If Economy Is Doing Well, Why Don’t We Feel It?

Recently, Ipsos Malaysia, a research marketing firm released the results of a survey they conducted stating that 68 percent of Malaysians feel that the country is in a recession. This is even though data shows Malaysia is actually experiencing economic growth. The economy grew to 3.7 percent in 2023 and is expected to grow steadily by four to five percent in 2024

Southeast Asian countries have a better perception of their country’s economic situation. For example, in Indonesia, 50 percent of the population believes that their country is in a recession, 66 percent in Thailand and 32 percent in Singapore. These three countries all show a downward trend in their citizens’ views. Does this mean that Malaysians are actually out of touch with reality?

Source: https://en.wikipedia.org

I can give you all kinds of anecdotal examples of how people are actually feeling the pinch. My wife and I are feeling pinched! Our monthly grocery expenditure has increased by around 20-25 percent. The electricity bill in our house has gone up by about 50 percent in the last two months with consumption remaining the same. Eating out with the family also costs more now. 

My son, wife and I run a small boutique financial advisory company and we are trying to improve revenue. Many clients are looking at value add on services! And competition is intense.

Others who are entrepreneurs and run small businesses face similar challenges; drop in their income and struggling to sustain themselves. We are also seeing government subsidies being removed. Most recently, diesel subsidies were removed and its price has increased by more than 50 percent just overnight. So, maybe what I’m trying to say is that excuse us Malaysians for having the perception that the country seems to be in a recession.

Ipsos’ survey also states that 24 percent of Malaysians say that they are struggling financially, 53 percent say they are just getting by and only 21 percent claim to be financially comfortable.

If you see another subsidy go, i.e. RON95, then we will have a full-blown inflation. And what will the Government do? I may get by, by God’s grace. But what about those in the B40 group?

The Government will issue some pontifical statement about price increases. And so, what? They cannot dictate prices!

Some economists laud these measures, even the IMF. But they speak as if subsidies are not done in OECD countries. Another BS! The developed countries have subsidies for agriculture, manufacturing and social services. Some for new technologies or EVs. So, please do what is right for Malaysia!

Reference:

Comment: If economy is doing well, why don’t Malaysians feel it? Zan Azlee, Malaysiakini, 15 June 2024

Are U.K. Universities on the Brink of Bankruptcy?

 The UK has always been a world-leader in university education; home to the famous Oxford, Cambridge, Imperial College and many more. In fact, the U.K. has more top-rated institutions than the rest of the EU put together.  It is therefore surprising that higher education has slipped into a financial crisis in the last decade. 

The University of Essex has warned staff it is delaying promotions and reviewing future pay awards to cope with a potential £14 million budget shortfall. This is because of a 38 per cent decline in international postgraduate student numbers.

Essex is not alone. The UK’s universities are running out of money. Cuts are being made across the sector as frozen tuition fees, high inflation and falling international student numbers impact finances. According to John Rushforth at the Committee of University Chairs, university bankruptcy is a realistic possibility. 

The broader picture is one of a long-term policy failure threatening British 

• exports – the UK’s 144 universities contribute £130 billion to the economy, which is more than farming, forestry, fishing, mining, arts and entertainment combined;

• soft power – mandarins and business leaders say British universities are in danger of losing their enviable position in global rankings; and

• university standards – because low student-teacher ratios that traditionally sustained standards are now at risk as universities struggle to stay afloat.

Seventeen of Britain’s universities are in the top 100 of the QS World University Rankings, second only to the US. In 2012, the UK accounted for 15 per cent of the world’s most-cited research papers, down now to 11 per cent. 

Universities are hemmed in by government policies. Over the last decade, the government has cut funding for teaching by 78 per cent and capped student loans at £9,250, leading to a real-terms decline in domestic fee income of more than a third. In the past three years alone, inflation has eroded universities’ resources by a fifth, with no equivalent of the per-pupil uplift given to schools.

UK research bodies pay 80 per cent of university research budgets. The rest is expected to come from teaching income.

The government’s ambition for the UK to become a science and technology superpower is thus at the mercy of course choices by overseas students who used to account for 20 per cent of the sector’s income.

