More Highway Projects?

 

Of the highway projects mentioned in Budget 2025, the West Ipoh Span Expressway (WISE) and the extension of the West Coast Expressway (WCE) have raised some questions. In the case of WISE, concerns revolve around its viability, both financially and operationally. This is partly due to the fact a little-known company called East Coast Road Sdn Bhd (ECR) will be undertaking the RM6.2bil project.

The cost of WISE has increased by almost half-a-billion ringgit from RM5.75bil estimated before. At RM6.2bil for a stretch of 60.88km, this translates to roughly RM101.8mil per kilometre. Expressways typically cost RM30mil to RM40mil per kilometre, although this may vary according to project specifications, the type of terrain as well as land acquisitions. For elevated expressways, the cost will be higher at RM50mil to RM60mil per kilometre.

 

Source: https://en.wikipedia.org

 WISE starts from the North-South Expressway (NSE) in Gopeng, bypasses the accident prone-Menora Tunnel section and then re-joins the NSE in Kuala Kangsar. The traffic projections for WISE are questionable after Works Minister recently said it would reduce congestion along the NSE by up to 40%. The average daily traffic (ADT) economics for WISE does not seem to work out. This is considering WISE’s relatively short distance where traffic volume may not be significant. 

The CA stipulates a fixed toll rate of 23 sen per kilometre throughout the concession period. This is more than double the NSE’s rate of 11 sen per kilometre, set to remain until the end of its concession. 

It was recently reported the government, represented by Works Ministry secretary-general, signed a 55-year CA for WISE with ECR on Sept 5. Interestingly, the secretary general was transferred from the Prime Minister’s Department to the Works Ministry on the same date. ECR will surely rely on external funding in the absence of equity injection by its owners to undertake the project. 

The toll rate for the WCE, on the other hand, is 16 sen per kilometre, which will be revised every three years based on a step-up formula. 

By the time of completion in 2026, the cost of the WCE is expected to exceed RM8bil, according to an earlier report by RAM Ratings. The WCE, which is 94% completed, connects Banting in Selangor to Taiping, Perak. 

The WCE, which is set to be completed in 2026, is also an alternative route to the NSE, connecting Taiping, Perak, to Banting, Selangor. In his Budget 2025 speech, Prime Minister announced the expressway will be extended from Banting to Gelang Patah, Johor. While the extension was briefly mentioned in the Public-Private Partnership Master Plan 2030 released in September, it hardly garnered media attention then. 

With WCE yet to turn profitable, the company may not have the financial muscle to undertake the project without additional equity injection from its shareholders. Shareholders originally injected RM1.2bil into WCE Holdings, including the single-largest shareholder IJM Corp Bhd, which controls a 26.7% stake. 

However, due to project delays, the equity injection has ballooned to RM1.9bil so far.

WCE Holdings also had to sell its 40% stake in the Bandar Rimbayu development to raise cash to meet the funding needs of the coastal expressway. 

The project extension, assuming it is undertaken by WCE Holdings, may extend the break-even period for the expressway. Previously, WCE Holdings chief executive officer said WCE may take five to seven years to break even. This is not inclusive of the proposed extension. WCE Holdings has begun a restructuring exercise with the government and the company’s existing lenders to raise the capital required to complete the project by 2026. 

We need connectivity but do we need more toll highways? The PH or Madani Government was against tolled highways. At one time they wanted the total removal of all tolls. Now the tune is different! What about trains? Malaysia is fixated with cars, like the United States. It’s time for trains whether high-speed or otherwise! 

Reference:

Highway projects at a crossroads? Ganeshwaran Kana, The Star, 4 November 2024

Primary School Dropout Rate Rising in Malaysia?

A growing number of children from marginalised and vulnerable communities are dropping out of primary school in Malaysia, according to United Nations (UN) data. The UN’s Educational, Scientific and Cultural Organisation (Unesco) show a 20% increase in the number of out-of-school primary school students in the country for 2022, at 145,204 persons, compared with 121,231 in 2021. Experts say the rise in the dropout rate was due to the impact of the Covid-19 pandemic. 

Poverty and financial instability had been exacerbated by the pandemic, leading families to prioritise work over education,” said Universiti Sains Malaysia (USM) School of Educational Studies Professor in Curriculum Studies and Education Policy, Prof Dr Hazri Jamil (and as reported in the Star (28 October 2024).

