Mayday! Mayday! Mayday!

Mayday is an emergency procedure internationally used as a distress signal. 

In Malaysia, we have at least four institutions/entities with mayday scenarios – Malaysia Aviation Group (“MAG”), MRT Corporation Sdn Bhd (“MRT”), Prasarana Malaysia Berhad (“Prasarana”) and PTPTN.

MAG is the parent company of Malaysia Airlines. It has to restructure over RM4 billion in debt (One report suggested liabilities were over RM16 billion). Its only shareholder is Khazanah Nasional Berhad. There has been several injections and that totals over RM28 billion. Immediate prospects for passenger traffic is poor. Malaysian Aviation Commission (MAVCOM) expects 77% - 80% contraction of passenger traffic for 2021 compared to 2020. Passenger traffic may resume to pre-pandemic levels only in 2024. With that, MAS had an injection of RM3.6 billion to last up to 2025. In November 2020, the Finance Minister was quoted as saying a total of RM28 billion has been injected into Malaysia Airlines.

MRT reported a loss of RM8.9 billion in 2020. It has accumulated losses of RM53 billion and is funded wholly by Government of Malaysia (“GoM”). Administrative expenses alone were RM59.9 million in 2020.

Prasarana the transport owner and operator of LRTs, buses, monorail and MRT lines in urban centres has liabilities in excess of RM42 billion (based on news reports). This is expected to balloon further in the years to come. All funding is by way of injections by Mnistry of Finance. For financial year 2019, Prasarana had a loss of RM3.61 billion. Accumulated losses stands at RM42.4 billion in 2019 with total liabilities of RM35.4 billion.

National Higher Education Corporation (“PTPTN”) has disbursed more than RM56 billion (circa 2019). The current loan repayment ratio is 49:51, with 49% paying back and 51% not doing so. Of the non-payers, 19% have not made a single payment. Of total disbursed so far, only 32.5% have repaid in full or one-third have settled their liabilities. PTPTN is reportedly sitting on RM40 billion (or more) of Government-guaranteed debt. This will double to RM76 billion in 20 years. So, 1MDB is not so bad!

What is the upshot of this mayday article? A couple of points:

1. The Government has not been transparent with information (the above data is from news reports and published accounts that was limited);
2. MoF has to publish a “white” paper on the above “sisters”; and
3. We need new strategies, initiatives to work out each of the above problems. The total liabilities of the above four “sisters” exceed RM150 billion, or about 11% of Malaysia’s GDP. Shouldn’t there be any concern? Or, are we leaving it to our children/grandchildren to sort it out?

Source: https://www.theedgemarkets.com

 

References:

1. Why Khazanah Nasional just bailed out Malaysia Airlines, James Guild, 2 March, 2021 (https://thediplomat.com)

2.  Financial Statement (https://www.mymrt.com.my/financial-statement/)

3. Malaysia’s passenger traffic to decline 77-80% in 2021: MAVCOM, Cirium, 30 August 2021 (https://www.flightglobal.com)

4. Special report: PTPTN in search of a sustainable model, Syahirah Syed Jaafar, The Edge Malaysia, 7 December 2019

CPO Prices to be Lower in 2022

Crude palm oil (CPO) prices hit a record high at RM5,015 per tonne in mid-October. But market analysts expect CPO prices and plantation earnings to decline in 2022. This was reported by Thomas Huong in Starbizweek on 16 October 2021.

UOB Kay Hian Research maintains its “underweight” rating on the plantation sector, and expressed its concern over the sustainability of the current demand as the inventory in India and China has been replenished. The research unit is keeping its CPO price forecast for 2021 and 2022 at RM3,300 and RM2,800 per tonne respectively, but sees upside potential due to tight global edible oil supplies while demand is still relatively stable despite high prices.

UOB Kay Hian Research notes that for January to September 2021, the average price reported by Malaysian Palm Oil Board (MPOB) was at RM4,207 per tonne and the average for 2021 could come higher given CPO prices were traded between RM4,747 to 5,072 per tonne for Oct 1 to Oct 12.

However, the net price that will be reported by most of the plantation companies will still be lower than RM4,000 per tonne due to the forward sales contracts and the impact from the exports levy and duty in Indonesia.

The research unit also points out that the surprise import duty cut by India on vegetable oils would be supportive to the palm oil market, as the country is the largest export market for palm oil. Indian edible oil import for September 2021 was a record-high at 1.7 million tonnes (66% higher year-on-year) and this also led to a record high stock position of about two million tonnes at ports and pipelines.

