China’s “Lying Flat” Movement

China’s leaders have staked the country’s future on innovation. In its latest blueprint for national economic development, China has pledged to end its reliance on imported technology and to focus on domestic consumption as the primary driver of growth. At a conference in May for engineers and scientists, Chinese leader Xi Jinping urged greater self-reliance in science and technology.

Source: https://www.brookings.edu

The drive toward self-reliance has encountered an unlikely form of resistance in a generation of young Chinese. They balk at the Party’s high-minded calls for “continued struggle”. This is against a deeply engrained culture of overwork without the promise of real advancement. They rather opt for “lying flat,” or tangping (躺平). The “lying flat” movement calls on young workers and professionals, including the middle-class Chinese who are to be the engine of Xi Jinping’s domestic boom, to opt out of the struggle for workplace success. Further, to reject the promise of consumer fulfilment. For some, “lying flat” promises release from the crush of life and work in a fast-paced society. For China’s leadership, however, this movement is passive resistance to the national drive for development. It is a worrying trend—a threat to ambition. 

The “lying flat” movement was jumpstarted in April when a post on Baidu titled “Lying Flat Is Justice” went viral on the platform. The post shared the author’s lessons from two years of joblessness. The extraordinary stresses of contemporary life, the author concluded, were unnecessary, the product of the old-fashioned mindset of the previous generation. 

Over the past decade, China’s leadership has identified innovation as the way forward for economic and social development. The promise of innovation has been epitomized by China’s tech entrepreneurs. These include billionaires like Alibaba’s Jack Ma and Tencent’s Pony Ma. But the dream of innovation has collided with the harsh reality of overwork in a technology sector that seems sapped of opportunities for breakthrough. Jack Ma and others have advocated a severe culture of overtime work that has become known as “996”—working from 9 a.m. to 9 p.m. six days a week. 

At the technology giant Huawei, this extreme work environment has been dubbed “wolf culture,” a climate of fierce internal workplace competition in which workers must either kill or be killed. 

The “lying flat” movement isn’t the first time China’s tech workers have rebelled. In 2019, thousands of tech workers, including programmers and beta testers for major technology firms, responded to China’s extreme working conditions by launching an online campaign called “996.ICU”. The “996.ICU” platform began compiling a list of Chinese companies with extreme work cultures and advocated an industry consensus on reasonable hours.

While the campaign managed to focus some attention on the issue of extreme overwork, it could not shake the predominant culture in China’s tech industry. Company bosses merely shrugged it off. 

“Lying flat-ism” is seen by some as the only possible form of resistance to this cycle of exploitation. One of the dominant slogans of the “lying flat” movement has been, “Don’t buy property; don’t buy a car; don’t get married; don’t have children; and don’t consume.” For this reason, calls to “lie flat” have doubly concerned China’s leadership, as they threaten both to sap the country of the ambition to innovate and to knock down the second leg of the country’s long-term development strategy—the drive to consume.

Chinese tech executives’ embrace of extreme work culture find justification in the official Party narrative of tireless struggle. But try as it might to drown out the growing despair among millennials and Generation Z, China’s government will have to grapple with the social costs of breakneck competition in an environment of dwindling returns. And it will have to do more than repeat slogans of struggle and self-sacrifice to inspire the next generation of workers and innovators.

References:

The “lying flat” movement standing in the way of China’s innovation drive, David Bandurski, July 8, 2021 (https://www.brookings.edu)

What China’s “Lying Flat” trend means for luxury brand, Juliette Duveau and Sophia Dumenil, July 11, 2021 (https://jingdaily.com)

Are GLICs in Capital Intensive Sectors?

The Institute for Democracy and Economic Affairs’ (IDEAS) latest research found that government-linked investment companies (GLICs) hold high equity shareholdings in capital-intensive sectors. These include telecommunications and media, transportation and logistics, as well as utilities.

The report, entitled “GLIC Footprint in the Private Economy: Sectoral Concentration and Policy Dilemma”, is a research by IDEAS on GLIC shareholdings in Malaysia’s top 100 public listed companies. It highlighted the outsized role they play in Malaysia’s economy.

The high concentration of GLIC shareholding in the said companies raises concerns about whether the outsized GLIC footprint in these industries ultimately poses concentration risks to their depositors. For example of 78.6% cumulative stake held by Khazanah Nasional Bhd, the Employees Provident Fund (EPF), Retirement Fund (Incorporated) (KWAP), Lembaga Tabung Haji and Permodalan Nasional Bhd in telecommunications company Axiata, or GLICs’ near-majority stake in Malaysia Airports.

IDEAS has called for the government to provide more disclosure on what entails in the Perkukuh Pelaburan Rakyat (PERKUKUH) programme announced on Aug 12. This was designed to reform the mandate and roles of Malaysia’s GLICs to align them with the national agenda and to support the country’s economic recovery plan.

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

IDEAS also welcomed measures under PERKUKUH to differentiate between sovereign wealth funds (SWF) and institutional investors. It will enable the latter to maximise investment returns, including diversifying abroad, while SWFs will be able to invest in strategic sectors while acting as stabilisers in the local financial market.

IDEAS also called for the programme announcement to be accompanied by a policy document that would detail how key outcomes will be achieved and how the 20 key initiatives will be implemented through 2024.

The key problem is the political masters and their interference in the management of the GLICs. Many have Board members and CEOs appointed from the ruling coalition. The agenda will therefore be quite different from a public listed company. This is where depositors/taxpayers need a say through a Parliamentary Select Committee on GLICs and GLCs. Otherwise the “check and balance” is overridden by narrow political discourse.

