Think global or you lose out ! Malaysians consumed too much with local affairs!

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ONE MAN'S MEAT By PHILIP GOLINGAI

They (Malaysian businessmen) don’t think global. They don’t want to even think Asean. For them, they are in a comfort zone and it is enough to do business in Malaysia.

NINE years ago, Datuk Ilyas Mohamed’s businessmen friends laughed when he asked them to invest in Indonesia.

“Malaysian economy was at its best until 10 years ago. We were at the peak. After that, it started to go down,” recalled the Cartrade Group executive chairman.

And Ilyas decided to enter the Indonesian market. His first deal was to buy Mandala Airlines.

The deal, however, fell through when a Singaporean company outbid his group. It put more money on the table.

But the setback did not discourage him.“I am very fortunate as I have a business partner there, who is one of the richest men in Indonesia,” noted the 50-something businessman.

His silent partner is a low profile multi-billionaire (we’re not talking about rupiahs but in US dollars).

“He is by name my partner. But he is not interested in my business as it is too small for him. Half of Jakarta belongs to him,” Ilyas related.

(Who? Google: Artha Graha Group.)

Now, 20% of Ilyas’ business is in Malaysia and the rest overseas, mostly in Indonesia; coal mining in Kalimantan and property development in Surabaya and Jakarta.

And his friends, who laughed at him as they thought he would be conned in Indonesia, are now following his footsteps.

“Indonesia is THE market. They have 245 million people. Can you go wrong in a market with 245 million people? And the Indonesian Govern­ment welcomes Malaysian companies,” he explained.

“There are a lot of opportunities in Indonesia. They are not even developing. They are just about to develop. If you go in now it is the best time. You can’t piggy back when they are (already) up there.”

Ilyas, however, cautioned:

“Of course, the important thing is to find the right partner. Many people go there and find the wrong partner, they get conned and then they say Indonesians are ‘penipu’ (conmen).”

The Malaysian market is small as the country’s population is 28 million.



“You can do small business (in Malaysia). But if you want to think big, you have to go out (of Malaysia),” the businessman said.

How big is Indonesia?

“Out of the 245 million Indone­sians, about 10% are super rich and that’s the total population of Malaysia,” Ilyas said.

How rich is “rich”?

“Oh, they are very, very rich,” he said and gave a figure (in ringgit) which I thought was unbelievable.
The thing with Malaysians, according to Ilyas, was we think small.

“They don’t think global. If not global then think Asean.

“But, they don’t want to even think Asean,” he said.

“For them, they are in a comfort zone. Sudahlah (it is enough) to do business in Malaysia.”

Most Malaysian businessmen (and we are not talking about the bosses of CIMB etc) do not want to venture.

For example, Ilyas said, “Sri Lanka is a good market now. Their trade minister, chief justice and banker (with a bank equivalent to Maybank) came down to talk to our businessmen. But they were not interested.”

It is the opposite for Singapore entrepreneurs. With their rock solid Singapore dollar, they are rushing into Sri Lanka.

“They know that their local base is small and they have to do business outside of Singapore,” he said.

The Philippines’ economy is also booming.

“Over the past 30 years, Filipinos are fed up with politics. And they work and work, building the economy themselves. And if we are not careful, we might be sending maids to the Philippines soon,” Ilyas said.

It is politics as usual in Malaysia.

“Instead of coming up with ideas on how to create business opportunities, our politicians come up with all sort of (political) issues,” Ilyas contended.

“They are creating issues for cheap publicity. For example, you can take 10 Chinese, 10 Indians and 10 Malays and sit them down together and there will be no racial issue among them.

“But it is the politicians and not the rakyat that come up with all sort of racial issues.”

“How to be a global player when you are thinking of politics 24 hours a day?”

Ilyas flies in and out of Indonesia spending about 15 to 16 days a month in that country.

So I asked: “Why don’t you relax and do business in Malaysia?”

His eyes gleamed. “Of course as a businessman, you are an opportunist. When you see so much of opportunities (in Indonesia) you just can’t resist.”

