Could Malaysia Bring Back Tourists?

 The tourism industry plays a major role in the economy. It employs nearly a quarter of the country’s workforce and historically has contributed about 15% to the national gross domestic product (GDP).

But for an industry that has such great significance, it seems that the local tourism scene is not living up to its full potential. From the Kuala Lumpur International Airport’s aerotrain fiasco to the lack of coordinated efforts among tourism-related entities, there are several unaddressed issues that make Malaysian tourism less attractive. The claim by the Tourism, Arts and Culture Minister that tourists are prohibited from buying alcohol or wearing shorts in Langkawi only adds to the list of problems.

Without a comprehensive rebranding, traditional tourist hotspots in Malaysia are finding it harder to attract not just foreign tourists but also the locals. The increasingly popular tourist locations in South-East Asia such as Phuket, Krabi, Pattaya, Bali and Boracay are slowly taking away the limelight from Malaysian destinations.

Since 2012, the number of foreign tourists into Malaysia has stagnated between 25 million and below 27 million annually, except in 2014 when the number reached 27.4 million arrivals perhaps due to the Visit Malaysia campaign.

For comparison, Singapore reported 19.1 million foreign visitors in 2019.

Post-pandemic recovery in foreign tourist arrivals into Malaysia is noticeably slow. To put it into perspective, in the first half of 2023 (1H23), foreign tourist arrivals into Malaysia were 31.4% lower than the same period in 2019. This is despite Malaysia fully reopening its borders to international travellers from April 1, 2022. It seems that the weak ringgit has not been a successful pull-factor in increasing tourist arrivals.

Bank Negara has noted that tourist arrivals in Malaysia has reached about 70% of the pre-pandemic level. The great fall in the number of Chinese tourists amid the country’s economic slowdown has impacted Malaysia as well as the larger South-East Asia. For example, the number of tourists from Singapore in 1H23 was 28% lower than the same period in 2019, while the arrivals were 22% lower from Indonesia.

A key structural issue with Malaysian tourism is its extremely high reliance on Asean tourists. In pre-pandemic 2019, two-thirds of foreign tourists to Malaysia came from Asean countries. In 2022, this increased to at least 80%, according to Tourism Malaysia. Diversifying Malaysia’s tourist base should be one of the main concerns for the Minister of Tourism, Arts and Culture. 

There remain many under-tapped markets, especially in the Western world, where Malaysia’s tourism uniqueness can be promoted further. Malaysia should consider providing visa-on-arrival for all countries to remain competitive in the global tourism industry. This is now on for those coming from India or China. 

Perhaps the stagnation in tourist arrivals is partly due to the fact that Malaysia’s cultural environment is not as “liberal” as its regional competitors. The situation in Langkawi is not as dire as reported recently.

The island has experienced an occupancy rate ranging between 60% to 70% due to a festival weekend. The months of August, September and October are always considered low season periods. Occupancy is likely to pick up as the year progresses towards its end.

Across the nation, the lower foreign tourist arrivals have been greatly felt by the hotel industry. While domestic tourism is increasing, it is not big enough to compensate the absence of international tourists.

Popular destinations such as Penang have experienced a rapid return of tourists. However, other less well-known destinations continue to suffer from relatively low occupancy levels. A major challenge impacting Malaysia’s appeal as a tourist destination is the limited availability of direct flights.

The government has planned 2026 for the Visit Malaysia campaign, with a target arrival of 26.1 million foreign tourists. The country has two more years to fully prepare for a successful Visit Malaysia campaign to promote Malaysia as a tourist destination for a larger international market. Connectivity, ease of visa issuance and cordial front-line immigration staff are essential ingredients for tourist arrivals. Just look at Singapore or Thailand if you need a case study!

Reference:

Bringing back the tourist, Ganeshwaran Kana, The Star, 18 November 2023

This is the last article for the year!

We will resume on Monday, 8 January 2024!

Greetings on a Cake – Much Ado About Nothing?

Christmas is around the corner. But many Malaysians refer it to as a ‘silly season’ where frivolous, outlandish, illogical activity or behaviour makes the headlines?

It started more than 10 years ago with air wells in a newly completed housing scheme in Kedah resembled a cross as some claimed. As if it was planned to infuriate certain sections of the community, the furore continued for a few weeks until the developer painted it a different colour.

Then, we had the annual Oktoberfest which was seen as a “pesta maksiat” (vice party) without understanding its origins. This is a German cultural festival and not a security threat.

Source: https://en.wikipedia.org

 In January 2022, a video of Permatang Pauh MP holding discussions with a Penang mall’s management on beer promotion for Chinese New Year emerged. What is wrong if one was licensed to sell beer and wants to promote sales of their products? But many don’t see it that way. Because their religion forbids alcohol, it appears that they do not want others imbibing and enjoying themselves.

In 2016, food outlets selling hot dogs in Malaysia were asked to rename their products or risk being refused halal certification. The Islamic Development Department (Jakim) said it adopted the ruling after complaints from Muslim tourists.

In 2022, PAS called on Muslims to stay away from the Bon Odori Festival due to concerns of “religious elements” at the Japanese cultural event despite the Selangor Sultan ordering the Selangor Islamic Religious Department (Jais) not to forbid Muslims from attending the festival.

Then came the security guards who decided to play the role of guardians of faith by refusing people who wore shorts from entering government offices or establishments. What empowered them to do so and under which law they sought to enforce dress standards remains a mystery. The Kuala Selangor District Council was really kind. It provided sarongs to those who were “inappropriately” dressed.

