Rapid Fall in Costs of Renewable Energy

Although all forms of renewable energy have become more competitive, the price of onshore wind and solar photovoltaic-generated power have both fallen below five US cents per kilowatt hour for the first time, the International Renewable Energy Agency (IRENA) says. Solar photovolaics has tumbled from nearly 8 times that figure just 10 years ago, while onshore wind has fallen steadily from nearly 9 cents per kilowatt hour in 2010.

Fossil fuel-fired power generation is estimated to cost between 5 and 18 cents per kilowatt hour, according to IRENA.

In April 2019, the United States generated more electricity from renewables than from coal for the first time. In the same month, the UKwent for 18 days without using any coal to generate electricity.

IRENA says $23 billion could be wiped off the world’s energy bills if the costliest 500 gigawatts of coal-generating plant was replaced by solar and wind power. While switching generation from fossil fuels to renewables would reduce global CO2 emissions by 5%, it says. Reasons to use coal to generate electricity are evaporating as renewables provide power more cheaply in the majority of cases, says IRENA. Over half of new renewable installations delivered generating costs that were lower than the cheapest comparable new coal-fired plant.

Three factors that mean renewables will continue to grow: public environmental concerns; falling renewable energy costs; and the fact the technologies are now available to make the renewable energy revolution happen.

Hopefully, Malaysia will be more aggressive in implementing renewable energy installations.

Reference:

5 charts show the rapid fall in costs of renewable energy, Douglas Broom, Nov 16, 2020 (https://energypost.eu)

Covid Impact: USD4 Trillion?

 The crash in international tourism due to the coronavirus pandemic could cause a loss of more than $4 trillion to the global GDP for 2020 and 2021. This is according to an UNCTAD report. The estimated loss has been caused by the pandemic’s direct impact on tourism and its ripple effect on other sectors closely linked to it.

The report, jointly presented with the UN World Tourism Organization (UNWTO), says international tourism and its closely linked sectors suffered an estimated loss of $2.4 trillion in 2020 due to direct and indirect impacts of a steep drop in international tourist arrivals.

A similar loss will occur in 2021. Tourism sector’s recovery will largely depend on the uptake of COVID-19 vaccines globally. COVID-19 vaccination rates are uneven across countries, ranging from below 1% of the population in some countries to above 60% in others. According to the report, the asymmetric roll-out of vaccines magnifies the economic blow tourism has suffered in developing countries. These countries may account for up to 60% of the global GDP losses.

The tourism sector is expected to recover faster in countries with high vaccination rates, such as France, Germany, Switzerland, the United Kingdom and the United States, the report says. But experts don’t expect a return to pre-COVID-19 international tourist arrival levels until 2023 or later, according to UNWTO. The main barriers are travel restrictions, slow containment of the virus, low traveller confidence and a poor economic environment.

The report assesses the economic effects of three possible scenarios – all reflecting reductions in international arrivals – in the tourism sector in 2021.

Figure 1: As tourism falls world GDP takes a hit in 2021 (3 alternative scenarios)

The first one, projected by UNWTO, reflects a reduction of 75% in international tourist arrivals – the most pessimistic forecast – based on the tourist reductions observed in 2020. In this scenario, a drop in global tourist receipts of $948 billion causes a loss in real GDP of $2.4 trillion, a two-and-a-half-fold increase. This ratio varies greatly across countries.

Figure 2: Estimated losses in GDP by region from reduction in tourism (percentage)

The second scenario reflects a 63% reduction in international tourist arrivals, a less pessimistic forecast by UNWTO. And the third scenario, formulated by UNCTAD, considers varying rates of domestic and regional tourism in 2021. It assumes a 75% reduction of tourism in countries with low vaccination rates, and a 37% reduction in countries with relatively high vaccination rates, mostly developed countries and some smaller economies.

According to the report, the reduction in tourism causes a 5.5% rise in unemployment of unskilled labour on average, with a high variance of 0% to 15%, depending on the importance of tourism for the economy. Labour accounts for around 30% of tourist services’ expenditure in both developed and developing economies. Entry barriers in the sector, which employs many women and young employees, are relatively low.

In July last year, UNCTAD estimated that a four- to 12-month standstill in international tourism would cost the global economy between $1.2 trillion and $3.3 trillion, including indirect costs. But the losses are worse than previously expected, as even the worst-case scenario UNCTAD projected last year has turned out to be optimistic, with international travel still low more than 15 months after the pandemic started.

