World Competitive Rankings defy logic

The WEF may have its own method of measuring the competitiveness of each country but its rankings defy the stark reality of what is going on in the world.

BANGKOK: The World Economic Forum (WEF) has just issued its Global Competitiveness Index 2012-2013 rankings.

Thailand’s competitiveness ranking has improved slightly to 38th spot this year, while Switzerland has edged out Singapore to become the most competitive nation on earth.

The WEF has its own formula in ranking the competitiveness of each country. However, the WEF’s ranking does raise some eyebrows.

According to the WEF, Spain is more competitive than Thailand because its overall ranking is 36th. This ranking is questionable.

Spain is planning to seek a full bailout from the European Union. The European Central Bank is about to monetise its debt. It has received €100bil (RM393.7bil) in bailout funds already. Some €75bil (RM295.3bil) in deposits have fled the Spanish banking system.

Spain is in a similar situation to Thailand in the first part of 1997 before Thailand sought a bailout from the International Monetary Fund. By this measure, Spain should not get a ranking higher than Thailand.

Switzerland, ranked No.1, will not enjoy its position as an oasis of peace and prosperity in Europe for too long in the event of a euro implosion. Swiss banks’ assets, which are tied to the European banking crisis, are more than 300% of the country’s GDP.

The United States has slipped to 7th in the rankings. The US economy is in big trouble. Some 46 million Americans are on food stamps. There are 10 million Americans unemployed, including another 12 million who are doing odd jobs.

Some 18 million American households are having a tough time making ends meet. The banking system is in shambles. The US national debt has hit US$16tril (RM49.7tril), or about 100% of the GDP. The budget deficit is chronic. The country is years away, if ever, from being able to balance its budget.

Most important, the Federal Open Market Committee will meet on Sept 12 to determine whether it will go ahead with a bond-buying programme, or QE3, to further prop up the financial system. US finances are in very bad shape indeed.

Japan is ranked in 10th spot. Does it deserve this position? The whole world knows that Japan has the world’s largest public debt at more than US$12tril (RM37.3tril), or 230% of its GDP. Japan’s debt is largely financed by domestic bonds. But with an ageing society, Japan will face higher interest costs from its borrowing, which will put the health of its finances into further question.

The Japanese economy is far from recovering from its crisis of the 1990s. Japan is facing sluggish growth and also high energy costs in the aftermath of the Fukushima nuclear plant disaster.

Its export sector is feeling the pinch from the strong yen. If the consumer markets in Europe or US were to slacken even more, Japan’s export machines will wobble. Foreign exchange earnings will plunge, while domestic demand has been in a weak state all along.

Saudi Arabia, ranked at 18th, is the world’s largest oil exporter. But a Citibank report issued last week said Saudi Arabia might have to import energy by 2030 if the current pace of domestic consumption and exports continues.

Israel is ranked 26th, though it is facing off against Iran in the Middle East. A war could break out between the two countries at any time, given the tensions between their leaders.

China is ranked 29th, although it is the richest country in terms of foreign exchange reserves. Its reserves stand at US$3tril (RM9.3tril). China is the world’s production factory. Its economy is the world’s second largest after the United States. It is improving fast in technology and innovations.

Moreover, China is also building up its military and has nuclear weapons in store. Apparently, China does not deserve this relatively low ranking.

This also applies to other Brics countries such as Russia (67th), Brazil (48th) and India (59th). How is it possible that the Philippines musters at 65th, two notches higher than Russia, which is still a superpower, rich with resources? The Philippines is vulnerable to food price increases and also to natural disasters.

The WEF may have its own method of measuring the competitiveness of each country. But its rankings defy common sense and the stark reality of what is going on in the world.

From a group of leading Asian newspapers working towards improving coverage of Asian affairs
http://www.asianewsnet.net/

Making all housing more affordable in Malaysia

WHEN I watched Usain Bolt cross the 100m line in an Olympic record of 9.63 seconds during the recent concluded Olympic Games, I saw a young focused sprinter with only one objective in mind; to cross the finish line in the shortest possible time. He amazed the world with his stunning performance again.

This reminds me of our journey in making all Malaysian housing more affordable. It is a race that requires the same amount of focus from all relevant stakeholders including public sector which is the Government, and private sectors, i.e. the property developers, home buyers and NGOs. Furthermore, like in a race where the sprinters have a sight on the direction and goal, all stakeholders in the housing industry should be aligned to the same goal before starting the race.

To understand what exactly drives up property prices, we need to analyse the various factors that influence the price of a housing development in Malaysia. This may help us identify the root cause and provide us with the correct remedies to make Malaysian housing more affordable and sustainable.

Let's begin by looking at what are the major cost components of a property project. Twenty or 30 years ago, land acquisition was only about 5% to 10% of a project cost, but nowadays, it can take up to a sizable 20% to 30% of the whole development budget before any value-added works are carried out on the land itself.

Land prices are ever rising due to scarcity of urban land especially in the major cities. For example, a piece of land that used to cost RM10 per sq ft in Mont' Kiara during the late 80's now can cost up to RM300 per sq ft. With rising land cost “eating” up a significant portion of the development budget, house prices automatically increase as a result.

The next major cost is the holding cost and construction financing cost of the project. The longer it takes to complete a project, the higher the financing costs of the project which will then increase the price of a home.

I mentioned this before in my earlier articles that property projects are sometimes subjected to one, two or more years of gestation period to obtain all the necessary approvals from the relevant authorities before they can be launched. The lengthy approval period will definitely affect the holding costs, and slow down the supply of housing units. If this approval time is not shortened, the rising demand will only further push the prices up. This is the basic market influence of supply and demand.

