A Multicultural and Liberal Malaysia

Few Malaysians, especially from Malaya, are aware that Sarawak and Sabah were briefly independent before joining Malaya and Singapore to form Malaysia. (The MP for Tuaran, Datuk Seri Panglima Wilfred Madius Tangau wrote a great article regarding the above on 22 July 2023, Malaysiakini. These are excerpts from  that article) 

For 56 days from July 22, 1963, to Sept 15, 1963, the British relinquished control and Sarawak was in self-rule under her first chief minister, Stephen Kalong Ningkan. Likewise, for 16 days from Aug 31, 1963, to Sept 15, 1963, Sabah was in self-rule under her first chief minister, Donald Stephens. This is a reminder that we had different colonial experiences and decolonisation trajectories and we must not take for granted the merger of three countries as one federation. 

Source: https://upload.wikimedia.org

We could have been three different countries as Brunei is to us now. We must consciously avoid developments that make the alternative path necessary and more desirable than the status quo.

The toughest challenge in reconceptualising an inclusive Malaysia lies in overcoming the anti-colonial hangover. This requires an honest recognition of three important facts. 

First, Malaysia is a post-colonial state with British rule as the single most important commonality.

Second, persevering the liberal political system we inherited from the British – the Federal Constitution, constitutional monarchy, parliamentary democracy, civil and political liberties including religious freedom, judiciary independence, common laws, and an impartial and professional bureaucracy – is at the core of the social contract that produces and maintains Malaysia, the Malaysia Agreement 1963 (MA63).

Third, decolonisation is not the restoration of the precolonial indigenous political system but the realisation of democracy.

There can be no colonisation when every citizen is politically equal and the government exercises its power on the consent of the governed.

In the opposite direction, Sabah and Sarawak suffered internal colonisation when one-party rule crippled our liberal institutions and disabled democracy.

For Malaysia to stay decolonised, we must pursue decentralisation of power for all 13 states to prevent the re-emergence of power concentration that, in the worst case, would empower Malayan extremists.

Those who love multiethnic, multifaith, and free post-colonial Malaysia promised by MA63 must fight off the extremists who want to revert Malaysia back to a monoethnic, monofaith, and authoritarian pre-colonial Tanah Melayu.

This is a honest, detailed and heartfelt account of our journey as Malaysia. There must be a discourse of like-minded people and the current leadership to re-set our course. It is common for that to happen. Every country, organisation and family go through this process, in what is called a ‘retreat’ – a re-discovery of the ties that bind us and the differences that we can overlook. We need to move from tolerance, acceptance to celebration of our diversity. May God bless Malaysia!

Reference:

MP Speaks: A nusantara, multicultural, and liberal Malaysia, Wilfred Madius Tangau, Malaysiakini, 22 July 2023

Temasek’s Net Portfolio Value Down!

Singapore state-owned investment firm Temasek Holdings has reported a net portfolio value of S$382 billion (RM1.3 trillion) for FY2023, 5.2% lower than its previous net portfolio value of S$403 billion in FY 2022.

The group reported a loss of S$7.3 billion, from last year’s net profit of S$10.6 billion. This was attributable to changes in accounting standards, which includes mark-to-market (MTM) gains and losses. 

Source: https://www.pionline.com

Temasek’s one-year total shareholder return (TSR) was -5.07%, while its TSR since its inception in 1974 remained at 14%, unchanged from last year. The group’s 20-year and 10-year TSRs for this FY stood at 9% and 6% respectively.

Over FY2023, Temasek invested $31 billion and divested $27 billion, resulting in a net investment of $4 billion.  As at March 31, Temasek’s portfolio remains anchored in Asia with a total of 63%. In terms of geography, Singapore, China and the Americas remained the group’s three largest markets by underlying exposure with 28%, 22% and 21% respectively.

In terms of sectors, transportation and industrials made up the majority of Temasek’s portfolio at 23%, one percentage point higher y-o-y. Financial services, which stood on top in the year before, fell to second place at 21%, down two percentage points y-o-y.

Telecommunications, media and technology rounded up the top three sectors at 17% in FY2023, down one percentage point y-o-y.

Temasek’s unlisted assets also outperformed its listed assets with an internal rate of return (IRR) of 14.4% over a 20-year period. This is compared to the IRR of 8.0% for its listed assets and 10.1% for its overall assets over the same period. Early stage investments, which are capped at 6% of Temasek’s portfolio, have also outperformed the group’s overall portfolio with a seven-year IRR of 10.9% versus its overall portfolio’s IRR of 7.8%. As at March 31, the group ended the year with net cash. Of its portfolio, liquid and sub-20% listed assets stood at 27% while unlisted assets made up 53% of its portfolio.

On FTX, chief investment officer viewed the decision to invest into the crypto firm was one that the group was “disappointed” in. Temasek had made the decision to write down over US$200 million ($268.3 million) that was invested into FTX in November 2022. The group subsequently announced that they had cut the pay of those who were responsible for the investment in FTX in May due to the “reputational hit”.

There are consequences for certain investment losses – pay-cut for staff responsible. Do we do that at Khazanah?

Reference:

Temasek’s net portfolio value down by 5.2% y-o-y to S$382 bil; reports S$7.3 bil loss, TheEdgeSingapore.com, 12 July 2023

Malaysia Scores 11th Spot in Henley’s Passport Index

The Henley Passport Index (“HPI”) is a global ranking of countries according to the travel freedom allowed by those countries' ordinary passports for their citizens. It started in 2006 as Henley & Partners Visa Restrictions Index (HVRI) and was changed and renamed in January 2018.

The index annually ranks 199 passports of the world by the number of countries their holders can travel to without visas. The number of countries that a specific passport can access becomes its visa-free "score". In collaboration with the International Air Transport Association (IATA), Henley & Partners has analysed the visa regulations of almost all the world's countries and territories since 2006.

Source: https://en.wikipedia.org

As of 19 July 2023, there was a major change in the rankings, with almost all countries in the top 10 declining by at least one place. The Singaporean passport is at the top and offers holders visa-free or visa-on-arrival access to 192 countries and territories. This is followed by the German, Italian, and Spanish passports, each offering 190 visa-free or visa-on-arrival countries and territories to its holders.

These rankings are followed by the Austrian, Finnish, French, Japanese, Luxembourg, South Korea and Swedish passports, each offering visa-free or visa-on-arrival to 189 countries and territories.

The ranking of the United States increased by one place, decreasing in its visa-free or visa-on-arrival access to 184 countries and territories, from 87. The Australian and Canadian passports did not change in rank, despite decreasing in their visa-free or visa-on-arrival access from 187 to 186 and 186 to 185, respectively.

Of the five countries of the Five Nations Passport Group (Australia, Canada, New Zealand, United Kingdom, United States), the British passport offers [he most visa-free or visa-on-arrival access (188 countries and territories), and the United States passport offers the least. In South America, the Chilean passport offers its holders visa-free or visa-on-arrival access to 174 countries and territories, the highest in the region, followed by the Argentine passport (169) and the Brazilian (168).

The Afghan passport remains the world's weakest, allowing nationals to visit 27 destinations without visas. Just above this are the Iraqi passport (29) and the Syrian passport (30).