The government is hoping universities will find productivity gains to cover rising costs. Vice-chancellors see job cuts as the main way to save money. But UK universities punch above their weight thanks mainly to staffing – British universities have on average 13 students per lecturer. In Canada that’s 23:1, and in Australia, 34:1.

Are there any solutions?

The U.K. Government – whether Conservative or Labour – has to recognise the contributions made by the universities. It needs to develop a blueprint to keep funding for leading universities. Use a mixture of the U.S. and European models to finance via:

• Endowment funds (which “power” Harvard and many others);

• Government funds for research and tuition fee (subsidy);

• Student fees and numbers especially the foreign ones. This is not about immigration and visas, it is just education. If you mix the two, then be prepared to shut some of the universities.

“Muddling through” is a British attribute that some say should be taught in business schools. It is “wing it” in America! Whatever, the British institutions need some super-charging to lift them out of the doldrums – will Labour do it?

References:

Broke and shrinking: the downward spiral in British universities, Stephen Armstrong, www.tortoisemedia.com, 25 March 2024

UK universities are on the brink of bankruptcy? Benjamin Edgar, 9 April 2024

Employers Seek Grads From Top Universities!

Employers are increasingly seeking candidates who possess passion and problem-solving skills in today’s job market. Financial Literacy for Youth Malaysia view career fairs as often favouring graduates from top universities who are known to have better problem-solving skills.

Candidates from top universities have typically proven themselves to be resilient, have problem-solving skills and can work together in groups. 

Source: https://commons.wikimedia.org

Social class and parents’ educational background play an important role in determining access to quality education for youths. The affluent could afford to finance quality education in top universities. Those from less affluent backgrounds face challenges and often rely on student loans or scholarships.

Local universities have become “factories” for regurgitation with no thinking skills. And so many universities are not high in any rankings and they defend their predicament by saying rankings are not important. Employers don’t buy that. Writing, thinking and oral skills are all stunted. No fault of the students. It is the education curriculum, teachers, and leadership at the Education Ministry. There is a blueprint but there is no ability to translate plans to actual results. So PISA results are always below satisfactory level. We are 51st globally. But Singapore is the world leader (number 1 in rankings) for maths, reading and science. What will be our future in 20-30 years forward? Another Myanmar?

Reference:

Employers seek grads from top universities for their passion, says group, Liew Yen Rou and Ameera Huda, FMT, 28 May 2024

Has One Subsidy Morphed Into Another?

The targeted diesel subsidy is not fully thought through yet. Over 50 percent rise in diesel price to RM3.35 per litre, an RM1.20 jump from just RM2.15 previously is massive.  Some will claim it is small as it only constitutes 0.1 to 0.2% increase in inflation! But inflation is also about expectations. It would have been prudent for a gradual price increase. Three measured steps over a year will mitigate inflationary expectations.

Subsidies are a double-edged sword. When they are unstructured and cover everyone – they provide benefits for everyone irrespective of income. That may result in wastage and giving more to those who can afford to spend and consume. Any attempt to restructure will result in targeted subsidies. That still faces leakages and profiteering.

According to Finance Minister II, total subsidies in 2023 amounted to RM70 billion. This is down from RM81 billion in 2022. Reports say fuel subsidies account for RM50 billion of it or some 70 percent of the total. Diesel subsidies, which amounted to RM1.4 billion in 2019, leapt 10 times to RM14 billion in 2023.

Some RM10 billion in leakage is caused by those obtaining the subsidised diesel and selling it to others. The Government hopes to recover some RM4 billion. It implies that there will still be some leakage of about RM6 billion (RM10 billion - RM4 billion).

There is incentive to smuggle diesel across borders as Thai prices are significantly higher at around RM4.24 per litre and Singapore prices being around RM8.79 per litre.

Source: theedgemalaysia.com, 11 June 2024

While the new price of RM3.35 has narrowed the differential, it is still significant. Targeted subsidies are pretty much a work in progress. And one subsidy to the B40 replaces the other for all.