Another factor that influences the cost of housing, as highlighted by developers surveyed during the recent Real Estate and Housing Developers' Association (Rehda) media briefing, is the unsold and unreleased Bumiputra units.

According to the latest half-yearly property industry survey by Rehda, the number one reason for unsold properties comes from unreleased bumiputra units and has been so for the past two years.

With the requirement to hold on to the unsold bumiputra units, the additional holding cost is inevitably spread out to all the other house buyers in the form of higher priced units. Unreleased bumiputra units may also create a false impression of supply shortage in the market, and these can cause the prices to increase again. While we recognise the need for a bumiputra housing policy, the various states should agree on a transparent, auto-release mechanism to release bumiputra units if unsold beyond 18 months of launch, to make houses more affordable for everyone.

Apart from land cost, holding, and construction financing costs, another cost component that adds to the price of properties is utilities costs. In the past, utility companies would be expected to build substations and water storage towers as well as lay electrical cables and water pipes. Today, all these are required to be completed by developers themselves.

In a roundtable discussion on housing affordability, Housing Buyers Association secretary-general, Chang Kim Loong highlighted that the privatisation of utility companies have turned them into profit-oriented companies. Taxpayers' monies are no longer utilised to provide the basic necessities that they have paid for. This ends up making houses cost more because home owners end up bearing the cost of the infrastructure for these utility services.

In the illustration mentioned at the start of this article, a sprinter must stay focused on the targeted goal of winning the race without mental and physical disadvantages before and during the sprint. Imagine if Bolt needed to run against a headwind and carried a few pounds on his back all along the race. Would he still able to break the Olympic record and become a legend?

In the race to make the price of all housing units more affordable, the issues of high land cost, lengthy approval period, additional utilities expenditure and unreleased bumiputra lots are the burdens that are holding houses back from becoming more affordable. Solve these dilemmas and we will begin to break records.

● FIABCI Asia-Pacific Regional Secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com. 

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China, Russia sound alarm on world economy at APEC summit

By Timothy Heritage

VLADIVOSTOK, Russia

(Reuters) - China and Russia sounded the alarm about the state of the global economy and urged Asian-Pacific countries at a summit on Saturday to protect themselves by forging deeper regional economic ties.

Chinese President Hu Jintao said Beijing would do all it could to strengthen the 21-member Asia-Pacific Economic Cooperation (APEC) by rebalancing its economy, Asia's biggest, to improve the chances of a global economic recovery.

Russian President Vladimir Putin said trade barriers must be smashed down as he opened the APEC summit which he is hosting on a small island linked to the Pacific port of Vladivostok by a spectacular new bridge that symbolizes Moscow's pivotal turn to Asia away from debt-stricken Europe.

"It's important to build bridges, not walls. We must continue striving for greater integration," Putin told the APEC leaders, seated at a round table in a room with a view of the $1 billion cable-stayed bridge, the largest of its kind.

"The global economic recovery is faltering. We can overcome the negative trends only by increasing the volume of trade in goods and services and enhancing the flow of capital."

Hu told business leaders before the summit the world economy was being hampered by "destabilizing factors and uncertainties" and the crisis that hit in 2008-09 was far from over. China would play its role, he said, in strengthening the recovery.

"We will work to maintain the balance between keeping steady and robust growth, adjusting the economic structure and managing inflation expectations. We will boost domestic demand and maintain steady and robust growth as well as basic price stability," he said.

Hu spelled out plans for China, whose economic growth has slowed as Europe's debt crisis worsened, to pump $157 billion into infrastructure investment in agriculture, energy, railways and roads.

Hu steps down as China's leader in the autumn after a Communist Party congress, but he promised continuity and stability for the economy.

Putin, who has just begun a new six-year term as president, said on Friday Russia would be a stable energy supplier and a gateway to Europe for Asian countries, and also pledged to develop his country's transport network.

RUSSIA LOOKS EAST

The relative strength of China's economy, by far the largest in Asia and second in the world to the United States, is key to Russia's decision to look eastwards as it seeks to develop its economy and Europe battles economic problems.

APEC, which includes the United States, Japan, South Korea, Indonesia and Canada, groups countries around the Pacific Rim which account for 40 percent of the world's population, 54 percent of its economic output and 44 percent of trade.

APEC members are broadly showing relatively strong growth, but boosting trade and growth is vital for the group as it tries to remove the trade barriers that hinder investment.

The European Union has been at odds with both China and Russia over trade practices it regards as limiting free competition. Cooperation in APEC is also hindered by territorial and other disputes among some of the members.

Putin, 59, limped slightly as he greeted leaders at the summit. Aides said he had merely pulled a muscle. Underlining Putin's good health, a spokesman said he had a "very active lifestyle."

Discussions at the two-day meeting will focus on food security and trade liberalization. An agreement was reached before the summit to slash import duties on technologies that can promote economic growth without endangering the environment.

Breakthroughs are not expected on other trade issues at the meeting, which U.S. President Barack Obama is missing. He has been attending the Democratic Party convention and Washington is being represented by Secretary of State Hillary Clinton.

U.S. officials say Clinton's trip is partly intended to assess Russia's push to expand engagement in Asia, which parallels Washington's own turn towards the Asia-Pacific region.

Also missing the summit was Australian Prime Minister Julia Gillard. Putin said she had dropped out because her father had died.

(Additional reporting by Gleb Bryanski, Andrew Quinn, Katya Golubkova, Douglas Busvine, Denis Pinchuk and Andrey Ostroukh; Editing by Janet Lawrence)

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