PUTRAJAYA: Real wages in Malaysia have dropped dramatically over the last 10 years since the Asian financial crisis.

According to the Reshaping Economic Geography Report in East Asia, an East Asian and Pacific region companion volume to the World Development Report 2009, the growth in real wages, which refers to wages that have been adjusted for inflation, had reduced significantly to 1.9% post-crisis from 5.6% per annum for export-oriented industries.

Meanwhile, for domestic-orientated industries such as food, beverages as well as tobacco, growth in real wages had fallen to 1.4% post-crisis from 6.8% per annum.

According to report author Dr Yukon Huang, the fall in real wages was in tandem with the drop in gross domestic product (GDP) over the last 10 years.

Huang added that in terms of labour migration to Malaysia, although the number of migrant workers had increased over the same period, there was a fall in the number of highly-skilled expatriates.

Incidentally, over the last 20 years, Malaysia’s services sector contribution to the GDP had remained steady at 46.4% in 2007 from 46.2% in 1987.

“These indicators may reveal that Malaysia has not moved up the economic value chain successfully over the last 10 years and steps should be taken to address these issues,” Huang said at the launch of the World Development Report 2009 yesterday.

According to the Economic Planning Unit director general Tan Sri Sulaiman Mahbob, the latest report from the World Bank looks at the global economic development from fresh perspectives.

“Instead of emphasising on the role of government in initiating and dictating the shape and momentum of economic development, the report highlights the critical importance of natural, human and geographical forces at work such as density as well as distance that encourage the emergence of economic growth centres or hubs across the globe.”

He added that governments should not resist the emergence of these economic hubs but instead should encourage their development. “We share the World Bank’s view that we should approach economic development on a holistic level rather than on a central level.

“We believe that policies or approaches that work for one country or even a region, may not work for all regions within a particular country,” he said.

He said the Government had recognised the geographical differences when launching Malaysia’s five economic corridors, namely, Iskandar Malaysia, the Northern Corridor Economic Region, East Coast Economic Region, Sabah Development Corridor and Sarawak Corridor of Renewable Energy.

“The Government also recognise that each region possesses different economic resources and have adopted different sets of economic strategies designed to exploit the resources and maximise on the economic potential of each region,” he said.

For instance, Iskandar Malaysia would focus on the services, property and tourism industries, he pointed out.

He added that to date, Iskandar Malaysia had attracted investments totalling RM40.25bil.

The Star- Laalitha Hunt

KUALA LUMPUR: Political risk is no longer an overriding factor for the Malaysian market and the country could see a recovery by the fourth quarter of the year, says Citi Investment Research.

Its director and Malaysia head of country research, Choong Wai Kee, said that political risk was an issue after the March 2008 elections but it was no longer now as the political risk premium was lower. Risk premium refers to the extra return that an asset has to provide investors for the unique risk that it carries.

“One of the reasons for this (the risk premium coming down) is that while it was shocking that certain states had changed government (in March), in practice, the process has been quite smooth.

“This has led to Malaysia being one of the top performing markets as othersin the region have tumbled,” he told a press briefing yesterday.

As for the leadership change in March when Deputy Prime Minister Datuk Seri Najib Razak will take over as Prime Minister from Datuk Seri Abdullah Ahmad Badawi, he said: “I think the market had factored in leadership change already.”

Choong Wai Kee

On the economic outlook, he said Citigroup had reduced its gross domestic product (GDP) forecast to 0.5% for this year from 3.1% previously on rising macro-economic risks. The forecast was the lowest compared with a Bloomberg survey of an average 1.5% growth while the Government projected a 3.5% growth.

Choong said the weaker outlook was due to Malaysia’s declining exports and weakening economic data in export markets of Europe and the US. Exports fell for a second consecutive month in November, contracting 4.9% from a year ago.

He said the Government’s more optimistic GDP outlook could be due to proposed RM7bil fiscal pump-priming “which is the most relevant measure to take at this time” while another package was in the works.

Citigroup also maintained its expectation of a 50- to 75-basis-point cut in the overnight policy rate by Bank Negara in the first quarter from 3.25% now.

