Malaysia's GDP Growth 7.2% in 2010

By JAGDEV SINGH SIDHU  jagdev@hestar.com.my

Better than expected growth of 7.2%

Big boost from services and manufacturing segments last years

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KUALA LUMPUR: Growth of the Malaysian economy in 2010 beat official expectations as the economy expanded by 7.2% compared with the official projection of 7%. The economy contracted by 1.7% in 2009.

Much of the growth for the year was provided by the two largest segments of the economy services and manufacturing which grew by 6.8% and 11.4% in 2010.

The construction sector, which is universally acknowledged to have the deepest linkages within the economy, expanded by 5.2% last year compared with 5.8% in 2009.

Spending by households and businesses also drove private consumption up steeply to report a growth rate of 5.3% compared with 1.2% before.

“Going forward, the global economic recovery is expected to remain uneven across the different regions,” Bank Negara said in a statement.

“While short-term prospects for the advanced economies improved recently, uncertainties remain over weak fiscal positions, high unemployment and constrained lending conditions.”

It said the growth outlook for Asia, however, remained favourable but regional economies were confronted with the challenges of rising inflationary pressures, particularly from high commodity and fuel prices, and the large and volatile capital flows.

“The pace of growth of the Malaysian economy will be affected by the environment of moderating external demand,'' it said.

Bank Negara said growth would, nevertheless, be supported by continued expansion in domestic demand and private consumption spending would continue to benefit from the favourable labour market conditions, firm commodity prices and access to financing.

“The roll-out of construction and infrastructure activities and the implementation of the economic transformation programme by the Government are likely to provide significant support to the growth momentum in private investment,'' it said.

Bank Islam chief economist Azrul Azwar Ahmad Tajudin expects the pace of moderation of the economy as shown from the second quarter onward to continue until the second half of this year.

He said the higher base effect, the inventory restocking which boosted numbers in the first half of last year and the projected sluggishness of the global economy, austerity measures in Europe and cooling measures by China would be a drag on growth numbers.

AmResearch senior economist Manokaran Mottain, however, feels the slower numbers would relieve the central bank from any pressure to raise interest rates.

For the fourth quarter, the economy expanded by 4.8% as higher private and public sector spending contributed to the expansion in domestic demand but the economy was hampered by a slowdown in external trade.
Domestic demand expanded by 5.7% in the fourth quarter compared with 5% in the third quarter, due mostly to the strong expansion in private consumption and capital spending.

Private consumption grew by 6.5% (third quarter: 7.1%) supported by a favourable labour market, positive consumer confidence and higher income levels. Public consumption fell by 0.3% (third quarter: -10.2%) as the Government spent less on supplies and services.

Gross fixed capital formation increased by 9.2% in the fourth quarter (third quarter: 9.8%) driven by both public and private capital spending.

“Private sector capital spending was led by the expansion in the production of domestic-oriented industries amid high levels of capacity utilisation. Public sector capital investment rose as a result of higher development expenditure mainly in the education and transportation sectors,'' Bank Negara said.

During the fourth quarter, the services and construction sectors registered higher growth rates than the third quarter while the growth rate of manufacturing slowed.

The agriculture and mining sectors contracted in the fourth quarter compared with the third.
Bank Negara said gross inflows of foreign direct investment for the final quarter of last year were higher at RM11.8bil (third quarter: +RM8.5bil) as more money poured into the capital markets.

On a net basis, which is after adjusting for gross outflows due to repayment of inter-company loans, net FDI increased to RM8.3bil (third: +RM4.4bil) as FDI was channelled mainly into the services, manufacturing and mining sectors.

The central bank said investments in the services sector were primarily undertaken by companies in the finance, insurance and business services, as well as wholesale and retail trade sub-sectors.

In the manufacturing sector, the FDI was channelled into the electrical and electronics as well as petroleum-related industries.

Malaysians invested less money abroad in the fourth quarter as the net outflow was RM3.2bil (third quarter: -RM5.4bil) due to lower net extensions of inter-company loans to subsidiaries abroad.

Bank Negara said investments were mainly in the services sector, particularly in the finance, insurance and business services, and wholesale and retail trade sub-sectors and there were also large investments abroad in the oil and gas and the agriculture sectors.

Portfolio investment registered a smaller net inflow of RM2.8bil in the fourth quarter (third quarter: +RM9.8bil) as foreign investors sold off their shares and bond holdings in the country, particularly in November, in reaction to sovereign debt concerns in the eurozone.

“Nevertheless, steady growth in the domestic economy has continued to attract inflows of foreign funds into the domestic equity and bond markets,'' it added.

