Grabbing opportunities

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Grab finally turned a profit in Thailand last year after focusing on sustainable growth and long-term strategies

Grabbing opportunities
Worachat Luxkanalode, Country Head of Grab Thailand, says the company is shifting to adopt medium- to long-term overall business strategies with sustainable growth in mind from its previous short-term strategies.

After a decade of local operations, Grab Thailand finally achieved profitability in 2022, making it the first ride-hailing and food delivery service in Thailand to escape the red ink.

The company posted 15 billion baht in revenue and a profit of 576 million baht last year. It is the local company of Nasdaq-listed Grab Holding, a leading super app in Southeast Asia.

The operating strategy of Grab Thailand’s country head, Worachat Luxkanalode, focuses on sustainable growth and long-term strategies, which contributed to the company’s turnaround.

“We spent time over 18 months preparing for the turnaround and making the path to profitability that was achieved in 2022. The group profitability is targeted at the third quarter of 2023, a change from an earlier target of the fourth quarter,” said Mr Worachat.

His time in the top job hits a year in November. Prior to the post, he had worked as an executive director overseeing Grab Financial Group since 2019.

Mr Worachat attributed the company’s profitability to two factors.

The first is the power of the super app that creates a large customer base and the synergy of the diverse services across the app. Under its One Grab strategy, clients can access various services such as food delivery, ride-hailing and financial solutions.

The customers can also benefit from the service synergy. For example, food delivery customers can get a discount code they can use with its ride-hailing service.

The company also has its own service payment system, which helps it save costs.

The second factor is the company’s operating efficiency, with a focus on differentiating itself from rivals and changing customer behaviour.

One example is the offer of GrabUnlimited, a monthly subscription package that allows users to receive discounts. Membership helps it reduce heavy marketing and promotional costs.

The company has also adopted medium-to-long-term business strategies with sustainable growth in mind, away from the previous short-term strategy, said Mr Worachat.

“Grab Thailand is making its business more mature and patient rather than spending money on short-term growth,” he added.

The company has also cut its workforce as part of cost reductions.

The firm also wants to offer more food features, including the dine-in feature, self-pickup feature, and the group ordering service. Mr Worachat said the company had conducted research and tried new features.

The other key to success is the leveraging of resources of its eight operations, its understanding of the customers, and strong partnerships.

Mr Worachat had been working in banking for almost two decades and decided to work with Grab in the belief that it could help create a social impact, particularly a financial impact, by providing lower-interest loans to small and medium-sized enterprises and riders, away from loan sharks.

He said he also capitalised on his financial background to help the company trim costs.

Mr Worachat said he personally focuses on building relationships with partners and the public sector. He added that the management has to connect the dots faster and be able to read between the lines of a situation.

He said the most important thing is to make a decision and execute the right timing that will not impact the service quality.

“We need to keep calm and read between the lines rather than respond immediately to every stimulus,” said Mr Worachat.

To stay profitable, the company needs to grow based on both existing customers and new customers, he said.

“We’ll expand more geographic coverage deeper in districts to reach new customers while adding new services as choices for existing users in our ecosystem,” Mr Worachat said.

He declined to comment on speculation that Grab is among the potential acquirers of rival Foodpanda, saying the food delivery market will likely see consolidation because there are too many players.

This year, Grab Thailand expects to grow faster than the industry average. According to Kasikorn Research Centre’s forecast, the Thai food delivery market in 2023 will fall 0.6% year-on-year to 86 billion baht.

Mr Worachat said Grab Thailand will continue to focus on four core businesses: food delivery, mobility service, advertising business or Grab For Business, and financial services.

With the ability to use first-party data and personalise locations in the Grab platform, users can see the advertising and make orders near their location. This is a powerful tool for small restaurants that are not situated in prime locations.

Next year, the company will double down on the advertising business, Mr Worachat added.

In mobility service, he acknowledges that the market has new players. The company aims to provide more affordable services with quality and safety while increasing corporate user numbers.

Mr Worachat is confident that the company will still find growth in domestic travellers to offset the overseas travellers who are yet to rebound to the pre-pandemic numbers seen in 2019.

The bottom line is that the company will always keep operations efficient while maintaining service quality and customer loyalty.

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Counting on coal: Cambodia’s fossil fuel push flounders with delays

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The skeletal exterior of one of the newest coal power plants in Cambodia sat silent amongst farmland in Oddar Meanchey. On a still afternoon at the very end of June, weeds entangling brick stacks, cement mixers and truck tires showed construction at the Han Seng plant had been long paused.

Locals toasting to happy hour down the road from the front gate of the site complained of months of delayed pay for a relative working there as a security guard, adding there was no set date for operations to resume. There was little more information at the nearby Ou Svay commune hall.

“Maybe the plan changed to complete construction by 2025?” questioned Roeun Phearin, who was a commune consultant for the plant. “The construction is now paused and we don’t know the reason because it is the internal information of the company.”

Cambodia bet big on coal in 2020. The Kingdom doubled down on fossil fuel that year with plans to develop three coal power plants to meet rising electricity demand and, in the process, flip most of Cambodia’s power production from renewable sources to coal.

The move bucked the global push for clean energy and dismayed sustainability advocates, but the announced plants are now facing years of delay – raising questions about when, or if, the Kingdom’s last coal projects will go online.

