WORLD HERITAGE DESTINATION

WORLD HERITAGE DESTINATION

Friday, June 30, 2017

A personal opinion on Malaysian Productivity relating to Low Ringgit valuation.

Time for another Gunabalan's Musings and Travails update-


This posting is specific to the large corporations and their ilk whose inventory purchases can run into millions. Consulting the HR's in MNC's locally, certain point of views are deemed negatively if we are not able to back up our positions with raw data that correlates what we say. 

So, to that effect, it sometimes demands more research and P.O.V discussions to be made before a certain position can be cast in cement.


Right now, many company owners and boards seem to be under the impression that labor and automation is the crucial broken link that is mitigating Malaysia's rise up the productivity and profit ladder. It is of course imperative that as a nation we move forward in productivity increase needs but just importing current software and machinery is not going to do it, i'm afraid.( its just doing the opposite effect monetary wise to the Ringgit value as it invites imported inflation to effect our core inflation-and the current account balance sheets).


We need to up our scope of high level thinkers in our management teams too. 

Right now, my humble perspective is that application of the PETER PRINCIPLE is in play in many companies mainly because its a been a way of previous cost cutting and/or budget constraint results. 

I personally belief this is the case as i show below:
FACT 1: Labor Productivity in Malaysia is High.
At the mid-point of the 11th Malaysia Plan (11MP), Malaysia Productivity Corporation (MPC) has launched its 24th Productivity Report 2016-2017, indicating that the nation’s labour productivity has grown by 3.5% in 2016 to RM78,218 from RM75,548 in 2015.
This rate was about 85% of the 11MP’s target of RM92,300 to be hit by 2020, despite the nation facing challenges such as a weaker ringgit, lower business confidence, financial market volatility resulting from the “likelihood of protectionist tendencies by certain developed countries,” said the report.
Growth in Malaysia’s GDP of 4.2% at RM1.1 trillion was driven by the growth of labour productivity rather than employment, indicating that growth is gradually moving away from labour intensity and shifting towards digital and technology-driven factors. 
This is the intended pattern for a productivity-driven economy, where productivity is the key factor to breach the frontiers towards Industry 4.0,” as cited in the report.
Two top sectors that contributed to the growth were manufacturing with a productivity level of RM106,647 (+1.4%) and services at RM68,166 (+2.8%).
“The agriculture sector registered an improved growth of 3.4% at RM55,486 compared with -2.3% in 2015,” Mustapa said when launching the Productivity Report 2016/2017 in Kuala Lumpur on Wednesday.
The report, themed Challenging the Frontier, Empowering People, was published by Malaysia Productivity Corp
You can access these data here:  http://www.humanresourcesonline.net/malaysia-achieves-85-of-the-labour-productivity-target-for-11mp/
FACT 2: In cases where labor Productivity is already High, any inefficiency detected must therefore fall on Management.  

Research study conducted by National Bereau of  Economic Research measured the behavior of 1,114 CEOs in Brazil, France, Germany, India, UK and US using a new methodology that combines:

 (i) data on every activity the CEOs undertake during one workweek and 
 (ii) a machine learning algorithm that projects these data onto scalar CEO behavior indices.


http://www.nber.org/papers/w23248

It is worth summarizing that the productivity loss generated by inefficient assignment (or time spent managing) is equal to 13% of the productivity gap between high- and low-income countries in these samples.

In short, this report proves that 13% of the productivity difference between rich and poor countries is due to having roughly 17% of CEOs in poorer countries not spending their time properly (relative to their industry). They obviously are either mismatched in their positions or are political appointees.

And people think (productivity) is only about automation and AI.

Linking this correlatedly to the matter of monetary value, in matters of Inflation and Monetary Value the current charts from Core Inflation Index DOSM (index numbers, log annual changes; 2010=100) shows very, very clearly the impact that GST caused to the inflationary spike.

GST causes an upward shift in the price level of Goods and services, but didn’t cause inflation (as narrowly defined by economists) to rise. 

It was purely a price level change, and didn’t change the slope of the index. The impact appears to be a roughly 1.8% peak to trough increase in the price level, in line with the MOF/BNM forecast.

Core inflation is currently appearing to accelerate, but that can’t be ascribed to the imposition of GST, which after all happened exactly two years ago.


01_sales
Data for 2016 shows Manufacturing Sales actually outran Forecast

01_core



NOTE: DOSM’s core inflation index excludes both highly volatile prices (certain seasonal foods such as vegetables) as well as petrol prices (which have been very volatile since the float in 2014). It also excludes prices of goods that are “administered” i.e. those whose prices are either fixed by the government (e.g. rice), or move due to changes in government tax policies (e.g. tobacco and alcohol). Therefore a presents a truer picture of underlying price pressures in the economy. Note that this doesn’t mean stuff doesn’t get more expensive, it just takes away the volatility in inflation, which makes it more useful for policymakers such as BNM.

Charts and data from : Hishamh of econsmalaysia blog.



FACT 3 : Productivity and GDP is correlational to Ringgit valuations

So, in short, collective inept management seems to submit the rationale of where Malaysia's weak chain link in productivity increase seems to be.

This is an important mind shift we need to confront because GDP is related to Monetary Valuation. 
So,unless:
  1. The Ringgit strengthens considerably with super GDP results ; and/or
  2. Oil prices fall back significantly (say, below USD40)
…we’re going to see some pretty strong headline inflation numbers for years to come, before it normalizes in 2020. ( and it can actually be controlled since the charts prove this inflationary rise is due to COST PUSH factors ie imported Inflation).

The big Question we must ask ourselves is:
Why bother about productivity or even Inflation / Money valuations? 

Because these indicate a symptom. 
A malaise, if you will that retards the overall opportunity costs with regards to our lifestyle. It explains how non observance of our strength and weaknesses exposes this society to fallibility and growth limitations in the future.

For instance , did you know that;
One Malaysian economic indicator is raising red flags
OF all the statistics trotted out to show the health of the economy, one indicator is causing some concern among economists, who said it spells trouble for every Malaysian over the long term.
The current account balance is a gauge for the state of the economy and if it goes into a deficit for an extended period, it affects everything from wages to the price of vegetables.
Malaysia’s current account balance still shows a surplus but the bad news is that it has been declining steadily from 2014.
Economist Ali Salman said that the surplus dropped by more than half or 57.75%, from the fourth quarter of 2016 to the first quarter of this year.
If this decline is not addressed, it will mean years of tepid growth and hit the pockets of ordinary Malaysians. Economists said these are among the impacts of a declining surplus:
  • It makes it harder to create new jobs and sources of income for citizens thus, curbing their spending power.
  • It saps investor confidence, which can then weaken the ringgit.
  • A weak ringgit would make imports, such as food and goods, more expensive and drive up supermarket prices.
  • The worst part is that the above factors can compound and feed off each other, thus, leading to slower overall growth.
As i've repeated above, knowledge of these things can help us change the course of our future.

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