Subsidy cuts without pay rise = tax hike

Making a Point - By Jagdev Singh Sidhu

IT’S been roughly a week since subsidies were cut marginally in Malaysia and judging by the reaction people have to it, I guess the public has taken it in stride.
After all, the increase in the cost of fuel, which is ultimately the biggest cost element among the other goods that saw prices rise, was small and well within what people can stomach.
The price increases in sugar and cooking gas were small when looking at what an average household would spend monthly to consume and use such goods.
The way subsidies were removed this time around was also properly handled. The message of why that needed to be done was clear.
Conversely, editorials and comments have stressed the point that the increase in government revenue of RM750mil from the subsidy rationalisation, along with how the Government spends taxpayer money, should also be more disciplined to avoid wastage and should be on projects, goods and services that have tangible benefits to the general population.
So far so good but the reality of things is that the subsidy cuts announced represent the first wave of what could be a series of cuts that would bring down the overall subsidy bill of the Government.
It’s quite likely too that future subsidy cuts could see the price of fuel, depending on the price of fuel internationally, and electricity rise. Along with that, sugar, flour, cooking gas, cooking fuel and maybe even other goods, services and utilities could also see a price increase.
And while the general population, especially the middle-class, has been quiet about the first cuts, there could be grumbles if the price increases do not correspond with the pay packet they bring home.
The reason for that is there is a feeling that urban inflation has grown quite a bit in recent years and that wages in Malaysia have not increased in keeping with the rise in the prices of consumables or even assets.
The increase in starting salaries for jobs in many industries today pales in comparison with how, say the price of a house, car or processed food has risen over the past years or even decades.
I know employers will say that salaries would have to reflect the productivity of employees, the growth of which has in recent years been poorer compared with how Malaysians in yesteryears used to attain.
There are also suggestions that the current labour laws, which make it difficult for employers to fire unproductive employees, are also an impediment to employers offering more lucrative salaries for their workers.
Changes to such laws are reportedly being looked at but there is still no guarantee wages would rise after that.
Unless salaries rise as a result of a more efficient marketplace brought about by the removal of subsidies and laws, the price hikes from future subsidy cuts would be viewed as a tax hike. And that could well raise the blood pressure of a lot of people.
·Deputy news editor Jagdev Singh Sidhu is now looking at a substantially smaller pay packet for the next few months, not from the subsidy cuts but the taxman.

June inflation rate rises to highest level since May 2009

By FINTAN NG
fintan@thestar.com.my

PETALING JAYA: Malaysia’s June inflation rate rose 1.7% to 113.7 from a year ago, reaching the highest level since May 2009 as prices began to normalise from last year’s low base.
The consumer price index (CPI) gained 1.6% in May 2010.
The Statistics Department said in a report that the CPI for June increased 0.2% compared to this May and rose 1.4% for the January to June period compared to the previous corresponding period.
The rise in the CPI was within economists’ expectations and also in line with a Bloomberg survey.
Economists who spoke to StarBiz recently said the CPI was expected to rise gradually although price increases for the year were expected to be moderate.
In June compared to a year ago, the food and non-alcoholic beverages index added 2.7%.
The indices for non-food increased 1.2%, transport gained 1.3%, housing, water, electricity, gas and other fuels added 0.8% while the services index rose 1.7% compared to a year ago.
The health and education indices added 1.6% and 1.8% respectively while the clothing and footwear index saw a 2% decline year-on-year.
The alcoholic beverages and tobacco index was up 3% and the restaurants and hotels index gained 1.8%.
The durable goods index increased 1.1%, the semi-durable good index declined 1.3% while the non-durable goods index rose 2.1%.

Penang economy seen growing 4.7pc

The Penang economy is expected to grow 4.7 per cent this year compared to negative 3.2 per cent last year.

Yang Dipertua Negeri Tun Abdul Rahman Abbas said signs of the economic recovery could be seen from the number of workers retrenched reduced to 3,565 in 2009 from 5,776 the previous year.

"In addition, there were 2,319 vacancies created in the agriculture, services, hotels, quarrying, manufacturing, transport and social services sectors in 2009," he said when opening the third term of the 12th state assembly today.

Abdul Rahman spoke for only two minutes, during which he called on members of the House to live up to the expectation. His text of speech was later distributed to the members and the media.

The opening of the state assembly sitting was postponed from April 19 when Abdul Rahman was taken ill.

Abdul Rahman said the government had submitted an application for a RM12.56 billion allocation under the 10th Malaysia Plan (10MP) to the Economic Planning Unit of the Prime Minister's Department.

On tourism, said the state government targeted tourist arrivals to exceed six million this year with a revenue of RM10.8 billion.

He said the state government would also attract private sector investment in new tourism products like the Auto City Theme Park in Sungai Juru coastal areas costing RM10 million and the Eco-Fun Theme Park in Teluk Bahang besides focusing on medical tourism," he added.

"In 2009, RM162 million was contributed by medical tourism. The state government aims at increasing the revenue to RM190 million in 2010," he added. -- Bernama

Teach your staff to be financially free

IT is one year after Lehman Brothers collapsed. What have you done differently to improve your retirement plan?

Some of you have actually improved your financial wealth. No matter how your financial wealth has been affected, this experience means you must be wiser to get back on track to secure your retirement future.

So, have you put in place a personal financial system or structure that is resilient against the future financial crisis?

If we have a slight inclination to believe that history may repeat itself – it is a matter of time and the magnitude of it – then it is appropriate to have a sustainable education system (that lasts for generations) to beef up our people’s financial know-how.

We need to prevent future (or further) financial damages to our retirement plan, especially in an ageing society.

If we are financially literate, we will be able to:

·make effective personal decision when we read brochures, contracts and prospectus with financial technical terms and conditions;

·reduce financial feud in the family as we speak the same “financial language” at home;

·improve our relationship, avoid financial breakups because of money;

·improve our mental and emotional well-being;

·take responsibility and ownership of our financial situations instead of blaming others and having regrets due to ignorance;

·communicate intelligently with our financial advisers, bankers and fund managers, asking right questions and getting accurate answers;

·increase our ability to understand sophisticated financial scheme and a variety of insurance products, investments and loan structures;

·mitigate the seriousness of a crisis because we know how to analyse the world’s financial market movements;

·and cultivate moral and ethics for quality financial products and services instead of scams and toxic investment products.