When announced, all three plants were attached to China’s infrastructure-focused Belt and Road Initiative. But while China’s 2021 pledge to cut support for coal power abroad killed projects elsewhere in Southeast Asia, Cambodia’s plans appeared to survive the chopping block.

Southeast Asia Globe documented the slate of projects across three provinces, as well as Cambodia’s original coal-fired power plant. Of these three sites – which the Cambodian government pledged are its last coal plants – two are in varying stages of inertia. The third is finished and operational.

In deep-rural Oddar Meanchey province, the 265-megawatt, semi-built Han Seng project missed its deadline to go online last year. Falling revenue for the Chinese companies in charge pivoted the project to new contractors, who are sticking with coal – but also now investing in solar energy at the same plant.

One of Cambodia’s newest proposed coal-fired power plants in Oddar Meanchey province has been dormant for more than a year. Photo by Anton L. Delgado for Southeast Asia Globe.

Meanwhile, near the coast in Koh Kong province, the politically connected Royal Group conglomerate has yet to even break ground on a 700-megawatt power plant initially scheduled to go online this year. Former residents of the area allege unfair deals and heavy-handed evictions.

Finally, just across the Bay of Kampong Som in Sihanoukville province, Cambodia International Investment Development Group’s (CIIDG) new 700-megawatt coal project appears to be the only of the three to hit its expected completion targets.

Just down the same road from it in Steung Hav district is another plant, the 250-megawatt Cambodian Energy Limited (CEL) coal complex, which was the first of its kind in the Kingdom. Local residents fear for the effects these power plants could have on their health and environment.

“This is not good for us,” said fisherman Hang Dara, who left his job as an electrician at CEL because of health concerns. “But it will be much worse for the next generation in this province since they now have even more coal projects.”

Hang Dara, a former electrician turned fisherman, passes the two active coal-fired power plants in Sihanoukville’s Steung Hav district. Photo by Anton L. Delgado for Southeast Asia Globe.

Future of fossil fuels

While addressing the U.N. in 2021 and in order to stay “committed to harmony between man and nature”, President Xi Jinping pledged China would stop building coal-fired power projects abroad and step up support for renewables and low-carbon energy.

As a major financier and equipper of coal-fired power plants, China’s announcement was hailed as a major step toward achieving the Paris Agreement’s goal to limit global temperature rise by cutting greenhouse gas emissions.

The fate of 77 Chinese-backed coal projects around the world that were in varying stages of development before Xi’s pledge were still uncertain as of October, according to the Helsinki-based Centre for Research on Energy and Clean Air (CREA).

Almost half of those power plants would be in Southeast Asia.

If these 37 projects in Indonesia, Vietnam, Laos, Cambodia and the Philippines are operated for their standard 25-to-30-year lifespans, CREA calculated they’d emit a total of nearly 4,230 million tons of carbon. That’s a little less than U.S. emissions for just last year, the centre said.

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The three coal projects in Cambodia continued after China’s pledge, but 14 power plants were officially cancelled in Indonesia and Vietnam, according to CREA, nixing the production of 15.6 gigawatts of coal-fired energy.

“With the very dramatic drop of costs for clean energy and the increase of costs for coal, the Cambodian government has the chance to re-evaluate if those coal plants are the best way to meet Cambodia’s power needs,” said Lauri Myllyvirta, lead analyst at CREA.

Cambodia is opting into an especially precarious position, Myllyvirta said, as the country mostly depends on foreign imports of coal.

“The wild swings in coal prices and global coal markets in the past three years have vividly demonstrated the economic risks of depending on fossil fuels,” he said, adding that price fluctuations would only “become more volatile.”

In 2021, Cambodia imported approximately $222 million worth of coal, according to records from the U.N. Comtrade Database processed by Harvard Growth Lab’s Atlas of Economic Complexity.

The trade data underlines the role of Indonesia as Cambodia’s largest coal exporter for more than a decade. Nearly 85% of coal imported by Cambodia from 2012 to 2021 came from Indonesia.

A shipment of coal is piled onto a dock in Sihanoukville’s Stueng Hav district, home to two of Cambodia’s coal-fired power plant complexes. Photo by Anton L. Delgado for Southeast Asia Globe.

Zulfikar Yurnaidi, a senior officer at the ASEAN Centre for Energy in Jakarta, agreed with Myllyvirta that the future of coal is increasingly uncertain. Yurnaidi said the international “allergy towards coal” continues to be an unaddressed ASEAN issue.

“We cannot wish coal and fossil fuels gone right away,” Yurnaidi said. “Support from foreign financial institutions is still required. Maybe not to install a dirty power plant, but to help us reach the end goal of reducing emissions by upgrading fossil fuels and investing in renewable energy.”

As coal funding runs dry, international climate finance has risen in Southeast Asia with millions of dollars going into the ‘just energy’ transitions in Vietnam and Indonesia. After the third Belt and Road Forum in mid-October, Cambodia’s Prime Minister Hun Manet announced Chinese state-owned power companies had offered the Kingdom more than $600 million for renewable energy projects.

Despite foreign funding, Yurnaidi said ASEAN’s emphasis on economic growth will continue to require coal while bloc member-states shift to renewable energy sources.