According to UNWTO, international tourist arrivals declined by about 1 billion or 74% between January and December 2020. In the first quarter of 2021, the UNWTO World Tourism Barometer points to a decline of 88%.

Developing countries have borne the biggest brunt of the pandemic’s impact on tourism. They suffered the largest reductions in tourist arrivals in 2020, estimated at between 60% and 80%. The most-affected regions are North-East Asia, South-East Asia, Oceania, North Africa and South Asia, while the least-affected ones are North America, Western Europe and the Caribbean.

It looks like a long haul for recovery. Many had viewed 2022 as the year for recovery. IATA believes it won’t be until 2023 that passenger numbers are expected to reach pre-pandemic levels. For Southeast Asia it may be 2024. The chart below (IATA) suggests a conservative outlook:

Source: IATA/Tourism Economics Air Passenger Forecasts, November 2021

The implications are severe for our hotel, aviation, tourism and other related sectors. Will the Government do anything?

References:

1. Global economy could lose over $4 trillion due to Covid-19 impact on tourism, UNCTAD, 30 June 2021 (https://unctad.org)

2. 20 Year Passenger Forecast, IATA (https://www.iata.org)

Ukraine Conflict: What Are Its Economic Consequences?

Western countries have imposed severe sanctions on Russia but the economic fallout could also have a major financial impact on people around the world - from the availability of food to the cost of energy and petrol.

1. Escalation of Gas/ Oil Prices

Russia is the world's largest natural gas exporter. People in the UK and Europe are already paying high prices for energy and fuel. The Russia-Ukraine conflict is expected to drive these prices even higher. Oil price jumped to its highest level in more than seven years, while future gas prices have increased 60% in just one day.

Martin Young, an analyst at the banking group Investec, has warned that household fuel bills in the UK could reach an annual £3,000, while motoring groups said average petrol prices had already hit a record high of nearly 149.5p on Wednesday, with diesel at 152.83p.

Russia is the second-biggest exporter of crude oil, and the world's largest natural gas exporter, which is vital to heating homes, powering planes and filling cars with fuel.

The UK gets only 6% of its crude oil and 5% of its gas from Russia. The EU, however sources nearly half of its gas from Russia.

But customers could still be hit in other ways - if airlines decide to pass on the rise in costs of aviation fuel, the price of a plane ticket could get more expensive.

2. Food Prices Could Go Up

Ukraine has been called the "breadbasket of Europe". Russia and Ukraine export about a quarter of the world's wheat and half of its sunflower products, like seeds and oil. Ukraine also sells a lot of corn globally. Analysts have warned that war could impact the production of grains and even double global wheat prices.

More than 40% of Ukraine's wheat and corn exports go to the Middle East or Africa - and disruptions to supply could affect availability in these areas.

3. Higher Inflation

Inflation, which measures how fast the cost of living rises over time, hit 7.5% in January in the US - the highest level seen there since February 1982 - and rose by 5.5% in the UK.

But it could hit close to 10% in major Western economies if the cost of energy and food is pushed up by dwindling supplies, according to the Centre for Economics and Business Research.

That might encourage the US Federal Reserve or the Bank of England to increase interest rates. Consequently borrowing costs for businesses, homeowners and others will be higher. 

4. Stocks Will Fluctuate

Russian stocks crashed by as much as 45% in the wake of the Ukraine invasion, with banks and oil companies among the worst affected. It also led to steep falls on stock markets elsewhere around the world: in Europe the UK's FTSE 100 index fell more than 3% while Germany's Dax index was nearly 5% lower.

Many people's reaction to stock market changes is that they are not directly affected, because they don't invest money in stocks and shares. But there are millions of people with a pension whose savings are invested in the stock market.

Widespread falls in share prices, such as those triggered on last Thursday, are likely to be bad news for passive investors. 

Some investors or savers might look to protect their money or assets by moving them to traditional "safe havens", like gold, especially as the markets are likely to see more volatility as the crisis develops.

5. Cars could get pricier

The car industry was already reeling during the pandemic from a chip shortage and supply chain problems. Russia is one of the world's largest suppliers of metals used in car manufacturing, such as nickel, which is used in lithium-ion batteries, and palladium, which is used in catalytic converters.

If supplies of these metals are not cut-of in retaliation to sanctions, the supply problems could worsen, with car firms having to find alternative sources.

