Growth expected as ‘stars aligning’ for country

Why Malaysia is Becoming a Semiconductor Powerhouse

Malaysia has become a winner amidst the ongoing chip war between the U.S. and China, and here's why.

This video is based on publicly available data and analysis. It represents the author’s perspective and should not be taken as professional or financial advice.

Bursa Malaysia chairman Tan Sri Abdul Wahid Omar

 KUALA LUMPUR: Malaysia is in a “sweet spot” for economic growth and investment, with the “stars aligning” in its favour, according to industry leaders and market analysts.

This optimism stems from the country’s robust macroeconomic fundamentals, improving investment climate and strategic positioning in the global supply chain.

Maybank Investment Bank head of regional equity research Anand Pathmakanthan highlighted Malaysia’s acceleration in gross fixed capital formation, driven by a blend of domestic direct investment (DDI) and foreign direct investment (FDI).

“The good news is it’s not just FDI, it’s also DDI, which is far more important in terms of job creation and tax generation,” he said during his presentation at the Institute of Chartered Accountants in England and Wales Economy Insight Conference 2024 yesterday.

Anand said for the last 10 years, local companies have not been investing, which has a lot to do with political instability.

“They’ve been investing less and less in Malaysia, which is always a bad sign for any country,” he said.

But in the last two years, he said Malaysia is seeing a recovery in DDI.

“The recovery in DDI reflects the confidence that domestic businesses are feeling better about the environment. That (DDI) is going to be a key support when issues about trade crop up next year with Trump 2.0,” he said.

Meanwhile, Anand said Budget 2025 is “very well-balanced,” emphasising initiatives to crowd-in private sector investments.

He projected continued economic growth, supported by a civil service pay hike, minimum wage increases and enhanced cash handouts, which would sustain domestic consumption in 2025.

“Malaysia is in a very sweet spot, especially when it comes to attracting supply chain relocation and FDI,” he said.

Anand projected Malaysia’s gross domestic product (GDP) to conclude at 5.2% in 2024 and 4.9% in 2025, outpacing the Asean-6 regional average of 4.8% in 2024 and 4.7% in 2025.

Affin Bank Bhd president and chief executive officer Datuk Wan Razly Abdullah echoed the optimism, projecting GDP growth of 5.2% in 2025, up from the bank’s projection of 5% for this year.

He attributed this to stable oil prices, elevated crude palm oil (CPO) prices and active construction and technology sectors.

“The elevated price of oil and CPO will provide good income streams,” he said, adding that Johor and Klang Valley developments would boost the property sector.

“The stars are aligning for Malaysia thanks to our stable political environment and strong FDI flows.”

Wan Razly also expressed bullishness on the ringgit, predicting it to strengthen to RM4.10 against the US dollar by end-2025, supported by the US Federal Reserve interest rate cuts.

Adding to the optimism for Malaysia’s economic prospects, Bursa Malaysia chairman Tan Sri Abdul Wahid Omar highlighted the robust performance of the local bourse, driven by a favourable investment environment and strong macroeconomic fundamentals.

“Malaysia has been a vibrant market for initial public offerings (IPOs) this year. Up to the end of November, we had 47 listings that raised a total of US$1.5bil. By year-end, we expect to close with 54 or 55 listings,” he said.

He noted that the average daily trading value for 2024 has increased by over 50% year-to-date, reaching approximately RM3.1bil.

Abdul Wahid believes this momentum will be sustained into 2025, with 19 IPO approvals in hand for next year.

“Looking at the pipeline, I think 2025 should be another good year,” he said.

He said “the overall good macroeconomics are being translated into the real world and capital markets,” coupled with a shorter processing time for IPO listings of just three months.

Separately, Abdul Wahid said Malaysia should further tap into the Asean market and leverage its strategic advantages, as the regional bloc is well-positioned amidst global uncertainties, particularly ahead of the United States’ tariff threats on China.