 

The pandemic led to a shift to learning online, which highlighted the digital divide and inequities where students without reliable Internet access or devices struggled to participate in schooling, leading to disengagement. 

Some parents are also not enrolling their children in school due to a lack of awareness about the importance of education or cultural practices that prioritise other activities over schooling.

According to the Khazanah Research Institute, Malaysia saw a total of 41.5 weeks of full school closures between mid-February 2020 to July 1, 2022, which led to several types of losses, including psychological, academic, skill development, and equal education access. “Countries that had longer school closures also saw a greater decrease in their Pisa 2022 score outcomes,” its Households and the Pandemic 2019-2022: The State of Households 2024 (SoH 2024) report.

Malaysia had also seen its Pisa scores drop more intensely compared with other countries in the region, with our students faring the worst in reading in 2022.

 

Malaysia’s rapid population ageing is another factor that affects school enrolment. According to the Statistics Department, primary school enrolment shrunk to 3.02 million in 2022, a drop of 63,420 persons from the previous year. The moderating rate of school enrolment can be attributed to shrinking birth rates. 

The growth in school enrolment in the country started to slow down in 2014 as shown below:

What does it mean? The future is bleak for some kids, social discontent will rise, criminal activities could increase, and the nation’s future is impacted. But we have a woeful MoE that cannot see, hear or speak! 

Reference:

Interactive: Primary school dropout rate rising in Malaysia, Diyana Pfordten and Rebecca Rajaendram, The Star, 28 October 2024

Inflation to Return?

It wasn’t too long ago that Malaysia was moderating high inflation like many other countries. Inflation has cooled and is expected to be stable till year-end. (Although cost of living may not be addressed). In 2022, the pace of consumer price increases was at about 4.2% but latest data puts it at 1.8%. 

Easing global supply chain disruptions, for one, has been responsible for this ease in price spikes. However, for 2025, the risk of inflationary pressure will be back, due largely to the implementation of key economic reforms or removal of subsidies and increase in public/private sector wages. 

Socio-Economic Research Centre (SERC) reckons there are upside risks to headline inflation next year given the anticipated fuel subsidy rationalisation as well as higher private and public sector wages. Inflation will increase by 2.5% to 3% in 2025 compared with the estimated 1.9% for 2024 according to SERC.

 

Malaysia’s current inflation rate of below 2%, reflects the easing of price pressures. The current low and stable inflation is also supported by the ringgit’s strength. 

Since March 2020, prices have collectively risen by 10.17%. Food and beverage prices rose by 15.73%, transport prices by 17.21% and restaurant and accommodation services by 15.32%. That’s cost of living!

Bank Negara is expected to keep the benchmark overnight policy rate at 3% for the rest of 2024 and into the new year, to curb the anticipated inflationary pressure and to continue to support the ringgit. But more needs to be done if the Feds fail to cut the Fed Fund rate in the U.S. And with Trump’s victory, tariffs will now be in place and inflation will spike in the U.S. and other parts of the world. So, brace for a crash! 

Reference:

Inflation woes to return, Yvonne Tan, The Star, 4 November 2024

Are Homes Beyond the Reach of Most Malaysians?

Soaring property prices in city areas, coupled with their low salaries, have made owning a home at their preferred locations an unattainable dream for young people. That explains why many continue to rent or live with their parents. 

According to the National Property Information Centre, the average price of a condominium or apartment in the Batu district in Kuala Lumpur is RM735,000, while a similar property in the Setapak district, also in Kuala Lumpur, costs RM430,000. In Selangor, a terrace house in the Petaling district costs RM750,000, while the same property type in Sabak Bernam, which is on the outskirts, is priced at RM330,000. 

Source: https://www.wikiimpact.com

 Workers aged between 24 and 30 typically have lower incomes and cannot afford to buy properties in central areas. Working in Kuala Lumpur and looking to buy a property nearby but are earnings, say between RM2,400 and RM4,000 (monthly), you could not afford any property. If the price of the house is around RM500,000, you must earn at least RM4,600 to own it. Banks usually request that they apply for a joint loan with their partner or parents. The maximum loan eligibility is up to 70% of their monthly income, which is rather high. But some may have a car loan, a student loan and a credit card (debt). So, what’s left of their income for loan eligibility for a house priced between RM350,000 and RM400,000. These houses are located further away from the city centre but would cost more to travel to their workplace. 

The government should come up with rent-to-own schemes so that young people can afford to buy property closer to their workplace. Banks would also consider the person’s working tenure, which must be at least two years, the type of company and the industry they are working in. Those working as gig workers or on a contract basis are not so favoured by banks. Then there is CTOS. 

