FMM: Next 6 months months critical for manufacturing sector

by NUR HANANI AZMAN / pic by RAZAK GHAZALI

About 42% of respondents from the manufacturing sector in The FMM-MIER Business Conditions Survey plan to retrench 10-20% of their staff next year.

FMM president Tan Sri Soh Thian Lai (picture) said as of July 2020, 17% have already reduced their headcount by 10-30% while 25% will carry out this exercise in the remainder of this year on up to 30% of their employees.

“They do not need so much manpower as manufacturing output has been reduced due to the new normalcy and standard operating procedures (SOP).

“One of the ways to reduce cost is to cut down manpower,” he told a press conference after chairing the FMM-MIER Business Conditions Survey for the first half of 2020 briefing on Wednesday.

The survey, which drew 549 respondents nationwide, was conducted from July 2 to July 31, and tracked business confidence via the FMM-MIER Business Conditions Index (FMM BCI) covering the actual performance in 1H20 and outlook for 2H20.

Reduction in manpower costs was necessary for 66% of the respondents in 1H20.

The most popular cost reduction measures adopted by most of them were, namely, headcount freeze, removal of non-contractual allowances and benefits, and elimination of part-time manpower or outsourcing.

Soh said capital expenditure (capex) and hiring in the manufacturing sector are expected to slow down further in the coming months.

“Declining for the third consecutive survey since 2H18, the indices for expected capital investment and expected employment dropped to 83 and 93 in the current survey, respectively.

“Nineteen percent of the respondents are planning to increase their capex soon, while another 36% are contemplating lowering theirs, compared to 24% and 19% in the preceding survey, respectively,” he said.

According to the FMM-MIER Business Conditions Index, which tracks the Malaysian manufacturing sector’s business confidence, the index for expected business activity for 2H20 fell to its all-time low of 76, down below the growth-neutral threshold level of 100.

The index for expected business activity for 2H19 was 101.

That indicates that business activity will be scaled down in the coming months.

The survey also showed projections on local and export sales in the next six months dropped to 71 and 69, respectively, both down from 101 in 2H 2019.

“Production volume index fell to 78 for 2H20 from 105 in 2H19, while capital investment index also dipped to 83 from 108 in the same period last year, with 36% contemplating lowering their capital expenditure for 2H20,” it said.

Based on the survey, 34.2% of respondents believed that their companies will be able to sustain their businesses for more than 12 months while 2.2% are already winding down.

To assist the business recovery in the country, Soh urged the government to extend the blanket moratorium until December 31 this year to solve the cash-flow problem among the businesses.

“The targeted moratorium only focuses on micro and small-and-medium enterprises.

“Some of the mid-tier companies are listed companies, so they would be excluded from the target moratorium group,” he said.

He believed that banks have sufficient liquidity to reintroduce the blanket moratorium until year-end, so that businesses have enough cash flow to avoid retrenchment.

Soh also urged the government to conclude the Regional Comprehensive Economic Partnership (RCEP) and ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) soonest, as well as look for non-traditional destinations as market expansion strategy for the local businesses.

He added that as the manufacturing sector contributed to about 33-35% of the gross domestic product, and manufacturing products accounted for 85-87.5% of the total exports of about RM800 billion annually, the government needs to give more focus on the manufacturing sector for it to continue generating more income for the country.