Malaysia is in 11th place, an improvement from 13th in the previous year (2022). This means Malaysians have visa-free access to 180 of 227 travel destinations worldwide. The highest ranking we achieved was 8th in 2014. 

We are second after Singapore in the ASEAN grouping. Thailand and Indonesia were at 64th and 69th spot respectively. India is ranked 80th, up from 87 in 2022 while China ranks 122nd in 2023.

This is a bit of good news for Malaysian travellers and perhaps we could aim for a top 10 status which is not that far for us as a goal.

Reference:

Henley Passport Index, Wikipedia

China’s Frail 2Q GDP Growth Raises Issues!

China's economy grew at a frail pace in the second quarter of 2023. Demand weakened at home and abroad. The post-Covid momentum has faltered rapidly and has raised pressure on policymakers to deliver further stimulus. Chinese authorities face a daunting task in trying to keep the economic recovery on track. 

Gross domestic product grew just 0.8% in April-June from the previous quarter, on a seasonally adjusted basis, data released by the National Bureau of Statistics. On a year-on-year basis, GDP expanded 6.3% in the second quarter, accelerating from 4.5% in the first three months of the year, but the rate was well below the forecast for growth of 7.3%. The annual pace was the quickest since the second quarter of 2021, although it was heavily skewed by economic pains caused by stringent Covid-19 lockdowns in Shanghai and other major cities last year.

Source: https://ms.wikipedia.org

The latest data raises the risk of China missing its modest 5% growth target for 2023. More timely June data, which was released alongside the GDP numbers, showed China's retail sales grew 3.1%, slowing sharply from a 12.7% jump in May. Analysts had expected growth of 3.2%.

Industrial output growth unexpectedly quickened to 4.4% in June from 3.5% seen in May, but demand remains lukewarm. Private fixed-asset investment shrank 0.2% in the first six months, a sharp contrast to the 8.1% growth in investment by state entities, suggesting weak private business confidence.

Recent data showed a rapidly faltering post-Covid recovery as exports declined the most in three years due to cooling demand at home and abroad while a prolonged downturn in the key property market has sapped confidence. The weak overall momentum and global recession risks have raised expectations policymakers will need to do more to shore up the world's second-biggest economy.

Authorities are likely to roll out more stimulus steps including fiscal spending to fund big-ticket infrastructure projects, more support for consumers and private firms, and some property policy easing. But a quick turnaround is unlikely.

While China is seen on track to hit its modest 2023 growth target, there are risks of the annual goal being missed for the second year in a row. China's economy grew just 3% in 2022 due to Covid curbs, badly missing the official target. Most analysts say policymakers are unlikely to deliver any aggressive stimulus due to worries about growing debt risks.

However, a deeper slowdown could stoke more job losses and fuel deflationary risks, further undermining private-sector confidence. Youth jobless rate climbed to 21.3% in June from 20.8% in May, a new record high, as graduates scrambled for limited offers during the job hunting season.

China's property sector, which accounts for about a quarter of the economy, remains firmly in a downtrend, with new home prices for June stalling. Property investment slumped 20.6% in June year-on-year after a 21.5% drop in May.

China may ease its monetary policy and target higher fiscal support. Consequences may include inflation and higher public debt. But this is better than driving the economy to a full-blown recession. As long as U.S. remains belligerent, it is difficult to see a positive outcome for both.

For Malaysia, we need to draw-up plans to overcome a “soft” export market including finding new markets for some of our goods and services. We cannot afford to plod along on a “cruise” mode.

Reference:

China’s frail 2Q GDP growth raises urgency for more policy support, Kevin Yao & Joe Cash, Reuters, TheEdgeMalaysia, 18 July 2023

MyHSR Corp to Revive KL-Singapore HSR?

MyHSR Corporation Sdn Bhd (MyHSR Corp) is seeking concept proposals from local and international firms and consortia to develop and operate the Kuala Lumpur-Singapore High Speed Rail (KL-SG HSR) project via a public-private partnership model. A full-fledged request for information (RFI) will be opened to all these three parties to submit their concept proposals. The RFI exercise marks the government's initiative to reactivate the KL-SG HSR project via new funding mechanisms and implementation models. The exercise will allow the Malaysian government to assess the industry’s interest and ability to fully fund the project. 

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

Mooted in 2010 as part of the development of Greater KL, Malaysia and Singapore signed a legally binding bilateral agreement in Dec 2016 for the 350km HSR. There was seven stations planned and shorter travel time between Kuala Lumpur and Singapore to 90 times — from a four-hour drive by car. The railway line was envisioned to be completed by 2026.

The project was terminated in January 2021 by the then prime minister, as Malaysia and Singapore failed to reach an agreement over several changes to the bilateral agreement. Malaysia paid RM320.27 million to Singapore as compensation. 

In March 2023,  the Federal Government had meetings with five Malaysian companies to gauge their interest in pursuing the HSR. The cost of the project was determined at RM60 billion in 2020. The five were: Tan Sri Syed Mokhtar Albukhary-controlled MMC Corp Bhd; WCT Holdings Bhd, controlled by Tan Sri Desmond Lim Siew Choon; YTL Group; Tan Sri Vincent Tan Chee Yioun-controlled Berjaya Group; and Malaysian Resources Corp Bhd (MRCB). At least two of the five companies held high-level discussions with Chinese state-owned enterprises as partners while another appeared inclined to partner a Japanese consortium.

The key will be a proper business model to proceed. The previous model with AssetCo, Infra Co and OpCo need to be revised. Having just an AssetCo for the Malaysian side and another for the Singapore side may suffice. The OpCo is jointly owned by Malaysia and Singapore but the majority shareholder is Malaysia. Debt to equity raised for AssetCo should be 60:40 with a 50-year tenor for the loan and a concessionary fixed rate in ringgit. The Malaysian shareholders should constitute more than 50% while Chinese and other foreign interests may hold the balance. This needs to be developed further with feasibility studies and further negotiations.

Reference:

MyHSR Corp seeks concept proposals to revive KL-Singapore HSR, Priyatharisiny Vasu, TheEdgeMalaysia.com, 12 July 2023

Singapore’s Recent “High-Profile” Issues and Integrity!

The resignations of Speaker of Parliament Tan Chuan-Jin and Member of Parliament (MP) Cheng Li Hui are the latest in a series of controversies. Recently, Transport Minister S Iswaran was arrested by the Corrupt Practices Investigation Bureau (CPIB) in relation to a graft probe. The arrest led the Deputy Prime Minister to state that the PAP will be upfront and transparent even when such developments are “potentially embarrassing or damaging” to the party or the Government.

Earlier this month, Parliament also debated the rental of bungalows along Ridout Road by the Law and Home Affairs Minister and Foreign Affairs Minister. Investigations by CPIB and a separate review conducted by the Senior Minister on the matter found no wrongdoing by the ministers involved.

Source: https://en.wikipedia.org

Referring to the recent incidents, Singapore’s PM said no system can be “completely infallible”. In Malaysia, these issues are not that serious. More important is the length of a female’s dress, a man’s shorts or whether a woman is cutting a man’s hair.

Integrity is the core value for a nation, organisation or unit. Yet it is not so simple for two reasons:

(i) innate ability to rationalise behaviour: and

(ii) everyone defines integrity differently.

