Indonesia’s Tax Ratio is Underperforming!

Indonesia’s tax system that has been underperforming for many years as it does not collect as much as it should. Indonesia consistently ranks near the bottom in regional and global comparisons of the so-called tax ratio, or tax revenues as a percentage of gross domestic product (GDP). Currently, this is about 10%.

The number of staff working in the tax administration is too few. Then, the operating budget is too low. The Organisation of Economic Co-operation and Development (OECD) Tax Administration 2023 report shows the number of staff working in a tax administration and the amount of revenue that it collects has a relationship, the higher the number of staff, the higher the revenue. 

In countries with a tax ratio lower than 14%, one tax officer is employed for every 2,000 taxpayers. In countries with a tax ratio between 15% and 20%, there is one taxman for every 1,500 taxpayers. And if a country has one tax officer for every 680 taxpayers, then, statistically speaking, that country is in the big league: its tax ratio is more than 20%. The trend is clear: the more tax officers there are, the higher the revenue collection.

Source: https://ringgitplus.com

For a country with a labour force of “only” 13.8 million, Australia employs around 18,000 tax officers. Indonesia, a country 10 times the size of Australia in terms of the labour force, employs “only” 45,000 tax officers or just 2.5 times Australia’s figure. This analysis suggests that there is a need to significantly increase the number of tax officers.

The number of employees working in the tax administration is but a representation of the bigger picture: the amount of money spent on the tax administration system itself. In other words, the budget allocated to the tax agency. The data is quite clear: the more money spent on the tax administration, the higher the level of tax revenue. For countries in the big league, or those with tax ratios more than 20%, they spent, on average, the equivalent of 0.2% of their GDP for their tax agencies’ operating expenditures. Indonesia allocates only the equivalent of 0.04% of its GDP to the tax administration. 

Malaysia too has one of the lowest tax to GDP ratio of 11.8%. The Federal Government has projected its revenue collection in 2024 to grow 1.5% to RM307.6 billion. So, we need to have two strategies:

(i) broaden the tax base, with Tobin tax, remittance tax, inheritance tax or “excess” profit tax for new sectors; and

(ii) improve collection with more enforcement officers.

Reference:

Investment in people, tech to increase tax revenue, Glenn Polii, The Star, 16 March 2024

No Link Between Falling Ringgit and Profligate Money Printing?

An economist has dismissed a suggestion that the decline in the value of the ringgit is attributable to profligate money printing. The Malaysian Institute of Economic Research (MIER) said France in 1981, and Germany in 1988, reversed policies premised on modern monetary theory (MMT) due to their inability to cover their respective domestic currency liabilities. The MMT is a fiscal policy model which allows a government to print money needed for spending, instead of being restricted to using money raised by taxation and borrowings.

Bank Negara Malaysia would not venture into money printing as a policy measure to cover deficits.  Previously, FMT columnist K Kathirgugan had suggested that a significant increase in the supply of ringgit over the years had led to a substantial decrease in purchasing power. He said the ringgit’s money supply surged from RM4.1 billion in 1970 to RM2.4 trillion over 54 years. This does not correlate with GDP growth and GDP itself, as velocity of money is usually measured as a ratio of GDP to money supply (M2). Under monetary theory, it is usually viewed as constant.

Source: https://www.thetruenet.com

UCSI University associate professor of finance attributed the decline to illicit capital outflows, where Malaysia ranks fifth globally with an outflow of US$291 billion based on a report by Global Financial Integrity.

Tighter regulations on transfer pricing is a possible solution, but could discourage foreign investments. Then there are remittances by documented and undocumented workers which amounted to RM9 billion in 2022.

Money printing (forget about MMT) in line with GDP growth will not cause inflation. But where it is printed profligately to cover deficits, then inflation or hyperinflation will arise. Currency movements are a mixture of:

• Relative GDP growth;

• Comparative inflation between countries;

• Portfolio flows, FDIs and remittances;

• Interest rate differentials;

• Trade surpluses/deficits;

• Fiscal deficits (or otherwise);

• Political and societal stability; and

• Speculative forces

That is what the Madani Government has to focus on, not speak about “fundamentals are good” – and what exactly does that mean?

Reference:

No link between falling ringgit and profligate money printing, says economist, Lynelle Tham, FreeMalaysiaToday, 16 March 2024

Is the Property Overhang Clearing Up?

 

The recent statistics released by the National Property Information Centre (Napic) exhibits a positive trend for the industry as far as the overhang is concerned as both volume and value of transactions surged to an all-time high of over 399,000 units, worth a staggering RM196.8bil, transacted in 2023. The pick-up in activities was evident in states like Johor, where transactions jumped by more than 44% y-o-y, accounting for 16.2% of volume and 18% of the value nationwide. Nevertheless, Selangor remains Malaysia’s favourite property hot spot, accounting for 22% and 30% of the nation’s total transaction volume and value, respectively. In addition, according to the Napic report, some 21.5% of market transactions were purchases made directly from developers while the balance was sub-sale volume.

The biggest positive from Napic’s annual data was the significant reduction in overhang properties. The total overhang volume fell by 9.8% y-o-y to 46,641 units while in terms of value, there was an 11.1% decline to RM34.3bil. This is the lowest overhang volume since the 47,806 units that were observed at the end of 2019, and in terms of value, it is just RM4.5bil above the level seen in the same year.

Serviced apartment overhang fell sharply with the number of units and value dropping by 13.1% and 17.7% y-o-y to 20,825 units and RM23.8bil, respectively. Geographically, serviced apartment overhang saw a significant reduction in Johor as there was a 17.1% and 20.6% drop in volume and value to 14,132 units and RM9.7bil, respectively. Selangor and Kuala Lumpur too saw steep declines, with both witnessing 29.4% and 20.1% fall in the number of units and 33.9% and 16.5% decline in terms of value, respectively.

