IN A GALAXY FAR, FAR AWAY: SAPP’S SABAH ECONOMIC PLAN STILL SUCKS!

By : GUAN HONG LEE (Ex-Foriegn Bank Employee)

"A New Hope!”. What former Chief Minister, Datuk Seri Yong Teck Lee promises Sabah should he return to power; coincidentally also the title of Episode IV in George Lucas’ Star Wars epic.

The issue at hand highlighted by Queville To’s article “Bringing new hope and a better Sabah” on freemalaysiatoday.com was in regards to the State Government of Sabah’s RM544 million Bonds, which SAPP classifies vehemently as harmful to state finances.

However, a deeper look into the matter reveals that SAPP and the statements made by Yong are not too unlike the science fiction of George Lucas’ masterpiece. When it comes to pure astonishment, nothing comes close to the Star Wars or SAPP cast of cool, funny and downright TRAGIC characters.

It can be contended that Lucas and Yong do in fact have a similar vision for their audiences: both try to introduce us to a whole other universe of IMAGINARY creatures, lifestyles and history!

Albeit to varying degrees of success.

To put bluntly, Yong’s proclamations are fanciful, but arbitrary at best when it comes to the real world. A classic case of great motivational jargon by a deluded individual unable to implement what is promised.

Declaring that “the bond is like spending tomorrow’s money today” exemplifies SAPP’s ignorance of economic theory and the party’s failure to understand the financial markets.

The State Government of Sabah raised and issued its bonds with the approval of the Federal Government and in accordance with the requirements of the Constitution of Malaysia. The bonds also achieved the highest long-term Issue Rating assigned by RAM Rating Services Bhd, i.e. AAA, indicating the bonds issued by the State Government of Sabah have “superior safety for payment of financial obligations”.

SAPP and the purveyors of their 'Sabah Economic Plan' conceivably fail to comprehend the financial benefits of such a bond issue, let alone the complex world of economic transactions and financial instruments.

At a fixed coupon rate of only 4.58% per annum, the State Government of Sabah has been granted an inexpensive form of financing that will allow it to optimise available financial resources for the implementation of the State’s long-term development plans.

For Yong to say that Sabah requires 'huge reserves' to be economically prosperous reflects the ignorance and shallow understanding of a lawyer’s perspective on the management of the State’s financial affairs, since 'huge reserves' can only be generated from real economic activities.

That is to say, if the current administration under the leadership of Chief Minister Musa Aman continues, Sabah without doubt will accumulate 'huge reserves' as shown by the historical performance of a “balanced economic growth strategy through fiscal prudence” implemented by Chief Minister Musa Aman who is also the State Minister of Finance since 2003.

In June 2011, at the launch of 'The Report: Sabah 2011' prepared by the Oxford Business Group (a global publishing, research and consultancy firm), it was highlighted that;

“Sabah’s economy would continue to outperform other Malaysian states with GDP capita increases, helping to drive rural and urban development across the state with new growth sectors coming on stream in the next five to 10 years.”

This is attributable to Chief Minister Musa Aman’s sound financial policy and management creating an investment climate that is conducive for growing streams of investment flowing into the state.

The layman on the street will raise simple and valid questions, “why not use Sabah’s own money if the state is so financially prudent? Why borrow and pay back with interest?”

The answer lies within a counter-question: “why should Sabah use its own cash when it can borrow at a cost low enough to be offset by economic returns from the generation of NEW economic activities?”

Job creation, new businesses and vibrant trading will generate revenue, thus contributing to the coffers of the Sabah state many times over compared to the relatively small cost of 4.58% annual payment in bond coupons.

Sabah’s wealth of natural resources brings with it a strongly driven primary sector and positions the state at a pivotal point for the nation in terms of crude palm oil (CPO) and crude-oil production. This robust attainment, among other things, has been fundamental to the rise in the Sabah state’s consolidated reserves in recent years (despite adverse global market conditions) to the RM3 billion mark.

Motives in support of bonds do not end here.

What is debatably even more crucial for successful governance of Sabah lies within the tacit benefits derived from the issuance of rated debt instruments; namely scrutiny and transparency of public information.

So, how exactly do bonds help in providing information for governance?

Well, it’s no secret that the majority of civil servants and government workers do not personify the very picture of diligence and pride in what they do. As a matter of fact, dealing with their bumbling systematic and personal inadequacies is a sluggish and unpleasant affair experienced by almost every Malaysian at some point in life.

This leisurely existentialism is kicked out the window once responsibility of providing data to rating agencies examining the creditworthiness of a bond issue is brought under watch.

In order for rating agencies to express their credit opinions, they typically undertake rigorous examination of the ratee’s track record; hence, the state of Sabah’s economic and financial data will have to be current, consistently updated and readily available; this data coming from the civil servants who are forced to facilitate efficiency in information collection and capture.

Another crucial objective worth mentioning here is the bigger plan for Sabah’s economy - opening up to foreign direct investment.

The lead arranger of the bonds, in this case CIMB Investment Bank Berhad, promotes the State Government of Sabah’s bonds to not only local investors, but also to key players of the global capital markets located in the region.

Since the rating process provides a free flow of information to global investors, there is a greater likelihood for their future reinvestment in Sabah, particularly given the confidence instilled from the State’s bonds being 'AAA' rated. This allows for sources of economic growth beyond just the scope of Sabah and Malaysia.

With the local market size as shallow as it is and Sabah’s GDP being dependent on trade through export-oriented output from its primary sector, Yong must be either intentionally misdirecting information or simply naïve enough to believe that Sabah must be entirely self-reliant.

Contrary to SAPP’s belief in their Sabah Economic Plan, down-breeding the State’s financial management into an internalised barter trade system can only end antagonistically for the people of Sabah.

Last but not least is the deserving mention (purely for COMEDIC value) of the title “most successful Sabah finance minister” given to Mohammad Noor Mansur by none other than Yong himself.

Both are lawyers by profession, not to be confused with economists, accountants or financial analysts; an epitome of the metaphor ‘the blind leading the blind’.

There sure is no denying that Yong truly is a ‘special’ character.

A question still beckons though, is SAPP’s Sabah Economic Plan entirely flawed?

Nothing’s perfect in this world, but if Yong’s irrational tirades are anything to go by and the political clowns in SAPP do indeed one day have their way with our state assets, MAY THE FORCE BE WITH SABAH!