The latest is about a cake shop ordering its staff not to write “Merry Christmas” on cakes it sold to customers. Why? Because it feared losing its halal certification. Jakim clarified that all halal certificate holders face no such restrictions, including any celebratory greetings on cakes or similar items.

How do you put an end to all this? Two words stand out– “sensitive” and “confused”. They are interchangeable and most times misused. When Arab nations are being more tolerant including Saudi Arabia, we are moving in the opposite direction. There is nothing wrong if a non-Muslim has alcohol, attends Beerfest, buys a cake with a greeting or wears shorts. He or she is not breaking any “sensitive” laws – unless you are proposing that we have a “moral” police force like in Iran! Shouldn’t we then do a “lawatan sambil belajar” to Tehran?

Merry Christmas!

Reference:

Comment: Words of a cake – much ado about nothing, R Nadeswaran, Malaysiakini, 19 December 2023

Progressive Wage White Paper Released!

The government released its Progressive Wage White Paper recently. It proposes to implement a pilot project between June and September in 2024. This involves a selected number of companies that register to participate voluntarily, with full implementation to be determined later.

The White Paper proposed that in the first year of implementation, a progressive wage system to involve those earning a monthly salary of between RM1,500 and RM4,999, covering some four million workers in formal sectors, will be limited only to Malaysian citizens. 

Businesses, especially small and medium enterprises, are encouraged to participate, but multinational and government-linked companies (MNCs and GLCs) are exempted from the project, as they are deemed paying competitive wages already.

The White Paper also proposed that the government make an annual allocation for cash incentives to encourage higher reception from the business sector to participate in progressive wages voluntarily.

Employees covered under the system will be categorised in two groups, namely entry levels and non-entry levels, and a Progressive Wage Policy Implementation Executive Committee will be established and provide guidelines for annual salary increment.

For entry-level posts, participating companies will be eligible to receive cash incentives of up to RM200 monthly for 12 months, while for non-entry level posts, the incentive rate is proposed to be up to RM300 monthly for 12 months. These cash incentives are proposed to be channelled to participating employers on a quarterly basis, within six months upon claim submissions.

The White Paper laid out three possible scenarios upon implementation of the progressive wage system, involving an annual Government allocation of RM2 billion, RM3.8 billion or RM5 billion.

Under these scenarios, the number of wage earners to be benefitted is expected to come in at 1.5 million to 2.62 million, adding 0.22 percentage point (ppt) to 0.56 ppt to real gross domestic product growth, followed by additional contributions of RM790 million to RM1.98 billion to the Employees Provident Fund (EPF), and an increase in income tax revenue by RM1.8 billion to RM4.4 billion.

However, inflation is expected to increase between 0.24 ppt and 0.61 ppt under these scenarios, as consumption and purchasing power rise, but the White Paper noted that the positive impact of progressive wages will help balance higher prices over the longer-term period.

It is expected that the number of taxpayers will increase by between 37,529 and 84,719 people, while the unemployment rate will be reduced by between 0.14 ppt and 0.35 ppt, depending on how much the government can spare to incentivise adoption of progressive wages.

Malaysia's wage landscape, influenced by factors like recent currency devaluation, escalating youth unemployment, and heavy reliance on foreign labour, primarily relies on the Minimum Wage Model.

Despite the recent increase to RM1,500 per month with annual rises of 5.24 percent for Peninsular Malaysia and 6.49 percent for Sabah and Sarawak since 2013 recorded, overall labour productivity only managed a 2.3 percent annual increase from 2013 to 2022.

This disparity between consistent minimum wage growth and slower productivity escalation poses indirect risks of potential job losses or underemployment in the long run.

Furthermore, what about part-time workers, those in the informal sector, foreign labour, undocumented workers and worker mobility? These are issues to be addressed. The Progressive Wage Model is a good start but it should remain a framework and not a rigid model. Otherwise, we may dis-incentivise hiring workers because of bottom-line considerations.

References:

Progressive wage to cover those with RM1,500-RM4,999 monthly salary, MNCs, GLCs exempted, White Paper proposes, Choy Nyen Yiau & Chester Tay, theedgemalaysia.com 

1 December 2023

Comment: Will progressive wage model to boost pay, productivity work? Edwin Oh Chun Kit, Malaysiakini, 29 November 2023

Malaysia: Benchmarking Income and Productivity (Part 2)

This is an extract of a BNM article on “Are Malaysian workers paid fairly?” In Part 2, we take a look at Benchmarking Incomes against Equity: Workers vs Capital Owners.

In the production process, labour is only one of the factor inputs, in addition to factor inputs provided by the employer (i.e. capital, land) in producing goods and services. From this perspective, one way of measuring equity is to analyse the labour share of income as it represents the share of national income accrued to labour rather than capital owners (i.e. 

firms). The labour share of income has been on the rise in Malaysia, from 31.7% in 2010 to 35.2% of GDP in 2017 (Chart 1). This bucks the global trend where the labour income share has trended lower in recent years. However, Malaysia’s labour share of income still lags behind most advanced economies (Chart 2). This implies that a larger fraction of national income in Malaysia goes to capital owners rather than workers, that is capital owners benefit more than workers in Malaysia.

Intuitively, the lower share of income accrued to labour may suggest that capital is playing a bigger role in the production process. Accordingly, a lower share of labour income should be associated with a relatively higher level of capital intensity. For example, in a highly capital-intensive industry, capital inputs such as machinery and equipment play a bigger role in the production process and capital owners (rather than workers) should receive a larger share of income generated. However, this relationship does not hold true for Malaysia. Malaysia’s capital intensity is significantly lower than the benchmark economies (Chart 3) signalling that workers play a relatively larger role in the production process in the Malaysian economy compared to benchmark economies. Yet, the labour income share in Malaysia is relatively lower.