On its investment strategy, Choong said investors should stock pick and focus on companies which had been badly sold down, including AMMB Holdings Bhd, IGB Corp Bhd, KLCC Property Holdings Bhd and Tanjong plc. Citigroup liked the large capitalisation stocks with good liquidity.

On a quarterly basis, the bank is forecasting a 0.9% fall in GDP growth for Malaysia in the first quarter, then remaining flat in the second and third quarters at 0% growth and to recover in the fourth quarter.

“Hopefully the market will bottom out in the first quarter, giving you plenty of time to pick your stocks in the second and third quarters,” Choong said.

On the banking sector, Citigroup vice-president of financial institutions research Malaysia, Julian Chua, said asset quality would be the main concern for 2009.

“Banks would be unlikely to be looking at growth,” he said. While non-performing loans (NPLs) had been low so far, they were likely to rise “as economic activity declines”.

NPL risks lay in the consumer and manufacturing sector, he said.

“Consumers would be affected by retrenchment activity and manufacturing sector is already seeing strain in export slowdown,” Chua said.

Mitigating factors for Malaysian banks were that they had already beefed up risk management processes, generally lending had not been overly aggressive, the banking system was relatively liquid with low loan-deposit ratio and the banks were generally well capitalised.

As for mergers and acquisitions (M&A) of regional expansion ambitions, Chua saw this as unlikely.

“It is still too early to look at M&A. Because earnings visibility is low going forward, banks would rather conserve capital than make acquisitions,” he said.

Investment banking income this year was also expected to be low until the possible fourth quarter market recovery.

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The Star

AFTER the annus horribilis that was 2008, financial markets seem determined to start the year on a brighter footing.

In Asia, bourses have strung together a week of mostly rises, while in Europe, the expectation is for a significant easing of short-term money market liquidity and interest rates.

No one would seriously be thinking that the end to our economic troubles is anywhere in sight. The news streaming out of financial capitals is still unmitigatingly bleak.

The latest titbit to catch my attention was that the crash of New York’s unemployment claims computer system due to the overwhelming demands placed on it. My heart really went out to the poor snow-bound claimants.

Another was the suicide of the world’s 94th richest man, German billionaire, Adolf Merckle, who, among other things, took the wrong side of a very big stock trade. The rich obviously have different ideas about economic hardship from the rest of us.

Still, the idea that one should start the year with optimism and look for bright spots on an otherwise black canvas is a good one. One might equally ask what the bright spots on the Malaysian canvas are. Are there positives in the midst of the looming economic crisis?

There are most certainly positives although they could equally be considered hopes or windows of opportunity. I can think of three.

First, economic crises are a great opportunity for us to put aside our differences and work towards the common good.

Coming at a time when Malaysia is as ethnically and religiously polarised as ever, this can be a significant positive. After all, when a group of people has fallen into a deep hole, it is idiotic to quibble over race and religion or anything else when trying to find a way to climb out.

There is, of course, always the danger of gutter politics. This is politics that plays on our most elemental fears and exploits the most self-serving of interests.

It is a great pity that the political system, instead of penalising racists and religionists of every stripe and colour, actually seems to reward them. But that is another story.

It is my hope that the economic crisis does not slam us to the pavement. If it does, however, the logical choices are either to fight it together or, if possible, to flee separately. I, for one, am opting for the former.

Another bright spot of economic crises is that they force us to become more realistic and pragmatic.

Over time, human societies tend to become muddle-headed and complacent. We start to take economic growth and prosperity as a given. Worse, we start to develop fanciful ideas about we can achieve and what we are capable of.

This is when all kinds of grandiose and unproductive schemes leap from the drawing board. In the name of national pride, some countries today (which shall remain unnamed) have constructed some of the world’s tallest and most technologically sophisticated ghost towns.

The countries today that have broken through the so-called “middle-income trap” have kept their noses to the collective grindstone. They have largely declined ostentatious displays of wealth, at least relative to their growing piles of cash.

