10/2020 – Lives versus livelihoods in the face of pandemic

Lives versus livelihoods. We hear the same arguments everyday.

On one extreme end, lockdown everyone until after we have 14 continuous days of zero new-infections in the world. This could take months, the economic costs will be so devastating and we will have nations of home prisoners going mentally berserk.

On the other extreme, open up the economy on May 1 and open up air travel, infect and cross infect, build immunity through herd mentality and soon the living will not have to worry about being infected again. Never mind the few million deaths of the vulnerable old and diseased people.

Meanwhile, the sharp fall in the health of the economy will also affect the global population as the weak companies will fall out first, followed by mass unemployment, economy turning from a recession into a depression, more unemployment, failure of financial institutions and finally countries across the globe will become broke and the people living in abject poverty.

At both ends, cost of lives will be so exorbitant whether in death or destroying so many livelihoods beyond our comprehension. The only solution is a vaccine. The only problem is that it will take another 12 to 18 months for a vaccine to be found.

Can we find a solution, a middle ground to this madness of weighing lives versus livelihoods?

China has shown us how to control the virus. None of the other 213 countries in the world has adopted the China approach. As the rest of the world is still trying to flatten the curve, China’s next big fight is to control imported infections. So China closes its borders and wait for the rest of the world to heal and report zero infections. That will take many many months as the rest of the world will open up their lockdown policies and resume economic activities. Re-infection will happen and the rest of the world will stutter, do many smaller lockdowns whenever new clusters are found until a vaccine is found.

So in the next 12 to 18 months, we will find a new way to live, the new normal for the global population to adapt to. How will it affect our lives?

Post MCO – pre vaccine

Laws will be enacted to ensure that a face mask is worn every time anybody goes out of the house. Hand sanitisers will be carried around together with your wallets and moisturising hand cream will be used daily to reduce your itchy skins on your hand due to excessive washing and the alcoholic drying effects.

Social distancing will alienate families and friends and many open businesses will have to operate with half capacity. People all over the world will have to line up patiently like the Japanese for the simplest task of buying grocery or waiting for a vacant table in a halved capacity restaurant.

The whole world becomes paranoid. People will avoid travelling to places of high infections whereas government will close its borders from fear of imported infections. People will avoid mass public places, vulnerable people will stay more at home.

Spending money will be diverted from non-essentials to basic essentials and personal safety. Higher personal hygiene standards will become the new habit. Homes and places of work will smell like hospitals due to daily sanitisation of everything. “Stay safe” will be the most used closing line in our messages to our family members, friends and colleagues.

More families will be displaced due to business failures and unemployment. Social problems and criminal activities will rise due to poverty and helplessness. Personal, business and government debt will increase tremendously as many businesses collapse in a deflated economy.

The extent of the problems mentioned can be mitigated if we remain calm, and the government is able to coordinate its strategies together with local economic partners. A successful collaboration between all parties is absolutely vital if this country wants to get out of this pandemic meltdown with the least damage as compared to other countries.

The Malaysian government has proven that they are proactive in managing the pandemic by implementing MCO early and now gradually easing towards a resumption of economic activities. Just like previous policies, the intent and ideas are good but as always, implementation leaves much to be desired. The need to control is not matched by its capabilities to manage.

The Health Ministry knows where the hot spots are. Similarly, they know where the green spots are. Their contact-tracing of the tabligh outbreak, even though painstakingly slow, have started yielding results. New clusters from tabligh-related infections have been identified in tahfiz schools and the ministry has moved in to contain the situation. The blind spot will come from the migrant workers who have not been tested just as Singapore has discovered recently.

If the tahfiz schools and migrant worker issues are not resolved by end April, there is a likelihood that the MCO might be extended till after Hari Raya Aidilfitri, which is towards end May. The risk of two million Muslims travelling back to their hometowns will render these six weeks of MCO ineffective and wasted.

What we need is more testing and at a higher capacity than the planned 16,500 tests per day. The new South Korean rapid test kits have been approved and hopefully with a lower cost. Early detection is the key as proven in many other successful countries.

Gradual resumption of economic activities can be managed effectively if employers work with the Health Ministry on agreed strict guidelines. As it is, the guidelines are the same as in the practice of social distancing at the work place, personal hygiene and prevention of transmission.

