Malaysia’s Semiconductor Sector to Pick Up Steam?

Malaysia’s semiconductor sector is forecast to shine by the second half of 2024. Malaysia Semiconductor Industry Association’s (MSIA) confidence was based on World Semiconductor Trade Statistics (WSTS) on its prediction that the world semiconductor market would rebound by 13.1 per cent in 2024 to reach US$588 billion (RM2.8 trillion).

MSIA president said the global semiconductor sales dipped 8.2 per cent to US$527 billion in 2023, but the Malaysian market was able to retain its strength throughout the year. The evidence can be seen in last year’s electrical and electronics (E&E) sector, where exports decreased by only 3.0 per cent to RM575.45 billion after 2022’s record year of 30 per cent growth to RM593 billion.

Source: https://simple.wikipedia.org

According to 2023’s full-year print, exports of semiconductor devices and integrated circuits (ICs) attained a growth of 0.03 per cent to RM387.45 billion in 2023. The E&E products dominated Malaysia’s total exports in 2023, accounting for 40.4 per cent share comprising products such as photosensitive semiconductor devices, batteries and electric accumulators, static converters, electric control panels, parts for switching apparatus and electric control panels as well as parts for diodes, transistors, piezoelectric crystals and other semiconductor devices.

The current prolonged geopolitical fragmentations are sending investors in search of new production homes or moving to trusted countries. Many multinational companies (MNCs) in China diverted part of their production and supply chain as a mitigating strategy by selecting Malaysia as their ‘Plus One’ location. The “China Plus One” strategy emerged as a critical policy for companies to reduce their reliance on China by diversifying their supply chain activities to other markets.

WSTS highlighted that all markets are poised for ongoing expansion in 2024 with the Americas and Asia Pacific, in particular, forecast to demonstrate significant double-digit growth on a year-on-year basis. In its December report, WSTS said the industry growth is expected to be primarily fuelled by the memory chip sector, which is set to soar 40 per cent to around US$130 billion in 2024. The majority of other principal segments, including discrete, sensors, analogue, logic and micro, are also expected to record single-digit growth rates.

Malaysia can play a critical role in the global supply chain, riding on its position as the 6th largest exporter of semiconductors in the world. The country also controls 13 per cent of the global market for packaging, assembly and testing services for semiconductors.

Given the importance of the E&E sector to the Malaysian economy and its place in the global supply chain, the need for collaboration among all parties involved to optimise Malaysia’s potential in the E&E sector is important. The country needs to improve its world competitive ranking, improve ease of doing business (some programmes are ongoing), enhance the E&E ecosystem including incentives in light of the global minimum tax implementation in 2025. Malaysia should continue to attract companies with state-of-the-art technology and encourage existing companies to go up the value chain. Malaysia could enhance its ecosystem by attracting more wafer fabs, establishing both local and foreign direct investments in IC design companies, advancing packaging in assembly and testing, and creating Malaysian global champions in automation.

Reference:

Malaysia’s semiconductor sector seen to pick up steam in second half, Bernama, 18 February 2024

Non Revenue Water Loss of RM15 Billion Over 10 Years?

SPAN chairman said Perlis loses more than 63% of drinking water before it reaches the tap. He has called on Malaysia to look at water as a “matter of national security”, saying the country stands to lose RM15 billion worth of drinking water over the next 10 years through sheer neglect. The national water services commission (SPAN) chairman says the country must make upgrading the nation’s water infrastructure as a priority. Poor water infrastructure and management cost the country RM8 billion in non-revenue water (NRW) between 2018 and 2022.

Source: https://en.wikipedia.org

Presently, Perlis is losing 63.3% of its water to NRW, followed by Kedah (58%) and Kelantan (52.6%). Meanwhile, Penang’s loss – at 23.6% – is the lowest, followed by Johor (25%) and Selangor, (27.5%). The national NRW average is at 37%, with pipes of between 30 to 50 years old needing replacement. Only RM1.9 billion was set aside for NRW-related matters by the 11th Malaysia Plan (2016-2020), which was insufficient.

Internet-linked devices to monitor water leaks, similar to tech used in China, can help reduce waste more efficiently. Urgent fixes may cost RM30 billion over 3 years but will ensure water security and avert water supply crisis. There are technologies available to identify where the loss occurs, but we are not inclined to use them because the existing cartel prefers the “cut and cover “method.