Reference:

IDEAs’ research shows GLICs hold high equity holdings in capital-intensive sectors, CEO TheEdgeMalaysia, CEO Morning Brief, August 25, 2021

The Top Trends in Tech

As all things digital continue to accelerate, and which technology trends matter most for companies? To answer that question, McKinsey has developed a unique methodology to identify the ten trends most relevant to competitive advantage and technology investments.

1. Next-level process automation and virtualisation	50% of today’s work activities could be automated by 2025
2. Future of connectivity	Up to 80% of global population could be reached by 5G coverage by 2030
3. Distributed infrastructure	>75% of enterprise-generated data will be processed by edge or cloud computing by 2025
4. Next-generation computing	>$1 trillion value potential of quantum-computing use cases at full scale by 2035
5. Applied AI	>75% of all digital-service touch points (eg. voice assistants) will see improved usability, enriched personalization and increased conversation
6. Future of programming	~30x reduction in the working time required for software development and analytics
7. Trust architecture	~10% of global GDP could be associated with blockchain by 2027
8. Bio revolution	45x cost reduction for sequencing the human genome has been achieved in the past 10 years
9. Next-generation materials	10x growth in number of patents between 2008 and 2018
10. Future of clean technologies	>75% of global energy will be produced by renewable in 2050

Source: The top trends in tech-executive summary, McKinsey & Co

These trends may not represent the coolest, most bleeding-edge technologies. But they’re the ones drawing the most venture money, producing the most patent filings, and generating the biggest implications for how and where to compete and capabilities you need to accelerate performance.

In the next decade, according to entrepreneur and futurist Peter Diamandis, we’ll experience more progress than in the past 100 years combined, as technology reshapes health and sciences, energy, transportation, and a wide range of other industries and domains.

The implications for corporations are broad. Consider the compressive effects on value chain as manufacturers combine 3-D or 4-D printing with next generation materials to produce for themselves what suppliers had previously provided and eliminate the need for spare parts.

Watch retailers combine sensors, computer vision, AI, augmented reality, and immersive and spatial computing to wow customers with video-game-like experience designs. Imagine virtualised R&D functions in science-based industries like pharma and chemicals or a fully automated finance function in your company.

A recent McKinsey survey describes how, during the pandemic, technology further lowered 

barriers to digital disruption, paving the way for more rapid, technology-driven-change. Survey respondents in every sector say their companies face significant vulnerabilities to profit structures, the ability to bundle products and operations. That’s the price for progress!

 

Reference:

The top trends in Tech (https://www.mckinsey.com)

 

 

 

 

Are SMEs and Poverty Linked?

On September 20, 2021 Ismail Sabri told Parliament that a total of 580,000 households from the middle-income group have slipped into the bottom 40 percent (B40G category) due to the economic fallout caused by the Covid-19 pandemic.

This represents approximately 20 percent of the middle 40 percent (M40G group, which initially received a monthly income of between RM4,850 and RM10,959). The pandemic also saw the B40 group suffer a loss of income, resulting in the absolute poverty figure in Malaysia rising to 8.4 percent in 2020, compared with 5.6 percent in 2019.

This is based on data provided by the Department of Statistics Malaysia (DOSMG), which uses the current Poverty Line Income (PLIG) of RM2,208 per month.

The unemployment rate contributed to a reduction of the take-home income for those in the M40 and B40 categories.

This is the impact of SMEs shutting down. The Government still doesn’t get it. The Micro and SME sectors (MSME) accounts for 40% of the GDP and over 48% of total employment. Retail and tourism need minimum wage subsidies, up to end 2022. SMEs with more than 10 employees have bigger problems to stay afloat and meet monthly wages and rental. Never mind bank loans!

SME Association’s survey in August 2021, suggested 26% of SMEs have shut down; 34% reported business dropped by 50% (2020 vs. 2019) while 32% said turnover fell by less than 75% in May-July 2021 versus the same period in 2020.

For Budget 2022, the SMEs are looking for:

1. Wage subsidy to at least June 2022;
2. Rental subsidy up to June 2022;
3. Access to working capital to be speedier; CGC guarantees will take 3-6 months to be effective, by then businesses are closed;
4. Tax rate of 15% for first RM500,000 of taxable income would help build reserves; and
5. Sales and service tax reduced to 4% from 6%, to boost consumer demand.

The Government has to be more private sector-centric if the economy is to be revived, re-booted, or restored. What does that mean?

There has to be more dialogue, idea generation and measures that can be implemented quickly. The early “wins” are for a loan moratorium, wage and rental subsidies. Then address sector-related issues from tourism, aviation to property. Otherwise, we have the proverbial “head-in-the-sand” approach!

Source: https://smemalaysia.org

References:

Improving prospects for SMEs, Yap Leng Kuen, Starbiz, 20 September 2021

SMEs in dire need of assistance, Tan Thiam Hock, The Star, 18 September 2021

580k households slip into B40, absolute poverty rate rises to 8.4 pct – PM, Malaysiakini.com, 21 September 2021

For the first time in years, Malaysia saw a decline in SME employment in 2020,  Priya Sunil, 29 July 2021(https://www.humanresourcesonline.net)

AirAsia: Is the Worst Over?

Following AirAsia Group Bhd's larger-than-expected half-year loss reported on September 10, 2021, market analysts are now mixed on whether the low-cost carrier will see better days or continue to face bumpy quarters ahead. 

Hong Leong Investment Bank Research (HLIB Research) aviation analyst Daniel Wong noted that the governments of Asean countries have decided to relax their Covid-19 restrictions. "However, these pockets of relaxation for domestic travel still seem to be at a nascent stage, while international travel will only be gradually allowed towards the second half of 2022," he said. 