The timing of RON95 subsidy cuts will depend on how the effects of diesel subsidy rationalisation will fare and the effectiveness of the targeted subsidy measures. 

Maybank IB simulated that if the targeted RON95 petrol subsidy rationalisation starts on July 1, 2024 and with the goal of achieving RM4.1 billion in government savings within the second half of 2024, RON95 petrol price will need to be raised by 32 sen per litre (+15.6%). And if the targeted RON95 petrol subsidy starts on Oct 1, 2024 to achieve RM4.1 billion savings within the fourth quarter of 2024, RON95 petrol price will have to be increased by 65 sen per litre (+31.7%).

Will the subsidy rationalisation work? There will be a lot of anger because the public perceives the government doesn't spend the public funds well. It is the corruption and the abuse of power that causes the leakages from the system.  And that the Government has not done very much on this front. The easier method is to raise revenue by imposing the Tobin tax.

References:

Comment: Will targeted diesel subsidy work? P Gunasegaram, Malaysiakini, 11 June 2024

Diesel subsidy rationalisation a step in the right direction, economists say, Emir Zainul, theedgemalaysia.com, 11 June 2024 

The State of Corruption in Malaysia

National Anti-Corruption Strategies (NACS) 2024-2028 was launched by the Government recently. It was an effort to develop a national strategy to combat corruption in the country. Shown below is the infographics by TheEdgeMalaysia depicting the state of corruption in Malaysia:

The Madani Government was supposed to get rid of corruption or at least reduce it. There is no big push on this and we are left disappointed to say the least!

Reference:

The state of corruption in Malaysia, Infographics compiled by Jenny Ng, Infographics by Rajita Sivan, TheEdgeMalaysia, May 27-June 2, 2024

Over 3 Million Applications Approved in Under Two Weeks

Effective May 11, 2024, new contributions will be based on percentage: Akaun Persaraan (75 per cent), Akaun Sejahtera (15 per cent) and Akaun Fleksibel (10 per cent) compared to previously, that is, Akaun 1 (70 per cent) and Account 2 (30 per cent). After the restructuring, balance in Account 1 and Account 2 will remain in Akaun Persaraan and Akaun Sejahtera respectively, while Akaun Fleksibel will start with a zero balance. The dividends will remain the same across all three accounts.

Arising from the above restructuring, Employees Provident Fund (EPF) has approved 3.04 million applications to withdraw money from Account Flexible (or Account 3) as of May 22, amounting to RM5.52 billion. This is since the option became available to members on May 12. It has also received 2.86 million applications during the period to transfer an initial amount from Account Sejahtera (or Account 2) to Account Flexible, involving RM8.78 billion.

EPF members under the age of 55 got the new Account Flexible from May 11, from which they can make withdrawals at any time, and for any purpose, with a minimum withdrawal of RM50. And members can, until Aug 31 this year, opt to transfer one-third of their savings from Account Sejahtera to Account Flexible. The amount transferable is based on the balance in Account Sejahtera at the time of application.

The EPF expects the number of transfer applications to continue rising until the Aug 31 deadline. In the mean time, it advised its members not to rush into making the transfer.

At the moment, this development has not become critical. The problem is the Akaun Fleksible (10%) will be seen too small and a change in the percentage will be proposed soon. From 10% to 20% or 30%. That’s when it becomes an ATM! The retirement fund is for our post-employment needs, not for meeting current expenditure.

EPF had total contributions of RM102.8 billion while withdrawals were RM50.6 billion in 2023, better than in 2022 (RM91 billion). Will that remain in the future? Not if politicians have their way!

References:

EPF approves over 3 mil applications for RM5.52 bil Acc 3 withdrawals in under two weeks, CEO Morning Brief, 28 May 2024

EPF Account 3: Avoid impulsive withdrawals, financial planning crucial, experts say, New Straits Times, 10 May 2024

Employers Seek Grads From Top Universities!

Employers are increasingly seeking candidates who possess passion and problem-solving skills in today’s job market. Financial Literacy for Youth Malaysia view career fairs as often favouring graduates from top universities who are known to have better problem-solving skills.