Ilyas assures that the Indonesian market is not as hostile as its fans during an Indonesia vs Malaysia football match.

Consumed with local affairs

One Man's Meat By PHILIP GOLINGAI

The Philippines looms as the next big Asean entity and Indonesia is the place to ‘park’ one’s money, but we would rather not know that the barbarians are at the gate.

THE barbarians are at the gate and yet Malaysians are more fixated with whether a mentri besar was caught for khalwat with a girl from Pasir Panjang.

Not true, says the MB. But tongues still wag.

Perhaps we should be more concerned with the fact that the Philippines will be the next big thing in Asean.
I remember reading a report saying that if we are not careful, in two decades or so we will be sending maids to Manila.

The thing about us is we are more consumed with domestic affairs than foreign happenings.

Yes, from my Twitter timeline, Malaysians are also interested in the fact that former president Gloria Macapagal Arroyo was arrested on charges of fraud and Muammar Gaddafi’s son Saif al-Islam was captured.

But we are more intrigued with when Parliament will be dissolved, and whether Parti Kita president Datuk Zaid Ibrahim will contest in Petaling Jaya Utara or Petaling Jaya Selatan.

I, too, am guilty of paying too much attention to local politics and not enough to global issues.

Yes, I’m aware of the eurozone debt crisis. But don’t ask me to get into specifics.

However, I’ve become a specialist on Kedah Gerakan Youth chief Tan Keng Liang’s challenge to DAP publicity secretary Tony Pua: he will consume a mug of Kedai Rakyat 1Malaysia’s (KR1M) Chocolate Malt if the Petaling Jaya Utara MP donates RM1,000 to charity.

The challenge came after Pua claimed that KR1M’s 1Malaysia Growing Up Milk contained eight times the permitted amount of Vitamin A and was missing essential nutrients such as Omega 3, Vitamin B1, Vitamin D, Vitamin C and folic acid.

There was so much excitement in TwitterJaya (the moniker of the Malaysian twittersphere) over the issue, with some twitterers milking the issue with clever tweets such as “Pray for @TanKengLiang because he is going to drink 1Malaysia Choco Milk”.

Another big issue on TwitterJaya has spawned the mother of all puns and has also something to do with milk.

So syiok I was to absorb these comments like SpongeBob SquarePants, until I read a tweet by @Art_Harun (the lawyer) on Wednesday.

He tweeted in Malay: Malaysian politics – last month it was about molesting breast, this month it is about cows. When will we discuss the maximum impact of the eurozone on our economy?

Ouch. Time to come out from under my coconut shell.

So I decided to find out what the barbarians (Malaysia’s foreign rivals) were up to.

On Friday, I met a 20-something think-tank director at Coffee Bean in Bangsar Village to pick his brain.

The cerebral hotshot, who wants to keep a low profile at the moment, listed three challenges that Malaysia faces.

“Population wise, we are too small. We have a population of 28 million. Compare that with Indonesia’s 245 million, Thailand’s 66 million and the Philippines’ 103 million,” said the animated man, still wearing his maroon Friday prayer shirt.

“In terms of economies of scale, our enterprises will not grow so big because our market is small. We don’t have any option but to invest outside.”

Malaysian enterprises, he said, should think Asean to survive and grow.

“We should be on the forefront of ‘big’ Asean,” he explained.

He noted that Malaysian companies such as CIMB and Khazanah were investing in vibrant Indonesia, the country to “park” one’s money.

And through Twitter, he understands how important Indonesia is to the United States by reading the tweets of the American ambassador to Jakarta.

“Food security,” he said. “Many Malaysians do not realise that Malaysia imports almost everything – rice, fish and even chilli.

“Imagine chilli! I did not know that we imported chilli until I attended a briefing by Pemandu (Performance Management and Delivery Unit).  
    
“We are also overly dependent on foreign workers. Free movement of people is important in a globalised world.

“But certain industries, such as palm oil and construction, should train Malaysians to work in these sectors.

