Features Malaysia Economy

Many Malaysia SMEs will go bust, government help inadequate, warn business leaders

06, Apr. 2020

Photo by Poh Wei Chuen on Unsplash
Photo by Poh Wei Chuen on Unsplash

By Charlotte Chong

The Malaysian government has rushed out not one but two stimulus packages to help the ailing economy amid the worsening fallout caused by the coronavirus pandemic that has spread havoc throughout the world.

However, they are far from sufficient to keep small medium-sized enterprises (SMEs) afloat in the country where a nation-wide lockdown has aggravated the crisis and closed down many businesses, said business leaders and analysts.

They have called for longer-term and enhanced aid measures to rescue struggling SMEs, which make up 98.5 percent of business establishments in the country. Following further discussions with various business associations, the Malaysian government is expected to announce extra help for SMEs this week.

Meanwhile, Malaysian Employers Federation (MEF) President Datuk Shamsuddin Bardan told NNA that some SMEs had already closed down and retrenched workers while others are seeing whether the stimulus package would be of any help.

“They are even going to the extent to borrow from banks to pay for wages,” said Shamsuddin.

In late March, new Prime Minister Tan Sri Muhyiddin Yassin announced a Prihatin Rakyat Economic Stimulus Package worth 250 billion ringgit ($57.2 billion), out of which about 51.2 percent would go to the welfare of the people. The amount included the 20 billion ringgit package launched on Feb. 27 by then interim Prime Minister Mahathir Mohamad.

Although 100 billion ringgit worth of aid measures has been set aside for businesses including the SMEs, many businessmen have highlighted severe shortcomings in the measures.

National President of the SME Association of Malaysia Datuk Michael Kang Hua Keong said 20 percent of SMEs would still go bust even with the second stimulus package as they have been facing an unprecedented cashflow crisis. If the government had not given any lifeline at all, business closures would hit four in 10 SMEs, he reckoned.

“We suggest reducing burden by subsidizing on fixed expenditures and special loans for six months on fixed expenditures to overcome cash-flow problems,” he said, adding that banks should waive interest and make it easier for SMEs to apply for loans.

In the second stimulus package, the government is providing additional relief funds amounting to 4.5 billion ringgit to help SMEs - 3 billion ringgit for a Special Relief Facility, 1 billion ringgit for an All Economic Sector Facility Fund and 500 million ringgit for a Micro Credit Scheme.

Photo by Ash Edmonds on Unsplash
Photo by Ash Edmonds on Unsplash

Concurring with Kang, Malaysia Retail Chain Association (MRCA) President Datuk Seri Garry Chua proposed that banks should give at least 50 percent interest rebate.

“Banks are still making money from this kind of situation. It’s very bad… Now people are talking about survival,” Chua told NNA in a phone interview.

On the six-month moratorium on bank loans, he noted that it is limited to term loans and not valid for trade financing such as banker’s acceptance (BA) and letter of credit (LC), which are used by 80 percent of the businesses to survive.

He also called on banks to process soft loans very rapidly in the dire current situation.

Many countries including Malaysia are expected to face a downturn or slide into recession in the coming months as economic activities have plunged with the worsening global pandemic caused by the Covid-19 virus. The World Bank has chopped its growth forecast for Malaysia’s from 4.5 percent to -0.1 percent this year.

Expecting a grim situation for Malaysia, Kang told NNA via Whatsapp messaging, “This means two to four million people will be out of job…Even with assistance, a lot of employees will lose their jobs in the next six months.”

A recent survey carried out by the SME Association of Malaysia found that one-third of SMEs could keep afloat until end-March while 37.8 percent could do so until the end of April.

“The biggest challenge of SMEs is cash flow… It is expected that there will be no cash inflow for at least three months due to MCO,” Kang said in the survey report on March 30.

Enforced to curb the spread of the outbreak since March 18, the lockdown called Movement Control Order (MCO) has been extended till April 14.

In the survey, only 26.3 percent of SMEs felt optimistic that the stimulus packages would help sustain their business. Even so, SMEs are "afraid to have to increase their gearings as many of them already have existing loans,” Kang said in the report.

Chua noted that more than 80 percent of SMEs and retailers hit by the crisis employ about 70 percent or 12 million workers in Malaysia.

“Most of the SMEs and retailers are very worried…Businesses are tremendously affected, it’s like a stalling on the economy,” he said.

Apart from the exemption for Human Resources Development Fund (HRDF) levy, Chua said the government should also freeze statutory payments such as income tax and assessment tax for six months.

Meanwhile, the government has allocated 5.9 billion ringgit for wage subsidies to benefit 3.3 million workers.

Kang suggested that the 600 ringgit wage subsidy be doubled to 1,200 ringgit for those with monthly salaries lower than 4,000 ringgit. In addition, the criteria of a 50 percent fall in a company’s income since January should be removed, he added.

He also recommended that separate subsidies should be given to micro entrepreneurs, who, unlike registered SMEs, would find it impossible to follow the stimulus "instructions and conditions with documents.”

Shamsuddin also questioned whether it would be right if the government were to dip into a solidarity fund managed by the Social Security Organization to fund wage subsidies. He asked, “Is it coming from the SOSCO (the Social Security Organization) or is it coming direct from the government coffers? If it is coming from SOSCO, then it is basically the employers and employees' money.”

He added, “It looks good but let us be transparent about the whole thing.”

AmBank Group, a local lender, has also slashed the country’s GDP this year down from 3 percent to 0.4 per cent. In its latest report, it revised its forecast for SMEs from 6 percent growth to 1.9 percent, estimating that their total revenue each day would drop to 30 million ringgit from the previous estimate of 90 million ringgit.

“Many SME businesses have been forced to close their doors, and some may not reopen,” its chief economist Dr Anthony Dass warned, adding that measures must be broader and longer-term compared to those that helped the country cope with the global financial crisis in 2009.

“Otherwise, small businesses are certain to face a calamity,” he concluded.