More than anything, they work feverishly to gather economic intelligence and position themselves to exploit and benefit from it. They do not, as seems to be a habit here, work until dinner devising another expensive plan or policy that will largely remain unimplemented and, in many cases, even unknown.

Economic crises should compel us to vigorously dispense with bureaucratic red-tape, appreciate those who are knowledgeable and capable and hold those who do not perform accountable.

The third and final positive is that the financial crisis on the doorstep promises to correct the yawning gap in relative incomes.

One of the reasons why this economic crisis is being acutely felt is that the economic growth of the past decade has been accompanied by increasing income disparities. The difference between blue collar and white collar pay is at a historic high.

In Malaysia, the bottom 40% of households earns much less than 20% of total income in a year. By contrast, the top 20% of households earns a little more than half.

It is perverse to welcome an economic crisis because it makes the rich poorer because it also hurts the poor.

Democratically-responsive countries, however, would use the opportunity to address equity issues and ensure that economic growth and prosperity are not only for the elite.

The richest and most dynamic countries in the world are not necessarily those with the lowest tax rates or the smallest governments. They are the most socially cohesive and best governed. If the economic crisis can shepherd Malaysia in this direction, it may not be as bad as it turns out.

Steven Wong is assistant director general of the Institute of Strategic and International Studies (ISIS) Malaysia responsible for the bureau of economic policy studies.

PETALING JAYA: Meg Tan, who has always dreamt of studying overseas, has had her dreams dashed by the current economic downturn.

After completing her Cambridge A-levels in a local private university college, she was looking forward to pursuing an accounting and finance degree in Britain.

Her parents, however, have decided for her to continue her studies locally instead – via a twinning or an external degree programme – to save costs.

“It is the prudent thing to do. We do not know how long the economic downturn will last and whether our jobs will be affected. We can always send her overseas for her last year if finances permit.

“The degree programmes in the private colleges here are pretty flexible in this aspect and our financial burden will be eased substantially as we save more than half of what we need to spend if we send her to Britain,” says Meg’s father Paul Tan.

With more families tightening their purse strings and letting their children study locally rather than abroad to save costs, the outlook for the private higher education industry is expected to remain positive this year, say industry players.

The Malaysian Association of Private Colleges and Universities (Macpu) executive secretary Ko Kim Hooi says the current economic downturn can be an incentive for students to look at twinning and external programmes as cheaper alternatives.

“The education industry is seen as a recession-proof industry as education is a necessity, so the outlook is still good for us.

“During the 1997/98 financial crisis, the local private higher education industry came up with various twinning programmes to help students save costs and this move boosted business as well,” he tells StarBiz.

Ko says more students studying locally will also help the country save on foreign exchange.

According to Monash University Sunway Campus pro vice-chancellor and president (Malaysia) Prof Robin Pollard, the university is showing above-normal application rates.

An artist's impression of Taylor's University College Lakeside campus

“So it appears as though some people prefer to study at home rather than face an uncertain future with higher cost commitments by going overseas,” he says.

Some may also decide to further their education rather than enter an uncertain job market, thus leading to a rise in enrolment even in a declining economy, adds Pollard.

“Of course, the hope is that when the economy improves, the additional learning will lead to benefits,” he says.

Moreover, most parents would have set aside education funds for their children since birth as education is an investment for the future.

“Most in the affluent market who can afford to send their children overseas, would have pre-planned and allocated money for their children’s education,” says Taylor’s University College vice-chancellor Professor Hassan Said.

He adds that Taylor’s has a strong line-up of new programmes in the pipeline for students, in addition to its own degrees such as engineering and architecture.

Taylor’s, which is one of the largest pre-university centres in Malaysia, providing British, Australian and Canadian education. has about 10,500 students this year, of which 18% to 20% are foreigners.

Vinayaka Missions University pro-chancellor Dr S. Sharavanan believes it is unlikely the economic slowdown will affect the higher education scenario, especially for bigger institutions offering professional programmes.

“As an investor, we see long-term prospects in the education sector in Malaysia beyond the current and anticipated economic slowdown,” he says.