Have we not done enough to educate the public? Nowadays, we are overwhelmed with tonnes of information about financial and retirement planning via the media. We should be wiser by now. If not, what do we need to do differently, and immediately?

There is a serious need to put together a proper personal financial education at home, in school and at the workplace. After all, we live with our family, go to school to get an education and go to work to make money.

Personal financial education should start at school because money management is a skill that can be taught instead of learning it through costly mistakes. Teaching our kids money management is no different from teaching them the regular school subjects.

But if adding a subject about money in school takes time, how about putting in place a personal financial education programme for adults at work?

Is there a difference between leadership skills (or whatever skills) versus personal money management skills? I don’t think so.

I would like to think that we should be smart enough not to repeat mistakes because of greed and short-term memory. But being human, it will be great if we have constant reminders at work – how to save our salary to pay off our debts and how to invest our salary wisely for retirement.

I would also like to acknowledge the fact that market forces will soon stimulate demand for staff to work for longer years. It is inevitable because of rising cost of living, medical costs and lifestyle that is just too tempting for us to spend our money.

If companies can help to continuously educate employees to improve their personal money management skills, including retirement education, then some of these pressing issues of having to work beyond the retirement age will be mitigated to some extent. After all, we work to accumulate retirement money to enjoy life.

For employers, if you embrace the belief in human capital development, then putting in place a structured personal financial education and training programme for staff is a logical thing to do, regardless of your company size.

Such a good intention is as admirable as putting in place a strong message of corporate social responsibility towards the public, starting with the employees. Like the saying, “Charity begins at home”. In this case, charity begins at workplace.

Even if personal financial education and training programme is not “HRDF (Human Resource Development Fund)-approved”, there are more benefits than costs for you to spend some money to enhance employees’ personal financial knowledge.

This is because you may just save your employees from financial distress and create financial security for them or their family.

More importantly, your employees are your credentials. They are your word-of-mouth marketing for recruiting good people. There is nothing to lose by having an effective staff development programme that teaches employees to be financially intelligent and retire from the company with financial freedom.

Employees will have praises for the company. Your retired employees will encourage their children to work for you. Your company will have better bargaining power to select quality recruits and have choices to retain good workers.

Employees who are not performing need to beef up if they want to remain in the company.

Be a caring employer. Your employees are helping you to make money. May this idea be a credit to you and your company as The Best Employer of The Year!

Current account surplus declines 8.5% in Q2

KUALA LUMPUR: Malaysia’s current account recorded a surplus of RM28.8bil in the second quarter (Q2) of 2009, down 8.5% from the preceding quarter’s RM31.4bil due to a lower surplus in goods and services.

The Statistics Department said in a statement the surplus in goods stood at RM33.1bil in Q2 against RM37bil recorded in the first quarter (Q1).

Surplus in the services sector dropped to RM1bil from RM2.5bil in Q1.

However, other components in the current account showed an improvment, namely a lower net payments on income account of RM1.5bil (Q1: -RM3.9bil); and a lower leakage on current transfers of RM3.9bil (Q1: -RM4.2bil), the department said.

Year-on-year, the current account surplus of RM28.8bil in Q2 was 24.9% lower from the RM38.3bil previously.

This was in tandem with the 31.2% drop in surplus on goods of RM33.1bil from RM48.2bil before.

In April-June 2009, the deficit in the income account improved RM2.4bil or 60.8% to RM1.5bil (Q1: -RM3.9bil), solely due to lower net outlay on investment income which fell 69.7% to RM1.1bil (Q1: -RM3.6bil).

Year-on-year, the deficit in income account fell 76.7% to RM1.5bil, mainly due to lower net outlay on investment income of RM1.1bil (Q2 2008: -RM6.5bil).

Between January and June 2009, the capital account switched to a net outflow of RM100mil from a net inflow of RM764mil in the same period in 2008 due to a reversal in non-produced non-financial assets amounting to -RM46mil from RM802mil attained in first-half of last year.

In Q2 2009, the overall balance shrank 33% to RM2.1bil compared with RM3.3bil in Q1.

Meanwhile, the international reserves held by Bank Negara between January and June 2009 stood at RM80.6bil, up RM5.4bil from RM75.2bil held in the same period of 2008. – Bernama

Bigger write back for EPF likely

By LEONG HUNG YEE

PETALING JAYA: The Employees Provident Fund (EPF), which made a RM4.69bil provision for the diminution in value of its equities investment last year, could write back a bigger amount this year as equity markets continue to improve.

The pension fund Thursday announced that it recorded a RM4.8bil investment income for the second quarter ended June 30, reflecting a 46.64% increase from RM3.27bil achieved in the first quarter.

For the first six months, the EPF had an investment income of RM8.07bil.

Chief executive officer Tan Sri Azlan Zainol said although there were signs of stabilisation in the local markets, it was too early to see how it would affect EPF for the rest of the year.

“While we cannot say that the worst is over, should this trend continue or at least maintain at current levels, we are positive that we can reverse the bulk of the allowances for diminution in value of equity investments that we made last year,’’ he had said.

In an earlier interview with StarBiz, Azlan said EPF expected to recover the bulk of its investments when the Dow Jones reached 9,000 points.

The fund has invested in major overseas markets and local banking stocks rank high in its portfolio.

The Dow Jones Industrial Average closed at 9,344.61 points overnight.

Inter-Pacific Research head Anthony Dass believed that if the market continued to recover, EPF could probably write back part or all of its provision.

However, he said the current third quarter would be “very tricky” for the pension fund to write back its provision as trading on the local bourse had slowed down.

“We are not seeing that kind of huge trading volume nowadays. However, EPF is investing in fundamentally good stocks and these are the stocks that hold up the FTSE Bursa Malaysia KL Composite Index,” Anthony said.