In (i), if you ask a school student whether or not it is right to cheat, most will say that cheating is wrong. Yet research suggests that many will admit to having engaged in some form of cheating. In hindsight, the students justify the choice as “not really cheating,” “no big deal,” or something that “everyone else does.” In other words, they rationalize their situational behaviour, and this way they can still consider themselves to be honest.

The reality is that all of us (and not just students) face integrity based choices on a regular basis. Do we tell customers about all of the warts on our products? Do we reveal everything to a prospective buyer during due diligence? Is it acceptable to hide certain aspects of our background in a résumé? What’s considered a legitimate expense on a business trip? How much of billable time is really devoted to a client? How honest should I be when giving feedback to my boss or subordinate? None of these situations have clear answers — and no corporate or party policy can cover every contingency. As a result, no matter what choice we make, we can convince ourselves that it was made with integrity.

In (ii) falsifying information to one person might be considered an acceptable business practice to another. This is further exacerbated by differences in culture — for example in some business cultures people are expected to openly do favours for each other, while in other cultures those favours would be considered bribes.

In the Bible, Psalm 15 outlines integrity – we need to value the right choices, which will lead to the right chances that then result in a change of the whole environment. It’s never easy with choice, chance and change.

References:

Why is integrity never easy, Ron Ashkenas, Harvard Business Review, 8 February 2011

Singapore PM Lee: PAP has to deal with recent “high-profile” issues rigorously, transparently for everybody to draw “right conclusions”, The Malay Mail, 18 July 2023

What are the Structural Issues Impacting the Ringgit?

Bank Negara recently assured the forex market that it will intervene to stem excessive ringgit fluctuations. The statement was made following the ringgit’s continued depreciation against a number of currencies.

The problem is, the ringgit cannot be strengthened with the central bank’s intervention alone, despite the US$113bil (RM527.4bil) in international reserves. Had it been that simple, the ringgit’s long-term weakening that accelerated after 2014 – which some say was partly caused by the 1Malaysia Development Bhd corruption scandal – could have been averted.

There has been quite a blame game happening on the ringgit’s depreciation over the past several months. Economy Minister Rafizi Ramli says the weak ringgit is partly caused by the reluctance of some Malaysian exporters to repatriate their earnings to Malaysia. Some exporters who are paid in US dollars do not exchange the proceeds for ringgit and bring the amount back to Malaysia.

However, a bigger reason for the ringgit’s depreciation is the aggressive interest rate hikes in major economies to tame inflation. Since March 2022, the United States Federal Reserve has increased its interest rate, known as the federal funds rate, aggressively from the range of 0%-0.25% to 5%-5.25% currently. The Bank of England, meanwhile, has hiked its main rate from 0.1% to 5%.

In contrast, Bank Negara has only raised its overnight policy rate to 3% as compared to 1.75%, which was from July 2020 to early March 2022. The MPC in its recent meeting left the OPR untouched.

The more aggressive rate hikes in advanced economies have led to the outflow of funds from Malaysia, which in turn weakened the ringgit. Surprisingly, traders and speculators are not measuring real interest rate differentiation – it is negative in more advanced economies compared to Malaysia.

In addition, emerging signs that China’s post-Covid-19 economic recovery is losing its momentum has also impacted the ringgit’s direction. China is Malaysia’s largest trading partner. The ringgit has depreciated 2.4% against the yuan since February this year.

In September 1980, the ringgit was worth RM2.1110 per US dollar. The local note’s value crashed in the aftermath of the 1997 Asian financial crisis and has only briefly returned to below the RM3 mark. The ringgit ended the first half of 2023 at RM4.6675 against the US dollar on June 30. It seems that the ringgit has not managed to regain its shine despite reports about strong foreign direct investment (FDI) flows into the country annually.

Beyond political uncertainties, some argue that the ringgit’s under-performance is largely caused by persistent structural issues affecting the Malaysian economy.

One of the structural issues is the country’s high dependence on foreign workers, which the Statistics Department said there are 2.1 million foreigners working in various sectors up till June 2022 (undocumented ones could double that figure). These foreign workers, most of whom do not pay taxes in Malaysia, are a massive contributor to money outflows from the country in the form of salary remittances. In 2019, it is estimated that the foreign workers remitted RM31.2bil to their home countries. Five years earlier, in 2014, the value of remittances was only RM20.6bil. Indonesia is the biggest recipient of remittances from Malaysia. While there are Malaysians working abroad who remit their salaries back into Malaysia, the country has continued to see higher remittance outflows than inflows. This effectively puts pressure on the ringgit.

Another issue is the declining contribution of exports to Malaysia’s economy, with the country becoming more reliant on domestic consumption. For example, in 2000, the value of exports of goods and services was about 119.8% of Malaysia’s gross domestic product (GDP), according to the World Bank. By 2021, it had reduced to 68.8%. The size of imports relative to the GDP has also reduced in tandem, considering that a huge chunk of the imports were intermediate products that are used in the manufacturing sector to be exported later. In 2000, imports of goods and services were valued at 100.6% of the Malaysian GDP and by 2021, it declined to 61.7%. With net exports having a smaller influence on the economy, the ringgit no longer enjoys the same demand it used to have from the external environment.

Meanwhile, the country’s ever-increasing food import bill has also continued to exert pressure on the ringgit. In 2022, the food import bill reached about RM75.54bil, from just RM51.4bil in 2019. For the sake of comparison, Malaysia generated RM28.2bil in tourism income in 2022 by attracting 10 million international tourists.

While subsequent governments are struggling to improve the domestic self-sufficiency levels across different food classes, Malaysia continues to rely heavily on imported food items that leads to an increasing outflow of money. It is estimated that the food import value could surge to RM100bil by 2025.

As at end-2022, Malaysia’s direct investment abroad (DIA) position was recorded at RM607.5bil, according to the Statistics Department. DIA position refers to total stock of DIA at the end of reference period. About 68.4% of the amount comprises investments in equity and investment fund shares. In comparison, the FDI position in the country as at end-2022 was RM879.1bil.

The fact that Malaysia ranks high in illicit fund flows and many high-profile Malaysians have their wealth stashed abroad in offshore accounts makes the situation even worse. According to a report by Washington-based Global Financial Integrity, Malaysia lost between US$22.9bil (RM107bil) and US$33.7bil (RM157bil) due to illicit financial flows between 2006 and 2015.In addition to this, various exposes in the name of Panama Papers, Swiss Leaks and Pandora Papers, have uncovered the wealth owned by many Malaysian politicians and tycoons in offshore entities.

The outflow of unaccounted funds puts downward pressure on the ringgit, which is further impacted by net outflow of foreign funds from the local stock exchange. Between 2014 and 2022, Bursa Malaysia has witnessed annual net outflow of foreign funds in seven out of nine years. Interestingly, this coincided with the acceleration of the ringgit’s long-term depreciation.

For the first five months of 2023, the net selling of foreigners amounted to RM2.84bil, as compared to 2022’s full-year net buy of RM4.4bil. Market commentators have said that international investors have been dumping Malaysian equities as Bursa Malaysia loses its lustre.

Among the reasons causing foreign investors to leave are unappealing policies, low profitability of Malaysian public-listed companies and the lack of companies that offer growth prospects with high economic content such as green and energy-related projects.

