Author: Hafiz Noor Shams

For more about me, please read this.

Categories
Photography Travels

[2337] Bent

This is at top of Montmantre and in the background is Sacre Coeur.

I was told that there was a rivalry between the Eiffel Tower and Sacre Coeur. I am unsure if it is true but I am inclined to believe it.

As the story goes, both the Eiffel Tower and Sacre Coeur were completed around the same time. Sacre Coeur Basilica, a Roman Catholic church, sit on the highest point in Paris while the architect of the Eiffel Tower, Gustave Eiffel, aimed to make the Tower as the tallest structure of all Paris. There was a greater honor at stake: which pinnacle would be higher than the other?

Even though the Tower was, and still is, very tall, Sacre Coeur sit on Montmantre, making the Basilica’s pinnacle a contender.

What makes the rivalry interest was the fact that Sacre Coeur symbolizes religion and the old order. Eiffel wanted his work to symbolize science and technology. He said, “My tower will lit up the world, leading it out of the darkness of ignorance”, or something like that.

I am glad Eiffel won. The Eiffel Tower was in fact the tallest man-made structure in the whole world from 1889 to 1930.

Regardless of that, Sacre Coeur is still beautiful.

And I still miss Montmantre.

Categories
Photography Travels

[2336] King’s College Chapel, Cambridge

Awesome.

Some rights reserved. Creative Commons. By Attribution. 3.0

Not quite centered though.

Categories
Economics

[2335] Free trade in rice is good for Malaysia

The Food and Agriculture Organisation recently warned food prices are at record levels in both nominal and real terms since the entity first published its Food Price Index in 1990. The International Monetary Fund stated this is unlikely to be a temporary trend.

Rice generally has not shown the kind of increase exhibited by other foodstuffs, however. For Malaysia, where the majority considers rice a staple food, this is good news. Yet, it is probably just a matter of time before prices begin to increase.

Rice prices did hit outrageous levels in the past years. In 2008, it rose so high that it triggered some kind of a panic in a number of rice-consuming countries.

In Malaysia, shortage was reported in some places. The Abdullah administration tried to address the concern by purchasing an emergency supply from Thailand.

Implementation of rice exports ban by several of the world’s largest exporters of rice exacerbated the increase in price. Two particular countries that imposed the ban were India and Vietnam. Both make up more than 25 per cent of the world’s rice exports currently.

The impact of high rice prices, the role of rice as staple food and the implementation of exports ban are important while considering the following fact: According to the agriculture and agro-based industry deputy minister, imports fulfilled 30 per cent of Malaysia’s domestic rice consumption in 2010. Malaysia sources some of its rice supply from India and Vietnam.

The protectionist policy works for exporting countries by isolating domestic prices from international ones, if the goal is to have low prices in the domestic market. With less competitive demand for domestic rice, domestic prices will fall or at least it will not rise as fast as world prices given specific circumstances.

Governments around the world are aware of the adverse effects of high food prices for their respective society. Examples are aplenty.

In 2007, Mexicans took to the streets protesting against rising corn prices. Rising food prices — specifically bread — is partly fuelling the ongoing protests and revolution in the Middle East.

In short, at the macro level, a ban benefits the exporting countries at the expense of the importing ones.

What solved the issue of rising world prices was the financial crisis that began soon afterward. The protectionist policy gave way to other pressing concerns.

The respite from expensive rice is appearing to end. Eventually, the concern for rice supply and prices will take centre stage again and so will the protectionist policy of exports ban.

The concern is not theoretical. India continues to maintain an exports ban on non-basmati rice. Myanmar recently imposed a ban to slow the rising price.

For importers of rice, it is in their interest to have exporters remove the exports ban. That will mitigate the rise of global prices. This is a concrete example of how free trade benefits Malaysians and how protectionist policy hurts.

There is a silver lining to all this, if it could be called that. Rising prices coupled with the prevalence of exports ban is causing countries like Malaysia to boost its own rice production. Yet, a domestic production boost is at best a second best alternative to the free trade scenario.

The free trade scenario is cheaper in terms of opportunity cost. Trade enables specialization and that frees up resources for other more productive endeavors that Malaysia might embark upon.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on March 24 2011.

Categories
Economics

[2334] Sabah, immigration and unemployment

There is a popular allegation that illegal immigration, or even immigration as a whole, is the culprit behind the level of unemployment Sabah is experiencing. I am unsure how accurate that is.

First of all, while the unemployment rate of Malaysia nationwide was about 3.6% in 2009, the unemployment rate in Sabah was 5.5%. The difference is not too big.

Secondly, I think the allegation is mostly due to bias against immigrants in Sabah. Immigrants are simply easy scapegoats.

I recently came across statistics pertaining the labor market of Sabah. Here is a simple graphical representation of the behavior of labor force size and unemployment rate from 1982 to 2009.

The labor force is measured in thousands.

Here is a graph with change in labor force instead of just labor force size.

Note what happens to the unemployment rate each time there is a spike in change of the labor force.

The only edit I did to the data was to fill in two data points into the series, which are absent from the original dataset. The edit is innocent: I took the average of the year before and after for the missing points, which are year 1991 and year 1994.  The data is publicly available at the Department of Statistics.[1]

I drew the particular period because those are the years available in the document. There are not too many data points to play with.

