AT US$44 (RM180) per barrel, the prices of oil are not ideal to Malaysia. When Pakatan Harapan was planning its budget prior to its electoral victory, it was pegged at US$70 per barrel.
PH is also facing a double jeopardy: the national debt has reached US$250.3 billion, when its gross domestic product is barely US$320 billion. Nor has it grown much between October 2003, when Prime Minister Tun Dr Mahathir Mohamad first stepped down, and May 10 last year, when the latter resumed his standing as the oldest prime minister in the world.
Now, 30 per cent of the state coffers, or the annual income of the federal government, is usually from Petronas. At US$44 per barrel, with hardly any prospect of peaking soon, Petronas is caught in a corner.
While it wants to perform its national duty of saving Malaysia, it is an entity that is not without the dilemma of facing its own institutional relevance too.
Most of the oil wells off Terengganu have been pumping and producing crude oil since the 1970s. The laws of diminishing returns are ready to set in, if not already.
If Petronas continues to contribute up to 30 per cent of the national budget, the likelihood of Petronas succeeding in its wildcat digs all over the world would be affected too. The more Petronas contributes to Malaysia’s fiscal expenditure, the less it can attempt its rejuvenation the world over, therefore, imperiling its own existence.
Thus, Malaysia, in fact all Malaysians, should consider the cheaper oil offered at the pump, as a gift and an opportunity to lower the cost of everything. Research by the Domestic Trade and Consumer Affairs Ministry once showed that the prices of 80 per cent of all goods and services are tied to the prices of oil at the pump.
By this logic, when the prices of oil are lowered, all entrepreneurs and business entities in and across Malaysia, should not allow inflation to creep in any more, such as by allowing the prices of goods and services to remain at the previous structure.
There are three reasons why all business entities must do the right thing by lowering the cost of their goods and services. One, an economy that thrives on profiteering cannot go far; especially when the gross national income has only grown 0.1 per cent in 2012, said Dr Muhammed Abdul Khalid, the economic advisor to the prime minister.
Take Singapore, for example. Almost the entire economy is driven by government-linked companies, such as Temasek, Singapore Telecom (Singtel), Capital Land and Port Authority of Singapore.
While Singapore imports 97 per cent of its food, and has a per capita income of nearly US$40,000, United Nations research has shown that Singapore has the second most acute income gap in the world just after Hong Kong.
In other words, the rich, which is linked to the government- linked investment companies, have become richer. While the poor, who are unhinged from the government-linked investment companies, except by way of the flats that they own and bought from the Housing Authority Board of Singapore, are poorer and poorer, even as they age.
Malaysia has an income gap problem too. And, the onset of an ageing problem.
By 2023, 15 per cent of our national population will be above 60.
Four of five persons in Malaysia will retire at 55 without any pension.
Indeed, of all the investors in Permodalan Nasional Berhad (PNB), a government linked investment company, 117,000 of these investors control half of the liquidity and assets of the entire PNB.
Put differently, should 117,000 investors in Malaysia decide to pull their money out of PNB, which has traditionally offered a dividend of between eight and nine per cent in the financial markets, PNB will face a bank run that can create a systemic financial crisis that would have nothing to do with any external events in the world.
Two, on the basis of what PNB has shown, Malaysia’s economy is also interconnected between the eight government-linked investment companies and the 900 smaller government-linked companies (GLCs) with which they have spawned.
Thus, the scenario above is atypical of what the Nomura Research Institute, Tokyo chief economist Richard Koo called a “balance sheet economy”. While all 900 companies are linked to one another, not all of them have become even a part of the Fortune 500, except Petronas. When Malaysian companies are not producing world beaters, at a time when the global economy is moving at the speed of light to be driven by automation, artificial intelligence, algorithms and analytics, then it goes without saying that attempts to profiteer from Malaysians by lowering the prices, even as the prices of oil have been allowed to come down, then Malaysians are subjecting the country that they built to self- inflicted wounds.
Why should Malaysia bleed itself to death when it has just snatched victory from the jaws of defeat as occasioned by the kleptocracy of former prime minister Datuk Seri Najib Razak ? Malaysians shouldn't, and must not, drive the economy down to the ground, when the government has been generous and indulgent.
Third, the prices of oil are lowered to ease the burden of the rakyat. While the rationale is political, the execution is economic too: the more Malaysians feel they have more disposable income, the more they can spend to keep the economy churning; without which the Malaysian economic dynamism will come to a crawl, only to stall and stagnate completely. The victim would not be the rakyat only, but the entire ecology that sustains the beehive of economic activities.
The phrase, what goes around comes around, has never been truer in a carbon based economy. In this sense, Malaysian businesses and companies should take the opportunity to slash and cut their prices across the board, to a margin of profit that is both ethical and sustainable — without which Malaysia is killing itself slowly but surely.
As things stand, all ministries have the responsibility to monitor the prices of all goods and services. Bank Negara Malaysia must also ensure that our reserves of US$101 billion, which can sustain imports at 7.7 month, can continue to enlarge further to strengthen the ringgit.
With a weak ringgit, Malaysia cannot afford to import and deploy the most reliable capital equipment in our free trade zones, such as the one in Bayan Lepas, Penang. With a weak manufacturing base, Malaysia’s economy, which is an exporting nation, can peter off slowly as an industrial powerhouse. All countries that have de-industrialised too fast, as Professor KS Jomo has warned, have all fallen off the radar as a top economy, which is not deserving of any high quality foreign direct investment.
Dr. Rais Hussin is President/CEO of EMIR Research, an independent think tank who believes in research based outcome, without fear or favour