A mea culpa by the IMF

THINK ASIAN By ANDREW SHENG 

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Independent Evaluation Office has set an example of what should be done for the fund

LATIN American social philosopher George Santayana said those who forget history are doomed to repeat it.

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REUTERS: International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn delivers a speech about global economy and IMF reform at Tsinghua University in Beijing November 16, 2009.

Why didn't the International Monetary Fund (IMF) see this global crisis coming? This was the question posed by the Independent Evaluation Office (IEO) of the IMF in its report published on Jan 10.

Some readers will remember that the IEO was established after the Asian financial crisis to evaluate independently where the IMF had gone wrong during the Asian crisis. To the IMF's credit, it understood that it had to be transparent to be credible and the IEO's specific mission is to provide independent feedback to the IMF board on the IMF's effectiveness.

This time, the IEO focused specifically not the fund's handling of the crisis, but its surveillance performance in the period from 2004-2007.

The IEO should be commended on its methodical analysis. Since the IMF did not warn its members of the unfolding crisis, the study concentrated instead on whether the fund evaluated the proper risks and vulnerabilities before the crisis, what message the fund gave to its board and members, and what constraints the IMF had in conveying the difficult messages.

The facts are even up to April 2007, the IMF's main message was continued optimism after the prolonged period of benign stability. Even though it warned of the global imbalance, there was insufficient focus on the balance sheet fragilities, so it missed the key elements that underlay the crisis.

For example, in the annual review of the United States, it did not discuss the mortgage problems until the crisis had already happened. In a 2006 study of Iceland, the fund staff had concluded: “Fortunately, in Iceland's case, and as found by the 2006 Article IV mission, hedging behaviour and generally sound balance sheets and asset-liability management made the financial system relatively robust to the recent shocks.” In the next year, the largest Irish banks failed.

This was like a doctor giving good health report to a patient before he dropped of a heart attack.

One of the oft repeated criticism of the fund by its smaller members is the uneven treatment, since the fund could be quite tough on them but less tough on the members with more shareholdings. This was particularly true in the mandatory annual review of the United States, the largest shareholder. The fund did not conduct an FSAP (Financial Sector Assessment Programme) for the United States before 2009 because its authorities did not agree.

The report itself doubted that even if an FSAP review was done, whether the current analytical methodology would have identified the scale of the risk. For example, the 2006 FSAP update for Ireland had concluded that the “outlook for the financial system is positive”.

The annual Article IV surveillance reports on the United States and United Kingdom, the main financial centres, were sanguine on financial innovation and behind the curve on risks. Overall, the fund staff felt that these authorities were on top of their risks. In the 2006 report, the fund staff felt that “the credit rating agencies were uniquely positioned to assess a wide range of structured transactions”. True, they were uniquely positioned, but they told the world that these toxic products were triple-A rated.

In most countries, the person who certificates that a drug is safe and found to be toxic goes to jail. It is remarkable that no rating agency has been punished for their behaviour.

The next question is why did the fund fail to give clear warnings?

The funny thing is that the IMF economic counsellor, Raguram Rajan, had given a famous 2005 Jackson Hole Conference warning that leveraged financial innovation would leave countries more exposed than past experience. His warnings to all the leading central bankers fell on deaf ears and his work was not followed up even within the IMF's own work programme.

It goes to show that if the crowd's mindset goes in one direction, a lone voice would not necessarily stop the tide. Sometimes it takes a crisis to force a change of mindset.

The internal failings were identified as analytical weaknesses, particularly cognitive biases such as group think, intellectual capture and confirmation bias. If the group thinks that financial innovation is good, it becomes very difficult for lone dissenters to say that there are serious risks to be examined. Intellectual capture means that students find it very difficult to argue against the intellectual power of a teacher. This was the position where IMF staff were overly influenced and perhaps in awe of the largest members' reputation and expertise.

Confirmation bias refers to selective attention people tend to focus on what they expect and ignore information that is inconsistent with their theories. If the conventional wisdom thinks that global imbalance was the problem, then there may be failings to look at other areas, such as balance sheet vulnerabilities.

The IMF economists relied heavily on their macro-economic models, but these flow models often did not incorporate balance sheet data and, therefore, underestimated macro-financial linkages. The report also pointed out the fact that stress tests do not reveal second-round effects such as liquidity shocks.

The report also pointed out the organisational impediment in terms of departmental silos, where staff did not share information and did not “connect the dots”. The incentives also failed to “foster the candid exchange of ideas that is needed for good surveillance”.

