Malaysia's loan growth strong in sight

Analysts still bullish on strong loan expansion

PETALING JAYA: Despite slower banking loan growth indicators for June, analysts and industry observers are still bullish of a double-digit loan growth this year.

 Malaysian Rating Corp Bhd (MARC) chief economist Nor Zahidi Alias said on the whole, the rating agency still foresee a relatively strong expansion in loans this year, notwithstanding the recent dip in loan applications and approvals.

Strong corporate demand would likely offset the moderation in household demand for loans, he said, adding that the agency envisaged loan growth to moderate slightly to about 10% to 11% this year amid the weaknesses in the external environment.

Nor Zahidi: “Loans have expanded at a relatively strong pace.’

“The banking sector's loan growth has remained resilient despite a slowdown in the country's economic activity as reflected in slower GDP growth in the past few quarters. Overall, loans have expanded by double-digit rates in the first six months of the year, after reaching the peak of 13.8% in September 2011.

“At the end of June, loans expanded at a relatively strong pace of 12.6%, supported by strong corporate demand for loans which grew by 13.6% year-on-year, offsetting the slower pace of loans to the household sector. Household sector's loan growth had softened to 11.8% in June from a cyclical high of 13.9% in November 2010, Nor Zahidi told StarBiz.

Based on Bank Negara's latest banking statistics for June 2012, loan growth was stable at 12.6% year-on-year versus 12.5% in May the same year. The growth was slightly higher for both consumer and business loans at 11.8% and 13.6%, respectively, in June.

The growth in loan applications moderated from 15.1% in May to 10.5% in June, while approvals contracted by 2.1% year-on-year, versus an increase of 18.2% in May. On an annualised basis, loans grew by 12.7% in June compared with 11.4% in May.

The pace of loan applications and approvals has been volatile partly due to the responsible lending guidelines. In the first six months of this year, the average growth in loan applications fell to 14.9% year-on-year compared with an average expansion of 25.5% recorded in the similar period last year. The average growth rate in loan approvals during the period shrunk to 2.8% against 22.6% average expansion in the first half of last year.

RAM Ratings head of financial institution ratings Wong Yin Ching said the total banking system's year-to-date loan growth was 6.4% in the first half compared with 13.6% for the whole of last year, adding that the growth was driven by lending for purchase of residential properties, working-capital financing, as well as financing for purchase of non-residential properties.

“We expect the growth momentum to be sustained in the second half of this year supported by stronger financing demand from the corporate and commercial sector, as the rollout of projects under the Economic Transformation Programme (ETP) and 10th Malaysia Plan gradually gains traction. In recent months, we have observed a pick-up in loan applications from the business and services sectors,” she noted.

Wong expects household loan growth to moderate following the various prudential measures introduced since late 2010. To this end, she said it had seen a sharp slowdown in loans extended for personal use, which only grew by 3.2% in the first half of 2011 (full-year: 20.1%).

Loan growth for residential mortgages also moderated slightly to 6.3% in the first half of 2011 (full-year: 13.2%). She said the rating agency also noted a slight shift towards lending for the purchase of non-residential properties following the tighter criteria for residential property financing.

Meanwhile, Alliance Research Cheah King Yoong said the brokerage was maintaining its forecast of 11 % domestic loan growth this year, for now. Nonetheless, he said it foresaw there was increasing likelihood of an upside risk to its 11% domestic loan growth forecast in view of the strong pick-up of loans in June.

Should the loan growth momentum continue to be sustained in the second half with ETP related loans gaining pace, Cheah added he would not be surprised if this year loan growth could match last year's growth of 13.6%.

Based on the latest statistics, although property loans remained the key driver, where loans to purchase residential and non-residential properties constitute 46% of the annualised 12.7% loan growth for June, he said loans for “other purpose” and working capital had been gathering pace, contributing 28.8% and 22.3% of the loan growth drivers respectively.

He said business loans had recorded a commendable annualised growth of 15.9%, ahead of household loans' annualised growth rate of 10.1%.

Cheah said this reaffirmed Alliance Research's expectations that despite having a slow start in early 2012, overall domestic lending activities were picking up, with stronger growth of business loans stemming from the roll out of ETP's Entry Point Projects, which filled up the vacuum left by the moderation in property loans.

Kenanga Research said despite the lending indicators showing a slowdown, it still believed loan growth would be able to outperform its industry forecast this year.

“Having already achieved a 12.6% loan growth this month, we believe that the banking industry will be able to outperform our industry loan growth forecast of 11% to 13% despite a slightly weaker set of lending indicators,'' it noted.

A banking analyst with a bank backed brokerage felt it was too premature to indicate whether loan growth for the second half would pick up solely based on slower loan indicators alone. Loan growth may slow down in the second half but much would depend on how the results season pans out, he said, adding that, nonetheless, he still expected loan growth this year to be around 10.5%.

By DALJIT DHESI daljit@thestar.com.my

Being grateful is Love, the simple things?

Datuk Seri Idris Jala and the Kelabits have shown that being grateful is a way of showing real humility but it should not be mistaken as being subservient.

THERE was an elderly Kelabit man who had never seen a TV set in his life – not until he visited his son’s modern house.

