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Source:XM

Malaysia and the United Arab Emirates (UAE) have successfully concluded the negotiations for a Comprehensive Economic Partnership Agreement (Cepa), set to eliminate or reduce tariffs, lower trade barriers, foster private-sector collaboration, and create new investment opportunities.

Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz said the Cepa, as Malaysia’s first free trade agreement (FTA) with a Gulf Cooperation Council (GCC) nation, will enhance trade, boost investments, and deepen Malaysia-UAE economic ties.

“We view the UAE as a strategic hub for Malaysian exporters to access markets in the Middle East, North Africa and certain parts of Europe, particularly as Malaysian exports, such as electrical and electronics, machinery, jewellery, prepared foodstuff, tropical fruits, palm oil, cocoa and rubber, will immediately enjoy zero import duties when this agreement comes into force.

“The Cepa is also a strategic leverage for UAE-based companies to optimise Malaysia as a gateway into the Asean market, which, in turn, will provide tremendous opportunities for our businesses — particularly small and medium enterprises (SMEs) – through integration into regional supply chains, capacity-building and knowledge sharing via the UAE’s investors.

“The Ministry of Investment, Trade and Industry (Miti) looks forward to working closely with UAE Minister of State for Foreign Trade Dr Thani Ahmed Al Zeyoudi, and the UAE Ministry for Foreign Trade, to ensure swift ratification and implementation of the Cepa,” he said in a statement.

Meanwhile, Thani said that Cepa reflects productive ties that have developed between the UAE and Malaysia, as well as Southeast Asia as a whole.

“Malaysia is a long-standing and trusted trade partner that, like the UAE, is seeking to enhance its economic prospects through increased trade and targeted investments.

“As the fourth largest economy in the Southeast Asia region, and with economic growth in 2024 set to outstrip forecasts, Malaysia offers substantial opportunity for our exporters, industrialists and business leaders, especially in high-growth sectors, such as energy, logistics, manufacturing and financial services,” he said.

According to Miti, the UAE’s Cepa initiative aims to elevate its non-oil foreign trade to US$1 trillion (RM4.29 trillion) by strengthening relationships with key markets worldwide.

“This ambitious strategy not only enhances ties within the Asean bloc but also positions Malaysia as a key player in this economic landscape, benefitting from existing Cepas with Indonesia and Cambodia that further stimulate bilateral trade opportunities,” it said.

Miti added that Cepa also underscores the strengthening economic relationship between Malaysia and the UAE, with bilateral non-oil trade surpassing US$4.9 billion in 2023.

In the first half of 2024, non-oil trade reached US$2.5 billion, reflecting a 7.0% increase from the same period in 2023.

“The UAE is Malaysia’s second largest trade partner in the Arab world, constituting 32% of Malaysia’s trade with Arab countries, while Malaysia ranks as the UAE’s 12th largest trading partner in Asia, and fifth among Asean nations.

“The UAE is a vital market, accounting for 40% of Malaysia’s merchandise exports to the Arab world, highlighting Malaysia’s strong trade presence in the region,” Miti said.

Source: The edge markets

Families in the bottom 40% (B40) household income group have shown remarkable resilience in the face of adversity, and also during the Covid-19 pandemic in 2020 and 2021. But, a significant number have slipped further into poverty due to their inability to recover financially from lost income and jobs.

On top of that, 20% of the middle 40% (M40) household income group have moved down to the B40 category due to income reductions. (This is based on data in the Household Income and Basic Amenities Survey Report 2020 by the Department of Statistics, or DOSM).

Therefore, I can safely say that poverty, lack of funds and escalating prices are making people angry and frustrated. To be fair, the Madani government has made various efforts to reduce inequality and poverty in the last two years. While these initiatives are good, they don’t quite meet the needs of the people. The growing grievances demand a more immediate and impactful implementation.

The worsening of poverty, especially in the urban areas, and the growing noise in the country can be addressed if the present policies and their implementation are targeted at increasing real wages and cash assistance to vulnerable groups.

Poverty and marginalisation

Two Unicef studies titled Families on the Edge (2021-2022) and Living on the Edge (2023) involving 500 and 755 low-income families respectively, including 225 women-led families, showed deteriorating poverty conditions. These studies focused on their daily struggles and challenges, providing a deeper reality of the urban poverty situation in Malaysia, especially among low-income households.

The study found the following:

Eight in 10 households struggle to pay for essential goods, a situation that has worsened compared with the Covid-19 period. Women-led households are particularly affected, with seven in 10 struggling to meet monthly basic needs and six in 10 lacking savings.

While employment rates have increased, paradoxically, many Malaysians have become poorer. This highlights the inadequacy of current wages to meet the rising cost of living, underscoring the urgent need for comprehensive wage reform to ensure a decent standard of living for all.

Children in low-income homes are among the most affected. Over half (52%) eat less than three meals a day, a higher rate than the 45% reported pre-pandemic.

The consumption of unhealthy food increased, with 46% reported to be eating more instant noodles than two years ago during the pandemic.

This worsening poverty situation, pointed out by Unicef, follows an earlier World Bank 2019 study showing that seven in 10 low-income households in Malaysia struggle to meet monthly basic needs, with six in 10 lacking savings.

Therefore, it is really not about the money that the Madani government is spending but how it is being spent.

Reviving the free meals programme for schoolchildren

The Unicef study showed that all 225 women-led households with children lived in absolute poverty. According to the Ministry of Health, in late 2023, children in these households often skipped meals and 30% experienced stunted growth.

