Let’s do our part to help build Malaysia

It’s Not All Doom And Gloom

I was recently invited to speak at a CEO’s Luncheon hosted by The Economist on the current state of our economy.

My message to the room of senior analysts and fund managers was clear. We are on the road to transforming Malaysia to become a high income economy, in a way that is inclusive and sustainable. Low oil price and the weakening of the ringgit are examples of the continuing challenges and shocks we are bound to encounter along the way. There will be more to come. We must be prepared to face them. This is the test of our resilience.

Indeed, Malaysia is one of the first countries in the world that has publicly announced a revision of its annual plan and budget and that shows our agility and responsiveness.

There is a method to the madness.

Every Monday, the Prime Minister chairs an Economic Council where several Ministers and the Central Bank Governor deliberate on economic and financial areas critical to the country. They come to the table prepared with data, research and insights, and are focused on getting a firm grip on percolating issues.

In reading news culled from the past few weeks, we have plenty of naysayers drilling in only on the negatives. I have always said that if you are gung-ho on seeing the doom and gloom, by golly, you will find it.

As the Prime Minister announced in the 2015 Budget Review, the economy is not in crisis. Yes, we are undergoing tough times but we are able to confront the unfolding scenario from a position of strength – with solid fundamentals and pragmatic policies.

In his speech, he was frank about what we could achieve as a nation, and equally direct about what we cannot.

The Budget 2015 was set with Dated Brent prices at US$100 per barrel but with crude changing hands at dramatically lower prices beginning this year, the Budget was recast to reflect a more realistic level of US$55 per barrel.

If we continued with business as usual, we would miss our 3.0% fiscal deficit target for 2015 to record a 3.9% deficit of GDP. So what do we need to do? A number of measures were implicitly put forward for 2015:
• GDP growth was revised from 5%-6% to 4.5% to 5.5% taking into account tougher external economic conditions
• Fiscal deficit target has been revised to 3.2% of GDP from 3%, which is still lower than last year’s 3.5%
• Operational expenditure cut of RM5.5 billion required the government to rein in some of the government-linked companies and agency grants
• In providing funds for rebuilding of the flood-devastated regions without incurring additional costs, the government has deferred the National Service programme to channel the RM400 million savings to victims
I also want to correct one big misperception.

Many believe that Malaysia will suffer the brunt of the oil price slide because we are a major oil exporter. This belief is wrong.

Malaysia is not a major oil exporter (see chart 1). From January to November 2014 we exported RM87.6 billion worth of crude and petroleum products, whilst imports of the same was at RM92.5 billion. This makes us a net petroleum importer.

If anything, we are a net LNG exporter at RM58 billion with a very low volume of imports. Yes, Malaysia is a gas and oil country, in that sequence, and not the other way around.

As part of the industrialisation of our economy in the 80s, Malaysia was able to successfully diversify its economy from being agricultural and mining-based, to manufacturing and services-oriented. This created a more sustainable and stable base so that we do not end up putting all our eggs in the commodities basket.

To further support this diversification, the Economic Transformation Programme is meant to shore up competitiveness of the 12 top economic sectors. It is also aimed at restructuring the economy towards becoming more services-oriented because this is what creates better paying jobs.

The results of the cumulative efforts are clear. Today, the oil and gas industry contributes 17% of GDP, while the other sectors make up the rest (see chart 2).

But we must not get too comfortable with the positives and lose our hunger for growth.

The lack of global brands from Malaysia is a looming concern. Malaysian companies must start to build superior products and services capable of earning recognition the way Samsung and Apple have become household names across the world.

We cannot continue to squabble over government contracts and rely solely on domestic consumption. This is petty and unsustainable. A healthy appetite to conquer the bigger world will spur local companies to be innovative, creative and competitive.

To blaze this trail, the National Export Council has been set up to pave the way forward for good companies to start taking on the world stage.

Human beings are a resilient lot. History has proven repeatedly that when our backs are against the wall, the intestinal fortitude to do the right thing rears its head. Maybe it starts first with developing the right attitude to look beyond the gloom.

Import and Export of Crude Petroleum, Petroleum Products and LNG From Jan to Nov 2014 (Data source: Department of Statistics, Malaysia)

Import and Export of Crude Petroleum, Petroleum Products and LNG From Jan to Nov 2014 (Data source: Department of Statistics, Malaysia)











: Malaysia GDP Structure, based on NKEA Sectors (FY2013) (Data source: Department of Statistics Malaysia)

Malaysia GDP Structure, based on NKEA Sectors (FY2013) (Data source: Department of Statistics Malaysia)

Feeling The Wealth

Last week I was on the hot seat of a live call-in radio programme organised by the ETP. On air now for over a year, the show calls for Pemandu and government officials to bravely front a hotbed of issues, fielding no-holds barred questions from some smart people.