Countries such as South Africa and Zimbabwe produce substantial amounts of palladium, but demand has been increasing and prices could rise as a result.

Russia is also home to manufacturing hubs for brands like Stellantis, Volkswagen and Toyota. Factories in the region could struggle to operate under sanctions, potentially hampering production and the availability of new cars.

6. Lower Economic Growth

With oil prices higher, supply chain disruptions, GDP growth of major economies will dent by at least 1%.

Whatever the reason for the invasion, the fragile economic recovery is now going into a tailspin. It will impact most nations unless it is a closed economy. So, it is good for us to brace for impact.

Reference:

Ukraine conflict: Five ways life could get more expensive, Lora Jones, BBC News

Ukraine Conflict: What Does Putin Really Want?

Russian troops are closing in on Ukraine's capital, days after Russia's leader ordered a full-scale invasion from the north, east and south. In a pre-dawn TV address on 24 February, he declared Russia could not feel "safe, develop and exist" because of what he claimed was a constant threat from modern Ukraine.

Airports and military headquarters were hit first then tanks and troops rolled into Ukraine from Russia, Russian-annexed Crimea and ally Belarus. Many of President Putin's arguments were false or irrational.

President Putin has frequently accused Ukraine of being taken over by extremists, ever since its pro-Russian president, Viktor Yanukovych, was ousted in 2014 after months of protests against his rule.

Russia then retaliated by seizing the southern region of Crimea and triggering a rebellion in the east, backing separatists who have fought Ukrainian forces in a war that has claimed 14,000 lives. 

Late in 2021, Russia began deploying large troop numbers close to Ukraine's borders, while repeatedly denying it was going to attack. Then Mr Putin scrapped a 2015 peace deal for the east and recognised areas under rebel control as independent.

Russia has long resisted Ukraine's move towards the European Union and the West's defensive military alliance, NATO. Announcing Russia's invasion, he accused NATO of threatening "our historic future as a nation".

It is now clear that Russia is seeking to overthrow Ukraine's democratically elected government. President Putin blamed partly his decision to attack on NATO's eastward expansion. He earlier complained Russia had "nowhere further to retreat to - do they think we'll just sit idly by?" Ukraine is seeking a clear timeline to join NATO and Russia's Deputy Foreign Minister Sergei Ryabkov explained: "For us it's absolutely mandatory to ensure Ukraine never, ever becomes a member of NATO."

In 2011, President Putin wrote a long piece describing Russians and Ukrainians as "one nation", and he has described the collapse of the Soviet Union in December 1991 as the "disintegration of historical Russia".

He has claimed modern Ukraine was entirely created by communist Russia and is now a puppet state, controlled by the West.

President Putin has also argued that if Ukraine joined NATO, the alliance might try to recapture Crimea. But Russia is not just focused on Ukraine. It demands that NATO return to its pre-1997 borders. In President Putin's eyes, the West promised back in 1990 that NATO would expand "not an inch to the east” but did so anyway.

NATO views itself as a defensive alliance with an open-door policy to new members. Its 30 member states are adamant that will not change. There is no prospect of Ukraine joining for a long time, as Germany's chancellor has made it clear. But the idea that any current NATO country would give up its membership is a non-starter.

So, what does Putin really want? Yes, NATO to stop its expansion westward. Yes, Ukraine to be more integrated with Russia. Yes, the cultural, language, religious and historical links may justify that this is for the betterment of “one people”.

But is that all? No, Putin wants Ukraine for three other simple reasons:

(i) there are huge gas reserves off the Ukrainian-Romanian coastline in the Black Sea. That ensures economic stability for Russia;

(ii) the existing gas pipeline to Europe through Ukraine has been downgraded because of the high tariff imposed by Ukraine. Russia had to build and pump gas through alternative routes for Western Europe;

(iii) Ukraine has “blocked” the water channel for Crimea because of Russia’s invasion of Crimea in 2014.

The first point alone is enough reason to warrant this adventure and he (Putin) knows the consequences are small with his bets “hedged” with China. It is America and Europe that must “climb down” and accept a new, different regional realpolitik. Will they do that?

References:

Why is Russia invading Ukraine and what does Putin want, Paul Kirby, BBC News

NATO: Why Russia has a problem with its eastward expansion, https://www.dw.com 

MH370: Breakthrough?

MH370 went missing on March 8 2014 en route from Kuala Lumpur to Beijing with 239 people on board. The disappearance nearly eight years ago kicked off one of the most extensive aviation searches in history. It has generated a range of theories as to where it ended up, and what happened on board.

