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New Straits Times
10-05-2025
- Business
- New Straits Times
Look within, say experts and industry groups
KUALA LUMPUR: Policy makers should look internally at ways to facilitate ease of doing business and investing in the country as part of a wider response to the United States' tariffs, says an economist. Centre for Market Education chief executive officer Dr Carmelo Ferlito said while it was encouraging that Malaysia had sent a delegation to Washington to discuss the issue with the US, it was also important for the country to "look within". Ferlito said that this is because while tariffs are negotiated at a government-to-government (G2G) level, business was conducted at a business-to-business (B2B) level. "There is merit for new opportunities where trade diversification and alternatives are concerned," he told the New Straits Times. "But we have to be clear that trading partners cannot be changed overnight because trade happens between businesses, not countries per se." A 10 per cent export loss to the US cannot easily or necessarily be shifted to another market like China or the European Union, he said, as it boils down to agreements between firms in two countries. "Can a US importer find an alternative supplier domestically or from another country at the same or better price after the tariff is imposed? "What are the transaction costs involved in such a search? Can the Malaysian firm find a European customer to replace the American one, in case the American one is lost? How long will it take?" Ferlito said the tariff issue should not be viewed from an aggregate perspective without considering "microfoundations" because in the economy, everything happens at a "microlevel". "The macro level exists only in the statistics books." He said each transaction is the consequence of many other micro transactions, interrelated in a way which cannot be changed overnight or as a consequence of an interstate agreement. Ferlito said there were measures that Malaysia could take beyond tariff discussions and exploring other markets, including non-tariff barriers. "We can take a leaf from Indonesian President Prabowo Subianto, who called for simplifying and streamlining regulations to make to increase competitiveness and attract investments." "Such a measure would help boost investments, not just foreign direct investments (FDI) but also domestic direct investments (DDI)." This, in turn, could help soften the blow from any impact of the tariffs once the 90-day pause on the measure ends, he said. During the special parliamentary session on May 5, Prime Minister Datuk Seri Anwar Ibrahim outlined several measures to address the US tariff situation. These include RM1.5 billion in financial aid for SMEs and the fast-tracking of infrastructure projects to stimulate domestic economic activity. In response, business groups say internal strengthening is just as critical as external support. The Federation of Malaysian Manufacturers (FMM) backed the formation of a National Supply Chain Council to address vulnerabilities across key sectors. "Private sector participation is essential to ensure that the Council's strategies are grounded in operational realities," said FMM president Tan Sri Soh Thian Lai. FMM also urged the swift rollout of the Government Procurement Act, calling it vital to "stimulating domestic demand and enhancing national production capabilities." It added that government-linked companies should be subject to "a clear mandate or strong policy encouragement to increase their procurement from local manufacturers." Small and Medium Enterprises Association (Samenta) noted that non-exporting SMEs make up the bulk of Malaysia's business landscape. "These businesses... will be equally impacted as input costs rise, supply chains tighten, and consumer spending begins to contract," said president Datuk William Ng. He called on the government to "pause all new and planned cost increases on SMEs" and freeze compliance requirements that could push more businesses into distress.
Daily Express
26-04-2025
- Business
- Daily Express
Illicit cigarettes can harm Sabah's economy
Published on: Saturday, April 26, 2025 Published on: Sat, Apr 26, 2025 By: Carolyn Foo, Daily Express Text Size: Carmelo Ferlito and Rodney Van Dooren. Kota Kinabalu: Walking along the city's streets one can find shops offering the freshest produce to the best local crafts, from tiger prawns to Pinakol. But there is another item found in abundance in Kota Kinabalu and throughout much of the state; illicit cigarettes. While Sabah's famous seafood and handicrafts add value to the state's economy, providing jobs and business opportunities, the same cannot be said about illicit cigarettes. These cigarettes - the production of which is unregulated in neighbouring countries - take a toll on Sabah's economy in more ways than one. 'We have businesses on the ground which somehow adapted to the presence of illicit cigarettes, selling them as if they were regular products,' said Carmelo Ferlito, CEO of the Center for Market Education. According to a recent Illicit Cigarettes Study in Malaysia by NielsenIQ, the prevalence of illicit cigarettes at a national level is 54.8% as of May 2024. The situation is more dire in Sabah, where the prevalence of illicit cigarettes stood at 79.4%. This means that nearly 8 out of 10 cigarettes in Sabah are illegal. Ferlito said this situation leads to the loss of legitimate business and investment opportunities. This in turn means fewer job opportunities for Sabahans. Pankaj Kumar, Managing Director of Datametrics Research and Information Centre (DARE), shares a similar view. 