Recession- What it means? Part I

Pic 01: Late USA President on recession definition. (By the way, his previous occupation is an actor!)

“Recession is when your neighbour loses his job, depression is when you lose yours.” (Ronald Reagan, 1985)

Youths favourite hangouts -From Left to right:

Pic 02: Starbucks cafes

Pic 03: Papa Rich cafes

I observed many youths ever so frequently patronise Starbucks, McD, Kopitiam in Subang SS15 areas. I can’ help it but think, do these people know the concept of recession? Perhaps their pocket money is unaffected. Ignorance may not be bliss, as for the Law often use “Ignorantia (juris) non excusat” which translates from Latin “Ignorance is no excuse”. Recession is bad and scary, indeed!

Year 2008, you have undoubtedly heard the term "recession" mentioned on media (unless you are too busy indulging in Female, Cosmo, Male Fitness Magazines). You've probably heard of global recession starting in United States with sub-prime property crisis to financial meltdown that spread like an economic H1N1 virus across globe.

How destructive is the recession?
North America’s economy has loss US$750 billion in output of goods and services. The Stock market was badly hit with loss capitalisation of US$1.2 trillion. To add to the pain, property prices and financial crisis in the banking finance sector cost the largest economy another US$2.1 trillion and over US$1 trillion. President Obama tried to stemmed the losses by injecting a paltry US$797billion, all of which is too little and too late.

On home front, Malaysia’s economy shrunk by RM37.6billion (US$1=RM3.5) for year 2009 thusfar. That is equivalent of providing free electricity, telephone and Astro for the entire population for the whole year!

What exactly is a recession?

First off, to understand what a recession is, you need to understand that economies go through periods of growth and contraction.By textbook definition a recession is two consecutive quarters of negative GDP growth. GDP is "gross domestic product", which is defined as "the total market value of all final goods and services produced within the country in a given period of time." So say in one quarter of year, the economy sells 1,000 movie tickets, but the next 2 quarters it fell to say 900 and 750, then it is a contraction which is recession. GDP growth is measured, as well as real personal income, employment, industrial production and wholesale-retail sales.Second - based on that strict definition, in North America the 2001-02 recession technically wouldn't have been a recession, as there weren't two consecutive quarters of negative GDP growth. But it was difficult year where contraction happened in non-consecutive quarters

To be honest, there is no real rock-solid formula in terms of determining whether or not we are in a recession and for how long it has lasted. If there was a rock-solid formula, we wouldn't need the Malaysia Industrial Economic Research, Malaysia or National Bureau of Economic Research, USA to tell us that we are in a recession.

"A recession is a period of reduced economic activity. It is a contraction of the business cycle which is marked by a significant decline in economic activity which lasts more than a few months."Malaysia has suffered through a number of recessions since the beginning of 1980, 1985, 1997-98 and now the present recession in 2009.

Opportunities amidst threats
The Mandarin word ‘wei ji’ means there is opportunities amidst threats or bad news. This is something that youths should exploit, for that matter all of us. To the man on the street, recession is a time where jobs are scarce, money is tight and future is uncertain. To my horrified observation, then why are youths spending behaviour is so wild as if treating recession as nothing more than a road signboard? Youths should seek opportunities now by investing in say Stock Market or Properties when the interest rate on loans are low and prices are depressed.

Pic 04: Virgin Founder - Billionaire Sir Richard Branson

Pic 05: Virgin's latest succesful venture into Airline Industry.

Yes, now is the time to invest and pick up choiciest opportunities. Richard Branson, founder of Virgin Group said, “If I ever going to invest, I will only do so only during recessions.”

Conclusion
On another note, how can factories producing high quality products which normally enjoy high demand could shut down? Isn’t it logical that consumers reward the strong producers by voting i.e. buying their products that translates to ongoing demand? In other words, why would perfectly healthy companies not survive in recession? Based on above excerpt, is depression worse than recession? Can the government do something about it?

This I will discuss in my next article.

NEW VIGOUR, RENEWED CULTURE- I AM A BUMIPUTERA!

- Practice Question for P1 (ACCA) and sociological analysis

Pic 01: If I can do it (Succeed), so can anybody!

New generation of Bumiputera risk-takers (in a good way) as entrepreneurs are emerging in Malaysian Corporate scene. Read on to know an outstanding businessman. Also a question on Risk Assessment is included to pique and pick your mind- to test your knowledge and especially application which is so crucial to P1 (ACCA) Professional Accountant subject.

