The sharp decline in crude oil prices is raising concerns globally of a sluggish economy, with significant repercussions anticipated on nations which are heavily dependent on revenue from the energy sector.
Where per barrel of crude oil (WTI) was about US$115 mid-this year, today, it is approximately US$56.52 - citing a 50 percent dip in the price of the leading commodity which influences international trade markets and foreign exchange rates. The Ringgit was no exception, falling to a five-year low.
Experts cite the shale revolution in North America as a potential de-facto for the diminishing supremacy of crude oil. China and Europe’s plans to construct similar facilities further intensify the existing fungibility of world oil markets. Suffice to say, the rise of unconventional energy in the foreseeable future would have far-reaching impacts, due to forecasted lower oil prices, especially for energy exporting countries.
As it stands, a bulk of Malaysia’s earnings is derived from the Oil and Gas industry, accounting for close to 40 percent of the national Gross Domestic Product (GDP). Needless to say, the government’s revenue from export of commodities and petroleum tax would see a relative decline, primarily earnings in the months of November and December.
It is worth asking, what if it was 10 months of prolonged dip in crude oil prices? What would have been the repercussions on national development? Inflation and rising cost of living would creep if the existing red signs are ignored.
The heavy reliance on a single commodity is an impetus for Malaysia to consider diversified means of income, targeting a self-sustaining economy, especially for facilitating the realisation of Vision 2020.
In view of the current scenario, certainly, it is timely for the country’s administration to introduce the goods and services tax (GST) as an alternate source of viable and sustainable revenue in cushioning externalities while concurrently, distributing national wealth in a more equitable manner.
The success of GST is however dependent on the strength of domestic consumption and spending. Undeniably, there is a need to reaffirm and strengthen consumers’ confidence in the domestic economy through active strategic efforts.
It is worth noting that while Q3 2014’s GDP statistics indicated of an expansion in private consumption by 6.7 percent, the current unfavourable economic conditions will pose a persistent threat to uphold such performance over the short to medium term. In a nutshell, this cites a need for creative measures to combat the potential decline in consumer-led activities, such as shopping, tourism, dining and entertainment.
A World Bank representative recently mentioned that lower-income Malaysians and their love of shopping will continue to push economic growth. Adding that, the government’s next challenge is to help the lower income group to move up to the middle class as they make up a bulk of Malaysian society.
Indeed, the retail trade sector remains a significant contributor to fuel national economic growth, likewise fundamental for spurring developments in the manufacturing sector. In addition, it provides local SMEs with access to an efficient network of stores for marketing an array of products and services.
SMEs an important component
Unquestionably, SMEs are an important component of Malaysia’s economy mix, more so now, when subsidy rationalisation efforts are intensifying, with the implementation of GST in the pipeline.
In view of the current happenings, it is recommended that the government take immediate proactive steps to stimulate the local retail sector, aiming at accelerating domestic spending.
In doing so, it should encourage retailers to extend operating hours to suit needs of respective consumers and localities. Whilst offering a better shopping experience due to improved convenience, if properly implemented, this mere action would result in a favourable domino effect. Manufacturers will gain from increased sales and potentially required to produce more, enabling greater business growth.
I strongly believe that favourable government policies are critical to sustain a healthy economy and ensure Malaysia records a desirable GDP growth figure amid challenging external environments. This is to ensure the country and its people collectively attain our shared aspiration of becoming a high income nation.
AZLAM SHAH ALIAS is director of government and corporate affairs with British hypermarket chain Tesco Stores Malaysia Bhd.
