Too good to be true? Think twice


 

HAVE you ever grabbed an offer without any hesitation, simply because the price is too cheap to resist?

Many of us have this experience especially during sales or promotional campaigns. We tend to spend more at the end or buy things which we are uncertain of their quality when the deal seems too good to say no.

It may be harmless if the amount involved is insignificant. However, when we apply the same approach to big ticket items, it can cause vast implications.

Recently, I heard a case which reinforces this belief.

A friend shared that a property project which was selling for RM300,000 a few years ago is now stuck. Although the whole project was sold out, the developer has problem delivering the units on time.

The developer is calling all purchasers to renegotiate the liquidated and ascertained damages (LAD), a compensation for late delivery.

One of the homeowners said he is owed RM50,000 of LAD, which means the project is 1½ years late. When we chatted, we found that he purchased the unit solely due to its cheap pricing without doing much research in the first place.

The incident is a real-life example of paying too low for an item which can leave us as losers, especially when it involves huge sum of investment, such as property.

To many, buying a house maybe a once-in-a-lifetime experience, a decision made can make or break the happiness of a family.

A good decision ensures a roof over the head and a great living environment, while an imprudent move may incur long-term financial woes if the house is left uncompleted.

Nowadays, it is common to see people do research when they plan to buy a phone, household item, or other smaller ticket items.

Looking at the amount involved and implication of buying a house, we should apply the same discretion if not more.

It is always important for house buyers to study the background of a developer and project, consult experienced homeowners regarding the good and bad of a project before committing.

I have seen many people buy a house merely based on price consideration.

In fact, there are more to be deliberated when we commit for a roof over our heads. The location, project type, reputation of a developer, the workmanship, the future maintenance of the property etc, are all important factors for a good decision as they would affect the future value of a project.

Beware when a discount or a rebate sounds too good to be true, it may be just too good to be true and never materialised. If the collection or revenue of a housing project is not sufficient to fund the building cost, the developer may not be able to complete the project or deliver the house as per promised terms. At the end of the day, the “price” paid by homeowners would be far more expensive.

In general, the same principle applies elsewhere. It is a known fact that when we pay a premium for a quality product from a reliable producer, we have a peace of mind that the product could last longer and end up saving us money. Some lucky ones will end up gaining much more.

For instance, when we purchase a car, we should consider its resale value as some cars hold up well, while others collapse after a short period. Other determining factors include the specifications of the car, the after sales service, and the availability of spare parts.

Quality products always come with a higher price tag due to the research, effort, materials and services involved.

In addition to buying a house or big ticket items, other incidents that can tantamount to losing huge sums are like money games, get-rich-quick scheme, or the purchase of stolen cars or houses with caveats.

When an offer or a rebate sounds dodgy, the “good deal” can be a scam.

Years of experience tells me that when what is too good to be true, we should think twice. I always remind myself with a quote from John Ruskin (1819-1900) who was an art critic, an artist, an architect and a philosopher. “It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money – that’s all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.

“The common law of business balance prohibits paying a little and getting a lot – it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that you will have enough to pay for something better.”

Food for thought by Alan Tong

Datuk Alan Tong has over 50 years of experience in property development. He was the world president of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

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Dollar bulls face perilous start to second half of 2017


Losing streak: The greenback finished the first half of 2017 on a four-month losing streak – the longest such stretch since 2011. – AFP

https://www.bloomberg.com/api/embed/iframe?id=386fc1f7-12e9-49ed-b7d6-f4a868fc9d5c

After the worst start to a year for the greenback since 2006, the end of the first half couldn’t come quick enough for the dwindling ranks of dollar bulls. Yet if history is any guide, it could soon get even worse.

A week that’s certain to get off to a slow start with U.S. markets closed Tuesday will culminate with Friday’s jobs report. The release hasn’t been kind to those wagering on greenback strength. The Bloomberg Dollar Spot Index has slumped in the aftermath of nine of the past ten, despite above consensus reports as recently as February, March and May.

“The dollar has not been responding to positive data surprises, but continues to weaken substantially on negative news,” said Michael Cahill, a strategist at Goldman Sachs. “As long as that persists, the risks are skewed to the downside going into every data release.”

The greenback finished the first half on a four month losing streak — the longest such stretch since 2011 — wiping out its post-election gain. The currency’s 6.6 percent decline in the six months through June were the worst half for the dollar since the back end of 2010. Unraveling optimism around the Trump administration’s ability to boost fiscal growth has outweighed Fed policy or positive data, according to Alvise Marino, a strategist at Credit Suisse.

“What’s happening on the monetary policy front is not as important,” said Marino. “It’s more about the dollar remaining weighed down by the unwinding of financial expectations.”

The sudden hawkish tilt by global central banks hasn’t helped. The dollar weakened more than 2 percent against the euro, pound and Canadian loonie last week as officials signaled a bias toward tightening monetary policy.

Yet there are reasons for optimism, according to JPMorgan Chase analysts led by John Normand, who recommended staying long the greenback in a June 23 note. A cheap valuation relative to global interest rates, the market underpricing the likelihood of another Fed hike this year, and a still positive growth outlook make for a favorable backdrop to motivate dollar longs in an “overstretched” unwind, the analysts wrote.