He sat on the sofa and watched the news and his son noticed that the old man paid special attention to reports on the floods in Kelantan, especially the deaths due to drowning.

The father turned to his son and asked why there were deaths? He was shocked when he was told it was an annual occurrence.

“Why didn’t they just move away from the river? Our people would have just moved to higher ground,” he said.

This story was related to a group of about 30 analysts and journalists at a briefing on Thursday by probably the most famous Kelabit of all, Datuk Seri Idris Jala. The old man was his father Henry Jala.

“That’s how our people are. Our tribe has moved to near the Kalimantan border just to get away from the floods,” said Idris, who is the boss of Pemandu – the government unit set up to implement the New Economic Model and the various transformation programmes.

Pemandu is the acronym for Performance Management & Delivery Unit of which Idris is the chief executive officer. He is also a Minister in the Prime Minister’s Department.

He readily admits his bias towards the rural transformation programme and the key initiative to build basic infrastructure for the rural folk.

“Till today, my village has no electricity supply. Fifteen years ago, our longhouse was burnt down because a woman forgot to put out a candle before going to sleep,” Idris told the audience as he expounded the virtue of the Government Transformation Programme and the Economic Transformation Programme.

(The acronyms of GTP, ETP and Pemandu has become synonymous with Idris.)

The Kelabits, numbering some 5,000, are probably the most successful bumiputra community in Sarawak.

It has been reported that at least 90% of the Kelabits are literate and that some 10% of them have obtained diplomas, degrees, post-graduate degrees and professional qualifications. At least another 1,000 have sat for their Form Five examination.

Besides Idris, the community has got doctors, lawyers, police officers, engineers, millionaire businessmen and top state civil servants.

Ask any Sarawakian about Kelabits, and they will speak of them in a respectful tone with full admiration.
After all, many of the older ones are well-known warriors and war veterans.

One could even say that pound for pound, the Kelabits are the most highly successful community in the country despite their small number.

Idris had told another audience at a more informal setting at Tapis Rouge – a restaurant cum mini-theatre owned by celebrity Datin Seri Tiara Jacqueline – that his people who lived in the Bario Highlands, although led a simple life, were ambitious.

A widely travelled man, Idris told of his life in Holland and Britain and how our country was not that lacking.

“I have always considered my life very blessed. I constantly remind myself that Malaysia has got a lot going for it.

“While we look admiringly at the roses far away, we must not forget the roses that are in our own garden,” he told his audience at his Blues Jam session at Tapis Rouge.

Idris said his favourite quote on this came from management guru Dale Carnegie which went: “It is tragic when we put off living. We dream of a magical rose garden over the horizon and miss the roses blooming outside our windows”.

The strain of leading the Government’s charge to transform the nation into a high-income and developed nation shows on Idris face but his bubbly self seems to shine through whenever he gets his hands on a guitar.

In his closing remarks to the 300-odd friends and supporters who turned up to hear him sing and play the guitar, Idris reminded them that Malaysians must learn to count their blessing and “learn to love the simple things like music, family and roses”.

Come Monday, the 2011 annual reports of the ETP and GTP will be submitted to Prime Minister Datuk Seri Najib Tun Razak live on TV at 8.30pm.

> Executive Editor Wong Sai Wan is still looking forward to a trip to the Bario Highlands to see for himself the Kelabits in their own environment.

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Malaysia's household debt rise a concern

PETALING JAYA: While not an imminent danger, the level of household debt is of concern and warrants close monitoring, RAM Ratings head of financial institution ratings Wong Yin Ching said,

The nation’s household debt as a percentage of gross domestic product (GDP) had risen to 77% as at end-2011 compared with 69% at end-2006, and its household debt-to-GDP ratio was considered high when compared with other countries in the region, especially in relation to GDP per capita.

Wong was speaking to StarBiz after the release of the rating agency’s Banking Bulletin 2012. Home loans remained the largest component, contributing about 45% of the total household debt, she added.

However, unsecured financing in the form of personal loans and credit-cards had been growing rapidly, accounting for about 15% and 5% of total household debt, respectively.

Development financial institutions, cooperatives and building societies that offer personal financing facilities to civil servants under salary-deduction schemes contributed to the bulk of the growth, she noted.

“We view positively Bank Negara’s various pre-emptive measures implemented since late 2010 to rein in growth in household debt and safeguard the soundness of the financial system.

“On top of the tighter measures on residential property financing, stricter guidelines have also been implemented on credit cards, such as increasing the income eligibility criteria.

“We do not discount additional prudential regulations to be imposed in future,” Wong said.

Effective Jan 1, banks are required to use net income calculation method instead of gross income when computing debt-service ratio.

Wong added that unemployment rate was still relatively low at 3% and the credit quality of household sector was also healthy, with a low gross impaired-loan ratio of 1.8% as at end-January 2012 (end-2010:2.3%).

Nevertheless, she said the debt-servicing ability of households in the lower-income segment might be more vulnerable to economic down-cycles, greater variability in income and inflationary pressures.

On loan growth, RAM Ratings expects the overall banking system’s loan growth to taper to about 8% to 9% this year, after clocking in a strong 14% expansion in 2011. This is supported by a projected 4.6% real GDP growth this year, which is slightly lower than the 5% in 2011.

