Happy New Year 2024 – It is all about reforms

 

The planned subsidy rationalisation for fuel and the introduction of the Progressive Wage Model are two key elements for reforms.— Reuters

LAST week, this column explored what the year 2024 will bring to investors as expectations of cuts in global interest rates and lower inflation prints will likely be the main theme for global markets amid heightened geopolitical risk. This week, the focus is on Malaysia and what lies ahead.

Just over a year since the unity government was formed, the government remains strongly in place with additional support from even some opposition members of Parliament that has given Prime Minister Datuk Seri Anwar Ibrahim an upper hand in initiating change for the betterment of the country in terms of new legislations, amendments to existing laws as well as the much-talked about reform agenda.

The cabinet reshuffle and appointment to key posts such as the choice of Datuk Seri Amir Hamzah Azizan as the new second Finance Minister and Datuk Seri Johari Abdul Ghani as the new Plantations and Commodities Minister are welcome changes to the cabinet, although it would have been much better if the Prime Minister had relinquished the post of Finance Minister.

Political reforms

With more than three years to go before the next general election is called, it is time for this government to introduce some political bills that will make governance stronger irrespective of who is in power.

Key among them is limiting the terms of the Prime Minister to two terms, limiting the Prime Minister in office from holding any other portfolio, especially that of Finance Ministry, and introducing the political funding bill, which has been long-delayed.

Other key reforms include providing greater enforcement powers to agencies like the Securities Commission to ensure that capital market wrongdoers are severely punished and not subjected to the whims and fancies of an individual’s political affiliation or power.

Even the recent reprimand and action of several directors in relation to the Serba Dinamik Holdings Bhd fiasco was seen as a mere slap on the wrist, while minority shareholders and debt holders were completely wiped-out.

Separating the roles and power of the Attorney General and the Public Prosecutor will instill confidence in the judiciary process while the introduction of a race-relation bill too will certainly help issues related to 3R (race, religion, and royalty).

In the pipeline, the Freedom of Information Bill and Government Procurement Bill are the other two key reform agendas that are expected to be tabled, which will provide greater transparency and accountability.

These key reforms must be carried out, without fear.

Economic and social reforms

The planned subsidy rationalisation for fuel and the introduction of the Progressive Wage Model (PWM) are two key elements for reforms.

While this column does not agree that targeted subsidies are the right approach towards removing fuel subsidies and prefers a gradual and mannered approach to raising pump prices, it is hoped that the targeted subsidy mechanism will be implemented smoothly.

Failure is not an option as the political backlash can be severe for the sitting government.

As for PWM, the government’s incentive is welcome but it would be better if the government does not intervene in the labour market by providing wage subsidies to participating organisations.

The government will be better off by implementing a progressive increase in minimum wages by increasing the current minimum wage by RM200 to RM300 gradually every couple of years to reach at least RM2,500 by 2030.

Enforcement is also key as we are seeing how certain corporations are still paying wages below the current threshold level.

The government should also provide a wage guide for certain jobs to ensure compliance while jobs that no Malaysians want to be engaged in such as the 3D (dirty, dangerous and demeaning) jobs should be categorised separately.

In this category, the government should also step up the levies imposed on foreign workers to the extent it makes no sense to employ foreigners as our over-dependence on foreign labour has caused us to become a low-wage economy and being surpassed by countries like Vietnam, Indonesia, and Thailand.

Other economic reforms relate to Malaysia’s low tax to revenue, which is almost seven percentage points lower than the Organisation for Economic Cooperation and Development average of 19%.

Malaysia must make efforts to raise taxes via the introduction of not only new taxes (low-value goods tax, higher sales and service tax, and capital gains tax, are welcome moves to raise tax collection) but also the removal of the abundance of tax reliefs that are given to both individuals and corporations.

Malaysia needs to widen the tax net to have a greater number of taxpayers.

The introduction of e-invoicing beginning in August 2024 is a welcome incentive to capture the shadow economy as undeclared taxes will now be under greater scrutiny.

It is hoped that with e-invoicing, the government’s tax revenue will increase substantially to address some of the shortfalls that we presently experience in terms of tax collection. 

Decent growth

The Malaysian economy is poised to expand by 4.5% in 2024, thanks largely to an expected recovery in the manufacturing and external demand while large infrastructure projects could propel the construction sector too to register above-average growth.

The multiple economic blueprints and Budget 2024 announced this year – the Madani Economy framework, National Energy Transformation Roadmap, New Industrial Master Plan 2030, and the 12th Malaysia Plan Mid-term Review are key catalysts to take Malaysia to the next level and must be executed well to ensure the targets set are met based on pre-determined timeline.

OPR on hold

While the consensus view is that Bank Negara will likely hold the overnight policy rate (OPR) at 3% in 2024, there is an even chance for the central bank to cut the rate by at least 25 or 50 basis points if economic growth doesn’t match the expected moderate pace or if inflation remains subdued.

