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Most small and medium-sized enterprises (SMEs) had a challenging year in 2021, with prolonged lockdowns forcing many who were already operating on razor-thin margins to close shop and lay off employees.
SMEs have been dealing with pandemic-related uncertainties for nearly two years. Despite the government's efforts to shine a light by opening up economic sectors and providing financial assistance, many business owners expect the clouds to hang over them until 2022. Approximately 1.15 million SMEs account for 97.2% of all business establishments in Malaysia.
Last year, they contributed 38.2% of the national GDP, or RM512.8 billion, making them the Malaysian economy's backbone.
Significant cash flow issues
According to Chin Chee Seong, national secretary-general of the SME Association of Malaysia, while most SMEs are currently in recovery mode, overall performance is worse than in 2020.
He attributed this to the end of the moratorium and the fact that the government will not provide wage subsidiaries. As a result, most SMEs are currently experiencing significant cash flow issues.
He said that raw material and transportation costs have risen, and many SMEs are unable to refinance their loans. Several landlords provided discounts for shop lots and factories during the Movement Control Order (MCO), but now that the economy has fully opened, rents have normalised.
He added that another issue is the workforce, as many SMEs rely on foreign workers. With a scarcity of such workers, SMEs cannot operate at total capacity.
According to Chin, the outlook for 2022 is still very bleak, with most SMEs still struggling with cash flow and other issues such as low consumer confidence.
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Many SMEs are bracing for 2022's impact.
He also said that the new variants of Covid-19 have severely harmed consumer confidence, and the situation will worsen if another lockdown occurs.
Chin proposed that the government allow SMEs to postpone statutory contributions such as Employees Provident Fund and income tax for at least six months to help with cash flow.
He explained that the government could devise a new three-month wage subsidy programme for affected SMEs as it is critical and will undoubtedly benefit them. Those doing well require a great deal of additional assistance, such as digitalisation grants.
He said he received many complaints that the Malaysia Digital Economy Corp's (MDEC) digitalisation grant is not smooth. He added that MDEC needs to make it faster and easier.
Recovery requires digitalisation
Datuk William Ng, central chairman of the Small and Medium Enterprises Association, said that even those allowed to operate at a reduced capacity are having difficulty because raw material supplies and transportation are uncertain.
According to him, many businesses were forced to reject customer orders. As the economy fully reopened in September, many SMEs struggled to finance the restart of their business, a severe labour shortage, and a spike in raw material and logistics costs.
He expected this trend to continue in 2022, when a resurgent economy will be moderated by disruption due to labour and logistics shortages.
Ng advised SMEs to automate as much of their operations as possible, citing Malaysia's Digital Adoption Index of 69%, lower than Singapore's (87%) and South Korea's (86%).
He said that Malaysia's business sub-index for digital adoption stood at 55%, lower than regional neighbours Singapore (86%) and Brunei (66%). Vietnam has 59%, while the Philippines and Thailand each have 57%.
He said it has always been a difficult decision because of the significant costs involved. However, he added that the pandemic has shown that the only way for SMEs to survive is to reduce reliance on the workforce, digitise business, and diversify income streams.
A wild ride for SMEs
Nitesh Malani, the Malaysian Entrepreneurs Foundation chairman, stated that the numerous MCOs had harmed businesses.
He said that it had been a year full of trials, blunders, and lessons. In the face of uncertainty, he stated that entrepreneurs should try to diversify or look for alternatives. He explained that entrepreneurs are inventive, and there is a slew of new businesses springing up in response to the current climate.
He believed the recovery for SMEs will begin in 2022, but it will be gradual. He concluded that Malaysians must live with the new variants, and many businesses have now developed their own unique ways to thrive.
Source: The Malaysian Reserve