Using software based on ‘weak signal propagation report’ (“WSPR”), Richard Godfrey’s new report says the craft should be resting about 4km under the sea in a mountainous region of the southern Indian Ocean that had been missed by previous search attempts.

(Source: https://en.wikipedia.org)

Taken together with satellite, weather, ocean current, and aeroplane performance data, Godfrey says the new technology should trigger a fresh search. The proposed search area is defined by a circle with a radius of 40 nautical miles centred on the prime crash location.

Godfrey says the plane is located about 1,200 miles west of Perth, Australia lying at the base of what is known as the Broken Ridge - an underwater plateau with a volcano and ravines in the south-eastern Indian Ocean.

Since 2014, 33 pieces of debris have been found in six countries - including South Africa and Madagascar - which experts believe proves the plane plunged into the Indian Ocean.

The last full-scale search for MH370 in 2018 was by US robotics company Ocean Infinity - using unmanned underwater vehicles - covered nearly 50,000 square miles and yet nothing was found.

WSPR is now being used to accurately calculate the final location of the MH370 before it disappeared. Extensive trials of new technology tracking historical data of radio signals bumping off planes have led experts to believe it could hone in on a more specific search area.

In a recent statement, the Malaysian Transport Ministry remains sympathetic to the family members of the victims and is also of the view that careful consideration and study should be given to any new credible evidence which may be put forth to identify the location of the aircraft.  Meanwhile, ATSB Chief Commissioner Angus Mitchell said the agency has requested Geoscience Australia to review past data and re-validate if any items of interest were detected in the search zone recommended by Godfrey.

Eight years on, some investigators believe the plane's captain made a series of zig-zagging movements to throw off air traffic teams and evade radar systems. Only with the recovery of the flight data recorder will we have a better picture of what happened to flight MH370. Otherwise, there will always be new hypothesis and speculative theories on hijack, terrorist activity or an alien abduction?

References:

MH370 breakthrough as expert ‘pinpoints’ precise location, Alex Druce, (https://www.news.com.au)

MH370 breakthrough as hunt for jet is restarted after bombshell tech pinpoints “exact” location eight years on, Imogen Braddick  (https://www.thesun.co.uk)

New data might lead to a breakthrough on the MH370 tragedy, Hesper Anak Buckland, 

21 Feb 2021 (https://tvstv.my)

Is Malaysia’ GDP Growth on a Downtrend?

At the moment, Malaysia has a “very low” share of high-skilled jobs compared to Singapore and other advanced economies, according to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie (Starbiz, Wednesday, 5 Nov 2021).

The share of high-skilled jobs for Malaysia is only 24.7% while 62% are semi-skilled and 13.1% are low skilled. This is as of second quarter of 2021. Other countries have high-skilled job percentages of over (or close to) 60% mark. Singapore has about 54.7%, Switzerland 51.3% and the United States 42.2%. That’s according to SERC.

Lee warned that Malaysia’s potential economic output growth has hit a speed bump, with the rate moderating to 3.3% in 2020 and perhaps 3.4% for 2021. In comparison, the average potential output growth rate between 2011 and 2019 was 4.9%.

Potential output is the maximum amount of goods and services an economy can turn out when it is most efficient – that is, at full capacity.

Apart from the lack of skilled jobs domestically, slowing labour productivity growth is another factor.

Labour productivity in Malaysia has only grown by 1.1% between 2016 and 2020, as a result of lower utilisation of productive capital stock and ineffective mobilisation of resources.

High-quality investments in technology-intensive industries are required to increase our productive capital stock. We also need to encourage more companies to adopt technology and digitalisation, especially among the SMEs.

On the economic performance for 2022, Lee expects a stronger growth for Malaysia compared to last year, although his projection is below the government’s official guidance.

The country’s GDP is set to grow by 5.2% in 2022, from MOF’s projected growth of 5.5%-6.5%.  Malaysia’s recovery path is contingent on sustained revival in domestic demand, uninterrupted transition towards reopening, no major drag from exports and timely implementation of fiscal measures.

Lee highlighted that the Malaysian economy faces five major risks in 2022 – the Covid-19 mutations, the US Federal Reserve policy headwinds, China’s economic slowdown, price pressure and the winding down of domestic relief measures and policy changes headwinds. Others not mentioned may include political stability, flip-flop Government policies and the incentives for FDIs.