Meanwhile, CGS-CIMB Research analyst Raymond Yap considered AirAsia's digital businesses to be in the early stages of development and may consume significant amounts of cash resources due to the presence of established and well-funded competitors. Yap expects that the carrier's losses could remain significant in FY22, albeit narrower than in FY21. Furthermore, he pointed out that the potential for AirAsia to be classified as a Practice Note 17 (PN17) company by Bursa Malaysia may occur, which may result in institutional funds selling down the stock.

Meanwhile, after factoring in the larger-than-expected loss recorded for 1HFY21, MIDF Research has revised its FY21 loss estimate for AirAsia to RM2.06 billion. Despite the larger loss estimate for FY21, the research firm reckoned that the carrier should see better days ahead with its domestic airline operations expected to gradually improve from the fourth quarter ending Dec 31, 2021 (4QFY21) onwards following phased upliftment of travel restrictions for fully vaccinated individuals.

For Kenanga Research, it views that AirAsia’s long-term fortune rests on how successfully it can turn around and transform itself into a digital travel and lifestyle company.

Faced with a negative operating cash flow and negative equity, Kenanga Research pointed out that the carrier has to urgently resolve its liquidity and capital adequacy issues via cash calls.

AirAsia recorded a net loss of RM1.35 billion for 1HFY21, compared to a net loss of RM1.8 billion a year ago. Revenue fell 72.4% to RM686.82 million from RM2.49 billion in the same period. The carrier said it has continued with its cost containment measures, including the rightsizing of manpower and salary cuts for management, staff and directors, while managing actively its capacity to be in line with demand.

Source: https://www.airasia.com

Reference:

Is the worst over? Analyst mixed on AirAsia, Emir Zainul, theedgemarkets.com, September 10, 2021 (https://ceomorningbrief.theedgemalaysia.com)

China Evergrande’s Debt Woes Rise!

China’s second largest property developer is on the brink of collapse as it faces a deepening liquidity crisis. China Evergrande, which is currently overseeing almost 800 projects across 200 cities in China, has so far this year (2021) experienced a 75 per cent drop in its share price.

For over two decades, the developer expanded on the back of China’s sweeping urbanisation and aggressive leverage. The company has moved to divest assets in recent months after the firm struggled to service its debts after a crackdown on the property sector by China’s central government in Beijing. The developer is reported to have amassed $120 billion in debt and close to $300 billion in total liabilities.

Beijing’s “three red lines” policy is a trio of metrics that policymakers have enforced to encourage the property industry to de-leverage. Failure to meet these metrics means an inability to access new loans. In August, Beijing summoned Evergrande’s executives to discuss the fact it was short on two metrics and issued a warning that the company would need to reduce its debt risks and prioritise stability. After the meeting, the developer “promised” to follow Beijing’s orders and said it would disclose information in a “timely manner”, would not “spread rumours” in the market and would clarify “false information” as requested by the authorities.

Evergrande claims to employ 200,000 people and indirectly generates 3.8 million jobs in China. On the face of it, China Evergrande Group made progress cutting its debt load in the first half of the year. On closer examination, paying its dues got even harder. 

The developer’s borrowings, or interest-bearing debt, fell to a five-year low as of June 30. But its overall liabilities rose to a near-record 1.97 trillion yuan ($305 billion), thanks mainly to swelling bills to suppliers. Cash and cash equivalents plunged to a six-year low. The upshot: Evergrande will need to accelerate asset sales and continue to aggressively discount apartment prices to generate enough cash to meet its obligations. Bonds tumbled after the world’s most indebted developer said it risks defaulting on borrowings if its all-out effort falls short.

Evergrande said it’s exploring the sale of interests in its listed electric vehicle and property services units, as well as other assets, and seeking to bring in new investors and renew borrowings. Sharp discounts to swiftly offload apartments cut into margins in the first half, helping push net income down 29% to 10.5 billion yuan, in line with an earlier profit warning. “The group has risks of defaults on borrowings and cases of litigation outside of its normal course of business,” the Shenzhen-based company said in the statement. “Shareholders and potential investors are advised to exercise caution when dealing in the securities of the group.” 

With banks, suppliers and homebuyers exposed to the real estate giant, any collapse could impact China’s economy. Regulators urged Evergrande to resolve its debt woes in a rare public rebuke. Among Evergrande’s top lenders are China Minsheng Banking Corp., Agricultural Bank of China Ltd. and Industrial & Commercial Bank of China Ltd.

An Evergrande plan to renegotiate payment deadlines with banks and other creditors has been approved by China's Financial Stability and Development Committee according to Bloomberg. Banks have yet to agree to the proposal, however, according to two people familiar with the situation.

Analysts expect a creditors committee to be formed to help the company tide over the crisis. Creditors’ committees work a little differently in China than elsewhere. Rather than being set up when a company requires restructuring, in China they typically form before default and function as a forum for creditors to help keep companies alive. They can collectively agree to roll over loans or extend new credit. It is also the channel through which the authorities can exert pressure on all major debtholders.

Close to 300 companies in China have defaulted with possible severe economic repercussions. Hopefully, the Chinese authorities can “engineer” a soft landing for the property sector to stave off a major recession.

References:

1. China Evergrande’s debt woes mount, www.theurbandeveloper.com

2. Evergrande’s total liabilities swell to over $300 billion, Bloomberg News, September 1, 2021

3. China Evergrande faces default test as bond coupons come due, Narayanan Somasundaram, Nikkei Asia, September 14, 2021

 

Is Malaysia’s Bodek Culture Unique?

