Singapore Airlines: transparency, accountability and public financial support

The COVID-19 pandemic has upended many assumptions about the world’s normal state of being. New business trends have emerged or intensified while existing norms are being questioned in a rapidly evolving environment. Many businesses are forced to reinvent themselves in the throes of a crisis and do not have the luxury of time. For many, this is an existential crisis.

Among the many affected is Singapore Airlines (SIA). Even the airline’s multiple quality accolades are not sufficient to save SIA from the worst impact of the crisis. Without the Temasek sponsored bailout of SGD fifteen billion announced in March 2020 SIA’s solvency as a going concern was brought into question. 

A Singapore Airlines Airbus A-380 coming in for landing. (Source: Wikipedia)

Six months after the March bailout was agreed the situation has not materially improved for SIA. Passenger traffic has dropped by over 90 percent year on year while freight volume has approximately halved during the same period.

Less than 50% of SIA’s fleet is airborne. As of August 2020, out of SIA’s active fleet of 124 aircraft only 56 were being utilized for revenue generating passenger or cargo flights. After factoring in capacity utilization on passenger flights the scale of SIA’s problem becomes more apparent.

Moreover, even after placing scores of planes in long term storage SIA’s operating costs continue to burn cash. By mid-August SIA had already spent SGD 4.4 billion of fresh money raised as a result of the March exercise.

The present operating environment raises obvious questions about SIA’s future strategic direction.

Is the strategy proposed at the time of the March bailout still relevant or is it time for a rethink? Do Singapore taxpayers, either directly through the government or via government investment vehicles like Temasek, continue to support SIA for the next few years in the hope that the world – and SIA’s operations - returns to ‘normalcy?’

These questions are best addressed by an Independent Review Commission staffed by aviation experts – local and international – appointed and formed by the government. While the commission’s objective will be to provide recommendations on SIA’s future, its terms of reference must be broad enough to permit members to ask tough questions, including those which may make many Singaporeans uncomfortable.

Singapore’s future is intertwined with the world. As a city-state, the Little Red Dot cannot isolate itself from the world. The country’s port and airport are vital to ensure Singapore’s status as an important node in an interconnected world. 

Nevertheless, Singaporeans deserve greater openness and accountability on the use of public funds to keep SIA flying. The public must be assured there is a coherent and coordinated strategy in place to revive SIA and Singapore’s aviation sector.

As Singapore’s first Prime Minister, the late Lee Kuan Yew once said to the Singapore Air Transport Workers’ Union, “[The airline was not a prestige project,  if they could not turn in a profit then] we should have no compunction in closing a service down."

SIA’s fate is not yet at the stage where discussions about closing it down are warranted. However, the size of public sector support to SIA requires greater transparency in the form of a government sanctioned independent review of SIA’s operations.  

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Imran is a Singapore based Tour Guide with a special interest in arts and history. Imran has lived and worked in several countries during his past career as an international banker. He enjoys traveling, especially by train, as a way to feed his curiosity about the world and nurture his interest in photography. He is available on Instagram (@imranahmedsg); twitter (@grandmoofti) and can be contacted at imran.ahmed.sg@gmail.com

The Swing Trader's Bible by Matthew McCall and Mark Whistler: a book review

A good introduction to swing trading.

The authors do a good job identifying and explaining the multiple tools and instruments most commonly used for swing trading. Be warned, however, the book does not go into enough depth to be a stand alone master class on the subject. Traders are well advised to continue their education into the subject before taking the plunge into trading with real dollars and cents.

The book reads easily. The authors have simplified complex ideas well. The title is a good place to start for any aspiring swing trader - as long as the learning doesn't stop with this book.

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Imran is a Singapore based Tour Guide with a special interest in arts and history. Imran has lived and worked in several countries during his past career as an international banker. He enjoys traveling, especially by train, as a way to feed his curiosity about the world and nurture his interest in photography. He is available on Instagram (@imranahmedsg); twitter (@grandmoofti) and can be contacted at imran.ahmed.sg@gmail.com.

Pakistan's Kashmir obsession: unhealthy and unrealistic?

