• Dissecting the ETP Annual Report (Part 2): The mystery of the disappearing entry point projects

    The investments enigma. PEMANDU in its Annual Report claims that investments by the private sector were well above target last year. The headline claim may not withstand scrutiny though. Very large entry point projects (EPPs) appear to have faltered. We highlight just three examples here. If they had indeed faltered, which projects stepped up and more than filled their large shoes?

    The shifting sands of LFoundry. PEMANDU gave itself full marks for the completion of construction of this 200mm wafer fab. However, very strangely, elsewhere in the Annual Report, a much less significant RM100 million equipment refurbishment project was showcased instead of this RM1.9 billion fab. The uncharacteristic modesty by PEMANDU led us to do some digging, which suggests that this lab might never have been constructed at all, contrary to PEMANDU’s claim.

    What happened to Damansara City 2 and Marina Island Pangkor? These two EPPs announced last year were perhaps the most important in the Greater Kuala Lumpur/Klang Valley and Tourism NKEAs. But the ETP Annual Report omits any mention of them, focusing instead on modest “heritage trails” in Kuala Lumpur, and Penang, Klang and Kota Kinabalu as the three ports with the most tourism potential.

    PEMANDU’s chimera of perfection. Glossing over issues merely results in a growing gap between reality and delusions of grandeur, and the facade will ultimately come crashing down. Rather than prolonging the charade of infallibility, PEMANDU should be frank and confess to problems, and state the remedial steps it took. This may well help others avoid making similar mistakes and adds much more value to Malaysians.

    Some very large EPPs announced in the ETP Updates last year were strangely omitted in the recently released ETP Annual Report 2011.

    ● These include a RM1.9 billion wafer fab in Kedah, the RM1.9 billion GuocoLand Damansara City 2 project and the RM600 million Marina Island Pangkor Extension .

    ● Did these EPPs hit problems? If they did, PEMANDU should come clean and transparently explain the issues.

    ● Problems are part of the business landscape. PEMANDU would add far more value if it shared its experiences in surmounting obstacles instead of glossing over issues.

    PEMANDU’s unrealistically perfect world  

    PEMANDU in its inaugural Annual Report of the Economic Transformation Programme (ETP) claimed many successes including:

    1. Economic growth being ahead of its target;

    2.72 out of 131 EPPs (entry point projects) taking off;

    3. EPP investments totalling RM179 billion, creating RM130 billion of GNI and nearly 314,000 new jobs.

    Last week, in Part 1 of our series, we gave PEMANDU an A+ for obfuscation, for being less than clear and truthful about its economic growth targets.

    This week, we drill down to Execution — the first E in our DEEDS framework for evaluating the ETP. Acolytes of PEMANDU would surmise that business and economic management is effortless. Hardly a hint of difficulty is ever expressed in PEMANDU’s rhapsodic reports.

    Those grounded in reality will not be surprised to learn that REFSA finds at least two major issues with the claim of entry point project successes:

    1. Some major EPPs announced during the ETP Updates given by PEMANDU last year were strangely omitted in the Annual Report;

    2. A number of projects, including big-ticket projects such as Karambunai Integrated Resort City, Tanjong Agas Oil and Gas Hub and LFoundry Wafer Fab, may not pass muster under close scrutiny.

    Let us start with the wafer-thin foundations of the RM1.9 billion LFoundry Wafer Fab project in the Kulim High-Tech Park.

    The shifting sands of LFoundry 

    The very first entry point project (EPP) stated under the Electrical and Electronics NKEA (National Key Economic Area) is “Executing a smart follower strategy for mature technology fabrication.” In Update 1 on October 25, 2010, PEMANDU said LFoundry Sdn Bhd, a subsidiary of German-based Landshut Silicon Foundry GmbH, would undertake this RM1.9 billion project.

    Subsequently, the ETP Annual Report proclaimed that the “construction of the 200mm wafer fab” had been completed by December 2011 and PEMANDU gave itself full marks for delivering on this EPP.

    Oddly enough, nothing was mentioned in the “Achievements” section of the ETP Annual Report. Instead, a much smaller RM100 million equipment refurbishment and training centre project was highlighted.

    We were very surprised that this astounding execution of completing a wafer fab way ahead of schedule and within just 12 months was not trumpeted. And indeed, we would have supported such publicity as well-founded and a wonderful example of Malaysian construction and engineering prowess.

    This uncharacteristic coyness of PEMANDU in choosing to highlight a much smaller RM100 million “refurbishment” project instead of a spanking new RM1.9 billion wafer fab plant completed in record time spurred us to do more research. We found that LFoundry in Germany is declaring itself insolvent and going into bankruptcy proceedings! In fact, there is no mention of this project on:

    1. L Foundry’s own website; or on

    2. Kulim Hi-Tech Park’s list of tenants.

    Note that L Foundry’s financial woes had been in the news as far back as November 2011. But this fact was never mentioned in the ETP Annual Report published in April 2012 when PEMANDU took “100 per cent” credit for the achievement in constructing a 200mm wafer fab.

    It was only later that Chris Tan, PEMANDU director for the Electrical & Electronics NKEA, revealed the following in the ETP blog:

    “…the German partners ran into operational difficulties … and were forced to pull out. The project as originally envisaged was scrapped … MIDA … shifted to Plan B, and facilitated capacity increases via other companies.”

    Taking Tan’s comments at face value, PEMANDU’s achievements are even more breathtaking. It surmounted difficulties with the original German partners and managed to find “other companies”‘ and still complete a 200mm wafer fab factory all within 12 months!

    The story behind such “remarkable” execution should certainly be shared with all Malaysians. It would indeed help in transforming the economy if PEMANDU were to share its knowledge with all entrepreneurs:

    Who are these “other companies” who stepped in and filled the gap so quickly? Please name them so that we may study and emulate their abilities;

    Better still, please set up a site office and a case study. How was construction fast-tracked? Our contractors might learn a thing or two about project management.

    Or is the truth more prosaic, and the reality is that there is no 200mm 100 per cent completed wafer fab as claimed in the Annual Report?

    We conjecture that PEMANDU gave itself full marks for completion on the basis that while the original projected floundered, it still managed to “facilitate capacity increases via other companies”. We could debate this point further — are full marks deserved if the total investment is less than originally targeted? Furthermore, increasing capacity at existing companies is less valuable than introducing a new player who can broaden and deepen the industry.