The ministry should work on the bulk purchase of rapid test kits and offer these services to all workplaces to test their workers at an affordable cost. I would gladly pay RM150 per test per worker just to have peace of mind for all parties. This tests will be our first line of defence at the workplace.

Workplaces that want to resume their operations will have to incur additional expenses on safety measures for workers. All staff members should be provided with face masks and hand sanitisers as the protection should cover travelling to and from work, inside the workplace, and educating the workers to observe high personal hygiene at home and at work. The cost of one positive case discovered at the workplace will be even more expensive due to sanitisation cost, loss of work hours and re-testing of all the staff.

All workers should be temperature tested at the entrance and asked if they are feeling unwell. Every precaution should be taken at the workplace. My friend who just restarted his factory operations has gone to the extent of paying for delivered lunch for his workers and reconfiguring the canteen seating to practice social distancing. Where it is not possible to have the metre-length space in between two workers, he has provided transparent polycarbonate full face mask as additional protection.

As the majority of the population is Covid-19 free due to the six weeks of MCO, the International Trade and Industry Ministry (Miti) can resume economic activities in various industries with strict guidelines for the employers to follow. The Health Ministry should continue to ban mass gatherings and mass movements until the coast is clear. That should be non-negotiable.

Lives versus livelihoods decisions should be based on a calm and calculated strategy with cooperation from all segments of the population. The ideal balance of the equation would be a minimum loss of lives and livelihoods so this nation will suffer less in this pandemic – economic misfortune.

Cliche as it may sound, we are all in this together. So let’s work towards a gradual recovery of our lives and economy.

7/2020 – Keep calm, help is on the way

My friend, who is the chief risk officer of a major international bank in Singapore texted this message in our chat group: “Dear bros, preparing for a global recession.

That’s best case scenario assuming pandemic contained by summer. Governments world over doing whatever it takes to preserve productive capacity for resumption of normal economic activities.”

Singapore has called on its reserves to spend 10% of its GDP like most European countries and now the United States to preserve productive capacity which means keeping workers employed, supporting livelihoods and stabilising businesses.

I have just texted: “Friend – not all governments preserve productive capacity. Certainly not Malaysia after the announcement of the economic stimulus programme by our PM.”

You can imagine my disappointment after listening to our PM last Friday. In my honest opinion, it felt like a stimulus programme designed by politicians rather than economists. Formulated by a back-door government trying to please its voter base and asking for acceptance.

Let us analyse the Resilience Budget by the Singapore government.

Their Job Support Scheme pays 25% of monthly wages for every local worker in employment capped at S$4,600 a month for nine months until December 2020. Enhanced Jobs Support scheme for food and beverages firms at 50% of monthly wages with the same cap of S$4,600. For aviation, hotels, travel agencies, tourist attractions, and MICE venue operators – a whopping 75% monthly wage offsets with same cap for nine whole months!

All firms qualify for the wage rebates if they do not retrench and they must pay full salaries and CPF. Employers can now forecast their annual 2020 profit and loss account based on an expected decrease in sales revenue. How much losses can our company bear? What is our projected cash flow deficit? Should we borrow more money to sustain the business? The entrepreneurs and business owners will have to decide.

Why nine months? The pandemic has now spread to over 190 countries in the world and even if Singapore is able to control Covid-19 by June, the economic recovery will be slow due to the global recession that has already set in. Singapore needs to preserve its productive capacity which includes the workforce for the gradual resumption of economic activities in global trade.

The appropriately named “Resilience Budget” is aimed at building resilience, supporting workers and protecting livelihoods. Stabilise businesses and preserving jobs. Providing welfare to its citizens. Singapore allocated S$15bil for salary subsidies and S$4.6bil for welfare payments. All direct cash payments.

In comparison, Malaysia has allocated salary subsidies of RM5.9bil and welfare payments of about RM12bil. I have no arguments against the welfare payments to the B40 group as they have insufficient savings to survive this trying period.

If Malaysia wants to prevent mass bankruptcies and mass unemployment in the SME sector, then we need to do more as the current direct cash injection falls way short. Granted our Government has no reserves to fall back on unlike Singapore, it does not mean we are not able to come up with creative solutions to solve our problems.

