Malaysia's Economic Transformation Programme - Tourism (EPP12)

 
Status of Malaysia's Tourism Industry
Over the past two decades we have managed to increase our international arrivals from 7.4 million in 1990 to approximately 16 million in 2004 and to approximately 24 million in 2009.
The tourism sector has grown from RM 30 billion in 2004 to RM 53 billion in 2009 - a growth of 1.8 times (or 12 percent per annum from 2004 to 2009) placing Malaysia 13th in terms of global tourist receipts.  Only a few countries have been able to sustain double-digit growth over such a long period of time including Egypt, China and South Africa.
FACT : Malaysia ranked 9th globally for tourist arrivals in 2009

12 EPPs to Deliver RM 66.7 billion incremental GNI
Twelve entry points projects (EPPs) have been identified across five themes to enhance our tourism yields.  In addition, we have identified three business opportunities which will materialise due to the expected growth in the industry. The 12 EPPs are segmented in five broad themes that cater to different segment of tourists ranging from the avid shopper to the nature lover and business traveller, as well as families on vaction.  The five themes and 12 high-impact projects identified are:
Theme 1 : Affordable luxury

• EPP 1 : Positioning Malaysia as a duty free shopping destination for tourist goods
• EPP 2: Designating Kuala Lumpur City Centre-Bukit Bintang area as a vibrant shopping precinct
• EPP 3: Establishing three new premium outlets in Malaysia

Theme 2 : Nature adventure

• EPP 4 : Establishing Malaysia as a global biodiversity hub

Theme 3 : Family Fun

• EPP 5 : Developing an eco-nature integrated resort in Sabah
• EPP 6: Creating a Straits Riviera

Theme 4 : Events, Entertainment, Spa and Sports

• EPP 7: Targetting more international events
• EPP 8 : Establishing dedicated entertainment zones
• EPP 9a : Developing local expertise and better regulating the spa industry 
• EPP 9b: Expanding sports tourism offerings in Malaysia beyond hosting events 

Theme 5 : Business Tourism

• EPP 10 : Establishing Malaysia as a leading business tourism and destination
  Cross theme projects : Medium-haul connectivity; better quality hotels 
• EPP 11: Enhancing connectivity to priority medium-haul markets 
• EPP 12: Improving rates, mix and quality of hotels  

The list of EPPS mentioned above are just a brief outline of what the government is planning to do for the industry.  I'll focus more in EPP 11 and EPP 12 which are more relevant to hotel business segment.
EPP 11 : Enhancing connectivity to priority medium-haul markets
Tourist from the medium-haul markets contribute 53 percent higher yields than tourists from short-haul markets.  Medium-haul markets also have the highest forecasted growth from 2010 to 2020 of 8 percent (versus 3 percent for short-haul and 2 percent for long-haul).  However, Malaysia's proportion of medium-haul tourist arrival is only 15% compared to 43% for Singapore and 36% for Thailand.  A key reason for this difference is the significant gap in medium-haul flights.  In 2010 Malaysia had 579 medium-haul flights per week, compared to 928 for Thailand and 1010 for Singapore.  This gap is critical as we expect 43% of incremental arrivals in 2020 to come from medium-haul markets.
Action
1. Increase flight frequencies and air rights to 10 priority cities.  Australia, China, India, Japan, South Korea and Taiwan are expected to contribute over 90% of incremental tourist arrivals from medium-haul countries by 2020.  It is thus critical to focus on the key cities within these six countries where there is a significant connectivity gap today, namely : Beijing, Delhi, Melbourne, Mumbai, Osaka, Seoul, Shanghai, Sydney, Taipei, and Tokyo.  Compared to Singapore and Thailand, Malaysia has a double-digit flight frequency gap to most of these cities.  The increase in flight frequencies to address this gap and meet 2020 tourist arrivals will be achieved through focused capacity increases from our local airlines and targetted efforts by Malaysia Airport Holdings Berhad (MAHB) to attract more airlines from these countries to either start operating or increase existing flight frequencies to Malaysia.  In parallel, the Ministry of Transport will focus efforts on increasing air rights to countries that currently have restricted air rights (primarily Australia, India and Japan).