Empire Builder (Chandler)
IF WHAT has been said and reported about Tan Sri Syed Mokhtar Albukhary (Picture 01) is true, then he is worth RM971 million - on paper at least. Touted as the new `Bumiputera' corporate player in town, Syed Mokhtar rose to prominence last year. The 50-year-old tycoon is more heard than seen. He is said to be behind three public listed companies and the RM2.4- billion Port of Tanjung Pelepas (PTP) in Johor. Syed Mokhtar's interest is masked under myriad private companies with Seaport Terminal Holdings Sdn Bhd and Impian Teladan Sdn Bhd being the main ones. The latter owns a 19.9-per cent stake in Malaysian Mining Corporation Bhd (MMC). Seaport Terminal controls 52 per cent of Johor Port Bhd and 70 per cent of PTP. Recently, MMC acquired a 50.1-per cent stake in PTP from Seaport Terminal with combination in shares and cash.

With the deal, then Seaport Terminal will control 28.8 per cent of MMC. This will lead to Syed Mokhtar controlling 49 per cent of MMC directly and indirectly. Besides MMC and Johor Port, Syed Mokhtar is also said to own a substantial stake in second boarder Amtek Holdings Bhd. Syed Mokhtar's direct and indirect stake translates into RM733 million on MMC. Add this figure to Seaport Terminal's interest in Johor Port and his holdings, through nominees, in Amtek Holdings, and Syed Mokhtar is worth nearly RM1 billion. And these are only his listed assets. He has some valuable private projects on hand like the proposed RM7-billion power plant in Pulau Bunting, Langkawi. Nobody can ever tell conclusively the true worth of the self-made tycoon as his name is not found in the shareholdings of any of these companies.

Humble History
Syed Mokhtar rose from humble beginnings in Kedah. He had to venture into small businesses to sustain his education which went no further than secondary school. He was transacting almost anything in his early days to pay his school fees. After school, he found a niche in the rice milling business, which paved the way for his rise. He was peddling rice all over the country when he got to know Tan Sri Muhyiddin Yassin, then a high ranking civil servant in the Johor State Government. Syed Mokhtar's fortunes rose when Muhyiddin became the Menteri Besar of Johor.

A late bloomer, Syed Mokhtar only got married a few years ago to the daughter of Datuk Syed Kechik Syed Mohamed, who at one time was said to be one of the richest Malays. Based on the list of richest Malaysians, Syed Mokhtar may not be far from emulating the feat of his father-in- law.

Horrible prospects to Singapore’s logistics industry

Pic 02 (left) :Maersk switch port location to Tanjung Pelepas. Major impact on Keppel Port

Pic 03 (right) : Ever busy 24/7 Keppel Port, Singapore

Singapore’s Port – a hub is primarily dominated by Keppel Port Limited. It’s the main driver to Singapore’s port making it the 3rd busiest port in the world, using hub-&-spoke system where feeder ships come to Keppel Port and the ocean liners [huge ships] takes inter-continental routes. Dr. Mahathir, then Prime Minister of Malaysia, was never too pleased to see the neighbouring port’s success as he viewed that it’s nothing more than a middle-man specialising in trade. He opines that Malaysian companies should not take the full risks of investing and manufacturing only to let Singapore port benefit from importing from them and re-export to the rest of the world particularly 2 richest continents - America and European Union.

In response to reduce dependence on Singapore, three rival ports were built in Malaysia namely Johor Port, Bintulu Port and Tanjung Pelepas Port. Specifically to reduce Keppel Port’s dominance. Tanjung Pelapas, Syed Mokhtar’s cash cow have had a strategic alliance with Freight Forwarders Maersk. Shipping rates have increased 80% over 2 years and there is no sign of abating in early 2008.

Pic 04: Collaborative Opportunity with Chinese Government (Beijing)

Singapore government is considering developing a new port in China in alliance with the Chinese government (Picture 04) . It will rival the size of Shanghai port but it targets the northern part of China. Recent trends have indicated more investment up north and inner west are picking up, thus the need to justify port infrastructure.

Pic 05: Dr M - always in Action! Most powerful Bumiputera Leader

Required:
a) Prepare a Risk Map and classify the various risks that the company is facing giving reasons for your classifications. (8)
b) State the level of Board’s considerations for managing these risks. (4)
c) State the risk exposure, risk appetite, risk strategy, risk capacity and finally risk residual of the Keppel Limited considering its expansion into China. [13]