In the residential segment, as seen in Chart 1, the total overhang has dropped 30% from the peak of 36,863 units two years ago while in terms of value, some RM5.1bil worth of overhang has been removed. In the serviced apartment segment, overhang units have been reduced by 14.1% or 3,470 units while in terms of value, some RM4.1bil was cleared.

As the market seems to be “tighter” with less overhang, developers too have seen a good pick-up in sales last year and at the same time, the increase in transaction volume has caused prices to increase across the board.

Overall, the Malaysian house price index (HPI) rose by 3.2% y-o-y, slightly ahead of the increase in the Malaysian consumer price index, which rose by 2.5% in 2023, as can be seen in Chart 2.

In the fourth quarter of 2023 period alone, HPI rose by 3.9% quarter-on-quarter (q-o-q) and 3.7% y-o-y.

As prices rise and supply tightens due to lower overhangs, it will be interesting to see how 2024 will pan out. But this is a positive development for the property sector and hopefully developers and local authorities remain selective and cautious in their projects.

Reference:

Property overhang clearing up, Pankaj C. Kumar, The Star, 16 March 2024

Why More Malay Parents Choose Vernacular Schools?

Over the last decade, the enrolment of non-Chinese students, particularly Malay students, in Chinese vernacular schools has increased steadily, climbing from 9.5% in 2010 to 15.33% in 2020. In Chinese vernacular schools, the ethnic breakdown was 15.33% Malays, 80.25% Chinese and 2.75% Indians. In Tamil schools, 99% of the pupils were Indians. Private schools are gaining popularity. The enrollees constitute 65.88% Chinese, 26.96% Malays and bumiputras, 4% Indians and 3.17% others. But these schools are only for the privileged.

The proportion of Malay students enrolled at Sekolah Kebangsaan (SK) or national schools has remained stable, hovering at around 93 to 94% from 2010 to 2020. The increasing willingness among Malay parents to enrol their children in vernacular schools rather than national schools is due to several factors. These include the desire for their children to learn Mandarin, the comprehensive facilities provided by vernacular schools, and the improved quality of teaching and learning. Vernacular schools are also perceived to offer many advantages over national schools, such as better facilities, a more dedicated and organised alumni network, and a strong focus on mastering Mandarin and English. Many parents are also drawn to the strong academic reputation of these institutions.

Source: https://en.wikipedia.org

The four main reasons for the increase in Malay enrolment at SJKCs include:

1. Language mastery for a better future

Parents recognise the value of multilingualism in a globalised world.

And Mandarin, with China’s economic power, offers exciting career prospects. Vernacular schools provide an immersive environment for mastering this language, thereby giving students a competitive edge.

2. Better facilities and learning environment

In addition to language, parents are attracted to the well-equipped infrastructure and organised alumni support. These factors contribute to a conducive learning environment, fostering better engagement and potentially leading to improved academic performance.

3. Quality teaching and diverse learning approaches

The improved quality of teaching and learning (PnP) in science and mathematics has motivated parents to choose vernacular schools over SKs for their children.

4. Fostering cultural understanding and openness

Many Malay parents also realise that attending a vernacular school will expose their children to different cultures and languages fostering understanding and appreciation for diversity and preparing them for a better life in a multicultural society like Malaysia.

So, if Malay parents realise the benefits of vernacular schools, shouldn’t the MoE do something about it? Or, learn a thing or two? You don’t have to be an educator to know what the ingredients are – product, value, content and outcome. If you are a businessman you will appreciate this more. I am from the “boomer” generation. For us it was the great teachers; good syllabus; fantastic school environment – even if the headmaster is a strict disciplinarian; and meritocracy. You rise to be top based on your ability, not on your father’s background or title or racial origin! You had elite schools like VI, RMC or MCKK. They provided cohesion, pride and motivation to compete well. All the ingredients for a good future.

Today students are so “spoon-fed”, they come into the workplace looking for model answers to reply to a simple letter. Language and maths are much to be desired. The damage done to the education system will only be seen in 30 years time. I won’t be around to see it! Good luck Malaysia!

References:

4 reasons why more Malay parents are choosing vernacular schools over national schools, Sadho Ram, www.says.com, 22 February 2024

Respecting pluralism and diversity, Shad Saleem Faruqi, The Star, 18 March 2024

Fintech Outfit That Is Changing Women’s Lives!

Many businesses were on their knees during the Covid pandemic. But it was a period of significant growth for a group of remarkable women entrepreneurs.

As the pandemic turned the world upside down, an engineer launched a Nyonya food paste business, a pharmacist introduced an Ayurvedic beauty product range, and a housewife cultivated western herbs. Today, they are all thriving businesspersons.

The thread that goes through all their success stories is MADCash, a microfinance scheme launched by 52-year-old Nuraizah Shamsul Baharin. MADCash is an acronym for Multiply-Assist-Donate.

Source: Malaysiakini

MADCash is a platform which turns public donations into interest-free microloans of up to

RM5,000 to women entrepreneurs, who would otherwise not have access to credit through conventional means.

Not only does MADCash maintain the fintech microloan platform, it also does the data analysis to vet the microloan applicants to determine their bankability within two years of the loan extension.

It also provides business coaching to ensure the entrepreneurs have a higher chance of repaying the loans within the 10-month credit term and growing their businesses further.

In 2022, MADCash extended RM54,000 in loans to 33 women, while this grew by five folds with a total of 157 women receiving RM354,000 in 2023. The loans have a 98 percent repayment rate.

MADCash is launching the same scheme in Singapore in April and is also in talks with potential partners in Tajikistan. This year, Nuraizah hopes MADCash can extend loans to

800 women, a move she expects will have a compounding impact on the community.