    However, there are other pressing issues — such as missing projects. These are EPPs which were proudly presented during PEMANDU’s numerous ETP Updates in 2010 and last year, but which, very oddly, received no mention in the ETP Annual Report released in April this year.

    We shall highlight just two examples — Damansara City 2 and the Marina Island Pangkor extension.

    What happened to Damansara City 2?

    The Damansara City 2 project by GuocoLand (Malaysia) Berhad was unveiled in the 3rd ETP Progress Update on January 11, 2011. This mixed development comprising retail and office blocks and a hotel and service apartment was by far the largest project mentioned under EPP 7: Creating Iconic Places and Attractions in the Greater Kuala Lumpur/Klang Valley NKEA (National Key Economic Area).

    We shall set aside the questions of how “transformative” really are property development projects such as this, as well as the process which resulted in GuocoLand’s proposal being granted EPP status and thus, at least implicitly, being more iconic and transformative than, say, the KL Eco City and Icon City projects by SP Setia and Mah Sing, respectively.

    What is shocking is that this EPP, which at RM1.9 billion is by far the largest project in EPP7 in the Greater KL/Klang Valley NKEA, receives no mention at all in the ETP Annual Report. There was no status report, and in fact, it was not even mentioned in the “Moving Forward” section. Instead three additional heritage routes and the upgrading of Masjid Jamek were highlighted instead.

    Marina Island washed away?

    Moving on from the LFoundry and Damansara City 2 projects on the shifting sands of dry land, we come to seaside projects which may have been “washed away”.

    The Marina Island Pangkor’s International Resort & Entertainment Extension Project was showcased in the 4th ETP Progress Update on March 8, 2011. This “World-Class Integrated Passenger Seaport Transportation Hub and a World-Class Waterfront Development” which “will position Malaysia well into the future” appears to dovetail nicely with EPP6: Creating a Straits Riviera Cruise Playground in the Tourism NKEA.

    Strangely though, no progress update was given in the Annual Report on this huge project which will require RM600 million of investments, and is expected to provide 27,000 jobs and contribute RM9 billion of GNI (Gross National Income) by 2020.

    Instead, the ETP Annual Report points out that the Cruise and Ferry Integrated Seaport Infrastructure Blueprint for Malaysia identifies Penang, Klang and Kota Kinabalu as the three ports with “potential to contribute significantly to the Malaysian cruise industry”.

    Whatever happened to Marina Island Pangkor? The Blueprint, no doubt, was commissioned by the Economic Planning Unit. But surely PEMANDU in its Annual Report should have stated where this important EPP stands in the overall scheme of things.

    Let’s be frank

    Uncertainty and adjustments are part and parcel of the business landscape. It is normal for projects to be varied, postponed or even abandoned. Companies do get into financial difficulties. Some go bust. It would be irrational to expect all the entry point projects (EPPs) under the ETP to progress with smooth precision. Problems are to be expected, which good project managers recognise and surmount.

    Glossing over and ignoring issues as PEMANDU is wont to do is a terrible approach. Plans, assumptions and forecasts must accommodate changing circumstances. Pretending that all is going perfectly to plan merely results in an escalating divergence between reality and delusions of grandeur, and the facade will ultimately come crashing down.

    PEMANDU must be transparent about the EPPs which are facing difficulties. The contribution of these troubled EPPs to investment, GNI and jobs created should be stated clearly and transparently so that shortfalls caused by the affected EPPs and the effects on their respective NKEAs can be addressed and given extra attention moving forward.

    In addition, it is also good practice and would be very helpful to other entrepreneurs if PEMANDU were to disclose what went wrong and the remedial steps taken. PEMANDU’s experience and knowledge gained may well help others avoid making similar mistakes.  This kind of transparent evaluation regarding the execution challenges faced by entrepreneurs and entry point projects was sadly lacking in the ETP Annual Report. The pace of private investments is well behind the ETP targets in terms of the share of private to public investments.

    In the next instalment of this series which will cover Enterprise, the second E in our DEEDs framework to dissect the ETP Annual Report, we shall uncover more evidence showing why the gaudy investment figures highlighted under the ETP should not be taken at face value.

    About this series and DEEDS

    Earlier this year, we published a series assessing PEMANDU and the ETP on the goals, plans and targets stated in the ETP Roadmap document. To facilitate constructive discourse and in keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, and GNI surrounding the entire GTP, we evaluated PEMANDU and the ETP on its DEEDS — Data transparency, Execution, Enterprise, Diversity and Socio-Economic Impact. The 8 Focus Papers in this Critique of the ETP Series, together with related infographics and a powerpoint presentation can be found at www.refsa.org. — REFSA (Research for Social Advancement)

    * Dr Ong Kian Ming holds a PhD in Political Science from Duke University and Economics degrees from the University of Cambridge and the London School of Economics. He is attached to UCSI University, which has been named as the project owner of two entry point projects (EPPs). To avoid any potential conflict of interest, he will not make references to or analyse these two EPPs. 

    * REFSA (Research for Social Advancement) executive director Teh Chi-Chang holds a first-class degree in Accounting & Financial Analysis from the University of Warwick, an MBA from the University of Cambridge and the CFA (Chartered Financial Analyst) charter. Prior to joining REFSA, he headed highly-regarded investment research teams covering Malaysia, and was himself highly-ranked as an analyst. 

    This article was published by The Malaysian Insider.

    Read Dr. Ong’s critiques of the ETP in full here.

  • Questionable foreign-born citizens in voters roll

    The Election Commission (EC) produced a booklet entitled ‘The Truth Behind the Accusations and Lies towards the Election Commission’ on its website. In this booklet, the EC tried to defend itself against 12 allegations made with regard to the electoral roll.

    I have written here and here to show that:

    1) The EC has not been consistent in its boundary ‘correction’ exercise.

    2) That the EC had deleted 14,577 names in Quarter 2, 2011 because the records of these voters were not active in the National Registration Department (NRD).

    3) That the EC should be greatly concerned by the fact that 56 out of the 57 voters registered in the past year in Kampung Melayu Majidee in Johor Bahru did not have house numbers or street names and were foreign-born, meaning the 7th and 8th digits in their IC number is ‘71′.