Private investments, she said were expected to remain strong, although a weakening in global demand would have some bearing on export performance.

Wong anticipates the central bank to remain accommodative in its monetary policy by maintaining the overnight policy rate at 3% with a downside bias in 2012, as preserving growth momentum would take precedence over curbing inflationary pressures.

While a more moderate household loan growth was anticipated due to the prudential regulations introduced, she added this would be balanced by stronger financing demand from the commercial and corporate sector from the rollout of projects under the Economic Transformation Programme and 10th Malaysia Plan.

For non-performing loans this year, she said the industry’s gross impaired-loan ratio was expected to be kept healthy this year, with a slight uptick to about 3% from the current all time low level of 2.7%.

“In terms of capitalisation, all the domestic, all the domestic banks were well poised to meet the new capital requirements under Basel III, of which the implementation would be phased in from 2013,” she added.

Although these new capital measures would elevate banks’ funding costs, which may in turn be passed on to consumers, it would ensure the banking sector was safeguarded against unexpected shocks, Wong said.

As at end-January, the banking system’s capitalisation was strong with a tier-1 risk-weighted capital adequacy ratio of 12.9%.

Banks’ profitability, she said had been on a steady rise over the last couple of years on the back of strong loan growth, benign loan impairment charges and growing fee income. However, net interest margins (NIMs) had been under pressure due to stiff price competition, particularly in certain loan segments such as residential mortgages.

NIM is a measure of the difference between interest income generated by banks and interest paid out to depositors.

Source: By DALJIT DHESI  daljit@thestar.com.my

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Malaysia could go bankrupt by 2019?

Why Malaysia won’t go bankrupt

TRANSFORMATION BLUES By IDRIS JALA idrisjala@pemandu.gov.my
 
The Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better.

I AM frequently asked why I said Malaysia could go bankrupt by 2019. I have had many queries asking for clarification and this has become one of my transformation blues.

In charting out our transformation journey in 2009, one of the first things the Prime Minister and the cabinet did was to list our current status, say where we want to be and set up a programme for transformation to get us there.

Amongst the many things on the list was a need to rationalise subsidy and so we ran a lab to do this.

During our open day, we engaged the public on the lab recommendation on the subsidy rationalisation. I wanted to be as frank as possible and to make it clear what the consequences of inaction would be.

Perhaps I was too frank but what I said has been misrepresented on a number of occasions, and I have since been saddled and hobbled with an unnecessary problem.

Habitual critics latched on to a small part of one of my first presentations where I said we have to change our spending patterns for sustained fiscal health.

Against a backdrop of several caveats and conditions, I said that we would be bankrupt by 2019 IF we continued to increase our subsidies and borrowings the same way we did before and IF our economy grows at less than 3% annually.

I've worked in Shell for more than 20 years, a company that is famous for its scenario planning techniques.

In layman terms, scenario planning means describing a future that could either be “good, bad or ugly” and doing our best to achieve the “good scenario” and avoid the “bad and ugly”.

My statement was heavily qualified but little or no mention was made of the clear caveats that I had put forward.

I still stand by what I said and it is important that my statement is taken together with the conditions.

This statement has been taken out of context so many times that it really gave me the blues - I have been talking till I turned blue in my face explaining what I meant!

Let me say in the clearest terms that my intention then was to illustrate the consequences of inaction when faced with tough decisions. We cannot continue to subsidise the way we have.

Let me also state that the Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better. Here's why.

Our debt as at end 2011 is 53.8% of gross domestic product (GDP the sum of goods and services produced in the country) and the budget deficit is better than the 5.4% target of GDP.

Compare this with Greece's debt which stands at 110% of GDP and a budget deficit of 13% and it is obvious that we are not anywhere close to a crisis.

Subsidy rationalisation

Globally, many economists are cautioning the Governments against rising national debts. In 2009 the year for which the figures I used when I talked about subsidy rationalisation we had to increase government spending via our “economic stimulus package” in the face of the world financial crisis caused by the sub-prime mortgage problem in the United States.

This had spill-over effects into 2010 as well. But the debt as a percentage of GDP has begun to level off while the budget deficit, again as a percentage of GDP, has begun to significantly decline and as our economy continues to grow. We are reversing the situation.

In a simplified system to assess whether countries are in a sovereign debt crisis, the Boston Consulting Group (BCG) uses a graphical representation to identify countries with a potential problem.

Public debt as a percentage of GDP is plotted on the vertical axis while surplus or deficit in the national budget as a % of GDP is plotted on the horizontal axis.

BCG identifies a potential problem looming if public debt is 100% or over of GDP while simultaneously the budget deficit is 10% or more of GDP (see chart).

The more a country is to the left of the chart and the higher on the vertical axis, the greater the risk of a potential debt crisis but note that a country has to be simultaneously in problem in both areas to be regarded as a big risk.

If you look at Singapore, public debt as a percentage of GDP is 100% in the problem area but only for one of the two criteria but there is hardly any budget deficit to speak of in the republic.

Nobody considers Singapore a financially troubled country.

For Malaysia, it is important to notice that it has moved to the right in 2011 compared with its position in 2009 and 2010 while there is hardly any upward movement. That indicates a move in the right direction.