Murray Hunter of Euroasiareview argued cogently (7 September 2021) about Malaysia’s bodek culture. He viewed the heart of the problem as the practice of excessive servility to gain favour from superiors – bodek.

Former Prime Minister, Abdullah Badawi, identified it and tried to fix it. He and Najib tried to overcome the problem through the Government Transformation Programme.

According to Murray, bodekship is the greatest single organisational dysfunction within Malaysia’s civil service. It compromises quality and integrity of management along with protection against corruption. He cites five reasons against the bodeking culture:

(i)      Cover for corruption

Loyal employees under the patronage of superiors usually follow directions. This enables tenders to be manipulated, purchasing procedures skilfully by-passed, and using budget allocations at the leader’s prerogative without accountability.

(ii)     Misinformation

Government reports, presentations and proposals are prepared and written to put issues in a most positive light. Most reports and presentations focus on providing glossy projections to hide reality. Statistics are routinely skewed, with the national poverty rate grossly under-estimated by bureaucrats for many years to make the government look good at eradicating poverty. 

(iii)     Wastage of time and resources

Too much time and too many resources are put into creating events, program launches, and openings to glorify and please superiors. These events take teams a long time to plan for no other reason than pleasing a senior civil servant. Premises rental, equipment hiring, food catering, printing, and buying special uniforms all drain public money. 

iv)     Destroying productivity and creativity

The energy and emotion put into continually placating superiors is draining. The cultural norm that officers won’t contradict their superiors, and the difficulty in putting up new ideas when superiors already have an agenda, suppresses the diversity of ideas within the civil service. The culture of silence is embedded in students at schools, where they are deterred from asking questions. 

(v)      Destroying the notion of teambuilding

Such practices destroy morale and motivation within many departments and agencies within the civil service. Placating superiors leads to internal stress which manifests in ulcers, stomach complaints, and even cancers. This is an area that has been gravely neglected in research and treatment. 

 

So, is Murray correct? No, it is not a unique phenomenon to Malaysia or its civil service. I am not advocating it. But it is practised in GLCs, PLCs and SMEs, depending on its culture and leader. It is also practised in the U.S., U.K., China, Japan, India or Indonesia. It is prevalent in many cultures and societies that have feudal- hierarchical features.

Former President Trump loved bodeking. In fact, anyone not able to do so in the Republican Party will feel his wrath or displeasure. The same in China, Japan or India.

It is a phenomenon we all need to move away from if creativity, integrity, transparency and accountability are to be valued. The effort is huge, and it starts with the leader – be it the PM or President.

So, laying blame on the Malaysian civil service alone is not a fair proposition – we are all part of the problem. Perhaps Mr. Murray needs to view a re-run of ‘Yes Minister’ to fully appreciate how bodeking can be an art!

We, nevertheless, need to set higher standards for our politicians, civil servants and corporate leaders if we are to progress with maruah.

Source: https://myeidos.com

Reference:

Malaysia’s Bodek Culture: Ailment Compromises Integrity of Public Administration – Analysis, Murray Hunter, September 7, 2021(https://www.eurasiareview.com)

The 5 Fastest Growing Industries in the U.S. for the Future

Reference:

The 5 fastest growing industries of the next decade, Jenna Ross,

(https://advisor.visualcapitalist.com), July 29, 2021

Regime Change: An American Apple Pie?

Mr. Stephen Kinzer, formerly a foreign correspondent for The New York Times, has written a book called "Overthrow" in which he surveys 14 cases where United States toppled foreign governments in the 110 years between the 1893 coup in Hawaii and the occupation of Iraq. But Kinzer says the results are always damaging to the countries involved, and to American security as well.

Although the book does not add to historical knowledge of the individual cases, it may be the first to bring them together in a comparison over time. This makes the narrative more interesting than a single case study, but also more depressing. In one instance after another, Americans are shown tossing out legitimate governments and installing corrupt ones.  They in turn cause more problems for foreign policy than did the ousted leaders.

The main explanation for these recurrent misadventures is greed. The prime villains are United Fruit, ITT, Aramco, Halliburton and other corporations and plutocrats operating through like-minded officials. Kinzer proceeds from the classic theory first advanced by the British economist J. A. Hobson, and most prominently in Lenin's "Imperialism, the Highest Stage of Capitalism," that overproduction causes a scramble for new markets and "a policy of forcing foreign nations to buy American products." This may be convincing for the early cases, but Kinzer underestimates the relative force of geopolitical concerns during the cold war.

The easy answer is that everything mattered, but without clarifying which causes are necessary or sufficient, the story does not tell us which levers we should look to first to change the pattern.

Washington can be tagged with a decisive role in the Chile coup. That too only by blurring together the events of 1970 and 1973. In 1970 President Richard M. Nixon did encourage a coup to prevent Allende from taking office after the Chilean election, but the scheme failed. Although plotters accidentally killed the army commander, the coup never got off the ground. In the next three years Washington undertook covert action programs that funnelled money to anti-Allende newspapers, parties and private groups. The definitive investigation under Senator Frank Church, however, found no evidence that the United States instigated or aided the military coup.

The horrors of the Pinochet regime, the movie "Missing," the record of previous covert actions and Nixon's happiness with Allende's ouster generated the folklore that Washington had done to Allende just what it did to Mossadegh in Iran and Arbenz in Guatemala. 