    In this article, I want to show that the EC cannot reassure us that there are no foreigners/non-citizens in the electoral roll because it is the NRD which issues the ICs and not the EC.

    Specifically, I want to focus on voters in Selangor without house numbers and street addresses which have been registered by government agencies since the 2008 general election.

    NONEWhat I have found thus far is very disturbing because it points to the presence of government agencies (not the EC) which have been actively registering foreign-born ‘citizens’ who do not have house numbers or street names even though they are located in urban constituencies in Selangor.

    And instead of investigating these cases or questioning the NRD and these government agencies, the EC has chosen to stay silent.

    The EC assigns a code number to each voter registration application so that it can keep track of these applications. These applications are divided into various categories with a specific letter assigned to each category.

    For example, applications which come through the post office electronically start with the letter ‘G’, those which come in through the police start with the letter ‘K’ and those which come in through the army start with the letter ‘Z’.

    Table 1 below lists the categories belonging to each letter.

    NONEThe code number assigned to each new voter registration application is not given to the political parties nor is it publicly displayed during the quarterly electoral roll updates. But this information is recorded by the EC.

    In this article, I want to focus on voters in Selangor without house numbers and street names whose applications start with the letter ‘J’, indicating that they have been registered by a government agency which is not the Election Commission.

    Informal reports from different sources have indicated that these government agencies include the Jabatan Hal Ehwal Khas (Jasa), a unit under the Ministry of Information and Jabatan Kemajuan Masyarakat (Kemas), a unit under the Ministry of Rural and Regional Development.

    The primary reason I chose to focus on applications beginning with the letter ‘J’ is because of the newly-registered voters in the Kampung Melayu Majidee locality in the Johor Bahru constituency, almost all whom do not have house numbers and street names and had application codes beginning with the letter ‘J’.

    I choose the state of Selangor because this is expected to be one of the key battleground states which the BN is desperately trying to win back and which Pakatan Rakyat is desperately trying to hold on to.

    My methodology was very simple. I managed to obtain a complete electoral roll for Selangor that was updated to Quarter 3 of 2011.

    This electoral roll included voter registration application codes for newly-registered voters from 2008 onwards. I filtered out all those applications with Kod 71 in their IC and then narrowed my search to those applications without house numbers and street names.

    NONEOut of 506 applications with Kod 71 and without house numbers and street names, 444 or 88% had application codes starting with the letter ‘J’. And almost 80% out of these 506 applications were concentrated in four parliamentary seats – Ampang, Gombak, Kelana Jaya and Serdang.

    The EC would of course try to explain this away by saying that they want to empower government agencies to increase voter registration rates across the country. The fact that many of these Kod 71 voters do not have house numbers or addresses is because they live in kampongs without house numbers or street names.

    These would not be valid explanations for similar reasons as the Kampung Melayu Majidee case. All of these voters are registered to vote in urban areas and all of them are registered to localities where almost everyone else has a house number and street name.

    For example, of the 967 voters registered in the Kampung Sri Gombak Indah locality in the Gombak parliamentary seat, 96% have house numbers and street names. Of those who do not have house numbers or street names, 80% have Kod 71 in their ICs, all of them have voter registration applications starting with the letter ‘J’ (Table 2 below).

    What is even more disturbing is that a large number of these applications were submitted at the same time – in March 2011- with the ‘nosiriborang’ numbers running sequentially, meaning that they were most probably registered by the same person from a government agency.

    NONE

    Among these applications, I also found voters with a single name, which raises the question of whether these are similar cases to‘Mismah’, who was alleged to have been recently granted citizenship so that she could be included in the electoral roll. (Table 3 below)

    NONE

    As an additional check, I examined the Quarter 4 (Q4) 2011 electoral roll update to see if there had been new registrations in the localities with a large number of Kod 71 ‘J’ applications without house numbers. My findings confirmed my initial suspicion.

    Of those voters in the Q4 2011 update without house numbers, all of them had Kod 71 IC numbers. A sample from Kg Sri Gombak Indah in P98 Gombak is reproduced in Table 4 below.

    Unfortunately, I was not able to obtain the registration application code for the Q4 2011 electoral roll update but I am fairly confident that application codes for these voters begin with the letter ‘J’.

    NONE

    Where does this leave us?

    Some might say that the small number of voters identified in this article is not a cause for concern given that it is but a small percentage of the 400,000 newly-registered voters in Selangor since the 2008 general elections. This would be a mistake for two reasons.

    Firstly, if the NRD can issue ICs to foreign-born ‘citizens’ without proper addresses in urban areas, could it also issue ICs to other individuals with proper house numbers and street names and state codes which do not show that they are not born overseas?

    After all, there have been many well-documented cases fitting this description in Sabah under ‘Project IC’ where non-citizens of Indonesian and Filipino descent were given ICs which indicated that they were born in Malaysia.

    Could there be a ‘Project IC’ happening right now in Selangor – to give ICs to the many non-citizens who are working in the Klang Valley so that they can vote?

    NONESecondly, if there is a concerted effort being carried out by a government agency (or agencies) to register foreign-born ‘citizens’ without proper IC addresses, could this government agency (or agencies) also register other individuals with proper house numbers and street names and state codes which do not show that they are born overseas?

    As of Q3 of 2011, new voter applications with the registration code ‘J’ numbered 42,540 in the state of Selangor, many of them in marginal constituencies.

    In other words, what I have discovered here are the more obvious cases, using rather strict criteria – no house addresses, code ‘J’ voter applications, Kod 71 in the IC numbers. There could easily be many other cases of non-citizens being given ICs with proper house address and non-71 state codes and they could easily register through other channels including political parties or by going to the post office.

    The cases which can be easily detected are probably the tip of the iceberg.

    The EC, instead of shifting the focus to harmless caricatures which appear during the campaign period, should instead do a proper audit of these cases and call out the NRD if it was found that many of the ICs were irregularly issued.

    Without these steps, we cannot have the assurance that our electoral roll is not being populated by non-citizens.


    ONG KIAN MING is a lecturer and political analyst at UCSI University. He is also the Project Director of the Malaysian Electoral Roll Analysis Project (Merap).

    This article was published by Malaysiakini.