This is a success story like Grameen Bank (“GB”) in Bangladesh. GB started as a pilot project in 1976. In 1983, it became a bank. The aim is to alleviate poverty and empower the marginalised poor through micro-credit. The MADCash scheme could take a similar path from a platform to a bank!

Reference:

Mad about growing cash: Fintech outfit is changing women’s lives, S. Vinothaa, Malaysiakini, 1 March 2024

Are Muslims Prohibited from Working in Premises Selling Alcoholic Beverages?

The Department of Islamic Development Malaysia (JAKIM) has stressed the need to take a holistic and comprehensive approach as opposed to imposing an outright ban to prevent Muslims from working in premises selling alcohol beverages.

The Central PAS Ulamak Council deputy head wanted to know if JAKIM has also held an engagement session with the state government and industry players involved on the framework of the State Syariah Criminal Enactment to identify efforts to prevent Muslims from seeking employment at premises selling alcohol beverages.

Source: https://en.wikipedia.org

To quell doubts and confusion over the matter, the Federal Territory Mufti’s Office had on Jan 9, 2017 addressed the issue of working in a convenience store – as in the case of 7-Eleven, 99 Speedmart and others – that sell alcoholic beverages.

Below are its three viewpoints:

• If the income is derived from the sale of both from the permissible and the prohibited, then the wage is not prohibited but makruh (undesirable).

• If the worker himself is involved with the sale – i.e. he is working as the cashier – then it is prohibited although the prohibition is not the same as consuming the alcohol beverage.

• It is best to separate between the counters of permissible and prohibited products in accordance with the work shift of the employees; this is deemed the responsibility of the employer to protect the welfare of their Muslim staff.

“We would advise the employees concerned to try and find work at places where there are no elements of doubt for that is safer and calms one’s heart,” the Federal Territory Mufti’s Office advised.

I think working in a store that sells alcohol is not the only issue – what about where packaged pork or other non-halal goods are sold? To have separate counters is a burden on employers. Is it better to employ Nons for this purpose? In fact, it may also be a problem to work in an environment with too many Non-Muslims. Or, live in an area surrounded by Non-Muslims? The list is endless and are we moving into a segregated society?

Reference:

So are Muslims prohibited from working in premises that sell alcoholic beverages? Focus Malaysia, 7 March 2024

Bitcoin tops US$72,000!

Bitcoin topped US$72,000 (RM337,320) for the first time recently. In 2024 alone, it has gained 70%. This is on the back of massive inflows into US exchange-traded funds (ETFs).

The original cryptocurrency rose as much as 4% to US$72,234 on 11 March 2024. Smaller tokens like Ether, Solana and Avalanche also advanced. The crypto gains came even as equities traded broadly lower ahead of a key report on US inflation.

The success of the crop of Bitcoin ETFs add to a range of bullish signals for crypto assets. Perhaps the most anticipated milestone is the quadrennial “halving” scheduled for April. A halving event refers to a period every few years when the reward for mining Bitcoin transactions is cut in half. As things stand, those validating Bitcoin transactions currently get 6.25 bitcoins, which could go down to 3.125.

Other technical indicators point to growing interest among both institutional and retail investors. Open interest on Chicago-based CME Group’s Bitcoin futures market has jumped 44% from this year’s low, while a rebound in the so-called funding rate signals that traders are increasingly willing to pay a premium for opening leveraged long positions in Bitcoin.

MicroStrategy Inc, the enterprise software firm that has made buying Bitcoin part of its corporate strategy, said it spent US$822 million purchasing more tokens from Feb 26 through March 10.

UK fintech firm Finder carried out a study based on expert price predictions of 40 crypto industry specialists on how Bitcoin is expected to perform through to 2030. Bitcoin, it found, is likely to hit an average peak price of $87,875 in 2024, with some experts predicting it will climb as high as $200,000. On the flip side, the average lowest price Bitcoin could hit by the end of 2024, is seen as $35,734, the report said, with some predicting it will fall as low as $20,000.

Cryptocurrencies are not regulated in the UK and there is no protection offered by the Financial Ombudsman or the Financial Services Compensation Scheme. 

References:

Bitcoin tops US$72,000 for the first time as rally builds steam, Sidhartha Shukla, Bloomberg, 12 March 2024 / theedgemalaysia.com

Bitcoin price predictions: How much more could cryptocurrency rise in 2024? Doloresz Katanich, Euronews, 6 February 2024

Who Are Active MM2H Pass Holders?

Chinese nationals are the highest number of active MM2H pass holders, at 44 per cent (24,765). This is followed by individuals from South Korea (4,940), Japan (4,733), Bangladesh (3,604), Australia (9,265), and the United Kingdom (2,234). In addition, there are more than a thousand current MM2H pass holders from Taiwan, the US, Singapore, and India.

In order to increase participation and promote the arrival of tourists and foreign investors in Malaysia, (the Tourism Ministry), in conjunction with the Home Ministry and the Immigration Department, are currently fine-tuning and outlining each proposal to improve the requirements of the program, taking into account input and feedback from stakeholders and industry players. This is according to the Minister of Tourism, Arts and Culture.

He explained that among the conditions examined are age eligibility, financial ability, minimum residency period, MM2H pass period and ease of residential property ownership. And after the plans are finalised at the ministry level, the new conditions will be brought to the Cabinet for approval before being implemented.

This is a better development and possible boost for fund inflow. We need to encourage eligible young and not so young people to come to Malaysia to work, do business or just retire and enjoy the country. Let’s not get hyped by racial or religious issues on this!

Reference:

Chinese nationals hold highest number of active MM2H pass holders, Rittika Choudhury, The Sun, 13 March 2024

Proposal for a Land Corporation!