And what about Iraq, Afghanistan, Libya, Somalia, Yemen, Syria and the list goes on. The cost, in terms of money, reputation and personnel of these adventures or mis-adventures? The people who gain are those in the military-industrial  complex in Washington. Also, those puppets in the countries where they have been ravaged. 

Stop Wars and Regime Change! Act justly, love mercy and please walk humbly with your God.

Source: https://www.reddit.com

Reference:

A century of intervention, regarded with a cold eye, Richard K Betts, May 2, 2006, 

(https://www.nytimes.com)

Who Funds the FDA?

The Food and Drug Administration (FDA) has moved from an entirely taxpayer-funded entity to one increasingly funded by user fees paid by manufacturers that are being regulated. Today, close to 45% of its budget comes from these user fees that companies pay when they apply for approval of a medical device or drug.

Source: https://www.fda.gov

Americans in the early 20th century were outraged when they found out that manufacturers used poor-quality methods for producing food and medication, and used unsafe, ineffective and undisclosed addictive ingredients in medications. The resulting Food, Drug and Cosmetic Act of 1938 gave the taxpayer-funded Food and Drug Administration new authority to protect the U.S. consumer.

One of the FDA’s most shining successes occurred in the late 1950s when the agency refused to approve thalidomide. By 1960, 46 countries allowed pregnant women to use thalidomide to treat morning sickness, but the FDA refused on the grounds that the studies were insufficient to demonstrate safety. Debilitating birth defects resulting from thalidomide arose in Europe and elsewhere in 1961. President John F. Kennedy heralded the FDA in 1962 for its stance. 

The FDA continued its work fully funded by U.S. taxpayers for many years until this model was upended by a new infectious disease. The first U.S. case of HIV-induced AIDS occurred in 1981. But there were long delays in approving HIV drugs.

In 1992, in response to intense pressure, Congress passed the Prescription Drug User Fee Act. It was signed into law by President George H.W. Bush.

With the act, the FDA moved from a fully taxpayer-funded entity to one funded through tax dollars and new prescription drug user fees. Manufacturers pay these fees when submitting applications to the FDA for drug review and annual user fees based on the number of approved drugs they have on the market. However, it is a complex formula with waivers, refunds and exemptions based on the category of drugs being approved and the total number of drugs in the manufacturers’ portfolio.

Over time, other user fees for generic, over-the-counter, bio-similar, animal and animal generic drugs, as well as for medical devices, were created. As time passed, the FDA’s funding has increasingly come from the industries that it regulates. Of the FDA’s total US$5.9 billion budget, 45% comes from user fees, but 65% of the funding for human drug regulatory activities are derived from user fees. These user fee programs must be reauthorized every five years by Congress, and the current agreement remains in effect through September 2022.

The FDA and the drug or device manufacturers negotiate the user fees. They also negotiate performance measures that the FDA has to meet to collect them. Performance measures include things such as how quickly the FDA responds to meeting requests, how quickly it generates correspondence, and how long it takes from submission of a new drug application until the FDA approves or refuses to approve a drug or product.

Because of the additional funding generated by user fees and performance measures that the FDA has to meet, the FDA is quicker and more willing to discuss what it wants to see in an application with manufacturers. It also offers clearer guidance for manufacturers. In 1987, it took 29 months from the time a new drug application was filed by the manufacturer for the FDA to decide whether to approve a medication in the U.S. In 2014, it only took 13 months and by 2018, it was down to 10 months.

Most recently, the COVID-19 pandemic has seen the FDA provide emergency use authorization for potential treatments in a matter of weeks, not months. The infrastructure and capacity to review the available information so rapidly is due in large part to the funding from user fees.

User fees are a viable way to shift some of the financial burden to manufacturers who stand to make money from the approval and sale of drugs in the lucrative U.S. market. Successes have occurred and provided U.S. citizens with medication more quickly than before.

However, without careful consideration of what is being negotiated, the FDA can become weak and ineffective, unable to protect its citizens from the next thalidomide. There are some signs that the pendulum may be swinging too far in the direction of the manufacturers. The FDA is insufficiently funded to protect consumers from other issues such as counterfeit drugs and dietary supplements because they cannot collect user fees to do so. 

The model whether in the U.S. or Malaysia, has to have a balance in terms of funding – private and public. Otherwise, the regulatory agency will become the mouthpiece of Big Pharma!

Reference:

Why is the FDA funded in part by the companies it regulates (https://theconversation.com)

If You are a Malaysian...

If you are a Malaysian,

You cannot accept corruption at the highest levels;

If you are a Malaysian,

You cannot accept deserving students not securing scholarships;

If you are a Malaysian,

You cannot sit idly by while Covid-19 impacts your neighbour, community or workplace;

If you are a Malaysian,

You will contribute or be part of a team to help those in need;

If you are a Malaysian,

You cannot accept forests being de-forested for so-called development;

If you are a Malaysian,

You will object to more hydro projects being planned;

If you are a Malaysian,

You will support your local street vendor or small business;

If you are a Malaysian,

You will protest violence against women, innocent people and those who have no voice;

If you are a Malaysian,

You will seek to better the lives of those who were orphaned, disadvantaged, marginalised or victimised;

If you are a Malaysian,

You will work to remove discrimination of every form in the workplace, community or religious bodies;

If you are a Malaysian,

You will uphold the rule of law and demand the authorities do the same;

If you are a Malaysian,

You will want your MP or ADUN to work with you to change the narrative in the country;

If you are a Malaysian,

You will demand the civil service work for the benefit of the Rakyat and not the other way around;

If you are a Malaysian,

You will ask every PLC, GLC or GLICs to account for the CSRs they do every quarter;

If you a Malaysian,

You will care for the documented or undocumented workers living in Malaysia.

