Oct 16, 2010

When Things Go Bang!

(The New Felda Towers at Platinum Park)

This is a frightening budget that is laced with potential asset bubble creation, the Najib’s administration seems to be throwing caution to the winds with increased spending on the economy and on implementation of more mega-projects.

The mega-projects that is on stream in the country is frightening and we will name them as we go on, Najib is making Mahathir look small as compared to the numerous mega multi billion expenditure during his short administration, when other nation are being cautious in this time of global economic uncertainty, Malaysia is all go like in an F1 Race.

One thing you can take note of the Malaysian budget is that they will always for certainty, spend all of the budgeted expenditure. The budget will be fully draw on or many a times overspend the budget with objectives falling short. They will spend all the budgeted expenditure and will fall short of economic objectives and a example will be the NEP after more than 30 years and the objectives are still reportedly far behind but the monetary allocation budgeted for the objective have all been spent many times over and today the majority of the household are living in hardship, much worst of than before.

We are a nation consistently recording a budget deficit and is borrowing huge amount to finance this deficit, although they have announced a reduction in deficit slightly to 5.6 percent of GDP for 2011 but the borrowings will be the same if not more due to the growth of the GDP of 7% in 2010. This will add to the national debt which will surpass the RM400 billion in cumulative debts. And we will have to finance this debt and interest payment alone will easily be over RM 25 billion per annum.

Note that the national debts are for direct government borrowings and other indirect borrowings on federal government guarantees might not have been accounted for like the PKFZ as an example, that is to say that other borrowings from GLCs and other agency or private entity which might have financed their mega-projects through government guarantees might not be reflected in the government accounts and could be contingent liabilities and are not reflected in the books..

On top of this deficit the operational expenditure will yet again increase by 7 per cent or 10.6 billion ringgit from 152.2 to 162.8 billion ringgit, this is just administrative expenditure and does not contribute directly towards the development of the economy but instead shows a lack of prudence and operational inefficiency in the administration despite of projecting a slower economic growth of 5 to 6 per cent in 2011. Operating expenditures has more than doubled since 2004 when it was at about RM80 billion and now it is more than RM160 billion.

We will not go into details of the budget here as it is already written in by the various media and it is the intention to focus on the various multi billion mega-projects from the Najib government. And as usual they will not provide details like how the project is being funded until only when something goes wrong or when someone exposed some wrong doing.

As usual no details of any tender of the mega-projects are undertaken and are probably awarded on a friendly basis.

Let’s look at some of the mega-projects as announced today as follows:
  • Mass Rapid Transit System: RM 43 billion transportation system for Kuala Lumpur and surrounding. Question: How is this project being funded and will the federal govt guarantee the funding?

  • Kuala Lumpur International Financial District: This is a RM26 billion 34 hectares development in the Jalan Davis bordering the Imbi area which was earlier mistaken for the old Sungei Besi airbase project. A 1Malaysia Development Berhad joint venture with the Abu Dhabi Mubadala group.

  • Warisan Merdeka: Another iconic landmark mega-development of RM 5 billion to be completed by 2015. Another project to be undertaken by Permodalan Nasional Berhad (PNB). This project covering an area of 15 hectares in the old Stadium Merdeka and Stadium Negara surrounding will include the 100 storey tallest building in Malaysia.

  • Sungei Buloh development: Land privatization development owned by the Rubber Research Institute (RRI) of an area of 1350 hectares to be develop by EPF Employees Provident Fund with a value of RM10 billion.

  • Nexus Karambunai, Sabah: An integrated eco-nature resort development at a cost of RM 3 billion. Question: RM3 billion to build a resort is a huge sum, is the federal govt providing the funds?

You can see that non of the above projects are private sector initiatives and all are government projects undertaken by government controlled entities like PNB, EPF, Khazanah and the new 1MDB or GLCs. And in the tradition of the Malaysian business culture, these projects are than handed out as usual to friendly parties with funds provided by or through the government. So where is the Private Sector as the engine of growth unless you deem PNB and EPF as private sector?

Some mega multi billion budget allocations are:
·        Education: For Restructuring and Strengthening RM 29.3 billion to the Education Ministry. RM 10.2 billion for the Higher Education Ministry and RM 627 million for the Human Resource Ministry.

·        Education: Another RM 6.4 billion to build and upgrade schools and etc.

·        Health: RM 15.2 billion for new hospitals and etc.

·        Defence: Allocated a total budget of RM 9.1 billion which is a reduction from RM 10.5 billion.

·        Corridor: RM 850 million for infrastructure support to the corridor and regional development.

·        1Malaysia Training Program: Allocation of RM 500 million. What’s this?

·        RM 1 billion allocated for the launching of the Bumiputra Property Trust Foundation. (No details provided).

The Total Budget allocation for 2011 is at RM 212 billion which is an increase of 2.8 per cent from 2010.

BN has been churning out huge mega-projects and some are still in the incubation stage like the:
  • 160 hectares old Sungei Besi air base with an estimated value of RM 20 billion which has generated much stories of Jho Low, the bright young man seen as companion to Paris Hilton having had a hand in this much coveted mega multi billion project.

  • Another mega-project of the 150 hectares of Kampung Baru land within the city centre of Kuala Lumpur, and PNB is again undertaking the redevelopment of over RM 20 billion in value.

  • Riverside Garden City a 25 hectares redevelopment of the former Pekeliling Flats with the proposed futuristic revolving 60 storey skyscraper with a value of RM 12 billion.

  • 9 hectares of government land in the Cochrane and
    Peel Road
    area with an estimated value of RM 10 billion to be develop again by 1MDB and EPF.

More multi billion projects that have been approved and about to be started or in progress like:
  • MATRADE centre with 25 hectares of land in the Jalan Duta area to be undertaken by the Naza Group estimated at RM 15 billion value.

  • Platinum Park in KLCC also by Naza Group that will incorporate the new iconic Felda Towers and a new Naza Towers. This is a development of RM 5 billion now under construction.

  • Old Pudu Prison of 8.5 hectares with a value of RM 5 billion scheduled to start work by early 2011 to be developed by UDA Holdings Berhad.

  • Eco City with 10 hectares of DBKL land next to Mid Valley City with a value of RM 6 billion to be jointly developed by another GLC of SP Setia Bhd and DBKL.

  • On going KL Sentral of 30 hectares land with a value of RM 12 billion being developed by Malaysian Resources Corporation Berhad.

This are just some of the mega projects as listed above and there are many more in the Klang Valley that will be quite lengthy to list them all here.

Now the wonder of Malaysia is that most of these multi billion mega-projects will all come on stream at about the same time as though like they are in real hurry to get it off the ground, most of these projects are all in the Kuala Lumpur area and you be the judge whether all these projects are sustainable.

Anyway, the advice to any investor will be to wait patiently on the sideline, waiting to pick up on the cheap when things go Bang! So, hurry keep your cash safely er.. somewhere really safe that it won’t be devalued…

Hark! the Herald Angels Sings.

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