Not out of the woods yet
Small businesses still face the challenge of slow sales and worker shortage
THE announcement of a moratorium extension and targeted bank assistance this past week would provide some breathing space for businesses as companies continue to find their footing in the new normal.
With retail sales picking up, having some clarity on what to expect once the six-month automatic loan moratorium ends on Sept 30 would have brought relief to some.
Nonetheless, the challenges for SMES are far from over.
Revenues have not recovered proper and many are still adjusting their operations to meet new market requirements.
“SMES are slowly building up but I am worried because they can’t catch up on sales. People are still not really spending so they haven’t recovered their pre-covid sales.
“They technically just restarted business in June. Let’s not count May because movement control was still tight at that time. And in June, they still need to restructure and realign their business, deal with stock, recover old payment and all that.
“So maximum, they may recover about 50% of sales, some only 20%. They need at least six months to rebuild their business. But if the economy doesn’t pick up, and if the government tightens control again because Covid cases are going up, I think it will be challenging for a lot of them,” says SME Association of Malaysia president Datuk Michael Kang.
While the targeted assistance from banks will be of help, small businesses still have to contend with their business costs.
Even now, under the moratorium period, many of them find it difficult to cover their expenditures. They still have to pay for rentals as Kang notes that many landlords were only able to reduce rent for two months. There are also other ongoing expenses including statutory payments.
And with the fourth quarter just around the corner, companies will have to factor in other costs such as bonuses, increments, expansion budgets and so on.
Additionally, most would have exhausted their reserves.
Kang estimates that 10%-20% of SMES that have bank loans had opted out of the moratorium as they were still operating their business through the movement control order (MCO) and preferred to continue paying their loans to avoid extending their interest payment in the long run.
On April 1, when the government implemented the moratorium, it was expected to benefit 7.7 million individual borrowers and over 243,000 SMES. In July, 601,000 individuals have begun to pay their debts in full compared with 331,000 in April and 13,000 SMES have done the same in July compared with 5,000 in April.
But if business does not recover, Kang foresees that many small firms will opt to extend their financing, particularly those in the tourism and retail sectors.
Economists are looking at negative growth for Malaysia’s gross domestic product (GDP) this year. Consequently, SME GDP growth is expected to take the same route.
Bank Islam expects SME GDP to decline by -1% in 2020 (Malaysia: -1.5%) before rebounding to 4.5% (Malaysia: 3.5%) in 2021 and 5.8% (Malaysia: 4.7%) in 2022.
In 2019, Malaysia’s SMES GDP grew 5.8% compared to 6.2% in 2018.
To cope with slow sales, SMES may find that they’ll have to trim more fat. But Kang points out that they cannot afford to keep cutting staff as most of them are already running on a lean team.
“They already face shortage of staff. If they have to cut some more, they can’t run the business,” he says.
Worker woes
The lack of workers has been a pressing issue for most SMES for some time now, particularly since the government started efforts to reduce reliance on foreign workers.
With the rise of the pandemic, the issue has become even more critical. Businesses are finding it difficult to get sufficient workers as a lot of the foreign workers had left when the pandemic started.
“It is very hard to get locals to fill those positions. Most don’t want to work even if there is a 20% salary increase because they are worried about safety,” adds Kang.
In June, the government said there would be no new intake of foreign workers in all sectors until year-end as locals would be given priority to fill vacancies. Last Wednesday, the Deputy Human Resources Minister said hiring of foreign workers will only be allowed in three sectors – construction, agriculture and plantations.
The revelation has not gone down well with the industry.
“The industry is shocked by the announcement by the Deputy Minister of Human Resources (on Wednesday) on the decision of the government to limit foreign workers to only construction, plantation and agriculture sectors once the freeze on employment is lifted next year.
“The announcement which is very sudden and lacks details on the mechanism of implementation was also done with no stakeholder consultation which is most unacceptable and disappointing to the business community.
“The government has not given due consideration to the significant impact on business sustainability and the socio-economic consequences of this announcement particularly now in the current depressed business climate,” says Federation of Malaysian Manufacturers (FMM) president Tan Sri
“For most companies, overall business activities including sales both domestic and exports for the next six months is still expected to be low as they continue with their business revival and recovery.” Tan Sri Soh Thian Lai
Soh Thian Lai in a statement.
While manufacturers are encouraged to ensure that vacancies are filled with locals, FMM notes that the sudden announcement would put the manufacturing sector at a great disadvantage and would cripple most of the manufacturing sector in the country, including the exporters who are one of the main revenue contributors to the economy.
“The decision to limit foreign workers to only the three sectors once the freeze is lifted would be most detrimental considering that manufacturers continue to contend with the impact of the challenging economic conditions due to the Covid-19 pandemic.
“Businesses are still reeling from the impact of the Covid-19 pandemic and the lockdown and are working on rebuilding their operations. As it stands now, for most companies, overall business activities including sales both domestic and exports for the next six months is still expected to be low as they continue with their business revival and recovery.
“Business recovery may take anything between four months to two years depending on the sectors and impact that Covid-19 has had on the business. Supply chains continue to be impacted with delays in deliveries from suppliers and with shippers experiencing increase in logistics and shipping costs, increase in raw material prices as well as shortages in supply.
“By abruptly stopping the hiring of foreign workers, supply chains will be disrupted as local workers tend to avoid jobs with manufacturing processes that are more challenging in nature despite the offer of higher wages. Hence, business sustainability and jobs are at stake, even for local workers,” says Soh.
He adds that any change to policy should be made in discussion with stakeholders and carried out in a gradual manner to allow companies adequate time to adjust.
“The industry recognises the need to upgrade business operations to be more mechanised and consequently, to reduce dependence on low-skilled foreign workers.
“Considering that manpower cost is at least 20% of operating costs, market-based mechanisms would drive industries to make their business decisions on stepping up investments in automation to reduce the use of manpower, especially foreign workers,” he notes.
FMM has been advocating a move towards a well-planned market-based mechanism for foreign worker hiring via the multi-tier levy mechanism where foreign worker levy would be based on the number of foreign workers employed as a percentage of total employment in a company and increased gradually.
Soh also reckons that this mechanism should be pre-announced at least three years ahead of the deadline, among other criteria.
Clearly, there is some way to go before issues are smoothen out for a robust market to emerge. Till then, businesses will have to rely on their resilience and agility to rough out the choppy waters.