“Suddenly they are finding it difficult to recruit Indonesian workers as that country’s economy is booming. Indonesians would rather work in Malaysian-owned palm oil plantations in their own country than in Malaysia.”

Note to myself: download the Economist iPad edition that has, as its cover story, “The magic of diasporas: Immigrant networks are a rare bright spark in the world economy”.

In the meantime, I wonder what will happen to Tan should he drink the 1Malaysia Chocolate Malt.

The BRICS are coming

Image via Wikipedia

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WHAT ARE WE TO DO By TAN SRI LIN SEE-YAN

THE term BRIC (Brazil, Russia, India, China) was first used in 2001 by economist Jim O'Neill (Goldman Sachs) to call attention to four rapidly rising large emerging economies considered able to play a significant role in global affairs, championing the interests of developing nations. Very much like what G-7 does for the developed world.

For years since, it was treated by investors and journalists as a shorthand for the big emerging markets. Adding South Africa to the group widens its focus to include more from outside fast-growing China and India.

The BRICs held its first summit in 2009 in Russia, discussing issues on international monetary reform, including the possibilities of a new dominant reserve regime to replace the US dollar-based system. This year, China played host and invited South Africa to join, formally naming the group BRICS. Together they exceeded three billion people, nearly 45% of the world, and about 25% of the world's 2011 gross domestic product (GDP) based on purchasing power parity.

China's total output is bigger than the other four put together. The economic clout of the BRICS is now growing as the developed world struggles to expand and pare debt. Indeed, they are starting to operate as a common bloc in the G-20, providing a counterpoint to the United States and Europe.

Building BRICS

But the group is vastly different. India, Brazil and South Africa are vibrant democracies in contrast to the more authoritarian Russia and China. They need to balance the interests of its members: three large commodity exporters and two huge commodity importers. For sure, they have to get used to obeying rules they played little part in shaping. China's economy, the world's second largest, is nearly three times the size of Brazil's, close on four times that of Russia and India, and 16 times that of South Africa.



They also differ on exchange rate policies. Brazil is vocal against China's tight management of the yuan's value, keeping its exports relatively cheap. China is becoming prominent in BRICS' trade already it is Brazil and South Africa's largest source of imports. Be that as it may, the group shares strong macroeconomic fundamentals going into 2012.

China and India will grow 8.5%-9% this year; Russia and Brazil, 4%-4.5%; and South Africa, 3.5%. Their structural budget deficits are well contained, with low debt/GDP ratios, highest being in India (68%) and South Africa (65%).

China continues to have a current balance of payments surplus (5.7% of GDP), while all the others' deficits are each less than 5%. But they share a common problem inflation: 6.5% in China, 9% in India, 9% in Russia, 7% in Brazil and 6% in South Africa. Containing inflation remains a top priority of public policy. Still, they continue to struggle to deal with this threat.

The 2nd BRICS Summit held in April 2011 reaffirmed the group's determination to transit from global pax americana to a new order in the “development of humanity.” The BRICS' emphasis on co-operation in their call for reform of the US-dollar dominated international monetary system and for tighter supervision of commodity derivatives and markets, and capital flows show the group is seeking to refrain from too much assertiveness. Still the desire to shake off the old hegemony is there; it calls for a larger role in international fora.

It condemns “the inadequacies and deficiencies” of global finance and the “excessive volatility in commodity prices.” The Sanya declaration underscored their concerns about underlying factors that fuel inflation and currency volatility in many emerging economies, as well as their strong desire to shift away from reliance on the US dollar.

“We call for more attention to the risks of massive cross-border capital flows now faced by the emerging economiesExcessive volatility in commodity prices, particularly for food and energy.”

The BRICS took a new step towards cementing their global influence by: (i) calling for a broad-based reserve currency system “providing stability and certainty”, one that is more reliable and stable; (ii) welcoming discussion about the global role of Special Drawing Rights (SDR), the International Monetary Fund (IMF)'s in-house accounting unit but a global reserve asset, and on the SDR's basket of currencies (now comprising the US dollar, the euro, yen and pound sterling); (iii) establishing mutual credit lines denominated in their home currencies among the state development banks of the group. To start the ball rolling, China Development Bank will issue loans worth 10 billion denominated in yuan this year to other BRICS nations, mostly to fund oil and gas projects; and (iv) forging a common emerging market negotiating stance on issues from climate change to world trade, and to act as a credible counterweight to the West in settings like the G-20.