Based on this analysis, we are better than the United Kingdom, the United States, Spain, Italy, Portugal and Japan, to name a few. We will get into the safe zone soon enough.

The problem I highlighted using 2009 figures, making the caveat that IF debt continued to increase at previous levels we can have a serious problem in 2019 and IF we grow less than 3% annually, does not exist anymore.

Making improvements

Why? Because we are making improvements on both counts.

Firstly, as a responsible Government, in 2010, we began the process of gradually reducing subsidies for fuel, sugar, electricity and so on, knowing fully well that this was unpopular.

Secondly, our GDP grew by 7.2% in 2010 and 5.1% in 2011 and that's an average of 6.2%; we are meeting our Economic Transformation Programme (ETP) target. Of course, we can and should do much more.

As I have pointed out in previous presentations very little of our subsidies amounting to billions of ringgit every year go to the poor, the rich get most of it. We must rationalise the subsidy system not do away with it and cut other extraneous expenditures.

However, we continue to help the poor via our GTP initiatives e.g. Azam programmes and BR1M for the low income households and rural infrastructure programmes.

On the other side of the equation, we must increase government revenue sources by introducing such measures as a goods and services tax (GST) and get more economic activity going. We can exclude necessities from the tax.

We are already succeeding. We have the ETP and we are growing our revenue we had additional tax revenue of RM26bil in 2011. This has allowed us to finance rakyat-centric programmes such as BR1M.

Why, if we continue to make progress by these measures, we may even be able to balance the budget come 2020 even though that will welcomingly surpass our own target.

I know there will be critics who will say that I have changed my mind on the bankruptcy issue. I haven't changed my position vis-a-vis scenario planning.

I always believe in describing the “good, the bad and ugly” scenarios (that hasn't changed) i.e. the “good” scenario is if we successfully implement our ETP, we will achieve high income status by 2020.
The “bad or ugly” scenario is if we don't do anything to avoid it, then we can go bankrupt.

The fact is we are doing a lot of things to transform our country. So, we will not go bankrupt.

With the implementation of the ETP, we must acknowledge that Malaysia is on the right track in transforming its economy. The average annual GDP growth in two years (2010 and 2011) is more than 6%. In 2011, we met our GNI and investment targets, trade reached a record high of RM1.27 trillion in 2011.

We cut our deficit in 2011. In April, our PM will be releasing our ETP and GTP annual reports which provide all the details of our country's achievement.

Let me conclude by quoting Dale Carnegie: “It is tragic when we put off living. We dream of a magical rose garden over the horizon and miss the roses blooming outside our windows”.

Datuk Seri Idris Jala is CEO of Pemandu and Minister in the Prime Minister's Department. Fair and reasonable comments are most welcome at idrisjala@pemandu.gov.my

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Taiwan's Phison IC design project, a 'brain gain' for Malaysia

By CECILIA KOK cecilia_kok@thestar.com.my

KUALA LUMPUR: Phison Engineering Corp will set up a branch in Malaysia, with operations targeted to begin in the next three to six months.

The Taiwan-listed company, which specialises in the design of integrated circuit (IC) for use in data storage devices, would base its Malaysian unit in the northern region.

It would operate as a wholly-owned subsidiary before becoming an “independent” company after three years.

“We choose the northern region in Malaysia because we find that there is some semblance of ecosystem there that can provide a better environment for our operations to thrive,” Phison chairman and CEO Pua Khein-Seng said.

“We also want to be close to our clients who are mostly based in the north for the sake of cost as well as operational efficiencies,” he said at a press conference in conjunction with the launch of his book, Driven to Success.

Pua, a Malaysian raised in Sekinchan, Selangor, founded Phison with four of his university friends in 2000. He left to study engineering in Taiwan in 1993 and lived there after graduation.

For a start, Phison will have Silterra Malaysia Sdn Bhd, a semiconductor wafer maker owned by Khazanah Nasional Bhd, as the main partner for its Malaysian unit.

On the initial capital outlay for Phison's project in Malaysia, Pua said it would range from US$1mil (RM3.03mil) to US$3mil.

He stressed that Phison was not a “manufacturing” operation that required high capital investment to set up operations and buy equipment. All it needed was the right amount of space and several engineers.

“Our Malaysian unit will have the full support of our team in Taiwan during the initial stage because we want to ensure 100% success of our venture in Malaysia,” Pua said.

StarBizWeek broke the news about Pua planning to set up a Phison branch in Malaysia last Saturday.

The report, quoting sources, also said Mida had drawn up a list of attractive incentives to entice Pua to set up the IC design house in Malaysia.

Mida CEO Datuk Noharuddin Nordin said the incentives were one of the attractions.

“But while we cannot disclose the details of the incentives we are giving Phison, we can tell you that whatever we give to Phison is nothing more than what we are giving to our other investors.”

“Historically, the E&E (electrical and electronics) sector has been a major contributor to Malaysia's gross domestic product growth,” he said.

“Under the Economic Transformation Programme, which includes E&E as the National Key Economic Areas, IC design has been identified as one of the key components that would accelerate the growth of the semiconductor cluster in Malaysia, with a target of 50 new IC design houses and five more Mature Technology Semiconductor Foundries to be established by 2020,” he said.