For 2022, the real issue is inflation – projected officially at 3%. But prices of essentials are already above 10%. This is mainly a cost-push phenomenon with consumers bearing the brunt of supply disruptions, price increase of commodities and imported goods, transportation cost increases and tariffs. To mitigate, the Government needs to raise minimum/living wages, improve bottlenecks, reduce bureaucracy, subsidise/control tariffs and transport costs. Beyond that, we need to re-look at up-skilling workers, focussing on R&D and taking steps on productivity improvements, to reverse the downward growth pattern of GDP.

Will the present Government do that?

Reference:

In need of more high-skilled jobs, Ganeshwaran Kana, The Star, 5 Jan 2022

Socso: An Unutilised or Underutilised “Insurance Scheme”?

While most people are aware of what EPF is, SOCSO seems to be less popular in terms of awareness and familiarity. A portion of a person’s monthly income is allocated for SOCSO from both employers and employees but what are you paying for?

SOCSO was incorporated to provide assistance both medically and financially to employees that have had their abilities reduced or incapacitated due to accidents or diseases. They also provide assistance through pensions to the dependents of employees if they die.

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

Employment Injury Scheme Benefits

This scheme provides coverage and protection for employees who suffer from employment injury.

• Medical benefits

• Temporary disablement benefit

• Permanent disablement benefits

• Constant-attendance allowance

• Rehabilitation benefit

• Return to work programme

• Dependent benefit

• Funeral benefits

• Education benefits.

Also important to note that employees that have stopped contributing to SOCSO might still be covered if they fulfil certain conditions. A fact that has gone unnoticed by many.

 

Invalidity Pension Scheme

This scheme covers employees who experience invalidity and death due to any causes not related to their employment. Invalidity implies the inability of an employee to achieve one-third of the customary earnings of a sound insured person. This inability may take the form of permanency or it’s very unlikely to recover.

The benefits that could be attained are:

• Invalidity pension

• Invalidity grant

• Survivors' pension

• Funeral benefit

• Facilities for Physical Rehabilitation and Dialysis

• Education Benefits

The survivors' pension is also an important piece of information for those who assume that the pension will stop once the employee has passed away. Through the survivors' pension scheme, dependent family members can apply to have it transferred to them.

 

SOCSO has issued health checks vouchers to 2.2 million Malaysians. However, results have shown that a staggering 1.7 million (77.3% of the eligible candidates) eligible for the free medical health check have declined the said initiative.

 

SOCSO contribution is compulsory for all Malaysian employees with monthly salaries lower than RM3,000. However, it is optional for those with starting salaries above RM3,000. Owing to the "once in always in" principle, a SOCSO member who has contributed to SOCSO will continue to be a member even when salaries have increased to over RM3,000.

 

First Category: Employment Injury And Invalidity Schemes

• All employees below 60 years old are required to participate in this category.

• Only 0.5% of employee’s monthly wages is to be extracted for the contribution.

 

Second Category: Employment Injury Scheme Only

• Employees who 60 years old and above and still working

• Employees above 55 years old who have made their first SOCSO contribution

• Insured Person receiving Invalidity Pension and still working and receiving less than 1/3 of the average monthly wages before the invalidity

• Employer to bear the contribution costs to SOCSO at 1.25% of monthly wages

Recently, SOCSO made a statement that it paid out RM1.3 million compensation to 764 delivery riders who were involved in accidents. The payments covered temporary and permanent disability benefits, medical expenses, dependent benefits, as well as funeral expenses. On average, the payment was just RM1,700 per person. For Covid, payout was RM11.2 million for 15,036 people or RM745 per person. And it took 2-3 months to process and payout. Imagine a funeral will have to wait for 2-3 months? And the payout sum per person is pathetic! How can dependents survive?

And when it comes to withdrawal, there is no such thing. This is one insurance scheme with no surrender value! If you have paid all your working life and not claimed, too bad, your bad luck? There is need for reform of this scheme and incentives for employers and employees to contribute, not the “big” stick approach. Meanwhile, it remains underutilised or unutilised till there is a serious campaign to raise awareness and/or change its workings!

References:

5 things you should know about SOCSO (https://loanstreet.com.my)

Awang: RM1.3 mil in SOCSO compensation given to over 700 delivery riders, Focus Malaysia, 16 Jan 2022

Socso paid RM11.19 million in compensation to those infected with Covid-19 at workplaces, The Star, 26 Sept 2021