23 October 2015

2016 Malaysian Budget: As Jotted on a White Board


BUDGET has always been an interesting topic for me when it comes to blogging. Over the past years I have blogged about it in a comprehensive manner detailing as much information as I can and in the context that is relevant for the comprehension of the Malaysian society at the time those budgets were tabled in the Parliament. 

This year, 2016, I am taking a different approach. The Malaysian society seems to only digest information that only requires them 10 seconds to read particularly on controversial matters on the social media. Therefore, I shall not bore readers with my long winded narration (.... like what I am doing now). I shall use a photo of bullet points jotted on a white board.

Dato' Sri Najib Razak tabled the 2016 Malaysian Budget today, 23 October 2015, at 4.00pm. His (budget) is a very tight one given the significant fall in the Government revenues following the depression in oil price that fell from RM100 per barrel to RM50 per barrel. Despite the sluggish revenues, he has somewhat articulated a fair and appropriate budget. 

If asked, "What is the 1 crucial point that the budget has uncovered?", I should appropriately say, "We are lucky that we have implemented the GST!" In fact, Dato' Sri Najib did say in his budget speech, "Even the oppositions (Pakatan Harapan) have included GST into their shadow budget paper.... thank you for agreeing with GST.... finally.... "

Here is the promised snapshot of the bullet points on 2016 Malaysian Budget as jotted down on the white board:

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06 October 2015

Khazanah Megatrends Forum 2015 Talks About Creative Disruption


We need to address social and economic disparities. Malaysia has always ensured that its policies are formulated to address such disparities. Even when Government's intervention is minimal, the Government must ensure that the market does not produce such disparities. This is congruent with an old quotation by an ancient Oriental philosopher that says, "Governments do nothing but leave nothing undone." - Tan Sri Dato' Seri Utama Nor Mohamed Yakcop

KHAZANAH MEGATRENDS FORUM (KMF) has once again attracted over 1,000 attendees. For the 2015 chapter (KMF2015), it was done at the Mandarin Oriental Kuala Lumpur earlier today and is expected to end with a speech by Y.A.B. Dato' Sri Najib Razak, the Prime Minister of Malaysia, tomorrow evening. The seminar is co-organised by Khazanah Nasional Berhad and Khazanah Research Institute and for this year, the organisers have chosen "Harnessing Creative Disruption : Unlocking the Power of Inclusive Innovation" as the subject of the forum. Like many other corporate players, I too did not miss the opportunity to jot down notes for my takeaways from the forum. They are as follows:

KMF2015  had an opening address from the Deputy Chairman of Khazanah Nasional Berhad and the Chairman of Khazanah Research Institute, Tan Sri Dato' Seri Utama Nor Mohamed Yakcop. His address was a short and impactful one, as he usually does it. Tan Sri Nor gave the impression that whilst we should embrace Creative Disruption, we must not lose focus of the overall picture. For example, the United States of America (USA) has the top 10 riches man in the world such as the founders of big names like Apple, Google, Facebook and the like but at the same time, it has 15% of its population as homeless with that statistic rising from year to year. We need to address social and economic disparities. Malaysia has always ensured that its policies are formulated to address such disparities. Even when Government's intervention is minimal, the Government must ensure that the market do not produce such disparities. This is congruent with an old quotation by an ancient Oriental philosopher that says, "Governments do nothing but leave nothing undone."

KMF2015 also had a special address by the delightful author and independent strategic advisor, Charles Leadbeater. Charles was a relieve to the audience as he sets the tone of the forum to be a relaxed one given the stressful high expectation vibe the title of the forum has. Charles came out with a formula, "Rising Aspirations + Tight Constraints X Limitless Collaborations = Creative Disruption". His idea was a survival story. With the rising expectations, human beings struggle to achieve such expectations with the scarce resources surrounding them. In the end, they are forced to think out side the box to bridge the gaps they encounter and to work around the issues arising. This is, in his opinion, Creative Disruption. What are the ingredients of obtaining that 'out side the box' inputs? He is certain that there are four: Lean, Simple, Social and Clean. Many companies work on lean basis with no Human Resources Department or minimal overheads. They aim to achieve their intended offerings as simple as possible without having their customers to think much about it. Often this involves actions that are pervasively spread across the population requiring some degree of trust, shared costs and reuse of resources. And of course clean is the new thing - many companies are health conscious, they go green and avoid pollution and such. A very good example would be Uber, although many would object.

In the first session we saw a debate on Macroeconomics and Markets entitled "From Mountain High to River Deep: Will Emerging Markets Become Submerging Markets?" On the Bull team we had Stephen Hagger, Managing Director and Head of Equities at Credit Suisse Securities (Malaysia) Sdn Bhd; PK Basu, Head of Malaysia Research and Head of ASEAN Economics at Macquarie Capital Securities (Malaysia) Sdn Bhd; and Ms Sharifah Laila Syed Ali, Group CEO of ValueCAP. On the Bear team we had Dr Arup Raha, Chief Economist at CIMB Group; Dr Don Hanna, Managing Director and Head of Research at Roubini Global Economics; and the legendary Tan Sri Dato' Dr Lin See Yan, an economist and former banker.

