Sanctions Could Shrink Russian Economy By 7%

Russia’s economy is expected to plunge into a deeper recession than the one caused by Covid-19 as a result of Western sanctions and the country’s increasing isolation after invading Ukraine.

Economists said measures imposed on Russian banks and companies by the US, EU, UK and their allies were having a severe impact on financial markets in Moscow. It could inflict more damage on Russia’s wider economy over time. Analysts at Goldman Sachs said it had cut its forecast for Russian gross domestic product for 2022 from 2% to a 7% decline.

Source: https://intellinews.com

Russia’s economy was estimated to have grown by 4.5% last year (2021) after having shrunk by almost 3% in 2020, the worst year of the pandemic for the global economy.

Analysts said the Ukraine war may have a limited impact on the global economy because trade links between Russia and the rest of the world were limited. The country accounts for 1.5% of global GDP, and for 2.9% and 0.9% goods exports from the eurozone and Britain respectively.

However, oil prices rose to more than $120 a barrel, the highest level since 2014, as the prospect of disruption in supplies from Russia sent energy markets surging further. Russia is the world’s second biggest oil exporter and its largest in natural gas.

Should recent increases in oil and gas prices be sustained, economists forecast higher inflation will hit households and businesses, and trigger a slowdown in economies across the world.

Analysts at the consultancy Oxford Economics said the pressure on Russian financial markets would damage Russia’s GDP significantly, by as much as 6% relative to a pre-crisis forecast in a “plausible downside scenario”.

The economic repercussions for Ukraine, as it suffers massive infrastructure damage and disruption from the Russian bombardment, is expected to be worse still. Evidence from previous war-hit countries suggests a slump of up to 60%. Eurozone and UK GDP could be about 0.5 percentage points lower than previously expected owing to the impact from soaring gas prices.

However, the analysts warned that a war lasting into 2023 with tougher sanctions from western governments and Russia retaliating by restricting gas supplies would cause a sharper fall of 7% in Russian GDP in 2023..

What are the repercussions for Malaysia? Impact will be on inflation, lower FDI, reduced tempo on domestic investments and consumption as investors/consumers defer investments or purchases. And instead of recovery in 2022/23, we will have some prolonged agony to 2024. IATA forecasts suggest that travel will only recover to 2019 levels by 2024.

Reference:

Russian economy could shrink by 7% as result of Ukraine sanctions, Richard Partington, 2 March 2022 (https://www.theguardian.com) 

EPF: Is it a Retirement or “Emergency” Fund?

The Employees Provident Fund (EPF) will open applications for a new round of special withdrawals from April 1 to April 30. In a statement, it said members aged below 55 years old will be eligible to apply, with payments starting April 20.

A maximum withdrawal amount of RM10,000 and minimum RM50 and this must fully utilise their savings balance in Account 2 first before accessing their Account 1. Over 6.3 million people will qualify.

This is the fourth special withdrawal scheme since 2020. Over RM101 billion has been withdrawn from the previous three schemes. Pakatan Harapan had also urged Putrajaya to allow more withdrawals.

Source: https://ms.wikipedia.org

A maximum of RM63 billion can be withdrawn and this will force EPF to sell off some of its assets. EPF’s dividend for conventional savings for 2021 could have reached 6.7 percent, but only 6.1 percent was declared due to the earlier withdrawals. This means RM5.4 billion in terms of the additional dividend could have been distributed to all EPF members if those withdrawals had not been made. The “loss” of RM5.4 billion from the dividend has caused about 5.3 million members, who had not withdrawn their savings ever are forced to accept lower returns on their savings. Is this fair?

Last week, in pushing for another iCitra EPF withdrawal of RM10,000, Najib Razak proposed the fund introduce a multi-tiered dividend payout, among others.

This means that those with lower savings get a higher percentage while those with higher savings will get a lower percentage. Those with higher savings are already paying higher taxes  - is this fair?

The Director of the Institute of Malaysian and International Studies at Universiti Kebangsaan Malaysia, Sufian Jusoh, who specialises in development economics said the government would be seen as unfair for putting the burden on this group of Malaysians.

Why can’t the Minister of Finance provide a term loan through EPF against the EPF savings in accounts 1 and 2? Basic features are as follows:

        Short-term Loan : 100% of amount in Accounts 1 and 2

        Security                 : A charge on Accounts 1 and 2 (for those who borrow)

        Interest rate         : 0%

        Repayment         :10 years, by way of dividends declared by EPF

For EPF, the Government will pay an interest of 2% p.a. on the facility. (If you can do MRT3 for RM50 billion, you can pay the interest).