Abdul Wahid urged Malaysia to continue to pursue its relationship with Asean in a pragmatic and constructive manner to further capitalise on the bloc’s 670 million consumers.

“The biggest potential that we have is in Asean. Our trade and investments (in the bloc) is relatively low compared to other trade partners and that can be enhanced further,” he said.

Abdul Wahid also emphasised that Malaysia should not be mutually exclusive to any specific trade groupings, trade talks or bilateral agreements and should focus on further strengthening trade relationships.

In the realm of inflation, both Anand and Wan Razly anticipate a rise to 3% in 2025, up from the current 1.9%, mainly due to the targeted petrol subsidy scheduled to take effect mid next year.

Despite the projected uptick, both of them said Malaysia’s inflation rate will stay within a healthy range, underpinned by strong macroeconomic fundamentals and effective policy measures.

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New Zealand may have a solution for world’s debt

Quick fix: Pedestrians walk past a Moore Wilson & Co supermarket in Wellington. The success of New Zealand’s reforms are reflected in its fiscal performance, says Ball. — Bloomberg

WELLINGTON: In the early 1980s, New Zealand was on the brink of economic collapse.

Two oil price shocks had saddled the country with high inflation, and the United Kingdom’s decision to join the European Economic Community a decade earlier had cut off access to a key export market.

Successive governments had compounded the pain with a series of policy errors – throwing around subsidies, awarding inflationary pay deals and trying to control prices, while keeping interest rates too low and taxes too high.

The result was soaring unemployment and mounting debts.

No wonder some dubbed New Zealand the Albania of the South Pacific.

Yet over the remainder of that decade, New Zealand was transformed into one of the most prosperous countries in the world.

A new Labour government took office in 1984 and embarked on a form of shock therapy that came to be known as “Rogernomics” after Finance Minister Roger Douglas.

The government removed exchange controls, slashed subsidies, privatised services and handed responsibility for setting interest rates to a newly independent central bank.

New Zealand also introduced a different accounting approach throughout the public administration.

It is impossible to separate out the precise impact of each of these policies.

But Ian Ball, a former senior Treasury official, professor of public finance management at Victoria University in Wellington, and one of the authors of Public Net Worth (Palgrave Macmillan, February 2024), says accounting reform was among the most consequential.

Accounting is notoriously dry stuff. But switching to an accruals-based approach used in the private sector, and away from the cash-based systems traditionally used by governments, forced departments to think long-term and maximise the efficient use of assets.

This is especially relevant in the United Kingdom at the moment with the government on the cusp of major budget reform.

To see what this means in practice, take the case of public sector pensions.

Under a cash-based system, the debt is accounted for when the pension is paid, which could be years in the future.

The government has little incentive to make any provision for it.

But with accrual-based accounting, the cost of the pension commitment must be recorded as a liability when the benefit is earned.

That led the New Zealand government in 2001 to establish a Superannuation Fund to pay for future pensions.

Today, this quasi-sovereign wealth fund is regarded with jealousy by countries that wish they had something similar.

Take another example: Under an accruals-based system, the budget includes a charge each year to reflect the fact assets such as buildings and infrastructure deteriorate and eventually become obsolete.

This is what accountants call depreciation.

Because the cost runs through annual budgets, there is a strong incentive for governments to enhance the value of their assets by managing them efficiently.

Under a cash-based system, there is no such incentive, meaning long-term investment is deferred, and future generations are left to pick up the bill when buildings fall into disrepair and the infrastructure crumbles.

The success of New Zealand’s reforms are reflected in its fiscal performance, says Ball.

“What you see is a very significant change.

“We had had two decades of deficits before these reforms, but once they were in effect, from around 1994, we had basically a trend of strengthening the balance sheet and increasing net worth.

“And as you strengthen the balance sheet, you have the effect of reducing debt too.”