The Bull team has Mr PK Basu presenting his optimistic future on Emerging Markets (EM). EM such as South East Asia (SEA) will see a bright 35 years to come as they reduce dependencies on concentrated sources of economy. The market is seeing China slowing down. That is merely readjustment by the Chinese given its overwhelming foreign investments relative to its Gross Domestic Product (GDP) in the past years. Once this adjustment takes place, China is sought to regain its momentum for consumption growth. Ms Sharifah Laila capitalised on this point by saying that there is too much pessimistic psychological fear in the market over uncertainties that causes panic. Once such fear is filtered, it is really about the underlying data that provides meaningful observation for investors. Stephen Hagger reinforced the point of China regaining its growth but offering a contradictory observation. His was the idea that Chinese growth will come from domestic market leaving global involvement at a low end. For the absence of China globally, all eyes will turn to EM, such as SEA.

The legendary Tan Sri Dr Lin See Yan argues from the Bear's perception quite intensely. Tan Sri believes that the currencies, particularly the Malaysian Ringgit, are cheapening too fast. As a result, productivity is affected as many manufacturers close shop. He also suggested that the Malaysian market needs to recognise market players based on merits and not politically. He gave Silicon Valley as a good example where the Americans are accepting Indian citizens as the main economic drivers (from Silicon Valley perspective). He believes that the Government should reduce its role and let the private sector play a more significant role. At the moment they (the Government) are crowding out the private initiatives. Dr Arup Raha further emphasised that the EM are indeed experiencing an export slump predominantly because China has slowed down its imports. Dr Don Hanna further provides some key parameters where if not addressed, will cause EM to contract. Hanna believes that the EM will experience a reducing productivity in its economies as birth rates fall and mortality decreases. In the end, EM will have an aged workforce with low productivity. In addition, he also predicts that the world capital resources will flow back into USA as USA increases its rates. This would only mean the opposite to the EM.

Escaping from the stressfull debate, Sabastian Thrun, the Founder and Chief Executive Officer of Udacity and the Founder of Google [x] enlightened the audiences of KMF2015 with his success story. Sabastian was inspired by South Korea where they had achieved a 10% contribution to the enrollment of engineering students in global universities. This is a remarkable achievement given its low population of only 30 million as opposed to China (more than 1 billion population) and India (1 billion population) where those 2 countries had recorded 20% and 50% enrollments respectively. Over the years, South Korea has managed to increase its knowledge based population that is now enjoying an  income per capita of USD30,000, well above most of the countries in Europe. He believes that improved education will improve the economy. 

On the back of such realisation, he (Thrun) embarked on a Massive Open Online Course (MOOC) at Stanford College offering the subject "Introduction to Artificial Intelligence". The course was offered for free over the internet. The result was a remarkable observation: Top 412 rankings of those who passed the exams were from MOOC and the in-house fee paying lecture attending students could only get 413 as their highest ranking. There were 23,000 graduates from the MOOC programme and when calculated, it only costs the college USD0.60 per student. These graduates now work in the IT industry as programmers. The whole success led to the emergence of nanodegrees that span over 4 to 10 months at USD200 fee per month with the chance of a refund of 50% if exams are passed. This caused massive enrollment. Hence, Udacity was born. Sabastian also believes that Malaysia is the perfect economy to apply the Udacity concept. Why? Because Malaysians are at the world number 1 ranking for smart phone users. 87% of its (Malaysia) population are aged lower than 25 and it has good educational institutions such as Universiti Malaya that is ranked at number 146 in the world. Nanodegree is a formula that will work as it has been tested. Imagine that the world's smart phone users of 2 billion people means that there are more smart phone users than there are toothbrush users. This means technology can be easily embraced.

The next session was Firms and Transformation on the topic "Learning to Fish: How do Firms Harness Creative Disruption?".  Christopher Mueller, the Group Chief Executive Officer (CEO) of Malaysian Airlines Berhad, has a lot to tell about transformation given his recent appointment as a CEO of a sick airline company. He confessed that the airline industry is the worst when it comes to Creative Disruption. The industry is full of competition but yet everyone trades airline tickets like a commodity. It is highly regulated and its propensity to innovate products and offerings is low given the high Research and Development costs. With all these, no wonder the airline industry suffers from a very high inertia when it comes to change. For example, to get a newly designed airplane seat to be approved, it needed 5 years of bureaucracy. Therefore, efforts must be put to embrace Creative Disruption in the airline industry.

David Frigstad, the Chairman of Frost and Sullivan, has interesting points to share about how Kodak went bankrupt. He believes that Kodak could not change its culture because it could not cope with the changing environment. Kodak was an analogue company trying to grow in a digital environment. Even though they invented the digital camera, they did not believe in it. As a result, they were protecting their traditional film cameras. This so called "arrogance" cost them the entire company. And so it happened, Kodak went bankrupt in 2010. The key point to be taken as the lesson here is that we must always be sensitive to the surroundings. If the company is changing slower than the changes in the markets surrounding it, that means the end (for the company) is near. Richa Kar, the Founder and CEO of Zivame, a female innovative e-commerce consultant web service for female apparel, believes the same. Richa manages the company based on what the customers are pursuing. They react to the market to ensure that they are changing in tandem with the market.