A similar trend is observed at the industry level (Chart 4). Most Malaysian industries fall in the bottom-left quadrant characterised by lower capital intensity and lower labour share of income relative to benchmark economies. Notably, labour income shares in the wholesale and retail trade, food and beverage as well as accommodation industries were only about half of benchmark economies despite capital intensity being far lower at only about 40%. Only two industries fall outside this quadrant. First, the mining sector has a relatively higher capital-intensity. Hence, the lower labour share of income of 7% is to be expected. In contrast, the construction sector is characterised by higher labour-intensity, and thus correspondingly exhibits a higher labour share of income (73%).

The disquieting trends observed by the researchers were:

(i) though labour’s share of income increased, it was not due to higher wages but due to creation of more labour-intensive jobs

(ii) supply of graduates (diploma and degree holders) was nearly twice that of available vacant spots. This resulted in depressed starting salaries and/or mismatch of skill sets and job requirements.

This is disturbing for Malaysian parents and students who work towards a degree or diploma. We don’t have sufficient jobs for them. That’s not the case with those with SPM!

Reference:

Are Malaysian Workers Paid Fairly? An Assessment of Productivity and Equity

By Athreya Murugasu, Mohamad Ishaq Hakim and Yeam Shin Yau

Is Urban Poverty in Malaysia Rising?

Poverty strikes in many forms, but struggling to make ends meet in the city can be a cruel and relentless battle. Urban poverty rate is higher than rural poverty by 45%.

In Malaysia, any B40 individual living within a city’s limits is classified as poor. This category is split even further into poor (monthly household (HH) income below RM2,208) and hardcore poor (monthly HH income below RM1,169). The urban and rural poor each face different sets of challenges, with some overlap.

Urban poor families often face a lack of community support, inadequate housing, poor access to education and higher costs of living. Many are also low-skilled without formal training, making it difficult to find stable employment. Furthermore, urban poor job-seekers often have to compete with migrant labour. 

Source: https://www.wikiimpact.com

Social exclusion and stigmas associating these communities with crime and delinquent behaviour do not help. And the urban poor stay largely silent.

As urbanisation increases around the world, Malaysia has also seen a rise in rural-urban migration. However, they are not always adequately skilled or equipped to compete with city dwellers. The lack of education and skills also makes the urban poor vulnerable to exploitation. Many do not know their rights where to go if they need help and fall prey to greedy or abusive employers.

With the population rise in urban areas, infrastructure and environmental issues come to the fore. For instance, in Desa Mentari, a low-cost housing area, there are around 35,000 people living in a total of 6,290 units (13 blocks, 18 floors each). Families share rooms, and some also sub-let rooms out for additional income. In cramped quarters and with little space to breathe, health risks and crime become social issues.

The urban poor is also vulnerable to risk and the impact of crises and disasters. A clear example is the COVID-19 pandemic, where poverty rates increased nationwide. In Kuala Lumpur, hardcore poverty spiked by 270% in a mere two years, from 1,048 families in 2019 to 3,865 families in 2021.

In a study of low-income urban poor families, UNICEF-UNFPA found that this group reported the greatest negative impact resulting from the pandemic. Poverty often increases vulnerability to shocks. The lack of income due to unstable employment meant food insecurity, lack of access to education or healthcare, and declining mental health.

The multidimensional issue of urban poverty requires players from every area of society to come together with a common goal. That includes all of us. Although we may not be policymakers, corporate leaders or influencers, there are small but impactful actions we can take to assist the fight against urban poverty.

(i) Give generously to the poor

‘Whoever is kind to the poor lends to the Lord, and He will reward them for what they have done.’ – Proverbs 19:17. If we have the means, let’s give wisely and generously to help the poor.

(ii) Treat those in the service sector with dignity

Whether it’s your grass-cutter, domestic helper or the cleaner at the mall, love them as God does. That means not squeezing them for the lowest hourly wage you can get, or expecting them to work on their days off. If we help them understand their rights and treat them well, we will benefit from better service.

(iii) Pray for the urban poor

Prayer changes things. ‘The earnest prayer of a righteous person has great power and produces wonderful results.’ – James 5:16b. Let’s remember the urban poor among us in our prayers, that they will find stable employment to break the cycle of poverty and be kept safe from exploitation, abuse and greed.

Also, the way out for many is thorough the 5Es:

• Education

• Employment

• Entrepreneurship

• Endowment

• Empowerment

This requires Government-private sector partnership to implement. Can we do that in 2024?

Reference:

Urban poverty in Malaysia is rising. To address it, we need a mindset shift, Faithour, 

21 April 2022

Labuan IBFC in Comparison to Singapore and Hong Kong!

The Labuan International Business and Financial Centre (Labuan IBFC) has contributed more than RM1 billion to the country’s fiscal revenue in 2022, said the Former Deputy Finance Minister Steven Sim. This gentleman is someone I used to admire for his work with constituents. But his answers were bizarre as you may note below:

 “Labuan IBFC is one of the three major international financial centres in Asia-Pacific focused on external banking, reinsurance and captive insurance companies (apart from Singapore and Hong Kong).

“Labuan has 70 banks that conduct external banking, Singapore has 99 and Hong Kong has 61,” he said during a question-and-answer session in the Dewan Rakyat.