“ASEAN is a very huge ship with hundreds of millions of people and trillions in GDP,” Yurnaidi said. “With the energy transition, we know this ship needs to take a turn. But we cannot just make a sudden roundabout because then everyone will fall into the sea.”

A fisherman in Sihanoukville province passes the coal power plants on the coast of Steung Hav district. Photo by Anton L. Delgado for Southeast Asia Globe.

Counting on coal

Cambodia’s bet on coal seemed to embody that idea.

In the aftermath of Covid-19, Cambodia’s Power Development Master Plan charts the way for the country’s energy expansion from 2022 to 2040 and predicts a steady rise in national demand for energy.

The first five years of every “energy scenario” within the plan prioritises the development of Cambodia’s proposed roster of three new coal sites.

At a meeting before the 26th U.N. Climate Change Conference in 2021, also known as COP26, Cambodia’s Minister of Mines and Energy Suy Sem said the country would no longer approve additional coal projects.

The years of construction delays facing two of the power plants have some experts wary of potential energy shortages. Chea Sophorn, an energy project manager who specialises in renewable developments, said shortages would depend on how quickly the Kingdom’s post-Covid economy, and thus energy demand, recovers.

But with international investors turning away from fossil fuels, Sophorn emphasised that securing support to jump-start the two stalled projects could be difficult.

“What type of investor will still be able to finance stranded assets like this?” questioned Sophorn, explaining that without China there are few to no places for these projects to turn.

Cheap Sour, an official with the Ministry of Mines and Energy, declined to comment and referred to the ministry spokesman, Heng Kunleang, who left Globe’s text and voice messages on read. Eung Dipola, the director-general of the ministry’s Department of Minerals, was unavailable for comment.

The sprawling site of the 265-megawatt, semi-built Han Seng coal power plant in Cambodia’s Oddar Meanchey province. Surrounded by fields of cassava and other crops, the project missed its deadline to go online last year and was silent when reporters visited at the end of June. Photo by Anton L. Delgado for Southeast Asia Globe.

Construction in Cambodia

In Oddar Meanchey, financial difficulties have already pushed the companies backing the $370 million Han Seng power plant to pivot.

The state-owned Guodian Kangneng Technology Stock Co. suffered a massive decrease in its net profit for shareholders in the first half of last year and brought in a new contractor, Huazi International, in September. 

The plan to install 265 megawatts of coal-fired power hasn’t changed – but Huazi has since announced intentions to add 200 megawatts of solar capacity to the site. This is the first time any other type of energy production has been associated with the struggling Han Seng power plant.

Farmer Boy Troch, who neighbours the Yun Khean coal mine in Cambodia’s Oddar Meanchey province. Photo by Anton L. Delgado for Southeast Asia Globe.

Just two kilometres from the semi-constructed project site, the Yun Khean coal mine, which would supposedly one day supply the plant, is operating as usual.

Boy Troch, who lives a stone’s throw away from the mine’s slag heaps, believes mining operations contaminated the groundwater beneath his farm, damaging crops and sickening wildlife.

“There are a lot of lands affected by the mine, but village and commune chiefs do not care,” Troch said, pointing at shifting heaps of coal-streaked earth across the road from his land.

Heaps of earth from the Yun Khean coal mine contrast with the surrounding farms and forest two kilometres from the Han Seng power plant in Cambodia’s Oddar Meanchey province. Photos by Anton L. Delgado for Southeast Asia Globe.

With his grandchildren by his side, Troch said he feared coal mining would proliferate in his district if the power plant went online.

“We are afraid to protest because our voice isn’t heard,” Troch said. “We are ordinary people. We are more afraid that they will evict us from this land.”

In Koh Kong, stories from evicted residents may validate these fears.

Royal Group, one of the largest investment conglomerates in Cambodia with direct ties to former Prime Minister Hun Sen, received a nearly 170-hectare land concession in 2020 within Botum Sakor National Park for the coal power plant.

People living on the site without land titles complained of rough, uncompensated evictions. Former resident Keo Khorn’s home was torn down in 2021 by a government task force. With 37 evictees, he petitioned for reparations.

Residents who were evicted or sold their land to Royal Group, signed petitions and wrote letters to provincial and national authorities for fairer compensations to no avail. Photos by Anton L. Delgado for Southeast Asia Globe.

“We all came together to complain about the company,” Khorn said. “Everyone heard us, the provincial ministries and the national ministries. But no one did anything.”

The project site is currently vacant, but workers are clearing forests around the location. These areas, also within the national park, were given to Royal Group in a second, nearly 10,000-hectare land concession this year.

Thomas Pianka, with Royal Group’s energy division, flatly refused to speak with Globe reporters.

“No, I don’t need to talk to you,” he said before hanging up a call.

While the first land concession Royal Group received from the government for the coal project has seen little to no activity, the area given to the company in a second concession within the national park is steadily being cleared. Photo by Anton L. Delgado for Southeast Asia Globe.

Where coal plants are actually operating, residents in Sihanoukville province have different worries. 

A plant security guard for the older Cambodia Energy Limited site said other workers have told him about health concerns, but said the company has never mentioned any risks.

The guard’s deputy village chief, Ly Socheat, said she regularly fields complaints about the smell from the power plant. Socheat said many of the families in her village have stopped collecting rainwater in fear of contamination from the coal.