With the exception of the four years after the global financial crisis and the devastating Christchurch earthquake in 2011, which caused damage equivalent to 11% of gross domestic product (GDP), net worth grew every year until the pandemic.

Ball is on a mission to export New Zealand’s experience.

In collaboration with colleagues from around the world, including a historian, a banker, a former UK Treasury official and the former global chief economist at Citigroup Inc, he has written Public Net Worth to explain how this approach could be the answer to the one of the biggest challenges facing almost every government today:

How to tackle excessive public debt, particularly at a time when ageing populations, geopolitical tensions, geoeconomic fragmentation and the costs of combating climate change add to fiscal pressures.

US public debt is close to 100% of GDP and is projected to rise to 122% by 2034.

Many eurozone countries are struggling to bring debts and deficits under control to comply with single currency rules. The situation in many developing countries is even more stark.

Indeed, economists from the International Monetary Fund (IMF) have warned that global public debt may be higher than previously known and getting worse, and that countries will have to make much more significant fiscal adjustments to deal with the problem.

According to the IMF’s latest estimates, global public debt will exceed US$100 trillion by the end of this year, equal to about 93% of global GDP.

Against such a backdrop, the authors argue that accrual-based accounting could improve public sector productivity, helping ease the pressure on cash-strapped governments.

For example, they reckon governments could make easy gains through better management of their public property.

Cash-based accounting values property based on what you paid for it, less depreciation, with no reference to the current market value.

But without up-to-date valuations of assets, government decision-making takes place in the dark.

Should a building be renovated or sold?

How much should the state charge for its services?

A road network, for example, is a valuable public asset.

But in a cash-based system, there is no incentive to generate money from it, whether via tolls or road-pricing or some other mechanism.

In New Zealand, says Ball, one of the early exercises was to work out an appropriate capital charge for public services.

Armed with that information, the government could then decide who was best placed to deliver them: the state or the private sector.

As the old saying goes, what you can’t measure you can’t manage. — Bloomberg

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Taking steps to boost birth rate, Cause for concern

 PETALING JAYA: Malaysia needs to prioritise a support system for raising children to avoid the double whammy of declining birth rates and reaching aged nation status in less than a decade, say experts.

Many such policies have already been drawn up, such as setting up more childcare centres in the private sector, but the implementation of these programmes is slow and needs to be accelerated, they said.

Otherwise, Malaysia will not be able to produce enough working-age adults to support a society in which seniors make up the majority, they added.

Former Malaysian Research Institute of Ageing director and current Fellow at Academy Science Malaysia Datuk Prof Dr Tengku Aizan Tengku Abdul Hamid said there is a greater need for a system that supports childbearing, such as childcare facilities.

“Please do not do only the things the government promotes. This will not help, as shown in more developed countries. Even encouraging paternal care leave is tough. In Sweden, they increased the number of days for fathers.

“Ideally, there should be more flexibility in entry and re-entry into the labour force.

“This all ties into policy, which is why it is good to have a work-from-home policy with stricter guidelines, like during the Covid-19 lockdowns.”

Prof Tengku Aizan said employers need to rethink the face-to-face policy by implementing proper productivity measurements, while engendering greater trust between bosses and workers.

When asked if the government should provide some form of incentive through monetary or other means to promote marriage and children, Prof Tengku Aizan said such methods don’t work.

“Many countries have done this and given up. It is more important to have services and facilities to support care, especially for children of all income groups.

“Currently, such facilities are affordable for high-income families as businesses develop them.

“So, the government must take this up as children will be the future labour force,” said Prof Tengku Aizan, who is also chairman of the board at the Private Pension Administration.

She said this in response to the Statistics Department data which showed that Terengganu, Kelantan and Pahang are the only states still producing enough babies to replenish their populations amid a rapid decline in Malaysia’s fertility rates.

On marriage and childbirth incentives, Socio-Economic Research Centre executive director Lee Heng Guie said the country must have an integrated and well-planned population growth.