'Without needing to follow strict regulations and taxes, illicit cigarettes create an uneven playing field for retailers and distributors of legal tobacco products,' said Pankaj. Not only does this affect the state's reputation as a business-friendly location, but it also threatens legitimate businesses and robs the state's much-needed revenue which could support public services and infrastructure development. Legitimate investors might be discouraged from entering the market as the prevalence of illicit cigarettes suggests weak regulatory enforcement, he said. In more recent times, the Federal Government has taken stringent measures to curb the illicit cigarette trade which costs Putrajaya an estimated loss of RM5 billion in tax revenue. These measures include a ban on transhipment, a freeze on the issuance of new import licenses for cigarettes and the strengthening of the Multi-Agency Task Force on the illicit cigarette trade. While the measures have helped put a dent in cross-border smuggling, resulting in a slight reduction in illicit cigarette incidents, the problem is far from being stamped out. Additionally, the measures put in place by the Federal Government largely involve federal agencies, and Pankaj said local authorities in Sabah also play a key role in curbing the illicit cigarette trade. He said this includes ensuring businesses comply with licensing regulations, conducting inspections, and assisting with public awareness campaigns. 'They can also work closely with law enforcement agencies to identify hotspots for illicit trade and support the dismantling of illegal distribution networks. 'Additionally, local councils can facilitate community engagement initiatives that raise awareness about the dangers of illicit products.' Pankaj said collaboration between state and federal agencies is vital in addressing the illicit trade as it is a complex cross-border issue. 'While federal agencies such as the police and customs have the resources, specialised knowledge, and jurisdiction, local support is critical in ensuring enforcement is impactful on the ground.' He said the state government also has an important role to play in coordinating enforcement efforts and driving community engagement. 'Local communities can act as the eyes and ears on the ground, helping to identify and report suspicious activities related to the sale of illicit cigarettes. 'Educating the public about the social, economic, and health risks associated with illicit trade is also crucial. 'When communities understand how these illegal activities harm them directly, they are more likely to support enforcement efforts and make informed choices that discourage the use of illicit products.' There are also the indirect costs of illicit cigarettes which presents itself in the form of health issues and a loss of productivity. Ferlito, a faculty member of Universitas Prasetiya Mulya, Indonesia, said recent data from the World Health Organization and the Khazanah Research Institute indicate that smoking-related healthcare costs amounted to RM1.9 billion in 2020. He said although efforts and measures to combat illicit cigarettes were largely driven by federal agencies, states could and should play a more active role, as local councils came under their purview. 'It is not just a moral obligation. State governments will lose out if they are not proactive in doing their part to stop the illicit cigarette trade. 'This is no different than from local councils taking action against illicit businesses be it gambling or prostitution dens.' Ferlito said unlike other illicit businesses, the costs to a state associated with illicit cigarettes were much higher. 'For one it sends a strong signal that institutions are weak or that there is no political will to uphold the law, and this can affect investor confidence, especially for businesses harmed by the illicit cigarette trade.' He said this included not only retailers but also supply chains that are involved in the legal cigarette trade. 'The bigger concern is of course costs linked to healthcare and a loss of productivity. This can hurt the state in the long run. 'We must remember that the damage from any kind of smoking activity is not limited to the smoker but those exposed to secondhand smoke.' However, the risk from illicit cigarettes was higher because the production of these cigarettes was unregulated, he said, adding there were many studies on this. Addressing this longstanding challenge is a priority for companies like Philip Morris International (PMI), who advocate for a smoke-free future but recognize the need to eliminate black markets for illicit cigarettes and tobacco products. Rodney Van Dooren, Regional Expert on Illicit Trade at Philip Morris International (PMI), highlighted the transnational dimension of this issue and stressed the critical role of ASEAN nations collaborating closely to combat it effectively. 'Local law enforcement in the Philippines is making great strides in shutting down illicit tobacco operations, but this needs constant attention as new threats are always emerging. What I want to emphasize today is that according to trade data and news articles in the Philippines, most non-compliant cigarettes in the Philippines originate from ASEAN countries and India, and from China for non-compliant e-cigarettes,' Van Dooren remarked. Van Dooren had urged ASEAN nations to strengthen cooperation in tackling illicit tobacco trade, emphasizing compliance with market regulations, harmonization of transit policies, and leveraging global trade agreements. 'An export without a corresponding import should trigger international action,' he stressed and however cautioned that illicit trade persists due to strong demand and price disparities. The illicit tobacco trade, therefore, hinders public health initiatives by restricting opportunities for smokers to move toward safer alternatives. With Malaysia facing one of the highest rates of illicit tobacco trade in the region, this is an issue that Malaysia must address, especially in light of Act 852, to mitigate the rise of illicit cigarettes and ensure a healthier future for its citizens.