Finally, to what extent was the fund subject to political constraints? The report quoted staff as saying that there were limits as to how critical they could be regarding the policies of the largest shareholders that “you cannot speak truth to the authorities” since “you are owned by these governments”.

History has not changed. Every wise government must have an independent voice to give “ruthless truth-telling”, one of the key roles for the fund by one of its intellectual founders, John Maynard Keynes.
The IEO has set an example of what should be done for the fund. Perhaps its member countries can learn from this.

Andrew Sheng is author of the book “From Asian to Global Financial Crisis”.

Love and leadership strategy - go hand in hand

SCIENCE OF BUILDING LEADERS By ROSHAN THIRAN

 Love and leadership go hand in hand

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“Love is patient, love is kind and is not jealous; love does not brag and is not arrogant, or rude. It does not demand its own way. It is not irritable, and it keeps no record of being wronged. It isn't happy when injustice is done, but it is happy with the truth. Love never gives up, never loses faith, is always hopeful, and endures through every circumstance. Love never fails.”
Paul of Tarsus

ON Valentine's Day, when love took centre-stage, my thoughts started to drift to my apartment in Dallas, situated near Love Field, the home of the “love” airline Southwest. The company's NYSE ticker symbol: LUV. The largest and only consistently profitable airline through tumultuous times, Southwest's model of success has inspired countless others, including AirAsia.

Astonishingly, Southwest founder and former leader Herb Kelleher built the entire business on love. I heard Kelleher at the tail-end of his career attributing Southwest's greatness to love, saying, “If you seek long continued success for your business, treat your people as family and lead with love.”

He named Colleen Barrett, who started her career as a legal secretary, his successor, because “she knows how to love people to success”. Barrett claims that she spends 85% of her time on her people. Kelleher adds that “an infusion of love is an essential, but oft overlooked ingredient in any business”.

According to new research, leaders who put love into their work are significantly more successful that those who rule by fear.
 

Interestingly, rarely is love described as a leadership competency. Yet, a lack of love in some form is generally the cause of failed leadership. We want our customers to love us and our products. We want our employees to love their jobs and their company. Yet, when we talk about leadership, we ignore love. Says leadership guru Ken Blanchard: “It might sound slightly bizarre, but one of the keys for effective leadership is to be madly in love with all the people you are leading.”

So, why is love ignored? First, love is synonymous with sex, beauty and its physical form. This makes it dicey to talk about or express love in an organisation. Furthermore, love is intangible, causing leaders to be sceptical. Most leaders fear love, believing it is about group hugs, soft mushy talk or holding hands around a company campfire singing Rasa Sayang.

But what Kelleher meant by “leading with love” means truly caring, serving and loving people both employees and customers. “We've never had layoffs,” he once declared. “Our people know that if they are sick, we will take care of them. If there are occasions or grief or joy, we will be there with them. We value them as people, not just cogs in a machine.”

He really loves his employees and customers, knowing all by name and unselfishly delighting in their well-being.

Although Southwest is a low-cost airline, its salaries is on par with those of other airlines. Its employees' productivity remains the highest, allowing it to price tickets low. Its pilots spent more time flying and less time on the ground. Southwest can turn around an airplane in 20 minutes while others struggle. Its short hauls are more fuel-efficient than most big airlines' long hauls. Because the leaders at Southwest love their employees and have a “love” strategy, their employees always deliver.

Entrepreneur Mark Cuban's love for customers ultimately led him to becoming a billionaire. When it comes to customers, the owner of NBA team Dallas Mavericks, passionately believes that customers should be happy, even if it means working 24 hours a day to please them.

Love strategy for business

According to “love” guru Patch Adams, every organisation needs a “love strategy” as it delivers a better ROI (return on investment) than any other investment. According to new research, leaders who put love into their work are significantly more successful than those who rule by fear.

Great leaders are fuelled by love. They love what they do and they love the people they do it with. Indra Nooyi , CEO of PepsiCo, reinvented Pepsi by caring for people and the planet, pushing PepsiCo into becoming a “green company.”

Most business leaders have a disinclination towards embracing love as a business strategy because they are conditioned to believe leadership means being cutthroat, aggressive and mean. In their eyes, love is for sissies, and by being nice, they risk being viewed as soft and this can result in losing their grip on leadership.

Nothing could be further from the truth. Leaders who love their people are more likely to push their employees to perform at their potential through honest feedback. They raise the bar consistently just as a parent who loves their children do, disciplining them and ensuring the children face difficulties so they can learn and grow.