As the Pakistani Prime Minister Imran Khan arrives in New York for the latest session of the United Nations General Assembly it's necessary for Pakistanis to ask exactly what the country can do about Indian Kashmir.

Muzaffarabad is the largest city and capital of Azad Jammu and Kashmir. It is located near the confluence of the Jhelum and Neelum Rivers and is a four hour drive from Islamabad, Pakistan's capital. (Source: Wikipedia: Obaid 747) 

The country's economic managers are walking around with a begging bowl because the country cannot pay its bills leave alone spend money on national development. The Pakistan Banao (Bachao?) Certificates launched with great fanfare early in Khan's term and designed to raise Pakistan's foreign currency reserves have done little to strengthen reserves.

The economy is in the midst of a serious downturn with no recovery in sight for at least the coming 18-24 months. Large scale manufacturing is shrinking while small and medium sized enterprises labor under the effects of increased taxation, a sharp drop in the value of the Rupee and an emasculated consumer struggling to make ends meet while losing more discretionary income with each passing day given an official inflation rate above thirteen percent.

The country is running out of water but has no money to build dams. Despite arm twisting and 'forced donations' (e.g. via each Pakistan Railways ticket sold) the Supreme Court's Dam Fund is nowhere near numbers required to seriously assist with the urgent building of dams across the country. Indeed, the much hyped Dam Fund has become a hazy memory for most and an embarrassing one for those promoting crowdfunding as an alternate means to pay for massive national infrastructural projects. 

The electricity situation is no better. Despite suffering shortages and brownouts for the last several decades, Pakistan has been unable to fix its electricity load shedding problem until today. Much of the country suffers hours without electricity daily in both Winter and Summer months. Even when electricity is available it is not stable with voltage fluctuations playing havoc with machinery; a disincentive for manufacturing concerns requiring stable, uninterrupted electricity for normal operations.

The country has no proper waste management systems. Without a drastic betterment in urban sanitation levels improvements in preventive healthcare will remain wanting. (Picking up litter from urban areas and dumping it on the outskirts of cities so it is out of sight does not constitute proper waste management.) It's not surprising Pakistan is one of the only countries where polio still afflicts children. 

The air quality in Pakistan's cities is rapidly deteriorating due to pollution. Indeed, Lahore is blanketed by haze virtually on a daily basis with air quality moving into the healthy range an exception to the daily norm. Islamabad and Karachi are not far behind. This is the air Pakistan's infants breathe daily – and there is no shortage of infants given the country's fertility rate.

Pakistan cannot provide adequate food, housing, education or medical care to the majority of Pakistanis. In many households, animals are more precious than women, who have few effective social or economic freedoms. All these problems are compounded by Pakistan's unbridled population growth with its population increasing exponentially every few decades.

So as PM Khan travels back to Pakistan in a few days on on a borrowed Saudi luxury jet he may wish to ask himself what's more important for Pakistan's two hundred million plus citizens: ratcheting up Kashmir hysteria a few more notches or implementing a national development agenda on a war footing?

Imran is a Singapore based Tour Guide with a special interest in arts and history. Imran has lived and worked in several countries during his career as an international banker. He enjoys traveling, especially by train, as a way to feed his curiosity about the world and nurture his interest in photography. He is available on twitter (@grandmoofti); Instagram(@imranahmedsg) and can be contacted at imran.ahmed.sg@gmail.com.

PTI’s Khan panders to Islamists and Mr Chief Justice I can’t hear you now?

Imran Khan's Pakistan Tehrik-Insaf (PTI) government's recent collapse in facing down Islamist radicals over the appointment of Pakistani Princeton University economist - who happens to be Qadiani - to a government advisory panel, is shameful.

Even more shameful is that Imran Khan did not use even one iota of his considerable political capital to support Atif Mian. There was no public statement from King Khan himself, only official comments by his minions.

Source: Wikipedia

Is this the Naya Pakistan for which Pakistanis voted?

Apart from the fact that the government's behavior is illegal - Pakistan's Constitution is unambiguous on the subject – it sets a dangerous precedent for the State's future. 