On insurance and insurance-related companies, Sim said Labuan has 237 companies, Singapore has 180 companies and Hong Kong has 163 companies. In detail, there are 71 captive insurance companies in Labuan while Singapore has 83 and Hong Kong has only four. Overall, there are over 940 licensed institutions approved and regulated by the Labuan Financial Services Authority (FSA) which shows a tenfold increase in the number of licensees since 1996. “Labuan banks own almost US$50 billion (RM233.9 billion) in assets and insurance companies in Labuan have insurance premiums of up to US$1.7 billion (RM7.95 billion),” said the Former Deputy Minister.

Does he not know how one measures financial centres by size of their assets, transactions volume, or profits? Labuan IBFC is really a midget or pygmy compared to Singapore or Hong Kong.

In terms of ranking of financial centres by Global Financial Centres Index 34, Singapore and Hong Kong were ranked at no. 3 and 4 respectively while Kuala Lumpur was at no. 80. 

Labuan has yet to achieve the assessment required to be listed in the main GFCI index. Instead, Labuan is listed at no. 4 in the GFCI Associated Centres index.

Meanwhile, Sim said Labuan IBFC contributed more than 50% of Labuan’s gross domestic product (GDP). This reached almost RM5 billion (2019-2020), thus making it the largest contributor to Labuan’s GDP. Malaysia’s GDP in 2023 is expected to be RM 1.6 trillion.

“From this contribution, approximately 12% or RM600 million is the expenses of the Labuan IBFC entity that needs to be spent in Labuan,” he said.

In addition, Sim said Labuan IBFC is the largest white-collar employer in Labuan with a total of 9,198 employees. Does he not know that Singapore employs over 200,000 in its financial centre while Hong Kong has over 277,000 employees in its financial services?

Labuan’s roadmap has to be defined. Is it status quo? Twin with TRX or the planned Johor financial centre? Or, merge with KL? That is the real question not some spurious statistics that justifies its existence.

References:

Labuan IBFC contributes over RM1 bil to fiscal revenue, FMT/Bernama, 23 November 2023

The Global Financial Centres Index 34, September 2023

https://www.hkma.gov.hk

https://business.smu.edu.sg

Is Ringgit’s Misfortunes Driven by Investment Flows Only?

 The ringgit continues to head south, vis-a-vis the mighty US dollar in recent months.

The differential in the US interest rate and Malaysia’s is also well documented. The real interest differential could be neutralised with OPR moving upward by 0.25%. China’s loose monetary policy has had a damaging impact on the Malaysian currency. The Chinese yuan, as recent as two months ago, was flirting at near 16-year lows.

Malaysia continues to show positive current account and overall balances, the breakdown of our balance of payment account shows a different picture. Based on data provided by Bank Negara, Malaysia recorded a net outflow of RM254.6bil in its financial account between 2010 and September this year as can be seen in Chart 1, with the biggest outflow seen in 2014 where some RM80bil left Malaysian shore and in 2020, when some RM77.4bil left the country.

Malaysians investing overseas is not new. Statistics for the third quarter of 2023 (3Q23) showed that domestic investment abroad (DIA) totalled some RM13.4bil, bringing the year-to-date total to RM22.5bil. Compared to a year ago, when DIA stood at RM30.1bil, the amount for the first nine months was lower by RM7.6bil or 25.2%.

With net foreign direct investment (FDI), which totalled RM7.2bil in 3Q23 and RM22.3bil in the first nine months of 2023, direct investment registered a net outflow of RM6.1bil and just RM0.1bil in 3Q23 and in the first nine months of 2023, respectively.

This is a huge decline compared to the first nine months of 2022, where direct investment registered a net inflow of RM25.2bil, thanks largely to a strong net FDI of RM55.4bil against DIA of RM30.1bil.

For 3Q23 alone, Malaysia recorded a portfolio outflow of RM14.1bil, of which some RM15.4bil were related to outflows carried out by residents while non-residents recorded an inflow of RM1.3bil. The 3Q23 outflow was a strong reversal of the RM0.5bil inflow that was recorded for the same period last year. For the first nine months of this year, Malaysia saw total portfolio outflows of RM39.3bil, a RM10bil year-on-year increase from the outflow of RM29.3bil in 2022. In terms of breakdown, residents recorded an outflow of RM41.9bil, while non-residents recorded an inflow of RM2.6bil.

Malaysia is fortunate to be running huge trade surpluses which have helped the nation to record consistent current account surpluses. The nation continues to see deficits in the services sector and primary and secondary incomes. 

There are significant uncaptured outflows, which is perhaps a reason for the ringgit weakness since 2010 when the ringgit was then trading at about RM3.20 to the US dollar. In addition, there have been numerous studies done on the impact of 1Malaysia Development Bhd on the Malaysian portfolio flows and clearly, the flows seen in DIA and FDIs show that DIA accelerated post-2015, which probably also explains the impact on our ringgit.

We need to reverse DIA for a short period, to stabilise and strengthen the ringgit with a Tobin tax (or an “exit” tax). Why? Imported inflation emanates from net food import of RM70-75 billion annually. Then we need political stability, promised reforms effected and reduction of bureaucracy for foreign investments.

So, it is having an interest rate differential in our favour, positive trade balance/current account balance, net inflows (investments), budgetary surplus instead of perpetual deficits, reduction of national debt of RM1.5 trillion and other related areas that will change ringgit’s performance against the dollar.

Reference:

Ringgit’s misfortunes driven by investment flows, Pankaj C. Kumar, The Star, 25 November 2023

GDP Growth to Taper in 2023?