  • Main challenges for a PR government

    What happens in the unlikely event that Pakatan Rakyat (PR) wins and maintains control of the federal government after the 13th general election? This is a question which few people have tried to address systematically. In this article, I want to highlight what I think will be the five main challenges facing a PR federal government as a way to contextualise the policy options which such a government will have to address.

    I have summarised these five main challenges into five “P”s: (i) Dealing with the “Past” (ii) Distributing “Power” between the federal and state governments (iii) Coming up with a new set of “Plans” in the economic, political and social arenas (iv) Focusing on a smaller number of “Priorities” which can be delivered within 100 days and one year and finally (v) Finding a set of “Procedures” to deal with disagreements within the PR coalition.

    (i) Past

    Having been in power for 55 years, there are bound to be a whole list of “legacy” issues which a new government has to figure out how to deal with. It would not be practical for a new federal government to conduct a massive witch hunt to weed out all those who have paid bribes to the previous government to obtain contracts, to find evidence to convict all BN politicians who have received bribes or have amassed wealth beyond their means or to sack all civil servants who have been complicit in corrupt dealings involving the previous government. But at the same time, it makes sense for a PR government to outline a clear set of rules with regard to how it will, for example, deal with dubious contracts which the government has signed with private companies. This is important because there is a great temptation for PR to blame the previous BN government for many of the problems that it will face when it is governing. Instead of blaming BN in an ad-hoc manner throughout its first term in government, it would be better for PR to outline a place to clear out the skeletons in the cupboard early in its tenure in power.

    PR has already given some indication as to the contracts it will attempt to cancel or renegotiate when it comes to power, namely the contracts with toll operators and independent power producers. There are bound to be many other smaller contracts which are potentially disadvantageous to the government which could be renegotiated or cancelled. The criteria for contract renegotiation or cancellation need to be spelled out as soon as possible as a way of assuring the markets and the many companies which have large contracts with the government.

    Similarly, PR needs to figure out the extent to which it wants to change the government procurements process. It will be a tricky balancing act since many of the current contractors have well established relationships with Umno who are also Malay entrepreneurs who will question PR’s commitment to protecting Malay entrepreneurship if they are cut off from these government contracts. At the same time, this also presents an opportunity to introduce open tender processes that could potentially save the government billions of ringgit in expenditure.

    More than important than mere contracts is the fate of those who wrongly benefited from the awarding of these contracts and other government-related concessions and favours. To what extent will a PR government go after the likes of Tajudin Ramli, those involved in PKFZ, NFC and Scorpene submarine scandals? Will a PR government try to recover as much revenue as possible and will it try to convict the individuals involved in these scandals as well?

    Similar questions surround the fate of BN politicians who may have amassed ill-gotten gains through their government positions. Will PR go after the ill-gotten gains of the individuals in question or will it also go after the individuals in question? Is there a cut-off mark under which some cases may not be investigated?

    Here, it may be useful to establish an equivalent of the Truth and Reconciliation Committee established in South Africa after the abolishment of apartheid. In exchange for amnesty, politicians, civil servants and even businessmen who have amassed ill-gotten gains can use this platform to “confess” their past wrongdoing and return a percentage of their wealth to the taxpayer. Similar actions can be taken by individuals who want to blow the whistle on themselves and admit to past wrongdoing, not just in terms of financial gain but also in terms of other past abuses of power including granting citizenship to foreigners to allow them to vote, wrongfully jailing innocent victims, beating up public protestors, just to name a few.

    This may be a cathartic experience for the nation for past mistakes to be revealed and for the nation to move on and firmly establish itself as a democratic nation with regular alternations in power. Question is, will a PR government subject itself to the same levels of scrutiny, including admission of past mistakes among those in PR who were formerly high ranking politicians in the BN government?

    (ii) Power

    The second major challenge to a PR government is in the re-allocation of power between the federal government and the states. Right now, the PR state governments in Kelantan, Kedah, Penang and Selangor say that their hands are tied because of the lack of funding and co-operation from the federal government on key issues including the consolidation of water assets and pricing, the consolidation of wage management, the responsibility for public transportation and road maintenance and the proper allocation of federal funding including the oil royalties paid to Kelantan, Terengganu, Sabah and Sarawak.

    With a PR government at the federal level, such excuses will no longer be valid. A PR federal government will have to pick the low hanging fruit in terms of distributing power and funds back to the states in areas which are clearly defined to be under state jurisdiction. This may not be as easy as it sounds. Even increasing the oil royalty from 5 per cent to 20 per cent will entail a redistribution of as much as RM10 billion from the federal government to the states. Hard decisions will have to be made with regard to where some of these cuts have to be made at the federal level.

    Other issues concerning decentralisation of power from the federal to the state governments, a cornerstone of PR’s promises both in the Buku Jingga (Orange Book) and more recently in the Tawaran Jingga (Orange Offer), will require achieving an internal consensus within PR. The DAP will want to push for the restoration of local council elections, something which PAS and PKR seem lukewarm about. PAS will want to push for the implementation of hudud, especially in the states which it controls, especially Kelantan. Needless to say, the DAP will object to this vehemently.

    A PR federal government would also be under some pressure to apply some of these decentralisation measures consistently among the states, including those governed by the BN. For example, it would be inconsistent for the BN to give an increased share of oil royalties to Kelantan but not to the (likely) BN governed states of Terengganu, Sarawak and Sabah. Nor would it be consistent for PR to promise to pass this money back to these states on the condition that voters in these states vote in PR state governments.

    It actually makes long-term sense for a PR federal government to decentralise as much as is economically and politically plausible as an insurance policy in the likelihood that it loses control of the federal government in the future. Having greater democracy and decentralised power means that the states and local authorities which PR still controls can have more independence and, hopefully, be more effective as well.

    (iii) Plans

    While one can question their effectiveness, there is less doubt that Prime Minister Najib Razak has put in place a comprehensive transformation plans to address various shortcomings in the political, economic and social arenas. Most politically aware Malaysians are already familiar with the alphabet soup which is associated with Najib’s transformation programmes — 1 Malaysia, ETP, GTP, NEM, PTP — even if they are unsure about the achievements of these programmes.

    PR is not likely to follow in Najib’s footsteps in designing a similar “transformation” programme but it will still need to come up with concrete and well thought out plans of its own in order to shape the country’s political, economic and social agenda according to the vision and philosophy of PR and its leaders.