One proposal announced by no less than Deputy Prime Minister went relatively unnoticed at the recently concluded Bumiputera Economic Congress (BEC). The government plans to set up a Bumiputera Land Corporation (Perbadanan Tanah Bumiputera) to preserve land ownership, as part of an effort to strengthen the community.

If the lease size exceeds 50 acres (20.23ha) for agricultural land or 20 acres for industrial use, the proposal calls for 20 percent of the land to be handed back to the government upon lease renewal or extension. The returned portion of land would be then overseen by the corporation. The implications are tragic!

Source: https://en.wikipedia.org

If you had a small plantation of 50 acres growing oil palm for instance, and if you were non-bumiputera, you have to give up 10 acres upon lease renewal or even a mere extension. That will impact your yearly output. The amount of fresh fruit bunches decreases by 20 percent and so will your revenue. Profit may decrease even more than that because of loss of economies of scale. The corporation may hand it over to a privileged bumiputera who can then sell it back to the original lessor for a huge premium. That’s a quick and easy way to make money. Is this another “cepat kaya” scheme?

It also rivals approved permits and the infamous 30 percent bumiputera equity stipulation. Imagine the kind of havoc it will cause - factories, offices, plantations, food production etc. Currently, almost all leases are automatically renewed on the payment of a premium. 

The result of this ill-considered move to surrender 20 percent of larger tracts of land upon lease renewal or extension is a huge business disruption and the abuse of allocation of land to the privileged elite. That’s going to impact both domestic and foreign direct investments. In five cycles of lease renewal, I may have nothing! Of course I may not be around to see that but what an insidious idea!

Reference:

Comment: Zahid’s land corporation proposal is insidious, unfeasible, P Gunasegaram, Malaysiakini, 7 March 2024

Interest Rates for 2024

The 2024 Global Forecast Report by the Visual Capitalist Team has projected the following interest rate scenario for 2024:

Although the Fed Funds rate may drop to 4.6% or below, it is not a significant fall but sets the stage for further cuts in 2025 and 2026. That will be helpful for Malaysia’s exchange rate. Hopefully, it will strengthen to RM4.40 (or better) to the dollar.

Although most institutions are expecting rate cut by June 2024, it could be earlier in March. The likelihood of a 100 basis point cut will mean Fed Funds rate will be 4-4.25% by end 2024.

Will Khazanah, EPF and GIP form a Consortium to run MAHB?

Khazanah Nasional Bhd, the Employees Provident Fund (EPF) and New York-headquartered private equity (PE) firm Global Infrastructure Partners (GIP) are understood to be forming a consortium to own and operate Malaysia Airports Holdings Bhd, according to a press report. An agreement could be signed in two to three weeks with equity participation on the part of GIP.

Khazanah is currently the largest shareholder of MAHB with a 32.67% stake, while EPF has 7.06% equity interest in the airport operator. MAHB manages a total of 39 airports across Malaysia and wholly owns and manages Istanbul Sabiha Gokcen International Airport in Turkey. It also has an 11% stake in Rajiv Gandhi International Airport in Hyderabad, Telangana, India.

Source: https://en.wikipedia.org

GIP, the PE firm is in the midst of being taken over by BlackRock in a US$12.5 billion (RM59.8 billion) cash and share deal. The acquisition is slated for completion by the third quarter of this year. GIP, which was founded in 2006, has US$60 billion in assets under management in diverse parts of the world, including ports, liquefied natural gas and container terminals, renewable energy assets, water treatment plants, rail transport assets and ammonia-urea plants, among others. GIP is well known for running airports. MAHB has been having issues with the Kuala Lumpur International Airport, its main asset, problems with the aerotrain, and ageing baggage handling systems and others. 

The PE firm has under its belt Sydney Airport in Australia, two airports in London — Gatwick and London City — and Edinburgh Airport in Scotland. Gatwick is one of the largest airports in Europe and serves more than 46 million passengers a year, while Sydney Airport is Australia’s largest airport and primary international gateway serving over 44 million passengers. Edinburgh Airport is Scotland’s busiest airport, serving more than 14 million passengers. From January to September 2023, MAHB’s airports saw 60.7 million passengers, while its Turkish operations at Istanbul Sabiha Gokcen International Airport catered to 28.1 million passengers. On the local front, MAHB’s passenger traffic significantly came from its largest airports — KLIA (which has two terminals, one of which is a low-cost facility), Kota Kinabalu International Airport, Kuching International Airport, Langkawi International Airport and Penang International Airport.

For the nine months ended Sept 30, 2023, MAHB chalked up a net profit of RM255.47 million on the back of RM3.54 billion in revenue. In the previous corresponding period, the airport operator suffered a net loss of RM171.94 million from RM2.12 billion in revenue.

MAHB’s net cash generated from operating activities during the nine-month period was RM1 billion. It had cash and cash equivalents of RM1.64 billion as at end-September 2023. On the other side of the balance sheet, it had long-term debt commitments of RM4.07 billion and current liabilities of RM640.6 million. Its finance costs for the nine-month period stood at RM500.35 million, even though it had almost RM1.4 billion in retained earnings.

While its financials have picked up, MAHB has been in the spotlight because of the breakdown in March 2023 of its aerotrain that connects the main building to the satellite terminal, leading to much passenger discomfort and inconvenience.

MAHB had awarded a RM742.95 million contract to Pestech International Bhd and its partner Alstom Transport Systems (Malaysia) Sdn Bhd for the design, supply, installation, testing and commissioning of an automated people mover and associated works at KLIA, including financing, operation and maintenance. The contract was to run until Feb 11, 2034.