He added that the potential of recovering last year’s RM4.69bil provision was there, given the EPF’s strong portfolio.

The EPF is heavily invested in index-linked stocks such as Sime Darby Bhd, RHB Capital Bhd, Tenaga Nasional Bhd, Public Bank Bhd, Malayan Banking Bhd and Bumiputra-Commerce Holdings Bhd.

The EPF had earlier warned that this year’s dividend payout might be less than the 4.5% in 2008.

On the dividend for this year, Anthony said it would somewhat be “in line with” or even “slightly better” than last year.

A head of research with a local bank-backed research house expects this year’s dividend to be around 4.7%. “Based on the figures in the first half, it (dividend) could be around 4.7% or less,” he said, adding that 4.7% “was not too bad”.

He said the RM4.69bil provision was not really an issue but the mark-to-market could be more material.

He added that the provisions would only be realised when EPF sold its equity investment and the provision would be written back once the equity markets recovered.

Meanwhile, another head of research at a local brokerage said EPF should be able to write back part of its provisions this year, given that the local market had risen more than 30% over last year.

On dividend from EPF, he said it had not been very spectacular but he expected it to be between 4.5% and 5% this year.

Moments spent with your children are priceless

Something good to share...

Monday Starters - By Soo Ewe Jin

WE celebrated Father’s Day yesterday. So it is a good time to talk about fathers.

More so after I read an interesting comment by Luke Johnson in the Financial Times recently entitled “Poor children of the rich and succesful”.

It was the last few paragraphs that caught my attention.

“Sacrifices generally have to be made for unusual success – whichever career path you follow,” Johnson wrote.

“And for those inventors and corporate pioneers whose life is their business, then it is all too clear where their ultimate priorities lie.

“Yet almost every entrepreneur I have known regrets not spending enough time with their children when they were growing up.”

My eldest son has just started work at the college he graduated from.

Compared with what I earned on my first job as a cadet reporter in the now defunct National Echo, he can certainly give me a treat when he gets his first pay cheque at the end of the month.

I am glad that he does not think that making lots of money is the most important thing in life.

Of all the things I have given, or not given to my two boys, one thing they cannot complain about is my time with them.

When the eldest one was in Standard One, I did a crazy thing. I exited the workforce and became a full-time father. My wife and I decided to have at least one parent in the home full time, and it began with me.

We have clocked up 16 years of being full-time homemakers. Our well-meaning friends, especially financial planners and unit trust consultants, like to talk about our foregone income.

They tell us that the reason we cannot send our children for an overseas education is that we did not build up our financial nest when we were most able to.

A common lament: “Why did you not earn when you were in the prime of your working life?”

That was good advice, but we chose to walk a different path. It is certainly not the definitive way for all parents to take, but we found it was the road that gave us huge dividends.

Somehow, one income, and a bit here and there with our freelance efforts, was more than enough to see us through.

But how does one put a price on time? How do you measure those moments of bonding with your children in their growing-up years?

Whether you are a CEO or a manual worker, we all have the same 24 hours in a day. I reckon if we were to divide our monthly salary by the number of hours in a month, we roughly know how much our time is worth per hour.

I got an email the other day about a boy who wanted to borrow US$25 from his ever-busy father who earns US$50 an hour.

“Daddy, I have US$50 now. Can I buy an hour of your time? Please come home early tomorrow. I would like to have dinner with you,” he said.

Well, some may dismiss this as just one of those feel-good email that make their rounds to make one feel guilty about spending too much time away from home.

The song Cat in The Cradle comes to mind. Made famous in 1974 by Harry Chapin, the song is told in first-person by a father who is too busy to spend time with his son.

And, eventually, the boy grew up just like him – a busy man who also does not have time for his father.

Time. It’s priceless.

● Deputy executive editor Soo Ewe Jin feels the balance sheet of life goes way beyond profit and loss and workers should not be treated as mere economic units.

Bank Negara: Consumers to benefit from premium rebates

KUALA LUMPUR: Bank Negara’s move to implement premium rebates for the direct purchase of general insurance covers is expected to put millions back into consumers’ pockets, especially during these challenging times.

Deputy governor Datuk Mohd Razif Abd Kadir said the objective was in line with the Government’s intention of enhancing consumption.

“This is something that is fair for consumers. Over time, you cannot stop this kind of innovation taking place,” he told a briefing yesterday.

Hence, effective July 1, individuals who purchase general insurance covers directly from insurance companies will be eligible to receive premium rebates. The quantum of rebate, however, will depend on the types of insurance purchased.

For motor insurance, individuals will receive a 5% premium rebate in the first year of implementation and 10% thereafter. For others, the rebates are between 5% and 25%.

Direct purchase includes walk-in, through the Internet, direct mailing and the telemarketing channel.

Razif noted that in 2008, the general insurance policy premium amounted to RM4.4bil, of which half was motor insurance and 15%, or RM450mil, came from direct channels, but without getting any rebate.

“Now, individual consumers would benefit from the rebate,” Mohd Razif said, adding that despite the emergence of direct distribution channels, insurance agents remained an important intermediary in the general insurance sector to provide personalised service for the convenience of policy owners as well as value-added services, such as advice on insurance products and in providing assistance in claims handling.

“Customers have the option to use the services of agents to meet their insurance requirements, particularly for complex and sophisticated insurance products,” he said.

This, together with the higher value-added services, would provide greater scope for agents to widen their services to include financial advisory to their clients, he noted.

“Financial advisory services is an area that has tremendous growth opportunities,” he said.

Meanwhile, talks were still ongoing with insurance companies on their proposal to raise motor premiums due to rising motor claims and increasing costs of automotive repair, according to Razif.

“It is a sensitive issue and still pending as tariffs for motor insurance have not been amended since 1978,” he added.

Your personal details can be bought for just 10 sen

By JOSEPH LOH and RASHVINJEET S. BEDI

KUALA LUMPUR: For a mere 10 sen, your personal data are being sold to unauthorised bodies. A list of 1,000 entries containing names, handphone numbers, type of credit card owned and issuing banks, and place of work costs only RM100.