While Socheat attended several meetings about potential employment opportunities at the power plant, she has also never been informed of any potential health impacts.

Residents complained of respiratory issues and headaches. But coal-fired power plants have also been linked to cancer – a 2019 study estimated 1.37 million cases of lung cancer around the world will be linked to such plants by 2025.

In the waters just off the coast, fisherman Hang Dara recounted why he left his job as an electrician at CEL to instead cast for crabs by the power plant. He believed the plant’s discharged water was heating the bay and harming the environment.

Loy Chaem, a crab fisherman in Sihanoukville province, passes the coal power plants on the coast of Steung Hav district. Photo by Anton L. Delgado for Southeast Asia Globe.

“I was very worried about my health,” said Dara, who explained he had severe headaches and chronic coughs while working at the power station. “But now I am very worried about the health of the fish.”

As Dara stood by the bow, his fishing partner Loy Chaeum drove from the stern. As they passed coal loading docks supplying the two power plants, Chaeum excitedly pointed out a vulnerable Indo-Pacific humpback dolphin surfacing for air.

“I don’t see many dolphins now, they don’t like the coal. Like us, they must go farther and farther away to survive,” said Chaeum, who explained he motored across the bay every morning in search of a better catch.

That brings him closer to Koh Kong, where one day there may be another coal-fired power plant.

“If they build it, there will be nowhere for them or us to go,” he said, turning back to land, having lost sight of the dolphin.

Contributed reporting by Andrew Haffner and Sophanna Lay. A Khmer-language version of this story can be found here, with translations by Sophanna Lay and Nasa Dip.

This article was supported by a ‘News Reporting Pitch Initiative’ from the Konrad-Adenauer-Stiftung Foundation in Cambodia.

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HK firms mull local expansion

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PUBLISHED : 30 Oct 2023 at 04:30

Hong Kong companies are showing interest in having manufacturers and logistic firms based in Thailand, according to Thai trade representative Nalinee Taveesin.

Speaking after meeting Ronald Ho, director of the Hong Kong Trade Development Council’s Southeast Asia and South Asia in Bangkok yesterday, Ms Nalinee said Hong Kong has been Thailand’s ally in trade, investment and tourism for a long time.

The meeting was a follow-up to Prime Minister Srettha Thavisin’s visit to Hong Kong to meet potential investors early this month. The meeting also focused on exchanging information and tightening trade relations, she said.

A Covid-19 abated, Hong Kong became interested in expanding its market to Asean, including Thailand, with 30 companies looking to invest and set up production bases and logistics systems in the kingdom, she said.

This cooperation will help Thai businesses, particularly small and medium-sized enterprises and start-ups, acquire channels for product distribution and knowledge development in various fields, including e-commerce.

During the meeting, Mr Ho also invited Mr Srettha to attend the Asian Financial Forum in Beijing in January.

Ms Nalinee also met Kevin Yang, chairman of the Hong Kong Fashion Designers Association, to discuss ways to promote Thai silk in the world market.

Mr Yang suggested Thailand present stories of its silk to the world to show that it is not only used to make clothes but also decorations and furniture through exhibitions.

The design of Thai silk dresses should also reduce the formality to make them more accessible to teenagers, he said.

“Hong Kong is a bridge connecting China with the rest of the world,” Ms Nalinee said. “Hong Kong is also known as a financial and investment hub and a centre of international trade, goods and human resources.”

She added that last year, the trade value between Thailand and Hong Kong was worth about US$11.8 billion.

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Myanmar junta stealing from desperate migrant pockets

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Tougher times await Myanmar migrant workers in Southeast Asia. Two recent orders issued by Myanmar’s junta State Administration Council (SAC) in September will result in higher costs of moving, living and working abroad for migrant workers and a fall in their disposable income and savings.

The first is the order that Myanmar migrant workers who migrate from September 2023 with the assistance of employment agencies will have to remit at least 25% of their salaries every month. These remittances must be sent through the official channel recognized by the SAC at an exchange rate significantly lower than the market rate.

The World Bank estimated the volume of remittances at US$1.9 billion in 2022, down from $2 billion in 2021 (the year that followed the coup) and $2.67 billion in 2020 (the year before the coup). Hundreds of millions of dollars or more are remitted informally and via unknown channels.

This forced remittance order by the SAC may not affect all Myanmar external migrant workers. It is practically impossible to force every one of about four million migrant workers to remit a quarter of their incomes through official channels.

The second order is the amendment of Union Tax Law 2023. It orders Myanmar nationals abroad to pay taxes, in the foreign currency they earn, starting from October 1, 2023. These taxes will be calculated at a flat rate of 2% on their total incomes or at up to 25% of their chargeable incomes (incomes after deducting tax exemptions and tax reliefs) — whichever is lower.

These forced taxes effectively amount to double taxation for Myanmar migrants who also pay income taxes where they work. This order will affect all Myanmar migrant workers, as every national abroad must show proof of tax payments or pay a lump-sum income tax when they renew their passports, which are only valid for five years. The same requirement has to be fulfilled by those who renew their passports in Myanmar.

The September orders will generate a substantial amount of foreign currency for the SAC. Though not explicitly stated, they have two targets. First, the military junta wants to discipline and punish external Myanmar migrants who are seen as major financial supporters of the resistance against the military regime.