However, MAHB terminated Pestech’s contract in mid-August 2023, citing issues of non-performance and delay risks to delivering the project by the deadline. 

In January 2024, Pestech was reappointed as contractor of the aerotrain replacement project with Alstom and construction giant IJM Corp Bhd, which is acquiring a controlling block of 44.83% equity interest in Pestech via a share issuance.

The contract awarded to Pestech at end-2021 required the new aerotrains to commence operations by July 2024, but this has been extended to March 2025. Until then, passengers will be ferried to their respective aircraft in buses.

It is time we had better management of our airports, especially KLIA – the gateway for tourists. It certainly leaves a poor impression on visitors if the aerotrain is not functioning. Several reasons could be advanced but it is essentially a case of maintenance and management. Both we seem to lack!

Reference:

Khazanah, EPF and GIP forming consortium to run MAHB, Jose Barrock / theedgemalaysia.com, 4 March 2024

Inflation Projections by Country in 2024

 Visual Capitalist has developed infographics on inflation globally with projections made by the IMF.

While inflation looks to be easing, there remains the risk of a second wave of price pressures driven by geopolitical conflicts and supply disruptions in the Red Sea. Adding to this, a stronger than expected labour market could drive consumer demand, pushing up higher prices.

This graphic shows 2024 inflation projections around the world, based on forecasts from the International Monetary Fund (IMF).

In 2024, global inflation is projected to decline to 5.8%, down from a 6.8% estimated annual average in 2023. Tighter monetary policy and falling energy prices are forecast to dampen price pressures alongside a cooling labour market.

 Below are inflation projections of countries that suffer from hyperinflation or are close to it:

While inflation shocks driven from the pandemic appear to be over, key risks could drive up inflation:

• Geopolitical Pressures: Rising shipping costs due to the conflict in the Middle East and Red Sea could continue to escalate and energy prices could increase amid disrupted supply, driving inflation higher.

• Strong Consumer Demand: Accumulated excess savings could continue to fuel economies, leading central banks to remain hawkish. Persistently high wage growth—which increased about double the pre-pandemic average across advanced nations in 2023—could boost consumption and higher prices.

• Rising Housing Costs: Shelter makes up about a third of the Consumer Price Index, the biggest component overall. If prices accelerate, it presents key inflationary risks. As of January 2024, U.S. shelter costs increased 6% annually.

So far, the global economy has been resilient. While risk factors remain, inflation projections suggest that the path towards a 2% target is slow but going in the right direction.

For Malaysia, inflation is likely to move up from 1.8% in 2023 to over 3% in 2024, due to tariff increases in electricity, water, SST (6% to 8%), and eventually petrol and other transport items. So, brace for cost of living issues becoming central for this Madani Government.

Reference:

Mapped: Inflation projections by country, in 2024, Dorothy Neufeld, Visual Capitalist, 28 February 2024

Singapore Moves Swiftly on Taylor Swift!

As Malaysia seems plagued with religious extremism, Singapore saw a huge potential in concert tourism. 

Under pressure from conservative Muslims, Malaysia banned British “The 1975” while Islamist party PAS called for a ban on Black Pink concert. Likewise, Indonesia also faced similar problems when Lady Gaga and Coldplay both cancelled their concerts. The Philippines’ poor infrastructure leaves Singapore and Thailand fighting to become the hub for international concerts.

However, if Taylor Swift’s exclusive concert in Singapore was any indicator, Thailand still has a lot to learn. More than 300,000 fans from across the Southeast Asia made their way to Singapore. The island also attracted the likes of Ed Sheeran, Bruno Mars and Blackpink.

Taylor’s social media of 534 million followers is another reason why Singapore wanted the billionaire singer exclusively. With millions of fans crowding into sold out stadiums across the United States and South America, not to mention record-smashing tour in Europe, Singapore’s strategy was for her to skip Malaysia, Thailand, Indonesia and the Philippines.

As early as Feb 2023, Singapore already sent a powerful team, which included Culture, Community and Youth Minister Edwin Tong to Los Angeles to meet up with Swift’s promoters and agents.

The exclusivity clause in the agreement was kept secret till Thai Prime Minister, who was obviously upset with the backroom deal, exposed it on Feb 16. The Singapore Government had offered subsidies of up to US$3 million for each concert – in exchange for the exclusivity right. The Singapore Tourism Board has acknowledged the “grant”, but refused to unveil the amount.

The US$3 million bonus for each show, apparently revealed by concert promoter Anschutz Entertainment Group (AEG) to “deliver Asia” to Swift has also angered another ASEAN country – the Philippines. Lawmaker Joey Salceda demanded the Philippines Government to protest against Singapore Government, claiming that the method used to snatch the girl could hurt both countries’ friendship.

For a prime minister to be personally involved in a tussle for a singer-songwriter to perform in a concert speaks volumes about the economic impact – both directly and indirectly – that the 34-year-old American superstar could deliver. The “Swiftonomics” or “Taylornomics” would benefit tourism sectors of cities that she toured such as hospitality, retail, travel and dining – even hotdog vendors.

Ticket sales alone are expected to account for S$75.2 million for Swift’s shows, with about S$19.5 million going into Singapore’s pocket (75% goes to Swift). A Wall Street economist calculated that the ripple effect on Singapore’s economy as a result of the spending of one person – an average Taylor Swift concertgoer – is about S$1,385. That translates to S$415 million for the 300,000 Swifties attending the concerts.

Assuming 70% of the estimated 300,000 concertgoers are coming in from overseas and that there are two people per room over the six show nights, the direct impact on the hotel industry alone would be about S$35 million. Trip.com noted that the total volume of Singapore-related bookings surged 275% during Swift’s concert period.