Hedge funds and other speculators disagree. They turned bearish on the dollar for the first time since May 2016 last week. Wagers the greenback will decline outnumber bets it’ll strengthen by 30,037 contracts, Commodity Futures Trading Commission data released Friday show.

Source: Bloomberg

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The Asian financial crisis – 20 years later




East Asian Economies Remain Diverse

 

It is useful to reflect on whether lessons have been learnt and if the countries are vulnerable to new crises.

IT’S been 20 years since the Asian financial crisis struck in July 1997. Since then, there has been an even bigger global financial crisis, starting in 2008. Will there be another crisis?

The Asian crisis began when speculators brought down the Thai baht. Within months, the currencies of Indonesia, South Korea and Malaysia were also affected. The East Asian Miracle turned into an Asian Financial Nightmare.

Despite the affected countries receiving only praise before the crisis, weaknesses had built up, including current account deficits, low foreign reserves and high external debt.

In particular, the countries had recently liberalised their financial system in line with international advice. This enabled local private companies to freely borrow from abroad, mainly in US dollars. Companies and banks in Korea, Indonesia and Thailand had in each country rapidly accumulated over a hundred billion dollars of external loans. This was the Achilles heel that led their countries to crisis.

These weaknesses made the countries ripe for speculators to bet against their currencies. When the governments used up their reserves in a vain attempt to stem the currency fall, three of the countries ran out of foreign exchange.

They went to the International Monetary Fund (IMF) for bailout loans that carried draconian conditions that worsened their economic situation.

Malaysia was fortunate. It did not seek IMF loans. The foreign reserves had become dangerously low but were just about adequate. If the ringgit had fallen a bit further, the danger line would have been breached.

After a year of self-imposed austerity measures, Malaysia dramatically switched course and introduced a set of unorthodox policies.

These included pegging the ringgit to the dollar, selective capital controls to prevent short-term funds from exiting, lowering interest rates, increasing government spending and rescuing failing companies and banks.

This was the opposite of orthodoxy and the IMF policies. The global establishment predicted the sure collapse of the Malaysian economy.

But surprisingly, the economy recovered even faster and with fewer losses than the other countries. Today, the Malaysian measures are often cited as a successful anti-crisis strategy.

The IMF itself has changed a little. It now includes some capital controls as part of legitimate policy measures.

The Asian countries, vowing never to go to the IMF again, built up strong current account surpluses and foreign reserves to protect against bad years and keep off speculators. The economies recovered, but never back to the spectacular 7% to 10% pre-crisis growth rates.

Then in 2008, the global financial crisis erupted with the United States as its epicentre. The tip of the iceberg was the collapse of Lehman Brothers and the massive loans given out to non-credit-worthy house-buyers.

The underlying cause was the deregulation of US finance and the freedom with which financial institutions could devise all kinds of manipulative schemes and “financial products” to draw in unsuspecting customers. They made billions of dollars but the house of cards came tumbling down.

To fight the crisis, the US, under President Barack Obama, embarked first on expanding government spending and then on financial policies of near-zero interest rates and “quantitative easing”, with the Federal Reserve pumping trillions of dollars into the US banks.

It was hoped the cheap credit would get consumers and businesses to spend and lift the economy. But instead, a significant portion of the trillions went via investors into speculative activities, including abroad to emerging economies.

Europe, on the verge of recession, followed the US with near zero interest rates and large quantitative easing, with limited results.

The US-Europe financial crisis affected Asian countries in a limited way through declines in export growth and commodity prices. The large foreign reserves built up after the Asian crisis, plus the current account surplus situation, acted as buffers against external debt problems and kept speculators at bay.

Just as important, hundreds of billions of funds from the US and Europe poured into Asia yearly in search of higher yields. These massive capital inflows helped to boost Asian countries’ growth, but could cause their own problems.

First, they led to asset bubbles or rapid price increases of houses and the stock markets, and the bubbles may burst when they are over-ripe.

Second, many of the portfolio investors are short-term funds looking for quick profit, and they can be expected to leave when conditions change.

Third, the countries receiving capital inflows become vulnerable to financial volatility and economic instability.

If and when investors pull some or a lot of their money out, there may be price declines, inadequate replenishment of bonds, and a fall in the levels of currency and foreign reserves.

A few countries may face a new financial crisis.

A new vulnerability in many emerging economies is the rapid build-up of external debt in the form of bonds denominated in the local currency.

The Asian crisis two decades ago taught that over-borrowing in foreign currency can create difficulties in debt repayment should the local currency level fall.

To avoid this, many countries sold bonds denominated in the local currency to foreign investors.

However, if the bonds held by foreigners are large in value, the country will still be vulnerable to the effects of a withdrawal.

As an example, almost half of Malaysian government securities, denominated in ringgit, are held by foreigners.

Though the country does not face the risk of having to pay more in ringgit if there is a fall in the local currency, it may have other difficulties if foreigners withdraw their bonds.

