1/2016 – Will it be a bleak 2016? Yes and no
by Tan Thiam Hock
Saturday, 2 January 2016
THE most difficult part of writing a column or any article is to get started on the introductory paragraph.
A good introduction helps set the tone and mood of the article. It provides a direction towards the end of the story of which writers had planned to deliver a specific message to the readers. As we bid farewell to 2015, can we visualise how our businesses are going to fare for the year 2016
Honestly, I am staring at a blank page for 2016, not knowing how and where to start. So my first instinct is to look back at 2015, trying to understand what went right and what went wrong.
Key insights can be gleaned from global events and trends, local political and economic issues that will affect our business and our standard of living. After all, we live in a society of consumption, of demand and supply, where buying and selling is the name of the game.
What went wrong for Malaysia in 2015? Politically, it has not been good. National leadership, legal and enforcement agencies all suffering from massive trust deficits.
Besides vying for dumbest remarks award, some politicians continue playing the racial and religious cards causing disharmony in this multi racial society of ours. Nobody trust anybody anymore. Economically, our two biggest export earners, oil and commodities suffer from depressed prices, causing a major deficit in our national income.
The goods and service tax became the saviour of our national budget, covering the deficit by taxing the local population in lieu of lost foreign earnings.
The massive devaluation of our ringgit due to the worldwide strengthening of the US dollar and our political instability has added imported inflation problems reminiscent of our last currency crisis of 1997/98.
Together with the GST and the increase in transportation, electricity etc, our cost of living will easily increase by 1015% in 2016.
Consumption in unit terms will definitely decrease proportionately as demand adjust to higher cost of supply.
Liquidity was drying up fast in 2015 as savings continued to drop. Banks will continue to see increase in cost of funds as they battle for local savings so we will definitely see a rise in cost of borrowing in 2016 so good luck to those who are heavily leveraged. Those who had borrowed in US dollars earlier are going through painful adjustments in forex losses.
The property sector is deluged with an oversupply of condominiums and commercial buildings. Speculators are in for a hard time if they have been over geared as tenants are hard to find and unwilling to pay normal rental rates.
Developers are switching as fast as they can to affordable housing and landed terrace houses but with higher cost of construction, margins will be thin. Survival and holding power is the name of the game.
The year 2015 reveals an oversupply syndrome of almost everything.
From the not-so-clever politicians to absurb NGO’s to over optimistic entrepreneurs. From oversupply of shopping malls to restaurants to gourmet coffee outlets to ill=advised Internet set-ups. If these suppliers have no real tangible demands, then they do not add value to existing value chain. Most ventures will end up as wasteful utilisation of valuable resources, unproductive use of financial and human capital.
Bleak 2016 for Malaysians then Yes and No.
Yes, the political scenario will get murkier. No, we will not have an anarchy on our hands as Malaysians are way too docile and passive. Bullies will grow in stature and confidence. The strong will take from the weak.
Yes, the ringgit will continue to be weak. No worries, lower consumption will reduce imports as supply adjust to reducing demands. Importers will be forced to reduce operating costs.
More retrenchments or right-sizing moves are on the horizon. Exporters will cash in on higher forex earnings.
Yes, cost of funds will definitely go up. No worries, trade customers automatically will ask for longer credit terms or just simply stop paying. Banks will enjoy higher credit card usage as consumers turn to alternate financing due to shortage of cash.
High margin business with high delinquency but opportunities abound.
Yes, more write-offs on non performing property loans. No worries, they are easily recoverable due to the active auction market as there are still many cash rich investors looking out for good buys.
Great business opportunities for lawyers, accountants, auctioneers etc as non-performing loans pile up. Bill collectors will become fashionable again. Yes, more closures of high-end eating outlets and retailers.
No worries, being fast thinking entrepreneurs, they will quickly switch to providing local hawker food and local coffee as mass consumers suffer from diminishing purchasing power.
Yes, more Internet start-ups will close down. No, these young entrepreneurs will not give up. They will learn from their mistakes and reinvent new business models and persevere till they succeed.
E-commerce is gaining traction and is here to stay. In the world of business, whenever there is adversity, there will be opportunity.
You just have to look for it. Where and what is the real demand of the day? If you know the answer, go forth and supply. You are now in business.
Out of curiosity, can any readers point out to me what went right for Malaysia in 2015 as I have been staring at a blank page with a blank mind? Goodbye 2015 and Hello 2016.