The fact that Malaysia’s weightage in the MSCI Emerging Market index, which is used by international portfolio managers as a benchmark, reduced from a high of 4% in mid-2013 to around 1.4% currently also caused the reduced participation of foreign investors.

Foreign participation in Bursa Malaysia has dwindled to 20.2% in March 2023, as compared to 27.5% in May 2007.

Moving forward, the government has a lot on its plate to address the structural issues with the aim to steer the ringgit towards long-term appreciation trend.

Cabinet ministers would have to effectively reduce the reliance on foreign workers, improve the sophistication of Malaysia’s supply chain to enable the exports of high-value products and services as well as slash the food import bill, among others.

We have to make Malaysia the preferred investment destination for foreign funds. However, this is easier said than done as Malaysia sees emerging competition from many regional countries such as Thailand, Indonesia and Vietnam.

And if the “Green Wave” and the 3Rs continue, we have enough negatives to upset foreign capital flows and even domestic outflows. Meanwhile, this Unity Government has to have a 5-point plan, where priorities should be and how we are going to achieve it.

Reference:

Structural issues dragging down the ringgit, Ganeshwaran Kana, The Star, 1 July 2023

Currency Decline: What Next?

Bank Negara Malaysia (BNM)’s new governor has a big issue to deal with. The local unit is at a seven-month low against the US dollar. It has weakened against other major European units and the Singapore dollar since February as interest rate cycles went into high gear there.

The weakness of the ringgit prompted BNM to come out to state the currency is undervalued at RM4.67 against the greenback. Is it a warning to traders? With some US$115bil (RM536bil) in international reserves, the hint of an intervention has slowed the sell-off of the local unit. And is UD115m enough to stem the tide? 

The daily foreign exchange (forex) average turnover volume in 2023 has already surpassed US$15.1bil (RM70.6bil), which suggests our net foreign reserves (excluding foreign currency loans and net forward/futures trades) are only five times the daily average volume. So, intervening in the forex market to support the ringgit may not be the best option.

The Bank of Japan for instance spent US$65bil (RM303bil) in 2022 on direct purchases of the yen without much success as the currency is back retesting its three-decade-lows of 150 yen levels to the greenback again.With the close trade and investment ties with China, Bank Negara is likely more concerned about the ringgit and yuan pair rather than the dollar and ringgit rate as the hawkish Federal Reserve (Fed) is driving the dollar demand in Asian foreign exchange.

Source:https://www.imoney.my

The yuan has to contend with its own issues with the Chinese economy underperforming investor expectations and foreign companies moving treasury operations out of Greater China to locations like Singapore due to the geopolitical tensions between the West and Beijing.

Can the ringgit go lower? It could as the US dollar strength is likely to persist. Fed chairman signalled for even more rate hikes in the months ahead as US inflation remains elevated. That will only fuel demand for the dollar as American equity markets continue to hit new highs.

All the foreign exchange uncertainty is leading local exporters to retain their foreign currency holdings instead of converting to the ringgit.

But an interesting point made by Prof. Jomo K. Sundaram (Starbiz report on 14 July 2023) is the role of certain “powerful” speculators and Malaysians who hoard their cash abroad, which then exerts pressure on the ringgit. Surely, BNM knows of this?

Symbolic in nature, interventions typically offer better levels to sell the currency, traders say, adding that Bank Negara is well aware that the current ringgit weakness is due to external factors and US dollar strength.

The steady yields on Malaysian government bonds and steady prices of bank stocks on the local exchange is a sign there is no major issue in investor expectations about the government’s finances or concerns about the health of the local economy. Although foreign investors may be net sellers on local equities year to date, they remain net buyers on bonds.

The ringgit weakness, however, does point to a weak underlying demand for the local unit. The return of tourists following the lifting of restrictions on cross border movements has not translated to a significant number of inbound arrivals. The large foreign direct investment figures touted around also have translated to little gain for the local unit.

What could be key to the ringgit’s fortunes will be if exporters begin to sell their foreign currency holdings from export proceeds, which have grown to around US$26.5bil (RM123bil) or 15.3% of total banking deposits by businesses. For this to happen, it would likely require either a positive turn on the yuan or the Fed signalling a real pause and guide to rate cuts.

Another boost to the ringgit could come from local institutions and companies repatriating funds back home. For instance, the Employees Provident Fund could shift its strategy to invest more in local assets or even sell some of its foreign assets and repatriate proceeds, naturally creating actual local demand for the ringgit.

Given the ringgit’s weakness of late, a natural follow-up question is what are the implications for inflation and, by extension, Bank Negara’s monetary policy?

In a 2022 paper by Bank Negara, it is estimated that for every 5% depreciation of the ringgit versus the greenback, the exchange rate pass-through in the short run was 0.1% for core inflation and 0.2% for headline inflation.

There are several structural issues dragging down the ringgit. A weaker currency benefits a country is not wholly true – it is a limited boost – like taking a 100Plus. Malaysia’s current account balance to GDP ratio has deteriorated from 15.9% as at end 1999 to 1.0% as at 1Q 2023. This proves cheap does not mean good in the long-run. Value optimisation not cost savings should be our mantra!

Reference:

Addressing the currency decline, Bhupinder Singh, The Star, 1 July 2023

Time for reforms, Pankaj C. Kumar, The Star, 1 July 2023

SME Landscape of Malaysia

 

Rising cost of doing business has been the main issue facing SMEs. Most affected were those in manufacturing and construction sectors as well as small-sized firms. Multiple reasons are cited for the increase, including higher cost of raw materials and branding and marketing efforts. In order to alleviate the rising cost of doing business, many say they would undertake a few measures or business strategies, such as reducing operating costs, as well as introducing new products and services.

Cash flow or liquidity issue is also among the main concerns for SMEs. As SMEs are strapped for cash, this presents itself as the biggest obstacle to business growth, particularly microenterprises and SMEs in services and construction sectors.

Over the years, there have been various initiatives implemented to enhance SME financing in Malaysia.  An overview of the SME Financing Ecosystem is shown below:

Reference:

SME landscape of Malaysia, Compare Hero.my, 12 February 2020

Isn’t It About (Malaysian) the Economy?

 "It's the economy, stupid" was a popular slogan used by former US president Bill Clinton in the 1992 presidential election. It was mainly targeted at workers' growing resentment over the state of the economy. The Madani government could well learn from the US experience. In fact, historical data shows that every time our economy hit road bumps, the ruling government suffers electoral setback.

In the 1969 general election, where the Alliance lost its two-thirds Parliamentary majority, economic turbulence was the key. In the 2008 general election, Barisan Nasional (BN) again lost its two-thirds majority, the economy was the issue. Some 10 years later, issues like 1MDB and corruption helped infuriate voters. 2018 was also the year BN lost power for the first time after 61 years.

https://www.wikiimpact.com

What kind of bearing will the economy have on the outcome of the upcoming elections in six states? The "3Rs" (race, religion and royalty) will colour the polls campaign, no doubt!

But what this election comes down to is bread-and-butter issues like jobs, inflation, the overnight policy rate (OPR) hike and subsidies. The prolonged war in Ukraine, the interest hikes in the US, the frosty US-China trade ties as well as climate change, weigh heavily on the Malaysian economy. 