Women carry burning torches as they march during a demonstration against the military coup in Yangon on July 14, 2021. Photo: Asia Times Files / AFP / Stringer

Second, the SAC needs additional funds to support its war machine against the resistance. UN Special Rapporteur on the situation of human rights in Myanmar, Tom Andrews, reported that the junta has imported war materials worth at least $1 billion since the coup. 

Since 2021, the junta has become increasingly cash-strapped due to international economic sanctions and the mass boycott of goods and services produced by military-affiliated enterprises in Myanmar.

Prior to these two new orders, Myanmar migrant workers in Thailand, Malaysia and Singapore were already subject to a growing set of securitized regulations issued by the SAC. These regulations included suspensions and delays in renewing and obtaining Myanmar passports and new migration documentation requirements introduced after the coup, such as the Overseas Worker Identification Card. 

As a result of these new regulations and an increase in corruption after the coup, brokerage services have thrived in both within Myanmar and in Thailand and Malaysia, resulting in additional costs for Myanmar migrant workers.

The case of Myanmar migrant workers in Thailand is particularly important. Thailand is home to at least 2 million Myanmar workers, not including several hundreds of thousands of workers who have entered and stayed irregularly. Only 350,000 of them are employed through the official Memorandum of Understanding between Myanmar and Thailand.

Faced with forced remittances and income taxes, many Myanmar workers, who might have otherwise regularised their status in Thailand and obtained documentation from Myanmar immigration and labor authorities, may choose the irregular, undocumented pathway. 

Aspiring migrants who are still in Myanmar and would also have chosen the official pathway might now consider irregular migration. The porous border between the two countries facilitates irregular migration.

Stacks of Myanmar kyat are seen on the counter before a client collects them, at a bank in Yangon, Myanmar October 19, 2015. REUTERS/Minzayar
Stacks of Myanmar kyat are seen on the counter before a client collects them, at a bank in Yangon, Myanmar October 19, 2015. Photo: Asia Times Files / Agencies

Despite the unavoidable deduction from their incomes abroad, hundreds of thousands of people remain driven to emigrate from Myanmar. The situation at home seems increasingly grim, with no visible end to the unprecedented domestic political conflict and humanitarian crisis, as well as their severe impacts on the country’s economic situation and labor market.

While there is some irregular migration from Myanmar to Malaysia, it is not as big as in Thailand, and there is no irregular migration from Myanmar to Singapore. Documented workers, such as those in Singapore, cannot simply opt for the undocumented pathway like their counterparts in Thailand and Malaysia. They have already faced or will face the SAC rules and regulations.

Brokerage services will further thrive because many Myanmar migrant workers will have to seek passport, embassy and consulate brokers, resulting in higher fees. A significant portion of the incomes and savings of Myanmar migrant workers will be lost from forced remittances, income taxes and increasing brokerage fees.

Nyi Nyi Kyaw is Research Chair on Forced Displacement in Southeast Asia at the Regional Center for Social Science and Sustainable Development, Chiang Mai University.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Beyond the yen, ringgit’s free fall the one to watch

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SINGAPORE – Malaysia’s central bank is under pressure to steady the flagging national currency, the ringgit, which in recent days fell to new multi-decade lows against the US greenback and neighboring Singapore dollar.

Analysts say Bank Negara Malaysia (BNM) now faces a trade-off between raising rates and stifling an already sagging domestic economy or posing risks to financial stability by failing to act. Malaysia’s offshore borrowings, widely denominated in US dollars, amounted to 30 billion ringgit ($6.2 billion) as of August 2023.

Like other emerging market currencies, the ringgit has depreciated this year against a strong US dollar. But the extent of the slide – now the worst performer in Asia after the Japanese yen – has, according to BNM Governor Abdul Rasheed Abdul Ghaffour, belied Malaysia’s otherwise strong economic fundamentals and resilient banking sector.

“We are not in a crisis. It is different from what we experienced in the past,” Abdul Rasheed told reporters earlier this week, referring to the 1997-98 Asian financial crisis when the ringgit hit a benchmark low of 4.88 ringgit to the US dollar in March 1998.

The currency has in recent days tumbled to its lowest levels since, slipping to 4.79 to the US dollar on October 23 and hovering at 4.77 at the time of publication.

The ringgit has dipped by approximately 8.64% to the US dollar so far this year. The currency also breached a record low of 3.48 against the Singapore dollar this week, while also trading lower against most other Asian currencies. Malaysia’s currency traded at 3.48 to the Singapore dollar at the time of publication, depreciating around 6.4% this year.

The BNM governor said recent ringgit fluctuations appear to be driven primarily by geopolitical events, wherein the US dollar has strengthened on safe-haven demand amid concerns about an escalation of the Israel-Hamas conflict into a wider regional war.

“It certainly does not reflect our economic fundamentals,” Abdul Rasheed said, pointing to Malaysia’s current account surplus and moderating inflation.

But seven straight months of decline in exports through September, due in part to weaker-than-expected demand in China, Malaysia’s largest trading partner, has weighed against the ringgit.

The local market, meanwhile, saw net portfolio outflows in the first half of 2023, with global funds reportedly selling off US$324 million of Malaysian stocks in October alone.  