What is the state of the world economy, what are the chances of a new financial crisis, and how would the Asian countries like Malaysia fare?

These are big and relevant questions to ponder 20 years after the start of the Asian crisis and nine years after the global crisis.

But we will have to consider them in another article.

By Martin Khor Global Trend

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.
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Prospering with Belt and Road to reap the benefits of China’s initiative


Malaysia is one of 64 countries to reap the benefits of China’s initiative.

CAN money grow on fruit trees?

Yes, that is as far as Agriculture and Agro-based Industry Minister Datuk Seri Ahmad Shabery Cheek is concerned.

After witnessing the signing of a deal worth US$1.53bil (RM6.65bil) between Malaysia’s AgroFresh International and China’s Dashang Group for the export of local Cavendish bananas and tropical fruits to China, he said:

“Money does grow on fruit trees if our agriculture products could open up China’s market.”

The deal was part of the nine memorandums of understanding (MoUs) and agreements, with value totalling more than US$7.22bil (RM31.26bil), which were signed between Malaysian and Chinese companies on May 14.

But Datuk Seri Ong Ka Chuan, International Trade and Industry Minister II, sees more money flooding in once Malaysia is linked up with other Asean nations, China and Europe via rail connection under China’s Belt and Road Initiative, now termed as the New Silk Road project.

“Our trade figures can jump by three to four folds once Malaysia can export and import goods to our major trade partners (such as China, Europe and Middle East) overland via rail systems,” he tells Sunday Star.

Both ministers are among Cabinet members in the Malaysian delegation led by Prime Minister Datuk Seri Najib Tun Razak to attend the Belt and Road Forum for International Cooperation held in Beijing from May 14 to 15.

Malaysia is one of the 64 countries outside China that have benefited from the Belt and Road Initiative, propounded by Chinese President Xi Jinping in the autumn of 2013.

One project to be launched soon will be the RM55bil East Coast Rail Link. Examples of existing projects include Xiamen University and the deepening of Kuantan Port.

At the opening ceremony of the forum, Xi injected fresh impetus to his pet project by announcing hundreds of billions in new funds for infrastructure investment in Belt and Road countries that span Asia, Middle East and Europe.

According to some estimates, Chinese funds allocated for investing in Belt and Road countries – which include several exiting funds announced since 2013 – total around US$900bil (about RM4 trillion) now.

“Model of regional cooperation”

From Mongolia to Malaysia, Thailand to Pakistan and Laos to Uzbekistan, many projects, including high-speed railways, bridges, ports, industrial parks, oil pipelines and power grids, are being built, Xi said.

Since 2013, Chinese private businesses have invested more than US$60bil (RM260bil) in countries along the Belt and Road, in addition to the US$50bil invested by the Chinese government.

Xi’s speech also reveals that China will expand China-Europe railway cargo services, which are stirring up excitement in European nations – particularly Britain.

Belt-road: Ong signing Belt and Road MoU with Vice Chairman of National Development and Reform Commission of China Zhong Yong on May 13, 2017. Witnessing are Najib and China’s Premier Li Keqiang.

Calling his brand of globalisation as “project of the century” to achieve a win-win situation for all, Xi has committed to importing US$2 trillion (RM8.7bil) of goods from the 64 Belt and Road countries – many of which are under-developed and impoverished nations hungry for infrastructure and industrial investments.

The Chinese leader’s pledge of “non-interference” with the domestic politics of other countries is comforting, given that there are concerns that China could aim to be a hegemony with its economic and military might.

“What we hope is to create a big family where we can co-exist harmoniously,” Xi said last Sunday in his speech that also focused on connectivity in policy, infrastructure, trade, finance and people.

The forum is by far the most important and largest meeting on the Belt and Road Initiative since 2013.

About 130 countries were represented at the forum and they accounted for two thirds of the world’s population. Their combined gross domestic product accounts for 90% of the world’s total, according to Xinhua.

Klaus Schwab, founder and executive chairman of the World Economic Forum, regards the Belt and Road Initiative as “a shining model for regional collaboration, development and growth”.

“This initiative respects the differences between countries and their various paths for development, not imposing a specific plan or ideological framework, but seeking to create common ground for cooperation and mutual benefit,” Schwab told Xinhua.

UN secretary-general Antonio Guterres, also told Xinhua: “China will play a very important role in multi-lateralism with the Belt and Road. The initiative reflects a new model of international cooperation and interaction with mutually beneficial cooperation through the connection of policies and development strategies.”

And Jack Ma, executive chairman of Alibaba Group, shared: “The initiative goes far beyond the economic strategy of any single country or region. Its mission is to make the world more innovative, dynamic, and equal.”

Big step: Fernandes is excited that China has allowed AirAsia to be the first low-cost carrier to set up shop in the Middle Kingdom.

AirAsia deal – another first in China

On the sideline of the forum, Malaysian and Chinese leaders took the opportunity to clinch more agreements that brought bilateral ties to another new high.