ImpactWith these actions, we will expect to see an increment of medium-haul tourists. By 2020, medium-haul tourist will account for 43% of all tourist.  Among that, 38% will be from China and 27% from India.

EPP 12 : Improving Rates, Mix and Quality of Hotels
Hotels represent a critical part of the tourism industry.  In order to achieve our goal of attracting high yield tourists, we need to ensure Malaysia has the right mix and quality of hotels.  Relative to our regional peers, Malaysia today has a lower mix of five-star hotels (ie. 5% in Malaysia versus 13% and 14% in Singapore and Thailand respectively).  In moving towards our ambition of growing tourist receipts by three times and tourists arrivals by 1.5 times, we will need more investments (to first upgrade and subsequently to increase supply) into our four- and five-star hotels as well as to ensure higher quality of service.
We need to enable our hoteliers to generate sufficient returns to encourage re-investment into the sectors as well as attract higher quality staff.  A key impediment to this today is our relatively low hotel rates (RM 320 per night_ for a fve-star hotel in Malaysia versus RM 766 in Singapore)
Actions
1. Link rating of four and five-star hotels to a target average room rate.  From 2013, a minimum room rate will be set for four- and five-star hotels.  This move is to encourage the hotel industry as a whole to increase their rates to close our gap versus peers in the region.  This increase is meant to ensure hotels are able to provide higher quality of service (through attracting and retaining better quality staff) and to encourage more investment into the four- and five- star hotel segments.
2. Adjust MIDA incentive to encourage investment into more four- and five-star hotels.  In order to encourage hotels to upgrade and refurbish their assets, we will extend the Investment Tax Allowance (ITA) to include four- and five-star hotels with foreign ownership.  In addition, we will also allow ITA for new construction as well as new purchase of four and five star hotels across Malaysia.  Currently, this incentive is open given to one-, two-, and three-star hotels across Malaysia and four- and five-star hotels in selected states only.  The ITA for refurbishment of hotels will also be increased from three times per company to five times for each property regardless of ownership.
Following preliminary discussions with MIDA, the Ministry of Tourism will champion and push through the request for ITA expansion.

Commodities futures

You might have heard of people making money from trading commodity futures. I'm here to make it clear once and for all. Yes, you can make money from trading commodity futures. You can trade any commodity ranging from rice, and wheat to pork belly and oil.

Here's how it all began.

Given the urban nature of the city of Chicago, we often forget that it is located in the agricultural market center for neighboring states. Chicago was the meeting place for farmers looking for buyers of their crops and grain mills looking to purchase product for their operations. However, despite the central location, timing and logistic issues created inefficient means of conducting business and thus inflated commodity prices.

At the time, grain elevators were sparse, which made it critical that a farmer sell his crop upon harvest at the annual meeting in Chicago due to a lack of storage. Even for those who did have a method of storing the grain, frozen rivers and roadways made it nearly impossible to travel to Chicago during winter months. Likewise, the springtime trails were often too muddy for wagon travel. Thus, during and immediately after harvest, grain supply was in such abundance that it was common for unsold grain to be dumped into Lake Michigan for lack for means to transport and store unsold portions.

As you can imagine, as the year wore on, the grain supply would dwindle to create shortages. This annual cycle of extreme oversupplies and subsequent undersupplies created inefficient price discovery and led to hardships for both producers and consumers. The feast or famine cycle created circumstances in which farmers were forced to sell their goods at large discount when supplies were high, but consumers were required to pay a large premium during times of tight supplies. Luckily, a few of the grain traders put their heads and resources together to develop a solution…an organized exchange now known as Chicago Board of Trade.

The Chicago Board of trade (CBOT) was created by a handful of savvy grain traders to establish a central location for buyers and sellers to conduct business. The new formalized location and operation enticed wealthy investors to build storage silos to smooth the supply of grain throughout the year and, in turn, aid in price stability.