In the above manner, the B40 or M40 will get their emergency fund and still retain their savings. In addition, the repayment is from future dividends.

For EPF, it does not have to dispose any of its assets but extend a new loan scheme (new asset) for qualified and needy members. There is no liquidity “crunch” on its cash flow. Interest is set at 2% p.a. because that’s the minimum EPF (Act) promises to pay contributors.

For the Government, it is only interest over 10 years and not the “principal”.

Pray tell me why this cannot be done? Instead of “hair-brained” schemes from Najib Razak who has cash of USD756 million (from 1MDB). And Najib please use your cash as third party pledge? After all isn’t it all from Rakyat Malaysia?

References:

Putrajaya allows another round of EPF withdrawals, Malaysiakini, March 16, 2022

Multi-tiered EPF dividends will see exodus of funds, warns experts, K. Parkaran, FreeMalaysiaToday (FMT), March 16, 2022

Superb Dividend Declaration by EPF!

The Employees Provident Fund (EPF) declared a 6.10% dividend for conventional savings and 5.65% dividend for shariah savings for 2021— better than the 5.45% (conventional) and 5% (shariah) declared in pre-pandemic 2019. 

Total dividends declared amounted to RM56.72 billion (RM50.45 billion conventional and RM6.27 billion shariah) despite unprecedented Covid- 19-related withdrawals hitting growth in its fund size. This exceeded the previous all-time high of RM48.13 billion in 2017. Total distributable income was RM57.1 billion (RM50.8 billion conventional and RM6.3 billion shariah).

The EPF’s 2021 dividend rate is not only significantly higher than 2020’s rate of 5.2% and 4.9% but also exceeds the five sen per unit income distribution by Permodalan Nasional Bhd’s flagship Amanah Saham Bumiputera (ASB) for 2021.

According to the EPF, its overall investment assets grew to RM1.008 trillion in 2021, up 0.8% year-on-year from RM1 trillion in 2020. The significantly slower growth in its total investment assets, despite strong investment performance, was owing to Covid- 19-related withdrawals, including the unprecedented i-Sinar Account 1 withdrawals totalling RM58.7 billion.

In its statement, the EPF said it saw its first-ever negative net contributions (where withdrawals exceeded contributions) in 20 years of RM58.2 billion in 2021 but did not provide a breakdown of gross contributions and withdrawals for the year. 

Some 7.3 million EPF members had applied for at least one or all three of the Covid-19-related special withdrawals — i-Lestari, i-Sinar and i-Citra — that collectively saw RM100.9 billion withdrawn from the EPF between April 2020 and February 2022. The amount not saved with the EPF rises to RM110 billion when including the RM9 billion that was released to members because of the reduction in employees’ statutory contribution rate (from 11% to 7% from April to December 2020, and from 11% to 9% from January 2021 to June 2022).

About 48% of EPF members having less than RM10,000 in their accounts (with the withdrawals). For a three-year period, real (inflation-adjusted) returns were 4.91% for its conventional portfolio and 4.51% for shariah savings — surpassing its target of beating inflation by 2% over a rolling three-year period. 

Total gross investment income was RM67.06 billion in 2021, up 6% from RM63.45 billion

in 2020, “driven by a progressive recovery in the equities market and most asset classes amid the global rebound”.

Overseas investments, which account for 37% of its assets but contributed 56% of overall returns, “were critical contributors to its overall performance”.

The continued market recovery in 2021, particularly in developed markets, provided EPF the opportunity to realise some profits. Equities, particularly foreign-listed equities, continued to be a key driver for returns — delivering RM38.93 billion or 58% of the EPF’s gross investment income last year. In line with the broad recovery in the equities market, the EPF said it only saw the need to write down RM1.15 billion from its listed equity portfolio in 2021, significantly lower than RM7.71 billion in 2020. 

Fixed income, which made up 45% of its investment assets, contributed RM19.5 billion or 29% of the EPF’s gross investment income in 2021. Its real estate and infrastructure portfolio, which accounted for 6% of its asset base but 12% of gross investment income, continued to be a good inflation hedge. Return on investment (ROI) for the segment was 6.53%, 184 basis points above the 4.69% ROI for its fixed-income portfolio.