Candidates from top universities have typically proven themselves to be resilient, have problem-solving skills and can work together in groups. 

Source: https://commons.wikimedia.org

Social class and parents’ educational background play an important role in determining access to quality education for youths. The affluent could afford to finance quality education in top universities. Those from less affluent backgrounds face challenges and often rely on student loans or scholarships.

Local universities have become “factories” for regurgitation with no thinking skills. And so many universities are not high in any rankings and they defend their predicament by saying rankings are not important. Employers don’t buy that. Writing, thinking and oral skills are all stunted. No fault of the students. It is the education curriculum, teachers, and leadership at the Education Ministry. There is a blueprint but there is no ability to translate plans to actual results. So PISA results are always below satisfactory level. We are 51st globally. But Singapore is the world leader (number 1 in rankings) for maths, reading and science. What will be our future in 20-30 years forward? Another Myanmar?

Reference:

Employers seek grads from top universities for their passion, says group, Liew Yen Rou and Ameera Huda, FMT, 28 May 2024

Impact of Money Supply and Fiscal Management on the Ringgit

The price of money is influenced by its supply, hence, a stable currency with appropriate money supply growth requires well-managed debt levels and a healthy fiscal position. (This article is based on a MARC Ratings report).

Over the past decade (2012–2022), Malaysia’s broad money had been growing by 4.9% per annum and exceeded the nation’s real economic growth rate of 4.1%. Additionally, Malaysia’s 10-year average (2013–2022) broad money-to-GDP ratio was 129.8%, higher than the ASEAN-6 median of 10-year averages of 117.3%. This in theory means we will continue to have inflation. Real GDP is a lower than nominal GDP, after accounting for inflation.

Malaysia’s low interest rate environment contributed to a preference for borrowing and credit creation. From 2013 to 2022, Malaysia’s private debt-to-GDP ratio had been relatively high, averaging 121.8% against the ASEAN-6 median of 10-year averages of 112.4%. This may partly be attributed to Malaysia’s significantly higher household debt of 85.6% during this period, against the ASEAN-6 median of 54.4%. While Malaysia has a resilient financial system, encouraging savings instead of borrowings may contain excess credit creation and improve capital availability for future investments. 

Low interest rates are positively correlated with money supply growth and the government’s expansionary fiscal policies. Persistent fiscal deficits and missed targets have led to Malaysia’s government debt-to-GDP ratio reaching close to the statutory debt limit of 65% (2023: 64.3%). High public debt levels raise the perceived country risk, leading to portfolio outflows and a weaker ringgit.

In addition, fiscal expenditures need to be allocated for capacity building rather than current expenses. Of note, development expenditure as a percentage of total government expenditure in the past decade (2013–2022) decreased to 17.5% compared to that of the previous decade (2003–2012) of 22.8%. During the same period, in terms of operational expenditures, the share of emoluments experienced the largest increment, from 27.7% to 33.0%; followed by pensions and gratuities (from 6.9% to 10.1%); and debt service charges (from 10.3% to 12.9%). Furthermore, the government’s plans of hiking civil servants’ salaries may hamper fiscal consolidation efforts. Therefore, new initiatives are required to improve tax revenue and reduce the deficit. That will help ringgit appreciation.

The key to all of this is the real interest rate differential. Unless we address this, it is not going to help the ringgit appreciate. BNM is fully aware and has been trying to balance growth and interest rates. And so long as inflationary pressures remain, interest rates will not be on a downward trend.  That’s the current case even for the U.S.

Reference:

Ringgit realignment (part 4): Money supply and fiscal management, MARC Ratings Berhad press announcement, 30 May 2024

 

The Bank Merger Pushback!

The government’s proposal to merge development financial institutions (DFIs) has unsettled some industry players.  They claim there are solid grounds for the ongoing restructuring to be halted. A single merged entity will have a reduced focus on the micro, small and medium enterprises (MSME), leading to dire consequences.