    PR is better placed in some areas to deliver substantive positive change compared to the BN. It would be relatively easy for PR to deliver on promises of reform in terms of political rights and civil liberties by abolishing any laws which allow for detention without trial such as the Security Offences Special Measures Act (SOSMA), abolish the need to have a permit to print a newspaper and to allow political parties to have a presence in university campuses, just to name a few. But PR would also have to resist the temptation of using their power in order to intimidate and threaten the mainstream media newspapers and television which are owned or closely associated with BN parties. Similarly, it also needs to resist the temptation of using RTM1 and 2 as a government mouthpiece.

    PR can also deliver significant institutional reform such as making the Election Commission (EC) and the Malaysian Anti-Corruption Commission (MACC) independent and allowing them to carry out their jobs without political interference. It would also have to tackle the tricky task of reforming the police force including finding new roles for existing Special Branch officers, assuming that their services will no longer be needed or needed less often. It is also needs to strengthen the civil service’s resolve to be professional and accountable rather than to force it to change its political allegiance from BN to PR.

    In terms of the economy, PR will have to find new sources of economic growth as well as enhance current sources of growth. Some of this can be realised by the freeing up of certain monopolies so that competitive forces can be released in currently protected sectors. Other initiatives require a longer time period to come to fruition such as increasing the innovation and R&D capacity in the country. One way in which this process can be expedited is to tap on the large Malaysian disapora, some of whom may be interested to come back and invest their time, expertise and money under a new non-BN federal government.

    One of the biggest policy areas for PR to tackle would be in education since this is something which almost all Malaysians care about and where there is a widespread consensus that something drastic needs to be done in order to arrest the decline in the standard of public education in the country. PR has said that it would respect the rights of vernacular (Mandarin and Tamil) and religious schools to flourish in the country. It will have its hands full in taking on the civil service as well as some within the PR who do not want to strengthen vernacular and religious education, especially in allowing more Chinese primary and independent secondary schools to be established.

    These are only a few of the key policy questions which PR has to address if it comes to power at the federal level. The list can easily be longer. PR’s challenge is to design a strategic plan or plans in order to fulfil a set of political, economic and social goals.

    (iv) Priorities

    Not all of the plans outlined in Part (iii) can be fulfilled in a short period of time. Some may even take more than one term to deliver the desired results. PR does not have the luxury of taking its time to deliver once it is in control of the federal government. It needs to prioritise its various objectives so that some immediate quick wins can be given the proper focus. Some of PR’s promises in its first 100 days in government have already been outlined in the Buku Jingga such as setting up an RCI on the problem of illegal immigrants in Sabah, providing free wifi to the rural areas in the country and abolishing certain corporate subsidies such as the gas subsidy to the independent power producers (IPPs). These deliverables may have to be adjusted if a PR federal government realises that some of the initiatives may take longer than 100 days to fulfil.

    It is important for PR to show it can deliver concrete results and initiatives early in its administration so that it can build momentum for other initiatives later on. Without clear, focused priorities, PR may fall into the trap of wanting to do too much but failing to deliver anything significant in a timely manner.

    (v) Procedures

    Finally, PR will have to come up with certain procedures, both formal and informal, for dealing with disagreements between the PR component parties on key policy issues. I have already pointed out that local government elections and hudud are two potential flashpoints within the PR. There is no doubt that other controversial disagreements will emerge from within the PR coalition. Unlike in the BN, where Umno can dominate and control major policy directions, the parties within the PR coalition are much more equal in terms of stature and also control of Parliament and state seats. Even though the prime minister from PR, most likely Anwar Ibrahim, will yield considerable power, it would be difficult for him to ride roughshod over his component party members in the same way as Dr Mahathir Mohamad within the BN context.

    The PR supreme council needs to be strengthened and proper procedures identified in order to solve conflicts emerging from within PR on issues of national and sub-national importance.

    Conclusion

    This article has barely scratched the surface of what a PR government may look like and the main challenges which it will face as a new ruling coalition. But hopefully, it has been helpful in outlining the major issues of contention and providing some guidelines as to how these challenges may be addresses so that PR can effectively deliver positive change to the country. — New Mandala

    * Ong Kian Ming holds a PhD in political science from Duke University. He is the project director of the Malaysian Electoral Roll Analysis Project (Merap), political analyst and a lecturer at the University College Sedaya International (UCSI). 

    This article was published by The Malaysian Insider and Malaysiakini.

  • Dissecting the ETP Annual Report (Part 1) — Grade A+ for obfuscation!

    Top marks for befuddling even highly-qualified Malaysians. PEMANDU released its annual report last month to an expected chorus of praise. An economist at a leading financial institution gushed that the ETP deserves an “A” for transformation. Our analysis however, finds that pretentious words and slick presentations, protestations of diligence and toil and selective representation of data obscure the true picture.

    Real GNI grew only 4.7 per cent last year. This is well below the 6 per cent per year growth rate called upon for the duration of the ETP. Nominal GNI growth, which includes inflation, was 12.3 per cent. But inflation does nothing for our real quality of life, and it is only because inflation was higher than expected that the nominal GNI growth rate hit double-digits.

    PEMANDU’s GNI “target” is questionable. PEMANDU claims it has outperformed as GNI last year exceeded its RM797 billion target. Strangely enough, this “target” was declared only after the actual data was already out. Furthermore, the target was exceptionally low. As far back as October 2010, the Ministry of Finance was already projecting RM811 billion GNI. It is easy to exceed targets when they are low, and only declared after the fact. No real value is added, though.

    Scoring is easy when you can shift the goalposts. The subterfuge by PEMANDU includes attempting to steal credit for 2010 economic growth, conflating GDP with GNI and using exchange rate movements to amplify performance. And these are just on the subject of headline economic performance. We shall uncover more ruses as we delve into the execution details. Stay tuned!

    ● PEMANDU’s RM797 billion nominal GNI “target” for 2011 was very low, and only declared in 2012, after the actual data was out!

    ● Real GNI growth was just 4.7 per cent. Nominal growth was higher because inflation was much higher than expected.

    ● The ETP focuses on GNI, but CEO Datuk Seri Idris Jala misdirected Malaysians by citing the stronger GDP numbers.