So, the Government must work with REHDA in incentivising building affordable houses, releasing land by states or converting some land from agriculture to residential. There are several other steps that need to be included and the Government is fully aware of them! 

Reference:

Homes beyond the reach of most M’sians, Diyana Pfordten, The Star, 30 October 2024

PMX and the Politics of Power and Patronage?

PMX made it to power through elite deal-making. PMX and his coalition did not win a majority at the last election. (This article is based on Bridget Welsh’s comments on 26 October 2024 in Malaysiakini).

Deal-making continues to reshape political alliances in this “unity” coalition, (the Madani government). Those who wanted a different government from that of Umno now have the same party and practices in power. PMX has provided the means for the party’s leaders and their family members to be rehabilitated, including through taxpayer-funded patronage. 

Political charges are being granted a discharge not amounting to an acquittal (DNAA) and halved for political support for loyalty and political support as part of deals. Latest is the groundwork for house arrest. 

Source: https://en.wikipedia.org

Reformasi is seen to be ending at the hands of the person who used it to gain political power. Little meaningful changes have been made to address electoral reform, expand political rights, bolster the judiciary, improve race relations, curb corruption and check abuses of power and patronage. 

Rather than strengthening political accountability, political institutions and building inclusion across groups in Malaysia, the focus remains on maintaining political power, to even include a personal mention of house arrest in a budget speech. 

The “attack the rich” Budget 2025 targeting the notion of Top 15, a concept that does not account for the spending needs of families, especially in urban areas, is feeding discontent and feelings of betrayal. This group pays 80 percent of Malaysian income taxes, funding infrastructure and increased salaries/bonuses of civil servants. Negative sentiments will only worsen. 

There are better ways to increase revenue fairly and less divisively. Taxes on the rich should focus on the super-wealthy, the top one percent and those who have taken advantage of patronage. Malaysian political history (or that of other nations) shows that alienating your political base comes with political peril. 

For now, the negative sentiment among the public has been evident in greater political disengagement and ambivalence, with fewer people voting especially. As in 2018, one should not underestimate the politics of quiet disappointment and frustration. 

Courage is not an ingredient with PMX. That is surprising, after all the jail term he has been through. If he is truly courageous then go for all the reformasi steps and see if his partners will walk away. Then face the consequences. At least the people will support him for the next GE! 

Reference:

Comment: Politics of betrayal? Bridget Welsh, 26 October 2024, Malaysiakini

George Muller: A Changed Man of God!

George Müller is said to have read the Bible more than two hundred times, many of which on his knees. Before his death, asked by a reporter what he would still like to do, he, on his knees, replied, "To read more of the Bible because I know too little about the excellence of Christ."

This was an Evangelical Christian, director of the Ashley Down orphanage in Bristol, England, where he cared for 10,024 orphans throughout his life based on God's promise found in Psalm 68:5 “God is a Father to the orphans". Known as a figure wholly involved in the education of the children he cared for; he was even accused of providing an education beyond the usual norm for those times. He founded 117 schools that offered Christian education to 120,000 children, many of them without parents.

 

Source: https://en.wikipedia.org

 He said, “If I, a poor man, can build and administer an orphanage without asking anyone for money or assistance, only through prayer and faith, this, together with the blessing of the Lord, could encourage God’s children in faith, being, also a powerful testimony to the unbelievers about existence of God."

The famous writer Charles Dickens himself visited George Müller to see himself the treatment offered to children. Dickens was so impressed that he wrote articles for several newspapers, an advertisement money can’t buy.

Thus, even after the age of 70, Müller travelled intensely, reaching 42 countries, speaking even to White House authorities, sharing with others his rich experience with God.

On the day of Müller's funeral, the Bristol factories shut down. Thousands of people came to pay their last respects to the man who was transformed by God from a thief who betrayed his closest friends, to a man who put himself at God's disposal and raised the equivalent of 180 million dollars through prayer and faith in Jesus.

Müller wrote of his conversion: “When I surrendered myself totally to God, the love of money was gone, the love of a home was gone, the affection of wealth was gone, the Love of worldly things was gone. God has become my everything I found everything in Him, there is nothing else I wanted. And I stayed with Him, a happy man, a very happy man, seeking to only accomplish the things of God."

