10 most pressing questions for 2010

We tackle the issues that will figure prominently this year.

How much will we grow?

Always hard to say, but let’s enjoy the ride.

Forecasting economic growth is pretty much like predicting the weather. Therefore, these estimates on how much the economy will expand are sometimes considered to be as reliable as the weather report. And the longer the time horizon, the tougher this game gets.

Who can accurately foretell what tomorrow holds?

What more when the economy is a complicated system, loaded with a great deal of risks and uncertainties, some internal, some external, but most of which are beyond the control of our policymakers and planners.

The best that the experts can do is merely look at various known elements of the economy and try to put the puzzle together. But ultimately, those figures are just guesses based on elaborate and rational theories.

At this juncture, with almost all of the major economic indicators looking up, in line with regional and global trends, everyone is predicting growth this year. The Government has pegged its official growth forecast for Malaysia this year at between 2% and 3%, although it is “confident” that a 5% growth rate this year is still possible if private sector activities accelerate faster than expected. Other experts’ projections of Malaysia’s growth range from 2.5% to 4.5%.

Never mind what the Government officials and professionals with impressive-sounding job titles tell us. We all know their estimates are not foolproof. Still, these are useful barometers for various economic agents – businesses and households alike – especially in terms of making major decisions such as investments.

And even if those estimates were to fall short, we can rest assured that the experts would find the right solutions to remedy the situation. So, let’s just ride along with the bullish outlook for the year.

Will we really stop subsidies?

No, but a lot of them will be rolled back.

How great can Malaysia’s new economic model be if it perpetuates fundamentally flawed distribution of government assistance and encourages wastefulness? Our Government knows this. Which is why the makeover of Malaysia’s economy will likely include a revamp of our subsidy policies and mechanisms.

After all, Prime Minister Datuk Seri Najib Tun Razak said in the Budget 2010 speech that the new economic model will be based on innovation, creativity and high value-added activities. This will be hard to achieve if subsidies go to the undeserving and if the groups that ought to be subsidised are instead left unaided.

There’s also the priority of reducing the budget deficit. Slashing subsidies, particularly those that lead to misallocation of resources, is a logical step.

And with the experience of the crippling commodity prices fresh in our minds, it’s a good time to start weaning us off long-time across-the-board subsidies for items such as petrol and sugar. This is a step towards more disciplined consumption.

The arguments for withdrawing subsidies are always tempered by fears of a political backlash. However, the Government has made some bold policy moves lately, and putting the brakes on subsidies would be a continuation of that.

More importantly, the fallout from a failed new economic model would be far more damaging than the subsidy addicts’ withdrawal pains. For that reason alone, expect a significant pull-back on subsidies this year.

Will the Government transform?

Yes, but by how much is the real question.

It is difficult not to have at least some faith in the Government Transformation Programme, or GTP, when the person driving it is former Malaysia Airlines CEO Datuk Seri Idris Jala, a person who has done quite a few transformations in life.

As CEO of the Performance Management and Delivery Unit in the Prime Minister’s Department, or Pemandu, he will oversee and monitor the GTP. The six national key performance indicators are in place and later this month, the book with targets and timelines will be ready.

That means there is a strong push to deliver. It helps that the Prime Minister is the chairman of the delivery taskforce and that resources and people can be diverted to the prioritised areas at the drop of a hat.

But what is really going for the GTP is that there is a plan which is being fine-tuned after feedback from the general public and a programme for execution which goes into the most minute detail.

That will help achieve more than what was done before as the low-hanging fruit – as Khazanah Nasional chief Tan Sri Azman Mokhtar likes to put it – are harvested. The real challenge starts after that.

Why, one can ask, is there no open tender for every single case? And while corruption is on the list of things to be curbed under the GTP, who is going to clamp down on the mother of all corruption – political corruption?

There will be gains from the GTP but the real question is how much more can we go to deal with the more deep-seated problems we have. I have no answer to that.

Will Proton mate?

Yes, it has to just do it.

The subject of a foreign partner for Proton Holdings Bhd has gained traction in recent years. This is because of the problems faced by Proton during that time, such as declining sales, poor model mix and a seemingly bleak future.