The proposal to consolidate and strengthen the DFI eco-system was first mooted by then finance minister Lim Guan Eng in 2019. This was reiterated by Prime Minister Anwar Ibrahim during his Budget 2024 speech last October. Phase 1 of the merger process, involving Bank Pembangunan Malaysia Bhd (BPMB), and Danajamin Nasional Bhd, was concluded in March last year. Phase 2 involving BPMB, SME Bank and Export-Import Bank of Malaysia Bhd (Exim Bank) is expected to be completed up by year-end.

Source: FMT, 6 June 2024

Is there a need for merger? The business model and focus for each of the three banks are different. BPMB focuses on large-scale projects. EXIM Bank targets medium-sized SMEs while SME Bank’s mandate is to develop and nurture MSMEs. The merger will likely result in reduced focus on all. The merger may also result in layoffs, with more than 95% of staff in the three banks being Bumiputera.

What are the advantages in terms of funding costs? All three banks rely on sukuk/bonds and corporate deposits as sources of funds. The three banks are fully owned by the Minister of Finance Incorporated. There are currently six DFIs in the country that are regulated by Bank Negara Malaysia under the Development Financial Institution Act 2002. The other three are Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat), Bank Simpanan Nasional (BSN) and Bank Pertanian Malaysia Bhd (Agrobank).

However, Geoffrey Williams, an economist has said the negative scenarios raised by critics do not appear to be evidence-based and may be part of the normal pushback that happens in

any change process. According to him, all objections to the merger must be viewed in the reality of the current situation, adding that the DFIs’ assets under management (AUM) are too small. Based on 2023 data, BPMB (with RM26 billion), SME Bank (RM11 billion) and Exim Bank (RM8 billion) have only RM45 billion compared to the EPF at more than RM1 trillion. Their impact is limited.

Meanwhile, Malaysian Institute of Economic Research (MIER) head of research views the merger as helping with scale and access to pooled capital. The resulting entity will have the benefit of mobilising a larger combined stock of capital which can then be efficiently and optimally allocated. There is no reason why the MSME sector should be neglected post-merger – that’s one view.

A RM45 billion monster will not solve SMEs problems. Let me be clear, I am not for the merger. Why?

(i) All the silly synergies one talks about is actually “crap” – I have seen it;

(ii) Each institution best plays its role as independent entities. What about inefficiencies? That is a problem whether one is large or small. You don’t merge to get efficiencies. You need a dynamic team; a mixture of all races in a ratio reflecting the population working at all levels and a sense of passion for their mission;

(iii) A merged entity will “blur” the lines of service and standards will drop; and

(iv) As it stands, they need a revamp and a merger will not help, it meets somebody’s pre-conceived idea!

I could go on but just look at U.S., U.K., Europe and Japan. Did they merge all their entities? No! So, what’s our big idea, other than creating a bigger sludge!

Reference:

Pushback against Bank Pembangunan-Exim Bank-SME Bank merger, Lee Min Keong, FMT, 6 June 2024

Deforestation: Natural Forest Under Threat

Over 3.2 million hectares of the country's natural forest are under the threat of deforestation, according to environmental watchdog RimbaWatch. The group said its analysis of last year's concession data revealed that the land areas were within concession boundaries. This represent 16 percent of our remaining forest cover. If this deforestation occurs, Malaysia’s forest cover will drop below 50 percent of our landmass, thereby constituting a failure of Malaysia’s commitment to maintaining 50 percent forest cover. The overall 3.2 million hectares of deforestation is almost equivalent to an area the size of Pahang.

Source: https://en.wikipedia.org

According to RimbaWatch, its data analysis also revealed that 2.4 million hectares of the said area are under the threat of deforestation to make way for timber plantations. It urged the country to immediately end all conversions of forest reserves to make timber plantations. Malaysia should also expand on its 50 percent forest cover commitment. Transparency is needed. Malaysia’s reporting agencies are little more than Greenwash deception.

The problem of greed will not go away. One of the easiest ways to make money is to fell trees! It oils the political machine and is the “bread and butter” for many elite groups. Unless we have a popular movement, it is difficult to reverse current thinking.

References:

Deforestation: Data reveals 3.2m hectares of natural forest under threat, Malaysiakini, 28 May 2024

Malaysia’s rainforest threat is focused on Sarawak, Sarawak Report, 2 June 2024

Poverty Has Increased in the U.K.!

