Providing a conducive ecosystem
Policy needs to look into areas that will support the development of a strong network for SMEs
THE government has set some goals for the SME sector. The numbers are familiar: 41% contribution to gross domestic product (GDP), 23% to total exports and 65% of overall employment by 2020.
But with new trends and technology developments taking place, the government may need to look into amending policy or strategies to ensure that the policy environment remains conducive to helping SMEs meet the targets.
“We have to assess further. There is an impact when we talk about digitalisation or the adoption of technology. For example, when we talk about using artificial intelligence (AI), it may reduce labour (and affect SMEs’ contribution to employment). So there must be a balance between adoption of technology and innovations against employment. We have to pace ourselves when it comes to adopting technology to achieve the growth we want,” says Entrepreneur Development Minister Datuk Seri Mohd Redzuan Yusof.
He was speaking at the National ASEAN SME Policy Index (ASPI) Dissemination Seminar.
He also notes that Malaysia needs to further identify highgrowth sectors to invest in to ensure that our local businesses remain competitive.
“And based on that, we can define our priorities and measure what needs to be done to spur the growth of SMEs in this country,” he adds.
He points out that “high-growth” is defined as having sustainable growth of 20% over three years.
According to Redzuan, in 2017, SMEs achieved 37.1% contribution to GDP and 17.3% of exports. The sector made up 66% of the country’s employment.
“Malaysia’s economic future hinges on the growth of SMEs. Therefore, the government is committed to develop and empower SMEs by providing a more conducive ecosystem.
“To further promote SME development in Malaysia, ministries and agencies as the policy makers and implementers, will need to benchmark our policy framework with the Asean countries,” he says.
In this context, ASPI serves as an assessment tool to benchmark our policies and practices against that of the region and globally.
The Policy Index covers eight areas of SME policy: productivity, technology and innovation; environmental policies and SMEs; access to finance; access to market and internationalisation; legislation, regulation and tax; institutional framework; entrepreneurial education and skills; as well as social enterprises and inclusive SMEs.
Malaysia has generally scored well on the Index, exceeding the median score for Asean in all eight areas.
Singapore takes the top spot in most areas.
The report, published by the Organisation for Economic Co-operation and Development, notes Malaysia’s stride in the area of entrepreneurial education and skills. But there is more room for growth as we lack behind Singapore and Indonesia.
Malaysia scored 5.05 (Asean: 3.78) in productivity, technology and innovation, 5.08 (Asean: 3.45) in environmental policies and SMEs, 5.35 (Asean: 4.15) in access to finance, 5.43 (Asean: 4.55) in access to market and internationalisation, 5.86 (Asean: 4.20) in institutional framework, 4.71 (Asean: 3.43) in legislation, regulation and tax, 4.58 (Asean: 4.27) in entrepreneurial education and skills, and 4.00 (Asean: 2.77) in social enterprise and inclusive entrepreneurship.
“The most important thing is to improve on certain areas which we are slightly lacking behind other countries such as legislation, regulation and tax, entrepreneurial education and skills as well as social enterprises and inclusive SMEs,” says the Minister.
However, independent advisor on SME policy Antonio Fanelli cautions that the Index is not meant to be a “beauty contest”. Instead, the focus should be on fostering a clear ecosystem that supports SMEs.
“It is the overall picture that matters and how the other parts compliment the bigger picture. Malaysia is doing very well. It has a different economy from Singapore, hence the difference in policy.
“But what is important is to address the challenges that the country is facing. One of the main issues is that entrepreneurship is changing quite a lot because of the introduction of new technologies, which makes size no longer relevant and which makes the services sector more important.
“What is relevant to the development of SMEs is the ecosystem – the ability of the enterprise to rely on a number of suppliers and service providers – that will allow SMEs to grow without having to grow in terms of size. They won’t need to grow in size because they can pick up what they need from this network.
“And this is challenging for governments. Few centres around the world are able to build up this kind of environment. A lot of traditional
suppliers are not sufficient because of the differences in the system,” notes Fanelli.
The Index will enable countries in the region to learn from one another as barrier for SMEs are generally similar in most countries, namely, red tape, outdated regulation, and lack of access to financing and technology.
Nonetheless, Malaysia has done well with its regulatory reforms and further improvements will push the country forward in the region.
Malaysia, observers note, has developed some good policies, but gaps remain in the delivery structures.
As Malaysia work towards attaining its high-income nation status, he adds that growth needs to be driven by productivity gains rather than by labour.
Redzuan further emphasises that Malaysia needs to capitalise on its skillsets to go further in our technology adoption to increase productivity.
“Adoption depends on whether the market is ready to accept the digitalisation of our economy. I think we are ready. The technology enablers are ready. But whether the adopters or SMEs are ready or not, it has to be through a series of awareness and training,” he says.
According to reports, SME Corporation Malaysia is partnering the World Bank to also make local SMEs more relevant in the global economy by adjusting to the current trends.
Chief executive officer Noor Azmi Mat Said said SME Corp was in the midst of gathering data of the SMEs to be shared with the international financial institution.
“The World Bank does research and studies regularly. By sharing data, it will enable the World Bank to measure our participation and results of the various communities of the (SME) industry.
“In our recent SME Input-Output Table, we have identified about 10 sectors for the National Entrepreneurship Framework, such as rails and green tech. It is very tech-heavy, but we have a base of companies who are ready to look into this area. We just need to create more awareness and increase their desire to go into this,” says Azmi.
However, Redzuan notes that whatever methods are carried out to help the SMEs, it is important not to forget the impact of development on climate change and to ensure that the B40 group is not left behind.
As a way forward, the Ministry of Entrepreneur Development is in the midst of devising new strategies and policy interventions to drive SME as part of its strategy to elevate entrepreneurship development by 2023, as envisioned under the National Entrepreneurship Framework launched last November.
The ministry is also looking to launch the National Entrepreneurship Policy in the second quarter of the year.
“We will also look into aligning local SMEs to the megatrends and Industrial Revolution 4.0 to accelerate growth. This will be achieved through a two-pronged strategy approach for high growth and innovative firms as well as micro-enterprises.
“These include ramping up the creation of high-growth and innovative firms trough targeted assistance in automation, mechanisation, digitalisation and robotisation. For the micro-enterprises, the focus will be on increasing their productivity and contribution to the economy,” says Redzuan.