While the deals signed last November were far more than this round and higher in total value, the Chinese Government continued to grant “first” to Malaysia. This was reflected in a project given to Tan Sri Tony Fernandes, group chief executive officer and founder of AirAsia Bhd. Soon, the sky will see AirAsia China.

“It is the first time a foreign airline is given permission to establish and operate a low-cost carrier in China. We are the first country to be granted such licence,” Najib told reporters at the conclusion of his visit to China.

AirAsia is establishing a joint venture with China Everbright Group, with an initial stake of 22%. However, AirAsia may raise its stake in future.

China Everbright is a government-owned financial services conglomerate, which is a major shareholder in China Aircraft Leasing Group Holdings Ltd and the Henan Government Working Group.

The plan is to set up AirAsia China to be based in Zhengzhou, the capital of Henan, to ply domestic and international flights.

“Tony Fernandes was very excited because he was able to meet the top transport and aviation officials, whom he could not secure appointments with previously. He has been working on this project for years,” a minister told Sunday Star.

Other Cabinet ministers are also upbeat after attending the Belt and Road Forum.

“I have witnessed the fruits of the close diplomatic ties between Malaysia and China, and between Najib and Xi Jinping during this trip,” says Transport Minister Datuk Seri Liow Tiong Lai, who signed a MoU on infrastructure cooperation with China.

“In China, economic developments are influenced by government policies. Now that our leaders have good ties with China, it is very timely for Malaysian businessmen to enter China, and vice versa,” he tells Sunday Star.

Important talks: Liow (second from left) leading a Malaysian delegation at a meeting with his Chinese counterpart at China’s Transport Ministry in Beijing on May 12 morning. From left are Transport Ministry deputy secretary-general Datuk Chua Kok Ching, MCA vice president Datuk Dr Hou Kok Chung and Fernandes.

“We have to promote economic growth fast enough so that we can harvest the fruits of the Belt and Road Initiative.

“The opportunities for Malaysia to develop the infrastructure and boost economic growth would not be available if not for the Belt and Road Initiative pushed forward by China,” he adds.

Minister in the Prime Minister’s Department Datuk Seri Dr Wee Ka Siong observes: “There are quite a number of business-to-business MoUs signed during this trip, in addition to the nine witnessed by Prime Minister Datuk Seri Najib Tun Razak.

“I was also invited to attend many discussions and meetings, sometimes I had to have many meals a day! (as discussions were held over meals).”

Wee, whose ministerial portfolio covers development of Chinese small and medium enterprises (SMEs), has personally requested Ma to reduce charges for Malaysian SMEs when they use Alibaba’s platform to sell products.

Ma, an e-commerce wizard and China’s second richest man, is expected to give consideration to the proposal as he has pledged to help Malaysia develop its digital economy. Ma will set up the Asean data centre in Malaysia before the end of the year.

Analysing Belt and Road Initiative, Shabery Cheek says: “Belt and Road is a different form of cooperation from other pacts, such as the Trans-Pacific Partnership (TPP) and World Trade Organisation (WTO). Those emphasised on what goods were tax-free and what were not, which sectors to open up and which could not. Essentially, they focused on how to protect the self-interests of individual countries.

“However, the Belt and Road talks about infrastructure networking, which is very important. They take the cue from the ancient Silk Road, which was not only a channel to transport goods, but also to spread Islam and Buddhism. That is a great thing.”

Source: Sunday Star by Ho Wah FoonTho Xin Yi

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Arrest decline in productivity and competitiveness in Malaysia


COINCIDENTLY, two major reports were released on June 1 on the decline of our national productivity and competitiveness. The first was our own Productivity Report 2016/2017, which was launched by Minister of International Trade and Industry Datuk Seri Mustapa Mohamad (pic) and the second one was the World Competitiveness Yearbook WCY issued by the Institute for Management Development.

This coincidence in decline is understandable since both productivity and competitiveness are closely inter-related. Lower productivity leads to lower international competitiveness.

Productivity

Our labour productivity fell short of our 11th Plan target of 3.7% growth by 0.2% to 3.5% last year. This is a small decline and has been rightly explained with confidence by the Minister of Trade in positive terms when he said that Malaysia was “on track”.

I think he will agree that we must be concerned enough to ask what are the causes and whether this is just a mere slip or could it be the beginning of a trend.

We have to take this fall as a wake up call, in case this decline happens again next year and later on. We have to review many recurrent and uncomfortable issues like brain drain and unemployed graduates – who could number over 200,000 – also reflect the low productivity of many graduates who are newly employed. The lower productivity can be attributed to our low use of automation, high employment of unskilled foreign and cheap labour and the new challenges of the digital economy.

The Minister’s proposal for the Government and private sector to “join forces to embark on initiatives” to improve productivity in nine sectors “of lower productivity”, is most welcome. The private sector has to make profit unlike the Government. Hence it has a greater sense of urgency in wanting to improve not only labour productivity but productivity from all factors of production, including good governance and integrity and quality services to the public. Thus it will be very interesting for the public to be made fully aware of the productivity improvements that should materialise not only in the private sector, but for the Government as well. For instance government departments can learn from the private sector how to provide better or excellent services in the fields of health and education and counter services at police stations, Customs, Immigration, etc .

