Have Unicorns Become ‘Cockroaches’?

Becoming a unicorn was the main goal of many start-ups over the last decade. With venture funding drying up and many young firms’ survival in doubt, the cockroach is the answer – do whatever it takes to survive.

In the past, Southeast Asia attracted abundant capital from investors eager to bet on one of the fastest-growing internet economies. Perpetually growing teams was the norm at richly funded companies and for many young leaders and staff, this was the only environment they’ve ever known.

Now the startup ecosystem is facing headwinds. Global venture funding slumped to US$74.5 billion in the past three months, its lowest level in nine quarters, according to CB Insights. That represents a 34% quarterly drop, the biggest in a decade.

After reaching sky-high valuations, tech companies the world over have seen the worst year of their lives amid surging inflation and interest rate hikes. Many are cutting jobs and shutting parts of their operations to shore up balance sheets ahead of a potential recession. It is not valuation that matters but cash runway.

Founders who’ve been through previous cycles remained upbeat about the prospects for companies with proven business models. As in previous downturns, efficiency is emerging as a key focus. It was always about growth. But now it is about efficiency.

Reality (and the real world) has finally struck owners of tech start-ups. Valuations based on DCF, Earnings, NTA were all thrown out with multiples on revenue as the norm for these growth companies. So long as there were increases in revenue, any cash flow deficit arising from growth could be met by investors! That is no longer the case. In these uncertain and volatile times, it is better to be a cockroach and survive than try to be unicorn and die!

Reference

Unicorns become ‘cockroaches; when tech funding drives up, Yoolim Lee and Olivia Poh, TheEdge CEO Morning Brief, 13 Oct 2022

Do Pigs Fly...?

A lift is halal or otherwise is really not critical. We have many other real issues plaguing this country. But if you have this train of thought, we could have halal or non-halal staircases, air wells, public toilets and public transport? What about work spaces, door knobs and where we stay – halal and non-halal residences? We are veering to the edge of absurdity! So, in Malaysia, we are led to believe they do (fly)!

Source: https://halalfocus.net

Non-Muslims do not have to be Muslims to know what is morally right or wrong. All of us, both Muslims and non-Muslims, can easily understand, a convicted felon, cannot have special treatment in prison. That is haram! When we see a policeman kissing the hand of someone who stole billions from the public, it is not only disturbing but morally wrong.

Every crime needs its punishment. It is even worse when the prison system and the hospitals bent over backwards to accommodate this former PM. Where are the religious guidelines against this by Jakim and other religious bodies? Are lifts more important?

The bottom line is that there has to be visible consequences for crimes, without which there is a moral vacuum. If this is the way a criminal who stole billions is treated, are we really saying that our spiritual and moral values can be compromised for some service done by the former PM? That’s not all, the convict wanted to attend Parliament before it was dissolved. Could a convict go home for Hari Raya, Christmas or for conjugal rights?

Then we have the unbelievable frenzy to have an election. Is this to escape the clutches of the law? Will an early election change the government? And possibly the attorney general?

Is election more important than the plunging ringgit, oil prices and other commodity prices behaving erratically? And when dark clouds are gathering, warning us of the monsoon. Is this selfish and morally unacceptable? Isn’t it haram if leaders think they can abuse their powers to manipulate the administration of justice?

Whether it is haram or halal, fair or unfair, just or unjust, moral or immoral, wrong or right, most of us can all tell the difference. Yet, there are others who will turn a blind eye and compromise on what is right. 

Within this context, any religious guideline on lifts is nothing short of hypocrisy. No amount of halal labels can correct the compromises that have been made to our inherent national moral and ethical values.

Reference:

If pigs could fly... Sukeshini Nair, Aliran, 8 Oct 2022 

JAKIM: “No clause saying ‘non-halal lift’ sign necessary for certification”, Bernie Yeo, Focus Malaysia, 7 Oct 2022

Is Britain “Butler to the World”?

In 1835, Britain took out a loan for 20 million pounds. This amounted to some 40 percent of its annual income. The loan, worth 300 billion pounds today, was not paid off until 2015. Britain has often claimed that this money went toward the abolition of slavery and the slave trade. Not a cent of it went to the formerly enslaved. It actually went to enslavers, who wanted compensation for the loss of income from their “properties.” This “compensation” has cast a long but hidden shadow in British history. Among its beneficiaries were the ancestors, already rich from slave labor, of the actor Benedict Cumberbatch and of David Cameron.