 More than 1 in 5 people in the UK (22%) were in poverty in 2021/22 – 14.4 million people. This included:

• 8.1 million (or around 2 in 10) working-age adults

• 4.2 million (or nearly 3 in 10) children

• 2.1 million (or around 1 in 6) pensioners.

Poverty rates have returned to around their pre-pandemic levels, as middle-income household incomes rose at the same time as a range of temporary corona virus related support was withdrawn.

The overall level of poverty has barely moved since Conservative-led Governments took power in 2010. Poverty last fell consistently during the first half of the last Labour administration (between 1999/2000 and 2004/05). It rose in the second half of their time in power. 

Before 1979, levels of poverty had been broadly flat at around 14%. In the 1980s, under the Conservative Government of Margaret Thatcher, there was then an unprecedented rise in poverty. This has not been reversed, meaning children have consistently had the highest poverty rates, while pensioners along with working-age adults without children now have the lowest.

In 2021/22, 6 million people - or 4 in 10 people in poverty – were in ‘very deep’ poverty, with an income far below the standard poverty line. More than twice as many (over 12 million people) had experienced very deep poverty in at least one year between 2017–18 and 2020–21.

Between 2019/20 and 2021/22, the average person in poverty had an income 29% below the poverty line, with the gap up from 23% between 1994/95 and 1996/97. The poorest families – those living in very deep poverty – had an average income that was 59% below the poverty line, with this gap increasing by around two-thirds over the past 25 years.

This is equivalent to a couple with 2 children under 14 years old needing, on

average:

• an additional £6,200 per year to reach the poverty line if they are living in poverty

• an additional £12,800 per year to reach the poverty line if they are living in very deep poverty.

Some groups of people face particularly high levels of poverty. This includes:

• Larger families - 43% of children in families with 3 or more children were in poverty in 2021/22. 

• Families whose childcare responsibilities limit their ability to work – 44% of children in lone-parent families were in poverty in 2021/22.

• Many minority ethnic groups – around half of people in Pakistani (51%) and Bangladeshi households (53%) and around 4 in 10 people in households headed by someone from an Asian background other than Indian, Pakistani, Bangladeshi or Chinese (39%) or households from Black African backgrounds (42%) were in poverty between 2019/20 and 2021/22. These households also have higher rates of child poverty, very deep poverty and persistent poverty.

• Disabled people – in 2021/22, 31% of disabled people were in poverty. 

• Informal carers – 28% of people with caring responsibilities were in poverty in 2021/22. 

• Families not in work – more than half of working-age adults (56%) in workless households were in poverty in 2021/22, compared with 15% in working households. 

• Part-time workers and the self-employed - amongst people in work, the poverty rate for part-time workers was double that for full-time workers (20% compared with 10%) and self-employed workers were more than twice as likely to be in poverty as employees (23% compared with 10%).

• People living in rented accommodation – in 2021/22, more than 4 in 10 social renters (43%) and around a third of private renters (35%) were in poverty after housing costs. 

• Families claiming income-related benefits – their high poverty rates may be expected given the ‘low income’ eligibility criteria for claiming these benefits, but it demonstrates that benefit levels are frequently not sufficient to enable recipients to escape poverty.

Between 2019/20 and 2021/22, the average poverty rates in England (22%), Wales (22%) and Scotland (21%) had converged to around the same level, although poverty rates were much lower in Northern Ireland (16%).

Between 2019/20 and 2021/22, the West Midlands had the highest rate of poverty at 27%, followed by the North East and London (both 25%), Yorkshire and The Humber, the East Midlands and the North West (all 23%).

To reset social and economic fundamentals, start with the following, as suggested by Joseph Rowntree Foundation:

• help and space for people looking for work to find a secure job 

• raising the basic level of workplace rights and protections

• protecting time for caring around work, while building up and strengthening the infrastructure of care services for families to rely on

• ensuring social security provides enough income to afford the essentials, 

• making future pension provision more secure, by raising minimum contribution rates and establishing good options for people to use their savings to provide a secure standard of living in retirement

• helping people build up modest savings, access affordable credit, gain relief from problem debt and hold assets

• expanding access to secure homes, whether rented or owned, by building more new homes and shifting the distribution of existing homes.