“It has to take into account socio-economic development, education, employment and communities. Demographic shifts also influence population growth,” he said.

Lee said declining fertility rates and shrinking working populations could lead to an ageing society, placing social and economic pressures on the government’s budget, particularly on revenue, pension and healthcare spending.

“Declining populations will slow economic growth and dampen demand due to a lower working-age population.

“The government has to adjust taxation and spending to meet the demands of changing demographics. Policies on pensions, employment law, childcare and benefits must change in the future to accommodate different needs.

“Measures for consideration are to raise the retirement age, training in middle life, and encouraging companies to re-employ retirees after the retirement age of 60,” he added.

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Cause for concern as nation's fertility rate sees rapid decline

PETALING JAYA: Malaysians are not giving birth to enough babies to replenish the population amid a rapid decline in the country’s fertility rate.

According to the Statistics Department, 13 states and federal territories have total fertility rates (TFRS) that have dropped below the replacement level of 2.1 babies for every female aged 15 to 49.

The TFR is the average number of children a woman has in her lifetime. The replacement level is the fertility rate at which a population exactly replaces itself from one generation to the next.

Kuala Lumpur and Penang are the worst hit, with fertility rates of 1.2 children each, followed by Sabah (1.4).

“Sabah recorded the fastest declining TFR, with 5.5 children in 1980 and 1.4 children in 2022,” chief statistician Datuk Seri Dr Mohd Uzir Mahidin said in a video announcing Malaysia’s population trends.

Terengganu, Kelantan and Pahang are the only states still producing enough babies to replenish their populations.

“Only Terengganu, Kelantan and Pahang are recording a TFR above the replacement level,” Mohd Uzir said.

Terengganu has the country’s highest fertility rate at 2.9, followed by Kelantan (2.7) and Pahang (2.1).

Mohd Uzir said Malaysia’s overall TFR began to drop below 2.1 in 2013, adding that the decline could be seen across ethnic groups.

“Between 1980 and 2022, the TFR for all main ethnic groups declined. The trend of TFR for all ethnic groups except for Malays is below the replacement level.

“The Malay ethnic group recorded the highest TFR of 2.1 in 2022, while the Chinese ethnic group recorded the lowest TFR at 0.8 children for every woman aged 15 to 49,” he said.

The declining fertility rates mean that the average size of a Malaysian family has also got smaller.

A household in the country in 1970 would typically have more than five members (5.5).

Now, the average household size is 3.7 persons.

Perlis has the smallest household size at 3.1 persons, while Kelantan has the biggest at 4.8.

Universiti Putra Malaysia’s Malaysian Research Institute on Ageing (Myageing) senior research officer Chai Sen Tyng said factors contributing to higher reproductive rates in certain states may be linked to socio-economic influences such as women’s level of education and a change in values.

“I tend to believe it is because the population holds on to traditional religious views, where they believe children is a gift from God,” he said.

He added that the reason people have children changes over time.

“The reason why the poor have more children might be due to a lack of family planning, but the reality is that in agricultural societies, having more children means more hands to help and as insurance for old age,” he said.

Chai added that women’s education levels influence fertility rates as educated women have options and may not want to be tied down to childbearing or child rearing.

“Women don’t want to get married and get trapped if they get the short end of the stick.

“Educated women have options and I think this is key. Men have to realise this,” he said.

However, Chai said that the main reason for declining fertility rates is the decline or delay in marriages.

“It is not all on married couples,” he said.

According to the Statistics Department, the current average age of marriage for men is 31, while women typically get married at age 29 – compared with 1970, when women got married at age 22 and men at age 26.

Chai also said the main reason couples decide to have fewer children is changing values and beliefs, not the high cost of living and raising children.

“To say people have fewer kids because of the high cost of child-rearing sends the wrong message.

“Many modern parents keep trying to buy the most expensive items for their children when it is primarily a consumer trap.

“It is natural to want only the best for our children, but what kids want most is our attention and time,” he said.