BRICS & Asia

The Asian Development Bank (ADB) expects Asia to grow 7.5% this year (against 9.2% in 2010) and 7% in 2012. “If anything distinguished the region from the rest of the world, it is its strong macro fundamentals.”

However, a dark cloud in the horizon is the slowdown in exports to its traditional markets in the United States, Europe and Japan. Against this is the region's potential for rapid expansion in intra-regional trade, amid signs of rising domestic demand in Asia.

True, manufacturing and services-related activities stalled across much of the world in August, raising fears of another global downturn. True also, factory and services output throughout Asia, including China and India, slackened in August, pointing to growing evidence that weaker demand in the United States and Europe is weighing on Asia's export-driven economies.

Moreover, investor confidence dropped to the lowest in two years in September in the eurozone and the United States, and consumer confidence, already fragile, weakened further. Unfortunately, the United States' anaemic growth and Europe's worsening debt crisis have prompted governments to deepen budget cuts, undermining consumer demand and clouded growth prospects with uncertainty.

Barring a full-blown double-dip in the United States and Europe, Asia will still suffer significant bruising from deepened dashed expectations, with most of the pain centred on highly exposed nations Taiwan and South Korea. No doubt, the BRICS economies are bound to face clear challenges in responding to the angst over weakened global conditions.

Missing BRICS

O'Neill has since suggested his original four BRICs be expanded to include Turkey, Indonesia, Mexico and South Korea, to form the new “growth markets”. A fresh look is taken to measure exposure to equity markets beyond market capitalisation (GDP, corporate revenue growth and volatility of asset returns); any emerging market accounting for 1% or more of world GDP should be taken seriously. Mexico and South Korea each represented 1.6% of world GDP, Turkey, 1.2% and Indonesia, 1.1%.

Among them, I particularly favour Indonesia. Like Brazil, Indonesia's success is based on the commodities boom: gas and coal to China and India, and palm oil to the world. Investments are flowing in. With a population of 237 million (the world's largest Muslim nation), the country is in the midst of a consumer boom.

Indeed, it has the potential to become one of the world's biggest economies. But it has to get its act together. It will grow 6.2% this year (6.1% 2010) and hopefully 6.5% in 2012. South-East Asia's largest and fastest growing economy is firing on all cylinders. It is today rated a notch below investment grade and should be upgraded soon. It will become a credible 6th member of the BRICS.

What impresses is its growing middle class. World Bank puts private consumer spending at close to one-half of GDP. The middle class (disposable household income exceeding US$3,000 a year) numbered 1.6 million in 2004. Today, Japanese investment bank Nomura estimates it to be about 50 million, more than in India and larger than in any of its nine other Asean neighbours. By 2014-2015, Nomura thinks it could reach 150 million.

The country is growing so fast, especially in the urban areas, that inflation is a major political issue at 7.2% for 2011. But it's stable, bearing in mind the rupiah appreciated 5% this year. Affluent middle-class Indonesians are spending, mainly on motor cycles (eight million sold in 2010, dwarfing sales in the rest of South-East Asia), cars (750,000 in 2010) and smart phones.

Indonesia is reputed to be the world's No. 2 in Facebook members and world's No. 3 in Twitter users. But, Indonesia, to be frank, remains a difficult place to do business because of poor infrastructure (adding to production and distribution costs), and corruption (“non-transparent random regulations”). But there are signs things are changing for the better. It is still attractive to foreign investors: nowadays “if you are not here, you have to have a good reason.” Most new consumer desirables are still imported.

Wall of BRICS 

As a group, the BRICS are growing fast. China has surpassed Japan as the world's No. 2. India and Brazil are following fast behind. Catching-up is always much easier because the leader has already set the path and the pace. At some point, reliance on emerging nations as engines of growth begins to disappoint, as it becomes harder to sustain the pace. Growth will slow down (as did Europe, and Asian Tigers and Japan before them) or may even falter (as did Latin America in the 1990s).