 The Government’s growth projection is 4% to 5% for 2023. This comes against the now-familiar backdrop of continued reliance on domestic demand. The Business Confidence Index by Malaysian Institute of Economic Research (MIER) dropped to 79.7 in 3Q23 from 99.8 of the corresponding three months, as export orders declined.

MIER reported that in terms of international trade, July and August saw an average monthly drop in exports of RM15.8bil and an average monthly drop in imports of RM18.6bil. Trade has decreased y-o-y in all major sectors, with the biggest drop in manufacturing – the sector that makes up 87% of total exports dropped by RM11bil from July 2022 to July 2023. Refined petroleum, a significant proportion of Malaysia’s export market, has dropped in value by 48%.

Image: https://moneyandmarkets.com

Socio-Economic Research Centre (SERC) is estimating Malaysia’s real GDP to grow moderately by 3%, almost at the same rate as the 2.9% posted for 2Q23. The Statistics Department’s advanced estimate of 3.3% for 3Q23, reflects a persistently challenging growth in the second half of 2023.  The continued drag from falling exports of electronics and electrical (E&E) products has dented the manufacturing sector, while consumers’ cautious discretionary spending continued to dampen the services industries. SERC believes the country’s full-year GDP growth for 2023 to come in at 3.8%.

Others believe GDP growth rate for 3Q23 could fall in the range of 2.7% and 3.3% to overall GDP growth for 2023 to be between 3.5% and 4%. Chances are it will be in the range of 3-3.5% for 2023.

The ringgit may trade in the RM4.60 to RM4.70 range against the greenback unless OPR is moved-up or Fed Fund rate drops. Neither is likely to happen!

Although much hope is placed on 2024, businesses are not bullish. Further, the CPI is likely to rise between 2.1% to 3.6% in 2024. So, tread cautiously and hope for the best!

References:

3% growth forecast for third quarter, Keith Hiew, The Star, 16 November 2023

Businesses, consumers turn more cautious, Ganeshwaran Kana, The Star, 16 November 2023

Malaysia: Benchmarking Income and Productivity (Part 1)

This is an extract of a BNM article on “Are Malaysian workers paid fairly?” It is a comparison where Malaysian wages stand relative to productivity (Chart 1).

Analysis of the wage to productivity ratio shows that Malaysian workers are still being paid less than workers in benchmark economies, even after accounting for the different productivity levels across countries (Chart 2). This suggests that Malaysia’s current wage productivity levels are misaligned. To illustrate this point, if a Malaysian worker produces output worth USD1,000, the worker will be paid USD340 for it. The corresponding wage received by a worker in benchmark economies for producing the same output worth USD1,000 is higher at USD510.

Further analysis reveals that most industries in Malaysia compensate workers less than those in the benchmark economies, even after adjusting for productivity (Chart 3). This is particularly evident in the wholesale and retail trade, food and beverage and accommodation industries that make up 19% of economic activity and 27% of total employment in Malaysia. These industries are generally more labour-intensive, and dependent on low-skilled workers. Several factors could explain this. The workforce in these industries typically lacks bargaining power, particularly due to the abundance of low-skilled workers, including foreign workers. As a result, the mean wage in these industries, at RM1,727 in 2016, was nearly 30% below the national average of RM2,463. On the other hand, the disparity against benchmark economies is considerably lower for the information and communication and utilities industries that typically hire more high-skilled workers who are able to command a wage premium due to their specialised skill sets and expertise. The average wage level in these industries was RM3,556 in 2016, more than 40% higher than the national average.

More could be done by way of automation or AI. There needs to be incentives to turn the labour-intensive sectors to become more capital intensive. R&D in Malaysia is miniscule. Others allocate up to 5% of GDP, we are happy with 1%! 

Reference:

Are Malaysian Workers Paid Fairly? An Assessment of Productivity and Equity

By Athreya Murugasu, Mohamad Ishaq Hakim and Yeam Shin Yau

Bossku’s PhD Thesis!

The former PM, Najib Razak, wants to do a PhD. According to his legal counsel Tan Sri Muhammad Shafee Abdullah “Najib is undergoing his PhD studies while in prison”. The former Pekan MP is qualified to produce a thesis possibly entitled “Sovereign Wealth Fund and Contemporary Malay Political Culture”. Harvard University Press will be happy to publish it! 

‘Dr’ Najib could join Dr Siti (Kepala Batas MP Dr Siti Mastura Mohamad) as a USM PhD graduate and identify key cousins related to the Saudi royal family – and Douglas Lim the comedian will love it.

Source: https://www.timeshighereducation.com

To be fair Najib has a few honorary doctorates. He is smart enough to know that you cannot use ‘Dr’ if it is an honorary degree. Otherwise, he may not work for it. However, a compulsory subject he needs to clear is Pendidikan Moral for his PhD course.

Najib who is now serving a 12-year jail sentence at the Kajang Prison could also write a thesis on ‘leadership styles of the corrupted elite’. He has enough time to produce two PhDs. For supervisors, there are a whole string of people available. Tony Pua could also write a foreword, if he is kind enough to do so.

The 1MDB scandal was reported by the Wall Street Journal to have had USD4.5 billion missing and USD700 million transferred to Najib’s personal account. He insists it was a donation from a Saudi royal. Despite the scandal, Najib has retained some of his popularity. And UMNO still misses him, especially for a by-election like in Kemaman.

Not surprisingly, many of Najib’s followers and ardent fans believe he was a good PM. If not for 1MDB – which he claims he is wholly innocent, he could have been a good PM. But that’s not the case! So, please help him in his research.

Reference:

Prof James Chin has brilliant topic for Bossku’s purported PhD thesis, Focus Malaysia, 

4 December 2023

Is Malaysia on a Downward Spiral in Education?