For now, UOB Kay Hian Research believes CPO prices may sustain at the current levels due to the continued disappointing palm oil production as yield recovery from the previous drought is taking longer than expected and there is a lack of workers in Malaysia.

Meanwhile, RHB Research also maintains its “underweight” rating on the plantation sector, and notes that Malaysia’s CPO output was flattish in September, while stocks fell 7% to 1.75 million tonnes.

MIDF Research believes the palm oil supply tightness situation will likely remain at least until end-2021, given limited recovery of yield due to shortages of skilled harvesters, better demand outlook on the back of more economic activities locally and globally and upcoming La Nina weather phenomenon.

With high CPO prices, plantation companies are expected to show better results in 2021/2022. The drawback is on worker shortage. It is time for an aggressive automation of the harvesting process. A windfall tax or excise fund could help fund research and implementation of new processes to reduce foreign labour requirements.

Can we do that?

Source: https://www.malaymail.com

Reference:

CPO prices expected to be lower in 2022, say market analyst, Thomas Huong, Starbizweek, 16 October 2021

Unhealthy World Food Markets

A study by the Rockefeller Foundation found the following key issues/results in developing countries:

• Unhealthy foods, those high in sugar, fat and salt with little nutritional value, are rapidly becoming more available, affordable, and acceptable for consumers in developing countries. The shift to new patterns of unhealthy eating is contributing to a growing incidence of non-communicable diseases (e.g., diabetes, cardiovascular diseases) historically seen in high-income countries. The spread of unhealthy foods and attendant diet-related risk factors to low-income populations will accelerate in the next decades to affect more than one billion poor people. Lack of access to affordable, healthy food choices, and the new challenges to health and livelihoods from unhealthy foods will compound the existing challenges from under-nutrition and communicable disease that continue to face the developing world. 
• A target population of 1.4 billion low-income people (i.e., those living on $2-$13 per day) in the developing world are particularly vulnerable to the impacts of unhealthy food markets. Rural-to-urban migrants and individuals rising from extreme poverty are disproportionately vulnerable to ill health effects and the resulting livelihood costs of unhealthy food markets.
• The root causes of unhealthy food markets include urbanization and consumer preference for convenience foods, underdeveloped local farm-to-market supply chain infrastructure, the spread of supermarkets and modern retail, and misaligned incentives between government policies and profit-maximizing businesses. 
• Prevailing perspectives, driven mostly by academics and leading development organizations, generally hold that governments must play a stronger role in regulating food markets and correcting misaligned incentives of the private sector. There is little funding dedicated to unhealthy food markets, as most funders and implementing organizations remain dedicated to hunger and under-nutrition and few national governments have intervened to address food markets in systemic ways. 

Consumption patterns of low income populations in lower to middle income countries are increasingly incorporating “junk food” diets (high in fat, sugar, salt, and calories with little nutritional value).

• The growth of packaged foods is 5x higher in Lower to Middle Income Countries (LMIC) compared to developed countries.
• The amount of money spent on soft drinks, ready to eat meals, snacks and ice cream dramatically increased in Brazil (75%), Colombia (50%), Thailand (42%), and South Africa (15%) from 2007 –2012.

Over one billion low income people in the developing world are vulnerable to challenges presented by changing food markets.

• While conclusive data is unavailable, experts agree that poor people with some disposable income are the key population group impacted by unhealthy food markets.
• This population, earning $2-$13 per day, was 1.3 billion in 2011 and is projected to reach 1.4 billion people by 2017.

Low income individuals are disproportionately vulnerable to what is affordable, accessible, and aspirational.

• Low income households, which already spend a high portion of income on food, are steered toward lower priced unhealthful foods. Long shelf-life, ease of storage & transport, and lower cost of inputs make unhealthful foods lower priced.
• Large Food and Beverage companies are increasingly targeting the marketing of unhealthy aspirational products toward low income consumers. 

The problem is growing fastest in countries that historically have had low levels of unhealthful food and soft drink consumption.

• The growth of unhealthy food consumption (110%) and soft drinks (70%) between 2007 and 2012 was highest in India.
• According to a study in the American Journal of Public Health, the projected rise in soft drink consumption over the next 5 years (15.7% in low-and middle-income countries, and 9.5% worldwide) would lead to an additional 2.3 billion adults who are overweight, 1.1 billion who are obese, and 192 million new cases of diabetes. 60% of the burden would fall on low-/middle-income countries.

In developing countries, consumers purchase unhealthful food and soft drinks mainly from small retailers.

