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Malaysia’s Forthcoming Election – what will the impact be on SMEs?

A democratic election in any country involves uncertainty. A “spark of inspiration” is what Malaysian Prime Minister Dato’ Sri Haji Mohammad Najib bin Tun Haji Abdul Razak is waiting for to call the 14th general election, sometime before August. “I am waiting for some sort of spark of inspiration, or ‘ilham’ as the Malays would say, to find a date,” he said after chairing an Umno Supreme Council meeting. With positive economic indicators, a buoyant stock market and strengthening Ringgit what could be the impact, if any, on SMEs?

Status Quo

Maintaining the current state of affairs involves controlling economic, social and political key drivers in Malaysia. Positive indicators help any incumbent Government to convince voters that they are in firm control, are doing the best they can and are on the right path for the country. Sustainability is a harder case to prove. Over the last few years the weakening Ringgit has hit Malaysia, and many SMEs, hard. There have been winners and losers with export driven SMEs facing lower earnings and import driven SMEs reaping the benefits of greater purchasing power. A short-term strengthening of the Ringgit must be proven to be sustainable for SMEs, and the Rakyat, to have confidence in the future. A surge in the Bursa Malaysia since last year continues to indicate the rise in optimism about growth in Malaysia, forecast at 5% this year, but with major short-term risks mainly coming from external factors; protectionism and geo-political shocks in the Middle East and Korean peninsula, how long-lived will this be? With the oil price rebound the market price is set to return to a sustainable level but with capital projects still on hold and investment waiting on the sidelines how long will it be before output normalizes?

 Constraints on SME Growth

Currently, there are several key constraints on SME growth in Malaysia. “SMEs may need more reassurance of the continuation of positive momentum in their business prospects before actually undertaking capital investment projects. Most of their expansion for now is expected to take place through more hiring activities and increased capacity utilisation,” said one expert, adding, “The main problem that is hindering SMEs from expanding is shortage of labour; though the government announced incentives for SMEs in Budget 2017, there is lack of support when it comes to labour.” In the wake of numerous changes in development policies in Malaysia, SMEs first had to deal with the repercussions from GST, and then there was the freezing of foreign labour and most recently the shift of foreign worker levy payment to the employers. All these, coupled with a weak ringgit, add to the cost of doing business for SMEs. The SME expert continued, “Yes, we may have better access to bank financing compared to the corporates, but expansion is stagnant for SMEs due to the shortage of manpower.”

The impact of an election is unlikely to change significantly the supply of foreign labour to SMEs in Malaysia so costs may continue to rise. Existing projects are less likely to be affected by a new government than the ensuing changes in underlying relationships.

Further obstacles to SME growth may include a new, higher minimum wage. Moves are being made to close the minimum wage gap for the private sector whereby it is RM1,000 in Peninsular Malaysia, and RM920 for Sabah, Sarawak and Labuan. “We know that the minimum wages order must be reviewed at least once in two years. The review will look at the ability of the employer to pay the minimum wage which is a responsibility that is very challenging to ensure that the minimum wage policy meets all objectives,” said a spokesperson for the National Wages Consultative Council (MGPN) adding, “The setting up of a group of wage and minimum wages researchers will have a positive effect which will allow the government to provide adequate social protection to workers throughout the country. The enforcement of the minimum wage is an important aspect which will benefit the employees especially those with low income in the B40 category.” For SME owners the impact of an election is unlikely to have a significant effecst in on-going policy revisions.

The SME Vote

‘Transformasi Nasional 2050’ or TN50 is an initiative to plan for the future of Malaysia in the period 2020 to 2050. With SMEs making up a significant proportion the business community in Malaysia the SME vote is significant for the current Government. Keeping SME owners happy should be a key object for the current or future government and SMEs have received considerable attention from the current government which has set aside RM20 billion under the 2018 Budget for development purposes of the industry. The International Trade and Industry Minister Datuk Seri Mustapa Mohamed said, “Statistics are being gathered but SME industry has never received such a massive allocation in history.” One example of the current commitment to SMEs is that the SME Corp has been given a RM200 million allocation for training, promotional and financing programmes.

The aspirations of SME owners to flourish in a developing country can be managed by lowering uncertainty and creating stability through sound economic policies. Winning an election may involve reassuring SMEs of the continuation of positive momentum in their business prospects that will encourage them to restart and undertake new capital investment projects. Real good words from the government, be it existing or new, may have this impact on SMEs.

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Paul Conway
Paul Conway
My role as CEO is to take the business to the next stage of growth. I already have a fantastic and growing team. There are opportunities with payments, banking channels, additional software, cloud deployment and with over 300,000 customers in South East Asia and a publicly listed majority shareholder in Censof holdings, the opportunity and tools for growth are very real.

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