Productivity in both the private sector and the government machinery should improve to raise our total national productivity. Only then will our nation be able to compete much more efficiently and effectively in the global economy.

We can have the best Productivity Blueprint like that which was launched on May 8 but our productivity can continue to slip and even slide, if we do not ensure that the blueprint is fully implemented and its progress diligently monitored and improved along the way. One way to seriously pursue our goal to raise productivity would be to increase the small sum of only RM200mil for a new Automation Fund. Modern machinery and equipment are expensive but the returns in terms of higher productivity can be very significant. So let’s go for higher productivity with greater automation and not approach the challenge on an ad hoc and piecemeal basis. The Treasury would need to support the Productivity Blueprint much more productively!

Competitiveness

Malaysia registered its lowest ranking in five years in the WCY.

This reflects our decline in productivity as competitiveness is the other side of the coin. However, I am surprised that the relationship is so sensitive. Just a drop of 0.2% in productivity can cause a drop in our international competitiveness ranking from 19th place to the 24th!

What this could show is that while we are sluggish in our productivity, other countries are much more aggressive in improving both their productivity and competitiveness.

There is thus no point in taking pride that we scored better in our ranking compared to the industrial countries like Austria (25th) Japan (26th) and Korea (29th). They are highly developed countries which enjoy much higher standards of living and a better quality of life that we do. They have reached the top of Mount Fuji and other mountains, while we are still climbing up from a lower economic base.

The drop in our competitiveness is significant and we have to take this decline very seriously. Malaysia slipped in all four sectors, that is, economic performance, business efficiency, government efficiency and infrastructure. That is why it is essential to investigate in depth into all these major falls in performance and tell the public what is being done to improve our rankings and ratings.

It is appreciated that Malaysia Productivity Corp’s Director General Datuk Mohd Razali Hussain has established Nine Working Cluster Groups to examine these poor indicators and report on improvements that must be made expeditiously.


Conclusion

It is good that we have these reports on productivity and international competitiveness to benchmark our national performance against them. We have to take advantage of these annual indicators and ensure that we keep improving rather than falling in productivity and competitiveness .

Our efforts to improve will be watched closely by our domestic and particularly international investors and international competitors .

We can only hope that these declines are not just coincidental but are also not developing declining trends. This could spell pessimism and falling confidence in our socio-economic management.

Instead we should take these set backs as warning signals and rededicate ourselves to a greater commitment to higher competition, more meritocracy and building a better socio-economic and political environment in Malaysia.

TAN SRI RAMON NAVARATNAM

Chairman Asli’s Centre of Public Policy Studies


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Huge Civil Service Size, Attractive Emoluments and Benefits are costing Malaysia !


Prized job: While long-term security like the pension scheme free healthcare and easy loans have been among the perks of joining the public service, many job seekers now want to become civil servants because it pays well. — Bernama

The attractive emoluments and benefits in the public sector are costing the country, say experts.

THE civil service had never been *Sofea Mohd’s dream job but in the current competi­tive job market, the final year Economics student at a local public university is seriously weighing the option. Especially since she was offered a temporary position at a ministry where she had just completed an internship.

“My seniors advised me to take the offer – one said she had to wait years before she got a job, another said he had to work in a fastfood restaurant and sell pens and children’s books on the street, so I thought I should listen to them and just take it.

“They say my chances of being hired permanently will be higher then,” says the 22-year-old.

The main reason she decided to accept the offer, however, is the pay, she tells, “It’s not as low as people say. I will get a daily wage but I can earn at least RM2,000 a month. The pay for permanent staff is of course better.”

Her friend *Azman Jailani dreams of starting his own business but is also planning to join the public sector after graduation.

“That’s what my parents want me to do. They say there is more security in the civil service. I can start my business later if I want,” says the final year business studies student.

With the academic year coming to a close at most tertiary institution in the country, many graduating students are preparing for the next chapter in their life. And like these two, many are looking at the civil service for a job guarantee.

It was reported recently that the Public Service Commission received 1.56 million applications last year to fill 25,046 job vacancies in the public sector. In 2015, the PSC received 1.63 million applications for 24,606 vacancies.

While the attraction of a government job is well-noted – long-term security; a pension scheme; cheap, if not free, healthcare; easy loans – many job seekers are now drawn to the public sector because of its pay.

Shamsuddin: ‘Duplications impact the private sector. When there are too many agencies, that will bound to cause delays.’

The pay for the public sector, especially for entry-level jobs, is on par with the private sector, says Malaysian Employers Federation (MEF) director Datuk Shamsuddin Bardan.

“It has to be noted that public sector wages have risen, in some cases outstripping the wages in the private sector. And that is only the basic pay. When you add the different allowances and bonuses, the public sector’s salaries – perhaps except for those at senior management level – could be more attractive than that of the private sector.

“Then there are also many benefits for civil servants such as house loans and healthcare benefits for them and family that continue even after they retire.

“In the private sector, the health insurance coverage ends when you leave a company’s employment or retire,” he says.