• Urban low income people rely on local small informal shops due to convenience (proximity), need to shop multiple times a week (mostly due to lack of refrigeration and storage space), and affordability.
• In a South African study, informal vendors’ competitive pricing for unhealthful foods (chips, pastry) relative to commercial outlets made the food more accessible and affordable to those on lower incomes. 
• Street stalls comprise 39% of food service in Vietnam and studies in South Africa and India showed that poor people switch to more expensive franchised fast food retailers only once their income rises. 

Negative impacts of unhealthy developing world food markets impact populations in both rural and urban areas.

• Time, poverty and affordability hasten overconsumption of unhealthful food in cities. For example, in India, 76% of packaged foods are consumed by the urban population (representing 30% of total population).
• As supermarkets expand in urban areas, they drive down prices, and increase availability and diversity of unhealthy food products to low income populations. 
• Consumption of unhealthy food is a global problem. Low income households are disproportionately vulnerable to the effects of unhealthy food markets.

In another related study conducted by Consumers International Asia Pacific Office on food advertising, children in six countries in the Asia-Pacific region were impacted. 

The main findings are listed below.

The power of television

• Through television, advertisers can reach a whole spectrum of consumers. Children are exposed to an overwhelming amount of advertising as there is little regulation controlling the programme to advertisement ratio. 30 per cent of Malaysian children watch over eight hours of television a day during holidays, and are exposed to over two and half hours of advertisements a day. 
• The majority of children believe television advertisements to be informative and most children respond to them favourably. 73 per cent of Pakistani children claim to love advertisements, as do 68 per cent of Filipino children. Malaysian children are not so fond of advertisements, probably because they watch the most television and get frustrated by the constant interruption caused by commercial breaks.

Food advertisement

• In India, 40-50 per cent of advertisements during children's programming were for food. For Pakistan, the Philippines and Malaysia the percentage of food advertisements varied between 50 and 75 per cent. *In the Philippines, programme to advertisement ratios during children's programming go up to 50 per cent.

Pester power

• More than 50 per cent of parents in all countries surveyed say that their children are an important factor in influencing their purchasing decisions. Indian, Malaysian and Pakistani parents cited "child's demand" as the primary reason for buying a product.

Nutrition knowledge

• 73 per cent of Pakistani children perceive soft drinks to be healthy for frequent consumption. In the Philippines 80 per cent of children and 71 per cent of parents, drink soft drinks at least once a week, as do 71 per cent of South Koreans. About 40 per cent of parents and 63 per cent of children in the Philippines believe fast food to be fit for frequent consumption.

Current legislation

• All six countries have legislative frameworks governing advertising in general and most have guidelines for advertising to children in particular. Only the Philippines and South Korea have laws pertaining to the advertisement of fast food and confectionery.
• South Korea and the Philippines are the only two countries to have specific regulations pertaining to the sponsorship of children's programmes.
• The vast majority of parents from all six countries are in favour of a reduction of the number of advertisements during children's broadcasting.

Consequences of regular consumption of unhealthy foods will translate into higher medical and social costs for a nation. The ways to curb such consumption is to create awareness and use taxation of products/companies involved in these activities to restrict purchases. Once addicted, it is difficult for children or adults to wean-out. Remember, Milo was available free at your school’s Sports Day! And Coke later in life!

References:

Unhealthy developing world food markets, Rockefeller Foundation, May 2013

The junk food generation. A multi-country survey of the influence of television advertisements on children, Consumers International

Will AAX’s Restructuring Scheme Kill Its Business Model?

AAX’s business model requires tickets to be sold in advance. That’s the same for many budget carriers. Upon sale, the service is not rendered until a passenger has made the trip. And when a passenger pays the agreed sum, it should be in a trust account to be drawn when the service is rendered – but that’s not how it works. The airline uses it to run operations.

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

The pandemic has impacted all carriers. Some more than others. Passengers deserve a refund or a full credit to some future date. It is grossly unfair for a passenger to pay RM1,000 for a ticket and get RM5 under the restructuring scheme. And if it is just a couple of hundred, then they may get a few cents if at all. The payout is meaningless. But where is Malaysia Aviation Commission (Mavcom) on this?

The silly thing is before the restructuring AAX made the announcement that customers will get travel credits for tickets purchased under an extended validity program. That sounds fair but now under the new restructuring scheme they get back 0.5% of the sum paid-in They are now in a predicament worse than the shareholders.

Travel agents are no better. They receive 0.5% settlement as agents. How will they survive or promote AAX in the future? AAX owes RM600 million to  passengers and travel agents.