This forgotten piece of history reveals an important truth about Britain. It is a place where politics has always had an incestuous relationship with the rich. Money trumps morals. Oliver Bullough, in his latest book, “Butler to the World: How Britain Helps the World’s Worst People Launder Money, Commit Crimes, and Get Away With Anything,” charts the newest manifestation of this corruption.

Source: https://www.nannybutler.com

Bullough begins with the 1956 Suez Crisis - a point of national humiliation for Britain. As Dean Acheson, secretary of state under President Harry Truman, put it, “Britain has lost an empire and has not yet found a role.” It soon did, argues Bullough. With the help of its bankers, it set about transforming itself into a “butler”. 

The first step in the formation of “Butler Britain,” as Bullough puts it, was the creation of the Eurodollar - an artificial currency devised by bankers in London that allowed them to trade in dollars within Britain, without being subject to American regulations on currency. 

“Money,” writes Bullough, was now worth whatever “someone would pay for it” — which only the rich could afford to do. The second step was the transformation of Britain and many of its remaining insular possessions — Gibraltar, Jersey, the British Virgin Islands — into offshore tax havens. This allowed the wealthy to sequester their money, in dollars, under British jurisprudence while avoiding the regulations and taxation of poorer countries.

Perhaps the most disturbing story in the book involves, appropriately enough, Russia and Ukraine. Given the strategic importance of Ukraine as a purveyor of Russian gas, President Vladimir Putin installed a puppet to oversee the Ukrainian side of this business. This man was Dmitry Firtash, whose identity was long hidden. Once exposed, however, he was able to move to Britain under its “golden visa” scheme, which allowed anyone wealthy enough to immigrate in the name of “investment.”

Firtash partnered with an aristocrat named Raymond Asquith, who now holds a peerage in Parliament. He donated money to the University of Cambridge, was hosted by Parliament, opened the London Stock Exchange and even met the Duke of Edinburgh. His ascent through the British establishment was astonishing, and nobody thought to investigate where his money came from. This is just one example of how much Russian money flowed into Britain after 1991 and the political influence it purchased.

None of this would have been possible, Bullough argues, without the collusion of British lawmakers, or the bankers and lawyers with whom they had intimate ties. The bankers, for their part, gave the same two excuses: one, if we don’t do it, someone else will; two, our work will create wealth, reduce poverty and promote peace. (As the head of Goldman Sachs once modestly put it: “We’re doing God’s work.”) Most British lawmakers either looked the other way or drained the nation’s investigative agencies of money and resources in the name of austerity. This is in stark contrast to the United States, where agencies such as the FBI have far greater independence and power.

One can sense the urgency and dismay in Bullough’s writings. Britain is better than this, he says. But Britain chooses to be corrupt and complicit, otherwise please explain how money from India, Malaysia,, China, Russia, Myanmar, Arab states and many others were (and are being) poured into, to buy property, businesses, yachts, gold and every other conceivable asset? Modern Britain has poor, vulnerable Brits but these foreigners live in luxury and face low taxes! Even if money was “stolen” from poorer countries, many are able to stay with impunity. Extradition treaties are not honoured – otherwise London will lose its status as a major financial centre in the world!

Reference:

Why Britain welcomes international bad guys – and their money, reviewed by Balaji Revichandran, Washington Post, July 15, 2022

Wealth Inequality: Thomas Piketty’s View

Thomas Piketty’s 753-page book Capital in the Twenty-First Century, published in 2013, sold 2.5 million copies worldwide and helped put inequality on the global agenda. Piketty is a French economist. His latest, Capital and Ideology, may prove still more influential. The book is on global history of inequality and the stories that societies tell to justify it, from pre-modern India to Donald Trump’s US. 

Thomas Piketty

Source: https://cdn.britannica.com

Capital and Ideology builds on Piketty’s long-standing argument that inequality has soared across the world since 1980. It proposes strong remedies. Piketty wants to slap wealth taxes of 90 per cent on any assets over $1 billion. He is nostalgic about the postwar decades when British and American top marginal income-tax rates were over 80 per cent.

Much of Piketty’s information comes from the World Inequality Database (WID), which he created with colleagues. A free website, to which over 100 researchers have contributed, it claims to include “series on income inequality for more than 30 countries, spanning most of the 20th and early 21st centuries, with over 40 additional countries now under study.” The WID’s coverage keeps getting more international, as more material from Asia, Africa and Latin America is added. The site is now trying to expand its focus from income to the even harder-to-chart terrain of wealth.

In an era when technology platforms are arguably concentrating wealth in the hands of a diminishing number of people in the Valley, Piketty’s advocacy of much higher taxes has attracted the attention of both progressives and radicals around the world.