The poverty levels could be addressed if the U.K. is not funding some war in the world, impose new tax on the rich and curtail unwanted expenditure on past imperial glories. For a rich king and a richer PM, this is a disgrace, especially if you see the homelessness on the streets.

Reference:

UK Poverty 2024, Joseph Rowntree Foundation, 23 January 2024

Are There Illicit Oil Transfers Off Malaysia?

A U.S. Treasury official warned of environmental risks from illicit transfers of Iranian oil off Malaysia. This was reported by news portal Malaysiakini on 9 May 2024. The United States sees Iran's capacity to move its oil as being reliant on service providers based in Malaysia.

The official also said the United States was attempting to prevent Malaysia from becoming a jurisdiction where the Palestinian militant group Hamas could raise and transfer funds. The main ways Iran raised money was through the sale of illicit oil to buyers in East Asia.

Source: The Maritime Executive

Malaysian officials in October 2023 reported that they have detained two tankers suspected of conducting an illegal ship-to-ship oil transfer. The not-for-profit group United Against Nuclear Iran (UANI) posted online citing the vessels in an October 2023 report.

UANI identified the two tankers that MMEA had only said were registered in Panama and Honduras. The larger of the two vessels is the Artemis III, registered in Honduras and managed by companies in China. Built in 1996, she is a 300,360 dwt VLCC. The vessel’s AIS signal shows that she has been in the area since late August.

The other vessel involved in the transfer, the Ocean Hermana is registered in Panama and managed from India. Built in 2004, she is 159,100 dwt. The ships were being investigated for undertaking the transfer without a permit and for anchoring without permission. In Malaysia, those crimes could result in a fine of approximately $20,900 and imprisonment of up to two years. In addition, the captains of both tankers are also being investigated for obstructing the efforts of the MMEA. That would also result in jail sentences of up to two years and a fine of approximately $2,000.

Meanwhile, Malaysia Prime Minister said recently there was "not one shred of evidence" of ship-to-ship transfers of sanctioned Iranian oil off Malaysia. This is amid U.S. concern that Iran was using Malaysian service providers to move its oil. It is either the PM is wholly ignorant or providing a classic disinformation. Which is it dear PM? Do you understand the consequences? Our output of oil cannot just spike from 600k barrels per day to 3 million barrels per day!

References:

US flags environmental risks from illicit transfers of Iranian oil off Malaysia, report says, Reuters, 9 May 2024

Malaysia detains two tankers accused of trading Iranian oil, The Maritime Executive, 26 October 2023

Malaysia PM says no evidence of ship-to-ship transfer of Iranian oil off Malaysia, Reuters, 14 May 2024

Are FDIs Always Fickle?

Foreign direct investment (FDI), the net inflow of long-term investments, is rather fickle. When the Prime Minister says there were RM330 billion in total approved investments for 2023, it does not mean that this amount of investments was made. They were approved but have not yet transformed into actual investments on the ground.

And, these are total approved investments, both domestic and foreign. Out of this total, 57 percent were foreign and 43 percent were local, amounting to RM188 billion and RM142 billion respectively.

However, actual FDI for 2023 was about RM38 billion compared to approved investments of RM188 billion, or just one-fifth of approved investments.

Two factors are at play. First, RM330 billion comprises mere approvals. The second factor is that these investments are not committed for 2023 but can extend to an investment over years. For example, Microsoft’s US$2.2 billion investment (over RM10 billion) in Malaysia spans four years.

FDIs and domestic investments are about conducive investment climates. That involves multiple, complex factors and interactions. It means strategic, long-term measures translated to clear, careful execution on the ground. The talk must be followed by action.

We need to improve infrastructure. We need to streamline and re-evaluate the incentives we give for FDI and give similar ones to local investors. We need our leaders to stay put in the country, put their heads together, get expertise in and prioritise what needs to be done and execute without delay. We need to focus on domestic issues where we can make positive change rather than foreign ones where we will have no or little impact at all.