After all, with most central banks turning dovish and ready to cut rates, the

spread between the OPR and other benchmark rates will narrow.

This will provide the central bank the monetary space to cut rates, especially if the ringgit recovers strongly in 2024.

Whither the ringgit?

Almost everyone who is asked their opinion on the ringgit has the same response – that the ringgit is undervalued.

Ironically, that opinion has been held for the longest time and yet the ringgit continued to weaken for one reason or another.

The key to the ringgit’s performance is not just about the investment and portfolio flows, but also the large element of errors and omission, which is a reflection of the level of illicit outflows that the country has been facing for a long time.

Until and unless the general view is that the government is doing the right thing to build market confidence with strong political stability, these outflows are not going to reverse anytime soon.

Hence, the government needs to instill this confidence not only among foreign investors (both foreign direct investments and non-resident portfolios inflows) but also among resident investors.

Having said that, with the ringgit last seen at about RM4.60.90 to the US dollar, down by approximately 5% in 2023, it is expected that the ringgit will regain ground in 2024 with RM4.46 being its fair value using the Bank of International Settlement’s effective exchange rate index.

Since the end of 2019, except for 13.1% and 1.3% gain against the Japanese yen and the Thai baht respectively, the ringgit has weakened 1.5% against the Indonesian rupiah and between 9.9% and 15.2% against other major currencies such as the British pound (minus 9.9%); Australia dollar (minus 9.9%); China yuan (minus 10.5%); euro (minus 11.8%); US dollar (minus 12.6%); and a deficit of 15.2% against the Singapore dollar.

2024 game changers

On Jan 11, 2024, the memorandum of understanding (MOU) between Malaysia and Singapore to establish the Special Economic Zone in Johor is expected to be inked and this will pave the way for both Malaysia and Singapore to capitalise on each other’s strength for the economic benefit of both nations, and in particular, for Johor.

The most important element of this MOU will be the scope, depth, and breadth of the agreement that could lift the demand for the Johor property market, in particular the industrial, commercial, and residential segments.

The other game changer would be the Request for Proposal process for the long-delayed Kuala Lumpur-singapore High-speed Rail (HSR), which is expected to kickstart from mid-january.

The HSR will be expensive and may not be economically feasible based on the cost involved, but Malaysia cannot afford not to build on large-scale infrastructure that will change the landscape of transportation in Malaysia as the next step would be to connect Kuala Lumpur to the Thai border as part of the Asean railway integrated line.

Looking at HSR models across the world, there are only a handful of profitable lines, yet new lines are still being built purely for socio-economic reasons.

Right stocks

While broking firms are largely fixated on the FBM KLCI index with the consensus view that the index may even hit 1,600 points based on a relatively inexpensive 12-month forward price-to-earnings ratio, the real outperformance will come from stocks that will benefit from the government’s reform agenda and infrastructure projects.

Recovery theme from a stronger external demand should benefit Malaysian exporters while selected property names too are expected to ride on the Johor theme that has already seen a strong momentum this year.

Plantation stocks too are expected to do better with higher crude palm oil prices in 2024 while building material companies should benefit from higher construction activities next year.

A word of caution – while 2024 looks promising, it will not be smooth sailing as the market is still concerned on the pace of rate reductions and by what quantum while domestically, the expected recovery in external demand, a benign inflation environment and sustained consumer demand are key to Malaysia’s economy in 2024.

In addition, the expected earnings growth pencilled in by broking firms is relatively high at 13.6%, which is likely to be met with disappointment along the way. The key will be the first and second quarter 2024 earnings momentum, which will set the stage for the market’s performance next yea

 Wishing all readers a Happy New Year, may 2024 bring joy, happiness, and good fortune.

Pankaj c. kumar

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Declining performance of Malaysia's civil service, World Bank report

KUALA LUMPUR: The performance of Malaysia’s civil service has been declining since 2014, according to a World Bank report, which also expressed concerns about the sustainability of the country’s public sector wage bill.

The report, which came about following the visit of World Bank vice-president for East Asia and Pacific Victoria Kwakwa to Malaysia last December during which she met the Prime Minister, also ranked Malaysia lowly in its indicators for accountability, impartiality as well as the transparency and openness of its public service.

The report – which is included in the World Bank’s six-monthly economic monitor on Malaysia – will be formally launched today.

World Bank lead public sector specialist Rajni Bajpai said that while Malaysia was doing better than others in South-East Asia, there was a very “big gap” in the performance of its civil servants with Organisation for Economic Co-operation and Development (OECD) countries.

She said the report decided to compare Malaysia with the OECD countries as it was hoping to move from a middle-income status country to that of high-income.

“When you compare Malaysia with others in the region, Malaysia has been doing pretty well but we see that the performance has stagnated.

