The Star Online: Business
The Star Online: Business |
| Posted: Recovery of advanced nations may spell good news to exports, but it has led to massive capital outflow from emerging economies ONE might think that the weak ringgit now can help boost Malaysian exports, as it makes the country's produce relatively cheaper in the international market. What's more in the present environment whereby developed nations seem to be heading towards a more convincing economic recovery, which suggests that global trade will likely improve further in the months ahead. But depending on the weak ringgit to grow the country's exports is not something that the authorities have in mind for the long-term benefit of the country's economy. "We've told exporters never to rely on the exchange rates to gain competitiveness," Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz told reporters over the week. "Export competitiveness must be gained through other measures such as enhancing productivity, being innovative, and enhancing the management of their (exporters') businesses," she emphasised. Malaysia's exports have been contracting since February through June this year due to weak demand for the country's electronics and electrical products as well as weak commodity prices amid a sluggish global economy. The Government is expected to announce the country's external trade numbers for July 2013 in the week ahead. The prediction so far remains lacklustre, with most economists forecasting another round of contraction, albeit at a slower pace compared with the contraction of 6.9% year-on-year in June. But with global manufacturing purchasing managers index trending upwards and semiconductor sales showing signs of improvement in tandem with the economic recovery of developed nations such as the United States and those in the European Union, economists seem optimistic that Malaysia's exports could gradually improve in the subsequent months, as global demand for goods and services is expected to grow. G3 recovering If the latest data is anything to go by, the Group of Three (G3) economies, comprising Europe, Japan and the United States, are certainly on the mode of recovery after a prolonged period of sluggishness. The United States, for instance, reported a stronger-than-expected growth during the second quarter of the year. Its gross domestic product (GDP) expanded at an annualised 2.5%, compared with an initial estimate of 1.7%, and a growth of 1.1% in the first quarter of the year, in a sign that growth was accelerating as the world's largest economy overcame the effects of federal tax increases and budget cuts. There were also signs that the US labour market was improving, as jobless claims in the week ended Aug 24 fell by 6,000 to more than a five-year low at 331,000. Across the Atlantic Ocean, the debt-mired eurozone seemed to have emerged from its longest-ever recession, as the GDP of the 17-nation region grew 0.3% in the second quarter, after contracting 0.3% in the preceding quarter. The rebound of the eurozone's economy was driven by growth in the region's two largest economies – Germany and France – and an easing of recession in the region's third and fourth biggest economies – Italy and Spain. Japan's economy also seemed to be blossoming under "Abenomics", referring to the economic policies established by the country's Prime Minister Shinzo Abe. Japan's GDP expanded at an annualised pace of 2.6% in the three months to June 2013 on growing domestic demand and rising exports. It was the third consecutive quarter of growth for the world's third-largest economy, albeit at a slower pace when compared with its annualised growth of 3.8% in the preceding quarter. Most emerging-market economies have been looking to the recovery of G3 economies, which have traditionally been their major export destinations, for recovery in global trade. But while improving G3 economies could spell good news to external trade, there are side effects with which emerging-market economies, including Malaysia, have to contend – reversal of capital that has led to the plunge of their equity and bond markets, and the weakening of their currencies. As Zeti puts it, we are living in an environment that is so dynamic and increasingly challenging. She explains: "As the recovery happens in the United States, and possibly Europe and Japan, these advanced economies will commence withdrawing some of their liquidity injections and eventually normalise their interest rates. And this will have consequences on us (as an emerging economy)." Capital reversal As in the case of many emerging-market economies, Malaysia has been a major recipient of foreign capital inflow since developed nations embarked on their quantitative easing (QE) programmes in 2009. The QE programmes saw developed nations, in particular the United States, injecting massive amounts of liquidity into their economies in a move to prevent them from plunging into deep recession following the onslaught of the 2008/09 global financial crisis. The provision of such massive liquidity has continued to this day. During the process over the years, a massive amount of that liquidity has flowed into emerging-market economies, including Malaysia, to seek higher rates of return. But with the US Federal Reserve recently indicating that it has plans to soon taper some of its easy-money policies on the back of an improving economy, a reversal of foreign capital from emerging markets back to developed nations, notably the United States, has begun to take place. This is evident in the declines of the equity and bond markets of emerging economies, as well as the significant depreciation of their currencies. Malaysia has not been immune to such trend. Bank Negara's stand is not to intervene in the foreign exchange market, but to allow market forces take their course. "What is important for us is to ensure orderly market conditions. We do not focus on any specific level of exchange rate," Zeti has said, adding that the central bank would only step in and intervene if there were disorderly movements in country's financial markets. Growth potential