Many more lives have been transformed because of Müller's faith and courage. Even if he is no longer among us, the work initiated by him still exists, and Müller's message echoes today: "God is real, He is a God in whom you can trust!"

It is enough to trust in the living God, Müller said, and not worry about earthly things, for the beginning of worry is the end of faith; and the beginning of faith is the end of worry. What a life well lived. We come with nothing and leave with nothing! And in between, we gather for whom? 

Reference:

Paul Dakessian’s Post, Linkedin

Budget 2025: Was it Just “Song and Dance”?

When the unity government was formed post-2022 general election, the first window of opportunity for reforms was presented when the government tabled Budget 2024. While some new taxes were announced and a move to address Malaysia’s subsidy problem was also made, more concrete measures were required. 

In this Budget, the FM has suggested top-tier households are those in the top 15% (T15)! The government proposed a two-tier pricing mechanism whereby 85% of households will continue to enjoy the subsidised RON95 at RM2.05, while the T15s will pay market prices.

 

Source: https://www.malaysianwireless.com

Many questions have been raised on the implementation. Some households may hit T15 with a larger share of working adults in one household while in some households, the T15 may represented by just a sole breadwinner or even by a smaller household size.

Post-budget, many comments have been made that the T15 category will be fine-tuned to include actual expenditure patterns of households.

Attempting to differentiate and ensure only the real B85 will enjoy the fuel subsidies is futile as it will only complicate matters and backfire on the government. Either we float the RON95 price or we don’t! If we float, then the cash transfers to B40 is higher. That seems a simpler solution to remove subsidies and RON95 is floated progressively over a period of 12-18 months.

On minimum wage, a two-tier increase in minimum wage with the first increase to RM1,700 effective 2025 and RM2,000 with effect from January 2026 would have been better. That would also address Malaysia’s low-wage structure and be on course in achieving the income share of gross domestic product (GDP) to 45% set under the Madani Economy framework. “Heavy” resistance will be seen by SMEs and others who view this as added costs with no measurable improvement in productivity. It may also lead to higher inflation.

The 2% tax on dividend income in excess of RM100,000 is perhaps a “testing the water” initiative. While this opens up potential higher rates, wider scope and lower threshold levels in the future, the move, seen in isolation, is not significant.

Even if an individual earns RM10mil in divided income, the tax is less than RM200,000, while those who have a portfolio of RM2.5mil in investments and earning some RM125,000 in dividends (assuming a dividend rate), will only pay some RM500 in tax, which is clearly not material as it is only 0.4% of total dividend income. This is clearly targeted towards individuals with a valuable portfolio and likely enjoyed by households in the T15 category.

After falling to 10.9% in 2020, tax revenue to GDP ratio rose to 12.6% in 2023 and is expected to fall to 12.4% this year. The Government could have created a bi-partisan, private sector driven tax reform committee to examine existing piecemeal efforts with a more comprehensive tax framework with growth and inequality addressed. That could have presented a longer-term strategy to reduce debts, improve implementation and create greater efficiencies. Alas, our FM is more into “song and dance” than in substance!

Reference:

Budget 2025 – a missed opportunity, Pankaj C. Kumar, The Star, 26 October 2024

Trump’s Tariffs: Who Benefits?

Tariffs have emerged as one of the key points in America’s 2024 Presidential race. Trump’s plan is to have at least 10% duties on all imports. Harris has said this is a “national sales tax” which will send inflation soaring and cost each American family thousands of dollars. 

The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased revenue as imports enter the domestic market. Domestic industries also benefit from a reduction in competition, since import prices are artificially inflated. 

Unfortunately for consumers—both individual consumers and businesses—higher import prices mean higher prices for goods. If the price of steel is inflated due to tariffs, individual consumers pay more for products using steel, and businesses pay more for steel that they use to make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.

The effect of tariffs and trade barriers on businesses, consumers, and the government shifts over time. In the short run, higher prices for goods can reduce consumption by individual consumers and by businesses. During this period, some businesses will profit, and the government will see an increase in revenue from duties. 

Source: https://en.wikipedia.org

 In the long term, these businesses may see a decline in efficiency due to a lack of competition, and may also see a reduction in profits due to the emergence of substitutes for their products. For the government, the long-term effect of subsidies is an increase in the demand for public services, since increased prices, especially in foodstuffs, leave less disposable income. 

Tariffs increase the prices of imported goods. Because of this, domestic producers are not forced to reduce their prices from increased competition, and domestic consumers are left paying higher prices as a result. Tariffs also reduce efficiencies by allowing companies that would not exist in a more competitive market to remain open. 