There is much pessimism as investors and businessmen get jittery over the lack of economic direction from the Prime Minister's administration. Almost nine months now the administration does not have much to show as far as the economy goes. A pressing concern is the ringgit's freefall. As a major importer of food and other essentials, the ringgit's depreciation means costlier food, among others. Parents who have children studying abroad are also feeling the pinch.

Despite having secured a two-thirds majority in Parliament under the unity government, the current government does not seem to be able to implement much-needed reforms. These include institutional reforms, law reforms, a competitive and transparent budgetary process for large scale infrastructure projects, addressing Malaysia’s low wages structure (Malaysia has one of the lowest compensation of employees-to-GDP ratio) and education reforms to stop the brain-drain. Instead, we have been bombarded with racial and religious issues as the opposition continues to harp on what they know best to gain voters’ confidence.

Low-lying fruits are aplenty but please come up with a four-year comprehensive plan as to how it wants to reform the economy. For example, try to rephrase Rishi’s five targets/priorities as follows:

• Halve inflation;

• Double GDP growth;

• Implement reforms – institutional, law, budgetary;

• Provide quality education; and

• Minimise corruption

Only then are we on course and the ringgit, economy and stock market may have a ray of hope.

References:

‘It’s the (Malaysian) economy, stupid’, Yap Long Chuan, MalaysiaNow, 28 June 2023

Time for reforms, Pankaj C. Kumar, The Star, 1 July 2023

Singapore is the Location of Choice for Large Highly Innovative Projects

 Singapore was the leading destination for greenfield foreign direct investment (FDI) in the first-half of 2022 within the Association of Southeast Asian Nations (Asean) trade bloc.

Foreign investors in Singapore also announced 142 projects worth $8.2bn in the first six months of 2023, following two consecutive half-year periods in which FDI topped $9bn, according to the latest figures from investment tracker fDi Markets. The estimated capital expenditure of $8.2bn in Singapore was double that of Malaysia, the next best-performing Southeast Asian country.

The success of the Lion City is in contrast to China, where FDI has fallen to a record low in the first half of 2022. Foreign investors have become increasingly weary of making long-term plans in China, due to the detrimental effects of draconian zero-Covid policies and rising geopolitical tensions with the West.

During the first six months of 2022, Singapore attracted more FDI than any other country in the ‘Asean plus three’ group of countries, which includes the southeast Asian trade bloc along with China, Japan and South Korea, fDi Markets figures show.

The semiconductor industry accounts for almost 7% of Singapore’s gross domestic product, according to EDB Singapore, and is a major part of the country’s attempts to expand its manufacturing sector by 50% by 2030.

The French semiconductor material maker Soitec also announced in June that it would plough €400m into expanding its factory in Singapore. Foreign investors have also sought to do highly specialised and innovative activities in Singapore. In July, Chinese bio-manufacturing company Wuxi Biologics said that it would invest $1.4bn to open a contract research, development and manufacturing centre in the city.

MIDA and MITI in Malaysia need to get their act together to see how best we could be a better destination for large innovative projects. We have the base in Penang and Selangor. With a little imagination and adaptability we could secure a portion of this contract research and development market for ourselves?

Reference:

The city state has become a location of choice for large highly innovative projects, Alex Irwin-Hunt, FDI Intelligence, 5 October 2022

China’s Yuan May Slip Further!

 China's yuan has skidded to a six month low against the dollar.  Analysts say it could weaken further. Disappointing economic data, widening yield differentials with the United States, upcoming corporate dividend payments and continued capital outflows through foreign selling of stocks and bonds have combined to drag the currency down to levels last seen in November 2022.

The yuan has depreciated more than 5% against the surging dollar since the highs hit in January. This was when global markets embraced China's border reopening. It last traded at [7.2384 per dollar on 6 July 2023].

Source: https://intrepidsourcing.com

Exports have been one of the few bright spots for the Chinese economy over the past few years but new orders have been falling in recent months amid softening global demand. The commerce ministry has asked exporters, importers and banks recently about their currency strategies and how a weakening yuan could affect their businesses.

The central bank has ample policy tools to prevent excess currency movements. The People's Bank of China (PBOC) said that it will resolutely curb large fluctuations in the exchange rate and study the strengthening of self-regulation of dollar deposits.

However, despite the yuan's quickening tumble over the past month, traders have only reported a few occasions when state banks have been suspected of stepping in to support the currency. Economists and analysts don't expect sharp falls further. 

A weak currency expectation going forward is not helping capital flows, as investors are concerned about FX losses when they look at yuan-denominated assets. A weaker yuan might also temper deflationary pressures being seen in parts of the economy due to weak domestic demand. However, implied volatility for the currency , an options market gauge of future volatility, has been fairly stable. The one-month tenor stood at 4.5, the highest since April. And six-month yuan traded in forwards market was priced at 6.96 per dollar.

Some market watchers suspect the PBOC could set a cap on dollar deposit rates, a move that could encourage companies to liquidate their large dollar positions to ease downside pressure on the yuan.

For Malaysia, a depreciating yuan is a problem. We seem to be in a lock-step with the yuan. Typically, it is believed that a weak ringgit will boost economic growth as it will make Malaysian-made goods cheaper and in turn, lead to stronger export. However, the influence of exports has been reducing, with the economy becoming more reliant on domestic consumption.

In 2000, for example, the export value was at 119.8% of the country’s gross domestic product (GDP), according to the World Bank. By 2021, it had reduced to 68.8%.

The size of imports relative to the GDP has also declined in tandem, considering that the imports were intermediate products that were used in the manufacturing sector to be exported later. In 2000, imports were valued at 100.6% of the GDP and by 2021, it had declined to 61.7%.

With exports having a smaller influence on the economy, this challenges the decades-long narrative that a weak currency is beneficial to the country.

On average, a 5% depreciation of the ringgit to the US dollar will lead to a between 0.1% and 0.3% impact on core inflation, according to SERC’s executive director. Since February, the ringgit has declined by 9.51% against the US dollar, 12.98% against the British pound and 10.63% against the euro. Across the region, the ringgit also fell by 6.75% against the Singapore dollar, 9.76% against the Indonesian rupiah, 8.25% against the Philippine peso and 1.67% against the Thai baht during the same period. The environment has exerted significant pressure on the country’s ever-increasing food import bill. In 2021, the food import bill reached RM63bil from RM51.4bil in 2019.

References:

Analysis: China’ yuan may slip further to aid economic recovery-analysts, Winni Zhou, Brenda Goh and Tom Westbrook, Reuters, 5 June 2023

The weak ringgit dilemma, Ganeshwaran Kana, The Star, 29 June 2023

Why the Singapore Dollar Appreciates Against the Malaysian Ringgit

The stories of different currencies often unfold with distinctive narratives and outcomes. That is the case for the Malaysian ringgit (MYR) and the Singapore dollar (SGD). Both currencies have followed divergent paths shaped by economic, monetary, and trade factors. (This blog post is based on an article by Choon Leo Wang of fifthperson.com).

1. Monetary policies and central bank interventions

The Monetary Authority of Singapore (MAS) has adopted its monetary policy around exchange rates through a managed float exchange rate regime for the Singapore dollar. Unlike traditional central bank practices of directly impacting interest rates, MAS focuses on targeting exchange rates. This regime empowers MAS to intervene in the foreign exchange market and adjust the value of the SGD within a specified range against a basket of other currencies, referred to as the S$NEER (Singapore Dollar Nominal Effective Exchange Rate). By adopting this strategy, the MAS ensures stability and adaptability to market dynamics.