“Besides the higher interest rates in the US, which attracted capital outflows from [Southeast Asian] economies as investors seek higher returns…. weaker prices for commodities such as palm oil and liquefied natural gas, which constitute a significant share of Malaysia’s exports, have also affected the country’s export earnings,” said Tan Wen Wei, Asia analyst at the Economist Intelligence Unit (EIU).

BNM paused hiking rates in July, holding its overnight policy rate (OPR) at a record 250 basis point discount relative to the upper bound of the US Federal Reserve funding rate. That widening rate differential has put Malaysia’s central bank on the horns of a policy dilemma given that narrowing the rate gap to stem outflows would require raising rates and hurting the local economy.

Governor Abdul Rasheed told an October 23 press conference that the central bank is committed to taking all necessary measures to maintain a “smooth and controlled adjustment of the ringgit.” He said the BNM possesses “an array of market measures” and is ready to support the sliding ringgit should the need arise, without elaborating on the conditions that could cause the central bank to intervene.

Analysts are of two minds about whether the BNM should raise the OPR to reduce the interest rate differential with the US or pursue other policy options, such as intervening in foreign exchange markets or even imposing capital controls as it did in 1998 at the height of the Asian financial crisis.

“The imposition of such controls [would] risk eroding investors’ confidence and the banking system is better capitalized right now as compared to the past… We do not think BNM will go down this route,” said Tan. “The most palatable option to the BNM will be foreign exchange intervention. This measure has temporary and limited impact, thus it is not sustainable for prolonged periods.”

Deputy Finance Minister Ahmad Maslan said earlier this week that raising the OPR, now at 3%, may no longer be “relevant” given that Malaysia’s headline inflation rate slowed to 1.9% year-on-year in September, marking the first time inflation was below 2% in nearly three years.

He assessed that the US federal funds rate (FFR), now at 5.5%, would likely remain elevated for an extended period as the Federal Reserve seeks to control inflation that, while far lower than a year ago, is proving difficult to tame. Analysts are split about whether the US Fed will raise interest rates at its upcoming October 31 to November 1 meeting.

“Even if the OPR is raised despite easing inflation in the economy, the positive effect on the ringgit will likely be overwhelmed by US rate hike expectations,” said Yeah Kim Leng, a senior fellow and director of the Economic Studies Program at the Jeffrey Cheah Institute on Southeast Asia at Malaysia’s Sunway University.

Malaysia's currency could come under pressure due to higher than previously disclosed public debt and a new expansionary budget. Photo: iStock
Malaysia’s currency is the second-worst performer in Asia so far this year. Photo: Asia Times Files / iStock

“Given that currencies under floating exchange rate regimes are prone to misalignments and overshooting, Malaysia’s economy is better off whereby policymakers continue to focus on strengthening the country’s underlying fundamentals. Meanwhile, BNM should continue its policy to smoothen adjustments but not determine the ringgit level or deplete its reserves in its defense.”

Malaysia’s government says 2023 gross domestic product (GDP) growth will come in at the low end of its 4% to 5% forecast after third-quarter growth rose by 3.3%, up from 2.9% in the previous quarter. The World Bank earlier this month revised down its full-year growth forecast for Malaysia to 3.9% from an earlier 4.3%, citing limited fiscal space as a key macroeconomic challenge.

Prime Minister Anwar Ibrahim tabled an expansionary 393.8 billion ringgit ($83.29 billion) budget, the nation’s largest-ever spending plan, on October 13. The plan will gradually cut subsidies on products like petrol, cooking oil and rice that the administration says have disproportionately benefited the rich. The government intends to shift away from blanket subsidies to a system that mainly aids lower-income earners.

“On the domestic front, the recent budget announcement to implement targeted subsidies for diesel and the removal of price caps for chicken and eggs will lead to higher inflationary pressures in the near term, reducing the real returns on investment,” said the EIU’s Tan. “Foreign investors may then seek higher returns elsewhere, and demand for the ringgit is reduced as a result.”

The EIU forecasts that BNM will maintain its OPR at 3% this year. “Tightening the OPR now will weigh further on economic growth, which we think is BNM’s priority now, given that inflation is under control,” said Tan, who added that China’s stronger-than-expected third-quarter GDP figure of 4.9% indicated that its economy may be stabilizing, which in turn could support Malaysia’s fourth quarter trade outlook.

Carmelo Ferlito, an economist and chief executive officer of Kuala Lumpur-based think tank Center for Market Education, argues monetary policy is “an ineffective tool” for firming up the ringgit, which he believes is falling mainly due to external factors. He suggests a consistently pro-market approach to domestic policy would be more effective to stem the currency’s slide.

“The most important factor is the abundance of conflicting messages from the policy perspective. We get commitment to fiscal discipline and yet the biggest budget ever. Price controls were removed only recently despite statements in favor of a pro-investment eco-system,” he said, pointing to pro-market stances amid policy hints of a bigger government role in the economy.

Analysts are mixed on whether the currency could breach the psychological five ringgit to the dollar mark amid prevailing headwinds and uncertainties. Sunway University’s Yeah said the risk of further depreciation cannot be ruled out given the possibility of further interest rate hikes by the US Fed to achieve its 2% inflation target.