Capitalizing on the Swift brand, Singapore’s iconic five-star hotel, the Marina Bay Sands,  offered “The Wildest Dreams Package” – a three-night stay, four VIP tickets and a round-trip limousine ride from the airport – at a cost of almost US$40,000. All its packages were sold out, and more than 90% of guests snapping the exclusive packages were coming from abroad.

Both the country’s flagship carrier Singapore Airlines and budget airline Scoot said the demand for flights to Singapore in March had jumped, particularly from Southeast Asia. Even Australian low-cost airline Jetstar Asia saw a demand surge of about 20% for routes connecting destinations like Bangkok, Manila, Jakarta to the Lion City.

Malaysia would probably be Swift’s last choice as her concert outfits would be “too sexy” for some Malay Muslim conservatives. Yes, as Singapore is busy making “concert economics” its new growth driver, Malaysia is struggling with a weak currency and a sagging economy Why can’t the conservatives not view the concert and/or stay away? Why do they need an outward show of piousness? Meanwhile, the former Malaysian Sports Minister called it a “missed opportunity”. This is the Deputy President of Bersatu who shares the same cabin with PAS. Can you believe this?

References:

Taylor Swift’s S$500 million economic impact – how Singapore cleverly got an exclusive deal for the pop star, Financewriter, 2 March 2024

Beyond a swift lift to Singapore’s Q1 economy, Taylor’s concerts can deliver long-term dividends, Angela Tan, The Straits Times,29 February 2024

New Bumiputera Policy – Does It Benefit Everyone?

The concept and perception of bumiputera empowerment to one that is compatible with a multiracial society is now dubbed as the Bumiputera Economic Transformation (TEB). TEB has three goals, that is socio-economic justice; a sustainable nation-state; and prosperity for the country and well-being for the people.

TEB aims to close the gaps between Malaysians and ensure that bumiputeras are not left behind. The government wants to shift the bumiputera mentality towards skilled-based education from being a second option to being the first choice for industries.

This can lead to an increase in skilled bumiputera labour, which is at 29 percent compared to other races at the moment. The Government also seeks to continue to push for bumiputera equity ownership while ensuring the bumiputera agencies such as Permodalan Nasional Berhad (PNB) and Majlis Amanah Rakyat (Mara) continue to enhance bumiputera capability in all economic sectors.

TEB would not only focus on empowering corporations, but also individuals to encourage financial independence which will lead to improved quality of life for all.

Besides the TEB's three goals, it also has six resolutions.

The first is to defend the existing bumiputera agenda, including equity ownership, education, and land ownership among others. The New Economic Policy's 30 percent bumiputera equity ownership goal has not been met, with it currently only at 17.2 percent. 

The second resolution is to plug leakages when implementing bumiputera initiatives, including at the recipient stage.

The third resolution is to create equality between regions, races, and communities.

The fourth resolution is to identify new opportunities and keep up with trends and factors that influence the economy and industry needs such as the development and use of artificial intelligence.

The fifth resolution is to foster genuine relationships between the bumiputera and non-bumiputera economics.

The sixth resolution is to ensure that other races and their rights are not sidelined.

TEB also has three endeavours.

The first is to create a Bumiputera Land Corporation to enhance bumiputera land ownership and ensure balanced racial demographics, continuity for agricultural and industrial lands as well as new settlements. The third endeavour is to industrialise agriculture.

The second endeavour is on health and education. The third endeavour is to industrialise agriculture.

TEB (or NEP) now has three goals, 6 resolutions and 3 endeavours. Actually, we don’t learn enjoying being Sisyphus – roll the stone uphill and see it reel down again, and again!

If the new bumiputera policy actually benefits all, then why don’t you call it the National Economic Initiative! Actually, we do have many policies, blueprints and plans. Then why do we fail? Execution – we are poor at it, because of corruption, cronyism and compassion! Corruption was  PM’s pet topic while in the Opposition, cronyism was Mahathir’s  favourite subject and compassion is for the select elite group – those in jail awaiting pardon, those who are given DNAA, and others awaiting a decision by the AG.

Unless we change our mindset, there will be a feeling of not getting a fair “shake” or a fair “share”. Must  we wait for the next Congress?

Reference:

Govt launches new bumiputera policy painted as beneficial to all, Malaysiakini, 29 February 2024 

Interest Rates for 2024

 The 2024 Global Forecast Report by the Visual Capitalist Team has projected the following interest rate scenario for 2024:

Although the Fed Funds rate may drop to 4.6% or below, it is not a significant fall but sets the stage for further cuts in 2025 and 2026. That will be helpful for Malaysia’s exchange rate. Hopefully, it will strengthen to RM4.40 (or better) to the dollar.

Although most institutions are expecting rate cut by June 2024, it could be earlier in March. The likelihood of a 100 basis point cut will mean Fed Funds rate will be 4-4.25% by end 2024.

Malaysian Companies to Brace for Fallout of Ringgit!

Malaysian businesses are paying a high price for the country’s weak currency. Exporters are delighted but not importers or those with foreign currency debt.

With the ringgit hitting a 26-year low, industries from airlines to raw material-intensive sectors are particularly at risk.

The ringgit has slid to its lowest level since the Asian financial crisis in the late 1990s and the government has assigned the central bank to closely monitor the currency.

Source: https://medlav.com.my

Construction companies that depend on imported raw material, as well as telecommunication firms, whose capital spending are in dollars, also face a financial fallout. Airlines also face the pressure because fuel prices are paid in USD.

Some companies, such as state-owned oil and gas company Petroliam Nasional Bhd, are in a position to benefit from the plunge in the ringgit. A significant amount of its operations is either in foreign markets or pegged to the dollar. Sime Darby Plantation Bhd said the weak ringgit is beneficial for the company, as well, because its revenue is partially in dollars.