PTI's surrender places in doubt Khan's ability to follow through with his ambitious reform program in the face of protest. Economic reform requires tough decisions and if the government is only capable or willing to implement populist policies then whence the reform?

The incident underscores  the recent disintegration of Imran Khan's principles at the altar of political expediency – following on from his decision to appoint 'lotas' (aka electables) in a hitherto principled political party.

Undoubtedly, we cannot bury the notion of Naya Pakistan until the PTI's five year term is complete. However, the PTI has not had an auspicious start and the omens don't look good, especially for women and non-Muslim minorities.

Before one gives up all hope, perhaps one can give a shout out to the otherwise activist 'Suo Moto' Chief Justice? Yes, we appreciate your efforts in building dams Mr Chief Justice but can we request you also focus on your day job and dutifully enforce Pakistan's Constitution in Atif Mian's case?

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[i] No citizen otherwise qualified for appointment in the service of Pakistan shall be discriminated against in respect of any such appointment on the ground only of race, religion, caste, sex, residence or place of birth. Pakistan Constitution, Article 27 (1)

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Imran is a former banker and  has lived and worked in several countries during his international banking career. He enjoys traveling, especially by train, as a way to feed his curiosity about the world and nurture his interest in photography. He is available on twitter (@grandmoofti); Instagram (@imranahmedsg) and can be contacted at imran.ahmed.sg@gmail.com

Note to Pakistan’s economic managers: reforming tax collection techniques

As the euphoria surrounding former cricket star Imran Khan’s election victory begins to fade in Pakistan, the country’s economic managers must deal with the hard tasks ahead. Immediately improving foreign currency reserves is simply a tactical necessity. The real challenges are strategic.

If Pakistan approaches the International Monetary Fund (IMF) for economic support – as is widely predicted by most analysts – then the IMF will remind Pakistan’s new Finance Minister of at least two priorities: increasing revenue and reducing expenses.

In order to achieve these two objectives there is a need to move away from the simple solution of imposing additional withholding taxes on an already excessively used taxation technique. To date, this method has only resulted in mixed success.

Presently, virtually any financial transaction in Pakistan’s organized sector, i.e. a documented transaction and not in cash, requires the collection of withholding tax. For example, registering a car or paying motor vehicle tax; registering a property; cash dividend payments made by listed corporations to individuals; and banking transactions such as preparing a bank draft all require collection / payment of a withholding tax. 

In theory, this tax payment is an advance tax and may be adjusted against future corporate or individual tax liabilities. In practice, few individual taxpayers make the effort to reduce their tax liability by the advance tax amount. For corporations, except maybe for top tier multinational and local institutions, increased bookkeeping coupled with a weak and often corrupt tax collection infrastructure reduce the incentive to claim advance tax. In other words, other than a few large corporations with sufficient resources to devote to copious bookkeeping, few businesses ever see the benefits of any ‘advance tax’ collected on their behalf.

Sure, it will be easy to continue and ‘widen’ Pakistan’s tax base by implementing additional presumptive tax on more transactions – or increasing percentages on existing advance tax payments - especially as these tax collections will likely be booked under the Direct Income Tax category and (falsely) boost the government’s claim of broadening the tax net.  Nevertheless, such taxes will only make Pakistan’s economy more inefficient by pushing up the cost of doing business, especially for Small and Medium Enterprises (SMEs), a backbone of the country’s economy.

Improving Pakistan’s tax collection infrastructure through reforming the operations of Federal Board of Revenue (FBR) is a prerequisite for success. It should be noted that reforming the FBR is a necessary though not sufficient condition for enhancing the country’s tax revenue.

One means of increasing FBR’s operational efficiencies is to reduce unnecessary human touch points. Corporate and individual tax payers should have as little interaction with humans as possible. Basic tax transactions must be simplified. More transactions should be shifted online. Online transactions reduce the possibility of corruption, improve speed and result in simplicity - an all round elegant solution.