US Federal Reserve Chairman Jerome Powell could raise US rates again later this month. Image: Screengrab / NDTV

“However, slowdown signs and fiscal and financial stresses are emerging in the US economy that suggests a reversal of interest rate uptrend and the dollar strength is imminent in the coming quarters. Malaysia may not see a breach of the psychological five ringgit to a dollar mark if the US economy deteriorates sooner than later,” he told Asia Times.

The EIU’s Tan agreed that a five ringgit per US dollar breach remains unlikely, owing to China’s economy showing signs of stabilization after a lackluster post-pandemic recovery. The research unit maintains its view that the US Fed will not raise interest rates further, assuming US inflation continues to ease and consumer demand softens in September-October.

“A potential slowdown in the US economy may also allow the Federal Reserve to pause and assess if a further rate hike is warranted,” Tan added. “All this is based on the assumption that the Israel-Gaza crisis remains contained. Any escalation into a regional conflict may lead to investors seeking the dollar as a safe-haven, putting further depreciatory pressure on the ringgit.”

 Follow Nile Bowie on Twitter at @NileBowie

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Why Indonesia chooses autonomy over BRICS

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Since 2011, observers have regarded Indonesia as a hot accession candidate should BRICS, a forum of emerging powers with Brazil, Russia, India, China and South Africa as members, decide to enlarge their club. 

When during the latest BRICS summit held in South Africa in August 2023 China persuaded its hesitant partners to invite new members to the forum, Indonesia was on the cards of all five BRICS member governments.

The country’s potential value for BRICS is obvious. It is the country with the world’s fourth largest population, a fast-growing economy with the potential to become one of the globe’s top five economies by 2045 and a leading power in Southeast Asia, a strategically important region where the United States and China compete for influence.

But surprisingly, Indonesia was not among the six countries – Argentina, Saudi Arabia, Egypt, the United Arab Emirates, Iran and Ethiopia – that were selected from among 23 countries that had submitted letters of interest. Indonesian President Joko ‘Jokowi’ Widodo informed the public that the Indonesian government had decided not to hand in a letter of interest because it did not want to rush membership. 

According to Jokowi, the government needs more time to study the benefits and drawbacks of BRICS membership, especially in the economic domain, and wants to consult with its ASEAN partners.

This is the official version, but peeling back the surface reveals the deeper motivations behind Indonesia’s decision not to join BRICS.

One reason is that Indonesia’s foreign policy has a long tradition of non-alignment. Aggressive Chinese attempts to enlarge BRICS cause wariness in Jakarta, invoking Cold War-era bloc building against the dominance of the United States and its Western allies.

BRICS is soon to become BRICS+ with the accession of six new members, but Indonesia won’t be among them. Image: Screengrab / Twitter

Joining BRICS would be read in the West as signaling a shift towards the Chinese camp. It would be perceived as a major change in Indonesia’s hedging and issue-balancing policy, under which Jakarta tilts more toward the United States in security affairs and more towards China on economic issues. The credibility of the country’s age-honored bebas aktif or “free and active” doctrine would suffer.

Following the enlargement of BRICS, the forum is increasingly seen in the West as a geopolitical vehicle for China and Russia. This means that Indonesia must carefully calibrate its position. Indonesia’s failure to unequivocally condemn Russia’s invasion of Ukraine – a flagrant violation of international norms of sovereignty, territorial integrity and peaceful conflict resolution, to which Indonesia explicitly subscribes — has raised eyebrows in the West.

This also holds true for Indonesia’s negotiation of a free trade area with the Russian-led Eurasian Economic Union. Joining BRICS would have exacerbated Western irritations. 

Any semblance of further tilting towards Russia and China jeopardizes relations with the West. As BRICS is a highly diverse forum, even more so after enlargement, membership would come with high transaction costs for Indonesia. 

Indonesia would have to devote enormous diplomatic resources to BRICS in order to ensure its alignment with Indonesia’s national interests. BRICS accession would also compromise Indonesia’s much-cherished goal of being a “good global citizen.” 

Indonesia’s identity in international relations markedly differs from the other members of BRICS. Although Indonesia shares BRICS members’ profound dissatisfaction with the existing international order, it airs demands for reform in much more conciliatory and accommodating language.

It is no accident that in 2013 Indonesia joined MIKTA, a forum consisting of Mexico, Indonesia, South Korea, Turkey and Australia, which seeks to act as a “constructive multilateralist,” “bridge-builder” and “force for good.” 

While the performance of MIKTA as a bridge-builder and Indonesia as a mediator is debatable, Indonesia’s moderation enabled it to maintain open dialogue channels with the Global North while advocating for the interests of the Global South. Indonesia has been invited to speak as a guest at both the Western G7 and BRICS.

The Indonesian government also remains unconvinced of the economic benefits of BRICS accession. Even without BRICS membership, Indonesia is economically closely affiliated with China, its largest trading partner and a major investor. 

Trade with China dwarfs trade with the other BRICS member states, including the new members. Maintaining close economic relations with Beijing does not require BRICS membership and can be promoted bilaterally.

Chinese President Xi Jinping and Indonesian President Joko Widodo in a warm embrace at the Bali G20 Summit. Image: Facebook / Pool

Indonesian economists do not regard BRICS’s New Development Bank as a particularly attractive option to finance the country’s investment needs. With an initially subscribed capital of US$50 billion, it clearly trails other development banks such as the World Bank and the Asian Development Bank. 