The CBOT is still located in downtown Chicago and is the world’s oldest future exchange. After spending the last decade and a half as one of the largest future trading organizations in the world and a direct competitor to Chicago Mercantile Exchange (CME), the CBOT and the CME merged in 2007 to form the CME Group, creating the largest derivatives market ever!

The CBOT division of CME Group is the home of trading of agricultural products such as corn, soybeans, and wheat. However, the exchange has added several products over the years to include Treasury bonds and notes and the Dow Jones Industrial Index.

The success of the CBOT fueled investment dollars into exchanges that could facilitate the process of trading products other than grain. One of the offsprings of this new investment interest is the Chicago Mercantile Exchange. The CME was formed in 1874 under the operating name Chicago Produce Exchange; it also carried the title Chicago Butter and Egg Board before finally gaining its current name.

The CME is responsible for trading in a vast variety of contracts including cattle, hogs, stock index futures, currency futures, and short-term interest rates. The exchange also offers alternative trading vehicles such as weather and real estate derivatives. At the time of this writing, and likely for some time to come, the CME has the largest open interest in options and futures contracts of any futures exchange in the world.

The futures markets and the instruments traded there, as we know them today, have evolved from what began as private negotiations to buy and sell commodities between producers and users. The agreements that resulted from these negotiations are known as forward contracts. Fortunately, efficient-minded entrepreneurs discovered that standardized agreements can facilitate transactions in a much quicker manner than a privately negotiated forward contract, and thus, the future contract was born.

A forward contract is a private negotiation developed to establish the price of a commodity to be delivered at a specific date in the future. For example, a farmer that has planted corn and expects it to be harvested and ready to sell in October might locate a party interested in purchasing the product in October. At that time, both parties interested in purchasing the product in October. At that time, both parties may choose to enter an agreement for the transaction to take place at a specific date, price and location. Such an agreement locks in the price for both the buyer and the seller of the commodity and, therefore, eliminates the risk of price fluctuation that both sides of the contract face without the benefit of a forward contract.

Along with a centralized grain trade, the forward contract was big step forward price stability, but there was a problem. Forward contracts reduce price risk only if both parties to the arrangement live up to their end of the agreement. In other words, there is no protection against default. As you can imagine, a farmer that locks in a price to sell his crop in the spring through a forward contract and discovers that he can sell the product for considerably more in the open market might choose to default on the forward contract.

It is easy to see the lack of motivation for parties to a forward contract to uphold their end of the bargain. Even the most honest man would be tempted to default if it means a better life and less suffering for his family.

To resolve this issue of merchants and farmers defaulting on forward contracts, the exchanges began requiring that each party of the transaction deposit a good faith deposit, or margin, with an unrelated third party. In the case of failure to comply with the contract, the party suffering the loss would receive the funds deposited in good faith to cover the inconvenience and at least part of the financial loss.

Because forward contracts were negotiations between two individuals, it was a challenge to bring buyers and sellers together that shared the same needs in terms of quantity, timing and so on. Also, forward contracts were subject to difficulties arising from incontrollable circumstances such as drought. For example, a farmer obliged to deliver a certain amount of corn via a forward contract might not comply due to poor growing conditions, thus leaving the counter-party to the transaction in a dire predicament.

The exchanges’ answer to problems arising from forward contracts was the standardized future contract. In its simplest form, a future contract is a forward contract that is standardized in terms of size, deliverable grade of the commodity, delivery date, and delivery location. The fact that each contract is identical to the next made the trading of futures much more convenient than attempting to negotiate a forward contract with an individual. It is the concept of standardization that has allowed the futures markets to flourish into what they have become today.

According to the CME, the formal definition of a future contracts is as follows:
“A legal binding, standardized agreement to buy or sell a standardized commodity, specifying quantity and quality at a set price on a future date”

In other words, the seller of future contracts agrees to deliver the stated commodity on the stated delivery date. The buyer of a futures contract agrees to take delivery of the stated commodity at the stated delivery date. The only variable of a future transaction is the proce at which it is done, and this is determined by buyers and sellers in the marketplace.