“If you look at the indicator for government effectiveness, Malaysia is still above in the region but in 2018, the performance is below that of between 1991 and 2014.

“If you take the average of that period between 1991 and 2014, it was higher than that in 2018, which means the performance is declining,” she said in an interview.

There were also some indicators in which Malaysia ranked even below the region, said Rajni, adding that this included accountability, impartiality and the openness of its public sector.

“There is a strong perception ... that recruitment of the civil service is not fair and neutral (with) Malaysia scoring very poorly on the indicators for impartiality in the government.

“It’s the lowest ranked, even below the region and way below the OECD,” she said, adding that the government in its election manifesto had suggested setting up an Equal Opportunities Commis­sion meant to tackle discriminatory practices in both the public and private sector.

“Malaysia also scores very poorly on the openness indicators. Malaysia is not a very open economy in the sense that data sharing is a very big problem.

“The government does not share of a lot of data, even within its own departments or with the citizens. “And citizens’ feedback and voices are not factored by the government into the design of programmes,” she said, adding that the report would suggest the setting up of an institutional and legal framework for open data sharing.

Another indicator that Malaysia performed “not very well”, according to Rajni, was in digitisation and technological advances, which the government had not been able to integrate into its system to provide services.

The report, said Rajni, also focused on another critical element in Malaysia’s civil service, in that the recruitment, which was carried out by the Public Services Department, was overcentralised.

Describing Malaysia as one of the “most overcentralised”, she pointed out that in many countries, this function had been devolved to other departments and even state governments.

“Overcentralisation does not allow for the people who actually need the public servants to do certain jobs ... because they don’t have the right people or the recruitment takes a very long time,” she said.

OECD countries, said Rajni, had been using a competency framework for the recruitment of their civil service, which defined the kind of roles and skills needed in the public sector, rather than taking in people generally for everything.

Among the indicators that Malaysia performed very well were for the ease of doing business – for which Malaysia is ranked 15th – and the inclusion of women in its civil service.

“Women occupied almost 50% of the civil service although there are some issues with women in higher management,” said Rajni.

Other indicators that were highlighted in the report included political stability, regulatory quality, rule of law and control of corruption.

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May 2013 be a year of productivity?

We must make sure Malaysia and the rest of the world keep going forward this new year.

WISHING people a “Happy New Year” or “Kong Xi Fa Cai” or “Selamat Hari Raya” or “Happy Deepavali” and “Merry Christmas” is something I enjoy doing very much.

The invention of e-mail, SMS and other more recent phone applications have made me a serial “wisher” and if you are on my contact list, you should have got a message from me.

For the coming 2013, I wrote a little ditty and it reads:
“Every New Year brings new hope,
Every New Year brings new joy,
Let’s make sure 2013 will bring more,
Let’s make 2013 a GREAT year”

Ninety per cent of those who got my message replied politely but most of them just treated it as another “wish”.

I would like to stress that my wish for everyone is a deep-felt one and it’s one that I mean with all sincerity – 2013 is an important year not only for us in Malaysia but also the world.

As this article is being written, the TV and wires are reporting that the Republicans and the White House have just made a last-minute deal to avoid the US economy from going over the “fiscal cliff” which would drive the US and possibly the Western world into a recession immediately.

There can be many criticisms levied against President Barack Obama and the other US politicians of leaving it until so late to come to a compromise on a very important matter with global impact.

But the successful conclusion just before midnight of New Year’s Eve augurs well for everyone. At least we started 2013 on a positive footing.

The stock markets in Asia reopened on the first day of trading of the New Year in positive territory. That’s a good start.

Avoiding the fiscal cliff is just one of many global issues that the world inherited from 2012 and needs to be overcome in 2013.

Among the more urgent ones are:

> The Euro Zone financial crisis. Nothing done seems to have had any effect and even the mighty German economy is beginning to waver under the weight of the problem. Other big economies like Spain, Portugal, Italy and France all seem to be resigned to the fact of a prolonged downturn.

The world needs to start treating economic ailments the way it treats terrorism and war – by doing it with an all-out effort.

I accept that there is no single cure for a downturn because most are caused by different situations.

However, the urgency in treating and handling economic issues is downright embarrassing.

An example is the World Trade Organisation that was set up more than 20 years ago and until today has hardly made any significant headway except to be a very expensive talk shop.

> The horrifying disintegration of Syria. The way the world has allowed this nightmare to carry on is unbelievable.

All they have done is pay lip service at best or at worst, send one side or the other more weapons that will only prolong the suffering.

The problem of the wide media publicity given to this civil war is that it has made people immune to the violence and abuses that is going on there.

Each time we see a new video coming out of that country that shows death and destruction, all we tend to do is shrug our shoulders and remark “another day in paradise”.

This has to stop. We have to care and, in 2013, we should all act as one to prevent such carnage from continuing.