Some of that have been addressed with the introduction of the new Saga, Persona and Exora, and cost-cutting measures have lifted Proton’s performance. But the company has not made inspiring headway into the export markets, and more should have been done for a company that is a quarter of a century old.

Knowing its limitations, the pursuit of a foreign partner is under way, and Proton and Volkswagen have been in discussion to form some kind of relationship.

The worry is that talk will just remain that, and looking at some of the moves announced recently, like a hybrid programme or even a global car, it would appear that Proton might be hedging its bets on a foreign partnership.

Will a foreign partner be just a cog in Proton’s long-term plan instead of becoming a game changer as Volkswagen has done with Seat or Skoda? Time is ticking and Proton should realise that some help is needed as it is a small fish in a big pond.

Will the water woes be resolved?

No, the industry restructuring in Selangor is meandering.

With things moving at a wounded snail’s pace, there are doubts the Selangor water industry will be restructured any time soon. There has been much talk but little action.

Even more perplexing is that there has been no real explanation as to why the industry in Selangor remains split, with three dominant listed players, and what difficulties the authorities face in consolidating the sector.

Amid rumours that there are issues of funding and that strings are being pulled behind the scenes, there seems to be a lack of will to resolve this nagging issue. And this is water we are talking about. It’s a necessity of life; it should take precedence over just about everything else.

The restructuring process has come full circle in Selangor after two years of deliberations. The listed players’ stocks have been languishing, the result of waning interest after one false start too many.

Because of the delay, water distributor Syarikat Bekalan Air Selangor Sdn Bhd is cash-strapped. It has been waiting almost a year for a tariff hike provided for in the concession agreement. This translates into a lack of capital expenditure on pipe replacement, which in turn means old pipes, low water pressure, and dirty and unsafe water.

Adding to the irony, it is common knowledge that by 2013, Selangor will be in for a water crisis!

Let’s hope the people responsible will get the restructuring done as quickly as possible. Perhaps, when the needs of the rakyat become priority, there will be more urgency and less self-absorbtion.

What’s left to privatise?

There is still some valuable stuff out there.

Apparently, quite a few can make the cut but trying to narrow down the list is another matter. The Government, through various agencies and companies, is involved directly in myriad businesses from banking and biotechnology to palm oil and property development.

However, ever since Prime Minister Datuk Seri Najib Tun Razak talked about “the second wave of privatisation” in his Budget 2010 speech in October, little information has trickled down about how this will happen and which companies and agencies are being targeted for the spin-off.

Analysts say paring down existing stakes in listed companies, like what Khazanah Nasional Bhd has done in recent weeks, doesn’t count.

Yes, such divestments will improve liquidity in the stock market, but what capital market participants really want is quality new listings that are big enough to entice foreign investors to return to Bursa Malaysia. The recent re-listing of T. Ananda Krishnan’s Maxis Bhd is an example.

Plantation giant Felda Holdings Bhd makes a good privatisation candidate. Even part of it, if it goes to the market, would add weight to Bursa Malaysia.

Barclays Capital, in a recent report, suggests that the Government can narrow its budget deficit to as little as 3% next year by selling shares in state-owned companies. That is a good enough reason to expedite the privatisation plan.

And it pays to strike when the market is hot. At least a strong take-up rate can be assured and premium valuations can be justified, provided the initial public offering is packaged well.

Will power bills go up?

Yes, and there are no ifs and buts here.

It’s a question on everyone’s mind, from businesses to individual households: Will we have to dread, even more, our electricity bills next year?

The tariffs are up for review in January 2010. Given that the economy is still on recovery mode, there is a chance that it may be left untouched. I doubt if the Government would want to crank up the cost pressure when the economy, businesses and the general masses are gradually recovering from such a tumultuous 2009. Also, raising electricity rates is hardly a populist move and so, the Government may want to stave it off for as long as it can because it can ill-afford a sentiment swing among voters.

But with Tenaga Nasional Bhd vigorously lobbying for a tariff increase on the back of escalating fuel costs and rising payouts to private power players, it may be hard to resist doing so for too long. Toss in the Government’s mantra of cutting subsidies, in this case for the gas that’s supplied to the power sector, and it makes for a strong case to pass the extra cost to end users.

