% in 2022. That’s another year of losses.

The average daily rate (“ADR) for 2021 is between RM180-RM190, a drop of 20%-30% compared to pre-pandemic levels. Mid to upper luxury hotels had at least 50% reduction in ADRs. As a result many closed. The Istana Hotel will shut by September 1, 2021 after operating since 1992. The Equatorial Hotel Penang in Bukit Jambul will also close soon. Shangri-la Hotels saw a massive drop of 74% in its revenue. It posted a loss of Rm19.6 million (Q1 ’21) compared to a profit of RM2 million in previous corresponding period. Shangri-la Kuala Lumpur’s occupancy was only 7% in Q1 ’21 from 35% in 2020.

There are over 4,500 hotels registered with the Ministry of Tourism. Many are small outfits. Around 140 are 5-star hotels and 220 are 4-star ones.

A survey of 320 hotels by MAH whowed 91 have closed temporarily, and 2 closed permanently.




In Johor, 13 hotels have suspended operations, while 23 closed in Langkawi.

Of the 320 surveyed, 71% are staying afloat, some acting as quarantine centres. Many owners have re-strategised by lowering operational costs and consolidating resources. Those with adequate funds, turn to refurbishment and renovation for possible better times ahead. This is a minority. Others have resorted to have delivery of their cuisines. But this cannot save the sector. They need help on electricity bills and loan moratorium, beyond other operational issues.

The survival of hotels in Malaysia will depend on available cash resources, accommodative Government policies and lifting of movement restrictions. Otherwise, it is more mergers and acquisitions or closures.

Reference:
Hotel industry’s defining moment, Zunaira Saieed, Starbizweek, The Star, 24 July 2021

Monday 9 August 2021

Are the Olympics for the Rich?

The Tokyo Olympic Games ended on August 8, 2021. It is estimated to have cost USD28b. That’s a far cry from USD7.3b forecasted in 2013 when Tokyo originally submitted its bid. What was the cost to the hosts for the other Olympics?

Tokyo has definitely won the gold medal for its massive cost (shown above) while Sochi (Russia) took the silver and London won the bronze. Many cities have learned the harsh economic lessons from hosting the Games. Many residents in cities hoping to host have rejected the Games based on its cost, e.g. Hamburg. Many others have learned it the hard way. According to research conducted by the University of Oxford in 2016, cost overruns have consistently been over 100%. “No other megaproject is this consistent regarding cost overrun. Other project types are typically on budget from time to time, but not the Olympics”.

Opposition to the Tokyo Olympics was consistent throughout the year. Toyota, one of the main sponsors, pulled-out of running Olympic related TV ads in Japan because of the polarised situation. In a Covid environment, revenue was low as ticket sales were almost nil. Empty stadiums were the norm. Projected revenue of USD6.7b was still far below cost. Visitors or tourists were expected to contribute another USD2b in meals, transportation, hotels and merchandise, which never happened.

Then there were sports, that some may consider as totally alien to the Olympics – golf, baseball, skateboarding, surfing, artistic swimming, beach volleyball, BMX freestyle, BMX racing, mountain bike, rugby, sport climbing, trampoline, kayak flatwater and 3x3 basketball. Have you heard the ancient Greeks doing any of the above? They would have been traumatised, especially on BMX racing and trampoline. Otherwise, Alexander could have skateboarded to India, if he knew it existed.

Then you have “funny” teams like the Refugee Olympic Team. These are athletes who could still compete even though they were forced to leave their home countries. In Tokyo, there were 29 of them. And what about the ROC? That is not a rock band! It stands for Russian Olympic Committee. Never has a committee competed in some Games! Committees usually sit around a table and produce a report. But not this one. There were 335 Russian athletes under ROC designation, because of an international doping scandal in 2019. Should they be there?

What can we learn? You need to be rich to run the Olympics. Cost overruns are part of the game. “Funny” sports and “Funny” teams can make it while other games like squash are left out. 

But seriously, the Olympics must return to its original, ancient set of sports – probably only track and field. All other sports are for another “Games” not the Olympics. If the Olympics were limited to its original sports then more nations could bid to be hosts – including Jamaica, Kenya, Uganda, South Africa or India. Well, even Malaysia or Singapore may consider. Then it is truly global and not just for the rich to host every four years and show their wealth.