Reference:

Water leaks will cost us RM15bil over 10 years, says Santiago, Predeep Nambiar, FMT, 

23 March 2024

Tobin Tax: What Is It?

The Tobin tax is a tax levied on spot currency conversion, with the intention of disincentivizing short-term currency speculation. This tax is named after economist James Tobin.

When fixed exchange rates under the Breton Woods system were replaced with flexible exchange rates in 1971, there was a massive movement of funds. Short-term currency speculation commenced then. 

Source: https://www.bernama.com

The Tobin tax seeks to mitigate or eliminate these issues. The tax has been adopted by a number of European countries and the European Commission to discourage short-term currency speculation and stabilize currency markets.

The currency transactions tax does not impact long-term investments. It is only imposed on the excessive flow of money that moves regularly between financial markets through the actions of speculators in search of high short-term interest rates. The tax is paid by banks and financial institutions that profit from market volatility by taking excessive short-term speculative positions in the currency markets.

According to Tobin, to work effectively such a tax should be adopted internationally and be uniform, and the proceeds donated to developing countries. Although Tobin suggested a rate of 0.5%, other economists have put forward rates ranging from 0.1% to 1%. But even at a low rate, if every financial transaction taking place globally was subject to the tax, billions in revenue could be raised.

The Tobin tax has been controversial since its introduction. Opponents of the tax indicate it would eliminate any profit potential for currency markets as it is likely to decrease the volume of financial transactions, slowing global economic growth and development in the long run. Proponents state that the tax would help stabilize currency and interest rates because many countries' central banks do not have the cash in reserve that would be needed to balance a currency selloff.

In Malaysia’s case, the daily FX turnover was USD12.6 billion for 1 April 2024. It averages around USD12-15 billion per day. If we only tax one side of the trade, say the “sell ringgit” transaction, then it is USD6-7 billion per day. And if we tax that at 0.1%, revenue would be USD6-7 million per day, or USD120-140 million per month (assuming 20 working days) or say USD1.56 billion per annum (or approximately RM8 billion per year). That will reduce our borrowings and meet part of our development expenses. This is a simple, efficient tax system compared to GST. Isn’t this better?

Reference:

Tobin Tax: What it is, how it works, examples, Julia Kagan, Investopedia, updated 30 August 2022

Longevity: 150-Year-Old Humans!

The world is changing – with more people living longer and falling birth rates. That trend has triggered a new dawn of longevity science, which aims to enable more of us to live healthier, for longer. The Middle East is investing heavily in the science of longevity that could make reaching 90 years of age an expected part of lifespan.

If current trends continue, those aged over 50 in the GCC will comprise 18.5 per cent of the population by 2025, up from 14.2 per cent in 2020. Limited availability of specialised treatment centres, insufficient local specialist health practitioners and over-reliance on expatriate labour could lead to a growing burden on Middle East healthcare systems.

Source: https://en.wikipedia.org

The World Health Organisation is predicting the number of people living beyond 60 will double by 2050, and triple by 2100. Rapid developments in stem cells suggest humanity is fully capable of surviving and even working well beyond present expectations, with 150 years old becoming the norm by the end of the century

Some may be fortunate to enjoy good health and mobility well into their 80s. But the majority will already have experienced physical and cognitive decline. Lifestyle choices play a significant role. Researchers believe an ability to capture a cellular state known as senescence – where damaged cells resist removal causing inflammation – could provide the answer to slowing down natural ageing. When inflammation becomes chronic, it can negatively affect the body, damaging tissue and impairing healing, while accelerating ageing and neurodegenerative disease. Ozone therapy is another alternative medicine treatment that projects ozone gas into the body to treat various conditions and reduce inflammation. By improving oxygenation and reducing oxidative stress, ozone therapy is believed to have potential anti-ageing effects.

Lifestyle factors such as diet, exercise, stress management, and avoiding exposure to toxins play a significant part in modulating inflammation. Anti-inflammatory diets rich in fruits, vegetables, and omega-3 fatty acids, regular physical activity and adequate sleep can all cut the risk of chronic inflammation and the rate of ageing.

The UAE is positioning itself at the regional forefront of longevity and anti-ageing preventive care. Alongside an anti-obesity drive to stem spiralling rates of overweight people, specialist centres are opening to focus on healthy ageing. They include the Sharjah Research Technology and Innovation Park (SRTIP) and Deep Knowledge Analytics (DKA) joint venture in mapping the UAE’s longevity industry.