Although the future contacts bought or sold represent an obligation to take or make delivery, according to the CME approximately 97% of future contracts never resulted in physical delivery of the underlying commodity. Instead traders simply offset their holding prior to the expiration date.

Thanks to the standardization of each contract, the subsequent ease of buying and selling contracts, and a lack of default risk, futures trading has attracted price speculation. Participation is no longer limited to those who own, or would like to own, the underlying commodity. Instead unrelated third parties can easily involved themselves in the market in hopes of accurately predicting, and therefore profiting from, price fluctuations. And for your information, I’m one of them.

Has anyone heard of an exchange for health-products such as bird nest, shark fin, and black fungus? As you can see, how much trouble we can eliminate if there were an exchange for these products.

Thank you.

Where is humanity?

Wikileaks founder Julian Assange was just arrested yesterday morning in London on molestation and rape charges. No one is sure if he really committed those act or it might just be a way the governments are trying to bring him down. But one thing we know is that he is trying very hard to show the world a simple thing...truth. He wants the world to know that government around the world are keeping its people blind from actual things that happened around the world.

Here is a video of US military killing civilians indiscriminately over the helicopters. Two Reuters staff were killed and two children were injured as well.

A Third World War?

On 23rd November 2010, North Korean just shelled an Island of South Korea known as Yeonpyeong killing at least two South Korean Marines and injuring many more including civilians. This assault is the worst of its kind in decades targeting not only the military units but spilled over to civilians too.

All parties including South Korea, Japan, US, and China are on high alert mode now. Investigation and analysis is going on to determine the reason and intention of North Korea. North Korea claimed that South Korea has been continuing it's military rehearsal in the DMZ despite strong opposition from North Korea, therefore they launch this major attack as a response.

US is definitely backing the South Korea while China is the major ally of North Korea. South Korea and the US definitely does not want a war, it would not only screw the economy of South Korea which is now the major homeland of international companies. For the US, there's already two wars going on in Iraq and Afghanistan, adding another one to the list would not only cost more lives but billions or even trillions of dollar. Obama has just recently lost his majority in the House of representative, taking this war proposal to the table will not only make him even less popular but might even drag him down in the upcoming presidential election in 2012.

China would not want a war too. If a war breaks out, millions of refugee would flood into China and that is definitely the last thing China wants. However, it is of China's interest to continue supporting the North Korea regime in order to counter the US influence over the region. For China, a continuing minor tension is desirable but not a major escalation to war.

I personally don't think this incident will escalate to a major war. Everyone is trying to avoid that and hopefully this assault is just another minor one that the North Koreans have been doing since the end of the Korean War. The situation in North Korea is becoming more unpredictable in recent years as the ailing dictator Kim Jong II is shifting his power to his successor (his son) Kim Jong Un. This attack could be just a show of its military power to unite his regime.

From my analysis, if the tension were to get WORSE and a war is inevitable, it is advisable for us to do the followings:
Advice
1. If you are in some foreign country near that region get back to your own country before countries around it placed bans over their air border.

2. Get yourself a few thousand US dollar. It is still the most widely acceptable cash even in crisis mode.

3. Change your surplus currency to one of the following currencies : Swiss Fran or Singapore dollar. So far these are the two best currency to have as a safer haven.

4. If you are in stocks/shares or bonds. Sell them (wars are never good for the stock market), and get into solid commodities like Gold and silver. Unless you are a sophisticated investor or trader, you can actually take advantage of the war to make a profit. Invest in companies that deals with arms such as Victek Co Ltd (065450:KS) or get into companies that distribute food supplies.