What foreigners want is stability, investment friendliness, great infrastructure, good quality of

life, educated smart locals, no red tape, efficiency, corruption-free measures, better productivity, progressive thinking, less extremism and many more.

If we take care of ourselves and our country then investments will surely flow. Focus on the basics, not Gaza or Central Asia!

Reference:

Enduring myths and realities about FDIs, P Gunasegaram, Malaysiakini, 24 May 2024

Subsidies, Subsidies, Subsidies!

A study by the Kiel Institute indicates that Beijing heavily subsidizes its domestic industries. These are in sectors such as green technologies like electric mobility or wind power. Estimates suggest that China's overall subsidies range between three to nine times that of other OECD countries.  According to the analysis of new data, one of the major beneficiaries is the electric car manufacturer BYD. This reflects BYD's significant expansion in both technological and production capacities, as well as its increasing competitiveness.

Government subsidies (by China) cover over 99 percent of listed companies receiving direct government subsidies (in 2022). These subsidies are strategic to advance key technologies to market readiness. 

https://en.wikipedia.org

In addition, preferential access to critical raw materials, “forced” technology transfers from foreign investors, and favourable treatment in public procurement and administrative procedures, Chinese companies have rapidly expanded in various green technology sectors. They dominate the Chinese market and are penetrating EU markets. 

China has emerged as the leading global producer of photovoltaic systems and battery cells. The country clearly aims to achieve similar leadership in other green technology sectors, including electric vehicles and wind turbines.

The electric car manufacturer BYD receives particularly high subsidies. Direct subsidies amounted to approximately EUR 220 million in 2020, rising to EUR 2.1 billion in 2022. In terms of business revenues, direct subsidies increased from 1.1 percent in 2020 to 3.5 percent in 2022. Additionally, BYD receives significantly more purchase premiums for electric cars in China compared to other domestic manufacturers like GAC or foreign companies producing locally, such as Tesla or VW's joint ventures. 

Leading Chinese wind turbine suppliers, such as Goldwing and Mingyang, also benefit significantly from government subsidies. In the case of Mingyang, subsidies increased from EUR 20 million in 2020 to EUR 52 million in 2022. Relative to revenue, recent subsidies were comparable to car manufacturer GAC and amounted to approximately 1.2 percent in 2022.

Targeted demand subsidies are justified, because they speed up EV adoption. While success of Chinese EVs has spooked Western car manufacturers, some of the pain is self-inflicted. Having bet on massive ICE for too long, they delayed the all-but-inevitable switch to EVs. But that’s not all, Chinese EVs are cheaper for the same reason that most everything manufactured in China tends to be cheaper than American or European products.

Introducing EV tariffs in response to intense lobbying by Western car manufacturers might make for good election-year politics. A much better idea is to subsidise domestic manufacturing. This approach is reflected in the US Inflation Reduction Act and Bipartisan Infrastructure Law, and in targeted EU subsidies. Some of these subsides can be justified simply as a politically feasible, second-best alternative to carbon pricing, including as a stepping stone toward pricing policies.

Tariffs may be preferred on “public finance” grounds: they generate government revenues, while subsidies cost taxpayers money. But that calculus is short-sighted. Early analyses of the Inflation Reduction Act shows that its hundreds of billions of dollars’ worth of subsidies raise economic output in the US and elsewhere, both during and after the initial decade of government spending.

European car manufacturers have realised this and are themselves now calling for further subsidies in lieu of tariffs, seeking an Airbus-like, cross-country alliance to subsidise European EV manufacturing. While any subsidy scheme is messy and raises a hot of thorny political-economy and economic-efficiency questions, such subsidies are surely preferable to EV tariffs. A subsidy race, together with stronger efforts at pricing carbon dioxide emissions, is vastly superior to a tariff war. The world will be both richer and cleaner for it.

References:

China’s massive subsidies for green technologies, Kiel Institute, 10 April 2024

The right response to China’s electric-vehicle subsidies, Gernot Wagner and Shang-Jin Wei, Project Syndicate, 5April 2024