This problem is not exclusive to Malaysia. For example, the Mid Day Meal Scheme is a school meal programme in India designed to better the nutritional status of school-age children nationwide.

The situation is compounded by reports that 10,000 school canteen operators in Malaysia are expected to raise their prices by 50% next year. There is clearly an urgent need to address this issue.

A 2019 report by the Ministry of Education indicated that a similar free school breakfast programme that was proposed would have benefited 2.7 million primary schoolchildren nationwide in 2020, with costs estimated between RM800 million and RM1.67 billion.

To ensure nutritious food for B40 children, the government should collaborate with government-linked companies to revive the free meal programmes at schools. Here, local entrepreneurs, including women, could be engaged in catering food to the local schools. The meals programme could create local entrepreneurship and jobs, as well as local demand for food and vegetables, and all of this can generate a multiplier effect in the local economy.

The prime minister has mentioned that Budget 2025 will prioritise addressing the cost of living. This news is very encouraging, but it is also important to ensure that the Budget includes support for providing nutritious meals to school-going children.

Regressive subsidies

It is crucial to rethink our subsidy targeting to ensure the benefits reach those who need them most, addressing the significant tax inequity in current policies.

I say this because subsidies are largely regressive, benefiting the wealthy more than the poor. A 2019 International Monetary Fund study pointed out that for every RM100 fuel subsidy allocated to people with low incomes, the high-income earners received RM35 compared with only RM24 for the low-income group.

For example, the zero tax on electric vehicle (EV) purchases predominantly appeals to higher-income groups. A Malaysian from the B40 group is more likely to buy a budget-friendly car like a Myvi or an Axia, which are still subject to taxes. Conversely, those who can afford luxury EVs, such as Teslas or high-end BMWs, receive tax exemptions, highlighting significant tax inequity.

Progressive wage policy

The government’s progressive wage policy is welcome, but efforts must be made to increase wages for the three million workers in the informal sector and gig economy, setting industry-specific minimum wage levels (Maybank IB Research).

The current design of the progressive wage policy excludes part-time workers and informal workers. In my view, the workers in the informal sector earn low wages, experience non-payment of minimum wages and no social protection such as Employees Provident Fund (EPF), Social Security Organisation and insurance support.

This is supported by the Unicef study, which indicates that 40% of workers, including the self-employed, lack essential social protection coverage, and 92% of self-employed individuals are vulnerable to economic shocks.

Thus, the design of the progressive wage policy should be rethought with a view to financially enable informal sector workers to move out of poverty and enjoy social protection.

Moving towards an inclusive green economy

Let us go back to tax breaks for EV owners: Although the government’s efforts to transition from fossil fuel to renewable energy are important, it must be noted that tax cuts for the purchase of EVs will benefit just the rich because only they can afford to fork out the money for cars in the high price range.

Instead, the government could help set up solar panels in poor communities such as for low-cost houses and rural communities. The effort can generate income and reduce electricity bills, which can translate into savings and could help a solar panel-driven energy boom in the country.

The government does not have to look far for inspiration as the Sime Darby Property Bhd model at Elmina provides solar energy to homes, presenting a scalable framework for addressing energy needs in poor rural areas.

Providing solar panels reduces energy poverty, offers rural communities access to clean energy and creates new income streams by selling excess energy back to the grid.

If we look across the Causeway, the SolarNove initiative taken up by the Singapore government aims to install 113mw of solar panels across more than 1,000 public housing blocks and 100 government sites in Singapore by 2026.

Such initiatives would ensure that the transition towards renewable energy is just, with subsidies for solar panels and other initiatives accessible to low-income households and rural communities.

Social protection for the elderly

The lack of savings for many Malaysians is deeply troubling, more so because Malaysia is experiencing a significant increase in its ageing population. According to the latest DOSM estimates, the proportion of the population aged 65 and over increased from 7.2% in 2022 to 7.4% in 2023. This represents 2.5 million people. Now imagine these people with a lack of savings. It is a depressing thought.

According to a parliamentary reply by the Ministry of Finance, the issue of insufficient savings in the EPF is at a severe level, with 6.3 million members under the age of 55 having less than RM10,000 in their accounts as at September 2023. With savings of less than RM10,000, members are expected to have a retirement income of less than RM42 per month for a period of 20 years.

With 5.7% of households led by individuals aged 65 and above living in absolute poverty (Ministry of Economy, 2022), I propose that Kumpulan Wang Persaaraan (KWAP) utilise its RM190 billion. Assuming a RM200 monthly contribution from EPF and a lifespan of 10 years post-retirement. Given these conditions, if they need RM1,000 monthly, only RM83 can be covered by their RM10,000 savings.

A wealth tax

Implementing a wealth tax on the super rich in Malaysia would raise revenue for all these proposed social protection and welfare programmes.

For example, Malaysia's top 50 wealthiest individuals have a combined net worth of RM390 billion, almost on a par with the national budget. A 2% wealth tax on their collective wealth could generate RM7.6 billion in tax revenue, and a 2.56% tax would bring RM10 billion.

So, is there a way to address the noise? Or rather the anger and frustration of a large section of Malaysian society? There clearly is. But again, it all boils down to political will.

Billionaires often receive government subsidies and support for their businesses. For example, by 2015, Elon Musk had received an estimated US$4.9 billion in government support. Within the Malaysian context, first-generation Power Purchase Agreements for Independent Power Producers, such as YTL Power International Bhd’s  Paka plant, had a return on investment of 20%. It is only right that they give back the wealth they have accumulated for the provision of better public services.

Source: Theedgemarkets