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Posts Tagged ‘malaysia economy’

Malaysians, when they see MLM, property or gold flourish, they flock to it like there’s no tomorrow.

Lesson #1: Because, we, as a people are driven by emotions and sentiment. 

Malaysians, when the MLM, property or gold market crash, they run away like crazy.

Lesson #2: Because, we, as a people fail to see the actual / reality of something. 

I’m sure we have seen our friends who flirted with beautiful girl and yet when they got married they fall into divorce (some not all) Why so? Because the man is driven by sentiment, and when he understood the actual attitude of his wife, he made the “market” crash (metaphor for divorce).

What do this have to do with the Malaysian budget?

Everything.

  1. We Malaysians are driven by emotions, we want that subsidies but yet we don’t want to pay for it.
  2. We Malaysians want large welfare programmes, which lead to such a big government, yet we blabber on wasted spending.
  3. We Malaysians want higher income yet we do not work to advance our skills & education through lifelong learning.
  4. We Malaysian SMEs complain of minimum wage yet we do not focus on productivity to cut costs and increase profits.

We don’t care, yet we want it. Period.

Who cares if the government couldn’t pay, I’m the rakyat. I should get it.

If the rakyat continues to have this attitude, it’s perfectly fine for capitalists.

When a country is strong emotionally but weak in it’s structure, our economy can go into a recession.

How so? I’ll sum it up in economic terms: US recession, QE, capital inflow, QE tapering, capital outlflow, Ringgit weakens, Interest rate increase, NPL increase, tightening of credit, Malaysian recession.

In layman terms: rumah kita tak cukup simen tapi kite nak duduk tingkat 3 sbb ade bilik paling cantik dalam rumah. Bile rumah retak, semua lari dari tingkat 3. Kalo nak semua duduk tingkat 3 kene kuatkan simen, etc.

Same with our beloved Malaysia.

Our investors will pull out their money when they are left with no money (because US kurangkan print money) and they see something retak, they run away from tingkat 3. When that happens we are left with an economic recession.

Our economy is always positive because of the government control of media. Actually it is fueled with debts. All this businesses flourish because consumers use debts (credit card, personal loan, refinancing, easy credit for business, etc). Not to say we are still manufacturing low value things, same to 20 years back.

GST is just meant to reassure our investors not to lari from tingkat 3. That we are putting in more simen so don’t worry.

It’s just reassurance (sentiment).

And GST is only a short term measure to avoid collapse.

We Malaysians need to work hard on implementation, transparency in spending, being accountable for every 1 cent spent and understand the “real” picture is what matters the most. Our human capital as well needs dire attention. I know the new blueprint is good in terms of performance based culture.

But I worry of the implementation. We are known for great policies but implementation = fail. For example: tabung usahawan siswazah for graduates take 6 months – 1 year for disbursement. Imagine the reality, business cannot afford to waste time because they will fail.

I worry GST is good, but when they method implemented is bad, there goes everything. At that time, Pakatan Rakyat may have been right about this, but I don’t agree on them not doing GST now.

I sum it up in 2 things:

  1. Sentiment: people are herds. they are driven by sentiment. This is short term.
  2. Structural: people are by nature forgetful, they xbersyukur. This is long term.

When you do something like invest, do business, choose to do MLM, buy minions at McD, classify it. Is it no. 1 or no. 2?

If it is no. 1, it will likely fall soon. If it is no. 2, it will stand for a long time.

Like Luxor MLM and Amway MLM. Amway has structural, while Luxor have sentiment.

That’s why my business focus so much on the structural (management systems, people planning, product enhancement), etc. Burger Bakar as a trend itself, should have been dead 1 year back. That’s the formula why we are still profiting every single month now.

Singapore have both no. 1 and no. 2.

Malaysia unfortunately, judging from our rakyat and our government, have more of no. 1.

Sad.

Warren Buffet can sum this up with his quote:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

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THE IGNORANCE PERIOD

When I was in the university, clueless I was on middle income trap.

How could a country with plenty of resources is still trap in the middle income segment? (to see how far we are behind: Malaysia GDP = USD 256 billion while US GDP = USD 14 trillion, China = USD 5.6 trillion).