References:

The massive costs behind the Olympic Games, Niall McCarthy, www.forbes.com

How the cost of the Summer 2021 Olympics will differ from games of the past, Andrew Lisa, July 22, 2021, www.finance.yahoo.com

With the cost of over $20 billion and decreased revenue due to no fans, how many billions will Tokyo lose on the Olympics, Weston Blasi, updated July 26, 2021, www.marketwatch.com


Friday 6 August 2021

Nikkei’s Covid Recovery Index and Malaysia’s Standing

Some countries and regions in Asia have seen their rankings on Nikkei's COVID-19 Recovery Index change significantly over early July. Taiwan had the biggest jump of 17 places with the island on track to overcome its latest outbreak.

Taiwan is now in the 66th spot, according to index results as of July 7, compared to 83rd place in the previous week, thanks to falling case numbers and accelerated vaccine rollouts.

On the other end of the spectrum, Laos was the biggest loser on the index.  It fell 28 places to the 94th, due to imported cases spiking, primarily because migrant workers were returning home from Thailand.

Singapore rose to fifth from 12th to be on par with Italy, Hungary and Qatar. Hong Kong also went up six places to 14th.

Japan, Australia and Cambodia all slipped five spots. Japan's government is set to declare a state of emergency for the Tokyo area through Aug. 22, which has resulted in the Tokyo Olympics organizing committee banning all spectators at venues in the capital and three surrounding prefectures.

South Korea and the U.K., both of which ranked 48th previously, slid to 51st and 55th, respectively. South Korea will impose its strictest social distancing rules in greater Seoul for two weeks as daily cases hit a record high of 1,316.

Several Southeast Asian countries were at the bottom of the index. Vietnam is down 14 places to 114th. The former COVID haven now wants Ho Chi Minh City and nearby provinces to take more aggressive measures. It has also set a target to vaccinate 50% of people aged 18 or older by the end of this year and 70% by March 2022.

Indonesia remained at 110th, as daily new cases and deaths both hit record highs this week. Government officials and epidemiologists alike were quick to point to the Islamic holiday of Eid as a key factor for the recent surge. But complacency could be another factor. The country's mobility trend data from Google shows that Indonesians had been more "out and about" in the past few months compared with the same period last year.

Malaysia remains firmly rooted at 114th with Bangladesh, Venezuela and Vietnam. Emergency and lockdowns seem not to change its dire situation. Perhaps, fresh thinking is required. And more could be done to assist the SMEs and self-employed.



Reference:

In Asia, government actions impact Nikkei Covid Recovery Index, Grace Li, July 9, 2021, https://asia.nikkei.com


Thursday 5 August 2021

Luckin Coffee Runs Out of Luck?

Attempting to recover from a $180 million fine for accounting fraud, Luckin Coffee, a Starbucks competitor in China, filed for U.S. bankruptcy protection. Luckin on Feb. 5 filed for Chapter 15 bankruptcy protection in New York.

The coffee chain, headquartered in Beijing, said bankruptcy actions should not disrupt daily operations, and will continue to meet trade obligations in the ordinary course of business.

Luckin tried to position itself as a local competitor to Starbucks, opening thousands of stores in its first two years of business. The company was founded in China in June 2017 and filed for a US-listed IPO in April 2019. It said it had 2,370 stores. 

The U.S. Securities and Exchange Commission said that in April 2019 and January 2020 Luckin "intentionally fabricated" more than $300 million in retail sales. The SEC alleged that Luckin created bogus transactions with three different purchasing schemes, and employees tried to hide those sales by adding $190 million in inflated expenses. In December, the SEC charged the company with defrauding investors and Luckin agreed to a $180 million fine.

In April 2021, the coffee chain admitted that at least $310 million of its sales over the previous three quarters had been fabricated. Following the revelation, the company dismissed its chief operating officer, Jian Liu, and chief executive, Jenny Qian Zhiya. Chinese regulators began investigating Lu himself. The news was originally reported by Caixin and independently confirmed by the Nikkei Asian Review. Then, on July 5, Lu and Li were removed at a special shareholders' meeting in Beijing. Two others - Sean Shao, the independent director leading the company's internal investigation, and Liu Erhai, founder of Luckin investor Joy Capital, were also ousted. Luckin's very survival is now in doubt, and the company's shares have been delisted.

The scandal at the company has raised many questions for investors: about the obsession with a growth over profits model; claims to high-tech credentials for a low-tech model; and about the reliability of corporate governance standards in China. All could have serious consequences for the future of Chinese companies as they try to list on international exchanges.

On May 17, 2019, the day of the Luckin listing, coffee and champagne flowed freely at Nasdaq. The company had been dubbed "China's Starbucks" by the financial press, a concept that was simple for investors to grasp. The stock, which made its debut at $17 a share, rose 20% by the close of the day, giving Luckin a valuation of $4 billion.