He added that the initiative was expected to generate an additional gross national income of RM7.4bil and create 8,500 highly skilled jobs for the industry.

Describing Pua's project in Malaysia as “brain gain” for Malaysia, Noharuddin said he hoped Phison's presence would help establish an ecosystem that would encourage overseas talent to return to the country.

Pua has a 2.55% stake Phison that has a market capitalisation of NT$47bil (RM4.8bil).

The company counts heavyweights such as Toshiba Corp, Kingston Technology, Vanguard Group Inc, Blackrock and Fidelity as its other shareholders.

Malaysians, work hard to succeed !

Hard work, long hours and a focused approach ensure the country and rakyat succeed

I AM an amateur musician and I play the guitar and I sing. I like all types of music but one that tugs at my heartstrings is the blues.

We all know what the blues are: simple, direct, strongly expressive music with a steady beat and rhythm, leaving plenty of space for singing and solo instruments. Letting it all hang loose, so to speak.

But to me singing the blues means eventually rising above the blues, even if you have to pour out all your problems and wail for a while. That's what this column is about.

I am fortunate to be involved in and driving one of the most exciting projects around. What can be more meaningful than raising incomes and the quality of life for all Malaysians, irrespective of race, creed or religion?

But as hopeful as I am that we can do this, I am not so naive that I do not know that there are many problems and obstacles to overcome before this dream becomes reality.

So I will sing the transformation blues here: I will air the problems, the big ones, which face us in our programme to transform us into a high-income nation. And then we will say what we are doing to overcome them.

Idris: ‘I like all types of music but one that tugs at my heartstrings is the blues.’ 
 

A big part of this is putting right misinformation. We will need your help as Malaysians to understand what we are trying to do and to tell us what it is that we are not doing right and what we should be doing instead. The e-mail contact is in the logo above.

We promise to read every response and if appropriate respond to some here. We ask only three things: that you are fair, reasonable and realistic.

Concept of income

The first thing I would like to explain is the concept of income, which is key to the entire concept of transforming into a high-income country. At what level of income do we become developed and achieve high income? How do we do it? How do we measure this? And can we achieve it?

A lot has been said about how we measure income and the level of income in 2020, and how we have not taken the right things into account. It's been said that we have used the wrong measures. We have not.

Intentionally, we have used globally accepted definitions and methodologies, i.e. the World Bank approach and benchmarks. Without getting too technical, we used the current definition for high-income countries in nominal terms and then using projected inflation rates, derived what it would be in US dollars in 2020.

Hence, the figure of around US$15,000 per person was arrived at RM48,000 based on a projected exchange rate of RM3.20 to the US dollar. The current rate is close to RM3 which means that if this rate prevails, the target will be lower at RM45,000. In 2009, our income, using prevailing exchange rates, was US$6,700 per capita. Yes, we have a long way to go but we are well on the way.

From here, we project the population at 2020 and multiply that by the income per capita to obtain the total income of the nation in 2020, in nominal terms.

Working backwards, we then estimate the growth rate needed to get there, again in nominal terms.

Then we take out the projected inflation rate from this figure to arrive at the real rate of income increase that we need for the nation as a whole to achieve high-income status which is on average around 6% annually, assuming all other factors hold equal.

“Real” here means the income is adjusted for inflation and reflects the actual rise in income even after taking into account price increases. The real gross national income or GNI is just the real gross domestic product plus net income from abroad.

Our methods are rigorous and our results were reviewed in January 2012 by an international accounting firm and a globally renowned panel of experts.

The latter also shared outside-in feedback and global best practices. We have no interest in deceiving anybody on how we are performing.

That is how we set the target.

Getting there

The next thing is getting there. Basically, we identify all the major projects on hand and estimate their contribution to economic and, ultimately, income growth. We don't pretend that these are accurate but they are the best estimates we can get. No country in the world can accurately measure and predict with precision its economic growth.

These estimates are also targets. If we can meet them year-to-year, we are on our way. If we run short we have to do more, and if we are doing very well we can lift up our hands to the heavens and give our thanks to God. It's a moving, dynamic target and it changes all the time.

Yes, there are risks to the achievements we have set out for ourselves. What worthwhile endeavour comes without risks? The world economic growth can remain low for longer than expected. We are not completely insulated from the world. The private sector may not invest as much as it should.

But what we are doing at the Performance Management and Delivery Unit is to get the Government to facilitate all efforts to increase incomes, no matter by whom. And we will monitor to see if we are on track and recommend the appropriate changes to put us back on track, as and when necessary.

According to Tan Sri Nor Mohamed Yakcop, Minister in the Prime Minister's Department: “At the end of last year, annual per capita income in Malaysia rose to more than RM29,000 (US$9,400).”

At current prices, this is 12% growth compared with RM26,174 (US$7,985) in 2010 and RM23,850 (US$6,677) in 2009. This is a big improvement compared with only RM1,070 (US$347) in 1970.

In April, the Government will release a full report on the performance of Economic Transformation Programme (ETP) in 2011.

Our income growth in the last two years shows that we can achieve the targets that we have set for Malaysia as a nation. If the projects under the ETP and others come through, we will do it.