Since 2019, the Abu Dhabi Stem Cell Centre’s (ADSCC), ongoing research has examined tissue regeneration and rejuvenation of ageing cells for its potential to increase longevity. In Masdar City, a biocomputing innovation research laboratory – a partnership between Abu Dhabi’s Mohamed bin Zayed University of Artificial Intelligence and AI modellers BioMap is focusing on age-related illnesses.

According to the Office of National Statistics in Britain, a third of babies born in 2013 are predicted to reach the age of 100, while the US Census Bureau predicts the number of people aged over 85 will triple by 2060. With the advances in healthcare, living to be 120 years old has now become an imaginable prospect.

Rapid developments in stem cells suggest humanity is fully capable of surviving and even working well beyond present expectations, with 150 years old becoming the norm by the end of the century. That has ramifications on work, health, education and societal behaviour. Older, but healthier people could continue to contribute to society. Retirement age could now be set at 100. Our Tun M is an example of working at 98!

Reference:

Longevity: how science is pushing the boundaries for the first 150-year-old human, Nick Webster, The National News, 16 March 2024

World’s Top Economies in 2023

 

The above is a snapshot of nominal GDP of 50 countries. We are now behind Indonesia, Thailand, Singapore and even Vietnam. Not too far forward, the Philippines will overtake us. Could we try to re-draw our plans and become more competitive? Several areas need improvement: education; civil service/Government agencies (response time); corruption; enforcement and execution of plans. Or, are we are satisfied that we are ahead of Myanmar, Laos, Cambodia and Timor Leste?

Are We a Land of Bailouts? (Part 2)

Further to Part 1 (as highlighted yesterday), the AG’s report also found that the Armed Forces Fund Board (LTAT) had failed to account for a total of RM812 million in impairments on investments at its subsidiaries, that is, a RM768 million investment in Boustead Holdings Bhd and a RM44 million investment in pharmaceutical company Pharmaniaga Bhd. This resulted in the fund overstating its net profit and investments in subsidiaries by RM812 million in 2022. 

In other words, LTAT would have made a RM379 million net loss for 2022 if the RM812 million impairment is considered. Instead, the LTAT reported a 13.1% increase in net profit to RM433 million in 2022 from RM383 million in 2021. The fund also saw its revenue rise 27% to RM653 million in 2022, from RM514 million in the previous year.

Source: https://en.wikipedia.org

According to the report, LTAT had made an investment of RM5.29 billion in 13 subsidiaries in 2022, including investment costs of RM2.55 billion in Boustead and RM106 million in Pharmaniaga. In June last year, LTAT completed the takeover of Boustead, making the latter a wholly-owned subsidiary of the fund. LTAT directly owns an 8.615% stake in Pharmaniaga and indirectly hold 51.835% via Boustead as at end-March 2023.

Additionally, the report found that LTAT divested its holdings in Perumahan Kinrara Bhd and Tanah Sutera Development Sdn Bhd, selling them for a total of RM43 million to Perbadanan Perwira Harta Sdn Bhd (PPHSB). In return, LTAT received PPHSB shares valued at RM232 million. From this transaction, LTAT recorded a non-cash profit of RM189 million, forming the basis for dividend payments in 2022 to its 122,936 contributors. In 2022, LTAT paid dividends totalling RM476 million (5%), utilising both its net profit and accumulated gains, the report stated. That’s financial engineering!

State-owned agencies continue to rely on government bailouts to stay afloat and remain viable. Should they continue to be bailed out, or should they be allowed to fail?

For one, the National Audit Department is concerned about FELDA’s heavy reliance on financial aid to keep operating and has advised the agency to chart a clear direction without further financial assistance from Putrajaya. In the recovery plan, the government has agreed to inject RM1 billion for a period of seven years for FELDA to settle its debts and government guarantee revolving credit. Still, FELDA’s huge debt places a substantial burden on an already-strained national budget and further increases the growing debt bubble. 

Following the latest findings from the AG’s report, it remains to be seen how agencies like FELDA and PR1MA will resolve their pile of debt without resorting to major bailouts. 

For PR1MA, it can take a leaf out of the success of Singapore’s Housing and Development Board’s (HDB) book. It was reported that HDB flats house 80% of the city state’s resident population, of whom about 90% own their home.

We are in dire need of solutions that can create viable government entities. Unless we are prepared to remove politicians from being involved in the Board or Management of these entities, we will have difficulty in ending bailouts. In the private sector, very seldom there are bailouts. It is only when the organisation is “too big to fail” that a bailout is considered.