Singapore’s interest rates are market-driven and closely correlated to U.S. interest rates. Consequently, the Singapore dollar experiences less pressure in terms of yield differentials. This approach has contributed to the strength and resilience of SGD.

Source: https://focusmalaysia.my

Malaysia, however, operates under a free-floating exchange rate regime for the ringgit. This means that the value of the ringgit is primarily determined by market forces, which makes it more vulnerable to external shocks. While a free-floating regime offers flexibility, it also exposes the currency to increased volatility and fluctuations.

For example, in 2022 the U.S. Federal Reserve implemented a robust policy of raising its interest rate by 425 basis points. It had a target range of 4.25-4.50% to tackle inflation. As a result, the increased returns on U.S. financial assets fuelled a surge in demand for these assets. This resulted a prolonged period of U.S. dollar appreciation. Consequently, the ringgit experienced depreciation against the U.S. — and Singapore dollar — throughout the year due to widening yield differentials.

It’s important to note that rate hikes in Malaysia have been relatively slower compared to other major currencies. BNM has made it clear that its mandate is to tackle inflation rather than focus on strengthening the ringgit. Consequently, it is unlikely that BNM will embark on an aggressive rate hiking path akin to that of the U.S. This approach is aimed at easing pressure on Malaysian citizens, as well as reducing the risk of defaults for businesses and homeowners.

2. Economic fundamentals

Throughout its history, Singapore has consistently demonstrated a robust and stable economy, characterized by remarkable GDP growth, low inflation, prudent monetary policies, and an inviting investment climate.

In contrast, Malaysia has faced challenges arising from its heavy reliance on price control mechanisms and subsidies. According to Dr. Apurva Sanghi, the World Bank’s lead economist for macroeconomics, trade, and investment, Malaysia stands out with one of the highest numbers of price-controlled items in the region. Notably, over half of the surveyed firms affected by these controls reported a 25% reduction in their production due to their inability to generate profits. These factors pose a threat to the efficiency and competitiveness of Malaysia’s economy, ultimately impacting the value of the ringgit.

The implementation of price controls restricts producers’ capacity to generate substantial profits, while subsidies fail to encourage the production of goods and services that align with consumer demand. Consequently, Malaysia has struggled to diversify its domestic production, leading to an increased reliance on imports in crucial product categories. This trend not only weakens the overall economy but also undermines the value of the ringgit, presenting further challenges to Malaysia’s economic stability.

3. Trade imbalances and productivity

Trade imbalances and productivity are crucial factors that can significantly influence currency exchange rates. Singapore has effectively diversified its economy, positioning itself as a global hub for finance, trade, and technology. Its impressive level of productivity has attracted foreign investments and fostered a robust export sector. In contrast, Malaysia, despite its prominence in manufacturing and natural resources, faces challenges associated with trade imbalances and a heavy reliance on low-value exports. The decline in commodity prices, such as palm oil and crude oil, has further impacted the sentiment surrounding the ringgit.

The economic recovery of China holds particular significance for the value of the ringgit, considering China’s position as Malaysia’s largest trading partner. The depreciation of the Chinese yuan, coupled with subdued optimism regarding China’s reopening, has exerted a noticeable influence. The decline in exports to China stands as a major contributing factor to Malaysia’s 1.8% contraction in exports during the first quarter of 2023.

Given Malaysia’s substantial trade exposure to China, the value of its currency is heavily dependent on China’s economic recovery. Consequently, developments in China’s economy and its currency can significantly impact the performance of the Malaysian ringgit.

4. Investor confidence and stability

Singapore has been fortunate to possess political stability, transparent governance, an efficient legal framework, and investor-friendly policies, all of which have created an attractive environment for businesses and investors. This stability fosters confidence in the Singapore dollar and leads to increased demand, resulting in currency appreciation.

Malaysia, despite maintaining relative political stability, has faced challenges related to governance concerns,corruption allegations, and policy uncertainties. These factors can erode investor confidence in the ringgit. Recent global uncertainties, such as the U.S. debt ceiling issue, the Russia-Ukraine conflict, and inflationary pressures, have further prompted some investors to seek refuge in safe-haven currencies like the Singapore dollar. Supporting this trend, a recent report by credit rating agency Fitch highlights that Singapore holds a AAA rating, while Malaysia is rated BBB+.

While a weaker Malaysian ringgit may bring some benefits to Singaporean shoppers enjoying cheaper trips to Johor, it is essential to consider the broader implications for both countries.

As Malaysia works through with the continuous depreciation of the ringgit, global investors remain careful to understand the impact of unfavourable foreign exchange rate movements. This can significantly affect returns. For instance, even if a stock yields a 10% return, if the currency depreciates by 10% against the investor’s local currency, the actual returns will amount to zero.

5. Malaysia needs to dismantle some existing policies

This is a political problem. Affirmative action is an added cost to enterprises and the economy. Policy changes in this respect need careful crafting. In addition, bureaucracy and red-tape have to be dismantled for the investment environment to blossom. Subsidies could be dismantled but the repercussions are immense on inflation. Targeted subsidies are difficult to implement. One way is to have higher windfall tax and widen the base to fund subsidies.

6. Illicit fund flows

Malaysia lost between USD22.9b and USD33.7b in illicit capital outflows from 2006 and 2015 (Focus Malaysia, 14 May 2022). More current figures are not available. But some Government agency or a special Task Force need to investigate the Pandora papers, Panama Papers and Paradise Papers that list Malaysian leaders and their family members on illicit capital outflows.

In the immediate is for BNM to work to stabilise the ringgit. In the longer term, Malaysia needs an overhaul of its current environment and processes for FDIs and DDIs to flourish.

Reference:

4 reasons why the Singapore dollar continues to strengthen against the Malaysian ringgit, Choon Leo Wang, The FifthPerson, 

What Went Wrong at Thames Water?

Britain’s biggest water supplier said it needed to raise more cash from investors. Thames Water provides drinking water and waste water services to 15 million customers in London and the southeast of England. The utility has around £14 billion ($17.5 billion) of debt on its balance sheet. Thames Water received £500 million ($635 million) from shareholders in March, but said it would need more. Investors have now (July 2023) agreed to invest £750m (USD$960) into the troubled company.

The company said it was keeping the water industry regulator Ofwat “fully informed” of its progress and added that it had a “strong liquidity position,” including £4.4 billion ($5.6 billion) of cash. Ofwat said it was in “ongoing discussions” with Thames Water “on the need for a robust and credible plan to turn the business around.”

Source: https://en.wikipedia.org

While the consortium that has owned Thames since 2017 has yet to take a dividend out of it, its predecessor –Macquarie – has been widely criticised for its stewardship of the water company between 2006 and 2017. It has faced accusations of “asset stripping” and “ripping off the taxpayer” by not paying corporation tax. It is estimated that Macquarie left Thames with an extra £2.2bn in loans and £2.7bn was taken out in dividends, while the water company’s debts rose sharply from £3.4bn to £10.8bn under its ownership.

Macquarie was then allowed by regulators to wade back into the English water industry in 2021, with the acquisition of struggling Southern Water.