We may also see others setting up their own projects to take advantage of opportunities, and that would definitely be a bonus.

This shows that we have made good progress as a country. Under the leadership of our Prime Minister, we are on our way to transforming Malaysia to become a high income economy. Hard work, long hours and a focused approach are being put into ensuring that Malaysia and Malaysians succeed locally and globally.
Any Malaysian can join us on this journey. Simply by working harder and smarter you can contribute to increasing your employer's revenues and growing yourself, hopefully.

That way, all of us Malaysians can move forward together to achieving our goal of becoming a higher income nation and creating a better life for all of us. That's what transformation is about.

Together, we can do it.

● Datuk Seri Idris Jala is Minister in the Prime Minister's Department and CEO of Pemandu. Feedback and comments are most welcome. 

See opportunities in adversity

ON YOUR OWN By TAN THIAM HOCK

I HAVE been having fun. Good fun. Five trips in the last 30 days. Holidays, business meetings, visiting my kids and watching the Il Divo concert in Jakarta with my wife. So my apologies to the readers who wrote in and have not received any reply from me.

One of my trips was to visit our supplier in Bangkok. I was pleasantly surprised when he said that his company did very well last year despite the tsunami and earthquake in Japan and the three-month flooding of Bangkok. He picked up additional Japanese customers who lost their regular suppliers because of the tsunami. Luckily for him, his factory and surroundings were not flooded, so again he picked up new customers.

No businessmen can predict how natural disasters will affect their business. There is a major element of luck. Good luck or bad luck.

I was also amazed that his company has been growing steadily through the years of continuous political turmoil in Thailand, frequent change of governments, street demonstrations, riots and street bombings. Still, it is business as usual. Especially for tourism. Their airport was crowded and immigration was horrendous. In comparison, the KLIA felt like a ghost town.

Over dinner, he explained that except for southern Thailand, the rest of the country has a homogenous society. No racial or religious issues. Only corrupted and power crazy politicians. I felt comforted. We are not alone.

All Thai companies and citizens have equal opportunity in business and education. So generally, entrepreneur wannabes can participate openly in almost every sector of the economy without government interference. Except for those businesses hijacked by politicians and their cronies. I comforted him. They are not alone

I have always joked with my Singaporean business friends that Malaysian entrepreneurs are much, much more creative than theirs. We have to be sensitive to additional external issues like religion, race and government/political business units. And only then, we start worrying about our business at hand and our real business competitors.

Singaporean entrepreneurs just have to be hardworking and efficient and they will make a good living. How boring it must be for them.

My good friend from the Philippines has gone through more hardships in his business life than all the other Asean counterparts combined. Political upheavals, natural disasters, warlords, gangsters, corrupted armies and an economically poor consumer population. But he is always wearing a smile on his face and treats each setback as a natural unavoidable event. As a devout Catholic, he feels God is always testing him.

To all those entrepreneur wannabes in Malaysia who are not sure of the type of business that you want to invest in, my advice is to go into a business that is not dominated by GLCs, a business that will not create issues with religion or race, and avoid investing in potentially natural disaster areas.

You will be stupid if you invest in residential and industrial properties in flood-prone areas or near toxic waste plants. God forbid if there is a major flood or an accident in an industrial toxic waste plant, you will be an unlucky owner of properties in a ghost town.

It is important that entrepreneurs understand the political and economic environment that your business operates in. This will greatly reduce the element of luck in your strategic planning and give you more certainty in forecasting the trend. Like my Asean friends have demonstrated, there is always opportunities in adversity or unnatural events.

For those who are looking for business opportunities, the coming 13th General Election is a big pot of gold, just in case you are not aware of it. Media companies are rubbing their hands in glee at the potential additional advertising revenue forthcoming.

Printers of outdoor materials and posters are preparing their raw materials due to short order cycles. Soft-drink and mineral water suppliers are salivating at the sharp spike in consumption. Caterers will make a killing handling all the kenduris. Coffee shops in sleepy towns, hotels and motels are prepared to raise prices at a moment's notice.

Then there is the cash handouts to the general population. Consumption of economic goods will increase substantially. Money supply in the economy will double. The general election is expected to contribute an additional 1% to our GDP growth, a point I am sure that has been accrued in our Economic Transformation Programme.

Malaysian entrepreneurs must learn from our Asean counterparts. See opportunities in adversity. Prepare for natural disasters or unnatural events. Stay calm when your environment is in crisis. Trust your luck. And you will do just fine.

● The writer is an entrepreneur who hopes to shares his experience and insights with readers who want to take that giant leap into business but are not sure if they should. Email him at thtan@alliancecosmetics.com

Malaysia's GDP Growth 5.1% in 2011, pretty okay?

Malaysia's growth beats consensus

By FINTAN NG fintan@thestar.com.my

PETALING JAYA: Malaysia's gross domestic product (GDP) expanded by 5.2% in the fourth quarter of 2011 despite the challenging external environment as domestic demand continued to support growth.

Bank Negara said in a press statement that full-year growth came in at 5.1% after expanding 7.2% in 2010 as domestic demand conditions remained favourable supported by both private and public sector spending.