And if you are able to do some of the above, then you truly are a Malaysian – in the One Malaysia Family!

Source: https://nextnationalday.com

Government Revenue Shortfall: Tax Reforms or More Debt?

The Ministry of Finance (MoF), in its inaugural Pre-Budget Statement (PBS) for Budget 2022 (released on Aug 31), noted that the revenue collection for the first half of 2021 (1H21) was lower than expected. The collection for the rest of the year is likely to be even less as many economic activities were halted due to the Movement Control Orders (MCOs).

In order to maintain its spending levels for stimulating domestic economic growth, the federal government would have to either borrow more or expand its tax base. Some tax consultants concur that tax reforms, including the reintroduction of the Goods and Services Tax (GST), are necessary to help replenish the nation’s coffers and reduce dependency on oil revenue. 

PwC Malaysia tax leader Jagdev Singh highlighted that the government must initiate tax system reforms in order to broaden its tax base. “I believe that broadening the tax base is something that the government perhaps needs to consider. Because they cannot continuously increase its debt ratios, debt limit, and they cannot continuously run a (budget) deficit on and on. So the revenue side of things needs to be looked at and there need to be avenues to see how they increase the revenue,” he said. 

The MoF has identified various measures which are being evaluated to increase tax revenue and enhance tax compliance, such as the Special Voluntary Disclosure Program (SVDP) for indirect taxes, the introduction of a Tax Compliance Certificate (TCC) as a pre-condition for tenderers to bid for government contracts, the implementation of a Tax Identification Number (TIN) system and review of tax treatments which have resulted in revenue leakages or harmful practice, as well as the support for the Organisation for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) 2.0 initiative, which is designed to address cross-border tax leakages and aggressive tax planning. But these are not going to address completely the revenue shortfall. Hence the question of raising debt level.

As at the end of June 2021, the federal Government's statutory debt level had risen to 56.8% to gross domestic product (GDP), which is still below the statutory limit of 60%.

In short, we should be ready to expect higher debt to GDP ratios, which include correspondingly a potential downward grading of Malaysia's rating. This should not necessarily be received negatively, as a downgrade can be cushioned by other long-term economic policies introduced by the government towards growth. 

PwC Malaysia deals partner of economics and policy Patrick Tay viewed that although the rise in the statutory debt limit would make the credit agencies “nervous”, a ratings downgrade would not negatively affect that significantly as most government debts are denominated locally. And borrowings must be channelled to “quality spending”.

That’s the problem. Every Government Minister and MP will want some allocation to ensure their “survival” in the next general election. It is the same on the revenue/tax side, no MP wants to see any increase in tax, where constituents are impacted.

Can’t the Government look at excess profit (or some others) for sectors advantaged by Covid-19? Can’t the Government apply prudence and remove wastage in its expenditure? Why can’t we have an Independent Tax and Expenditure Commission to review, reform and restore Government finances?

Reference:

Expected shortfall in govt revenue calls for tax system reforms, raising statutory debt limit, Emir Zainul, TheEdgeMarkets.com

Are Hyperscale Data Centres (“HDC”) Moving to Malaysia?

According to a Starbizweek report (28/8/21), global giants in cloud computing and hosting are looking at Malaysia to have their data centres. These include Amazon, Microsoft, Google and Tencent. Many of these global tech players have their data centres in Singapore. However, about two years ago Singapore began limiting approvals for HDCs. Why? HDC consumes large amounts of electricity, water and space.

What is a HDC? Some classify this as any data centre with at least 5,000 servers and 10,000 square feet of available space. Others focus less on physical attributes and more on “scale of business” criteria – company’s cloud, e-commerce and social media operations. There are almost 600 centres in the world.

The global market size of colocation data centres is estimated to reach US$92.4bil RM387.2bil) in 2025. Asia-Pacific alone will account for 50% of the global market by revenue and 40% by MW in 2025 globally.

Dr James Tee of G3 Global Bhd says “Malaysia now has a one-in-a-lifetime opportunity. The global market size of colocation data centres is estimated to reach US$92.4bil (RM387.2bil) in 2025. Asia-Pacific alone will account for 50% of the global market by revenue and 40% by MW in 2025 globally,” he says. Adds Tee: “Malaysia is in an opportune position to be a part of this growth. Reports indicate that Malaysia can expect a compounded annual growth rate (CAGR) for HDCs of 13% between 2019 to 2025. This is supported by the fact that our domestic data centre industry revenue has been growing at a CAGR of 22% from 2011 to 2020.” (Starbizweek 28 August 2021).

Research outfit Arizton Advisory reckons that Malaysia’s data centre market size will reach revenues of a massive US$1.4bil (RM5.8bil) by 2026. The state of Johor is becoming one hotspot. Microsoft and GDS are among those building new HDCs there.

Johor appeals to some large tech players already in Singapore because of the availability of high data speed connections between Johor and Singapore. Lower cost is another obvious reason. 

G3 Global Bhd said it plans to house the country’s largest HDC in the proposed Artificial Intelligence (AI) park in Bukit Jalil, starting with three 10MW hyperscale data centres in the first phase of development. At maturity, the data centres are meant to have a potential end state of 100MW.

There is a huge opportunity for AI to flourish in Malaysia and the government recognises its potential in the nation’s growth. Among the work-in-progress are securing data centre partners, equipping the park with 5G technology and securing strategic investors. 

But Malaysia is not alone in trying to woo such investments. Aside from Singapore, which is the data centre hub in the region, Indonesia and Thailand are also in the running for this business.