My yearly performance appraisals with managers who cared were never pleasant but at the end of the day, I knew exactly where I stood. Milton Mayeroff believes love is “the selfless promotion of the growth of others”.

Love is action

Love is not what you say or feel, but what you do. Mahatma Gandhi's leadership was driven by passion and action. He lived humbly because he loved people and wanted to engage with all walks of life.

Love is action. Love leads to positive thoughts, thoughts to words, and words to action. Negative emotions destroy organisations. Biologist Humberto Maturana notes that love is the only human emotion that consistently generates productive and intelligent actions.

Leaders cannot ignore feelings as leadership is emotional, dealing with dreams, passion, inspiration and love.
The opposite of love is hate. Hate manifests itself through fear. Fear restrains behaviour. Love liberates it.

Fear freezes enterprise, suffocates creativity, and deters people from stretching and growing. Fear drives compliance but not commitment. Unfortunately, most of our leadership practices are fear-goaded and insidiously rooted in our work structures and culture.

Love brings success

Basketball coaching legend John Wooden, who won a record 10 NCAA titles, considers love the “most powerful thing there is”. The power of love powered his coaching career. He exclaimed: “Your players must know that you care for them more than just as athletes. Certainly, they understand that they are there because of their athletic ability. But when you have them under your supervision, it's up to you to make sure that they understand that you care for them as individuals. I've never had one I didn't love.”

John must have learnt from Sun Tzu's Art of War “... he who loves them as his own beloved sons and they will stand by him until death”.

Research shows love being more effective in driving organisational cultural shifts than visionary statements or brilliantly worded goals. Even hard-nosed leaders such as Rudy Giuliani believes that “if you don't love people, then don't be a leader”.

In studying successful leaders, we find success driven by the quality of loving relationships within an organisation. These loving relationships are seen through behaviours like compassion, commitment, care, kindness, reflection, intuition, inclusiveness and forgiveness.

Prominent leader John Hope Bryant believes there are four laws of love-based leadership for business:

l Fear fails Leading through fear is antiquated and crippling. Love is the antidote to fear.

l Love makes money Long-term loving relationships with customers and employees make everyone wealthy.

l Vulnerability is power When you open up, people open to you.

l Giving is getting Giving inspires loyalty and confers true wealth. John D. Rockefeller, regarded as the richest man ever, was governed by love and believed it was greater to give than receive. People rallied to him because he gave. He later used his wealth to build universities and fund great causes.

Military love

Surprisingly, we find high levels of trust in military leaders. Most expect fear to be the dominant leadership style but according to retired colonel Scott Snook, it boils down to love, adding “it's a deep abiding love and respect for one's comrades” that matters most in battle.

A study by sociologist Shils and Janowitz attempted to understand why soldiers fought till death and they concluded that a soldier continued to fight well beyond the point when the battle was lost “as long as he gave affection to and received affection from the other members of his squad”.

Soldiers love each other and are willing to lay down their life for each other. If love can be the touchstone of leadership in a vocation as violent as the military, then why not in business?

Snook adds that even during military training at West Point, love is emphasised continuously: Love your country, love your classmates and friends, and love the future officers you will someday serve with and love the soldiers you would someday lead. Great commanders love their troops and put their well-being above theirs.

Final thoughts

Here are some questions you can ask to help you get love into your organisation and start your journey to being a love-based leader:

1. When was the last time you did something unexpectedly nice for someone at work?

2. When was the last time you thanked or recognised someone for a particular special effort for the company?
3. Whom have you not thanked who has done something really nice or been especially helpful to you recently?
4. Who goes the extra mile routinely (for example, working late or doing things technically not part of their job) that you take for granted?
5. What are things you could do regularly to add “love” to your workplace?
6. What are actions that I can take to truly “love” my customers? (Not actions just for marketing reasons)
7. What can I do to bring fun and joy to the workplace?

Decorated army Maj-Gen John Stanford, known for extraordinary loyal troops, claimed that the secret to success is to stay in love. He said: “Staying in love gives you the fire to ignite others. A person who is not in love doesn't feel the kind of excitement that helps them to lead others. I don't know any other thing in life more exhilarating and positive a feeling than love.”

Many of us remember the dizzying joy of being in love. We need to get that energy in the workplace too. Leadership is an affair of the heart.

Love begins with you. So, this weekend, your people need you to take a good long look in the mirror and decide that your people and your organisation deserve a leader who has the courage to stand up and love them.

l Roshan Thiran is CEO of Leaderonomics, a social enterprise passionate about ensuring love permeates across the business landscape. To learn from great leaders from across the world, login to www.leaderonomics.com/theleaderonomicsshow.