He added that higher-educated households tend to have fewer children, which may be influenced by competing career demands or concerns over future higher education costs.

He said the government could offer cash incentives, provide better family or parental leave, and make more childcare services available or accessible to stabilise the fertility rate.

Instilling positive family values, such as encouraging kinship, could also encourage couples to have more children for the right reasons, he added.

Malaysia’s TFR is the third lowest in Asean after Singapore and Thailand, at 1.6

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US tech export controls backfire, drive companies into ‘death spiral’

 

The restrictions on US technology exports to China are encountering mounting opposition due to the growing financial losses of American companies and the burgeoning independent innovation capabilities of Chinese companies, ultimately ruling out the possibility of the US being able to force allies into alignment on further export controls over China.

California Democrats are calling on the Biden administration to freeze reported plans to impose fresh restrictions on US technology exports to China, arguing that a further round of controls "could send longstanding US companies into a death spiral," Reuters reported on Wednesday.

To be clear, the US politicians' use of the term "death spiral" does not necessarily mean that they are opposed to the tech suppression of China, but rather highlights their deep concern about the potential harm that measures targeting China could inflict on US companies. 

Such concerns are not groundless. For example, a recent report by the Federal Reserve Bank of New York pointed out that US export control measures targeting China have had a negative impact on American companies, as they have caused supply chain disruptions, raised operating costs and reduced US companies' competitiveness. 

The total market value of all US companies affected by export controls on China has been reduced by an estimated $130 billion, the report noted.

There is a growing awareness within US political and business circles that Washington's technology export controls on China are encountering resistance and becoming increasingly ineffective. 

In a recent article published by The National Interest magazine, Brian J. Cavanaugh, who once served on the White House National Security Council, wrote that addressing China's rise as a global leader in electronics manufacturing requires a comprehensive strategy that encompasses economic policy, technological innovation and national security measures. He acknowledged that the US will not defeat China on its own, pointing out that "Washington must reconsider its approach to trade with Beijing, particularly in the electronics sector. Working with allies and partners to develop a coordinated response to China's market practices can help mitigate the risks."

However, regardless of the methods the US may choose to employ in order to enforce its unilateral strategy of stifling China's technology industry, it will be difficult to achieve its goals. This can be attributed to two primary factors. 

First, if US companies are unable to capitalize on the vast Chinese market, businesses in allied nations of the US will become less willing to cooperate with US companies. This is largely due to the fact that China boasts a massive market with a high demand for intermediate products and chips, making it a market that profit-driven companies simply cannot afford to overlook.

Second, the independent innovation of Chinese companies has posed a challenge to the unilateral technological blockade of the US. Washington's technology "iron curtain" has not stopped Chinese companies from developing. On the contrary, US export controls actually have promoted independent innovation in China, helping Chinese companies reduce their dependence on US technology products and enhancing their competitiveness in the global market. For instance, The Wall Street Journal recently reported that Huawei Technologies is close to introducing a new chip for artificial intelligence use. Continuous technological breakthroughs are the best response to US technology restrictions.

This is one of the consequences that US politicians should have anticipated. The reason they turn a blind eye to such possibilities and continue to push for technological "decoupling" from China is because they are reluctant to admit that their technological hegemony will eventually fail. Countries that get used to abusing their power often overestimate their own strength.

Washington also overestimates its influence on allies, as it seems to aim to defeat China through alliances. California Democrats wrote a letter urging the use of "all forms of leverage available to the US government to bring our allies along in aligning their export controls with ours." But this approach is unlikely to succeed. 

Washington's attempt to maintain technological hegemony at the expense of global efficiency and the profits of high-tech multinationals has already caused widespread dissatisfaction, because it not only affects China but also the interests of the global economy and world trade. More importantly, today's China has strong technological capabilities and can make independent breakthroughs. Therefore, the containment strategy of the US, left over from the Cold War era, is bound to fail.

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