One possibility would be to place the company into a special administration regime that effectively takes the firm into temporary public ownership. 

Thames Water says about 24% of the water it supplies to customers is lost through leakage.

The company’s single biggest shareholder is the Ontario Municipal Employees Retirement System, which holds a stake of around 32%. The Universities Superannuation Scheme, a pension fund for the academic staff of UK universities, owns nearly 20%.

Other large investors include the Chinese and Abu Dhabi sovereign wealth funds, as well as British Columbia Investment Management Corporation, which invests on behalf of public sector workers.

UK water companies have racked up debt of more than £60 billion ($76 billion) since being privatized three decades ago, according to Ofwat. The sector is now under pressure as interest rates rise and more income from customer bills is diverted toward servicing debt.

Water companies are also being investigated by the UK Environment Agency over the high levels of untreated sewage discharged into waterways. Last summer, several UK beaches were closed because of sewage spills, and Thames Water, along with other water companies, has been fined for failing to make enough progress in tackling the issue. In its latest annual report, Thames Water reported nearly 8,000 sewage spills for the nine months to September 2022.

A 2020 report by the Public Services International Research Unit at the University of Greenwich in London found that 40% of the rise in English water bills since 1991, had been due to higher interest payments and increased dividends to shareholders.

Investments into UK water infrastructure required between 2025 and 2050 mean water bills will likely need to rise further.

So, has privatisation failed? No, it is the controls on dividends and borrowing that should have been in place in the first place. Ofwat as a regulator could have done more!

References:

The company supplying water to millions of Londoners is in deep trouble, Hanna Ziady, CNN, 28 June 2023

What went wrong at Thames Water and what could a bailout look like? Alex Lawson, Anna Isaac and Sandra Laville, The Guardian, 28 June 2023-07-06

Is Our Foreign Direct Investment on the Rise?

 Net foreign direct investment (FDI) inflows into Malaysia rose to RM74.6bil in 2022 as compared to RM50.4bil in 2021. The Statistics Department noted that as at the end of 2022, the country’s total FDI position was RM879.1bil, up from RM782bil in 2021. Meanwhile, the country’s direct investment abroad (DIA) for 2022 amounted to RM58.6bil as compared to RM19.4bil in 2021.

The Statistics Department said Malaysia’s FDIs and DIAs were encouraging and reflected the favourable economic situation in the country that attracted foreign companies to continue their investments and local companies to expand and diversify their business activities abroad.

By sector, Malaysia’s manufacturing sector contributed to the largest FDI inflows, expanding RM17.1bil for a net inflow of RM49.5bil for last year. It was followed by services and then the mining sector.

The Americas surpassed Asia as the top region for source of FDIs into Malaysia last year with net inflows of RM42.6bil. This was mainly from the United States which accounted for RM37.8bil of investments.

Asia region has been the predominant source for FDI position in total with a value of RM449bil followed by Europe at RM224.5bil and the Americas at RM187.3bil as at the end of 2022.

The country’s total DIA position stood at RM607.5bil as at end-2022, compared to RM546.5bil a year before. The services sector remained the primary sector for DIA. The sector contributed 72.2% of the total investment, especially in financial activities. The mining and quarrying and manufacturing sectors contributed 12.5% and 10.2% of the DIAs respectively.

On average, the return on investment for FDI companies in 2022 decreased to 12 sen from 13 sen in 2021 for every RM1 of investment. Conversely, Malaysian companies received eight sen for every RM1 of investment made abroad.

The services sector attained the highest income from FDI, while the manufacturing sector secured the highest income from DIA.

Malaysia jumped from 32nd to 27th in the 2023 IMD World Competitive Ranking (WCR), reflecting investor confidence and reaffirming the country’s commitment to current economic policies and strategic direction as the preferred destination for investment and trade.

This is positive news outcome but the “hot” money in the capital markets does not reflect the confidence of our longer-term investors. We are second to Singapore in net FDIs for the ASEAN region. To keep pace, we need to re-examine incentives and investment packages for those investing in Malaysia.

References:

Foreign direct investment on the rise, The Star, 17 June 2023

Economists: Improvement in IMD World Competitiveness Ranking reflects investors’ confidence in Malaysia, Malay Mail, 22 June 2023

Singapore Has Crime Wave

Singapore is famous for its low crime rates. The reality, however, is that the country is now at the centre of a relentless crime wave. Online fraud has reached epidemic proportions. Almost every Singaporean has been targeted by online or SMS fraud at some point. In 2022, scams cost Singaporeans almost $S700 million (RM2.4 billion). These are not victimless or paper crimes. People lose their savings, their retirement funds. Lives are compromised and the level of trust and security in society is lowered. One must be cautious with every phone call, SMS and email. Be on constant alert.

Even in Malaysia, I get calls almost daily from an unknown number pretending to be my bank, the Inland Revenue, the Judiciary, customer service from Amazon or some such organisation.

Source: https://upload.wikimedia.org

Add to that the phishing emails, links and SMSs which also try to trick you into giving up your bank account details. You literally must be on guard all the time. One wrong click and you can end up with a drained bank account.

The problem is that the attacks are increasing in sophistication all the time. Now there are SMS diversion scams/hacks. This means scammers can compromise phone networks and access your OTPs. There is not much you can do to defend yourself from such complex and technical schemes.

Another method is number generation. Scammers use algorithms to generate random combinations of numbers. By generating millions of combinations, they eventually generate working card numbers and CVC combinations that allow them to make transactions.

Typically, they start with micro transactions on known websites like Amazon or Apple, but once they know they have access to a working card, they quickly escalate the scale of their thefts.

Number generation is virtually invisible — you have no idea someone has generated a copy of your credit card numbers. And they may generate numbers that allow them to access cards that you never use and never give much thought to.

Again, there is virtually no defence.

The problem is no longer trivial. The Singapore government has been active in setting up awareness campaigns, special police units, and creating websites that list and track scams. But these initiatives have still proved to be insufficient as scammers strike on a daily basis. To some extent the modern digital world and prevalence of digital payments makes the profusion of scams and crimes inevitable.

Singapore is famous for its zero tolerance of drugs. Maybe it is time for zero tolerance on scams and hacks. The same should apply for Malaysia. It is not just the police but active engagement by banks, telcos and others will help.

The UK seems poised to pass laws compelling banks to refund victims of credit card and account scams within five days. Rules like this must be implemented. And beyond that it is to “shame” those scammers who could be based in a safe haven. Cybercrime is big business. And we need full-time cyber-warriors to stop this menace.

Reference:

Singapore reels from a crime wave, Surekha A. Yadav, Malay Mail, 18 June 2023

EPF’s Budget Guide for Singles

The minimum monthly expenditure to lead a meaningful and sustainable life for a single person without a car in the Klang Valley is RM1,930, according to EPF’s Belanjawanku 2022/2023 guide released on 13 June 2023. And this includes a monthly saving of RM250 besides expenditure for rental, medical needs, transportation, utilities, personal care, social participation, and discretionary expenses. For those who own a car, the estimated expenditure is RM2,600.

The guide includes minimum living costs for various sizes of households in the capital cities. The highest minimum is in the Klang Valley while the lowest is Alor Setar in all the categories which are differentiated by those with cars or using public transport.