Capital and Ideology starts from the premise that inequality is a political choice. It is something societies opt for, not the inevitable outcome of technology and globalisation. To Piketty, history is a battle of ideas.

Every unequal society, he says, creates an ideology to justify inequality – that allows the rich to fall asleep in their townhouses while the homeless freeze outside. He recounts the justifications that recur throughout history: “The wealth will trickle down”. “The rich will give it back through philanthropy”. “Property is liberty”. “The poor are undeserving”. “Once you start redistributing wealth, you won’t know where to stop”. “Communism failed”. “The money will go to black people” – an argument that explains, Piketty says, why inequality is extreme in countries with historic racial divides such as Brazil, South Africa and the US.

Another common justification is that the rich deserve their wealth. Piketty, who describes entrepreneurs such as Jeff Bezos and Mark Zuckerberg as “oligarchs”, disagrees. He points out that both men benefited from public infrastructure, public education, decades of computer science and the invention of the internet. 

All these justifications for inequality add up to what Piketty calls “sacralisation of property”. But today, he writes, these justifications have frayed. Ever fewer people believe them. There’s growing belief that so-called meritocracy has been subverted by the rich, who get their children into the best universities, buy politicians and dodge taxes.

Even in relatively equal Europe, the concentration of wealth is “stunning” and growing: The bottom 40 per cent owns barely five per cent of the wealth, while the top ten per cent owns 50-60 per cent.

The top 1 per cent of Americans now earn a total of over 20 per cent of national income; the bottom 50 per cent has just 12 per cent. The average income of an American top one-percenter in 2015 was $1.3 million. For those in the bottom half, it was $15,000, a figure almost unchanged in 40 years. Five years later, it’s about $16,000.

Piketty concludes that, however you measure it, global inequality, even in Europe, looks hideous. His proposed remedies are drastic. He calls for “educational justice” – essentially, spending the same amount on each person’s education. He favours giving workers a big say over how their companies are run, as in Germany and Sweden. But his main proposal is for wealth taxes.

Far from wanting to abolish property, he proposes spreading it to the bottom half of the population who, even in rich countries, have never owned much. Spreading wealth, says Piketty, requires redefining private property as “temporary” and limited: you can enjoy it in moderation, but you can’t pass it on to your children. He notes that very high tax rates didn’t prevent fast growth in the 1950-1980 period. However, no leading politician anywhere today is pushing Piketty’s proposed 90 per cent tax on wealth over $1 billion. Even Sanders, who favours a wealth tax on the US’s top 0.1 per cent (meaning every married couple with $32 million and up) only suggests a top rate of eight per cent on wealth over $10 billion.

In Malaysia, with Gini co-efficient at 0.4 for several years, inequality seems entrenched. Unless the rich (earnings above RM5 million per year) are taxed higher, corporates with “super-profits” (owing to adverse events in the world) are taxed via windfall tax and opportunities are created in education and employment, inequalities will remain for decades.

Reference:

This economist has a radical plan to solve wealth inequality, Simon Kuper, WIRED, 14 April 2020

China’s Prospects and Impact on Malaysia

For two decades (or more), China’s factory-driven economy awed the world as it expanded at more than 10% per year. But the country has missed double-digit growth over the past decade. The GDP shrank from April to June this year compared with the previous three months. 

The drop happened because lockdowns to stop COVID-19 infections hurt factory work and export shipments. Those setbacks also added to financial hardships among China’s top property firms. 

China’s $18 trillion economy, the world’s second largest after the United States, shrunk 2.6% from April to June compared to the first three months of the year. China’s economy grew close to 10% per year from 2003 to 2010, World Bank data show. Annual growth gradually slowed through 2019 before dipping to 2.2% in the first pandemic year, 2020, and rebounding to 8.1% last year.

Source:https://chinafund.com/china-and-malaysia-trade/

The lockdown-weary country recorded more than 6% unemployment in April, compared with nearly 5% (4.8%) at the end of 2021. Younger workers and smaller firms have been hit especially hard, analysts say. Chinese consumers are now spending less than normal. Retail sales grew at a low of 3% in June, even as lockdowns eased. 

Last year, the economy was already faltering due to problems in real estate and tech. A number of big name Chinese property developers began to default on billions of dollars’ worth of loans last year. Homeowners who bought units through a “pre-pay model” are now refusing to pay mortgages on unfinished homes.

 In tech, Chinese regulators began in cracking down on the country’s most powerful firms in late 2020, including e-commerce giant Alibaba Group and social media juggernaut Tencent. Regulators have cited concerns about monopolistic activity and data security.

