4/2020 – Save the people, business and nation

The sequence of political events in the last three weeks was full of intrigue and suspense. Acts of twist and turns over breakfast, lunch and dinner, the actors were truly acting out their roles in a pre-written script known only by the master politician.

Betrayals, deceits, back-stabbing, pledge of loyalty, back tracking pledge of loyalty, conspiracies, palace intrigue and back door negotiations.

Personally, this has to be the most exciting political drama that I have ever seen. Better than Hollywood or Bollywood. As the last act of reconciliation is being played out right now, I am left with this flat feeling that I actually knew how this saga would end. The master politician have won…again.I am even more depressed now that Covid-19 has been declared a pandemic by World Health Organisation (WHO). According to a McKinsey article before this declaration by WHO, they were looking at three scenarios for Covid-19 for the world which was:

Quick recovery: Public health response by countries has similar effectiveness to China. Virus is seasonal (disappear towards summer), and fatality ratio is similar to flu. There will be change of behaviours but most economic activity persists.

Outcome of a quick recovery: Recovery of China is largely complete, including Hubei by the second quarter. Relatively fast rebound by end of the first quarter in Europe and the United States after initial acute drop in consumer demand.

Global slowdown: Public health response by other countries less effective than China. Virus is seasonal. Fatality ratio is higher than flu. Greater shift in daily behaviour, economic activity slows down

Outcome of a global slowdown: Recovery in China is largely complete by the second quarter, Europe and the United States see economic slowdown until the middle of the second quarter, certain sector (aviation, hospitality, tourism) deeply affected. Other sectors like consumer demand see acute initial drop but recover by end of the second quarter.

Global pandemic and recession: Public health response by other countries less effective than China. Virus is not seasonal, fatality is higher than flu and major change in daily behaviour.

Outcome of pandemic and recession: Recovery leads to resumption of pre-outbreak routines which drives new transmissions, complete by the third quarter. Global recession, Consumer confidence does not recover until end of the third quarter or beyond.This article was written just before Black Monday March 9. The sharp drop in crude oil price was just being played out by Russia and Saudi Arabia. WHO declared pandemic crisis just two days ago. Italy is in full lockdown. The United States just stopped all flights from Europe, India blocked all entries by not issuing visas.

The transmission of Covid-19 is accelerating outside China. To make matters worse, global stock markets crash wiping off trillions in net worth.

In just five days since March 9, we are staring at a global pandemic and possibly recession.

Unlike the Singapore government who have past reserves to tap on, the Malaysian government is broke and with falling crude oil prices, the safe dividends from Petronas will not be forthcoming this year. With recession looming, quick action is needed by the government and the private sector. Bold steps need to be taken to soften the impact, keep liquidity in the economy, help save companies stay afloat and local workers stay employed.

And all the actions to be taken are based on the assumption that the Covid-19 pandemic will last six more months at most.

With unemployment on the rise, many families will have to dip into their savings for their normal monthly expenditure. My suggestion is to suspend payment of EPF by both employer and employee for six months starting in April 2020. This will put RM2bil to RM3bil a month liquidity into the economy. Companies will be able to preserve cash flow and employees will have additional cash income for daily expenditure. Current 4% waiver in contribution for employee is insufficient.

This temporary shortfall in contribution is actually a blessing to EPF who will be under less pressure to find suitable investments in the midst of global stock market crash.

Bank Negara should react more aggressively to lower the OPR by another 0.5% to reduce the burden of interest payment by both corporate loans and private mortgages. This is not the time to wait and see as the economy will spiral into recession as fast as the Covid-19 is transmitted.

While the new government sets up another economic action group to mull over the first stimulus plan (which is not enough), our aviation and hospitality industry is already on its knees begging for fresh air which is not forthcoming for the next few months. Extensive direct financial assistance should be given to the industry immediately.

Senior management must take equal responsibility if not more in terms of pay cut or unpaid leave. When sales drop by more than 50%, our MAS CEO is talking about a personal 10% pay cut. The Qantas CEO in the meantime announced that he will not be paid a salary and his senior management team takes a 30% salary cut. When the airline goes under, everyone will be retrenched. Unemployed. Zero income.

For the SME owners, you are on your own. Do what you need to do to survive. Be agile, be smart and be lucky. Pivot if you must, look after your staff and then look after yourself. Be ready for the next upswing and recovery.

Just when this crisis loom, we have a new government with a bloated cabinet. I guess a bloated cabinet is needed to manage a bloated civil service. The best employer during a crisis is definitely the government because rain or shine, the wooden bowl is always filled at the end of the day.

During a pandemic crisis, all parties have to make personal sacrifices just to survive to live another day. The national agenda must be safety first. Save the people. Save the business. Save the nation. I am just glad that we do not have to worry for the politicians. They are so skilled in saving themselves. Life goes on as usual.

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