There is a lesson from history. A recent study by three scholars Barry Eichengreen (University of California, Berkeley), Doughyun Park (ADB) and Kwanho Shin (Korea University) called the EPS study* attempted to draw potential warning signs by examining economies since 1957 whose GDP per capita (on a purchasing power parity or PPP basis) rose more than 3.5% a year for seven years, and then suffered a sharp slowdown when growth dipped precentage points or more.

The focus was on economies enjoying sustained catch-up growth. The common sense behind PPP is the same amount of money should purchase the same product in any two countries (hence, the term purchasing power parity). That is, the purchasing power of money, expressed in one currency, should change pari passu in different countries. If US$5 buys a cup of Starbucks coffee in New York and the actual cost of the same Starbucks coffee in KL is RM12, then the exchange rate should be US$1=RM2.40 according to PPP. But the actual exchange rate is close to RM3, or 20% cheaper. So, the use of PPP serves to neutralise any currency distortions.

What emerged was as follows: (i) growth slowdowns occurred when GDP per capita reached about US$16,740 per capita; and (ii) the average growth rate then falls from 5.6% per year to 2.3%. In the 1970s, growth rates in Western Europe and Japan cooled off at about the US$16,740 threshold, as did Singapore in early 1980s and South Korea and Taiwan in the late 1990s.

Thereafter, growth often continues and may even accelerate. Japan's boom lost momentum in early 1970s, then accelerated until it blew up in the 1990s. But, no one-size-fits-all depends on circumstances. When the United States passed its threshold, it kept on growing rapidly, consistent with its innovative prowess. Other risk factors matter, including openness to trade; lifting of consumption to beyond 60% of GDP; low and stable inflation; high ratio of workers to dependents. On the other hand, an under-valued exchange rate raises the risks of a slowdown.

* “When Fast Growing Economies Slow Down: International Evidence and Implications for China.” NBER, March 2011.

The EPS study does draw interesting parallels. China is destined to reach the US$16,740 GDP per capita threshold by 2015, well ahead of India and Brazil. Will it then slacken? The risk factors for China include: an ageing population, low consumption and an under-valued currency. On these alone, the study suggests high odds (over 70%) of a definite slowdown by then! But China is unique. These risks can be managed by shifting development inland, leaving the maturing urban centres room to innovate.

China is already reforming to become a more consumption-based economy, while its currency is being managed to reflect market considerations. Prompt structural reforms help cushion the effects of any slowdown. Even so, a percentage point drop in growth to 6%-7% does not sound so scary. For China, it should not really be such a big deal.

● Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email: starbizweek@thestar.com.my 

The Economics Of Why American Soccer Lags Behind The World

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The U.S. Men's National soccer team opens its play in the 2010 World Cup against England in a much anticipated matchup Saturday, June 12 in Rustenburg, South Africa.  A rematch of 2 countries that met 60 years ago in group play at the 1950 World Cup in Brazil, and the site of perhaps the most glorious U.S. soccer victory of all time.

And though a victory over England in 2010 would not be the monumental upset it was in 1950, and though the American side during the summer of 2009 at the Confederations Cup beat 2008 European Cup champions Spain and led Brazil 2-0 before succumbing in the finals, U.S. soccer is still viewed as a second-class citizen by most soccer experts.


Brazil, Italy, Holland, Germany, Spain, Argentina, France and England are traditionally considered top tier soccer nations.  Most experts would rank the U.S. somewhere among the 10th to 20th best soccer playing nation in the world.

U.S. soccer has made tremendous strides since 1950.  Popular enough to sustain the North American Soccer League from 1968-1984.  Resilient enough to renew pro soccer with MLS starting in 1996, and the league has grown from 10 teams to 18 teams by the start of the 2011 season.  Internationally, we've qualified for 6 straight World Cup trips starting in 1990 after a 40 year hiatus.  And the U.S. will likely be awarded another World Cup in either 2018 or 2022 after successfully hosting the 1994 World Cup.