EPF said Belanjawanku is an expenditure guide providing estimated minimum monthly expenses on different types of goods and services for various households to help them plan their personal and family budgeting to achieve a reasonable standard of living.

The guide was carried out in collaboration with the Social Wellbeing Research Centre of Universiti Malaya (SWRC) to provide estimations of minimum monthly expenditures on various types of goods and services for different households.

For a married couple with no children, the minimum requirement for a decent life in the Klang Valley is RM4,630 and it goes up to RM5,980 if the couple has a child. It said a senior couple could do with RM3,210 a month while a single senior citizen only needs RM2,520.

The data also shows that 47% find it difficult to set aside RM1,000 for emergency use. The data suggests the need for Malaysians to improve financial literacy to strengthen their financial and future retirement well-being.

The guide has been adopted by EPF’s retirement advisory service officers in providing members financial guidance and advice, forming the bedrock of strong financial well-being and better quality of life in the long term.

Reference:

EPF’s budget guide says RM1,930 enough for singles to live in Klang Valley, K Parkaran, FMT, 14 June 2023

Isn’t It Time to Address High Non-Revenue Water (NRW) Instead of Tariffs?

Every state has its own tariff rates and domestic consumers are charged depending on the amount of water that is consumed. In addition, the corresponding tariffs that are imposed are at different consumption levels.

Based on three different buckets of consumption of 20 cubic meters (cu m), 50 cu m, and 100 cu m, water bills for domestic users ranged between RM4.40 and RM16, RM25.65 and RM91.00, and RM79.40 and RM241 for states in Peninsular Malaysia respectively.

Table 1 Monthly Water Bills

(based on different levels of domestic consumption.)

Based on the domestic consumption, Penang is the cheapest for water consumption of less than 50 cu m per month while the highest is in Johor. (Is it because it is privatised?) For consumption of 20 cu m or less, Penang only charges 22 sen per cu m but in Johor, the rate is at 80 sen per cu m.

Penang charges 46 sen per cu m for consumption of more than 20 to 40 cu m while Johor’s rate is at RM2 per cu m for consumption of more than 20-35 cu m. The rate escalates to RM3 per cu m for consumption of more than 35 cu m in Johor, while in Penang, the rate is 68 sen per cu m for consumption of more than 40 to 60 cu m. The rates in Penang are further broken down for the consumption of more than 60 to 200 cu m and more than 200 cu m at RM1.17 per cu m and RM1.30 per cu m, respectively. In addition, Penang also imposes a 48 sen per cu m water conservation surcharge for consumption in excess of 35 cu m per month.

For consumption of 100 cu m per month, Terengganu has the cheapest total bill of RM79.40 while in Johor, the rate is almost three times more.

Similar to domestic consumption rates, the commercial rates too have a diverse range between states. Johor imposes the highest rate of RM3.10 per cu m for consumption of up to 35 cu m per month and this escalates to RM3.50 per cu m for consumption in excess of 35 cu m per month.

In comparison, Terengganu is the cheapest with a rate of RM1 per cu m and RM1.40 per cu m for the same tariff buckets.

Table 2 Peninsular Malaysia:

Commercial Water Tariff Rates.

PBA Holdings and Ranhill Utilities are listed entities and investors have direct access to the performance of the two water companies. In 2022, PBA recorded revenue of RM348mil, up 1.7% year-on-year (y-o-y) but pre-tax profit fell by 6.8% y-o-y to RM35.4mil. For Ranhill SAJ, which is the operating unit of the Johor water works, the company reported a revenue of RM1,154.9mil last year, up 1.2% y-o-y, while pre-tax profit improved by almost 90% to RM244.5mil, boosted by the recognition of non-revenue water (NRW) reduction incentives to be received by Ranhill SAJ amounting to RM142.3mil. In essence and excluding the one-off gain, PBA and Ranhill SAJ had a pre-tax profit margin of approximately 9.5% and 8.8%, respectively, in 2022.

It is generally understood that most other state-owned water concession companies are loss-making including Air Selangor, Malaysia’s largest water concessionaire.

Based on the information provided on its website, Air Selangor generated revenue of RM2.18bil in 2021 but operating expenditure for the year totalled some RM2.43bil, giving it a deficit of RM250mil in that year.

NRW has room for improvement. Both Penang and Johor have NRW at 26.3% at the end of 2022 against the national average (excluding Sabah and Sarawak) of 34.4% and the lowest among all.

According to the 2022 Water and Sewerage Handbook 2022, states with poor NRW levels are Perlis with an NRW of 61.5%, followed by Kelantan at 53.7%, and Kedah at 51.5%. More work needs to be done to reduce NRW, as the high NRW cost some RM2bil in losses to the states.

Penang has one of the lowest tariff rates, despite the conservation charge, is a testament that good water management is more than just raising tariff rates. That same mindset should apply to energy and other sectors that are monopolised by GLCs. And raising tariff rates is the easiest. We are such a compliant lot who hardly make any objections to raising tariffs. 

Reference:

Time to address NRW, Pankaj C. Kumar, The Star, 17 June 2023

WTE Plants the Solution for Waste?

Garbage trucks in Malaysia dump some 38,000 metric tonnes of municipal solid waste (MSW) at dumpsites around the country. Food waste is the biggest component, followed by plastic, paper, mixed organics, wood and others. There are 165 landfills, eight sanitary landfills and three inert landfills for materials such as sand and concrete – and all are running out of space.

Several agencies and environmental activists, including Alam Flora and Malaysian Green Technology and Climate Change Corporation, are warning that no space will be available for landfills by 2050 if nothing is done to reduce waste.

Source: https://en.wikipedia.org

The answer may be in waste to energy (WTE) plants. Experts see the potential to include WTE as part of the renewable energy (RE) generation.

WTE plants would complement fossil fuel power generation plants. Among the advantages of WTE is that its footprint is small compared to solar energy.

It’s also safe and reliable and can operate in any weather conditions, reduce waste volume by more than 90%, reduce the load on landfill and produce stable and odour-free residue.

According to the Malaysian Investment Development Authority, WTE facilities can substantially contribute toward Malaysia becoming a zero-waste nation. The Local Government Development Ministry plans to build six WTE plants across the nation by 2025. At present, a plant in Port Dickson, Negri Sembilan, started operations in June 2019.

Others in the pipeline are in Sungai Udang, Melaka; Bukit Payung, Terengganu; Seelong, Johor; Samling, Selangor; and Jabor, Pahang. These are part of the country’s commitment to achieve net-zero carbon emissions by 2050. Malaysia’s current RE capacity level is at 25% and it targets to hit 40% by 2035. 

Although WTE plants are a great idea, it needs improvement on the front-end to final processing. There are also issues on collection and tariffs; water separation; separation of plastics, iron and others; drying process and final pellets for driving a small power plant. Stability of the “raw” materials, machinery and process flow are all areas for practitioners and universities to assist the industry. If we have a “workable” plant for our climate then we don’t need landfills or incinerators.

Singapore has been through this and focuses on incinerators with balance in waste “dumped” as compacted particles into the sea for their new land “acquisitions”. We need to work with those who have journeyed before us including the Scandinavian countries. When we do that, we may have a better solution for our waste. Further, we need to learn from Japan how they teach the young to handle waste.

Reference:

Reducing the landfills with WTE plants, The Star, 21 June 2023