An additional advantage of the economic slowdown can be an influx of foreign students into the country as Malaysia is seen as a relatively cheaper education hub compared with Britain, Australia and Singapore.

Currently, Malaysia has some 63,000 foreign students.

Very few education providers are listed on the local stock exchange. They are HELP International Corp Bhd, SEG International Bhd (SEGi) and Stamford College Bhd.

HELP International scored top marks for the financial year ended Oct 31, 2008 (FY08) with net profit jumping 22% to RM11.8mil compared with FY07.

SEGi’s financials also showed a marked improvement as net profit doubled to RM6.98mil for the nine months ended Sept 30 versus the previous corresponding period. Earnings were boosted by a gain from the disposal of a property in Kota Damansara, Selangor.

The Star-Elaine Ang

THE proposed RM7bil stimulus package, to be rolled out by the first quarter, should emphasise on speedy implementation of the projects, which include housing and facilities for schools and armed forces, economists say.

Of the total amount, RM4.7bil would be for small construction and development projects which include a RM1.2bil allocation for building low-cost houses and the rest for infrastructure, schools, police stations and army quarters.

The remaining RM2.3bil meant for human capital development will involve investment in strategic businesses, which have high value-add and impact.

In November last year, Deputy Prime Minister Datuk Seri Najib Tun Razak announced the RM7bil spending package to cushion the Malaysian economy from a deepening global credit crisis.

Under the plan, there was no new allocation of funds involved but the money would be rechannelled from savings from a reduction in subsidy following a decline in oil prices.

The Government had estimated the subsidies for 2009 would drop by RM10bil to RM11bil, of which RM7bil would come from fuel subsidies, based on crude oil forecast of US$70 per barrel.

Of the proposed RM7bil stimulus package announced recently, RM4.7bil will be for small construction and development projects which include low-cost houses

As a follow-up to the stimulus package, Second Finance Minister Tan Sri Nor Mohamed Yakcop announced on Wednesday the Government has another stimulus package in store.

What is crucial, economists say, is that the projects should be implemented quickly and the funds for the construction projects be disbursed fast, so that the expected multiplier effect on the broader economy can kick in without any delay.

Economists say it is essential that each ringgit invested in a project translates into demand for building materials, payments to the workers, hence promoting consumer spending.

It is imperative, they say, to ensure that there are no leakages from the funds to ensure effective implementation of the projects.

There is, however, a concern that the RM1.2bil allocated for low-cost housing may not have a significant effect, given the weakening private housing sector.

Another concern is that efforts to woo investors in the current uncertain climate may draw a muted response as the weakening global economy and slower growth in Malaysia could make potential investors more cautious.

TA Research expects the Government’s RM7bil stimulus package to work strategically with the Budget 2009 to cushion the economy from a deepening global financial crisis.

The introduction of measures such as voluntary reduction in employee’s EPF contribution to 8% from 11%; a reduction in personal income tax rate from 28% to 27% for top tax bracket and from 13% to 12% for those with tax bracket at RM35,000-50,000 are expected to free up more disposable income into consumers’ pockets to support consumer spending.

In addition, to encourage private investment, the research house points out that the Government has waived the requirement to seek Foreign Investment Committee (FIC) approval for real estate investment of above RM500,000 and removed import duties on cement, long iron and steel products.

As for the second stimulus package, analysts are not expecting a huge-scale plan as they say the Government is constrained by the Federal Government Budget deficit.

“The deficit in the Budget would be more of a concern which is expected to be 4.8% this year,” an economist says, adding that the second package is aimed at boosting the construction sector, promoting consumer spending and encouraging private sector investments in the manufacturing and services sectors.

As it stands, the Government expects revenue to fall to RM168.7bil (from RM176.2bil previously) on the back of a drop in oil revenue and tax collection this year.

According to TA Research, this indicates that the upcoming stimulus package, if any, “may be capped at RM10bil to keep the budget deficit at its comfort zone.

“This could have a modest impact on the economy. However, instead of stretching its budget, unless necessary, we expect the Government to align its resources toward rolling out those proposed high-impact 9MP projects,” it said.

The Star-Joseph Chin