The role tariffs play in international trade has declined in modern times. One of the primary reasons for the decline is the introduction of international organizations designed to improve free trade, such as the World Trade Organization (WTO). 

Such organizations make it more difficult for a country to levy tariffs and taxes on imported goods and can reduce the likelihood of retaliatory taxes. Because of this, countries have shifted to non-tariff barriers, such as quotas and export restraints.

Organizations like the WTO attempt to reduce production and consumption distortions created by tariffs. These distortions are the result of domestic producers making goods due to inflated prices, and consumers purchasing fewer goods because prices have increased. 

Since the 1930s, many developed countries have reduced tariffs and trade barriers, which has improved global integration and brought about globalization. Multilateral agreements between governments increase the likelihood of tariff reduction, while enforcement of binding agreements reduces uncertainty. 

So, tariffs are a short-term solution for an immediate industry or trade problem. It is not a long-term panacea. Why? They create inefficiencies and attract retaliatory tariffs, and no-one wins in this game. If Trump wins, our exports - palm oil and electronic goods are going to be hit! Can we survive?

 

Reference:

The basics of tariffs and trade barriers, Brent Radcliffe, Investopedia, updated 26 June 2024

I Am Not Responsible…

This delightful “not responsible” piece was by former MP, Tony Pua, which I reproduce below (with slight amendments):

I'm not responsible for sacking my Deputy PM to cover up 1MDB.

I'm not responsible for sacking the Attorney-General to cover up 1MDB.

I'm not responsible for sacking the MACC Chief and Special Branch Chief to cover up 1MDB.

I'm not responsible for installing a stooge as the PAC Chairman to cover up 1MDB.

I'm not responsible for US$27mil 22-carat pink diamond my beautiful wife purchased (and many more millions in jewellery and luxury goods). (Where is it hidden by the way?)

I'm not responsible for issuing secret RM3bil govt guarantee letter to raise bonds for 1MDB.

I'm not responsible for paying extortionary fees to Goldman Sachs to raise bonds for 1MDB.

I'm not responsible for negotiating  lopsided super over-priced deals with Chinese companies to cover up 1MDB debts.

I'm not responsible for going after and persecuting 1MDB whistle-blowers to cover up 1MDB.

I have already paid my political price. It’s not fair for me to legally responsible for any of the above.

I just have to say I'm sorry for being the most gullible PM of Malaysia and trusted the wrong parties who cheated Malaysians of tens of billions of ringgit.

I should not be sitting in prison, even though I benefited immensely from the 1MDB largesse, in cash and in kind.

It's not my fault. Really.

And I am now looking forward to “house arrest” in a luxurious estate of my choice. I intend to help recover the lost funds by producing a TV program like the Kardashians!

Reference:

Facebook, Tony Pua, 25 October 2024

To Cut Petrol Subsidy?

 

Malaysia will have to unwind blanket state support for its most widely used gasoline by this year for the government to meet its own subsidy spending target, said the World Bank. The government is set to save about RM7.9 billion (US$1.8 billion) this year from the subsidy reforms it has already announced. It is still short of its aim to cut subsidies and social assistance programmes by RM11.5 billion in 2024. The Prime Minister has promised to replace broad subsidies with targeted assistance. This is to narrow the 2024 budget deficit to 4.3% of gross domestic product (GDP), from 5% in 2023.

 

Source: https://en.wikipedia.org

A timeline for the RON95 gasoline subsidy cuts has not been specified. Malaysia currently absorbs much of the price of fuel and cooking oil for its population, a move that was estimated to cost RM81 billion last year.

Malaysia is not collecting enough revenue to meet its spending needs, at some point, the government will have to contend with reintroducing the goods and services tax to tackle this, according to World Bank’s leading economist. A combination of progressive taxes, well-targeted subsidies, and adequate cash transfers can collectively benefit low-income groups while improving fiscal space to finance Malaysia’s longer-term spending needs, according to the World Bank.

It is quite easy to remove subsidies but quite painful for the B40 and M40. No matter what is said about the cash transfers, inflation will balloon! That’s a tax on the poor! You got to reduce subsidies in phases over a 3-year period. It is like an addiction, you do it gradually or the impact will be “cold turkey”. (Although Turkey may need it!)

Reference:

Malaysia must cut petrol subsidy to meet budget aim, says World Bank, Bloomberg/FMT, 8 October 2024