One of the most globally recognized benchmarks is the Program for International Student Assessment (PISA), a triennial survey run by the Organization for Economic Cooperation and Development (OECD) which assesses 15-year-olds' abilities in reading, mathematics, and science. The data used is from the results of the 2022 exam.

Key findings that offer valuable insights are:

• Geographically, Asian countries stand tall when it comes to PISA scores, with five regions - Singapore, Macau, Taiwan, Japan, and South Korea - occupying the top five positions

• Lower-income countries such as Vietnam outpace wealthier nations like the United States in these metrics.

• Nordic countries, renowned for their educational models, show a mixed bag of results. Estonia performs exceptionally well, whereas Norway, typically considered a leader in education, lags behind.

• The United States' position, though not among the top performers, is ahead of several European economic powerhouses, including France, Germany, and Italy.

Source: https://en.wikipedia.org

The ten countries with the highest PISA scores in 2022 were Singapore, Macau, Taiwan, Japan, South Korea, Hong Kong, Estonia, Canada, Ireland, and Switzerland. Singapore takes the top spot with an impressive overall PISA score of 560. Macau comes second, trailing some way behind Singapore, with a commendable score of 535. Taiwan and Japan share the third position, both reporting an overall PISA score of 533.

10 Countries with Highest PISA Scores:

1. Singapore - 560

2. Macau - 535

3. Taiwan - 533

4. Japan - 533

5. South Korea - 523

6. Hong Kong - 520

7. Estonia - 516

8. Canada - 506

9. Ireland - 504

10. Switzerland – 498

The ten countries with the lowest PISA scores in the 2022 report are Cambodia, the Dominican Republic, Kosovo, Uzbekistan, the Philippines, Morocco, Jordan, El Salvador, Paraguay, and Palestine. Cambodia has the lowest PISA score with 337 points. The Dominican Republic is ranked second lowest, with a score of 350. Following closely, Kosovo scores 351 points, and Uzbekistan's total score is of 352.

Malaysia has seen its Pisa score tumble as the Covid-19 pandemic took a toll on the students’ learning. The country is ranked 55 overall with a score of 404. Malaysia’s score is much lower than the OECD average for all three domains – mathematics, scientific and reading literacy.

 On average, our 15-year-olds had a score of 409 in mathematics (global rank of 54) compared with 440 points the last time. It is also a difference of 63 points from the OECD average. Science had also dropped 22 points to 416 (global rank of 52) from 2018’s 438. The OECD average is 485. In reading literacy, Malaysia scored 388 (global rank of 60), a drop of 27 from 415 points in 2018.

About 1.2% of our students had reached the proficient level for mathematics and 0.5% for science. Less than half (42%) met the minimum Level 2 for reading. About 0.2% of our students reached the minimum Level 2 in reading, 50% in scientific literacy and 41% for mathematics. About 1% of our students scored the highest bands of 5 and 6 for all three domains, he said, adding that the OECD average is 9% in mathematics, 7% in both science and reading. As for the other OECD countries, the average score in mathematics, science and reading for 2022 were 472, 485 and 476 points respectively. 

Between the genders, in mathematics, girls scored 414 while boys scored 404. For science, girls scored 423 with boys scoring 410. In reading, girls scored 404 points while boys scored 373. Overall, there is a widening gap between the genders in 2022 compared with 2018.

Students from higher socio-economic status families did better in the assessment compared with those from lower status families in all three domains. Urban students also did better than those in rural schools.

The next Pisa is in 2025, which will also be the benchmark to see if the Malaysia Education Blueprint 2012-2025 is effective. I don’t think we have to wait. If the current education minister continues in her position, we are doomed! That is why Sabah and Sarawak want to act independently on education. For Peninsular Malaysia, the narrative can be “spinned” that we are better than Cambodia or the Philippines. But remember Singapore is No. 1. Do you honestly believe investors can’t read this?

References:

Drop in Pisa scores worldwide, Rebecca Rajaendram, The Star, 6 December 2023

Global Education Standards, Data Pandas

Salary is No Longer King?

The mentality that salary is the top driver of work happiness may still apply to the Gen Y/X employees. But this may no longer be relevant to the millennial and Gen Z counterparts. Work-life balance has out-ranked salary as the top driver for happiness at work among Asia-Pacific (APAC) employees today. This is according to a new business survey by PERSOLKELLY, one of the region’s leading HR solutions companies.

The findings revealed that only 36% of respondents acknowledged that well-paid jobs lead to happiness at work. The recent survey highlights that APAC employees place a higher priority on four other factors: (i) good work-life balance (42%); (ii) a safe and healthy environment (40%); (iii) good connection with co-workers (39%); and (iv) ability to provide family with better living conditions and lifestyle (38%).

Source: https://focusmalaysia.my

Companies need to prioritise the following key factors to enhance job fulfilment and retention by:

• Having flexible work arrangements for a better work-life balance;

• Maintaining policies that enforce safe and supportive work environment;

• Introducing programmes or events that foster strong interpersonal connections among employees;

• Providing competitive compensation and financial wellness programmes.

Some key market findings were as follows:

• 98% of respondents in Malaysia agree that work life happiness is important.

• Top five factors that affect their work life happiness is: (i) The ability to provide family with better living conditions and lifestyle (48%); (ii) A good work life balance (47%); (iii) A safe and healthy environment (42%); (iv) Feeling of good connection with co-workers (39%); and (v) A job that helps a person to achieve his/her purpose or dream in life (34%).