Conversely, money markets, which account for 5% of investment assets and allow liquidity management, only brought in 1% of gross investment income in 2021.

It is important for the Government not to allow this retirement fund (EPF) be used for “emergency” purposes. Contributors are aware of their obligations and should abide them. Requests for withdrawals to meet emergencies must be met by alternative Government funding under its own loan/grant programme. A dangerous precedent has been set recently with massive withdrawals.

To restore contributors’ funds, many “hair-brained” schemes have been suggested – tiering dividends, taxing the “rich” contributors to subsidise the “poor” and so forth. None of these should be considered. Responsibility and accountability are key to EPF’s survival, otherwise we face massive withdrawals to the detriment of the fund and the nation.

Reference:

EPF declares dividend of 6.10% for 2021, above the pre-pandemic 2019, Cindy Yeap, TheEdge CEO Morning Brief, March 3, 2022

After first net withdrawal in 20 years of RM58b in 2021, EPF vows to go back to rebuilding members’ savings, Adam Aziz, TheEdge CEO Morning Brief, March 3, 2022

Is There No Hope For The Future?

The Johor state elections reflected a sentiment expressed in the Malacca polls. Reforms are not necessary for the future. Money politics, kleptocrats and court clusters are fine with us!

Voter turnout was slightly above 50%. Apathy? Why? A fractured opposition is great for BN. BN promises “stability for the future”.

Source: https://umno-online.my

What about the youth vote? Unimportant, only 20% of total turnout. So who is the opposition? DAP. PKR performed just like in Malacca- badly! It is not the logo, it is not that it is multi-racial, it just has a leader from a previous era! A reformist party that fails to reform. The leader only has one thing to say – “I have the numbers”.

Bersatu or Perikatan Nasional is like a spent mistress. No one believes in them. Not even UMNO. Another going to the grave! Forget about Warisan and Pejuang.

But what motivates the N-Z gang? Both need power to turn their cases to history the “juice of freedom” is more powerful than doing what is right. And sadly they know what it takes!.

There is a whole spectrum of local and national issues to exploit – inequality, religious intolerance, 2nd rate education, floods, corruption and many more! Just focus on what the rakyat need – higher wages, more money transfers, opportunities for employment, healthcare and better delivery of services. Where was data analytics? And Invoke?

Do we have to wait for an UMNO infighting? Are there no leaders/leadership to bring change? Can’t we get a local Zelensky to do it? Unless we do, there is little hope of a change in GE15.

Was Britain Alone in WW2?

The colonial forces that dotted the battle maps of World War II were crucial for the Allies to fill out their ranks and keep up their momentum. While India contributed the largest number of volunteers, at some 2.5 million troops, Africans, Arabs and others fought and died for the freedom of the Allied powers. This is still under the yoke of colonial rule. 

About 15 percent of all the Victoria Crosses — Britain’s highest decoration for valour — awarded during the Second World War went to Indian and Nepalese troops. The honour was bestowed upon service members from other colonies as well. While these colonial forces are often forgotten or overshadowed, they not only helped the Allied powers win their war, they also set in motion events that would eventually lead to some of the colonies’ independence.

Source: https://russellphillips.uk

Despite their sacrifices, these troops were never treated as equals. They were largely under the command of European or American officers, although they were skilled fighters. It was difficult for them to rise up the ranks and become officers. Their compensation was far less than that of their white peers. It worsened if their skin colour was darker.  As poorly as Indian soldiers were treated, their African peers fared far worse.

Their skill on the battlefield helped stoke nationalism at home; however, the colonial forces were in many ways helping Britain maintain its crumbling empire, as it came under onslaught by Japanese, Italian and German forces.

Although the battlefronts of Europe are romanticized in novels, history books and films, much of the war was fought in and over British (and to a lesser extent, French) colonies. In June 1940, the Axis powers launched the North Africa campaign and fighting broke out across Algeria, Morocco, Egypt and Tunisia as they tried to wrest those colonies from British and French rule. Japan snatched up British colonies like Singapore, Malaya and Burma (now Myanmar) and tried to invade India.

It would be the entry of the world’s most vocal supporter of liberty and self-determination, the United States, that would help the Allies restore their momentum and shift the tide against the Axis.

But the alliance between the United States and Britain was forged in tension. Why? Opposing stances on colonialism. While the United States remained on the sidelines for nearly half of the war, its calls to end colonialism irked Britain. The colonies were needed as Britain’s financial reserves were nearly exhausted.