    ● Let’s be honest. Celebrate successes. But also admit mistakes and share the learning experience so we can all transform.

    Data integrity has reached abysmal depths

    PEMANDU claimed an achievement of astounding performance in the inaugural Annual Report of the Economic Transformation Program (ETP) released last month. Each National Key Economic Area (NKEA) achieved marks ranging from 65 per cent to a flabbergasting 170 per cent, depending on which of 3 self-defined criteria is applied.

    The Annual Report claims the ETP met or exceeded nearly all of the targets outlined in the ETP Roadmap Report released in October 2010. These achievements include:

    1. Surpassing its income and private investment targets for 2011:

    a) RM830 billion GNI (Gross National Income) vs RM797 billion target;

    b) RM94 billion private investment vs RM83 billion target;

    2. 72 out of the 131 EPPs (Entry Point Projects) taking off;

    3. EPP investments totalling RM179 billion, creating RM130 billion of GNI and nearly 314,000 new jobs.

    The “achievements” were impressive enough for analysts at the likes of financial institutions such as CIMB Group to give it an “A for transformation”. These analysts took PEMANDU at face value.

    Our analysis concludes that PEMANDU does deserve an A+ indeed, but for obfuscation. Data integrity and transparency have reached abysmal depths as far as the ETP is concerned. As we have seen all too often with PEMANDU and the ETP, the true picture is obscured behind pretentious words and slick presentations, protestations of diligence and toil and selective representation of data, sometimes bordering on misrepresentation.

    Read on for the foundations underpinning our strong words.

    PEMANDU exceeded its GNI “target” but delivered nothing

    The ETP continues to be plagued by data integrity problems which cast doubt on the self-proclaimed excellent performance. The first and most major issue is PEMANDU claiming credit for exceeding performance benchmarks which are declared only after the event:

    Prior to this Annual Report, PEMANDU had never explicitly stated that the ETP had a 2011 nominal GNI target;

    However, after the Ministry of Finance released the national income statistics showing RM830 billion of GNI, PEMANDU claimed that the RM797 billion GNI targeted by the ETP had been exceeded;

    Where did this RM797 billion target come from? It was not stated in the ETP Roadmap that launched it all in October 2010. Nor did PEMANDU mention it in its numerous communiqués and updates last year.

    Furthermore, the RM797 billion GNI “target” that PEMANDU claimed it exceeded for 2011 is exceptionally low:

    ● The Ministry of Finance (MoF) as far back as October 2010 had already projected RM811 billion GNI for 2011;

    ● The MoF’s projection was equivalent to 9.6 per cent nominal growth. PEMANDU’s “target” was equivalent to just 7.8 per cent nominal growth from 2010. This is lower than PEMANDU’s average 8.8 per cent annual growth rate target stated in the ETP Roadmap Report.

    PEMANDU might have exceeded its “target”. But what value did it deliver? The MoF was already projecting GNI higher than PEMANDU’s claim of RM797 billion “target”, even without the benefit of the ETP!

    And as we have highlighted, PEMANDU’s so-called “target” is underwhelming. Taken at face value, PEMANDU is dragging down the Malaysian economy instead of transforming it. How else would you explain PEMANDU’s target for national income (GNI) being smaller than the forecast made by the MoF?

    In response to an article recently published by Ong Kian Ming, PEMANDU senior analyst Marc Fong wrote the following on the methodology employed to calculate the GNI target:

    “The ETP’s true north has and will continue to be US$15,000 GNI per capita in 2020. The aggregate national GNI is the numerator but denominator is total population. In order to establish a yardstick by which we measure ourselves, we adopted a linear approach to calculating the GNI target that would indicate we were on the right path.”

    In that paper, Kian Ming questioned the basis for PEMANDU’s RM797 billion GNI “target” for 2011 and highlighted that it called for just 7.8 per cent growth, whereas the ETP Roadmap Report targets 8.8 per cent growth per year. Marc Fong’s reply fails to shed any light. Using a “linear approach”, GNI has to increase by RM78 billion every year under the ETP to reach the “true north” target. On this basis, the GNI target for 2011 should have been RM817 billion, and not RM797 billion. PEMANDU’s figures just do not compute.

    In our view, this is yet another demonstration of PEMANDU’s preference for obfuscation over clarification. A simple answer with numbers would have sufficed. Instead verbose language and tortuous arguments are employed to cloak its methodologies and data. It is easy to score when you can shift the goalposts.

    Scoring is easy when the goalposts can be moved to your advantage. And PEMANDU does move the goalposts to make itself look good. Sometimes the shift is obvious. At other times, it is insidious.

    A particularly sly example can be found in the very first “Transformation Blues” column by PEMANDU CEO Senator Datuk Seri Idris Jala. He wrote: “… our GDP grew by 7.2 per cent in 2010 and 5.1 per cent in 2011 and that’s an average of 6.2 per cent; we are meeting our Economic Transformation Program (ETP) target.” That statement contains two counts of serious intellectual dishonesty:

    1. Firstly, the ETP was launched only in late October 2010, which means that PEMANDU cannot possibly take credit for the 7.2 per cent economic growth in 2010, which was actually relatively high because it bounced off the low base of a recession year in 2009. So the focus really should have been just on 2011, where real GDP grew by just 5.1 per cent;

    2. Secondly, why did the good Datuk Seri talk about GDP (Gross Domestic Product) when the ETP focuses on GNI growth, not GDP. This misdirection is particularly devious given that PEMANDU just two weeks earlier in response to a REFSA critique said that “comparing GDP to GNI is incorrect” since “this is comparing apples and oranges, and this begs the question as to why REFSA is choosing to compare two different measures”.

    This wilful obfuscation between GDP (Gross Domestic Product) instead of GNI (Gross National Income) hides the fact that real GNI growth in 2010 and 2011 was just 3.9 per cent and 4.7 per cent respectively — which is far below the 6 per cent real GNI growth rate targeted by the ETP.

    And why are the goalposts in American dollars?

    Idris Jala, in his Transformation Blues column on May 7, said: “In 2010, our GNI per capita was US$8,126 and this rose to US$9,508, a 17 per cent increase in 2011. We are well on track to reach our high-income target by 2020.”