• The top reason why respondents seek satisfaction at work is because they believe that it helps in increasing productivity and job performance (42%).

• 40% of Malaysians acknowledge that each individual is responsible for his/her own happiness at work.

• Therefore, 69% of them will take the initiative to reach out to their managers at work to let them know what motivates them at work. However, over one-in-four of them find that there are no changes or action taken even after the discussion.

• 81% of Malaysians believe that their job plays a significant role in improving the lives of the society.

• 70% of Malaysians feel that they are not limited by job choices.

Although many want work-life balance, there are companies – both local and foreign who basically “exploit” their people with long hours and non-competitive remuneration. Some feel “trapped” by their job content or others by the “brand” name of the company they represent. What do I mean? If this is a specialised job and the local market is limited, then resignation will only mean you may have to leave the country! (There are no local alternative companies in the same trade) Or, if you are part of a “global” brand then leaving it is perhaps painful as working for it. What would you do?

Reference:

Salary is no longer king when it comes to work happiness but 4 other considerations, Focus Malaysia, Focus Malaysia, 15 November 2023

Oil Prices to Remain High Until 2024?

Malaysian Rating Corporation Bhd (MARC Ratings) foresees the Brent oil prices to remain elevated. Brent oil prices are expected to hover around US$85-US$95 (RM406.17-RM453.96) for the remaining weeks of 2023 and within the range of US$80-US$100 (RM382.28 – RM477.85) per barrel in 2024. If more severe and widespread geopolitical conflicts affect the physical supply and transportation, Brent oil prices may surpass US$100 (RM477.85) per barrel.

The worldwide energy landscape is currently experiencing a complex interplay of factors that are shaping the oil market’s near-term price outlook. Those include the ongoing conflicts in Eastern Europe and the Middle East. Others are supply disruptions, expectations of lower global gross domestic product (GDP) growth in 2024, and the persistence of medium-term oil dependency despite evolving environmental policies. The Russia-Ukraine conflict that commenced in February 2022 led to a 25% surge in Brent oil prices, resulting in a sustained period of elevated prices above US$100 (RM477.85) per barrel for four months.

Meanwhile, it said the supply-demand dynamics in the oil market may continue to bolster oil prices. As the world's largest oil importer, China has shown signs of economic recovery, with better-than-expected growth in 3Q2023. This has prompted forecasters to revise their estimates for China's 2023 GDP growth to 5% and above, countering concerns about China’s ongoing property market malaise. China's oil imports rose by 12% to an average of 11.4 million barrels per day (mbpd) in 1H2023, compared to 10.2 mbpd in the same period in 2022. Additionally, a global inventory drawdown occurred in 3Q2023, and demand is expected to remain robust as markets head into the Northern Hemisphere winter.

On the supply side, production cuts are likely to keep total OPEC production below the pre-pandemic 2015-2019 five-year average of 36.2 mbpd, primarily due to Saudi Arabia's and Russia's commitment to extending production quota cuts in favour of higher oil revenue over market share. Furthermore, US trade sanctions against Russia and the possibility of further sanctions against Iran could further constrict both actual and expected supply, intensifying the upward pressure on oil prices.

Conversely, downside risks include the de-escalation of geopolitical risks, weaker-than-expected growth in China and the eurozone, alongside rising production by non-OPEC members and a temporary waiver of US sanctions on Venezuelan oil. Additionally, an unexpected ending of voluntary production cuts by Saudi Arabia, Russia, and other OPEC+ members may also place downward pressure on oil prices. 

Malaysia is now a net exporter of crude oil. Higher oil prices may not significantly affect inflation. The other factor in terms of imported inflation is a net food import which is about RM70-75 billion a year. We need to find practical measures to reduce food imports.

References:

MARC Ratings expects oil prices to remain high until 2024, FMT, 27 October 2023

MARC Press Announcement, 27 October 2023

Stop Chasing Rankings?

Academics have urged local higher education institutions to improve the quality of their programmes and lecturers instead of chasing high university rankings. This is after Malaysia’s oldest institution of higher learning fell out of the top 10 in a prominent global index. On Nov 8, The Star reported that Universiti Malaya had fallen out of the top 10 list in the Quacquarelli Symonds World University Rankings: Asia 2024.

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

Universities had resorted to unethical research practices and spending large resources to boost their positions in global university rankings. They were encouraged to do “citation padding” and “gifted and forced authorship” to increase their publication scores. Citation padding is an attempt to legitimise one’s work by adding references to reputable papers. Gifted authorship refers to the crediting of individuals who did not contribute to the research for favour. And forced authorship refers to a situation where a student is coerced by his superior to share the credit even though the student did all the work.

University rankings may naturally rise once fundamentals of good academia, such as the quality of programmes and lecturers are improved.

UM was ranked 11th for 2024 after falling two places from this year’s Asia ranking. Second in the country was Universiti Putra Malaysia, which improved from 27 to 25, while Universiti Kebangsaan Malaysia was third after moving from 30 to 28 on the list.

High rankings would boost the reputation of Malaysian universities and attract enrolment from international students. But surely the focus has to be on improving substance and quality for sustainable rankings.It boils down to meritocracy, professionalism and integrity. Rankings are a by-product not a goal. If you have the right framework, right staff/deans and students, the rankings will follow. Otherwise, all the cosmetics cannot hide for long the “wrinkles and crinkles” in the system. Work on the fundamentals and drop this endless quota system that is if you are serious to have a few top research-based learning institutions in Malaysia.

Reference:

Stop chasing rankings, boost quality of lecturers, universities told, Rex Tan, FMT 15 November 2023

“Act of God” or “Act of Man”?