Indians were angry when Britain, which ruled them, declared war on Nazi Germany in 1939 and exploited their resources to support the conflict. Some Indians who were loyal to the raj, fought enthusiastically for the Allies, but the vast majority volunteered because they were offered land, a stable salary and steady meals. Others joined to refine their technical or engineering skills.

In August 1941, Prime Minister Winston Churchill and President Franklin D. Roosevelt signed what became known as the Atlantic Charter, a new vision for the postwar world, highlighting the right of all people to self-determination.  The Atlantic Charter spurred hopes of independence among the British colonies. But a month after the charter was signed, Churchill clarified that the right to self-determination outlined in the document applied only to countries under German occupation.

A significant consequence of the war (WW2) was the rise of independence movement across Asia and Africa. Many gained confidence to end colonialism and had America’s tacit support. So, did Britain fight alone? No, it was the British Empire, be it from Canada, Australia, India or the African states that provided resources and manpower to defeat the Axis powers.

A sad state is when “Remembrance Sunday” is observed, not much credit is given to the colonies who fought alongside the “mother” country. Some of the great battles at Imphal or Kohima are hardly heard in the light of victories at El-Alamein or the European theatre. Why can’t Britain address that?

Reference:

The forgotten colonial forces of World War II, Maria Abi-Habib, Sept 1, 2020

(https://www.nytimes.com)

Oligarchic Economics and Nationalist Populism

 The United States presents itself as the beacon of democracy. This is in contrast to the autocracies of China and Russia. Yet American democracy is in danger of succumbing to the same sort of oligarchic economics and populist nationalism in both these powers.

U.S. Republicans are busily suppressing votes of people of color and paving the way for a possible anti-democratic coup. The national Republican party excuses the attack on the Capitol – calling it “legitimate political discourse”. Representatives Liz Cheney and Adam Kinzinger, are the only two congressional Republicans serving on the panel investigating that attack.

Source: https://www.anews.com

America’s oligarchic wealth, meanwhile, has reached levels rivaling or exceeding those of Russia and China. During the pandemic, America’s 745 billionaires increased their holdings by 70%, adding $2.1tn to their wealth in just over a year.

A portion of this wealth is going into politics. As early as 2012, more than 40% of all money spent in federal elections came from the wealthiest of the wealthiest – not the top 1% or even the top tenth of the 1%, but from the top 1% of the 1%. Peter Thiel, a staunch Trump supporter whose net worth is estimated by Forbes to be $2.6bn, has become one of the Republican party’s largest donors.

Last year, Thiel gave $10m each to the campaigns of two protégés – Blake Masters, who is running for the Senate from Arizona, and JD Vance, from Ohio. Thiel is also backing 12 House candidates, three of whom are running primary challenges to Republicans who voted to impeach Trump for the events of January 6.

The combination of oligarchic wealth and populist nationalism is dangerous for democratic institutions in the US and elsewhere. Capitalism is consistent with democracy only if democracy reduces the inequalities, insecurities, joblessness, and poverty that accompany unbridled profit-seeking.

For the first three decades after the second world war, democracy did this. The US and war-ravaged western Europe built the largest middle classes the world had ever seen.

The arrangement was far from perfect, but with the addition of civil rights and voting rights, subsidized healthcare (in the US, Medicare and Medicaid), and a vast expansion of public education, democracy was on the way to making capitalism work for the vast majority.

Then came a giant U-turn by Ronald Reagan in America and Margaret Thatcher in Europe. Deregulation, privatization, globalization, and the unleashing of finance created the Full Monty: abandoned factories and communities, stagnant wages, widening inequality, a shrinking middle class, political corruption and shredded social support.

The result has been widespread anger and cynicism. Even before the pandemic, most people were working harder than ever but couldn’t get ahead. Their children’s prospects weren’t any better. More than one out of every six American children was impoverished and the typical American family was living from paycheck to paycheck. 

Starting last July, America did an experiment that might have limited these extremes and reduced the lure of nationalism. That’s when 36 million American families began receiving pandemic payments of up to $3,000 per child ($3,600 for each child under six).

But this successful experiment ended abruptly in December when Senator Joe Manchin joined 50 Republican senators in rejecting President Biden’s Build Back Better Act, which would have continued it.

They cited concerns over the experiment’s cost – an estimated $100bn per year, or $1.6tn over 10 years. The cost is also less than the increase in the wealth of America’s 745 billionaires during the pandemic. Why not a wealth tax?