Key figures in the Indonesian cabinet, like Finance Minister and former World Bank managing director Sri Mulyani Indrawati and Foreign Minister Retno Marsudi, opposed joining BRICS and may have more confidence in Western-dominated financial institutions even while pleading for their reform.

BRICS accession would also endanger Indonesia’s endeavors to become the third Asian member of the OECD. While Indonesia’s development is still far behind the level at which South Korea was admitted and admission is a lengthy process, not acceding to BRICS could be used as leverage for Indonesia to expedite OECD membership.

Not joining BRICS reflects Indonesia’s foreign policy pragmatism, a key dimension of the bebas aktif doctrine originally formulated by founding father Mohammed Hatta. It is unlikely that Indonesia will abandon this proven strategy in a highly volatile international political environment.

Jurgen Ruland is Professor Emeritus in the Department of Political Science at the University of Freiburg, Germany.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Singapore-based multi-currency app YouTrip raises another US million in funding

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Ms Chu, who is also the company’s co-founder, said YouTrip has grown 200 per cent year-on-year and reached profitability in April this year.

“In order to raise money in this current climate, you have to do both simultaneously,” she said.

The money will be used to invest in more technologies to improve YouTrip’s products.

Users can soon add their YouTrip cards to Google Pay, and QR code payments are “part of (the) roadmap in the near term”, Ms Chu said.

YouTrip also plans to introduce new features after the Monetary Authority of Singapore (MAS) increases the amount of money that can be stored in e-wallets from S$5,000 to S$20,000 (US$3,600 to US$14,600). The 12-month payment limit will also increase from S$30,000 to S$100,000. The changes are slated to happen sometime this year.

“It really opens up a whole lot more opportunities for us to build more features like additional currency wallets, remittance services, more partnerships with merchants and many more features,” she said. Budgeting recommendations and financial insights are also in the works.

MARKET SHARE, EXPANSION PLANS

The CEO said YouTrip’s strategy is to stay consistent and focus on localisation.

“We customise the app and also the card face (design) in every market we go into. So we just don’t take something that works in another part of the world and plug it in here and assume people would like it,” she said.

YouTrip said its market share in Singapore is “quite high”, but declined to reveal specific user numbers for any country.

Expansion in Southeast Asia has been a goal since before COVID-19 struck, but the company could go beyond the region now that it is “well-capitalised” following its Series B fundraising, said Ms Chu.

“What it allows us to do is to also look at some of the international financial hubs that have similar characteristics with Singapore, so we are definitely broadening our minds in terms of where to launch going forward.”

Although YouTrip has diversified into e-commerce and business payments, travel is what has propelled the company’s growth since borders reopened after the pandemic. 

Singaporean users are savvy and have been buying currencies when the rates are good, Ms Chu said. Some hold the currencies for many months before spending it overseas.

“For popular destinations like Japan, people do think they can exchange first and hold it, because no matter what, they will make a trip there,” she said. The US dollar and euro are also popular currencies to hold onto.

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Commentary: Could Trans-cab merger and rumoured foodpanda buyout spell trouble for Grab customers?

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FOODPANDA EXIT – BUY OUT OR SHUT DOWN?

In food delivery, the focus of leading players has definitely shifted towards profitability.

Although Delivery Hero announced in August that it had achieved positive adjusted profit before interest, tax, depreciation and amortisation (EBITDA) on a group level in the first half of 2023, it had hinted in earnings calls that it would exit markets where it did not have a clear lead.

There have been rumours of Delivery Hero exiting foodpanda in Southeast Asia since last year. Based on the Momentum Works Apples to Apples analysis, Delivery Hero Southeast Asia collectively contributes less than half of the gross merchandise value that Korea generates through its subsidiary Woowa Brothers. In addition, Delivery Hero has also been grappling with a diminishing market share in the region and a much weaker cash position compared to Grab.

In this context, it is hard to see how Delivery Hero could turn this around and make Southeast Asia meaningful and worthwhile for it. If the decision is indeed to exit Southeast Asia, the only choices are finding a buyer or shutting down.

Shutting down is not an ideal outcome for everyone involved – employees, F&B establishments, riders and customers. There was chaos when Deliveroo suddenly announced on Nov 16, 2022 it would exit Australia immediately, shocking restaurants and customers with unfulfilled orders and sent riders scrambling for jobs.

Things could only be more complicated in Southeast Asia’s fragmented markets. Delivery Hero itself would need to go through the painful process of liquidating its multitude of entities, which could take very long and be very costly.

While Grab has not acknowledged talks with Delivery Hero, it’s hard to see any other party with meaningful business logic and experience to take over foodpanda.

Unlike the Grab-Trans-cab deal – which is estimated to be around S$100 million (US$75 million) for 2,500 vehicles, vehicle workshops and fuel pump operations – the question is what Grab really gains from buying foodpanda for a rumoured €1 billion (US$1.06 billion) when it has its own established food delivery network and could simply wait to fill the space left by foodpanda’s exit.

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Singapore based fintech Triple-A raises USm series A

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Peak XV Partners, formerly known as Sequoia India & amp, South East Asia, is the leading investor.To improve the world pay system by fusing blockchain and nbsp with conventional finance,Triple-A, a provider of digital currency payments, has announced its US$ 10 million( RM47.8 million ) Series A funding. Leading tech investors…Continue Reading