If you regularly receive unsolicited sales calls, messages or e-mails, then in all likelihood, your data have been collected and sold to third parties.

With such baseline information in the hands of the unscrupulous, more particulars could easily be gathered and your identity stolen – for transactions and the purchase of goods or services without your knowledge.

Invasion of privacy: Personal data can be bought from various sources - and there is always a demand for information on potential customers.

A list obtained by Sunday Star linked individuals to credit cards although banks regard the leaking of information as a very serious offence.

Those caught for this offence could be subjected to punishment under Section 97 of the Banking and Financial Institutions Act.

Association of Banks in Malaysia executive director Chuah Mei Lin said that member banks treated customer information with the greatest of confidentiality and would not sell or use information indiscriminately outside the confines of the banker-customer relationship.

“Banks will also not hesitate to take disciplinary action and to report employees who breach laws, regulations and policies,” said Chuah.

The fact is any database is vulnerable – from loyalty cards and telecommunications companies to housing developers to members-only clubs – and there will be a demand for it as it represents a list of potential customers.

An entry from a database of an exclusive club comprising Datuks and Tan Sris, for example, could fetch RM3 each and resold for RM4.

National Consumer Complaints Centre chief executive Muhammad Shaani Abdullah said this was a dangerous development.

“What are the authorities doing about this? If someone makes a higher offer, what is there to prevent other vital information such as credit card numbers from being obtained?” he said.

Currently, telecommunications companies are not allowed to give out personal data of their clients to any third party under the General Code of Practice for the Commission and Multimedia Industry Malaysia and provisions of Communications and Multimedia Act.

Celcom said it adhered to its Protection of Consumer Information Policy to safeguard its customers’ personal data.

“In the event of any leakage of customers’ information and upon receiving an official complaint, a thorough investigation will be conducted.

“We will not hesitate to initiate legal action if we uncover evidence of such wrongdoing,” said its CEO Datuk Seri Shazalli Ramly.

What is clear is that piecemeal law must be replaced by comprehensive data protection legislation in Malaysia.

A Data Protection Act and a Privacy Act have to be enacted as well as an amendment to the Constitution enshrining the right to privacy.

Swine Flu FAQ

Published: Tuesday April 28, 2009 MYT 1:26:00 PM
Updated: Tuesday April 28, 2009 MYT 1:51:33 PM

Foreign tourists wearing protective masks stand in the main Zocalo plaza in downtown Mexico City, Monday. (AP Photo/Enric Marti)

What is swine influenza?

It is a respiratory disease of pigs caused by type A strains of the influenza virus. It regularly causes high flu outbreaks in pigs but with low death rates. There are four main sub-types of the virus, but the most recent isolated influenza viruses from pigs have been H1N1 viruses.

How does it spread?

Swine flu viruses do not typically infect humans though they do occur through close proximity or contact with infected pigs or contaminated areas. Cases of human-to-human spread have been documented.

What are the symptoms?

The symptoms are similar to those of regular flu:
- Fever
- Lethargy
- Runny nose
- Cough
- Sore throat
- Lack of appetite
- Vomiting and diarrhoea in some cases.

How common is swine flu infection in humans?

In the past reports of about one human swine flu virus infection had been received every one to two years in the United States. From December 2005 till February 2009, 12 cases have been reported.

Has this strain of flu been seen before?

No. Flu mutates constantly, so it is common for new strains to emerge. Pigs can also be infected with both human and avian influenza, and the current circulating swine flu strain appears to contain genetic elements from all three.

Can swine flu be treated with antiviral drugs and flu vaccine?

The swine flu is resistant to two common drugs – Amantadine and Rimantadine. The H1N1 swine flu viruses are very different from human H1N1 viruses. Therefore, vaccines for human seasonal flu would not provide protection. However, a “seed vaccine” has been specifically tailored to this swine flu and will be manufactured if officials deem it necessary.

Can people catch swine flu by eating pork?

No. Swine influenza viruses are not transmitted by food. Eating properly handled and cooked pork and pork products is safe. Cooking pork to an internal temperature of 70ºC and above kills the swine flu virus.

How long is someone with swine flu considered contagious?

People with swine influenza virus infection should be considered potentially contagious as long as they are symptomatic; possibly for up to seven days following the onset of the illness. Children, especially younger children, might potentially be contagious for longer periods.

What can I do to protect myself from the swine flu?

There is no vaccine available right now to protect against the swine flu.

However, you can help prevent the spread of germs that cause respiratory illnesses like influenza by:

- Covering your nose and mouth with a disposable tissue or handkerchief when you cough or sneeze. Throw the tissue in the waste basket after you use it.

- Wash your hands often with soap and water, especially after you cough or sneeze. Alcohol-based hand cleaners are also helpful

- Try to avoid close contact with sick people. - If you get sick with influenza, stay at home and limit contact with others to keep from infecting them.

- Avoid touching your eyes, nose or mouth.

- Consult your nearest healthcare facility if you think you have any of the symptoms.

Which countries have had cases of the swine flu?

The World Health Organisation (WHO) has confirmed human cases of swine flu in Mexico, the United States, Canada and Spain. Only Mexico has reported deaths from the new strain.

Are there any travel restrictions or advisories for Malaysians?

The Health Ministry on April 27 advised Malaysians against travelling to certain places in the United States, Mexico and Canada which have been affected by the swine flu.

What precautions are in place in Malaysia?

- The Health Ministry’s operations room in Putrajaya has started a 24-hour monitoring of the situation. The public can call 03-8881 0200/300 for enquiries.

- Those returning from Latin American countries and found to have flu-like symptoms will be quarantined.

- Health Ministry officials are conducting health screenings on passengers arriving from the United States.

- Thermal scanners will be placed at international airports to speed up the screening process for swine flu.

- Public and private medical practitioners have been instructed to report to the district health office any patient with influenza-like illnesses or severe pneumonia symptoms and who had travelled to the affected countries after April 17.

- Owners of the 797 pig farms nationwide have been ordered to immediately contact the nearest Veterinary Services Department office or the Animal Disease Control Centre if their workers or animals show symptoms linked to the swine flu.

