Entrepreneurial activity is a pillar of economic performance and a key competitiveness factor, says economist
by SHAZNI ONG/ pic by MUHD AMIN NAHARUL
MALAYSIAN Rating Corp Bhd (MARC) hopes more initiatives aimed at easing the costs of doing business in Malaysia, especially for the small and medium enterprises (SMEs), are introduced in the upcoming Budget 2020.
MARC chief economist Nor Zahidi Alias said this is necessary as Malaysia, considered a commendable number 15 out of 190 economies in the World Bank Doing Business Report 2019, was ranked at number 122 in terms of starting a business.
Nor Zahidi added that it is important to note that entrepreneurial activity is a pillar of economic performance and a key competitiveness factor.
For SMEs, MARC foresees continuous efforts to create a more conducive ecosystem that includes appropriate policymaking, logistics support and export programmes.
This is due to the fact that SMEs contribute as much as 37% of GDP and make up more than 98% of business establishments in Malaysia.
“SMEs are typically more dependent on their business ecosystem compared to large companies, hence, more needs to be done to enhance their competitiveness other than just assisting them in getting access to financing,” he noted in an MARC economic research report titled “Pre-Budget 2020: Sharing the Prosperity of the Nation” yesterday.
Nor Zahidi added that the rating agency anticipates more measures to be introduced to address unique problems faced by micro-enterprises which include access to financing, human resources availability and business operations.
“Realising the importance of SMEs in ensuring a more balanced economic growth and shared prosperity of the nation, we believe that additional measures will be introduced to address the unique problems faced by micro-enterprises,” he added.
Comprising about three-quarters of SME establishments, micro-enterprises face a different set of challenges including access to financing, human resource availability and business operations.
Unlike larger establishments, MARC noted, their concerns are more of cashflow management and day-to-day business survival. Hence, they require a whole different ecosystem.
Nor Zahidi said there is room for the introduction of more initiatives on Industry 4.0 and steps to overcome Malaysia’s premature deindustrialisation in Budget 2020.
“While the transition process has slowed, it is nevertheless a wake-up call to strengthen the manufacturing sector. MARC expects the initiatives to also include programmes aimed at increasing collaborations between public and private sectors and increasing the pace of technological adoption,” he said.
The rating agency does not foresee the government to be too stringent in setting the budget deficit target for Budget 2020, against a backdrop of deteriorating global economic prospects.
Raising necessary development expenditures that are required to defend economic growth will be priori-tised over achieving an unrealistic budgetary target in the short term.
This is especially true when government revenue will likely be affected by softer global crude oil prices, the rating firm said.
“We foresee continuous efforts by the government to rationalise operating expenditure (opex). In the first half of the year, opex rose by roughly 6% and accounted for 48% of the whole year’s budget of RM259.9 billion,” Nor Zahidi noted.
“In this regard, there will be concerted efforts to reach out to targeted groups more efficiently, through a more comprehensive database. Allocations will continue to be on a needs basis, rather than across the board. Similarly, reducing financial leakages will be carried out through greater transparency of procurement processes,” he said.
Nor Zahidi does not anticipate new major taxes to be imposed at a time when economic growth is below trend, but suggested that the main way to increase revenue will be through greater efficiency in the collection of taxes.
Some positive results have been seen such as direct tax collection grew by 12% in 2018 despite a moderation in economic growth from 5.9% to 4.7%.
Going forward, with the impending implementation of the digital tax in 2020, the government could diversify its revenue base in the future, he stated.
Oil-related revenue will remain decent in 2020 based on the average medium-term oil price projections of between US$53 (RM222.07) and US$67 per barrel.
“We foresee the government budget deficit ratio to decline to 3.2% of GDP in 2020 from 3.4% in 2019,” he said.