5. If you trade futures, get into futures for gold, rice, wheat and crude oil. These are always the commodities that will gain during war times. Gold is always the safe haven for people during times of uncertainty, you can protect the value of your asset by getting into gold. Rice is the major food needed during war and disaster. Crude oil is always needed for war, countless equipment, machines and vehicles would not function without oil. Beware of a surge in petrol prices if a war takes place. (it has happened before during both first and second Gulf war)

6. Keep yourself updated to the news every day. You can visit various websites such as bloomberg, CNN, BBC, Wall street Journal, Korea times, or The Chosunilbo.

*Pictures, courtesy of Times magazine and The Chosunilbo. The author will not be responsible for any losses impaired by this article.

Are you afraid of China?

Current
Now that China is getting strong again, the fear for the West comes again. This time, they are afraid that China is going to rule the world with their cheap products and control of rare-earth minerals. The following are some of the major issues the West have been trying protray China as the villain.
1. Currency Manipulator : The West has accused China saying that the country is trying to manipulate its currency to make them cheaper so that it is competitive compared to products made from the West.

2. Rare-earth minerals : Recently, China has reduced the export of rare-metals by at least 70%. The West again accused China of monopolizing the trade and that act is against policy of WTO. The fact is China has only a third of all rare-metal reserve in the world, there are actually not that rare, it's the West problem for being unable to produce them at a competitive price. Also producing these rare-metal brings a huge toll onto the environment, that is a major issue the chinese government is trying to tackle.

3. Human rights : The West is tryin to create havoc in China by raising human rights issues starting from issues related to Dalai Lama to recently awarding a peace Nobel prize to an imprisoned Chinese activist who fights for democracy.

4. Adding oil and fire to the soured relationship between China and Taiwan. Don't forget, US is the biggest firearm supplier of Taiwan.

You can just see how worry the West are about China, trying every way just to topple China. They have even effectively incorporated this fear into everyone's mind. The advertisement above is just one example. It is not produced by the Chinese that's sure. It is produced by the Americans as a political advertisement for their current mid-term election which will be held this November. It brings a sense of anti-china message in it as well.

HISTORY
Take a look at the video above and you will understand the fear the West have for China. The U.S. have been creating tricks and plans to topple this rising dragon of the East. Even from before during the late 19th Century, the West have started the Opium war with China. Just a little history. China was a prosperous country with various products that the West need such as silk, cotton, grains, porcelain, metals, rare-metals, spices, and many more. During that time, the only thing that China need from the West is simple : Gold or Silver (That was the currency that they use since ancient times). The West have nothing to offer them, the Chinese don't want coffee (they have their own tea), they don't really want anything from the West because the West has nothing to offer. So they figured out a better way to exchange these products. The West introduced opium to the Chinese. Once they got hooked on, they just need to trade opium with them in order to get what they want. They also started selling them firearms (That's what the west is best at : Violence).
Once the Chinese realize the problem, they banned opium trade. The West reacted furiously by sending army to attack China and force them to open up their trading port to continue trading opium. That is what they are best at "Giving people shit and get their treasure".
Even worse, China was forced to surrender Macao and Hong Kong for their rule for 100 years.

Wake up, the 19th century belongs to the U.K, the 20th century to the US. 21st Century belongs to China. Please give China this opportunity.

Malaysia Economy vs Malaysia Politics

The budget Malaysian Prime Minister Najib Razak delivered last week is being interpreted as the opening parry for a possible early election next year. If that's so, he'll have a lot more work to do to spur the kind of growth voters tend to reward when they head to the polls.

That will sound like an odd claim, given the government's projections. The Najib administration pegs GDP growth at 7% for this year and between 5% and 6% next year. Some analysts think those estimates may be on the low side. Exports have rebounded after the global downturn and domestic consumption is rising.

But problems lurk beneath those headline numbers. The economy ran a capital-account deficit for all but one of the past 11 years, an odd situation for a developing country that ought to be importing capital to finance growth. Portfolio investors aren't fleeing the stock market—there was a small portfolio surplus last year. Rather, direct investment, the kind that builds new factories or seeds new businesses, has been exiting since 2007. This outflow amounted to an astonishing 21% of gross fixed capital formation last year, according to the United Nations.

