The Malaysian Insight

PUTRAJAYA should focus on reviving small and medium enterprises (SMEs) in its economic recovery blueprint due for unveiling in November, members of the industry said.

They said the long-term plan should provide avenues for SMEs to boost their business and even expand beyond the domestic market to recover from the economic impact of the Covid-19 pandemic.

Both the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) and the SME Association of Malaysia urged Putrajaya to focus on attracting more foreign investment leading to more orders for SMEs to help them survive.

ACCCIM SMEs committee chairman Koong Lin Loong told The Malaysian Insight a poll found that the biggest problem facing businesses amid the pandemic was cash flow, the best solution to which was more business opportunities.

In the ACCCIM poll, 36.9% of respondents said they could not sustain costs for three months, while 42% said they could for four to six months.

Koong said SMEs desperately needed more business over the long term and this could be achieved with high-quality foreign investments.

He said the government’s payment of RM50 into the e-wallets of Malaysians to stimulate consumption was merely a drop in the bucket.

He urged Putrajaya to also give attention to the construction and retail sectors as the former drove many ancillary industries while the latter employed a multitude of workers.

Koong said Malaysia’s modest population made it difficult to generate domestic demand, which in turn made it difficult to attract foreign investment.

As such, Koong said, the government needed to create a business-friendly environment by cutting red tape that had turned off investors in the past.

“If you cannot create a business-friendly environment, then the SMEs will suffer,” he said.

Koong said the pandemic had upended supply chains throughout the world and the Malaysian government must work on their restoration instead of just throwing money at the problem.

He said the government should study the resource-rich countries that could be persuaded to invest in Malaysia, while strategising to benefit from the ongoing US-China trade war.

Koong also urged the government to pay immediate attention to the country’s economic position in the region, saying if Vietnam could overtake Malaysia then other regional comp45g-term strategies in attracting foreign investments.

He said lowering corporate taxes was an outdated method of attracting foreign investmen, compared to a skilled workforce.

 

Challenge to survive

SME Association president Michael Kang said even though the Malaysian economy has reopened since May, SMEs have not shown a satisfactory rate of recovery from the shutdown.

According to a survey by the association, trade at the SMEs has returned to only half of pre-pandemic levels and that their survival will soon become a major challenge.

Kang said SMEs may only fully recover by mid-2021, and the key factors were that some SMEs have had no income for up to four months while recovery since the economy partially reopened was not as good as hoped.

He said the association’s poll had determined that about half of SMEs would extend their loan moratorium when it ends this month, and warned that some of these businesses will have to close if their applications for loan extension were not approved.

Kang said that the government should focus on stimulating the market and industries to generate more business for SMEs.

On the effort to push SMEs towards digitalisation, he said the government must continue to provide incentives and financial assistance for the businesses to afford the necessary equipment and technology.

The Finance Ministry recently announced that the Economic Action Council led by Prime Minister Muhyiddin Yassin was preparing a medium to long-term economic recovery blueprint, which is estimated to be completed by October.

In a written reply to lawmakers in Dewan Rakyat, the Finance Ministry said the blueprint will focus on improving the labour market, improving economic policies, consolidating market competition, high-quality investments, reforming public institutions and governance frameworks, and implementing digitalisation and Industry 4.0.

“Besides that, the role played by the public and private sectors in promoting economic growth and sustainability will also be re-examined.”

Shift focus

However, Universiti Tunku Abdul Rahman associate professor in economics Wong Chin Yoong said past policies in attracting foreign investments were not successful in causing technology and skills transfer to local businesses, and said the government should instead help SMEs expand beyond the Malaysian market.

Wong said a 2018 report by Khazanah Research Institute showed that although Malaysia has been successful in attracting foreign investments, they often do not align with small, traditional businesses.

“So the benefits like having (foreign firms) purchasing local raw materials, transferring technology to local businesses and others could not be realised,” he said.

Wong also said even though foreign investments were important, the fact that Malaysia has not become a successful nation meant that something has gone wrong.

“Malaysia needs to expand its capital outside to create scale, it is only with a bigger scale that market efficiency, automation, and digitalisation will follow. It is only through competition that we will innovate,” he said.

Wong said the government had done far too little to help local businesses expand abroad compared to its efforts to attract foreign investments.

“There needs to be a change in focus. Another point is that Malaysia does not lack in terms of technology – artificial intelligence (AI), mobile payment, and others – it’s all there, but we do not have the capacity to absorb it.

“When such technologies arrive, we cannot utilise them, we cannot absorb them, we do not have the capacity, talent is too expensive, and etc. So what we lack is the capacity to absorb,” he said.

Wong cited Industrial Revolution 4.0, AI as an example, saying the question should not be “how many big companies are doing it?” but rather “are Malaysian companies capable of doing it?”.

He said there are now two million Malaysia firms using such technology but they are all a dime a dozen, with the exception of a few having made a name for themselves.

Wong also said that when local companies talk about investing in upgrades, they often focus on physical assets such as hardware, but intangible assets are often more important.

He urged the government to integrate local academic and research institutions with the private sector.

“Research capability can attract students. If the academic research environment is weak, then the graduates produced will not be of good quality and will lack productivity,” he said.

Wong also said the involvement of universities in corporate transformation was very small as collaborations between academic and research institutions have not been set up.

Meanwhile, he said, foreign governments were often aware that SMEs have many new and innovative prototype products that need to be built by machines that they cannot afford.

Hence, public universities in the countries often set up independent research houses outside their organisation, which have manufacturing machines that businesses can use to build their prototypes.

“With this, SMEs will not have to use their own money for innovation, they can rely on the universities and their researchers.

“Even universities in the US have taken government grants for research and collaborated with SMEs,” Wong said.

He added that Malaysia can do better in this regard and resolve the market’s issues with more educators, student participation, which will also increase productivity faster. – September 6, 2020.