Tuesday, November 13, 2007

Fuel Subsidy

With oil prices surge near USD100 per barrel, one of the hottest issues in the world today, would be the oil price. Perhaps, this is the hottest topic, other than the subprime crisis.

What impacts oil price would have on Malaysia, or we as the common citizen of Malaysia, or even as a global citizen? When oil prices go up, the cost of everything would go up, as oil is almost indispensible in every aspect. Luckily USD has been weak lately, and USD100 with an exchange rate of USD1 to RM3.33 would mean about 15% saving compared to if USD1 to RM3.80.

Prime Minister, during the Q&A of Cornell Club of Malaysia's Dinner touched on this issue of subsidy. Prime Minister quoted that currently total fuel subsidy for 2007 is RM35 Billion. That's slightly more than USD10 Billion. If we divide by total Malaysian population, that's a subsidy of RM1,400 per person per year, assuming we have 25 Million population. That's about RM4 per person per day. Quite a staggering amount!

Besides fuel subsidy, Malaysia also subsidizes many daily necessities, from rice, to cooking oil to salt to sugar to .... . That's another RM5 Billion a year. Quite a lot of money. If that money is effectively utilized for appropriate usage, that would develop do a great deal of good to our economy.

One point mentioned by Prime Minister is quite important. Prime Minister said that today, Malaysia is competitive with fuel subsidy and other subsidy in place. What if we take away the subsidy? Is Malaysia still competitive? Prime Minister actually say that we might actually not be competitive.

Currently, due to the subsidy, our companies operate on a lower cost structure, and hence we are competitive. However, if we are going to fight head-on, without any subsidy, can we match other corporations around the world, or around the region? Can we value add sufficiently to improve our productivity level?

What say you? Hope to hear more comments~!


Anonymous said...


i hate to say this, but.. subsidies are set to go. gradually, of course. much can be done with that lot of money. and not only are our own citizens are benefiting from the subsidies, even people from the neighbouring countries are sucking us half-dry..

Anonymous said...

and oh, maybe it's time for Malaysia to start looking for alternative energy and quit depending on oil too much..

that was me btw..


Su Yuen said...

I'd say that in the long-run, we will fail to compete with China on the pretense of lower cost because their transportation, labour and many other operational costs are lower than Malaysia.

As Ave said, maybe its time we move to other energy alternatives instead of oil, like what Europe is already doing.

Another thing Malaysia should do is build up very highly skilled globally demanded talents in certain niche areas which China amd India's labour force will not be able to provide. If we can achieve this, we won't have to compete on the basis of "lower costs". :)

Chen Chow said...

Yeah, we are currently stuck in the middle...not too cheap and not too expensive...

There are definitely a few niche areas for us to focus on. It would really depends on how good we can build on. Islamic Financing, Halal Food Hub, Biotechnology (esp in terms of agricultural aspect), we should be able to have unfair advantage.

hhhcce said...

I would say we should switch our focus something that will be of high economic importance in the future and at the same time try to solidify our economic foundation. I would suggest nanotechnology, bioinformatics and biotechnology.

Chen Chow said...

Nanotech, bioinformatics and biotech are definitely the "niche" fields today. But the question is whether Malaysia is ready to fight with the world? What can we leverage on to fight against the world? Where are we now? Are we very far behind?

If we are very far behind, is it worth the investment to fight against the rest? It takes a lot of time to develop the talent needed and the investment would be huge.

So, that could be part of the consideration.