Adopt digitalisation, provide better capital access to accelerate MSMEs, say economist and SME association
06 Dec 2021
The micro, small and medium enterprises (MSMEs) form the backbone of Malaysia’s economy. In 2020, MSMEs consisted of 97.2 per cent of business entities in Malaysia.
Their contribution to the economy was 38.2 per cent of the gross domestic product (GDP) and a significant generator of employment, hiring 7.2 million workers.
They also occupy a more than 13.5 per cent share of the country’s total exports in which 9.4 per cent was from the manufacturing sector.
Despite their significant contributions, MSMEs have been one of the most affected sectors by the COVID-19 pandemic since early 2020. As supply chains that supported their operations were disrupted, MSMEs faced great challenges that only got worse in a post-COVID-19 world.
Fortunately, the government has launched multiple initiatives since the movement control order (MCO) in 2020 to help individuals and businesses cope with their financial burdens.
A total of 16 financial aid initiatives were launched for Malaysian MSMEs in 2021, which were announced under Budget 2021, PERMAI, PENJANA and PEMERKASA economic stimulus packages.
These initiatives provide additional financial assistance to small and medium enterprises and micro-entrepreneurs and help businesses cope with payroll difficulties from MCO and delaying loan repayment for MSMEs whose incomes were affected by the pandemic.
Under the 12th Malaysia Plan (12MP), the MSMEs have been identified as a Game Changer III by transforming MSMEs as the new driver of growth.
The MSMEs are deemed to be one of the sectors to restore the country’s growth momentum with three main targets; contributing 45 per cent to the GDP and 25 per cent to total exports by 2025 as well as higher labour productivity growth by 3.5 per cent annually in the period of 2021-2025.
The 12MP also outlines that 90 per cent of MSMEs digitalise their business operations by 2025.
Accelerate MSMEs via Digitalisation
The importance of digitalisation for MSMEs has been discussed during the recently held 27th Asia Pacific Economic Cooperation (APEC) Small and Medium Enterprise (SME) Ministerial Meeting.
The ministers recognised the critical role of digitalisation, innovation and technology in promoting MSME resilience and business continuity, fostering the development of digital start-up ecosystems, and building and enabling regulatory environment.
Closer to home, chief statistician Datuk Seri Dr Mohd Uzir Mahidin believes digitalising MSMEs could position them in a better spot to reap the benefits from various initiatives and programmes undertaken at national and global arenas.
He said MSME businesses are projected to rebound in line with the optimistic national economic outlook ahead, but they need to adopt an agile business model.
“Facilitate more MSMEs in adopting digitalisation services such as e-commerce and e-payment while widening their market outreach to global frontier can boost online businesses.
“All the assistance should reach micro businesses that are illiterate in applying latest technologies,” he suggested.
Additionally, he said, quality job creation and reducing unemployment among locals are important to accelerate MSMEs.
Challenges for Growth
To enable a strong economic recovery, the unique needs of MSMEs should continue to be addressed while the challenges that could hamper its growth must not be ignored.
Mohd Uzir said the challenges that MSMEs face are lack of access to working capital, which the formal banking system could meet only a fraction of the demand from the sector.
“As a result, MSME may have to rely on other sources besides the formal banking system, often borrowing on steep interest rates. The majority of MSMEs find difficulty to sustain their operations with low to minimal savings backing them up in such a challenging business environment,” he said.
Besides that, he said poor productivity from inefficient processes in the business as well as unskilled workforce would derail MSMEs’ full potential to drive long-term growth and job creation.
He also said the ability to have access to market places is also crucial for the growth of any enterprise.
Most MSMEs produce goods of a certain standard and lack of access to global value chains hinder their ability to increase their revenue besides setting off the upright cycle of growth as mentioned earlier, he said.
“In another perspective, MSMEs will be facing a situation to adjust to a new short-term equilibrium that involves workers, wages, raw materials, price hikes and even activities on the types of business,” he added.
Meanwhile, SME Association of Malaysia president Datuk Michael Kang said the tight cash flow in light of the pandemic and lack of talents in the market would create difficulties for MSMEs to grow going forward.
“We need the government’s assistance on capacity building to adopt technology in order to bring MSMEs to the next level,” he reckoned.
Allow Associations to Play Significant Role
Kang proposed the government allows SME-related associations to play a bigger role in assisting MSMEs to rebound from the pandemic, especially in terms of the relief packages provided.
He applauded the government for introducing numerous relief packages but the “majority of MSMEs did not get the message and did not really enjoy or get the assistance from the government”.
“We propose all assistance (to be channelled) through chambers of commerce and industry associations. Get them to play the role. Perhaps the government can focus on a few key associations,” he said.
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz had said that the government would put a strong emphasis on nurturing Malaysia’s growth in the upcoming Budget 2022, with prioritisation given to MSMEs among others, as the country progresses further towards recovery and transition from the pandemic.
To date, the government has allocated RM6.1 billion worth of financial aid via the Prihatin Special Grant payments to assist over a million MSMEs since the COVID-19 pandemic hit the country in 2020.