But the attractive emolument and benefits in the public sector have come at a price for the country, say economists, one that Malaysia will not be able to afford in the future. In fact, some believe it is already hurting Malaysia’s economy – it has been reported that it will now cost the nation more than 40% of government revenue to maintain the public sector.

Experts have pointed to its sheer size as a reason for the burgeoning bill of the civil service.

In February, Second Finance Minister Datuk Seri Johari Abdul Ghani told a local Chinese daily in an interview that it is a growing challenge for the Government to run the public sector due to the rising costs.

“One of the issues that we have to address is the ever-increasing government operating costs and expenses.

“For example, we have about 1.6 million civil servants, which is one of the world’s largest proportion of civil service,” Johari was quoted as saying.

With a population of 31 million, this means Malaysia has a ratio of one civil servant to 19 people, said the news report, which cited corresponding ratios for other countries in comparison: Singapore (1 to 71 people), Indonesia (1:110), China (1:108) and Britain (1:118).

The reported size of the civil service caused a stir, with the Public Service Department director-general Datuk Seri Zainal Rahim Seman refuting criticisms that the civil service is oversized by reiterating Chief Secretary to the Government Tan Sri Dr Ali Hamsa’s statement that the size of the civil service is a matter of definition under the Federal Constitution, which includes the police, the armed forces, and healthcare and education personnel.

 

As Zainal Rahim told the press, the actual size of the civil service would only be 682,790 should Malaysia adopt the same calculation used by other countries. This would make the ratio of civil servant to population as 1 to 44, instead of 1:19, he said.

The Organisation for Economic Co-operation and Development, meanwhile, put  Malaysia’s employment in the public sector as only 10.8% of the total labour force in 2013.

But as Johari highlighted, the fact is, emoluments make up the biggest portion of the Government’s operating expenditure, and that cost has been and will keep expanding.

“In 2003, the pay of public servants totalled RM22bil but it increased to RM74bil by 2016. In 2003, the pension of civil servants was RM5.9bil and in 2016 the amount soared to RM19bil.”

This year, some RM77.4bil have been allocated in the 2017 Budget for public servants’ pay and some RM21bil for the pension and gratuity payments of retirees, which is about 45% of the allocated operating expenditure of the country.

The challenge to cover the spiking cost is intensified by the declining Government reve­nue, the vernacular newspaper reported Johari as saying.

“In particular, revenues from the palm oil and natural gas industries, which generated profits of about RM65bil in 2014, fell sharply to RM30bil in 2016,” he was quoted.

Concurring, economist Dr Yeah Kim Leng says the rising operating expenditure is also a concern due to its impact on the country’s development.

“Over the last decade or so, we are seeing the operating expenditure in the government budget expand to the extent that we are not able to expand the development expenditure,” says Dr Yeah, who is an economics professor at Sunway Business School.

Some RM214.8bil was allocated for operating expenditure in the 2017 Budget while only RM46bil was allocated for development.

“By right, the development expenditure should be half of the budget if we want a dynamic economy as we see in many countries, especially in the developed countries,” he adds.

“But in Malaysia, the development expenditure has shrunk to as low as 20% of the budget. This will have a multiplier effect on our economy.”

He argues we should be spending more on our development, both in increasing the quantum of development expenditure and at the same time focusing the development expenditure on the right sectors – not just hard infrastructure but also soft infrastructure like social and human capital development.

“This is important in improving the quality of our workforce and their skills, in terms of boosting the talent development that can push the frontiers of growth in the country, especially in science and technology and other emerging knowledge and industries.

“The Government needs to attract investments in these new sectors, so that is why development expenditure is one of the key contributions to spark growth in those sectors and accelerate the growth of the economy towards becoming high end, high value.”

He points out, various studies have shown that the country’s civil service is big, with a low productivity rate.

“Regardless of how we calculate the total, we definitely have more people in the public sector than necessary, and studies have shown that labour productivity is quite low for the public sector.”

Rightsizing the civil service is the way to go, he asserts, but it should be treated as part of the continuous effort of improving the efficiency of its delivery service.

“The key is to be able to provide the services required by the people optimally, which is at the smallest number and lowest cost possible without sacrificing the quality of service,” he says, stressing that the underlying note is that “we should be getting bigger banks for our bucks, that is the taxpayers’ money.”

Crucially, Dr Yeah adds, while rightsizing the civil service is important to sustain growth, it is important that we rightsize without disrupting economic growth in terms of the employment situation in the country.

“We have to ensure meaningful employment for all while sustaining a low unemployment rate so that we can maintain the domestic economic growth momentum.”

Any prudent government would seize the opportunity to rightsize and enhance the public sector efficiency, Dr Yeah says.

“It is important to rightsize gradually and incrementally at a pace that does not disrupt the economy.

“Because the risk is that if we are hit by a downturn and the government is forced to undertake the pending cuts then that would be more painful and damaging to the economy. There would be a loss of productive capital when we face that kind of situation,” he says.

Tan Sri Mohd Sheriff Mohd Kassim, immediate past president of the Malaysian Economic Association (MEA) also believes it is time for Malaysia to rightsize the civil service due to the huge sum of civil servants’ salaries and pensions in the government expenditure.