The U.S. did this in the Great Recession of 2008/9, saving major banks. It was a surprise for a capitalist system which normally touts market forces. In the end it was seen as a systemic risk or a personal “injury” for some vested interests – not unlike Malaysia! Seriously, we need to get a handle on this, if not we may have dire consequences.

Reference:

Malaysia-land of endless bailouts, Kang Siew Li, The Edge Malaysia, 18 March 2024

Are We a Land of Bailouts? (Part 1)

The Federal Land Development Authority (FELDA), the government agency that owns FGV Holdings Bhd, is one of the largest producers of oil palm in the world.  It is also one of the country’s biggest beneficiaries of government bailouts.  It still owes more than RM8 billion, according to the latest Auditor-¬General’s Report (AG’s report).

A recovery plan aimed at turning it around included a RM6.23 billion bailout from the government in 2019 which failed to deliver anticipated results. The agency has not reported an annual profit since 2013.

In 2022, the government awarded grants of RM214 million to FELDA. This was down by 37.4% from the RM342 million provided in 2021. The drop in grant was mainly due to lower allocation from the Ministry of Finance (MoF) in 2022. However, FELDA, which falls under the purview of the Prime Minister’s Department, remains in crisis mode and continues to rely on federal funding through grants to continue its operations and service its debt. But how much taxpayer’s money will be used to resolve its crisis?

The National Audit Department said the agency owes RM7.97 billion to a number of lenders, and some RM686 million to the federal government. These loans were part of measures to restructure its debt from 2018 to 2022.

FELDA is not alone in its struggle with debt. Of the 24 federal agencies with loan balances totalling RM123.14 billion in 2022, FELDA’s loan balance of RM8.66 billion is the third highest, after the Public Sector Home Financing Board’s RM62.08 billion and the National Higher Education Fund Corp’s RM41.5 billion.

The National Audit Department also flagged FELDA’s ability to continue as a going concern. It pointed to the agency’s cash balance of RM808 million as at end-December 2022, against its commitments totalling RM1.561 billion. These include commitments amounting to RM50 million per year under a Tawarruq Financing Facility agreement entered into by FELDA’s subsidiary FIC Properties Sdn Bhd in 2017 with Govco Holdings Bhd (GovCo), a company under the Minister of Finance Inc, for the first five years, starting in 2024, with the outstanding amount of RM2.595 billion scheduled over 15 years beginning in 2029. FIC Properties has been making losses from 2020 to 2022.

FELDA had secured the loan to support its US$680 million purchase of a 37% stake in Indonesia’s PT Eagle High Plantations Tbk from Indonesian tycoon Tan Sri Peter Sondakh’s Rajawali Group in 2015. That deal that raised a lot of questions as FELDA’s 81.9%-owned unit FGV had scrapped plans to buy the same block of shares upon the advice of two separate advisers, Bank of America and JP Morgan.

According to the AG’s Report, FELDA’s net loss was mainly attributable to impairments amounting to RM742 million on investments, outstanding amounts from subsidiaries and settlers’ debt.

With a loss of RM990 million in 2022, the Electricity Industry Fund was the second largest loss-making federal agency, followed by Railway Assets Corp (net loss of RM484 million), Kumpulan Wang Amanah Negara (KWAN) (RM353 million) and Kuala Lumpur City Hall (RM283 million).

The AG’s report also flagged uncertainty around state-owned PR1MA Corp Malaysia’s (PR1MA) status as a going concern.

The National Audit Department warned that PR1MA would not be able to meet all its impending Islamic bond (sukuk) repayments on time based on its liquidity position.

The agency’s cash balance as at Dec 31, 2022, fell to RM428 million from RM820 million a year earlier. It lost RM257 million in 2022, as its residential and commercial sales revenue fell 33.7% to RM857 million in 2022 from RM1.292 billion in the previous year.

PR1MA, which is under the purview of the housing and local government ministry, will have to repay sukuk worth a total of RM3.79 billion up to 2027. This includes Tranche 2 of a sukuk amounting to RM1.75 billion due to mature in October 2024.

There is a need for some third-party to assist MoF to sort out all these problems. Otherwise, we are waiting for a blow-up not a bailout!

Reference:

Malaysia-land of endless bailouts, Kang Siew Li, The Edge Malaysia, 18 March 2024