To the naysayers who believe serious reform of the FBR is impossible only need look at the successes of NADRA and even the Election Commission. Both these government agencies have adopted new technologies and greatly simplified the lives of many Pakistanis as a result. Transactions which took weeks, months or even longer and were impossible without several unproductive visits to government departments are now routinely completed using a few clicks on a keyboard. Smart solutions are the way forward for the FBR.

Undoubtedly, increasing revenue and reducing expenses lie at the heart of any economic restructuring be it national, corporate or individual. Unfortunately, converting these two principles into effective policy decisions is a complicated process fraught with political minefields. Nonetheless, Imran Khan’s Justice Party (PTI) has a real opportunity to lay the foundation for genuine reform.

In my next post, I will discuss the necessity of approaching the ‘Filer’ and ‘Non-Filer’ distinction with greater finesse. ‘Non-Filers’ are not synonymous with tax evaders. Hence, throwing all ‘Non-Filers’ into a ‘penalize by paying more tax’ bucket is an unfair use of state powers. The policy must be improved to make it more equitable. Stay tuned.

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Imran is a Singapore based Tour Guide with a special interest in arts and history. Imran has lived and worked in several countries during his past career as an international banker. He enjoys traveling, especially by train, as a way to feed his curiosity about the world and nurture his interest in photography. He is available on twitter (@grandmoofti); Instagram (@imranahmedsg) and can be contacted at imran.ahmed.sg@gmail.com

Lessons for Singapore from the island of Cyprus

Singapore's strict banking secrecy laws, sound fiscal management and reputation as a robust legal jurisdiction all combined to transform Singapore into an international private banking hub within the last few decades. Like Singapore, Cyprus too relied upon private banking to act as a vehicle for growth for its residents.  

Cyprus is located in Europe and, despite being a politically divided island, qualified for European Union (EU) membership in 2004. Like the country's 'Big Brother' Greece, Cyprus underwent an attitudinal change following EU membership.

Suddenly, a small island with a population of just over one million people had its future guaranteed by behemoth states like Germany, France and Britain. Cypriot banks became less risky. Russian wealth searching for a 'legitimate' home within the regulated borders of the EU looked no farther than Cyprus.

The Cypriot banking system became awash with cash. Partly as a result of these inflows into its banking system, the Cypriot economy racked up almost USD 107 billion of external debt; a princely amount for an economy with a total Gross Domestic Product (GDP) of USD 22.5 billion. By 2012, the services sector, primarily finance and tourism, accounted for almost 81 percent of the Cypriot economy. The finance sector could make or break the small island's economy.

Almost a decade after joining the EU, Cyprus is negotiating a tough economic bailout package with the International Monetary Fund and the EU. As part of the package, depositors in Cypriot banks are expected to pay a levy on bank deposits. In other words, savers will likely be penalized for squirreling money away for a rainy day. Why? Cynics argue the tax is necessary simply because, somewhere along the line, economic managers and bankers got too greedy and precipitated the recent Global Financial Crisis.

Surely, Cypriots should address their economic problems without interference from a Singaporean blogger. The 'if, when and how' of any bank deposit levy is a Cypriot debate.

Nonetheless, there are some lessons for Singapore from recent events in Cyprus, particularly given the importance of financial services and private banking to Singapore.

1.   Singapore must continue to manage its public finances prudently. Economic managers must resist the temptation to 'socialize' the economy and liberally hand out more 'free' services to the population at large. In reality, 'free' services are paid for by taxpayers. Only by avoiding financial crises can the Little Red Dot maintain the confidence of global investors, especially as the government administered Central Provident Fund begins to see net outflows of cash as Singapore's ageing population draws from the mandatory savings scheme.

2.   Financial services rely heavily on an aura of confidence around the Singapore brand. Major unexpected negative events could result in large and rapid outflows of moneys from Singapore's banking system – a catastrophic event for the country's economy. To avoid such an eventuality, policy makers must avoid drastic and unexpected shifts. Additionally, the central bank must continue to work with banks to make certain bank capitalizations are (and remain) more generous than international Basel requirements, even if that means lower bank profits. Singapore is not a member of the EU and the country's lender of last resort should remain the MAS and not an IMF bailout program.