Just like Uber, Luckin was incurring heavy losses -- and at a widening rate. Its first quarter loss came in at 550 million yuan ($77.8 million), which senior executives attributed to a weak Lunar New Year holiday period. The company managed to charm investors anyway.

Superficially, its pitch was compelling. Lu was building a company that was not just a cheaper clone of Starbucks - although his stated ambition was to be bigger than his American rival. Luckin was also a data and e-commerce play. The vast majority of its outlets were stalls where customers picked up coffee on the go, and the customer experience was mostly online. All of its transactions took place on the Luckin app, allowing the company to build a massive database of middle-class Chinese consumers. It added e-commerce functions and signed deals with food delivery services. With that network, it promised a kind of optimized, digitized experience that resonated with tech investors.




Luckin Coffee's growth was impressive, but there were some major questions over its business model. Its sales were heavily subsidized, meaning that its unit economics were unsustainable. To make a profit, it would need to drastically raise the price of its coffee.

From the beginning, there were many hedge fund managers who were skeptical of the coffee chain's prospects. However, few actually shorted Luckin's stock because to do so was prohibitively expensive.

This meant Luckin's share price was artificially robust throughout most of its life as a public company. In the end, though, it was a famous short seller that blew the whistle on Luckin.

Not long after Luckin's capital raising in January, the hedge fund Muddy Waters announced it was shorting the stock, citing a damning anonymous report on the coffee chain. It was a vast exercise in detective work. The authors had dispatched nearly 1,500 investigators to count sales and record traffic at 600 Luckin stores. By the end, they had recorded more than 11,000 hours of video and collected nearly 26,000 customer receipts.

The report concluded that Luckin had inflated the number of items being sold by 69% in the third quarter of 2019 and by 88% in the last quarter, and that the net selling price per item had been overstated by more than 12%. The authors estimated that rather than making money, net loss at the store level was 28%. Revenue contributions from non-coffee products -- the basis of Luckin's growth plan -- had been overstated by 400%, according to the report.

Although the fraud dominated the headlines, the report was also highly critical of Luckin's business model, which was overreliant on discounting. For it to be profitable, prices would have to rise, and customers would desert the brand, the report says. The model would never work, it concluded.


Luckin initially dismissed the allegations and disputed the report's methodology. In April, however, it confessed to one of the main findings: Sales had been vastly overstated.

The company said a special audit led by Ernst & Young found that Luckin's chief operating officer, Liu Jian, and other employees had carried out a scheme to fabricate more than $300 million in revenue over the six months ending Sept. 30. The stock tumbled by more than 90% from its high in January.

Meanwhile, the ripple effects of Luckin Coffee's implosion have been massive. The past decade has seen numerous frauds involving Chinese companies listed offshore, in markets from New York to Singapore to Toronto. But this one seems to have had far greater impact.

In response to the scandal at Luckin, Chinese regulators -- who have typically sat on the sidelines when mainland firms listed abroad are mixed up in fraud allegations – have sprung into action with unusual alacrity to demonstrate both their concern and their determination to take punitive action against miscreants.

Luckin's inflated numbers point to challenges for investors in consumer internet companies: The difficulty in verifying claims of how many monthly or daily consumers they actually have on their platforms, and how much the companies themselves actually subsidize their users' purchases.

This is not just a China problem. Even investors from the world's most respected venture capital firms say that, on occasion, they have difficulty verifying numbers during the course of their due diligence. Before putting money into a consumer internet company, investors will often hire an accounting firm to verify sales and estimate subsidies. If a ride-sharing company has a receipt claiming a 200-km ride in the small city-state of Singapore, it is easy to establish that the receipt isn't genuine. But rarely is a falsified figure that blatant. Investors whose credo is "trust but verify" must often resort to simple trust at the end of the day.

The challenge is further complicated by the fact that virtually all consumer internet companies start out heavily subsidizing their sales and "adjusting" their numbers. On a stand-alone basis, the figures are never reassuring. Their ultimate survival depends on eventually convincing consumers to pay real money for their services, on having deep-pocketed strategic investors such as Tencent or Alibaba in China, or Google or Facebook in the U.S. -- or on undertaking a new activity that generates profits. These are non-sustainable to portray a valid and authentic story for the long-run.