intact Foreign capital outflow from Malaysia may have resulted in the country's bourse and currency coming under significant pressure, but such disruptive flow is unlikely going to derail the country's economic growth potential. "The impact of hot money outflow on the country's real sector will not be that severe because we have the capability to absorb the shock," RAM Holdings Bhd chief economist Dr Yeah Kim Leng argues. "Malaysia has a very sound banking system and a deep financial market. Also, we are not overly leveraged, and our foreign-currency debt is low. So, we can deal with the sharp outflows of these 'excess' liquidity as we have well-demonstrated previously when the same thing happened during the height of the 2008/09 global financial crisis and 2010 flare-up of the eurozone debt crisis," he explains. Yeah points to the recent uptick in the country's bond yields and retracement of stock market losses as signs that Malaysia is weathering the massive foreign capital withdrawal relatively well. On another note, he thinks that the short-term weakening of the ringgit would translate into gains for the country's net exports in the coming months. Affin Investment Bank Bhd chief economist Alan Tan believes recent developments are a wake-up call for the Malaysian Government to take immediate steps to further improve the country's economic fundamentals. Among other things, he notes, it is important for the Government to accelerate fiscal consolidation and budgetary reforms, and take steps to safeguard the country's current account surplus. "The plan to sequence big mega projects with high import content and low-multiplier effect will have a positive impact on the country's current account surplus," Tan says. "Our expectation is that the Government is resolved to improve the country's economic fundamentals. With that, and coupled with our expectation that the tapering of QE will not come so soon, we believe capital outflow from the country will not be disorderly," he argues, adding that Malaysia's growth potential should remain intact. |
| Sime Darby Q4 profit rises 19% Posted: KUALA LUMPUR: Despite being hurt by lower crude palm oil (CPO) prices, Sime Darby Bhd's net profit for the fourth quarter ended June 30 rose 19% due to the disposal of its 50% stake in its healthcare assets. The conglomerate posted RM1.31bil in earnings, which included a RM340mil one-off gain from the divestment of its healthcare business to Australia-based Ramsay Health Care Ltd and higher property sales. Going forward, its chief group financial officer Tong Poh Keow expected the plantation division's weaker showing to be offset by the stronger performance at other divisions like property, industrial and motor. In the fourth quarter, the plantation division's profit before interest and tax declined 51% year-on-year to RM399.4mil compared with RM807.2mil due to the lower CPO price realised of RM2,250 per tonne against RM3,010 in the previous corresponding period She expects slightly better CPO prices towards the end of 2013 on improved demand. Although full-year earnings were 11% lower, the company declared a final dividend of 27 sen per share, bringing full-year dividend to 34 sen, which translates to 55% payout of its net profit. Tong said the board had approved a dividend reinvestment plan (DRP) that allowed shareholders to subscribe to DRP shares at a 5% discount to the five-day volume weighted average price before price fixing date, after adjusting for the final dividend. She also said that rubber would be coming to a "bigger play" in the group, adding that the conglomerate was also studying the possibility of venturing into other crops such as sugar. Tong told reporters at the financial results briefing yesterday that Sime Darby was looking into planting rubber in its Liberia concession on top of the existing 8,000ha of rubber plantation and the acquisition of 10,000ha in Indonesia. On land-banking, she said: "We have been studying the feasibility of quite a number of land-banks in Africa and even in South-East Asia and due diligence had been performed on these properties." Asked about the flotation of its property arm, Tong said that listing was one of the options to maximise its value and that the conglomerate was looking at all the divisions and it was studying various proposals. Group strategy and business development executive vice-president Alan Hamzah said there could be "more news at the annual general meeting". |
| Posted: Additional 1% levy may come into effect as early as next year ELECTRICITY consumers using more than 300kWh per month will have to pay 1% extra on their electricity bill for the renewable energy (RE) fund as early as next year. Currently, this group of consumers are already contributing a 1% levy to the RE fund which was imposed on Dec 1, 2011. Sustainable Energy Development Authority (Seda) chief executive officer Datin Badriyah Abdul Malek says the cabinet had in 2010 approved in principle the 2% surcharge required under target set in the RE policy plan and action plan. "As of now, only 1% has been implemented and the second 1% surcharge should have been implemented in 2013 but has not been approved by the Government. The additional surcharge is necessary to expedite the growth of RE and hasten to close the gap on national RE targets. "Although the second 1% has been proposed, the final quantum is still being considered by the Energy, Green Technology and Water Ministry (KeTTHA)," she tells StarBizWeek. Badriyah discloses that Seda hopes the additional surcharge will be implemented by early 2014. However, the date of implementation is still being discussed with KeTTHA. Seda is a statutory body established under the Seda Act 2011 and its primary function is to manage and administer the Feed-in-Tariff (FiT). Under the Renewable Energy Act 2011, individuals or non-individuals can sell electricity generated from RE resources to power utility firms like Tenaga Nasional Bhd (TNB) at a fixed premium price for a specified time. The four RE resources that are eligible for FiT are biogas, biomass, small hydropower and solar