China’s economic malaise is worrying world markets because the “slope” of recovery is less steep than it was when COVID-19 hit in 2020. Missed mortgage payments threaten the value of assets, including property. Disruptions to export shipping and manufacturing in China have hobbled supply chains in much of the world, in turn adding to inflation and fears of recession.

Officials in Beijing are nudging the economy forward again by spending on infrastructure. The GDP is already showing signs of recovery. Demand for cement and cars, including electric ones, is up. Officials are also relaxing last year’s tough stance on the tech industry.

Any future lockdowns will probably target neighbourhoods rather than all of Shenzhen or Shanghai as the government did earlier this year. However, China’s goal of 5.5% economic growth this year is “very ambitious.”

The government-run China Daily posted an investment bank editorial last week calling for 5.3% economic growth year on year from July through September, and 5.9% in the final months of 2022.

The impact for Malaysia is considerable from both the trade and exchange rate perspective. Our trade with China was USD176.8 billion (RM765.6 billion) last year and the ringgit follows in tandem with the yuan. Hopefully, China recovers for us to have a reasonable year (2022).

References:

What next for China’s economy? Ralph Jennings, VOA, 27 July 2022

China remains Malaysia’s largest trading partner, says envoy, Adrian David, NST, 19 June 2022

Debt to GDP: Does it Matter?

 

Since COVID-19, the global economy has been put to the test with supply chain disruptions, price volatility for commodities, challenges in the job market, and declining income from tourism. The World Bank has estimated that almost 97 million people have been pushed into extreme poverty as a result of the pandemic.

Globally governments have had to increase their expenditures to deal with higher healthcare costs, unemployment, food insecurity, and to help businesses to survive. Countries have taken on new debt to provide financial support for these measures, which has resulted in the highest global debt levels in half a century.

The debt-to-GDP ratio is a simple metric that compares a country’s public debt to its economic output. By comparing how much a country owes and how much it produces in a year, economists can measure a country’s theoretical ability to pay off its debt.

The top 10 countries in terms of debt-to-GDP: 

Japan, Sudan, and Greece top the list with debt-to-GDP ratios well above 200%, followed by Eritrea (175%), Cape Verde (160%), and Italy (154%).

In 2010, Japan became the first country to reach a debt-to-GDP ratio 200%, and it now sits at 257%. In order to finance new debt, the Japanese government issues bonds which get bought up primarily by the Bank of Japan. By the end of 2020, the Bank of Japan owned 45% of government debt outstanding.

A rapid increase in government debt could be a major cause for concern. Generally, the higher a country’s debt-to-GDP ratio is, the higher chance that country could default on its debt, therefore creating a financial panic in the markets. This is assuming its borrowings are in USD or a foreign currency.

The World Bank showed that countries that maintained a debt-to-GDP ratio of over 77% for prolonged periods of time experienced economic slowdowns. Again, the work of Reinhart and Rogoff suggest a ratio of above 90% will result in growth declining drastically.

COVID-19 has worsened a debt crisis that has been brewing since the 2008 global recession. The International Monetary Fund (IMF) shows that at least 100 countries will have to reduce expenditures on health, education, and social protection. Also, 30 countries in the developing world have high levels of debt distress, meaning they’re experiencing great difficulties in servicing their debt.

This crisis is hitting poor and middle-income countries harder than rich countries. Wealthier countries are borrowing to launch fiscal stimulus packages while low and middle income countries cannot afford such measures, potentially resulting in wider global inequality.

Global debt reached $303 trillion by the end of 2021.

Global government debt is set climb to $71.6 trillion in 2022 or 94% of world’s GDP. For the U.S. the ratio is estimated at 125.6% in 2022 and 127% in 2027. Debt is projected to continue to rise in emerging markets, driven mainly by China, reaching 72.1 percent of GDP by 2024. China's government debt-to-GDP ratio is expected to be 77.8 percent in 2022 and continue to rise to 95.4 percent in 2027.

Over the medium term, global public debt is likely to stabilize at about 95 percent of GDP, 11 points higher than before the pandemic, according to the IMF.

Malaysia’ Federal Government debt was RM958.4 billion or 63.3% of GDP in 2021. The good point is over RM925 billion or 96% is in RM, which means exchange rate exposure is manageable. That’s the key – USD or RM? If USD then we are beholden to the U.S. Otherwise less so, but requires more prudence going forward. Why? Future generations have to bear the cost of today’s indulgence!

References:

Visualing the state global debt, by country, Raul Amoros, Visual Capitalist

Global public debt to fall to 94% of GDP in 2022: IMF, Kyodo News, 20 Apr 2022

Happy Deepavali