During my tenure as the student leader, I championed causes with other student leaders in other universities to lower the burden of rakyat. We persuaded the govt to maintain subsidies for petrol, sugar, etc. Little did we pause and think, where do this money come from and how much money do we have?

Even upon graduation, I understand DS Idris Jala’s presentation on the importance of subsidy elimination but I couldn’t understand fully.

Until now.

WHAT I REALISED AS A RAKYAT

The reality is our government wouldn’t be forever rich with cash to fuel our subsidy demands.

The subsidy given to us is paid by someone.

Who is that? It is paid mainly by you taxpayers, borrowers (yes government need to borrow money) & receipts from government ventures (those company owned by govt like Khazanah).

Don’t for a second think your tax or corporate tax is enough to cover our subsidy demands. Imagine how many cents we take from each litre of petrol.

Every litre of petrol you consume, someone is paying for it.

To add to our addiction, some local graduates are not working hard enough to enhance their capabilities.

So what? I still get a job anyway right?

When graduates have less capabilities, it forces companies to hire someone else, which adds to cost.

It forces companies to focus on firefighting, take shortcuts (hire cheap foreign labour), do not innovate, hence in the long run, we lose in terms of cost (imagine using your grandma’s aircond and your aircond today. Which one consume more power and cost?).

To make it worse, since 1980s, we have adopted policies of bringing in cheap labour to work.

So what? Good for business right? No, in the long run.

Cheap labour means companies are not forced to innovate hence they are dependant on foreign workers (easy way out).

That makes the demand for high skilled workers like graduates, a no issue for them.

Imagine a welding company can get foreign labours to weld it. But…… Imagine a welding company which utilizes advanced machinery to weld stainless steel with no need of foreign labour. Obviously this company needs graduates to look after the machinery which would give higher income to the graduate.

To make it even much much much worse, as a result of dependence on cheap labour, companies do not see the point to innovate, hence MSC companies are finding it hard to market solutions like CRM, cloud computing, ERP, etc.

Simply put, these companies are not forced to innovate to compete and they don’t care.

Some don’t even see the need to use technologies to upgrade their competitiveness to reduce costs and increase profitability.

There needs to be someone to tell them how to reduce costs from all angle; operations, finance, admin, etc. Not just IT!

Hence all of us are trapped in the middle income trap.

Except for entrepreneurs who succeed and investors who speculate (like those that buy properties, many of them using debt on debt).

CORRUPTION

This completes the cycle.

Everytime a greedy big bad wolf “crony” gets a job, he hikes up the price of the contract and the government needs to pay more.

When the government pays more, they need to use money from? Taxpayers, borrowers and government receipts lah!

So the government has less money to spend on other useful things.

And when these cronies dress down their accounts and implement tax reduction measures, government do not get back the money that was given to them through the contract!

Then all of us have less money.

And how about those contracts given under a special under-table arrangements?

When it is not given via merit / capabilities, it is given to someone without the skills, we lose out.

Why? They get the money, we get the contract, fair la! No.

Each money spent on non-competitive companies result in less innovation because there is no one to compete! So these companies get cheap labour, alternative ways to save up cost, without building human capital and innovation.

Hence, the middle income trap again.

THE WEAK POINTS

It all happens in a loop.

We are SO RICH with resources yet we waste it. I am truly sad of us being in the middle income trap. I want us out, ETP is really the driving force now but little do we realise, the driving force is actually us the rakyat. But when will we realise this?

So the weak points:

  • Our government is rich but we milk them with our subsidy.
  • Graduates who do not raise their capabilities adds to non-competitiveness of our firms.
  • Non-competitive firms go for shortcuts: foreign labour, etc.
  • Usage of cheap costs measures (foreign labour) results in companies which do not care about innovation.
  • Companies selling high-tech solutions couldn’t make it when companies do not want their solutions.
  • Cronies jacking up prices from government contracts result in less money for government to spend on other good projects.
  • Contracts awarded based on preference, leads to non-innovative culture which leads to middle income trap.

I know there are more problems, FDI, but this is something that can make sense to the ordinary Malaysian why we are in the middle income trap.