What can importers do? Hedge the transaction. It’s easier said than done. There are not many “brave” financial institutions for the hedge. In the end, the cost of the hedge could be exorbitant!

Importers need to work with their vendors to either accept ringgit equivalent or “fix” an exchange rate for their purchases (a forward rate).

Another alternative is for BNM to work with importers on providing a swap facility with the trading partner’s central bank (in the vendor’s country) so that currency fluctuations can be minimised.

BNM must have a blueprint for situations like this and assist importers in their predicament. Net food imports alone is above RM70 bil a year. That impacts cost of living, Then you have water, electricity, transport, SST all up (or going up)! So, we do need a strategy to minimise exchange rate fluctuations

Reference:

Malaysian companies brace for costly fallout as ringgit hits 26-year low, TheEdgeMalaysia, 27 February 2024

Is Our Current Account Surplus on a Nose-Dive?

The current account balance of the balance of payments is a barometer of how a country earns its income (exports of goods and services) and spends (its imports of goods and services). When a country has current account deficits, market investors raise concerns: is the country spending beyond its means; or is it structural or cyclical and/or unsustainable? A persistent and widening current account deficit is deemed as unsustainable if it relies heavily on short-term capital or foreign borrowings to bridge the gap. (This note is actually based on Lee Heng Guie’s article in The Star recently)

Heavy reliance on external financing makes the economy vulnerable to external shocks as a change in investor sentiment could result in a sudden stop of capital flows as seen during the 1997-1998 Asian Financial Crisis. As a result, the country was forced to deplete its foreign reserves to fund the deficit. Depleting foreign reserves will change investors’ perception about the sustainability of the current account, fuelling concerns about the fundamental value of the exchange rate. Market speculation and betting on currency devaluation follows. It will get worse if the country incurs twin deficits – both a budget deficit and a current account deficit.

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

Malaysia had a full-year surplus of RM22.8bil or 1.2% of gross domestic product (GDP) in 2023 (RM55.1bil or 3.1% of GDP in 2022). This has stirred investors’ concern about whether the country will incur twin deficits in both a budget deficit and current account deficit in the years ahead.

While Malaysia has been running 26 successive years of current account surpluses since 1998, the surpluses have been dwindling from an average of RM70.3bil per year or 12.7% of GDP in 1998-2011, to an average of RM43.3bil per year or 3.3% of GDP in 2012-2023.

The current account surplus of 1.2% of GDP in 2023 was the smallest surplus in 26 years since 1998 and also the smallest in 12 years since the surpluses shrank to a single low digit of GDP trajectory starting in 2012.

Lee Heng Guie of SERC is of the view that the current account surplus is likely to stay in the low range estimated at 2.2% of GDP in 2024.

The following developments might influence the current account and overall balance of payments position over the medium term:

• Merchandise exports of goods (gross exports) had displayed a weakening momentum from 6.7% per annum (pa) in 1998-2011 to 4% pa in 2012-2023. This was due to the cyclical nature of global demand and semiconductor cycle, commodities and crude oil price fluctuation as well as exports competition.

• Malaysia’s electronics and electrical products (E&E) accounted for 40.4% of total exports in 2023, controls 7% of global market share and 13% of the global market for packaging, assembly and testing services for semiconductors. The E&E industry will continue to be a dominant driver of overall exports, given semiconductor components found in a wide range of consumer electronics and commercial products, including vehicles. The New Industrial Master Plan (NIMP) 2030 will enhance the E&E ecosystem by attracting more wafer fabs, IC design, advancing packaging in assembly and testing.

• The services account has been mired in large deficits for 14 consecutive years since 2010. This is mainly in the transportation sector, insurance and pension services, charges for the use of intellectual property, telecommunications, computer and information services, and other business services amongst others.

• We have to enhance our capability in logistics and shipping, IT-related and information, consultancy, insurance services, tourism and education services to help reduce the services payment. Payment for the use of intellectual property averaged RM11.6bil in 2021-2023.  

• Another component contributing to lower current account surplus is the persistent widening investment income outflows averaging RM33.9bil per year in 2012-2023 due largely to:

(i) The influx of foreign direct investment (FDI) led to rising obligations to pay investment income owed to foreign investors as they repatriated interest, profits and dividends earned to their parent companies (an outflow of RM66.1bil per year).

  (ii) The repatriation of dividends and profits earned on portfolio investment in domestic equities, investible funds and bonds amounting to RM16.5bil per year.

 Repatriation of foreign workers’ remittances back to their home averaging RM33.1bil per year in 2012-2023 (RM15.8bil per year in 1999-2010), which was 1.95 times of the remittances sent back by Malaysians working abroad (an average of RM17bil per year).

Gross FDI inflows have expanded to an average of RM42.5 bil per year in 2011-2023 from RM16.8 bil per year. On average, portfolio investment suffered wider net outflows of RM16.7bil per year in 2011-2023 from mere net outflows of RM393mil per year in 1999-2010. Foreign portfolio investment recorded net inflows averaging RM16.9bil per year in 2010-2023. Domestic residents’ outflows were larger at RM28.9bil per year for the same period.

Sustained inflows of foreign capital and a large foreign reserves position would provide a strong buffer against the weakness in the current account balance and support the ringgit. Meanwhile, steps need to be taken to improve our current account surplus; halve inflation; reduce interest differential between U.S. and Malaysia; and be prudent in fiscal expansion (being mindful of debts of RM1.5 trillion) to strengthen the ringgit, which will then reduce our import cost.

Reference:

Explained: The shrinking surplus, Lee Heng Guie, The Star, 28 February 2024

Bumiputera Owns Only One Out of 97 Listed firms! Is That True?