Where can I get more information?

For more information, go to the Health Ministry (www.moh.gov.my) or call the Ministry's hotline at (03) 8881-0200/300.

Useful Links:
World Health Organization: www.who.int
Centers for Disease Control and Prevention: www.cdc.gov
Homeland Security Department: www.dhs.gov
WHO swine flu page: http://www.who.int/csr/disease/swineflu/en/index.html

CPI at 3.5% in March

Thursday April 23, 2009

KUALA LUMPUR: The consumer price index (CPI) rose 3.5% year-on-year in March, slower than the 3.7% increase in the previous month.

From January to March, the CPI was up by 3.7% compared with the same period last year, the Statistics Department said in a statement.

This was due to increases observed in the indices of all main groups except transport, clothing and footwear and communications, which decreased by 2.1%, 0.8% and 0.5% respectively. — Bernama

For reports from the Statistics Department click here

Tune Hotels comes to Penang

By ANDREA FILMER

GEORGE TOWN: AirAsia affiliate Tune Hotels.com has launched its fifth and biggest Tune Hotel in Penang.

The new budget hotel consists of 258 rooms, bringing the total guest capacity of Tune Hotels in the country to 58,310 per month, according to Tune Hotels.com chairman Datuk Seri Kalimullah Hassan.

He said the company had spent RM30mil to refurbish the hotel, located at Jalan Burma, Penang and was looking to build at least two more hotels in the state.

“Two years ago, we bought about 30,000 sq ft in Batu Feringghi near Bayview Beach Resort and we are thinking about what to do there.

From left: Tune Hotels.com founder and director Datuk Seri Tony Fernandes, Penang Chief Minister Lim Guan Eng, Tune Hotels chairman Datuk Seri Kalimullah Hassan and state Tourism, Culture, Arts and Heritage Committee chairman Danny Law launching the new Tune Hotel in Jalan Burma, Penang.

“We are also looking around the George Town city area because we feel Penang can support at least three Tune Hotels,” Kalimullah said during the launching ceremony on Monday.

He added that work had started on hotels in Miri, Johor, Langkawi while two of its hotels in Bali were set to welcome their first guests by the year-end.

“We have received very good response for the hotels so far. The Kuala Lumpur and Sepang hotels are recording 100% and over 90% room occupancy while the Kuching and Kota Kinabalu sites are at about 70%.

“Penang has also recorded close to 100% occupancy since operations began on April 1,” Kalimullah said.

He added that work was in progress to add 65 rooms to the Kuala Lumpur Tune Hotel and the company hoped to have 13 hotels up and running by the first half of 2010.

“We are also looking into business with China and India and if that works out, it will be a quantum leap for us as it will involve 30 to 40 hotels.

“We are being very aggressive but the question is how to tie up with these countries and raise the capital in the current economic situation.

“So now, we are putting in our own money plus raising private equity and with that, we plan to acquire more property,” Kalimullah said.

EPF returns on the slide

By IZWAN IDRIS

Difficult to sustain payouts above 5% in coming years

PETALING JAYA: Employees Provident Fund (EPF) contributors may have to be contented with lower returns in the coming years as the country’s biggest pension fund struggles to boost income amid steep falls in interest rates and a weak equity market.

Analysts said given the pension fund’s size and strict mandate, it would be very difficult to sustain payouts of above 5% in the coming years.

The 4.5% dividend declared for 2008 on Monday was generally well received, despite coming in lower than the 5.8% in 2007.

There were calls for a review from various parties demanding a higher payout, but some quarters said the pension fund had done well in safeguarding the nation’s retirement savings amid the current economic crisis.

The question now is how will EPF fare in 2009 and beyond?

Already the fund has warned that this year’s payout would be less than that for 2008.

Weak equity markets will continue to hurt EPF in the near term, but in the longer term, the fund’s performance will also be determined by the returns it gets from investing in low-risk assets such as government bonds.

The EPF had allocated a quarter of its RM342bil investment funds for higher yielding government papers. But as these higher yielding notes expire, the fund must purchase new issues which will now come with lower returns.

Malaysian Government Securities (MGS) debt papers maturing in three and five years are currently yielding less than 4% at today’s prices.

In comparison, MGS five-year notes yielded more than 5% a decade ago and above 7% during the 1997/98 Asian financial crisis.

Another big chunk of EPF holdings is in highly rated corporate bonds and low-risk guaranteed loans.

However, the global economic turmoil has cut the supply of new bonds coming into the market.

Cheaper lending rates had also reduced interest income from loans given out.

Investment in bonds and loans made up 40% of EPF’s total investments as at the end of last year.

Dwindling yields from these asset classes have been a drag on EPF’s income for the past couple of years.

That the EPF was able to fork out steady dividends of above 5% between 2004 and 2007 was mainly due to gains from investments in equities.

The collapse in global equities last year, however, had eroded the value of EPF’s shareholdings, forcing it to make a provision of RM4.69bil to account for the lower value of its shares, both domestically and abroad.

The KL Composite Index fell 40% in 2008 and was down 3.3% so far this year at yesterday’s closing of 847.96 points.

Also, the economic slowdown has dragged down corporate profits. This, in turn, has impaired their ability to pay out dividends to shareholders, further reducing the return on investments for EPF.

The EPF has stakes in more than 100 companies listed on Bursa Malaysia, as well as smaller stakes in a number of big listed firms overseas.

Income from equities accounted for 35%, or RM6.67bil, of EPF’s total gross investment income last year.

Just how bad EPF’s dividend payouts will be affected by the current market situation remains to be seen.

It is worth noting that under the law, EPF has to maintain a dividend rate of at least 2.5% annually. The dividend must come from income generated from its investments.

High-end R&D work migrating to Penang

By DAVID TAN

Some MNCs are committed to develop next generation chips

GEORGE TOWN: High-end research and development (R&D) and designing work related to chip making and read and write heads for hard disks are migrating to Penang at a time when multinational corporations (MNCs) are slashing jobs worldwide amidst a global recession.