A recent research report notes that the Indonesia data centre market was valued at US$1.5bil (RM6.28bil) in 2020, and it is expected to reach a value of US$3.07bil (RM12.86bil) by 2026, registering a CAGR of 12.95% over 2021 to 2026. The report indicates that the potential for data centre growth in Indonesia is significant as the country is witnessing a growing digital economy, coupled with the rapid growth of startup companies and an ever-growing population.

The Thailand data centre market includes about 14 unique third-party data centre service providers, operating more than 30 facilities. In addition, there are also several on-premises or dedicated data centres owned by local enterprises.

Detractors caution that simply opening up Malaysia’s shores to large foreign tech giants to set up their HDCs here brings questionable value. These detractors who are from the local data centre industry, worry that Malaysia would end up becoming a “HDC sweatshop”. They point out that HDCs do not hire many people, due to the highly automated nature of the systems. Another concern is a huge amount of the investment actually goes out of Malaysia as the HDC would be purchasing computer hardware and software that isn’t made in Malaysia to be placed into the HDCs here.

Whatever the case, on balance, if FDIs move into Malaysia that is a positive development (amidst the gloom of negative news). Will MITI or MIDA work harder to secure these investments? Otherwise, Indonesia or Thailand will prove more alluring!

Reference:

Striking while the iron is hot, Zunaira Saieed, Starbizweek, The Star, 28 August 2021

Did the U.S. Lie About Afghanistan?

“The Afghanistan Papers” shows the U.S. blunder was far worse than the public knew. Over the past four weeks, Americans have been horrified by the images from Kabul. Afghans desperate to flee the country after the rapid takeover by the Taliban have hung onto the landing gears of planes taking off. 

The book by Washington Post reporter Craig Whitlock, The Afghanistan Papers, meticulously details how the entire U.S. occupation was a series of fiascos almost since its beginning. This was depicted from the failure to capture Osama Bin Laden at Tora Bora in 2001 to Donald Trump’s bizarre brainstorm to invite the Taliban to Camp David in 2019. Whitlock and the Post obtained a trove of government documents from an internal study of the war. Whitlock writes that the book is not “an exhaustive record of the U.S. war in Afghanistan.” Instead, “it is an attempt to explain what went wrong,” and how U.S. officials spanning four administrations consistently lied about the war’s progress to the American people over two decades.

The list of U.S. failures in the country ranges from the depressing to the absurd:

• Approximately $19 billion in U.S. taxpayer dollars fell into the hands of the Taliban and allied groups, according to a study of Defence Department contracts in the country.
• The head of a construction firm had a brother in the Taliban. One brother would build infrastructure projects, and the other would destroy them, so the first would get the U.S. contract to rebuild.
• Ryan Crocker, the former U.S. ambassador to the country, said bluntly of the Afghan police force that the U.S. trained and funded: “They are useless as a security force … because they are corrupt down to a patrol level.”
• As the Taliban gained ground in 2018, the U.S. stopped keeping track of how much territory both the Afghan government and Taliban controlled. It was too embarrassing.
• Americans were deeply ignorant of Afghanistan’s culture, leading to scenes out of some dark comedy. Afghans mistook urinals on military bases for drinking fountains, according to one U.S. military official.

These are just a handful of the grim examples in a book that at times seems to be one endless chronicle of failure in a war where over 2,300 American soldiers and at least 64,000 members of the Afghan security forces were killed, as well as 47,000 civilians. The consistent theme throughout is that the U.S. never quite knew what it was doing in Afghanistan. Were soldiers there to combat Al Qaeda or turn Afghanistan into a modern Western-style democracy? The mission seems to have never been set, allowing U.S policy to drift for decades, and without a clear goal, the tactics changed as well. Troops were surged into the country and then pulled out. 

Looking back at the interviews chronicled by Whitlock, U.S. officials bemoaned “the mission creep” and lack of clear objectives. In July, President Biden attempted to define American goals in Afghanistan as “to get the terrorists who attacked us on 9/11 and to deliver justice to Osama Bin Laden,” and to prevent Afghanistan from becoming another launching pad for terror attacks against the U.S. “We did not go to Afghanistan to nation-build,” Biden said, though that’s precisely what the American military had been doing in Afghanistan for at least a decade.

But what more could be said about the key causes of failure?

• Corruption at all levels;
• Cultural differences;
• Will power;
• Intelligence failures;
• Lack of clear objectives;
• No adequate support on military hardware – i.e. the “software” was not developed to fly the planes or helicopters;
• Leadership deficit at both American and Afghan forces;
• Not neutralising the safe havens of Pakistan and Iran (for the Taliban); and 
• Clear determination of who re-armed and trained the Taliban?

Source:https://www.usatoday.com

These and other reasons may explain the colossal failure at a cost of USD2.2 trillion. But all four administrations (since George Bush) are responsible for its failure, not just Biden. One thing is sure, it will be studied in military academies and business schools in years to come on how best to avoid repeating this tragic mistake.

References:

The shocking new book that exposes U.S. lies about Afghanistan, Ben Jacobs (https://nymag.com)

“Intelligence failure of the highest order” – how Afghanistan fell to the Taliban so quickly, Natasha Turak, Abigail Ng, Amanda Macias, www.cnbc.com, Aug 16, 2021

Ride-Hailing Business: Is it Sustainable?

The top-five ride-hailing companies have a combined valuation of close to US$183.5bil (RM770.1bil), having raised US$83bil (RM348.6bil) from both private and public offerings over the years. But to-date, all are loss-making with cumulative losses in excess of US$50bil (RM210bil) – Pankaj C Kumar reported in Starbiz on 28 August 2021.

