By Amanda Yeo
Despite the government having component of the Prihatin and Penjana stimulus packages specifically tailored for small and medium-sized enterprises (SMEs), the Small and Medium Enterprises Association indicates that 300,000 to 400,000 SMEs might close shop if they fail to cope with operating costs.
To further reduce the financial burden among SMEs, another three-month extension of the loan moratorium and wage subsidy program which will expire at the end of this month should be considered by the government.
According to Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz, more than 21,000 SMEs throughout Malaysia had received funds from the Special Relief Facility (SRF) Fund which helped maintained over 400,000 jobs.
SMEs are the backbone of Malaysia’s economy. Not only do SMEs contribute around 40% of Malaysia’s Gross Domestic Product (GDP) and two-thirds of the total workforce, but they also have the potential to develop new products and services and generate employment opportunities.
Based on the definition that was formulated and endorsed at the 14th National SME Development Council (NSDC) meeting in July 2013, SMEs under the manufacturing sector are firms with sales turnover not exceeding RM50 million or employment not exceeding 200 workers.
On the other hand, SMEs under the services and other sectors are firms with sales turnover not exceeding RM20 million or employment not exceeding 75 workers.
However, due to the emergence of COVID-19 pandemic, SMEs are struggling to sustain their business operations, which in turn have affected the B40 group who is struggling to make ends meet due to sudden loss of jobs and income.
After only six weeks of the Movement Control Order (MCO), SMEs incurred an estimated RM14.31 billion losses in operating costs which include rental, overhead, insurance, advertising and promotional as well as repair and maintenance.
Due to cash flow problems, there are over 4,000 SMEs that had to shut down since April. Some of the SMEs have had to retrench workers so as to sustain their business operations.
However, the worst is yet to come.
Up till July 31, a total of RM23.3 billion loan moratorium has been utilized by businesses and a total of RM8.99 billion in wage subsidies has benefited over 2.6 million employees, but these are still insufficient.
The overall unemployment rate in Malaysia has yet to return to pre-pandemic levels of around 3 to 3.5%. If the government provides additional financial assistance, SMEs can hire more staff, with the priority on hiring B40 who lost jobs during the MCO.
Since more financial allocation is needed to train new hires with no working experience, SMEs, in general, are not motivated to take on fresh graduates under the current climate.
However, with the Penjana stimulus initiatives such as Dana PENJANA Nasional, Penjana SME Financing, Penjana Microfinancing and Bumiputera Relief Financing, among others, the government would able to encourage the SMEs to re-prioritiZe their focus by hiring fresh graduates.
While the government did provide rent exemptions and tax deductions, SMEs that rented at private premises did not receive such benefits. Klang MP Charles Santiago suggested the government should consider providing special grants for SMEs that experienced a year-on-year drop in revenue of 30% in which 70% of the rental, capped at RM8,500 based on the average rental rates of offices in Kuala Lumpur, is subsidized until next March.
SMEs should also go digital and take advantage of the financial assistances provided by the government for the SMEs to adopt Industry 4.0 technologies. Indeed, the Malaysian Digital Economy Corporation (MDEC) is providing a 50% matching grant of up to RM5,000 per company for subscription to and upgrading of business solutions software, which is worth RM500 million over five years. This provides the opportunity for the SMEs to upgrade their existing systems and it’s expected that 100,000 SMEs in Malaysia would benefit from the scheme.
To encourage usage of digital wallets among customers, SMEs also can provide value-added services such as free product delivery and product discount, further boosting their sales.
With additional financial assistance from the government, SMEs would have room to recover, for them to ride out the economic storm. At the same time, SMEs could help to lower the unemployment rate in the country, which would also benefit the B40.
(Amanda Yeo is Research Analyst at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.)