From the venture capital front, both Mohd Khairil Abdullah, the CEO of Axiata Digital Services Sdn Bhd (that has a venture capital fund called Axiata Digital Innovative Fund), and Sumant Mandal, Co-founder of March Capital Partners and Managing Director of Clearstone Venture Partners; believe that entrepreneurs are our best hope for the future. They will be the main drivers of innovation. However, the environment needs to be conducive to them just like how Silicon Valley is to many of the start ups in USA. Asians tend to look at failures as negative milestones in entrepreneurs' lives. In the USA, it is pretty much the opposite. Failure means education. The more failures an entrepreneur faces, the more educated he/she will be. It (failure) is the most effective way to chart for future success as the entrepreneurs become more robust over time. It is this positive vibe that the society needs to give to the entrepreneurs in the EM. Innovation requires many trial and errors. Appetite for failure should be increased for greater good. As they say, "Lose the battle but win the war".

I (unfortunately) ended my KMF2015 listening at Khairil as I needed to attend to a business meeting. I will be attending the 2nd day tomorrow and if worthy, I shall blog another post - we shall see. However, I must share with my readers the key takeaway points from Dato' Sri Nazir Tun Abdul Razak, the Chairman of CIMB Group and a Board member of Khazanah Nasional Berhad, who is also the Prime Minister's younger brother, who gave a luncheon address while I was eating a contemporarised Eastern-Western fusion Nasi Ulam at the Mandarin Oriental. His key messages were: Malaysia needs to restructure its Constitution, political structure, economic policies, social structure and Government enforcement based on merit, transparency as well as inclusiveness that can achieve a well balanced society and wealth distribution. For this, perhaps it is wise to have a 2nd National Consultative Council (NCC) as how Tun Razak had done in 1969. I wonder whether Dato' Sri Nazir will tell these points to the Prime Minister (his brother) himself tomorrow when both will be in attendance at the KMF2015 closing.

Malaysia needs to restructure its Constitution, political structure, economic policies, social structure and Government enforcement based on merit, transparency as well as inclusiveness that can achieve a well balanced society and wealth distribution. For this, perhaps it is wise to have a 2nd National Consultative Council (NCC) as how Tun Razak had once done in 1969 - Dato' Sri Nazir Tun Abdul Razak

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04 October 2015

Lim Chee Sing, an Economic Expert, Comments about Malaysia


TODAY, well, yesterday, since it has past midnight, I watched the 11pm Nightline on TV3 presented in its special format, Ringgit Sense. To my delight, it was Mr Lim Chee Sing's turn to be interviewed. I have very high regards of this dude. He had once given me and my team a lecture on Malaysian economic update back in 2013. He is the Group Head Economist for the RHB Group. A prominent guy in that field.

Lim is vey fair and unbiased. He had these comments to offer us, laymen, to understand Malaysian economics rather than listening to the propaganda infected news and bloggers out there especially the internet and social media:

Malaysian economy continues to grow despite all the other negative indicators. This is evident from its first half year Gross Domestic Product growth of 5.3% for 2015. It is expected that the whole 2015 will close at 5% and even if is to be lower, it would be close to 5%, making it one of the best performers in the region. 

The strong performance is because Malaysia has a very good economic fundamental substance. For example, its fiscal policies included a more efficient broadbase consumption tax, Goods and Services Tax, that not only helped improve Government revenues, but also reduces reliance on other sources of revenues. This is a courageous move given its unpopular reaction from the public politically.

Then there is the issue of CDS marking Malaysia as junk. Clearly this lacks fairness because it was concluded on the back of a very risk adverse mindset of short term investors. As mentioned earlier, it is not a fair conclusion. This conclusion was merely arrived at by virtue of them grouping Malaysia in the same group as Brazil. Brazil was earlier rated as junk by S&P. However, Malaysia got a good rating of A - by S&P. How can Malaysia be grouped together with Brazil? 

It must be comprehended that the Malaysian economic problem's main culprit is the oil price. Malaysian has been over dependent on oil revenues. As a result of Global economic's influence over oil price, i.e. dampening, Malaysian has seen a fall in its oil export revenues. Lesser Ringgit demand for oil exports has caused the Ringgit to fall. That is the main cause of the Ringgit depreciation.

Many parties blamed the domestic political turmoil on governance matters had caused the fall in Ringgit. Of course, political landscape has its impact on the confidence investors have for our economy, and hence affecting the Ringgit. However, this is not the main contributor to the fall in Ringgit. I must remind that oil price was and is the biggest contributor to Ringgit depreciation.

With the Government's objective policy settings, particularly for the 2017 National Budget as well as the roll out of Rancangan Malaysia ke-11 (11th Malaysia Plan), We have good chance of emerging out of this economic downturn.


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