Despite all these positives, there are various economic explanations why the U.S. continues to languish behind the world soccer powers.  Namely, a lack of TV and corporate money in the U.S., 'first-mover advantages' and socioeconomic differences between the U.S. and many superior soccer playing nations.



TV and Corporate Money

Spaniard Pau Gasol of the LA Lakers plays in the NBA rather than Spain's top basketball league because there's more wealth and prestige in the NBA than he can find in any other basketball league in the world.  Similarly, Clint Dempsey and Tim Howard of the U.S. soccer team play their professional soccer in England because it has far more wealth and prestige than the MLS.

This difference in wealth and prestige stems from international differences in the way TV and corporate money is expended on soccer.  There is a domino effect that continues to hurt the visibility of American soccer leagues like MLS because lower revenue streams from media and corporate sponsorship deals hamstrings the league's ability to offer salaries that will attract the world's best players to America.

If fans aren't watching on TV, then ratings are lower.  If ratings are lower, then MLS can't garner the type of TV contracts that you see in the English Premiere League or the National Football League.  If ratings are lower, then MLS can't charge premium sponsorship and advertising rates.

With a paucity of TV and sponsor/ad revenue compared to other world soccer leagues and other American sports leagues, the league cannot afford to pay top world players in their prime the kind of dollars they can command in the top leagues in Germany, England, Italy, or Spain.

In American sports, the most lucrative playing careers in team sports have been and continue to be found in professional basketball, baseball, hockey, and football.  Since these sports yield a higher rate of return to the professional athlete in terms of a greater likelihood to make more money and not have to travel abroad to do so, these inherent realities - which owe themselves to the popularity of these sports and their subsequent ability to secure significant TV and corporate revenue - further depletes the potential talent base for American soccer since some top-flight amateur athletes may choose more lucrative sporting careers.

'First Mover' Advantages and Socioeconomic Factors

Soccer is England's game, much like hockey is Canada's game and pigskin football is America's game.  Going back to the Cambridge Rules drawn up at Trinity College in 1848 to help standardize the organized rules of 'football' across various English public schools, this highlights the significance and long-run power associated with the  'first mover advantage'.  It was England's sport first, and as such to this day, their nation lives and breathes soccer...and this is reflective in the broadcast rights fees and the corporate dollars the EPL can command.

The historical popularity of soccer in South America and other nations with lower per-capita income levels may owe itself to economic logistics.  Soccer is not an expensive game to play.  You need a ball.  You need space.  And sometimes not even that to grow a passion and skill for the sport.  Pele, often regarded as the best player ever and who came from humble beginnings, juggled oranges in the streets of Brazil as a boy.
For many lower income nations, most other sports are cost prohibitive either in terms of the simple logistics of playing the sport at the youth level (e.g. hockey, American football) or the infrastructural and organizational costs of player development, equipment and facilities and league administration.  As such, soccer is THE sport of many nations where the socioeconomics dictate that soccer is the most financially accessible option to a nation's residents.

Conversely, the U.S. has the wealth and infrastructure to sustain and support leagues in plenty of sports more historically native to North America.  And with more money to throw at players in these sports, there is arguably a financial incentive that may steer the best amateur athletes away from soccer.  In other nations, the main draw both financially and in terms of prestige is soccer.  Subsequently, other nations are more likely to attract their best athletes to the sport of soccer.

As a soccer enthusiast, I'm ever hopefully that the popularity and interest in soccer on a professional level in the U.S. will continue to grow, which is why the U.S. performance in the 2010 World Cup, and in particular their first match against England, is so important for promoting soccer to the casual American sports fan.
Because without higher TV rights fees and greater outlays from the corporate sector, it's hard to overcome first mover and socioeconomic factors which partially explain America's current 2nd to 3rd tier place in the world of soccer.

By Dr. Rishe is the Director of Sportsimpacts and an Associate Professor of Economics at Webster University in St. Louis, MO. 

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