I admit that that is unscientific but the graph shows that the increase in labor force corresponds with a noticeable drop in the unemployment rate. Something happened there. Was it the roaring nineties? Maybe but I really do not know.

The increase in labor for is likely due to immigration (legal immigration, by definition, I would guess). It is highly unlikely the nearly 300,000 or 35%  increase in labor force between 1995 and 1996 was due to natural factors. It was likely due to increase in immigration. There has been allegation that immigrants were granted citizenship status liberally in Sabah. This might be a smoking gun.

In that way, I am using the change in labor force as a very imperfect proxy. Nevertheless, I think the change in labor force is a somewhat good proxy. A sudden change is likely to be caused by immigration, given the history of Sabah.

I ran a simple regression just to see if preliminary results (i.e. no cointegration tests although the model did pass a structural test; simple reading of the results also suggests that there relationship is not spurious but residuals are not normally distributed) would go against the conclusion one would get from the graph above.

I found a significant relationship between the labor force and the unemployment rate: An increase in labor size reduces unemployment rate. Through the proxy I mentioned, the conclusion might be that immigration reduces unemployment rate, on average given all else constant.

One reason this might be true is that there are more economic activities with larger working population. I do not think that is controversial at all.

So, it does not support the allegation that immigration adversely affects the unemployment rate in Sabah. I would assume that the conclusion would hold for illegal immigration.

A better model would probably include the periods of economic expansion and recession as well as the GDP in one way or another. Having actual number of immigrants would be great. Looking for the GDP of Sabah up to 1982 might a little bit time consuming for a blog entry. If any of you have it, do send it my way. I might do a more kosher regression model with it.

Of course, it is quite possible that the relationship is reversed but again, given the history of Sabah where massive immigration was welcomed due to political consideration, I think this is more of a case where immigration affecting unemployment rate.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — see Principal statistics of the labour force, Sabah, 1982-2009 by the Department of Statistics Malaysia.

Categories
Economics

[2333] A story that is likelier better than deposits battle narrative

I had some trouble reading an article on the front page of the business section of The Star dated today. The headline “Battle for deposits” roars to tell the world that Malaysian banks are in the battlefield sword in hand fighting for deposits, especially for current accounts.[1] I find the whole idea somehow unconvincing. I could not quite finger it but there was something definitely missing from the picture. I wanted to roar back and so I gave it a thought. And I think I have got it.

The article reasons that with the overnight policy rate increasing, these deposits offer cheap source of financing for banks. It sounds fine until one asks, why are the owners of funds putting their cash in low yielding accounts? Hmm…

That is a far more interesting issue at hand than the alleged battle for deposits. I will come back to this.

But first, I did some calculation after mining the relevant data from BNM just to satisfy this weird curiosity of mine. Compare the graphics produced by The Star…

…with this longer period time series that I produced using the same data:

As you can see, the rate 11% is rather typical for the past 10 years for deposits in current accounts. Annual growth rate between 2001 and 2010 is close to 13%. So I am wondering if the proof of 11% offered is any proof at all.

Maybe, there is a battle for deposits. Maybe, there is less wealth around and so these banks have to work harder than usual, thus the battle for deposits. Maybe but I am skeptical of it. Even if it is true, like I said, there is a more interesting issue at hand.

Another point that does not run parallel with the deposits war story is the drop in savings deposit growth rate. The average annual growth rate for savings deposits is 8%. If 11% annual growth rate of deposits in current accounts that is really around average paints the picture of a battle, what about 3% rate for savings that is well below average?

I have a more interesting and a likely more consistent story to tell.

I think the whole issue is a symptom of economic recovery. It might be an affirmation of economic recovery.

The continuing growth of deposits in current accounts suggests that there are more transactions going on. The drop in savings deposit suggests that individuals and companies might be using the money or putting it somewhere else with better returns rather than keeping it relatively idle. Companies might have purchased more supplies for sales or invested more, while individuals might have gone spending somewhere. More spending, less saving.

What adds to the plausibility of the story is that in 2008, growth rate of deposits in current accounts slowed. The recent financial crisis began in 2007 while the full realization that we were in trouble only became clear in 2008. That hit confidence and many began to hoard money. That meant harder business environment and less transactions. Since current accounts are typically used for business transactions, deposits in current accounts should not grow too big, or should even shrink. Look at the growth rate in 2008: 6% compared to 23% the year before and 11% the year after.

Here are a few things that may strengthen the story further. One, increasing sales and investment figures for companies. Two, increasing private consumption for individuals. Three, higher velocity of money.

Anybody wants to check that? I am going to bed.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

[1] — PETALING JAYA: Banks are engaged in a war for deposits, especially for current accounts, in their drive to build up low-cost deposits as a means of cheaper funding.

“Demand deposits (current account), which were relatively much cheaper than fixed and savings deposits, had been marking a strong year-on-year (y-o-y) growth of about 11% from 2008 to 2010,” RAM Ratings head of financial institution ratings Promod Dass told StarBiz.

”This clearly indicates the drive among banks to build up low-cost deposits for access to cheaper cost of funds. This active strategy of promoting current accounts usually involves corporate clients who utilise the service for their businesses,” he said.

According to Dass, this was in line with the increasing overnight policy rate (OPR) where the average deposit rate had risen since 2009. [Battle for deposits. Sharidan M. Ali. The Star. March 14 2011]