As he had told the “Economic Governance: Public Sector Governance” forum in February, it could be a problem for Malaysia if it runs into a financial crisis and rightsizing is “better sooner than later” if Malaysia wanted to avoid falling into a Greece-like crisis, where the European country had to cut salaries and state pensions for its civil service.

“It is worthwhile to do it now while we can still afford it.

“I think we should do it gradually. It is kinder to do it now with incentives than to suddenly cut their salaries and pensions at a time when they can least afford it,” he was reported as saying.

Mohd Sheriff, who is also the former Finance Ministry secretary-general and Economic Planning Unit director-general, points out that there are ways of rightsizing in a humane and caring manner including providing free courses on skills development that will make people employable in the right sector like ICT, English, basic accounting, corporate law and others.

He says with the right skills, many would even leave the service on their own accord to improve their lives.

Dr Yeah agrees.

“While their pay is comparable to the private sector, many of the second layer and support jobs in the civil service have low long-term prospect,” he says.

“If their skills are improved, they and their families could get better prospects for the future. And if they are forced to look at other opportunities in the private sector or in entrepreneurship, in the end they could be better off,” he says, pointing to some of the initiatives already taken to rightsize the civil service and improve its productivity and efficiency, especially under Pemandu.

Dr Lee Hwok Aun, senior fellow at the Institute of Southeast Asian Studies in Singapore, says the Government should explore different ways to raise more revenue, such as by introducing a capital gains tax.

As a former lecturer at a Malaysian public university, Dr Lee says he can appreciate the enormous difficulty of rightsizing the civil service.

“The projected increasing burden of civil service salaries and proven continuous increase of operational expenditures in overall federal government spending, at the expense of investment, are major causes for concern. And the size of the civil service matters, but the long-term issues are even more complex,” he says.

For the civil service to be effective, nimble and efficient, it will need to attract and retain talent in certain sectors – which means paying higher salaries, especially for key positions such as teachers, he says.

As he sees it, the main problem is over-bureaucratisation.

“There are various unnecessary administrative posts, which add cost and tend to perpetuate procedures and heavy paperwork. I can attest to this from my experience working in a public university. An overhaul of administrative strategy and operations is probably necessary in many departments, before making any staff reductions. If not, when staff retire or relocate, the same amount of tedious work becomes distributed among fewer people, causing service and morale to decline,” he says, adding there will also be resistance from civil servants who stand to lose their pension if they leave.

“We should be understanding and merciful about this situation. Forms of compensation, or the option to convert from public sector pension to an EPF lump sum, could be explored.”

MEF’s Shamsuddin concurs, pointing out that there are also a lot of duplications of service and work at the federal level and state level and so on.

“A good example is tourism where there is a tourism agency at the federal level while the state has its own tourism Exco and office.

Duplications impact the private sector as it is a problem to deal with different government agencies to get something done. When there are too many agencies, that will bound to cause delays,” says Shamsuddin.

Dr Yeah says it is imperative for the Government to enhance the efficiency of the delivery service and effectiveness of the public sector across the board, such as putting them to work in priority areas and where they will have the highest impact.

“Crucially, when we focus on improving productivity through redeployment, retraining and re-skilling, quite naturally, we will be rightsizing.”

It can even be a win-win situation for the public servants as a smaller number of employees that commensurate with a higher productivity will mean an increase in profit, so the civil servants can receive higher wages, he notes.

Still, Dr Yeah feels the public sector’s emolument bill should be capped.

“We need to ensure that the public sector wages do not exceed the workers’ productivity or rate of inflation, as that itself will lead to a productivity decline.

“We should cascade it so that the wages in private sector could rise in tandem with thepublic sector,” he says, adding that at the same time the size of the civil service needs to be reduced. “If we don’t rightsize and instead create more civil service jobs, it will be a downward spiral.”

The Government also needs to enhance Malaysia’s investment climate and attract more foreign investments, he adds, “The strategy of the country should be to push for private sector growth, especially in new and emerging areas which would boost demand for highly skilled labour.”

Ultimately, says Dr Yeah, the public service sector should not be the job reserve or employer of the last resort in the country.

To achieve this, we need to stop the disproportionate interest in the public sector which is not healthy for the economy, he says.

“We should be steering the workforce towards the private sector or they should become entrepreneurs so that they can raise their income opportunities and create jobs.”

The tightening of the job market can lead to higher investment, higher productivity and higher wages, Dr Yeah notes, “This is the virtuous cycle we need to kickstart to sustain an economic growth for the country at a higher level.”

*not real name

Next: Some of the initiatives already taken by the Government to rightsize the civil service and improve its productivity and efficiency.

Source: The Star/ANN by Hariati Azizan

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America vs China: odds narrowing


Leaders meet: A file picture showing Trump welcoming Xi to the Mar-a-Lago estate in West Palm Beach, Florida during the latter’s visit to the US recently. Xi has a growing economy too behind him, whatever the hiccups. Trump only promises one, without any clarity or logic. – AFP

THE contrast could not be greater. While United States president Donald Trump raves and rants – and belts this or that person – China’s president Xi Jinping looks measured and assured as he offers a global future to the world.