From New York to Sydney and from Tokyo to Singapore, the ride-hailing business has been well sought after by private equity investors. Some of these start-ups have even migrated to being full-fledged public companies. Names like Uber and Grab have even become household names.

According to data compiled by businessofapps.com, the global funding for these ride-hailing companies between 2015 and 2020 hit US$72bil (RM302.4bil). The peak in fundraising took place in 2017 when some US$18.1bil (RM76.2bil) was raised. The table on ride-hailing companies summarises today’s top-five ride-hailing companies and their respective valuation, the amount of funds that have been raised, and their respective accumulated losses to-date.

Uber, DiDi Chuxing (DiDi) and Lyft’s valuations are based on the latest market prices, as these companies are all listed. Grab is valued by its SPAC merger deal, while Go-Jek is valued based on its recent merger with Tokopedia.

Among all of them, DiDi, which was listed at the end of June, is the latest to be listed in the market, when it raised US$4.4bil (RM18.5bil) via an initial public offering (IPO) in the United States. That IPO valued the Chinese-based company close to US$70bil (RM294bil). But its share price has almost halved because of regulatory concerns as China has placed the company under a cyber-security review after it failed to comply with regulators’ demand to undertake a network security assessment.

The business model of ride-hailing companies has evolved over time. Some of them today are not just pure taxi services in the traditional sense but have ventured into other businesses.

Today, ride-hailing companies provide services like food delivery services, financial services like insurance products, personal loans, unit trust products, e-wallet services; and consumer-related services like grocery shopping, on-demand courier services, on-demand car cleaning services, and even on-demand bill payment services.

With the added services that are being provided and explored by these companies, they have continuously shown innovation in their business direction, and with an increasing presence in more and more countries. Growth has also been coming whenever they are opening up new markets.

Two of the largest ride-hailing companies are Uber and Grab. Uber recently announced its second quarter (Q2) 2021 results while Grab has announced its Q1 2021 results. Despite the increasing presence of these ride-hailing companies, their financials have not been great, and instead, they have been reporting losses after losses, quarter after quarter.

For example, in the latest quarterly results, Uber’s revenue rose 35% quarter-on-quarter 

(q-o-q) and more than doubled from a year ago to US$3.93bil (RM16.5bil), but both its adjusted earnings before interest, tax, depreciation, and amortisation (Ebitda) and net earnings remained weak.

Adjusted Ebitda for the Q2 period worsened by 42% q-o-q, but was much better than last year’s Q2 loss of US$837mil (RM3.52bil) by 39%. Although Uber reported a smaller quarterly net loss of US$799mil (RM3.35bil), or an improvement of 55% and 56% q-o-q and y-o-y respectively, the question on everyone’s mind is “When will it turn profitable?”

For Uber, it is not just this quarter that it reported losses, it has been loss-making since day one. The chart on its financial results basically shows Uber’s financials over the past 10 quarterly periods and it also exhibits another trend – the more the company expands into new markets or new services offered, the losses are sustained at very high levels.

Having raised some US$32.7bil (RM137.3bil) in various funding rounds and its IPO, Uber has made cumulative losses of about US$22.1bil (RM92.8bil) since its inception in 2010. Uber’s balance sheet as at June 30, 2021 showed the company’s current shareholders’ fund was at just US$13.5bil (RM56.7bil)

Grab has almost the same storyline. Having raised some US$10.8bil (RM45.4bil) up to the end of last year, its balance sheet showed that the company has total accumulated losses of US$10.4bil (RM43.7bil) up to the end of 2020. With the reported net loss of US$652mil (RM2.74bil) in Q1 of 2021, Grab’s cumulative losses would have now ballooned to above US$11bil (RM46.2bil).

Some investors may wonder how is it possible that these companies continue to be valued at financial matrices that have no relevance in the traditional sense, as they are not measured by price to earnings multiple, but other more sophisticated methods to justify their sky-high valuations.

For all these companies, understanding their financial statements can be tricky. While the focus can be on the top-line, the actual numbers that matter are the Ebitda and net losses reported.

Valuation is based on projected cash flows and the resulting net present value of the future cash flow that gives investors the company’s fair value.

This fair value is thereafter a reference point for investors to derive various multiples such as the enterprise value (EV) to revenue multiple or even the EV/Ebitda multiple if the denominator is a positive figure. EV is simply the market value of debt and equity of the company and this is then divided with the revenue or Ebitda of the company to derive a multiple.

The trick is really about forecasting future cash flows of these companies and thus the narrative these companies use whenever they are going for the next round of fundraising is to show investors what is their business strategies, in terms of new product offerings or new markets that they are venturing into, and when they will potentially be profitable, if at all.

For companies like Uber, even after 10 years of reporting losses, the company is still worth some US$76.5bil (RM321.3bil) – all because it is able to paint a picture of hope, that it will continue to grow and expand its market share and reach, never mind if accumulated losses have reached US$22.1bil (RM92.8bil) and counting.

Clearly, the business model of these ride-hailing companies is not sustainable. While the growth stories can continue to sustain market valuation, it will come a time when investors finally realise that the business model adopted by these ride-hailing companies is simply not feasible in the long run. After all, business is about making money and not merely expanding and penetrating new markets to generate sales.

It reminds me of the dot.com era, when “traditional” valuation methods were discarded for more innovative or creative methods. In the end, the “bubble” burst and they were no longer in the scene. Will that happen here?

Reference:

Is the ride-hailing business sustainable? Pankaj C Kumar, The Star, Starbizweek 28 August 2021