> Back home in Malaysia, our attention will be focused on the GE 13 which I will bravely say will take place before April 7.

Does this mean that all our energy and attention will be centred on the first quarter of the year?

I hope not. Our energy will be needed even more after that.

Yes, this general election will be the mother of all political battles – the kind where brothers take on brothers and husbands bravely challenge wives’ political ideology.

I will not be wrong to say that both sides on the political divide have already hardened their stand – all are prepared not only for the polls but also to up the ante to a feverish pitch.

Let’s hope the pitch just stays feverish and measurable by the thermometer. Yes, there is much at stake for both sides – it’s political survival for some of the key characters in our political theatre.

Because much of it is about personal survival, certain personalities may want to take the feverish pitch past the measurable level.

I do not want to dwell on who has what at stake but I would like to caution all politicians that the country needs to move on after the votes are counted.

They must not create a situation where the country cannot move forward or backwards.

Malaysia cannot afford to be stuck in another 60 months of political quagmire caused by turning everything into a political issue whether it’s a Olympic silver medal or how long before Selangor runs out of water.

I hope the whole country will wake up after polling day, take in the results and quickly get back to work because there will be more than 154 days to go before the end of 2013.

Malaysia has burst into a quick trot in its catch-up with the rest of the world in 2012, let’s not waste all that to tantrums thrown by sore losers in a political race.

A very down-to-earth colleague, in reply to my greetings, wrote: “It’s just another day. So think young, stay healthy and better be good.”

While she may have meant the New Year’s day – I think it is also apt for the day after election.

Happy New Year.

WHY NOT?
By WONG SAI WAN saiwan@thestar.com.my

Executive editor Wong Sai Wan spent his New Year’s eve at a friend’s place toasting to a bright future for everyone.

Startups Are All About the Execution, So Tell Me How ?

When entrepreneurs come to me with that “million dollar idea,” I have to tell them that an idea alone is really worth nothing. It’s all about the execution, and investors invest in the people who can execute, or even better, have a history of successful execution. Execution is making things happen, and for startups it usually means making change happen, which is even more difficult.

Sean Covey image via FranklinCovey >>

For most people, execution is one of those things that seems obvious after the fact when done correctly, but is hard to specify for those trying to learn to do it better. Recently, I finished a new book on this subject, “The 4 Disciplines of Execution,” by Chris McChesney, Sean Covey, and Jim Huling, which seems to talk to startups as well as the corporate world it was written for.

These authors argue effectively that the hard part of executing most strategies is changing human behavior – first the people on your team, then partners, vendors, and most importantly, customers. No startup founder or leader can just order these changes to happen, because it isn’t that easy to get other people to change their ways. Changing yourself is tough enough.

Here are four key disciplines that I believe the best business leaders follow to expedite the change and forward progress implicit in the successful execution of a million dollar idea:

1. Focus always on one or two top priority goals. We all live with the stark reality that the more we try to do, the less well we do on any of the elements. Thus focus is a natural principle. Narrow you and your team’s focus to one or two wildly important goals, and don’t let these get lost in the whirlwind of daily urgent tasks and communications.
2. Identify and act on leading measures first. Some actions have more impact than others when reaching for a goal. Hold the lag measures for later (results available after the fact), and focus on lead measures first (predictive of achieving a goal). For example, more customer leads is predictive of more sales revenue later.
3. Define a compelling scoreboard. People on your team play differently when someone is keeping score, and even better when they are keeping score, and even better when they have defined how their score is measured. This is the discipline of engagement. If the scoreboard isn’t clear, play will be abandoned in the whirlwind of other activities.
4. Create a frequent forum for accountability. Unless we feel accountability, and see accountability on a regular cadence, it also disintegrates in the daily whirlwind. It’s even better if team members create their own commitments, which become promises to the team, rather than simply job performance. People want to make a contribution and win.

These four disciplines must be implemented as a process, not as an event. That means your team needs to see them as a normal and continuous focus, not a one-time push which fades in the rush of other daily priorities. The team needs to see the process practiced by the startup founder, as well as preached regularly.

Startup founders also need to realize that building and managing a company is quite different from learning to search for and solidify an idea that can grow into a company. Every entrepreneur has to navigate that personal change from thinking to doing to managing.

It’s not only the change from thinking to managing, but also the change and learning from constant iterations. Major changes, called pivots, are terrifying to a team that has put months of constant focus into executing what they thought was a great idea. If you don’t have an execution process, you have chaos.

Overall, every entrepreneur should be concerned if they don’t regularly feel stretched beyond their comfort zone, meaning mastering the art of execution if you are mainly creative, or developing creativity if you are mainly process driven. Don’t forget that the fun and challenge is in the learning, so enjoy the ride. The entrepreneur lifestyle is not meant to be comfortable.

Martin Zwilling, Contributor

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