Will passengers want to travel with AAX knowing that a pandemic or for some other unknown reason, the airline cannot render its service? It is like a bank telling its depositor we could only return RM5 of your RM1,000 in savings account, because we are in a deep financial turmoil. Are we in Taliban territory? Surely, even the Taliban will know what is fair under Islamic law!

References:

A raw deal from AAX, Pankaj C. Kumar, Starbiz, 30 October 2021

AirAsia X offers 0.5% deal to settle RM600mil debt to passengers, agents, K. Parkaran, FreeMalaysiaToday, 31 Oct 2021

Happy Deepavali 2021!

 

An Election Budget (2022) – The Good, The Bad and The Ugly!

There are several positive points on Budget 2022. A total of RM332.1 billion has been allocated, while revenue is anticipated to increase to RM234 billion in 2022 (The gap is funded by borrowings). Operating expenditure is seen at RM233.5 billion with development expenditure at RM75.6 billion. Petronas dividend will remain at RM25 billion.

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

GDP growth is expected to rise to 5.5-6.5% in 2022 from 3-4% in 2021 (A more likely scenario is 4-5% in 2022 with covid variants still appearing). Domestic demand is expected to improve to 6.6% in 2022 from 3.1% in 2021.

There is a lack of clarity on the prosperity tax of 33%; fund injection into companies facing gearing or leverage problems; and allocation (RM14.2 billion) for SMEs. The biggest beneficiaries of the budget are the education and health ministries.

The positive take covers a whole spectrum of society but leaves some with a poor taste. These may include the huge allocation for Bumiputera initiatives or empowerment (RM11.4 billion) compared with paltry sum for the Nons; the “bonus” for civil servants (RM1.3 billion) whose contributions were limited during the MCO; the disparity between funding Peninsular states vis-a-vis Sarawak and Sabah; and, the lack of sector assistance like tourism, aviation and services. Former Minister Zaid Ibrahim points out that it is “nice” to be a Bumiputera or a civil servant under the Budget allocation.

The new initiatives in electric vehicles (EV), R&D allocation (for universities) and job creation (of 600,000) are welcome steps. But “infrastructure” for these has to be thought through – charging stations have to be numerous for EVs (and that’s not in place); R&D require quality researchers and a hub or cluster for different areas – that’s difficult if it is on race-based; and, job creation in the private sector require skills that many graduates sorely lack.

The fundamental problem is not addressed – are we still in a race/religion mindset or a truly “Keluarga Malaysia” concept? If recovery is to be at full speed then “old” ways will only hinder growth. So, is this budget for the next election?

References:

Snippets from Malaysia’s Budget 2022 as its tabling unravels, Cheah Chor Sooi, Focus Malaysia (29 Oct 2021)

How nice to be Bumiputera or civil servant, remarks Zahid, FMT Reporters, Oct 29, 2021

Malaysia Budget 22 – tax snapshots, Ernst & Young, 29 Oct 2021

Did Big Tech Make Huge Profits From War On Terror?

Tech giants like Amazon, Google and Microsoft have made huge profits from US government contracts since the 9/11 attacks on New York and Washington DC, according to a new report by three US activists groups. The "Big Tech Sells War" report documents a massive increase in government contracts with Amazon, Facebook, Google, Microsoft and Twitter since 2004 — three years after the war on terror began.

The document, authored by the Action Center on Race and the Economy and social justice groups LittleSis and MPower Change, detailed how the growth in military and government contracts came at the same time as the tech giants' web platforms became ubiquitous. The biggest contracts came from the Pentagon and the Department of Homeland Security. Among all the US agencies, at least $44.5 billion (€37.6 billion) in contracts were awarded to Big Techfirms.

According to the report, 86% of Amazon's government contracts and 77% of Google's were central to the war on terror. In 2019, two tech giants pulled ahead of the others, with Amazon signing nearly five times and Microsoft signing eight times as many federal contracts and subcontracts compared to 2015. The report pulled its data from Tech Inquiry, an online tool that allows users to explore US government contracts.

The activist groups also highlighted a "revolving door" between government agencies and tech giants, detailing how hundreds of government employees have taken positions with the same US multinationals that have received huge contracts. Among them were former State Department employee Jared Cohen who later founded Google's Jigsaw, a technology incubator that aims to explore "threats to open societies." One of Jigsaw's first projects was to develop counterterrorism tools for social media platforms. Another example was Steve Pandelides, who worked for the FBI for over 20 years and is now director of security at Amazon Web Services. The activist groups have called for tighter rules to regulate the revolving door between the government and Silicon Valley.

https://www.thestar.com.my

Reference:

Big tech made huge profits from war on terror (https://www.dw.com)