Altera Corp, Intel Corp and Seagate Technology are among the MNCs that have invested in fresh R&D activities in Penang to develop the next generation 28-nanometre (NM) field programmable gate array (FPGA) chips, 45 NM and 32 NM chips, and a new range of read and write heads for hard disk drives.

Altera recently unveiled its new RM100mil centre in Penang, the site of the group’s largest offshore R&D technical centre.

Altera Corp (M) Sdn Bhd vice-president of operations and managing director Chris Oh said the R&D centre would start in the second quarter designing work on the next generation of FPGA chips, which were 28 NM in size.

“The R&D team here handles very large-scale integration (VLSI) characterisation work on the 28 NM node structures, which includes measuring the electrical parameters and putting them into a model for use in circuit design,” he told StarBiz.

Altera Corp's new RM100mil design centre in Bayan Lepas Industrial Estate.

“Without this work, there is no ability to judge how well the product will perform at the design stage. Besides circuit design, the R&D team also handles test development and software development on our Quartus software which is used to programme the chip.”

Oh said it was very important to integrate all the various aspects of circuit design, software development and layout as all three needed to synchronise and work together.

“The final product will not work if any one of these pieces fail to integrate with the rest,” he said.

FPGA chips are designed to be reconfigurable to suit the needs of different customers in the military telecommunications, high-end test equipment and consumer electronic sectors.

Altera has just introduced the 40 NM FPGA chips, called the Strait IV GT and Arria II GX, to replace the 65 NM FPGA chips.

The Seagate operations in Penang will play a key role in the development of the group’s next generation of read and write heads for hard disk drives.

Penang Seagate Industries (M) Sdn Bhd vice-president Oh Kean Cheong said the facility was now involved in the production of read and write heads for the latest line of external storage, the Free Agent and Constellation series. “The facility designs the processes for the development of read and write heads, without which the actual production work for the read and writer heads cannot proceed.

“The Free Agent Go hard disk drives, equipped with sleek and ultra-thin design features, have the capacity of up to 500GB and support automatic backup and sync functions,” he said.

It also carried the encryption feature, which password-protect data, he said, adding that the Constellation portfolio, which serves the enterprise storage, included the world’s first 2.5-inch hard drive equipped with best-in-class power efficiency, and the 3.5-inch high-capacity hard drives with up to 2 Terabyte (TB) of storage for data-hungry applications.

Despite making the decision to close down two of its test facilities in Penang, Intel is still moving higher-end work to the state for the development of the 45 NM and 32 NM chips.

To train future skilled human resources, Intel Malaysia is working with more than 13 local universities to revamp their curriculum’s focus on topics such as VLSI, network processors, packaging technology, high volume manufacturing and multi-core programming.

“There are still a billion people who aren’t connected, and all around the world governments are looking to invest in technology as a way to be competitive,” managing director Atul Bhargava said.

“That is not going away and, in fact, it is more important than ever.”

Bhargava said if companies wanted to be competitive, they needed to invest to emerge as winners in a downturn.

“Companies that fall off the investment cycle in IT are taking a risk and next generation IT solutions will give them that winning edge.

“At Intel, we are investing for the future as can be seen through our collaboration with the country’s higher education institutions.”

Banks to cut key rates effective March 2

BOTH CIMB and RHB banking groups will revise their annual base lending rate (BLR) and base financing rate (BFR) from 5.95 per cent to 5.55 per cent effective March 2.

Asian Finance Bank will also reduce its BFR the same day, but to 5.50 per cent, the lowest rate so far in the country.

Public Bank Bhd and Public Islamic Bank Bhd are to follow suit with a rate cut to 5.55 per cent the next day.

This is in line with the recent downward revision of Bank Negara Malaysia's overnight policy rate to 2 per cent.

In a statement issued yesterday, CIMB Group also said its CIMB Bank and CIMB Islamic mortgage customers will have the opportunity to reduce their monthly instalments for their existing mortgages with the bank.

Monthly instalments for all mortgage borrowers of CIMB Islamic will be reduced automatically, while those with conventional mortgages can request for a reduced monthly instalment by calling CIMB Bank. This is due to the difference between Islamic and conventional loan documentation.

Banks to cut loan repayments

PETALING JAYA: Banks will reduce loan instalment payments, an exercise that will be completed by the first quarter of this year, the Association of Banks said.

Cus­tomers who prefer to retain their repayment amounts need to get in touch with their banks, it said in a statement.

The association said that the move by all commercial banks to cut instalment amounts follows the request by the Government to help borrowers facing difficult economic times.

“Lower monthly loan repayments will allow for more disposable income to be in the hands of the public and we reaffirm our member banks’ commitment to continue to be reasonable as well as responsive to the public’s needs,” it said in a statement yesterday.

The association said the move to reduce repayments was now possible following Bank Negara’s announcement of the reduction in the Overnight Policy Rate on Tuesday.

That move would bring about the reduction in the base lending rates of banks.

With the reduction, the association said all commercial banks had agreed to cut loan repayment amounts across the board and maintain the original repayment period.

However, it said borrowers also had the option of maintaining their monthly instalment amounts and have a shorter repayment period.

The association said borrowers could consult their banks’ hotlines if they have queries on the proposed revision and other facilities.

The hotlines are published at the association’s website www.abm.org.my.

Customers can also call the association’s toll-free service ABMConnect at 1-300-88-9980.

Bank Negara cuts OPR by half percentage point

By JAGDEV SINGH SIDHU

KUALA LUMPUR: Worried about a growing risk of an economic contraction this year, Bank Negara has cut the overnight policy rate (OPR) by 50 basis points, or half a percentage point, to 2% as the global economy continues to deteriorate.

In a statement yesterday, the central bank announced the statutory reserve requirement (SRR) would also be cut from 2% to 1% from March 1 to reduce the cost to banks.

The ceiling and floor rates of the corridor for the OPR were correspondingly reduced to 2.25% and 1.75% respectively.

“The major advanced economies are experiencing a deepening economic contraction, while the regional economies are experiencing a rapid slowdown,’’ said Bank Negara in its monetary policy statement.