The fourth-quarter GDP figures came in slightly higher than the 4.8% median estimate in a Bloomberg survey while the full-year growth was largely in line with a separate survey, where the median estimate was 5% and in line with official estimates of 5% to 5.5% growth.

“Domestic demand expanded by 10.5% during the quarter, driven by the continued expansion in household and business spending, and public sector expenditure,” the central bank said.

Private comsumption increased by 7.1% supported by favourable income growth while public consumption rose by 23.6% following higher expenditure on emoluments and supplies and services.

Gross fixed capital formation, which measures the net increase of fixed or physical assets, increased by 8.5% supported by continued expansion in capital spending by the private sector and the non-financial public enterprises.

“The federal government development expenditure during the quarter was mostly channelled into the transportation, trade and industry sectors,” the central bank said.

The services sector grew by 6.4% for the quarter (6.8% for the year), manufacturing expanded by 5.2% (4.5%), construction rose 6.4% (3.5%), agriculture expanded by 6.9% (5.6%) while the mining sector's pace of decline narrowed compared to the third quarter, falling by 3.3% and declining 5.7% for the year.

The headline inflation rate, as measured by the annual change in the consumer price index, declined to 3.2% in the fourth quarter with inflation in the transport category ower at 3.2% reflecting the absence of further adjustments on prices of RON95 petrol, diesel and LPG in the quarter.



“Inflation in the food and non-alcoholic beverages category, however, rose to 5.3% during the quarter, mainly due to higher prices in the fish and seafood subcategory,” Bank Negara said.

Economists said the latest data confirmed earlier reports of the country's growth being on a slower trend largely due to the drop in external demand as global growth slowed.

They said this trend would continue into the first half of this year before recovering gradually in the second half as conditions globally improved with more clarity on the issues surrounding the eurozone sovereign debt crisis.

CIMB Investment Bank Bhd economic research head Lee Heng Guie told StarBiz that the main drag to growth in the fourth quarter and the whole year was the volatile external environment which resulted in stagnant demand for consumer electronics.

He said domestic demand would continue to sustain the economy although there was “a slight let-up” in consumer spending. “The question is how sustainable is consumption going to be and this will depend on key drivers such as commodity prices and income,” Lee said, noting that the Malaysian Institute of Economic Research consumer sentiments index was trending down.

“In summary, we see quite uneven growth in the first half of this year before the economy picks up in the second half,” he said, expecting full-year GDP to come in at 3.8%.

AmResearch Sdn Bhd director of economic research Manokaran Mottain said the latest data showed that the “fear factor” was rising with households becoming more cautious about spending.

However, he was more sanguine compared to his peers where exports were concerned, pointing to the export growth in goods and services (where the current account suplus, although narrowing in the fourth quarter, stood at RM22bil for the year) but said the data showed the economy was geared to domestic activity with government handouts playing a crucial role in supporting consumption.

“Going forward, well-crafted domestic strategies and the timely rollout of the Economic Transformation Programme projects will now be more urgent as they will create multiplier effects especially in the services sector,” Manokaran said.

He added that the data clearly showed that the economy, while experiencing moderating growth, was not “falling off the cliff” with full-year growth in 2012 coming in at 5%. “The worst-case scenario is global growth dropping to below 3% and project implementation delays at home, which means growth of around 4%,” Manokaran said.

Meanwhile Affin Investment Bank Bhd chief economist Alan Tan said growth this year would still be affected despite signs of nascent recovery in the United States and the improvement in global purchasing managers' indices.

“For this year, the first half will still show signs of moderation in exports as consumer electronics demand slows down,” he said, adding that growth for the full year would still be a healthy 4% considering the challenges.

For Bank Negara statements click here

Malaysia should do pretty okay

Making a Point - By Jagdev Singh Sidhu

THE report card for the economy in 2011 is out and by all accounts, Malaysia did pretty okay.

With the official forecast of growth at between 5% to 5.5%, there was much scepticism throughout 2011 whether that could be achieved. Who can blame the tea-leave readers out there whose job is to forecast where the economy is heading?

There was so much external fear with Europe on the brink, America seeing greater economic trouble and China teetering on a bubble bursting that expectations were slashed, and on average far less than what the Government had predicted.

As it turns out, maybe after the gravity-defying performance in the third quarter where the gross domestic product (GDP) expanded by 5.8%, people began to say “hold on. Maybe things aren't so bleak.”

As it turns out, they were mostly right when the GDP data was released yesterday.

The economy expanded by 5.2% in the fourth quarter and for the whole year, growth was 5.1%. There are numbers where things could be better. Industrial production and export growth isn't the best.

 

But what drove the economy upwards was domestic demand, basically what the Government, people and companies spend and invest.

Domestic demand jumped 10.5% in the fourth quarter compared with 9% in the third. Capital investments surged 8.5% compared with 6.1% in the previous quarter and higher investments will mean more production, jobs and better economic strength.

The troubles of Europe might have lost its fear factor and America appears to be repairing itself steadily. There are reasons to be more optimistic but the official tune has turned, surprisingly, a little sour.

Bank Negara in its statement said; “Growth prospects, however, have become increasingly uncertain with the emergence of greater downside risks.”

The warning calls for more caution but there is still enough policy measures to keep domestic demand intact.