References:

Chinese coffee chain Luckin files for bankruptcy after accounting scandal, 
https://www.vendingmarketwatch.com,  February 9, 2021

The Luckin scandal: fake sales, power struggles and a “broken model”, Henny Sender, www.asia.nikkei.com, July 8, 2020


Wednesday 4 August 2021

Covid-19 and Global Impact on Jobs

With millions of people losing their jobs or seeing their working hours reduced due to the COVID-19 pandemic, the ongoing crisis has disrupted labour markets around the world. According to the latest edition of the ILO Monitor, 114 million jobs were lost in 2020, which, in combination with working-hour reductions within employment, resulted in working-hour losses approximately four times as high as during the financial crisis in 2009. The International Labour Organization estimates that the working hours lost in 2020 (compared to pre-pandemic levels) were equivalent to 255 million full-time jobs, leading to $3.7 trillion in lost labour income. That’s even higher than the worst-case estimate made in spring 2020. Then the ILO had predicted lost labour income between $860 billion and $3.44 trillion for the entire year.

As the following chart shows, the disruptions to the labour market were most pronounced in the second quarter of 2020. This was the result of widespread lockdowns led to working-hour losses equivalent to 525 million jobs. By the end of 2020, as millions had returned to work or switched to working from home, the situation had improved significantly. However, the ILO does not expect global working hours to return to pre-Covid levels in 2021.





Employment losses in 2020 translated mainly into rising inactivity rather than unemployment. Accounting for 71 per cent of global employment losses, inactivity increased by 81 million, which resulted in a reduction of the global labour force participation rate by 2.2 percentage points in 2020 to 58.7 per cent. Global unemployment increased by 33 million in 2020, with the unemployment rate rising by 1.1 percentage points to 6.5 per cent.

Global labour income (before taking into account income support measures) in 2020 was estimated to have declined by 8.3 per cent, which amounts to US$3.7 trillion, or 4.4 per cent of global gross domestic product (GDP). The largest labour income loss was experienced by workers in the Americas (10.3 per cent), while the smallest loss was registered in Asia and the Pacific (6.6 per cent).

While there are expectations that a robust economic recovery will occur in the second half of 2021 with the rollout of vaccination against COVID‑19, the global economy is still facing high levels of uncertainty and there is a risk that the recovery will be uneven. The latest projections by ILO indicate a persistent work deficit in 2021. Drawing on, inter alia, the International Monetary Fund (IMF)’s economic forecasts from October 2020, the baseline scenario projects a continued loss in working hours of 3.0 per cent in 2021 relative to the fourth quarter of 2019, which corresponds to 90 million full-time equivalent (FTE) jobs. In the pessimistic scenario, working-hour losses in 2021 will remain at 4.6 per cent, or 130 million FTE jobs, relative to the fourth quarter of 2019. Even in the optimistic scenario, which assumes more favourable conditions, a loss of 1.3 per cent of global working hours (or 36 million FTE jobs) is still expected in 2021 relative to the fourth quarter of 2019.

The number of workers living in countries with COVID‑19‑related workplace restrictions remained high at the start of 2021, with 93 per cent of the world’s workers residing in countries with some form of workplace closures in place. 

Trends in workplace closures vary considerably across the world’s main regions. Restrictions in Asia and the Pacific continue to be widespread, with over 90 per cent of workers in that region living in countries with some form of workplace closure measures in place. However, in line with the global trend, the measures have become more geographically targeted and only a small share of workers are affected by economy-wide restrictions.

In Malaysia, the Department of Statistics conducted a survey of graduates, both degree and diploma holders. The Graduate Statistics 2020 Survey showed that those without jobs rose by 22.5% to 202,400 in 2020 compared to 165,200 in 2019. The rise was observed for both degree and diploma holders. More than 75% of unemployed graduates were seeking work and of this, 50% were unemployed for less than three months. Degree holders also faced a decline in salaries by 9.1% in 2020 compared to 2019 while diploma holders faced a higher decline of 11.5% in 2020 compared to 2019.

With the impact of Covid-19 on SMEs, the unemployment rate will certainly exceed 5% in 2021. Of over 900,000 SMEs, half may face closure by year end. Should these close, more than 1.7 million Malaysians could become unemployed. And that’s the view of the Ministry of Entrepreneurial Development. 
 
There is no easy solution to this phenomenon (unemployment). Private sector needs an enabling environment. That must suggest vaccination and herd immunity achieved by Q3 of 2021; wage support for SMEs; and rental and loan moratoriums for another six months.

We need to look at how best to assist the unemployed graduates with job re-training or re-skilling; new job centres to match employers and prospective employees; and cash support or an allowance (of RM1,000) per month for six months (or so) for each graduate. Otherwise, this could turn into an unwarranted social issue.


References:
Labor market effects of the pandemic, Felix Ricter, 27 January 202,1 https://www.statista.com

ILO Monitor: Covid-19 and world of work (seventh edition), International Labour Organisation, 25 January 2021

Sharp rise in unemployment among grads, salaries fall too, FreeMalaysiaToday, 27 July 2021