RECOMMENDATIONS

  • Force companies to innovate by limiting foreign labour in the long run.
  • Focus on commercialization of our research output in universities so that industries can use them. At the moment, getting research grants are more important than commercialization.
  • Offer subsidy or ITA / pioneer status to companies for commercialization capital investment.
  • Force students to enhance their capabilities by tying up CGPA with practical jobs performance, innovation reflection and financial literacy.
  • Get corporate leaders to be mentors to student leaders rather than focus on politicians in its entirety.
  • Rid off corruption through pre-requisites and standards in contract awards (if no ISO 9001, GMP, no contract). – must take into account the industry capabilities as a whole and use median standards.
  • Increase grants for standards like SME Corp.

I know some of these recommendations are already out, but it is not being emphasized with a big FOCUS. Like imagine if the PM talks about ETP, then everyone would talk about it. So he should champion these things. At the moment the issue is IMPACT. How many research projects are commercialized with the current implementation plan? If you can give me a good answer then you win. But I don’t see my SME peers adopting Malaysian technology from universities en masse.

WHAT I COULD DO, PANDAI AJE RECOMMEND

Well, I would aim to increase innovation to reduce costs & increase profitability as per below:

  1. Utilize cloud computing with proven companies like Xero, Salesforce to reduce the need to hire an accountant, telemarketer.
  2. Increase productivity through documents collaboration to eliminate the need for secretaries and many admin clerks.
  3. Use high technology equipments such as blast chillers, sous vide, to eliminate waste and increase profits.
  4. Research and pair up with universities to come up with a robotic kitchen to reduce kitchen overheads.
  5. Focus on employing high performance workers with high salaries with dividend schemes.
  6. Get all grants from governments which focus on standards and work automation with the aim of reducing costs, not complicating things.
  7. Lower price down to compete with competitors through cost advantage infrastructure and force other competitors to innovate as well.

Just my 2 cents.

Not meant to bang the government or support the opposition. Just some thoughts to improve the country and it must start with something. So I’ll start the culture and if others wanna do it, please by all means because I would love to see Malaysia be no 1. Malaysia Boleh! Not “Malaysia Boleh” as of those Bolehland genre.

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This article is not meant to point fingers to anyone in particular. It only explains “what will happen” and the “causes”.


I may not be an economist, but I am currently an entrepreneur. My family encounters this, and so do my friends in the business and professional field.

What is the death sentence? Our corruption.

So what? No big deal. Corruption can’t effect our economy. If that’s what you think, that is where you are dead wrong.

It effects our economic performance if corruption is a norm, evolves into culture and becomes a practice.

How?

Theoretically, take a look at the simple equation of GDP* =Consumer spending (your spending) + investments + government spending + (export – import).

*GDP in layman terms is the output of all economic activities in our country. It’s almost similar to total revenues earned by a company.

The question is, which part will corruption effect the GDP?

Let me explain through a story. Malaysia is a country. For a country to grow and make money, it needs to sell it’s resources. But to sell resources, you need people (labour) to develop, harness and market the resources. So when the resources are sold, the country generates income by charging taxes on individual/enterprise that sell/develop/harness/market the resources. Understandable?

Ok here is where corruption comes to kill our economy.

1. Astronomical costs of government spending (Relation to GDP: government spending)

let’s say the government decides to build a community hall. the hall costs RM200,000. So a tender comes out and companies bid for it. Before a company gets the project, he is required to pay “hidden costs” to the clerk, approving guy and those that come for site supervision. That’s 3 people which you would have to incur additional costs. Let’s say each of them require RM10k, 10% from the project cost and another RM20k. That would be extra RM40k. So if previously the costs was RM200k, it is now RM240k. The only way the company could profit from this is to either increase the cost to RM240k, or build something which is valued at RM160k.

Try and figure out what happens if everyone in the government practices this, and the figure adds up, hence government spending increases and adds up to our GDP. Good right? Wrong again. The money spent is big but the results are inefficient. When the results are inefficient, it can’t be utilized to the maximum and when productivity falls, government can’t get more taxes because businesses could not generate extra income. Hence the GDP decreases after a long term period.