The experiment died because the oligarchy didn’t want to pay for it.

Oligarchic economics coupled with populist nationalism marks the ultimate failure of progressive politics. When the people are no longer defended against the powerful, they look elsewhere for succour.

In Malaysia, the 10% taxpayers substantially foot the bill for Government’s expenditure. The rich (top 1%) in the same light as America have grown in number and wealth during this pandemic. Couldn’t we reform the tax system to make it more egalitarian and reduce inequalities in the system? Otherwise, we will continue to see our Gini coefficient remaining firmly fixed at 0.40.

Reference:

Beware of this deadly mix: oligarchic economics and racist, nationalist populism, Robert Reich, The Guardian (https://www.theguardian.com)

Menara TM for Sale at RM700mil?

The entire Menara TM development in Lembah Pantai is up for sale at a price tag of about RM700 million. The development consists of the 55-storey Menara TM with helipad, an adjacent office building, a 92,431 sq ft convention centre, a multi-purpose hall, a sports complex, clinics and land. The closing date for the first stage of the sale is March 18 at 12 noon.

Source: https://en.wikipedia.org

Shaped to represent a sprouting "bamboo shoot", Menara TM is located along the Federal Highway, Sprint Expressway and Jalan Pantai Baharu. The building was designed by Hijjas Kasturi Associates for Telekom Malaysia Bhd and was constructed between 1998 and 2001 by Daewoo Construction.  It was officially opened by Tun Dr. Mahathir Mohamad on February 11, 2003. 

In 2008, Telekom Malaysia sold Menara TM and it has been occupying the building on a lease arrangement since then. The telco had entered into a conditional sale and purchase agreement and master ijarah agreement with Menara ABS Bhd (MAB) on January 2, 2008 to sell Menara TM, Wisma TM Taman Desa, Cyberjaya Complex and Menara Celcom that involved the issuance of RM1 billion of Islamic asset-backed sukuk Ijarah.  

MAB is a trust-owned special purpose entity sponsored by Telekom Malaysia to facilitate the securitisation of the four properties, via a sale and leaseback or master Ijarah arrangement. 

It issued three classes of sukuk namely Class A totalled RM345 million, Class B RM155 million and Class C totalled RM500 million. 

Media reports had said that institutional investors like the EPF, KWAP and TH were asked to

support the sukuk sale. Under the deal, the iconic Menara TM and three other buildings were used as a “security” for the debt that was raised. Fast forward 13 years later, who would have known that COVID-19 would rear its ugly head. Covid made matters worse to a property industry that is already grappling with an oversupply situation.

TM is the main anchor tenant of Menara TM, occupying 70 percent of the 92,000 sq feet of space spanning 55 floors. It would be able to save on rental costs if it moved out of its own landmark building. It swiftly confirmed this in its statement; it is moving employees to other TM-owned buildings as part of an optimisation programme. Naturally, the institutional investors are unhappy as TM has decided not to re-acquire Menara TM, which is an option under the securitisation deal. This leaves EPF, KWAP and TH in a bind as they need to recover their investment.

It is understood that the EPF, which had over 50% or majority voting rights among the sukukholders, pushed for the sale of Menara TM. However, TH was still trying to convince TM to remain as the anchor tenant and negotiations are still ongoing. 

In years gone by, the investors rallied to TM’s call in its time of need, but the favour was not returned. And now, after two years of lockdown and the new normal of Work-From-Home, Menara TM faces the unenviable task of finding new tenants.

The priority for the EPF, KWAP and TH, which have forked out RM1 billion, is to recoup their investment as it is dutybound to do so to protect its members and depositors.

It is understood that there are already 5 bidders for the landmark with a price tag of RM700

million.

The question is should the properties be sold? Invariably TM will build another HQ in due course with shareholders’ funds or debt. What’s the purpose? Synergy or bringing everyone under “one roof”. It is best for TM to stay and settle outstanding bonds/acquire the building. But will it do that? Not on present sentiments.

References:

Menara TM & nearby assets for sale at RM700m? Shareen Kaur, New Straits Times, Feb 10, 2022 (https://www.nst.com.my)

Menara TM: The real story behind the sale of a landmark building, Zaidi Isham Ismail, DagangNews.com

Trust-owned Menara TM is up for sale, Sulhi Khalid, TheEdgeMarkets, Feb 9, 2022