I had the privilege to anchor the final ‘talkback’ session for the year and faced a particularly contentious topic. Even as the country charts all the right numbers on GDP, GNI and investment, some Malaysians do not believe change is real.

So here’s the sock-in-the-gut question posed to listeners on the country’s economic direction – “the country is getting wealthier but are you feeling it?”

I have selected comments and questions from callers I believe will resonate with many:

Christopher: I don’t feel the country’s transformation. As a businessman it’s hard for me to see its results.

When we started in 2010, we chose to prioritise people’s main pain-points, and then set out to create change programmes around those areas.

There are segments of Malaysians who suffer from living without basic amenities. Under the Rural Development NKRA, a total of 5.1 million people today have benefited from access to treated water, electricity and roads linking villages and towns.

Obviously not all of Malaysia’s entire population of 29 million will experience these changes, but I assure you rural families getting electricity in their homes for the first time are feeling the transformation.

There are 468,000 commuters during peak hours in the morning in Greater Kuala Lumpur who use public transportation. Every day they feel the impact of 38 new KTM trains, 35 sets of four car LRT trains, 200 new buses for RapidKL and a revamped Puduraya making their daily commute less stressful.

Once the MRT and other train and bus line extensions are in place, we hope more city-dwellers will abandon their cars and take public transportation.

A total of 1.6 million new jobs have been created under the NKEA sectors since 2010. These individuals are not linking their new positions and higher salaries to the momentum created by the transformation programmes. They are enjoying the results and building a better future for their families as it should be.

Syed: How will the government tackle challenges of the weakening ringgit, drop in oil prices and the possibility of reduced revenue?

Using Budget 2015 figures, let’s do some maths. RM27 billion (oil and gas dividend) minus RM11 billion (RON95 and diesel subsidies) would result in a net surplus of RM16 billion. Under a lower oil price scenario, assuming dividend drops, say to RM20 billion (amount paid by Petronas previously when oil price was lower), the government still registers a net surplus of RM20 billion because we no longer have to foot fuel subsidy bills.

Tax revenue from oil and gas can obviously be affected by lower oil price but since our ringgit has devalued against the dollar, we would get more ringgit after sales of our exported oil and gas.

So, my point is that it is not just doom and gloom. There may be a silver lining for the other sectors in the economy.

There is also a general consensus that the world economy would do better under a lower oil price scenario. As a relatively robust trading nation, Malaysia will surely benefit from an improved global economy.

Raymond: Household debt as percentage of GDP is increasing yearly, and one of the highest in Asia. How is it possible for us to achieve high-income nation with high debt levels?

I met with the CEO of Fitch Rating in New York recently. He questioned if the government is concerned with household debt at 87% of GDP.

I was clear in that conversation. We cannot examine household debt in isolation but should also look at household assets. What is interesting is that the Malaysian household asset is at 332% of GDP.

It means if you borrow and have the assets such as properties and savings to back you then that borrowing in itself is considered healthy.

But I agree we must be concerned about its rising percentage and work to bring it down. People should live within their means. There are measures taken by Central Bank to soften borrowings especially in housing.

Victor: Our economy may be progressing but the foreign exchange rate does not lie. This is why our premium products are being exported to richer countries. Should we be worried?

I am not worried. Malaysian producers must find a way to monetise their premium goods as this will lead to better incomes. I strongly encourage it.

It is good for local companies to tap into opportunities in international markets as competition makes you resilient. You do not end up being limited to jostling in a small pool for a slice of the same pie.

There are advantages to a weakening currency. It makes Malaysian exports competitive and attracts more foreign investments as cost of doing business becomes cheaper. Tourists’ arrivals should also see a rise.

I left the studio rejuvenated from that hour-long conversation with various callers. Their thoughtful concerns for the country’s future tells me we must continue the good fight and stay the course towards a prosperous nation that is sustainable and inclusive.

Note: The questions above have been paraphrased for clarity and brevity. The full version of the show is available at http://idrisjala.my/etp-talkback-thursday-11-dec-2014/

ETP Talkback Thursday 11 Dec 2014


During the recent ETP Talkback Thursday, we discussed the following topic : “The country is becoming wealthier and there’s change taking place. But are you satisfied with the economic direction of the country? Do you feel ‘wealthier’? Is it enough?”

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