photovoltaic (PV). Nevertheless, the statutory body maintains that the levy is imposed on all users, except for domestic customers who consume less than 300 kilowatt-hours (kwh) or equivalent to RM77 a month. And this only affects about 25% of TNB domestic customers. Financing the RE fund Presently, the only source for RE fund is from the 1% levy from consumers' electricity bill. The current 1% levy covers costs associated with the FiT scheme translates to about RM300mil a year. The amount has also been committed to feed-in approval holders (FiAHs) for the next 21 years. Badriyah says the 1% surcharge is important because it supports payment for the FiT programme. Without a sustainable RE fund, the FiT programme cannot be implemented successfully because of the long period of Renewable Power Purchase Agreement (REPPA). "At the start of the FiT programme, the Treasury has granted Seda an initial grant of RM300mil for the RE fund," Badriyah says, adding that Seda has been receiving the contribution to the RE fund regularly from TNB. "We have about RM665mil in the account. However, all the amount is already committed based on all the approved RE quota," she says. Badriyah explains that the monies have been locked in to ensure there is money to pay the FiAHs. Seda is currently looking at various ways of sourcing money for the RE Fund. While the agency mulls with ideas of raising funds, one important factor to be considered is the source of fund must be sustainable as the commitment of RE Fund for the approved RE capacity is for 16 and 21 years, depending on the type of resources. Asked if independent power producers (IPP) and utility companies will contribute a small portion of their profits to the RE fund, Badriyah says the idea had been considered at great length during the conceptual days of the FiT policy decision but KeTTHA had decided that the best funding mechanism for the RE fund is to impose a surcharge on electricity consumers' bills. "This model is widely adopted in many countries with FiT programme such as Germany and Italy; this approach of funding is based on "polluters pay" concept and it, in turn, encourages the electricity consumers to be more energy efficient because the less electricity they consume, the less they have to contribute to the RE fund. "In fact, domestic electricity consumers who consume 300 units of electricity and less are currently exempted from contributing to the RE fund; this represents 74% of the total domestic electricity consumers," Badriyah says. Although IPPs have not contributed directly to the RE fund, KeTTHA has approved a RM20mil seed fund from the Malaysia Electricity Supply Industry Trust Account (MESITA) for the establishment of the authority. The fund for the MESITA is contributed by IPPs from 1% of their total annual audited turnover to the Peninsular Grid and is being administered by the ministry. This seed grant is an important contribution by IPP to enable feed-in tariff to be implemented in Malaysia. In addition, Seda is also required to disclose the management and utilisation of the RE fund to be reported and tabled in Parliament annually for the public to scrutinise the information. As at July 31, Seda has collected about RM398mil, of which about RM44m has been used to pay for FiT payments and administrative fees for the distribution licensees and Seda. Will Seda ask for higher levy if it exhausts the 2% levy? Badriyah says the 2% surcharge is required based on the projected RE capacity growth as set out in the RE Policy and Action Plan approved by the Government in 2010. "Based on this quantum of surcharge on electricity tariff, Malaysia should achieve about 11% of RE in the power capacity mix. The RE fund is influenced by a number of factors such as the rate and quantum of electricity tariff subsidy rationalising, sales revenue of electricity by TNB, the prevailing displaced cost and the degression rate of each RE. "An increase in one or more of these factors will result in an increase of RE fund, which translates to more available quota. Additional surcharge will only be required if there is an increase in national renewable energy targets set by the Government," she explains. However, not everyone is happy with an increase of levy especially when the Government has been hinting at a potential tariff hike in the near future. The last electricity tariff hike took effect in June 2011 when the subsidised gas price was raised to RM13.70 per million metric British thermal unit (mmbtu) from RM10.70 per mmbtu previously. Explain to the public Business Ethics Institute of Malaysia chairman S. Supramaniam opined that Seda should explain to the public what it had done with the 1% levy before seeking an extra 1%. "We don't even know what they (Seda) have done with the 1%. Show us how well you have done with the 1%," he says. Furthermore, he feels there has been limited consultation with the public on the levy. He also said information on the initial 1% levy was not properly disseminated to the public. Supramaniam noted that the clean energy domain should rest with the Government and that it should pay for it. Malaysia has a modest target of 985 MW of RE, or a 5.5% share of the energy mix, by 2015. Currently, RE contributes about 1%. The target by 2020 is for RE to make up 11% of the country's electricity generation. The target may seem modest in comparison with the targets and achievements of other countries but it is marching towards that aspiration. According to Badriyah, Seda has approved RE capacity of 509.75 MW, of which 112.44 MW are connected to the grid as at July 31. The remaining is expected to achieve commercial operation between now and 2015. From a report by the Energy Commission (Electricity Supply Industry in Malaysia, 2010), the total installed generation capacity was about 27,000 MW in 2010. Based on installed RE capacity from FiT programme, the RE from FiT will constitute 0.4% of the total installed generation capacity (2010) whereas based on approved RE capacity from the FiT programme, the ratio increases to 1.9%. |
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