    Ordinary Malaysians live and work and spend their money mostly in Malaysia and in our domestic currency, the ringgit. A jump in our GNI per capita because the US$ weakens against the ringgit would not have a direct impact on the quality of life of most Malaysians. For example, let us say GNI per capita today is RM24,000, or US$8,100 based on an exchange rate of RM3.00:US$1. If the US$ were to depreciate to, say, RM2.80:US$1, our GNI per capita would increase to US$8,571 even though it remains unchanged in ringgit.

    The weaker US$ may help those who go abroad for their holidays, and may result in cheaper imported goods but those are big “ifs”. The value of the US$ hinges on many factors, most of which are beyond the control of PEMANDU. For example, a US-specific economic issue might result in the US$ weakening against most major currencies. If that were to happen, we might be richer in US$ terms, but not when compared to other currencies such as the euro, yen and Australian dollar because they all also appreciated in tandem.

    Which makes us wonder why Datuk Seri Idris chose to express the changes in our GNI per capita in US dollars instead of in ringgit terms. It is surely just coincidence that, measured in ringgit, the performance is a lot less impressive. In ringgit, GNI per capita increased by just 11.2 per cent in 2011.

    And by the way, the goalposts are not real

    Detractors might accuse us of carping — after all, 11.2 per cent might be lower than 17 per cent, but it is still a double-digit growth rate GNI per capita growth rate. Furthermore, total nominal GNI grew by 12.3 per cent, which at first glance, is far higher than the 6 per cent growth rate targeted by the ETP.

    This brings us to another very crucial point — the difference between nominal income and real income. Nominal GNI growth of 12.3 per cent includes inflation. Real GNI growth was only 4.7 per cent. This is well below the ETP’s target of 6 per cent.

    As we have pointed out, it is real income that matters. For example, if your nominal income goes up by 10 per cent, but inflation makes your cup of kopi-O and all the other things you buy 15 per cent more expensive, you are actually worse off!

    It’s time for an honest referee to step in

    PEMANDU asserts that it is exceeding the “transformative” and “ambitious” targets set by the ETP. The mainstream media goes along with the charade. That is not surprising. However, it is disconcerting that professional analysts and economists have also chosen to bury their heads in the sand and take PEMANDU’s assertions at face value. The lack of due diligence is disappointing.

    We are therefore extending our DEEDS framework to evaluate the ETP Annual Report and PEMANDU’s declarations of outperformance. In this Focus Paper, we focused on Data Integrity, starting with PEMANDU’s impact on national income (GNI). As we have seen:

    1. The ETP has FAILED when measured by real GNI growth. Real GNI grew by just 4.7 per cent in 2011, compared to the 6 per cent per year target cited in the ETP Roadmap Report;

    2. PEMANDU is GUILTY of obfuscation. CEO Datuk Seri Idris spotlighted GDP numbers which obscure the fact that PEMANDU had failed to deliver on GNI. This is especially insidious as just a fortnight before, PEMANDU had censured its critics for apparently not understanding the difference between GDP and GNI;

    3. PEMANDU steals credit when none is due. Datuk Seri Idris cited 2010 economic numbers as part of his achievements, but the ETP Roadmap Report was published only in October 2010;

    4. PEMANDU is DISCONNECTED from everyday reality in Malaysia. CEO Datuk Seri Idris sometimes chooses to measure his performance in American dollars. But it is ringgit that is important to ordinary Malaysians;

    5. PEMANDU sets LOW TARGETS that result in no value being added when they are exceeded:

    a) Its claim of RM797 billion “target” for 2011 GNI was lower than the MoF forecast of RM811 billion. Why was PEMANDU, which is supposed to add value, forecasting a number lower than the MoF?

    b) The professed RM797 billion GNI target for 2011 is on very shaky foundations. This “target” was only publicised after the GNI data was released by the MoF. Furthermore, it is very low, calling for just 7.8 per cent growth, well below the average 8.8 per cent targeted in the ETP Roadmap Report.

    In subsequent Focus Papers in this series, we shall cover Execution, Enterprise, Diversity and Socio-Economic Impact. We shall delve deeper into the investments numbers and status of EPPs (Entry Point Projects) and show more evidence of how PEMANDU and its CEO Datuk Seri Idris Jala selectively choose figures and data to show targets being reached but fail to acknowledge that other targets have not been reached.

    This is not a fault-finding exercise. It is crucial that PEMANDU, which is tasked with transforming the Malaysian economy, provides accurate information and works from solid foundations:

    1. Firstly, if PEMANDU gets even the headline GNI numbers wrong or is obfuscating these numbers, it makes one wonder whether other statistics touted, which are much more opaque, such as the achievements of each individual EPP, can be trusted. And if we don’t even know where we are, how can we plan for the future?

    2. Secondly, life is not a bed of roses. Things don’t always go according to plan, and yet, based on the ETP Annual Report, almost everything is hunky dory. Nothing is said about stalled or abandoned projects. Successes should be celebrated, but failures and missteps must be acknowledged and remedial action taken.  Learning from our mistakes will help us grow faster.

    As we will show later in this series, not everything is as rosy as the picture painted by PEMANDU and the ETP Annual Report.

    About this series and DEEDS

    Let’s evaluate PEMANDU on its DEEDS, published on January 25, 2012, introduced DEEDS and a series assessing PEMANDU and the ETP on the goals, plans and targets stated in the ETP Roadmap document. Doing so facilitates constructive discourse as it uses the framework which PEMANDU has chosen to work within. In keeping with the spirit of the alphabet soup of NKEAs, NKRAs, SRIs, EPPs, and GNI surrounding the entire GTP, we evaluated PEMANDU and the ETP on its DEEDS – Data transparency, Execution, Enterprise, Diversity and Socio-Economic Impact. The 8 Focus Papers in this series, together with related infographics and a Powerpoint presentation can be found at www.refsa.org.

    Note on PEMANDU’s response

    We wrote to PEMANDU seeking clarification on the methodology and assumptions used to calculate their claimed GNI target.  The only response has been Marc Fong’s article referred to herein. — REFSA (Research for Social Advancement)

    * Dr Ong Kian Ming holds a PhD in Political Science from Duke University and Economics degrees from the University of Cambridge and the London School of Economics. He is attached to UCSI University, which has been named as the project owner of two Entry Point Projects (EPPs). To avoid any potential conflict of interest, he will not make references to or analyse these two EPPs. 