So, all things being equal, come mid-year for the second review, I’m quite sure tariffs will be hiked.

In fact, I’m willing to bet my electricity bill on it.

Does CSR matter?

Yes, but more imagination is needed.

Corporate social responsibility (CSR) matters, of course. By and large, companies, listed or otherwise, have seen the benefits of factoring in CSR into their business. However, what I would like to see in 2010 and beyond is for companies to think out-of-the-box in drawing up CSR initiatives.

A company that embraces the green agenda, for example, must also do its part to discourage needless consumption. It is not just about creating products that are more environmentally-friendly but to play a role in lessening the overall strain on the earth’s resources.

A company that regularly supports a home for the disabled could do more towards making the disabled employable. A pay cheque is always better than a charity cheque. There should be tangible hiring policies, like having 1% of its workforce to comprise the disabled.

We should also consider scholarship as a CSR initiative where funds are set aside to support and train people in non-traditional fields. Companies should think beyond areas that are of benefit only to themselves or their industries, but also for the greater public good. An engineering company, for example, should not just sponsor engineers but musicians, psychologists and philosophers.

CSR should also be part of the company’s culture and not just an outside initiative for public consumption. For example, staff can be given a specific number of days off in a year to do volunteer work. Companies can also do more to impact the local community where their business is located, like sharing space and resources.

Will we get high-speed broadband?

Yes, but only for some areas.

The simple straight answer is yes, at least for most of us living in the “high-economic impact” areas of Bangsar, Shah Alam, Taman Tun Dr Ismail and Subang Jaya. Telekom Malaysia Bhd (TM) is racing to roll out fibre-optic cables to reach homes and offices in these places to offer broadband speeds in excess of 10 megabits per second.

Its commercial launch is targeted for some time in the first quarter of this year. Prices will be reasonable, it promises. Going by TM’s track record, though, there may be hiccups. But that should be ironed out over time, considering that TM is striving to transform itself into a service-orientated organisation. Still, could the state of broadband in the country be better? Perhaps we should be asking if the Government was wise in providing RM2.4bil in funding to TM to expedite HSBB.

Countries like Singapore and Australia are using a special-purpose vehicle that builds and owns the HSBB network. The Government, together with all telcos in those countries jointly own the SPV. This way, no one party has sole control over an infrastructure as crucial as that of broadband.

Arguably, even though TM has been appointed the sole HSBB company, there is nothing to stop the Government from creating an SPV to do just this. Then there’s another question that begs for an answer. Will TM open up the HSBB network to competitors – at fair and reasonable terms – so that the end user, that is you and me, will get to enjoy the best products and services that competition can bring about?

Will the stock market beat the 1993 record?

Yes, in the first half of the year.

The high of the 1993 bull run was 1,314 points on Jan 1. That’s a mere 45 points from here. In reading the market, let’s go to my two main indicators.

First, from a Feng Shui perspective, 2010 is the Year of the Metal Tiger. This is personified by metal chopping wood, which creates activity. Hence, there will be a rally.

Wood controls earth , the wealth element in astrology. As this wealth pilar is in the first two pillars of this year’s Bazi chart, the rally in the stock market will likely take place in the first part of the year.

Second, even before you check interest rates and corporate earnings, always look at the direction of oil prices first. Since the peak of US$145.29 a barrel on July 3, 2008, the commodity had corrected sharply to a low of US$33.87 on Dec 19, 2008, and has since settled within the US$70-80 band.

Historically, huge falls in the market have always been preceded by sharp gains in oil prices. Meanwhile, whenever oil prices have dropped or risen in a non-eventful manner, stocks have soared.

This has been the trend since 1973, the year when Opec first imposed restrictions on oil exports and, hence, engineered increases in oil prices.

In the second half, as the impact of high oil prices begin to spread, the threat of inflation emerges. While inflation increases earnings of companies, it also lowers the price-earnings of company because of the uncertainty.

Also, the 10th year of every decade had also seen more contraction than appreciation for stock markets.