The impact of Covid-19 on the Small-Medium Enterprise (SME) businesses in Malaysia

Small-Medium Enterprise (SME) businesses are the backbone for most developing countries and Malaysia is no exception. According to the Department of Statistics Malaysia (DOSM), SME contribution to Gross Domestic Product (GDP) in 2019 increased to 38.9% from 38.3% in the previous year, reaffirming their role as an integral part of the Malaysian economy. SME has also provided 7.3 million job opportunities to people in 2019 and the employment rate has steadily increased over the years. However, following the outbreak of Covid-19 from March 2020, the fate of thousands of SMEs is at stake, putting the national economy in jeopardy if measures are not taken sooner than later.

Based on SME insights 2019/ 2020, following the first implementation of MCO in March 2020, the Malaysian economy witnessed a 17.1% contraction in the second quarter of the year. Since then, the country has gone through multiple movement control restrictions ranging from FMCO, CMCO to EMCO that we could barely keep count of them. Supply shock and steep plummet in demand following the implementation of the movement control order have largely impacted the revenue of SMEs with about two-thirds of them not generating revenue last year according to a survey.

Figure 1: Contribution of SMEs to various aspects of Malaysian economy in 2018.
Source:https://www.dosm.gov.my/v1/uploads/files/6_Newsletter/Newsletter%202020/DOSM_BPPD_2-2020_Series-59.pdf

Based on a survey conducted by Ernst and Young including 670 correspondents comprising of SMEs and large and listed companies, key challenges across five areas were evaluated. The key aspects and two main challenges in respective areas are:

  1. Financial:  Delay in receivables, delay in payments to vendor
  2. Customer: Fall in demand, insufficient access to customers
  3. Technology: Communication constraints with suppliers/ customers, connectivity issue to work from home (wfh)
  4. Supply chain: Delay in fulfillment and delivery, delay in receiving supplies
  5. People: Downtime in operations, delay in tasks completion

In October 2020, the SME Association of Malaysia reported that one-quarter of SMEs are facing the risk of closure if the pandemic is not curbed well, putting thousands of jobs in jeopardy. This is particularly alarming provided that our countries unemployment rate is approaching 5% which is why it is crucial to implement appropriate relief measures and to support transformational programs to protect SMEs and hence the national economy. To tackle these crippling problems of SMEs, the government has to come up with policy interventions to foster SME resilience.

Financial support

Liquidity in the financial system is key in the survival of SMEs given the current situation. Persistent support from banks are in need now more than ever to assist SME with their cash-flow problem due to inconsistent business condition following indefinite restrictions as a measure of pandemic containment. The moratorium, tax relief/reductions, and grant aids are some of the policies that the government can exercise to improve the financial liquidity of SMEs. New loan schemes for affected businesses will largely assist in the recovery of businesses. Countries like Austria, Croatia and Japan have introduced specific Covid-19 loan funds with more favourable terms and reduced interest rates for SMEs that are especially affected by the pandemic.

Teleworking and Digitization support

Facilitating digitization and automation for many SMEs are important to perpetuate their businesses. Online training programs, funding to encourage digitization, and accepting digital transactions for clearances or banking transaction will assist SMEs to adapt to digital transformation. Special efforts by the government in finding new sales channels and digital solutions will ease the challenges faced by SMEs in adopting teleworking and digitization. Initiatives like “Digital Team Austria” and “Digital Solidarity” in Italy are some examples of efforts that will ease the digitization process of SMEs. Enforcing strict data protection policies and empowering cyber security is also equally important to improve the public trust of digital platforms to enhance digital consumerism.

Effective Covid-19 containment policies

Ideally, the return to normalcy is what will restore the economic stability and quality of human resource. Hence, it is paramount for the government to implement containment policies that are effective, to expedite achievement of herd immunity, and to equip the healthcare system with required support to overcome the pandemic. Expediting vaccination of economic frontliners should be given more importance to curb the workplace clusters and to allow opening of more industries safely.

The world has certainly turned upside down ever since the introduction of coronavirus in end of 2019, normalcy has been given a new definition and humanity has been challenged like never before. Covid-19 will definitely be part of our history for the coming centuries for the health and economic impact that it has impinged not just in Malaysia but worldwide. However, if there is one takeaway message from this battle that we are still fighting is the fact that we will always need each other to get through the toughest of times. As a community, it is our obligation too to support the small and medium businesses to ensure their survival. In other words, we have to help SMEs for them to help us by uplifting our economy.

By: Thanusha M Ganesan

Resources

  1. DOSM 2020, https://www.dosm.gov.my/v1/uploads/files/6_Newsletter/Newsletter%202020/DOSM_BPPD_2-2020_Series-59.pdf
  2. SME Insights 2019/2020, https://smecorp.gov.my/images/pdf/2021/LTPKS/BI/Main%20Report/6.%20SME%20Insights%202019-20%20-%20Special%20Highlights.pdf
  3. Penang Institute, https://penanginstitute.org/publications/issues/helping-smes-rise-to-challenges-posed-by-the-covid-19-pandemic/#ftn2a
  4. EY, https://www.ey.com/en_my/take-5-business-alert/covid-19-impact-on-malaysian-businesses
  5. OECD, https://read.oecd-ilibrary.org/view/?ref=119_119680-di6h3qgi4x&title=Covid19_SME_Policy_Responses&_ga=2.189669099.1332036969.1627015710-327673469.1627015710

Thanusha M Ganesan is a content writer under Headliner by Newswav, a programme where content creators get to tell their unique stories through articles and at the same time monetize their content within the Newswav app.
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Thanusha
Author: Thanusha

A scientist, a writer and a caffeine-dependant being!