2. Blind patronage kills entrepreneurship (Relation to GDP: consumer spending)

Let’s say an entrepreneur decides to do a due diligence for a potential coal mine. He incurs costs, and get positive results that the place can be used for a coal mine. He proposes to the government and waits for the results. Because of his honesty, the next 3 months when he checked with the gov officer, the land is disapproved for mining. However, he later noticed that another company is now in charge of doing the mining. What happened? I guess his proposal was “transferred” to a favourable third party. Remarkable!

The entrepreneur could not generate money for himself and goes back to the labour market to work. So he has less money on his hands and he spends less in the economy. When he spends less, he don’t easily buy anything from the retail market. And when the retail market can’t sell, it effects businesses. And when businesses can’t sell, tutup kedai. When tutup kedai, no contribution to GDP.

3. Proxy practices kill overall consumer spending (Relation to GDP: consumer spending)

Insider trading is a commercial crime, but it seems in the mysterious world of politics, it is a perk and advantage. Let’s say the government decides to create a new high-tech RM100 million project. The officer that knows this policy calls on his friends to bid and propose for the project. Other companies put in the proposal as well. But the bad part comes when the company awarded is not being awarded based on capabilities but “kawan” in it’s entirety. There is nothing wrong is the “kawan” is capable of doing it with business experience. It is a sin when that “kawan” do not have the experience and later practice “sub-contracting”. So he’ll take profit margin as high as >100% but the sub-contractor, bagi murah2. Outsourcing kan.

These proxies / “kawan”, not all of them are entrepreneurs. Because of that, inefficiency is bound to happen and not everyone have the chance to get a piece of the project/wealth. When this things happen, only the proxies will be getting more and more projects, while the masses wouldn’t get any. When the masses couldn’t get any of the wealth opportunities, their consumer spending decreases because no money. So they can’t spend and the economy contracts.

4. Competitiveness Decrease Exports (Relation to GDP: export-import)

In the globalized world, international trade is beyond national government control. When growing companies (proxies/patrons) decides to export their products, they will be less competitive as they have enjoyed patronage rather than competing to be the best to get customers. This decreases their likelihood of succeeding in the free market system but could however flourish in a political corrupt country. When this things happen, the export decreases hence GDP decreases.

5. Slow technology adoption (Relation to GDP: consumer spending and investment)

Because of the practices above, we find consumer spending decreasing right? A new problem emerge: One of the reasons of slow technology adoption is when consumers do not have money to spend. When they don’t, they only spend on their “needs” and not on “complementary products”. When technology adoption is slow, high-tech businesses decreases because they can’t sell. When they can’t sell domestically without any track record, it would be very extremely tough to sell on the international market. So when businesses can’t sell, investors won’t invest and GDP decrease again.

6. Slow growth for SMEs (Relation to GDP: consumer spending)

SMEs (small medium enterprises) constitute >90% of Malaysia’s overall entreprises. When these enterprises could not compete because of corruption practices when dealing with licenses, approval, etc., their costs rise because they have to pay for additional costs to do business. When these things happen, they can’t give more money to their workers to spend. When their workers can’t spend, the GDP decreases.

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There are more corruption practices, when practiced will bring harm to the New Economic Model. As economy is inter-linked it would be a problem for us to move up the economy ladder and make the dreams of a “balanced-developed nation” a dream come true.

There is a reason bribes / riba / interest are haram in Islam. It’s just that some Muslims choose to see it from an ethical point of view. That is the reason why Islamic economics forbids the above. It devastates our economy completely in the long run.

Imagine an entrepreneur who aspire to create new things decide to create a high-tech venture. But when the product is created, there is no domestic demand. Why? Look at the above, lack of consumer spending, less inquiry into high-tech venture. We need to maximize the total funds held by each consumer, only then would it help to create more entrepreneurs. And when entrepreneurs could access the market, only then, would we see new technologies emerge as they get more and more creative. If they can’t sustain their own living expenditure or their company, how do we expect creativity to flourish. When no creativity is apparent, no new enterprises are created hence no contribution to GDP.

Good luck Malaysia. I wish to see you prosperous and I will do my duty to ensure NEM becomes a reality. Truly, corruption is the devil which brought many empires in the past on it’s knees.

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