Xi is no angel of course, as his political opponents would know, but his system conserves and protects him, as Trump’s would not. If only Trump were the leader in a centrally controlled political order – but even then his temperament would blow it apart.

Leadership, like politics, is the art of managing the possible. Trump does not understand this, and does not know how. Xi does, knows why, and knows how.

He has a growing economy too behind him, whatever the hiccups. Trump only promises one, without any clarity or logic.

His plan to boost the American economy, based primarily on slashing corporate tax from 35 to 15%, is likely to flounder in an American Congress seriously concerned about its causing the fiscal deficit to balloon.

Already Trump has had to climb down from trying to secure funds from Congress for his dreaded border wall with Mexico in order to avoid budgetary shutdown in September.

The stock market has fallen back from the boost to the price of banks and industrial products following his election. Interest now has returned to what might be termed “American ingenuity stocks” such as Google, Apple and Microsoft on Nasdaq – a proxy for much that is great about America, which Trump’s immigration and closed-door policies threaten to destroy.

Meanwhile Xi has been rolling out his “Belt and Road” plans – something he first envisaged at the end of 2013 – for greater world connectivity and development, committing funds from China and the Asian Infrastructure Investment Bank, and engaging global financial institutions such as the World Bank.

Malaysia, for instance, will be an actual beneficiary with additional projects thrown in. China is Malaysia’s largest trading partner. But the US has not been a laggard, being Malaysia’s fourth largest trading partner. And indeed the US remains the largest foreign investor in Malaysia, both new investments and total stock.

A staggering statistic not often recognised is that total American investment in Asean is more than its investment in China, Japan and India COMBINED!

The point, however, is that this position is being eroded. Trump’s policies are hastening this process. Abandonment of the Trans-Pacific Partnership (TPP) means there is no American strategic peaceful challenge to the Chinese economic juggernaut in Asia-Pacific.

Balance is important to afford choice. Absence of choice means serious exposure to risk. Price, quality and after-service standards are affected, not to mention a new geostrategic economic underlining.

Over-dominance by China in the region is a price not only countries in the region will pay, something that most probably is on Trump’s mind. It is a price that America too will sooner or later have to pay.

China’s Belt and Road proposition is not without its challenges, of course. India is deeply suspicious of the connectivity with Pakistan which cuts across India-claimed Azad Kashmir, about 3000km of it.

The link to the Pakistani port of Gwadar, in southwest Baluchistan on the shores of the Arabian Sea, is seen by India as a Chinese presence at the entrance to the Indian Ocean and a hawk eye on the Indian sub-continent. With the Chinese also in Sri Lanka, India is circumspect on China’s Belt and Road initiative.

There have also been commentaries on some uneconomic linkages which extend right across the English Channel.

All these reservations, however, do not take into account the benefit of connectivity to economies, the time it often takes to get those economic benefits and, most of all, the patience, persistence and long view of history of China and its leaders.

One of the most striking things about the Belt and Road map is that America is not there. Of course, Xi Jinping does not preclude America just as much as the US did not say that China was not permanently excluded from the TPP. And of course, in the Old Silk Routes and shipping lanes, the New World – America – had not been discovered.

But in their revival, led by now rising and then ancient China after 150 years of national humiliation to the present time, there is the irony that the last three quarters of a century of America world dominance is on course to be marginalised, if not supplanted, by the old Eurasian world centred in an ancient civilisation.

Trump does not seem to understand history. The art of the deal is purely transactional. Short-tempered and short-term gratification does not a strategy constitute.

So we have leader, system and economic promise distinguishing the two leaders – and the two countries.

Instead of America first, what we are seeing is Trump hurrying America’s decline relative to a rising China.

We are not seeing a world changed from people wanting to be like a kind of American to being people wanting to be a kind of Chinese. Actually, the Chinese people themselves want to be like a kind of American, with all that wealth, influence and power.

What we are seeing is China – not America – leading the way to that desired, if not always desirable, end. It is China that is driving the next phase in the evolution of world economic development.

Under Xi Jinping, China appears to be heroically moving towards an epochal point in its Peaceful Rise. With Donald Trump, America is being led backwards and inwards, with all the problems of its governance now all coming out. It is in grave danger of losing in the peaceful competition.

Not knowing how to play that game – certainly under its current President – there remains the danger of the status quo power lashing out against the rising one.

The Greek historian Thucydides observed: “It was the rise of Athens and the fear that this instilled in Sparta that made war inevitable.”

A Harvard professor has studied what is now called the Thucydides Trap and found in 12 out of 16 cases in which this occurred in the last 500 years, the outcome was war.

There are many potential flash points against the background of China’s rise – the North Korean Peninsula and the placement of THAAD missiles in the south, the South China Sea – where Trump may temperamentally find cause to lash out. This is the trapdoor he might take the world down because of failure to compete peacefully.

By munir majid – crux The Star

Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.
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