In other words, Malaysians think it's more profitable to invest abroad than at home. One reason is that government, not private entrepreneurship, is driving growth. Government consumption grew 107% between 2000 and 2009, while private consumption grew 78%. On the production side, government services expanded by 77% in that period, second only to the financial industry as a growth engine (83%). This has been financed with deficit spending, which will be roughly 5.5% of GDP next year.

Enter Mr. Najib. To his credit, he said Friday "the time has come for the private sector to resume its role as the engine of growth." But his budget focused mainly on attracting investment to public-private partnerships to build new public works projects, on which he'll spend 137 billion ringgit ($44 billion). That includes 40 billion ringgit for a mass transit system in Kuala Lumpur—the kind of infrastructure Malaysia needs—but also five billion ringgit on a new 100-story office tower. It's worth asking whether thrusting government into the commercial real-estate business is really the best way to let the private sector blossom.

Building the 5 billion ringgit tower is a questionable issue, do we really need such as tall tower? To Najib and PNB, they said yes "With this new landmark, we'll put Malaysia on the global map of investment community, to spur foreign direct investment (FDI)". They have the same mindset like Dubai, building Burj Dubai (The world tallest man-made building). But remember, what they have is the world tallest building, our current proposed 100 storey building is still far behind the Burj Dubai. Do we really need this expensive building to place us on the map? Does more developed countries like Singapore or even Switzerland has a world freaking tallest building to put them on the map? No. That huge sum of money which is financed from debt should be put to better use.

Meanwhile, Mr. Najib's focus on public works distracts from all the other ways Kuala Lumpur deters private investment. For instance, affirmative-action preferences for majority ethnic Malays are a stumbling block for all investors, foreign and domestic, who understand that hiring the best employees regardless of ethnicity is key to generating returns. Corruption remains a major irritant, and the politicized sodomy trial of opposition leader Anwar Ibrahim raises rule of law concerns.

Mr. Najib tries to take a few steps forward. The budget proposes making government-linked companies sell stakes in some listed companies to boost stock market liquidity. Mr. Najib also would offer three new stockbroking licenses to domestic or foreign banks. But, assuming they're even implemented, these reforms won't amount to much if they aren't backed up by much broader and deeper liberalization to set animal spirits astir. Despite other reform gestures in recent years, a "big bang" does not appear to be on the horizon.

If Mr. Najib is contemplating an early vote, he's wagering on current economic growth, his party's tightening grip on civil discourse, and the lack of viable opposition alternatives to win another victory. That might work in the short term. But investors already are voting against Mr. Najib, and if Kuala Lumpur doesn't change that, it may be only a matter of time before voters follow suit.

*Quotes and figures adapted from Wall Street Journal Asia, article modified by Hong.

Gold Gold Gold

I found this interesting survey box result from the community journal of Wall Street Journal. Even though gold is at its all time high breaking record every other day, a lot of people (73.5%) still think there's room for gold price to rise.



To me, this totally feels like a bubble, it just sounds exactly like the pre-crash of internet bubble (2001) when all internet & technology stocks are at its all time high and people still freaking think that there's plenty of room to grow.

For the case of gold, is there really a real demand for such precious metal? I don't think so, people are parking their money into gold because there's a false believe (gold bug) that gold's value is always stable rising up steadily and would not fall. That's very wrong, most recently, during the crash of 2008/2009, gold's price is so volatile that it fell to a low of less than USD 700 per ounce. Now it's over USD 1350 per ounce. That's almost a 100% rise in less than 2 years. Is that not volatile enough?

For some people, they think the US economy is so bad and the US dollar is depreciating like hell and there's no other better ways to place their money, so they dumb it into gold. And yes, that's the truth, money is flowing into commodity assets and emerging markets such as China, India, Brazil, and South east asian nations such as Singapore, Malaysia, Indonesia and Thailand.

For those that have profited from the rise of gold, it's wise to get out slowly from now. I would be selling my gold assets and probably finish selling all of them before it hits USD 1500 per ounce if it ever happens.