The deadly landslide (with 31 deaths) at Batang Kali, Selangor, in December 2022 was recently blamed on “heavy and persistent rainfall” and not human negligence. This is according to “forensic analysis” of the incident, said the Deputy Prime Minister. Basically, this disaster was an Act of God.

The person most famous for claiming that tragedies were “Acts of God” was none other than the late Works Minister of 23 years. Satellite photos at the Batang Kali landslide showed that a large area had been cleared of its original forest. This area was below the state road between Batang Kali and Genting Highlands. Did the clearing weaken the slope?

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

But why did the landslide occur above the farm where the campers were? And not elsewhere? This was not addressed in the report. There was an unusual sump where water pooled and it appeared to be damaged by some TNB lighting installations.

Poorly maintained drains along the Batang Kali-Genting Highlands state road could also be the likely culprit behind the landslide. Good drains would safely funnel rainwater away but blocked or broken drains would lead to water accumulating in the soil, thus weakening the slope.

But Malaysian local authorities lack the expertise needed to monitor and manage hill slopes. Seventy percent (of local authorities) do not have a database for the collection of information, 81 percent do not carry out slope maintenance, and 41 percent are not aware of the existing guidelines related to slopes.

On a separate but related matter, the Chairman of National Water Services Commission (SPAN) said 16 out of 55 dams in Peninsular Malaysia that are used for water consumption are more than 50 years old. And the authorities are uncertain about the usable capacity should there be a prolonged dry spell. Another seven dams are in critical condition and their structural integrity is in need of urgent attention. The seven dams that are in critical condition are the Pedu and Muda in Kedah, Mengkuang in Penang, Durian Tunggal, Asahan and Jus in Melaka and Linggiu in Johor.

We usually wait for hell to break loose and then blame “nature” or “Acts of God” rather than acts of man! This game to avoid responsibility has been repeated too often. Do we still do this in a Madani Government?

References:

Comment: ‘Act of God’ blamed again for disaster, Andrew Sia, Malaysiakini, 23 Oct 2023

SPAN chief rings alarm on Malaysia’s water security with seven dams in critical condition due to ageing structures, R. Loheswar, Malay Mail, 23 October 2023

What is Sustainable Growth in Country’s Debt?

 In Budget 2023, the total debt service charges (DSC) was estimated at RM46.1bil. As a percentage of total government expenditure, the DSC is expected to be at 15.4%. This is already higher than the self-imposed 15% limit that Malaysia has adhered to. Yet, the DSC ratio for Budget 2024 is even higher to 16.4%. The DSC in absolute terms will increase by 8% or RM3.7bil to RM49.8bil.

With total federal government debt continuing to rise, Malaysia’s DSC is only expected to grow over time, as failure to reign in budget deficits will only see the country continuing its debt dependency.

Although the budget deficit is expected to be lower in 2024, running a budget deficit means the government does not have enough revenue to pay for all its operational and development expenses. So what revenue expansion is feasible? We should examine some non controversial taxes for implementation.

The government estimates a budget deficit of RM85.4bil for 2024, which suggests that the government will have to raise almost a similar amount to finance almost the entire net development expenditure (DE) of RM89.2bil. This will see the federal government debt rise to RM1.23 trillion, translating to a debt-to-gross domestic product (GDP) ratio of 62.4%, 0.4 percentage points higher than this year’s level of 62%.

Under the Public Finance and Fiscal Responsibility Bill, 2023 (PFFR), which was approved by Dewan Rakyat, the statutory debt-to-GDP ratio is expected to marginally surpass the ≤60% target as the ratio is expected to be at 60.1% this year and 60.6% next year as seen in Figure 1.

Under the PFFR bill, the government recognised that it needs to spend at least 3% of GDP for DE to ensure economic growth.

Based on the data in the accompanying table, the government spent between 3.5% and 4.1% of nominal GDP between 2018 and 2022 and is expected to spend 5.2% of nominal GDP in 2023, and this will drop to 4.5% in 2024. Overall, between 2018 and 2024, Malaysia’s DE is at about 4.1% of its nominal GDP. 

The short answer seems to suggest so, as Malaysia’s debt expansion more or less mirrors the growth of nominal GDP in absolute terms with the last six years’ average nominal GDP growth at 1.07 times of growth in federal government debt as seen in Figure 2.

Outside the federal government debt, Malaysia has RM221bil in the form of committed guarantees and another RM142.2bil in the form of other liabilities.

Under committed guarantees, the key debts are debts held by transport agencies and they include Danainfra Nasional (RM82.9bil); Prasarana Malaysia (RM42.9bil); and Malaysia Rail Link (RM34.9bil). These three alone account for RM160.6bil or 72.5% of the total committed guarantees.

Although the government intends to pare down its exposure under other liabilities, the numbers over the years have remained relatively flat.

So, what is the threshold for borrowings? If you follow the Reinhart and Rogoff (2010) thesis when debt in advanced economies exceed 90% of GDP, there is a dramatic worsening of growth outcomes. But their threshold (90%) is contentious on statistical errors and combining data across countries. The World Bank suggests a threshold of 77%. In emerging markets, that threshold is 64% which suggests every additional percentage point of debt above that will slow GDP by 0.02%. So, in essence, we are close to the World Bank’s threshold of 64% (of GDP) and we must seriously examine reducing borrowings and/or increasing revenue.

References:

Unsustainable growth in country’s debt, Pankaj C. Kumar, The Star, 28 October 2023

Debt-to-GDP ratio: formula and what is can tell you, Will Kenton, www.investopedia.com 

3 July 2023