“The impact of the rapid decline in global demand on trade, production and investment activities in the Asian region has intensified.”

It said domestic economic conditions were expected to continue to remain challenging in the coming quarters with the continued deterioration of the global economy.

“While this has raised the risk of an economic contraction in 2009, the prospects remain intact for an economic recovery once global conditions stabilise given that the economy is not over-leveraged, the financial system remains sound, and the external position is healthy,’’ Bank Negara said.

The central bank said the turmoil in the international financial markets had also been protracted and that while a number of economies had put in place stimulus measures to manage the downturn, their impact on the economy had yet to take effect.

“The downside risks to the global economic outlook have increased significantly,’’ it added.

On Jan 21, Bank Negara cut the OPR by 75 basis points to 2.5% and slashed the SRR from 3.5% to 2%.

“This is the first time since the crisis erupted that the central bank has acknowledged the possibility of the economy registering a contraction this year,’’ said Maybank Investment Bank chief economist Suhaimi Illias.

“They are also reacting to the fourth quarter GDP number that will be released this week.’’

Bank Negara said the international economic and financial environment had deteriorated sharply in the recent quarter and that the Malaysian economy had been adversely impacted by these global developments.

“Exports and industrial production have declined steeply, while private investment activities have slowed down in recent months as businesses scaled back their spending. Consumer sentiment has also been affected by the weakening conditions in the labour market,’’ it said.

With inflation on a moderating trend, Bank Negara said the task of macroeconomic policy was to support domestic demand until conditions in the global economy show signs of normalisation.

“Further measures will be introduced to ensure continuous access to credit as well as to minimise the impact of the economic downturn on specific affected groups,’’ it said.

Spending wisely is as important as spending big

SINGULAR VISION BY TEOH KOK LIN

WHILE we continue to applaud many governments today for their decisiveness in coming out with fast and aggressive stimulus programmes, we now ponder on how accurately and effectively the stimulus money can be spent and if the ends justify the means.

In terms of fast and aggressive stimulus, China led the way in November with a 4 trillion renmimbi (US$586bil) stimulus package or equivalent to 16% of its gross domestic product (GDP).

We are now witnessing many countries stepping up the size and speed of fiscal stimulus, such as Singapore (S$20bil or 8% of GDP) and the US (US$789bil or about 6% of GDP), even as many more economies begin to sputter from the devastating effects of the global economic crisis.

Some countries that had smaller stimulus packages last year are now coming up with second larger packages. For example, Australia’s second stimulus package of A$42bil is about 3.5% of its GDP compared with the A$10bil stimulus in October. Malaysia, China and several other countries are also likely to add to their existing stimulus packages.

The speed and size of a fiscal stimulus is perhaps being adequate addressed, at least for the moment.

Economists tell us that it is important the stimulus money be spent on timely and temporary ways for the stimulus to work. However, we strongly believe it is equally important that they are spent on ways that promote and enhance long-term competitiveness of a country and its citizens.

A smart fiscal stimulus should encompass long-term economic plans and forward thinking. Progressive governments should take this opportunity to identify their competitive strength for the next 20 years and then enhance or retool their economic “hardware” and “software,” to prepare for what is likely to emerge as a vastly different global economic landscape of the future.

In the retooling of the many economic “hardware,” examples are:

·A country may upgrade key economic gateways and infrastructure like public transportation in major cities, ports and railways. These are strategic assets that will create a meaningful productivity boost when economic activity recovers. However, different countries have different infrastructure needs; new roads may be good for linking a developing country but it may be “wasteful” to build a “road to nowhere” such as what Japan did with some of its stimulus spending in the 1990s.

·A nation can focus on cleaner and more efficient power plants in the same way that China is shutting down coal-fired plants, replacing them with more efficient, cleaner alternative power plants such as hydroelectric or gas plants.

Malaysia, for example, may strengthen the “hardware” of its important plantation sector with incentives for replanting higher yield seedlings, modernising to environmentally cleaner and efficient mills and branding various plantation products for positive global recognition

In the enhancement of economic “software,” governments may address a multitude of issues such as:

·Human resources training: Governments may provide incentives where employed and unemployed workers can upgrade skills and qualifications on very attractive terms. There is clearly a need for a skilled workforce in any economy for it to compete effectively in a globalise world.

Singapore’s fiscal stimulus, for example, contains a S$500mil “skills programme for upgrading and resilience” to help companies retrain workers, save jobs and cut companies’ retraining costs.

A country like Malaysia may improve language skills in English, Chinese or Tamil for the hospitality sector and colleges to attract foreign tourists and students.

·Promote environmentally-friendly activities: As environment degradation is becoming a real and increasing cost to many economies, governments should spend more to promote and improve environmental outcomes. As an example, Australia’s latest fiscal stimulus contains A$3.9bil to install free ceiling insulation in 2.7 million homes. The overall project is expected to reduce greenhouse gas emissions by 2020 by the equivalent of taking one million cars off the road.

·Revamp rules and regulations: For many trading nations, global trend in international trade and attracting foreign investments demand rules and regulations that are progressive. Demands may include regulations to ensure markets are open for fair competition, corporations are subject to equitable ownership, progressive policies that promote meritocracy and so on. Malaysia, for example, may enhance immigration regulations and governments’ transparency to attract foreign investors and talents,

In the present global economic crisis, there are pressing needs for governments to spend massively to counter a deepening recession. We believe policy makers should also take this opportunity to strategically reposition a country’s economy to be globally competitive in the new economic landscape to come.

Smart fiscal stimulus spending not only will translate to an improvement in a nation’s relative economic position but will also improve the well-being of its citizens, society and environment of the future, which in my opinion will then be money well spent.

Multiple challenges facing REITs

By RACHAEL KAM

Managers are looking at various options to raise capital

LIKE many other asset classes, Malaysia’s real estate investment trusts (REITs) have been sold down and are trading below their net asset values (NAV), made worse by the softening property market and weakening rent yields.

The challenges facing REITs is not only the negative market sentiment towards equity, but also the inability to raise capital due to tightening credit.