3.   Economic policy makers ought to be conscious of Singapore's dependence on financial services. The ongoing efforts to diversify the economy across several value added service sectors of the economy will be helpful.

Singapore is no Cyprus in the making. Singapore's economy is not drowning in external debt. Typically, the government runs an annual budget surplus. However, like Cyprus, Singapore has a large (oversized?) banking sector reliant upon a high volume of offshore cash deposits. If not properly managed, Singapore's economy contains many of the ingredients required to cook up a domestic financial crisis at short notice.

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Imran is a business and management consultant. Through his work at Deodar Advisors and the Deodar Diagnostic, Imran improves profits of businesses operating in Singapore and the region. He can be reached at imran@deodaradvisors.com. 

Reflections from my stay in Pakistan VII: the Capital Market

In the mid-1990s, Pakistan's Corporate Law Authority (today's Securities and Exchange Commission of Pakistan) issued draft rules for the establishment of mutual funds in Pakistan. The proposed framework was clunky and financial market participants did not bite. Fast forward a couple of decades to 2012 and mutual funds are a major part of Pakistan's capital markets. Large domestic banks such as Habib Bank and United Bank have dedicated fund management companies with significant assets under management (AUMs).

Indeed, the asset management industry calculates its AUMs at approximately USD 4 billion as at November 2012. That may not sound like a lot but it certainly provides enough fees to support a nascent industry for an economy of approximately USD 500 billion (purchasing power parity terms). Additionally, the statistic points to significant growth potential in the coming years, especially as new products are introduced by innovative institutions.

To be sure, Pakistan's domestic capital market has made tremendous strides in several areas other than mutual funds. The bond market, also non-existent until the mid-1990s, has grown and achieved critical mass, allowing corporations to issue debt at market rates in short periods of time. In fact, many of these bonds are purchased by fixed income mutual funds catering to the needs of yield chasing savers.

The stock market's picture is decidedly more mixed. Undoubtedly, the Karachi Stock Exchange's (KSE) market capitalization has grown along with trading liquidity. However, on a relative basis the KSE has lost ground. The KSE is no longer in the MSCI Emerging Markets Index, having been relegated to a frontier market alongside countries such as Nigeria and Sri Lanka. Additionally, the quantum of new listings on the KSE has declined considerably, especially during the last few years, reflecting the broad slowdown in domestic large scale manufacturing.

Besides the traditional stock and bond markets, Pakistan's capital market has a new entrant: the Pakistan Mercantile Exchange (PMEX). In many ways, the PMEX is the most exciting development in the recent growth of Pakistan's capital market. The PMEX became operational in May 2007 with the purpose of introducing futures contracts into Pakistan. Presently, the underlying assets for the contracts include commodities, including agricultural products and interest rates although more contracts are in under development.

For an economy with a large agricultural base, the PMEX has the prospect of revolutionizing the lives of farmers and users of agricultural products. It will permit them to mitigate the risks associated with uncontrollable factors such as the weather. For example, farmers may sell cotton 'forward' and know in advance the sales revenue from the season's cotton crop. Similarly, textile units can lock in cotton prices in advance through the use of cotton futures; thus bringing predictability to production costs.

Notwithstanding these positive developments, the Pakistani economy remains weak due to mismanagement and corruption. Investment in new large scale manufacturing facilities has all but dried up, mainly due to the unreliability of domestic electricity supplies. Profitable corporations are holding back from fresh capital outlays until political risks diminish and / or interest rates moderate. Moreover, small and medium sized enterprises are also suffering as a result of inflation, sluggish macroeconomic growth and high interest rates.

Ultimately, Pakistan's capital market will only be as dynamic as the economy which it services. Unless steps are taken to increase economic growth, the country's debt and equity markets will continue to lag other emerging market nations.

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Imran is a business and management consultant. Through his work at Deodar Advisors and the Deodar Diagnostic, Imran improves profits of businesses operating in Singapore and the region. He can be reached at imran@deodaradvisors.com.