Malaysian firms must focus on country’s growth, not political instability

Malaysia’s current political turmoil should not overshadow the country’s growing economy, strong financial system and government finances, according to risk managers at the StrategicRISK Malaysian Risk Roundtable on Thursday 11 July.

Held at the Grand Hyatt Hotel in Kuala Lumpur, in association with QBE, the event brought together a group of senior risk managers to discuss some of the key issues on their horizons.

One topic for discussion was the potential economic and risk implications of recent allegations against the country’s prime minister Najib Razak.

Earlier this month a Wall Street Journal report said investigators had traced nearly $700m to bank accounts they believed belonged to Razak. The prime minister has denied taking any money from state funds for personal gain and an investigation is ongoing.

Last week rating agency Moody’s said the incident would only affect the country’s A3 rating if it materially affected the trend of fiscal consolidation that supports its positive outlook. Fitch also recently revised its outlook on the country to ‘stable’ from ‘negative’, and maintained its A rating.

QBE Malaysia chief executive Leo Zanolini said: “By and large, all of the macroeconomic indicators of the country remain strong. Malaysia is a democratic country with open markets, with a free floating currency exchange, and a very strong and reputable central bank.

“It is a sound economic environment and risk managers should continue to focus on these macro-economic indicators and perhaps not give in to the temptations to debate over political risks,” he said.

One risk manager said it was a matter of perception. “The perception is that the government is not in control and they don’t know what they’re doing, and that affects the market and the currency,” she said.

The Malaysian ringgit hit a 16-year low last week as a result of the political uncertainty.

“But this is an opportunity as well with new money coming in to the economy,” she added. “The opportunity is there but some of the risks and the tightening of state and federal regulation is preventing some opportunities from being realised.”

International growth

Zanolini agreed that there were many opportunities for local businesses to grow.

“A lot of Malaysian companies are extending their operations overseas and this is encouraging for the company but it adds new risks to the minds of these risk managers that were perhaps used to dealing with domestic risks,” he said.

Delegates agreed that business expansion was bringing new risks for them to manage. One of the key concerns was the ability to attract and retain staff.

“Companies in Malaysia have issues in regards to establishing effective retention programmes,” one delegate said. “If we enforce the old regime of managing talent it’s not going to be effective and we’re going to create a systemic risk where people will continue to leave, turnover will be very high and you will incur a lot of costs to retrain and redevelop new staff.”

Another risk manager said her firm was facing a shortage of key staff in middle and senior management positions, which had created a new set of risks.

“We’ve had to bring in expertise from outside of Malaysia. It’s quite difficult to find sufficiently qualified and experienced people, particularly in the technical fields, so quite a lot of those roles are being filled by people coming from outside of Malaysia,” she said.

Risk managers discussed various techniques that they had employed to help attract and retain staff: introducing capability training programmes, creating bright and open work spaces, improving pay, and implementing various employee benefit programmes.

But all delegates agreed that there was a double-edged sword to people risk: as you implement better training and improve the quality of your staff, the workforce improves, but so too does the risk of staff being poached by other companies.

“We’re already paying in the 95^th percentile for salaries – we can’t pay any higher – and there are a group of people who, once we train them, they will move to Singapore and double or triple their salary and we can’t compete with that,” one risk manager said.

Risk managers also agreed that as their firms have grown, alongside the country’s economy, their role within the business had become more important.

“We have been very aggressive in implementing risk management but it’s going to be a journey to get to place where thinking about risk in a positive light is part of the culture,” one delegate said. “It comes from the top and it’s a continuous process that we just need to keep moving to drive cultural change and drive behavioural changes.”