Only one out of 97 listed companies in Bursa Malaysia in the last three years is owned by bumiputera, its Chairman revealed this in the recent Bumiputera Economic Congress.

It’s been six decades and we have implemented various policies to empower the bumiputera and what is the result today? Why haven’t we reached our target all this time? The “main cause of the failure” according to the Bursa Chairman is that the bumiputera group has always focused its policies on the public sector but not the private sector.

In the context of Malaysia’s GDP, the public sector only contributed 17.8 percent to the economy whereas the private sector contributed 76.2 percent. The private sector is 4.3 times larger than the public sector. That’s right, it is always the case unless you are an African state!

A more universal approach to further empower the group? Companies that benefit from contracts of concessions from the government, government-linked investment companies (GLIC) and government-linked companies (GLCs) as well as other private companies are required to empower and enforce the bumiputera agenda. Is that a new way to seek rent?

In addition, introduce the Equitable Opportunity Act on a needs-based basis to ensure that all citizens get fair employment and business opportunities. Employ individuals even if they are capable? Follow the civil service?

A former Law Minister, however, told the Malays to “relax”. Bumiputera or Malays generally do not have much to worry about as they control everything in the country - the Government, Petronas, the biggest banks, judiciary, legislature, army, police and everything else of any importance. PNB (Permodalan Nasional Berhad) owns all the significant conglomerates for the bumiputera. Khazanah Nasional Berhad and the hundreds of government-linked companies are bumiputera. So, what else?

This is a class “war”. The elite want more at the expense of the poor and they look for scapegoat. We should not fall for this racial rhetoric. On one hand the Government wants a vibrant Bursa and on the other follow the social engineering programmes. PNB, Equinas and a host of GLICs own shares substantially in listed companies.

In February 1969, the Government created the Bumiputera Stock Exchange (“BSE”). At the end of September 1983, there were six bumiputera companies on the BSE. It stopped operations in late 1990s. Why? There wasn’t enough companies or transactions. In 2010, the idea was mooted again. The then Chairman of Bursa Malaysia slammed the idea. We need to be clear on what we want. When KLSE is not vibrant and Malaysian companies are listed overseas, we decry our plight. Can we make up our minds?

References:

Bumiputera owns only one out of 97 listed firms in last 3 years – Bursa chief, Isabelle Leong and Haspaizi Zain, Malaysiakini, 1 March 2024

Zaid: Relax, no group in the world is as fortunate as bumiputera, Malaysiakini, 2 March 2024

Bumiputera Congress to Grow the “Pie”?

The three-day 2024 Bumiputera economic congress from Feb 29 was aimed at improving and growing the “economic pie” for the benefit of the community in line with the Madani framework, said the Second Finance Minister recently. The Government is looking at all possible ideas that could be implemented to further create more wealth for the Bumiputera community amid the rising cost of living, while at the same time strengthening fiscal reforms. 

The congress itself was at the Putrajaya International Convention Centre (PICC), and focused on 10 main clusters, including educational and human capital reforms, strengthening the halal industry, Sabah and Sarawak’s Bumiputera economy, and new technology.

The Second Finance Minister noted that issues such as poverty could disproportionately affect the Indian and Malay communities, and by addressing them, the government could simultaneously find solutions that benefit the entire society.

“I have a very simple philosophy that I would like to put forward, that is, how do I make the cake bigger, rather than how do I slice the cake?” said the Minister

Meanwhile, the Minister said that with the current government’s stability and the robustness of local institutions, Malaysia would provide additional assurance to foreign investors regarding its long-term prospects.

In addition, the proposal to establish a Bumiputera Land Corporation was among the three initiatives designed to empower the Bumiputera community and support the Bumiputera Economic Transformation (TEB), according to the Deputy Prime Minister (“DPM”). The proposed corporation is intended to safeguard Bumiputera land ownership, which will serve as the foundation for economic stability and the preservation of national identity.

The DPM also stressed the need for a Health Waqaf and Didik Bumiputera (SIDIK) plan to guarantee the continuous provision of healthcare and educational services for the Bumiputera community.

According to him, SIDIK will provide facilities, equipment, and healthcare services, such as haemodialysis centres and machines, healthcare services for the elderly, and financing for chronic disease treatment.

In addition, SIDIK seeks to empower Bumiputera educational institutions and training centres, provide scholarships for Bumiputera children and empower skills development programmes to increase the Bumiputera workforce’s marketability.

The DPM also proposed the establishment of a contribution system involving government-linked companies (GLCs), government-linked investment companies (GLICs), foundation trusts, and individuals to enhance the well-being of Bumiputera.

The third recommended initiative was the industrialisation of agriculture, with the aim of integrating Bumiputera into the large-scale food crop farming sector and ensuring the country’s food resource production.

To grow the pie and not slice it was what the NEP stated in 1971. This concept has been tested and has failed! But we persist on doing something over and over again expecting a different result! That’s the “Myth of Sisyphus!”

References:

Bumiputera Congress to grow the ‘pie’ for economic distribution, says Amir Hamzah, FMT Reporters, FMT, 26 February 2024

Proposed Bumiputera Land Corporation Initiative to empower bumiputera – Ahmad Zahid, The Sun Daily, 29 February 2024

Interest Rates for 2024

 The 2024 Global Forecast Report by the Visual Capitalist Team has projected the following interest rate scenario for 2024:

Although the Fed Funds rate may drop to 4.6% or below, it is not a significant fall but sets the stage for further cuts in 2025 and 2026. That will be helpful for Malaysia’s exchange rate. Hopefully, it will strengthen to RM4.40 (or better) to the dollar.

Although most institutions are expecting rate cut by June 2024, it could be earlier by March. The likelihood of a 100 basis point cut will mean Fed Funds rate will be 4-4.25% by end 2024.