Frankly Speaking

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Unnecessary dramaThe long-awaited report on the Port Klang Free Zone (PKFZ) has taken a new twist that has further delayed it being made public.According to media reports, the Port Klang Authority (PKA) was not willing to issue a letter of indemnity to PricewaterhouseCoopers (PwC), which would prevent the accounting firm from being sued, if there were to be any legal action as a result of the report being released.But the very idea that PwC should need a letter of indemnity is enough to raise a few eyebrows and pose more questions about the already murky development.On what basis was PwC commissioned to prepare the report? If a letter was necessary, shouldn’t it have been dealt with at an earlier stage, before PwC commenced its probe? Now, if a letter of indeminity is not made available to PwC, will the report not be made public?After a much publicised hue and cry with promises that the report would be released at the soonest possible time, more stumbling blocks seem to be cropping up.Then again, why was the task given to PwC? Couldn’t it have gone to a government body such as the National Audit Department? Or even better, to a small accounting firm that probably would not have hesitated to make the report public?A few years ago, listed companies that were in financial trouble had to come out with an investigative audit report before they were given a clean bill of health. Most of the audit reports that were prepared by small firms were made public without a fuss.Perhaps PKA and other government agencies should learn from the investigative audits of troubled listed companies. It could be applied to the PKFZ fiasco, and would put paid to this unnecessary drama.Say no to cheap labourIt looks like the habit of announcing a tough new policy, and then deferring its implementation, is deeply ingrained. The Cabinet’s decision to defer the hike in foreign workers’ levy early this month is the latest example that we are still stuck in the low-wage groove.Nevertheless, the decision is understandable in the light of the current tight economic situation, and the government is only responding to the dire situation of employers, especially restaurant owners, who have been stretched by the slowdown in business.However, there is no getting over the fact that the time to cure the economy of its addiction to cheap labour is well overdue. Once the economy improves, the government should not avoid the short-term pain that would result from the doubling of the foreign workers’ levy, as that would only delay the inevitable step the country needs to take of moving up the value-add chain.Indeed, a major task that lies ahead of the Council of Economic Advisers that Prime Minister Datuk Seri Najib Razak is putting together is to transform the nation’s economic model from an assembly line operation to a hub of innovation.That is going to need a big push in terms of upgrading the skills of the workforce, increasing automation and encouraging new thinking. Flooding the market with low wage workers is keeping businesses from moving out of cheap labour industries. At the same time, competing economies in the region are looking more attractive to investors that used to sing our praises.There is no mistaking the effort we need to put into retraining our human resource pool to position ourselves as a dynamic, modern economy. The time to act is now, so that we will be ready to roll when the world emerges from its current gloom.Unusual businessIt is rather disingenuous of the Barisan Nasional (BN) menteri besar of Perak, Datuk Zambry Abdul Kadir, to claim at a press conference last week that it is “business as usual” for him and his executive councillors while the state is being roiled by a political crisis.Zambry may be anxious to reassure the business community and voters that he is fully in control of the situation, despite the open conflict between the BN and Pakatan Rakyat (PR) coalitions for control of the state. However, his efforts to show that the BN’s considerable resources are behind him as he details the projects that his government is pursuing, do little to assuage fears that they could fall victim to the political turmoil that has engulfed the state.Instead, the announcement that the Ipoh airport project and the plans for a medical university for Perak would proceed as if the power struggle has suddenly been solved, naturally evokes a dose of caution, in view of the risks that the projects may be disrupted by further legal or political wrangling.The menteri besar would sound more plausible if he takes care to temper announcements about projects with an honest acknowledgment of downside risks, which the investment community assesses as a matter of course.Danajamin: Who benefits?The primary responsibility of Danajamin Nasional Bhd, which was unveiled last week, is to provide guarantees for new issues in the bond market where funds are used for new investments or projects that have a strong multiplier effect.Also, Danajamin will only support issuers that have demonstrated a strong track record of good corporate governance and risk management.These are the two parameters under which the financial guarantee institution will operate to enhance guarantees to corporates wanting to raise funds in the capital market. It will guarantee up to RM15 billion, as part of the second stimulus package announced by Prime Minister Datuk Seri Najib Razak.But it raises a few questions.What kind of new investments would have difficulty getting funding? Also, what kind of projects would have strong multiplier effects and yet are not able to get cheap funding?There probably are a few such projects or investments that have problems securing new funding, which has prompted the government to set up Danajamin. But generally, if a project is good and the issuer has a good track record, cheap funding should not be a problem.More often than not, only companies that do not display a strong track record in implementing projects would find themselves having to bear a high cost of funding. Also, companies that tend to take on too much debt face similar problems from lenders.Under these circumstances, it will be interesting to see which companies or projects benefit from Danajamin.

This article appeared in Corporate page of The Edge Malaysia, Issue 755, May 18-24, 2009