Stewart LaBrooy

Despite the challenging economic conditions this year, REIT managers in the country are confident they can mitigate the impact by looking at various options to raise capital, acquiring properties prudently and focusing on existing assets to ensure strong tenancy.

Axis REIT Managers Bhd chief executive officer and executive director Stewart LaBrooy said part of the growth process of a REIT was to continuously acquire properties to enlarge its portfolio.

He said Axis REIT would not discount the possibility of future acquisitions this year although it may not be as intensive as 2008.

“But any potential acquisitions will need to be yield-accretive,” he told StarBiz.

With the reclassification of Axis REIT as syariah-compliant last December, the REIT hoped to appeal to a broader investment base of both conventional and syariah funds locally and abroad to facilitate Axis REIT’s future capital raising exercises, he added.

Currently, Axis REIT’s focus is on local properties as LaBrooy believes there are still many “reitable” assets in Malaysia.

Datuk Jaafar Abdul Hamid

He said many companies were exploring strategies such as sale and leaseback, which would help release cash back into the business and operations.

“In addition, we are proactively engaging with property developers or contractors to produce more reitable assets,” he added.

Axis REIT, which owns 19 properties, has put on hold its acquisition plans until further capital can be raised. LaBrooy said the company had always tried to maintain a policy to cap its gearing level at 40%.

He said its gearing level was at about 34% now, which means it can still borrow RM260mil.

Axis REIT is also proceeding with refurbishment activities at three of its properties - Menara Axis, Nestle House and Crystal Plaza - which will cost about RM8mil.

The refurbishment is aimed at attracting tenants and potential clients, and sustain asset valuations.

Atrium REIT Managers Sdn Bhd chief executive officer Paul Lim said the earnings outlook for REITs for the first half year of 2009 was expected to be stable.

“But beyond that I am holding (off) optimism (until) 2010.

“The outlook is still unclear as the actual impact of the global financial meltdown is not yet felt, particularly on the rental squeeze (as) tenancies are still intact. Lower borrowing costs now may boost earnings a bit more. At the entry price today, our net earning per unit yield is in excess of 11%.

“I think it’s attractive compared with fixed deposit rates, which (are affected) by the reduction in the overnight policy rate by 75 basis points to 2.5%,” he said.

Currently, Atrium REIT is looking at logistics-based industrial assets.

Although it was in preliminary discussion with a few potential landlords, it had no plans yet for new acquisitions so far, said Lim.

For Hektar Asset Management Sdn Bhd, the manager of Hektar REIT, most of its income comes from leases to retailers.

Its retail mall properties have achieved relatively stable income, with only 26% of Hektar REIT’s monthly income tenancies expiring in 2009, while the rest of the rental income is already locked for longer term.

Hektar chairman and chief executive officer Datuk Jaafar Abdul Hamid said it would continue to focus on retail assets and grow its asset base via acquisitions.

He foresaw huge opportunities in shopping centres throughout Malaysia as Hektar REIT only owned 1.1 million sq ft of shopping centre space now, compared with a total of close to 90 million sq ft of shopping centre net lettable area (space for rent) in Malaysia.

Jaafar said Hektar REIT would develop new properties on a private basis through the group’s private company which is focused on developing retail assets as REITs are not allowed to develop new properties.

“We aim to develop and own world class retail shopping centres serving the needs of ordinary Malaysians,” he said.

Meanwhile, GLM REIT Management Sdn Bhd, the manager of Tower REIT, said it would continue to inject good quality and yield-accretive prime office assets in the Klang Valley into the REIT, but with greater caution and discernment.

“Our growth strategy emphasises on value and focuses on prime office buildings while maintaining uncompromising criteria for new acquisitions,” says GLM REIT chief executive officer Chan Wan Leong.

Tower REIT would continue to adopt optimal gearing levels and will actively manage the risks associated with changes in interest rates and capital markets, he said.

Chan believed that the REIT sector was still at a relatively early stage of development as there were not many players and the challenge was how to attract more REIT players and investors into the market.

“This in turn will improve liquidity and add vibrancy in the industry,” he said.

While there are challenges, Tower REIT is confident the market will improve eventually, especially with the Government’s support through its stimulus packages and fiscal policies.

Second co-op bank by July

KUALA LUMPUR: A second cooperative bank will be launched to spur growth by issuing more micro-credit loans.

Entrepreneur Development and Cooperative Minister Datuk Noh Omar said the bank, to be set up by July, would be similar to Bank Rakyat (Bank Kerjasama Rakyat Malaysia Bhd), the country’s largest cooperative bank.

He said two more similar banks were expected to be set up in the next five years.

Noh also called for the reduction of the maximum 28% tax currently imposed on cooperatives, which was higher than the 25% tax imposed on private corporations.

“Cooperatives also have to pay another 3% to the Cooperative Commission of Malaysia (CCM) for the building and education funds at 2% and 1% respectively,” he said yesterday after opening a cooperative tax seminar organised by the Inland Revenue Board Cooperative.

Noh said there was a total of 5,600 cooperatives in the country with over six million members, a total membership fee of RM7.8bil and assets worth about RM47.4bil.

“More than 80% of cooperatives are small in size, contributing less than RM200,000 in sales value.

“Currently, cooperatives are only contributing 1% to the Gross Domestic Product (GDP) compared to the 5% to 10% contributed in developed countries,” he added.

Noh added that their target was to get cooperatives to contribute at least 5% to the GDP by 2020 and to help them achieve sales of between RM800,000 and RM1.5mil by 2013.

He said as of 2007, only 63 cooperatives were qualified to pay tax totalling RM155.5mil given their small growth.

He said bigger cooperatives such as the National Cooperatives Organisation of Malaysia (Angkasa) should jointly set up banks.

CCM executive chairman Datuk Mangsor Saad said the bank would be an expansion of the current Bank Persatuan Cooperative, which was previously set up to help members obtain credit.

IRB chief executive officer Datuk Hasmah Abdullah acknowledged that the maximum 28% tax was higher than the corporate tax and that they would work with CCM on the matter.

She also said those who wanted to submit their tax via e-filing could do so from now.