Analysts say the undervalued ringgit distorts the country’s purchasing power for imported goods.
KUALA LUMPUR, April 19 — Malaysians who find themselves affording less than their contemporaries overseas have distorted and inefficient markets, lack of competition, low wages and a weak ringgit to thank for their poor purchasing power, which in the case of KL, is only 34 per cent that of New York.
Despite government assurances stating that inflation is under control, Malaysians are becoming increasingly restive over the cost of goods in relation to wages, especially those who are able to compare the corresponding price-to-wage ratios in developed economies.
Malaysians who have experienced working and living abroad often experience sticker shock when they come back and see prices in KL.
“Oh my God, a Tiramisu is RM15!” said Calvin Lee, a Malaysian who has lived in Sydney, Singapore and now London, referring to what cafes in KL are charging for a slice of cake as compared to about GBP5 (RM25) in London.
Aidi Zalman, a consultant who studied in the UK, told The Malaysian Insider that salaries in London could go much further than KL.
He had worked part-time as a waiter in London and noted that a single day’s wages of about GBP50-60 was already enough for him to buy a pair of branded shoes and even a low-end iPod, a concept unthinkable for local waiters.
“GBP100 can feed two apartments of students for a week,” he said. “Here you can spend RM100 and get hardly anything.”
“I hate it when politicians make stupid statements like Malaysia is cheap,” said Edward Seah, an engineer who has previously worked in Singapore and the US. “Prices might seem cheap when you convert it to US dollars yes, but then we should also convert our salaries to US dollars!”
Victor Wong, a Malaysian expat in Sydney, said that Australians get more mileage out of their money.
A report by Swiss bank UBS AG shows KL residents have to work 22 minutes to afford a loaf of bread as compared with 18 minutes in Los Angeles.
He gave the example of clothes where he said he can get a good quality shirt for about AUD100 but would need to spend about RM200 to get similar quality in KL.
Wong pointed out that even Asian food could be more affordable for those living in Sydney than KL.
“You pay RM15 for a bowl of soup noodles in KL shopping centres but only AUD10 in Sydney shopping centres,” he said.
The 2010 Prices and Wages report by Swiss bank UBS AG show that residents in KL have only 33.8 per cent the purchasing power of their counterparts in New York, 42 per cent that of London, 33.7 per cent that of Sydney, 32.6 per cent that of Los Angeles and 31.6 per cent that of Zurich.
The same study showed that on average, KL residents have to work 22 minutes to afford a loaf of bread as compared with 18 minutes in Los Angeles, 16 minutes in Sydney, 15 minutes in Tokyo and 12 minutes in Zurich.
The figures grow much worse for imported items. To buy an iPod Nano, a KL worker would have to labour a whopping 52 hours as compared with just 9.5 hours in Los Angeles and Sydney, 12 hours in Tokyo and nine hours in Zurich.
A check on salaries and prices in selected developed country cities by The Malaysian Insider showed that despite being touted as one of the world’s least expensive cities, KL residents pay as much or even more for chicken, broadband, cars and mobile phones as a percentage of their income.
Communications, for example, is one area where Malaysians are paying notably more than residents in developed countries even after currency conversion.
A 5Mbps broadband package costs RM149 in KL while in London, a 10Mbps package would cost GBP13.50, in Melbourne a 5-8Mbps package costs AUD40 and in New York, a 7Mbps service costs USD41.95.
Those who want to buy an iPhone 4 in KL, meanwhile, would have to pay RM1990 with a basic 24-month contract while in London, residents can get an iPhone 4 for just GBP199 with a basic 24-month contract and in Singapore, it costs just SGD210 with a basic contract.
Maybank Investment Bank chief economist Suhaimi Ilias said that what is important is local perception and not official inflation figures which claimed that the inflation rate in Malaysia was only 1.7 per cent last year.
“I think on the ground, not many people feel we are cheap,” said Suhaimi. “They feel that the cost of living is high regardless of what the inflation figures are.”
He added that inefficiency and lack of competition are contributing to the higher prices in Malaysia.
“I can’t understand why a motorcycle should have to cost RM6,000-7,000 and a car like the Perodua Viva should cost over RM30,000,” he said.
RAM Holdings chief economist Dr Yeah Kim Leng said that cars are one of the sectors where the Malaysian market suffers the heaviest distortion.
Despite being touted as one of the world’s least expensive cities, KL residents pay as much or even more for basic items as a percentage of their income.
A Honda Civic in KL costs about RM115,000, or 20 times the average monthly salary of an auditor.
In Melbourne and London by comparison, a Honda Civic costs AUD25,000 and GBP19,000 respectively, or only about three times the average salary of an auditor in those cities. Even if you convert it to RM its only cost RM62,500 - RM 95,000!
The high cost of cars is part of the reason that Malaysians have leveraged themselves to a record 76 per cent of the country’s GDP.
Bank Negara statistics show that at the end of last year, 20 per cent of Malaysian household debt was due to cars, an asset which depreciates over time.
Yeah also said that the ringgit is undervalued and distorts the country’s purchasing power for imported goods.
“We need to ensure prices are right and that there are no market distortions, no subsidies and allow market prices,” he said.
But even if the ringgit is allowed to rise, there is no guarantee that savings would be passed on to consumers. The ringgit is now hovering at RM3.02 to the US dollar but Goldman Sachs predicated yesterday the currency could hit RM2.98 to the US dollar in the next three months.
When The Malaysian Insider contacted the director of wholesale and retail at government think tank Performance Management and Delivery Unit (Pemandu), Ravidran Devagunam about the higher prices Malaysians pay for branded goods, he acknowledged that some retailers will maximise profits on luxury items not readily available in Malaysia but said that the government is “unable” to compel them to discount their prices even after the abolishment of import duties as luxury goods and apparel are not controlled items.
“However, we believe that market forces and consumer education will eventually force a price reduction of these goods over time,” he said.
The Federation of Malaysian Consumers Associations Secretary General Mohd Shaani Abdullah said people should question the prices that they are currently paying.
“Consumer protection will only come about when people make noise,” he told The Malaysian Insider when contacted. “Only then will politicians act.”
Source:
http://www.themalaysianinsider.com/malaysia/article/malaysians-plagued-by-poor-purchasing-power/
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