There are policies of putting cash in the hands of the people through direct cash handouts. There is a base effect from the consumption boom to worry about and whether that can continue into 2012.

But there are indicators out there to suggest domestic demand might still do well but maybe not at the same breakneck speed.

First, there is the stock market. Yes, people might say its not a perfect barometer of what an economy is doing but it does show there is confidence in how corporate Malaysia might be performing.

With direct investments abroad by Malaysian companies jumping to RM14.4bil in the third quarter from RM12.9bil previously, it shows Malaysian companies are taking advantage of growth opportunities outside Malaysia. That can point to higher profits and maybe salaries in the future.

The other is property. We might have been cautious last year about property prices falling off the cliff at some point in 2012 but there is no indication that might happen. Prices might soften but if we were to see our neighbours down south, it might not freeze the market.

For January, Singapore registered the highest sales of private homes in the past 14 months, despite increasing clamps on foreigners buying homes there.

With jobs steady and likely to increase with more investments being made, the stock market doing alright and property prices holding firm, these are ingredients that will allow people to continue spending.

If the Private Sector Retirement Age Bill gets passed, that should create more consumption by people whose earnings lifespan will increase by a further five years. The mass rapid transit system which is kicking off will also boost construction and the GDP.

Economists do wonder if the growth forecast of 5% to 6% for 2012 will be maintained given the risks and challenges. There might be a revision downwards in March but whatever the case, Malaysia like last year, should do pretty okay.

● Deputy news editor Jagdev Singh Sidhu is lapping up the Linsanity! Jeremy Lin's play for the New York Knicks has been a fantastic story. Hope that continues until he meets the Detroit Pistons. 

Credit Suisse cuts M’sia GDP forecast

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By JEEVA ARULAMPALAM jeeva@thestar.com.my

It says Asian growth set to slow more sharply

PETALING JAYA: Credit Suisse AG has cut its real gross domestic product (GDP) 2011 growth forecast for Malaysia to 4.6% from 5.3%, as the Western world is teetering on the brink of recession and large parts of Asia remain highly susceptible to growth developments in the United States and Europe.

It also cut its 2011 GDP forecast for other Asian economies such as Thailand, Hong Kong and South Korea.

In an economics research yesterday, Credit Suisse said Asian growth was set to slow more sharply over the coming months.

 “With the fiscal support provided during the global financial crisis removed and the lagged effects of higher interest rates working their way through, we had expected the Asian economies to soften from second quarter of 2011.

“Now that the Western world is teetering on the brink of recession we believe the outlook has dimmed further,” it said.

In addition to cutting its GDP forecast for this year, Credit Suisse trimmed next year's forecast to 4.8% from 5.8% previously. The new 2011 and 2012 GDP forecasts imply annualised sequential growth rates of an average 3.5% in the second half of this year and 5.5% for next year.

“What has kept us from cutting our growth forecasts further is the likely support from domestic demand. We think more investments from the Economic Transformation Programme (ETP) should come onstream, especially in the oil and gas sector which benefited from high oil prices.

“Also, the Government has underspent its budget in the first half and we expect it to increase spending in the second half to meet its target,” it said.

It added that some factors that exacerbated the slowdown in the second quarter were likely to be temporary but Credit Suisse did not expect domestic demand to be shielded from a further weakening in external demand.

“Moreover, Malaysia's growth is vulnerable to a collapse in commodity prices if this were to happen,” it said.

In the report, Credit Suisse said it expected Bank Negara to keep the overnight policy rate unchanged at 3% until the end of next year (it previously expected one 25 basis points hike).

With the global growth outlook highly uncertain and inflation slowing, it suspects that the central bank will be in no hurry to raise the overnight policy rate further. However, a severe global recession could see rates being cut.

“In contrast, we think there is little scope for the Government to stimulate the economy through fiscal policies above and beyond the existing high deficits they projected (5.4% of GDP for 2011).

“Even as things stand now, Malaysia would probably need to undertake significant fiscal adjustments over the next decade if it wants to bring its relatively high debt to GDP ratio down.

“A prolonged weakness in growth would increase the risk that the Government would further delay its plan to cut subsidies and raise the consumption tax,” it said.

Bank Negara is maintaining its GDP forecast of 5% to 6% for the full year as it expects strong domestic demand and ETP projects to fuel economic growth in second half of the year. Malaysia's second-quarter GDP moderated to 4%, compared with 4.9% in first quarter, dampened by a slowdown in the manufacturing sector and weaker external environment.

AmResearch Sdn Bhd, in a report last week, said that while it expected a full-year 5% growth rate to be achieved given the current climate, possible trigger points for a downgrade included an adverse impact of a very large drop in crude oil prices and any further delay in the ETP projects.

“As a net exporter of oil, Malaysia still relies heavily on crude oil in terms of generating income for the country. As long as the full-year average lies between US$85 and US$90 per barrel, all is well and within budget.

“On a positive front, a sharp fall in crude oil may well mean a reduction in total subsidies spent by the Government. The net impact will, however, be detrimental to the Government's coffers and overall growth,” AmResearch director of economic research Manokaran Mottain said in his report.

For latest GDP reports from the Statistics Department click here