    * REFSA (Research for Social Advancement) executive director Teh Chi-Chang holds a first class degree in Accounting & Financial Analysis from the University of Warwick, an MBA from the University of Cambridge and the CFA (Chartered Financial Analyst) charter. Prior to joining REFSA, he headed highly-regarded investment research teams covering Malaysia, and was himself highly-ranked as an analyst. 

    This article was published by The Malaysian Insider.

    Read Dr. Ong’s critiques of the ETP in full here.

  • Verify, verify, verify

     I love this quote from one of the basic rules of journalism — “If your mother says she loves you, check it out”. It’s a warning to journalists to develop a healthy dose of scepticism and to always verify facts even though it’s from a supposedly trustworthy source. I’m not a journalist but I’ve developed my own sense of scepticism after being exposed to academics in the United States, most of whom will jump at every opportunity to dismantle the supposed “proof” or “evidence” behind any new theory. It is perhaps not surprising that we in Malaysia have not developed the same healthy dose of scepticism when presented with a piece of information since we are taught from very young not to question authority figures. But when we are bothered enough to be healthily sceptical and make the extra effort to verify certain facts and figures, the results can be quite enlightening.

    Take, for example, the Economic Transformation Programme’s (ETP) Annual Report, which was released in April 2012. According to Exhibit C of this report (pg.8), the nominal Gross National Income in 2011 of RM830 billion surpassed its target of RM797 billion by RM33 billion or 4.1 per cent. In the same exhibit, nominal private investment in 2011 of RM94 billion was shown to have surpassed its target of RM83 billion by RM11 billion or 13.3 per cent. These figures together with other impressive results from the 12 NKEAs led many analysts to praise the ability of the ETP to over-deliver on its targets.

    But surprisingly, no one bothered to find out how the GNI and private investment targets were calculated in the first place, especially since the methodology of calculating these projected targets were not revealed in the ETP Annual Report (nor were they revealed in the ETP Roadmap Report which was released in October 2010). If one had bothered to do a bit of research, one would have realised that the RM797 billion nominal GNI target for 2011 seemed a bit low. After all, according to the Ministry of Finance’s Economic Report 2010/2011, which was published together with the 2011 Budget, the projected GNI in 2011 was RM811 billion. This was updated to RM820 billion in the Economic Report 2011/2012, published together with the 2012 Budget.

    Some simple maths would have shown that the RM797 billion is even lower than what the target would be using PEMANDU’s target of a 6 per cent real growth rate and a 2.8 per cent inflation rate. Since nominal GNI was RM739 billion in 2010, a nominal growth rate of 8.8 per cent would give us a target of RM804 billion, not RM797 billion (try it out for yourself, if you don’t believe me). Only with a nominal growth rate of 7.8 per cent, which is far lower than what the Ministry of Finance was projecting in 2010 as well as in 2011, would one arrive at the RM797 billion.

    In addition, a little bit of triangulation would have allowed us to see that the “achievement” of surpassing the nominal GNI target by 4 per cent is not a great accomplishment given that the real GDP growth rate of 5.1 per cent was at the bottom end of 5 per cent to 6 per cent real GDP growth rate projected by MoF in the Economic Report 2010/2011 and the 5 per cent to 5.5 per cent real GDP growth rate projection in the Economic Report 2010/2011. In fact, real GNI of RM540.9 billion was actually lower than the RM546 billion projected in the Economic Report 2010/2011 and the RM545.5 billion projected in the Economic Report 2011/2012. One’s suspicion would also have been raised by the fact that the real GDP growth rate of 5.1 per cent was shown in Exhibit 3 even though the economic output targets are expressed in GNI terms. Might it have something to do with the fact that real GNI growth was just 4.7 per cent in 2011, far below the 6 per cent real growth target set by the ETP?

    What about the RM83 billion private investment target? I found problems with this figure too. In the MoF’s Economic Report 2010/2011, private investment was projected to be RM86 billion in 2011. This was raised to RM94 billion in the Economic Report 2011/2012. A private investment target of RM83 billion assumes an increase in private investment of a mere RM4.3 billion or a 5.5 per cent increase from RM78.7 billion in 2010, lower than the projected nominal GNI growth rate. It seems quite unrealistic to assume that private investment would grow at less than the overall growth rate given that most companies would want to investment in new equipment and infrastructure when the economic is growing. (Note that private investment here refers to gross fixed capital formation such as buying new plant equipment and transportation vehicles.) Furthermore, under the 10th Malaysia Plan, nominal private investment was projected to grow at 16.2 per cent (Appendix, Table 4, pg362) which would give a target of RM91.4 billion in 2011 rather than the RM83 billion shown in the ETP Annual Report. The private investment figures for 2011 were indeed impressive. It grew by 19.4 per cent in nominal terms and 14.4 per cent in real terms surpassing the 10th MP targets of 16.2 per cent and 12.8 per cent respectively. But it grew by only 3.2 per cent above the 10th MP nominal growth target and not by 13.3 per cent, using the RM83 billion target indicated in the ETP Annual Report.

    I must admit that I had help in making these calculations and clarifying some concepts. I emailed a few friends who were economists. I also emailed a Bank Negara representative when I spotted an error in their private investment figure for 2011 which was published in their Monthly Statistical Bulletin (they corrected it almost immediately). I emailed a director in the Economic Planning Unit (EPU) to ask about the private investment figures and targets in the 10th MP (he also responded almost immediately). Finally, I emailed two directors at PEMANDU to ask how they calculated their GNI and private investment targets. Sadly, almost two weeks later, I have yet to hear from them.

    Perhaps what surprised me most is that all of the analyst reports I read did not even question the GNI and private investment targets as reported by the ETP. All of them praised the ETP for overachieving their targets including the GNI and private investment targets. I expected more from experienced economists whom I assumed would be very familiar with economic data and forecasting. Perhaps they should also take heed of the same basic rule outlined at the start of this article and develop a healthy scepticism towards information that is presented to them?

    * This article first appeared The Edge Financial Daily on May 24, 2012.

    * Ong Kian Ming holds a PhD in political science from Duke University. He is a lecturer and political analyst at UCSI University. 

    This article was published by The Malaysian Insider.
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