The economics of 1Malaysia Menu

The recently tabled 2012 budget, the BN one that is, looks too optimistic in its revenue forecast while total expenditure seems unchecked and I struggle to detect significant return or value for money expended.

1 of the flagship gimmick is the 1Malaysia menu.

For RM3.00, you can get rice, taugeh, chicken wings, beef or mutton?

According to the prime minister's budget speech:

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http://www.pmo.gov.my/?menu=speech&news_id=529&page=1676&speech_cat=2

74. The Government will undertake measures to ease rising costs and prices as well as reduce the burden of the rakyat, as follows:

First: Increase the number of Kedai Rakyat 1Malaysia (KR1M) nationwide in 2012. KR1M offers 250 types of 1Malaysia products, comprising consumer goods which are up to 40% cheaper. In view of the overwhelming response, the Government plans to open an additional 85 units in 2012 with an allocation of RM40 million;

Third: Extend and promote the Menu Rakyat 1Malaysia which offers popular menu sets at reasonable prices with a maximum of RM2 for breakfast and RM4 for lunch. Currently, more than 700 food operators are participating and this will be extended to 3,000 operators by end-2012. To further expand this initiative, the Government encourages all cafeteria operators in Government offices* and the private sector to implement the Menu Rakyat 1Malaysia.

* not only they get increment and bonuses without performance appraisal....
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What form of "encouragement" is the PM talking about? Anyone knows you can't run business on a free. An operator has to pay rental (a mamak restaurant's monthly rental can easily hit RM10,000), salaries and wages, and ever escalating prices of foodstuff. Simply verbal encouragement and a road show visit by a smiling PM won't foot the operating expenses.

The prime minister have to be transparent and explain how 3,000 operators can and willing to participate. Are they being subsidised in some creative way via tax payers money?

We are all familiar with the modus operandi of 'compensation for not reaching supernormal profit targets' enjoy by highway concessionaires for example. When you get a discount during festive balik kampung, the government will hack off around RM800million of tax collected/debt raised to pay Plus and bill back the tax payers later. Tax money which should have been used for education, healthcare, public amenities ended up as a nice profit before tax in some listed company

Did the Prime Minister Depatment sent financial professionals to help these operators to do proper financial and sensitivity analysis to help them set pricing of their products to justify lower selling price hence higher volume which will generate enough income for the operator to continue to function?

Sorry, it is easy to poke a hole in it. Higher volume of sales equals to higher cost of sales hence by lowering selling price, the margin would be depressed instead. 

Similarly it goes with Mydin Group who is awarded the Kedai 1Malaysia franchise, a logo financed by tax money. How could it sold stuff cheaper by 40%? Is there a hidden subsidy somewhere? Did Najib administration have a written agreement with favourable terms for Mydin Group to enable it to use a trademark paid by taxpayers and  undercut all other retailers facing business risk on their own?

You see, if I want to start a Old Town Coffee franchise for example, I need to pay the following:

Franchise Fees : RM80,000.00n
Franchise Term (years) : 5
Royalty : 5%
Marketing / A & P Fund : 3%
Estimated Initial Capital : RM600,000 - RM800,000
(source: Old Town Coffee's web page)

So the billion ringgit deficit questions are:

1) Is the PM's form over substance gestures above creating unfair playing field between selected operators and others who are on their own, trading on actual and at-arms' length terms (i.e. not subsidised)? In other words, the advocate of 1Malaysia has in fact created a form of discrimination instead?

2) Is this unfair playing field fair (obviously not), transparent and  not killing off genuine operators? How many genuine stores and livelihood will be killed off when the economic outlook next year is forecasted to be gloomy and gloomier?

3) who are the operators and is there any special relations or connection between them and the politicians in charge at the moment?

4) What is the economic sense and financial feasibilities that enable such operators to charge such low prices? How, by charging much lower than prices other operators are charging, these selected businesses can survive? Businessmen won't simply do charity, especially those not on scale of Shell, Starbucks or other multi national corporations.

 Political donation is a fact of life, whether it is via direct cash contribution or goods and services supplied at discounted prices. Businessmen can either donate voluntarily or due to "necessity".

However, for an administration that flaunts political donation as if it is a miraculous gesture of its own, that is certainly bad taste and no good grace.

A budget is suppose to give the tax payers and the people a sense of direction and assurance; not more question marks

Stay tune, fellas, for the PM to answer YB Teo Nie Ching's parliamentary question:

5.  Puan Teo Nie Ching [Serdang] minta PERDANA MENTERI menyatakan syarat-syarat perjanjian dengan Kumpulan Mydin yang menggunakan logo 1Malaysia untuk membuka kedai runcit khasnya adakah kumpulan ini mendapat bantuan kewangan atau subsidi membolehkannya menjual barang dengan lebih murah dan memudaratkan perniagaan-perniagaan lain. [25/10/2011

Thanks YB.