Insight - Improving prospects for SMEs


By October, as many as 580,000 businesses representing 49% of the micro SME (MSME) sector, are at risk of closing down, Minister of Entrepreneur Development and Cooperatives (Medac) Datuk Seri Dr Wan Junaidi Tuanku Jaafar had said.

WITH the gradual reopening of the economy, prospects are brighter for small and medium enterprises (SMEs) although they still require a lot of help to overcome their problems.

Cashflow is still a big issue while many sectors are still waiting to reopen.

The opening of more sectors is about the only way for the SMEs to recover.

Not all businesses can go digital, and a hybrid business model which is a mix of traditional and online product sales, requires shops to be opened.

By October, as many as 580,000 businesses representing 49% of the micro SME (MSME) sector, are at risk of closing down, Minister of Entrepreneur Development and Cooperatives (Medac) Datuk Seri Dr Wan Junaidi Tuanku Jaafar had said.

Malaysia’s MSME sector accounts for 40% of the country’s gross domestic product.

The recently announced government aid of RM500 to be paid in two tranches is welcome mainly for MSMEs, but may not be sufficient to revive the other segments of SMEs.

“SMEs that could not operate and those in retail and tourism, need subsidies to cover the minimum wage of RM1,200 until June 2022,’’ said Small and Medium Enterprises Association (Samenta) national secretary Yeoh Seng Hooi. (pic below)

Samenta national secretary Yeoh Seng HooiSamenta national secretary Yeoh Seng Hooi

These are the SMEs with more than 10 employees; they have a bigger problem to keep their businesses afloat and retain their workers.

“We urge for government support with rental and wage subsidy schemes as cashflow is the biggest issue for many SMEs, where the majority are still having problems repaying their loans.

“A lot of SMEs are preparing to close down. They have no choice as they cannot sustain anymore, daily costs are running and they are not getting income,’’ said SME Association of Malaysia national president Datuk Michael Kang.

A survey of 1,100 SMEs last month indicated that 26% of SMEs had already closed down.

In the survey, 34% reported that business dropped by less than 50% (2020 versus 2019), while 32% said that business fell by less than 75% (May, June and July 2021 vs the same period in 2020).

“We should see livelier economic activities starting from September; therefore, the risks of business failure as predicted by Medac may be mitigated and minimised,’’ said Bank Islam chief economist Mohamed Afzanizam Abdul Rashid.(pic below)

Bank Islam Mohd AfzanizamBank Islam Mohd Afzanizam

Like a dark cloud overhanging the world’s economies, is the relatively poor efficacy of the vaccines.

“Many may be in for a nasty shock. Some restaurants are not open for dine-in, as they find it too cumbersome to sanitise each table after dining, and they do not want to take the risk,’’ said Etiqa Insurance & Takaful Bhd chief market strategist Chris Eng.

The situation regarding debt is still problematic; those who cannot operate have to restructure their loans and still owe creditors and landlords, among others.

Some that are operating are not even at cashflow breakeven; the government should let them operate based on the number of staff who have been vaccinated, and allow customers who have been vaccinated to patronise their stores, said Yeoh.

Standard operating procedures also need to be revised as we enter the endemic phase, where Covid-19 infections are restricted to certain areas.

As more MSMEs are operating in the Klang Valley under Phase Two, prospects should improve; the travel bubble in Langkawi is a plus.

Hopefully, all sectors including theme parks, are allowed to operate once they have the staff vaccinated, said Yeoh.

However, achieving sustainability in cashflow takes time as the confidence level of consumers is still relatively weak.

Under its budget proposals, Samenta has asked for:

·Wage subsidy; the RM600 wage subsidy to continue for those under retail and tourism, and those under the so-called ‘non-essential’ sector, until June 2022.

This will help enterprises with zero revenue to lower their operating overheads while they fight to recover in 2022.

· Micro enterprises; direct transfers to micro-enterprises should continue until the first half of 2022.

Another RM5,000 should be given to this group that forms the large majority, to be spread over three payments in six months.

· Rental subsidy; the revenue impact was acute for SME retail outlets that could not operate in shopping malls over the last 12 months.

A rental subsidy of RM3,000 per month for six months from January till June 2022, would help significantly.

· Liquidity crunch; for SMEs to recover, they need access to working capital to finance their purchases and raw materials.

Based on RM500,000 as an average and for 200,000 enterprises, a total allocation of RM100 billion should be provided.

With a bankers’ acceptance – a short term working capital facility – the banks can control the payment to relevant suppliers, some of whom have tightened credit due to unpaid receivables.

· Fiscal incentives; for those business that are profitable, a lowering of tax rate for the first RM500,000 of taxable income to 15% would help SMEs rebuild their cash reserves in 2022.

A lowering of the sales and service tax to 4% would help stimulate consumer demand and serve as a harbinger for the possible re-introduction of the Goods and Service Tax in 2023.

· Consumer spending; tax relief for expenses related to domestic tourism, entertainment, information technology equipment and phones should be increased.

Food vouchers of RM1,000, spread over five months, can be given to the B40 group.

Sales tax for the purchases of automobiles should be waived until June 2022, and stamp duty for purchases of new properties should be waived from January till June 2022.

· Government procurement; the government should allocate 30% of its procurement to SMEs which will compete and tender for orders.

It is a slow, healing process for SMEs; with a lot of support, this important sector of the economy will hopefully survive and recover.

Yap Leng Kuen is a former Star Business Editor. The views expressed here are the writer’s own.

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