We know that our SME businesses will need to survive for the next six months with minimum losses. As such we must have solutions to help them reduce monthly operating cost with the view that there will be a minimum drop of 50% in sales revenue. Basic accounting rules in profit and loss (P&L) – expenses incurred like EPF, bank interests must be accounted for in the monthly accounts.

Deferred payment of EPF, interests, loans is part of cash flow computation, not P&L entries. To reduce operating cost, we would require the co-operation of the government, employers, employees and its business partners.

As the aviation industry will need complete bailout assistance from the government, I will focus on the next most affected industry which is the non-essential retail and food and beverage (F&B) shops which will suffer at least a 50% drop in revenue in the next six months.

Key observations

When revenue drops by 50% and only the wage subsidy of RM600 is provided, the losses will be too much for the business to bear. Businesses without deep pockets will close within three months and all staff will be retrenched.

Without any additional cash injection from the government, we would need to allow exemption of payment of EPF for both employer and employee for six months. The impact to the bottom line is significant. The employees will get to increase their take home pay by 11%.

Landlord to the non-essential retail outlets and F&B outlets must support with a 30% rebate on rental for six months. Better to keep a good tenant than no tenant.

The best outcome (lowest losses) is when the companies are allowed to conduct a 10 to 20% pay cut across the board. This will be offset by the additional 11% (EPF) take home pay for the employee.

There is no future for any companies that suffer a sales drop of 70%. Unless you have deep pockets to restructure and reset, it is better to cut your losses and exit.

For businesses with loss of sales below 50%, you will not benefit from the RM600 worker’s subsidy. You can use the above table to conduct your own assessment and sales forecast. I can assure you that if your sales were to decrease by 30%, you will need to conduct a cost-cutting exercise across the board for the next six months. Hopefully with the exemption to pay EPF, you might not need to conduct a deep pay cut.

Employer’s obligations

Show true leadership. Cut your own pay before your workers’.

Be transparent with your workers. Communicate clearly.

Suffer together, profit together. When sales are back to normal, reinstate to normal pay like before. If you make a decent profit by the end of the year, deposit back the exempted payments into the employees EPF

Pay your landlords on time. One good turn deserves another.

Finance Minister’s obligations

Extend wage subsidy from three months to six months. It will cost the government an additional RM5.9bil. Now you would have given a balanced resilience budget of wage subsidy of RM11.8bil against welfare payments of RM12bil.

Since the government is not able to subsidise 75% of wages, allow business owners the flexibility of salary adjustment of workers according to affected industries. It will cost the government nothing.

Exemption to pay EPF for both employer and employee for all businesses in Malaysia for six months. Corporate Malaysia thanks you. It will cost the government nothing.

Help the landlords. Exempt payment of quit rent and assessment rates for all commercial and industrial properties by state government and local councils for six months. Let the state government and local councils share the pain. It will cost the federal government nothing.

Tips for SMEs

Be numbers-driven. Test out the viability of your business with different scenarios of percentage loss in sales. If it is not viable, preserve your cash by slashing cost aggressively or exit. Live to fight another day.

Be careful. Do not borrow more from the banks to finance your losses. You will be made a bankrupt in six months’ time. Only borrow for critical cash flow requirements knowing that you will be able to pay back and that your business is sustainable in the next 12-18 months. Do not put good money to chase after bad money. Personal bankruptcy affects your family as well.

Be calm. I know many of you are worrying about the MCO and the recovery process, if any, within the next six months. Plan with the knowledge that this will be an extended period of pain and uncertainty. Plan for your business to stay alive for the next six months. It is anybody’s guess what the future holds so no point in thinking that far ahead.

Be patient. I know many of you are angry at the lack of support from the government. The support will come soon. The government’s first focus is on welfare payment to the B40’s and the needy. Our Prime Minister will want to prove that he is indeed a Prime Minister for all Malaysian or he will suffer later at the polls. Let us just continue to engage with the government in a civil manner and I am sure we will have a positive outcome soon. It is not too late for the government to give additional fiscal stimulus to the SMEs once they realise mass unemployment will occur if they don’t step in.

Stay calm. Stay at home.

Published: https://www.thestar.com.my/business/business-news/2020/03/30/keep-calm-help-is-on-the-way