The banking community would prioritise companies which have good records with banks and financial institutions, says expert
by AFIQ AZIZ / pic by TMR FILE
SMALL and medium enterprises (SMEs) might find it harder to survive during these trying times amid the Covid-19 pandemic as a result of gaps and loopholes in the implementation of the government’s stimulus packages.
A new research paper by the Institute for Democracy and Economic Affairs (IDEAS) revealed that such gaps could take a toll on SMEs’ survival even during post-economic downturn caused by the pandemic.
The research, entitled “Post-Covid-19 Recovery: Building SME Resilience” — which covers businesses involved in the manufacturing, tourism and retail sectors — stated that working capital relief funds in the stimulus packages are “not friendly to SMEs”.
IDEAS director Laurence Todd, who presented the report virtually on Wednesday, said the banking community would prioritise companies which have good records with banks and financial institutions.
“For the disbursement of working capital relief funds and loans such as the Special Relief Fund, Penjana SME Financing and SME soft loan, private banks were given the liberty to assess and approve loan applications at their discretion.
“While the government expected that this decentralised method will accelerate the process, SMEs, however, found that private banks prioritised existing borrowers or larger firms, while businesses who did not receive the loans have to depend on their savings,” the report stated.
As a result, implementation gaps in the disbursement of working capital relief funds and loans have prevented many businesses from receiving the necessary funds.
In addition, the study also revealed that lack of conditions for the ePenjana cash distribution — an initiative to boost SME digitalisation — has resulted in much of the money distributed to consumers going towards established online businesses, rather than being funnelled to small or newly-established digital players.
On paper, everything looks ideal, especially with the government’s decision to implement a series of economic stimulus packages totalling RM305 billion last year to help cushion the shock and lay the foundation to revitalise the economy.
The relief includes multiple measures to help more than 900,000 SMEs in the country, employing some 7.3 million workers.
Within the first one week of the Movement Control Order (MCO) enforced in March last year, IDEAS said nearly 70% of SMEs have suffered, with more than 50% experienced drop in business.
At the same time, IDEAS is also of the opinion that the accessibilities of the short-term relief would not build a long-term framework needed to protect against future economic shocks.
“We saw some artificial cliffedges in who can access the support, which we don’t feel was in the spirit of what the support was trying to achieve.
“Gaps were created because of the way policies were crafted,” Todd said.
He proposed the government to explore more creative distribution strategies to ensure aid reaches its intended recipients, adding that greater flexibility is required to avoid businesses being left out due to mere technicalities.
While acknowledging the government’s robust encouragement towards digital adoption, Federation of Malaysian Manufacturers (FMM) council member Ter Leong Leng said measures are also needed to safeguard against physical disruptions during the pandemic.
“The government needs to understand the situation on the ground. Many manufacturers are still in IR2.0. So, to move towards IR4.0 is a huge process and a major transformation for them,” he said.
Echoing the sentiment, Todd said the same problem has also hampered the recovery and growth of the retail sector.
He said retail companies face much stiffer and more varied competition to go online, compared to the stores on the street in a brick-and-mortar setting.
Todd said the costs incurred on digital marketing and high commission fees charged by the e-commerce platforms have caused SMEs and micro-enterprises to shy away from adopting digitalisation.
He added that initiatives to get retailers onboard onto e-commerce have not accounted for major costs.
Additionally, some skills are also needed for a sustainable pivot towards digitalisation.
As for the tourism sector, Todd said the digitalisation initiatives by Putrajaya must also address the underlying structural challenges faced by SMEs in the sector.
Among others, small businesses are still afraid of competing in the marketplace.
He said this is due to the existing uneven playing field which undermines SMEs’ motivation to invest in innovations.
For instance, Todd said the competition between smaller players and larger online travel agents, such as Expedia and Traveloka, is stiffer due to the uncertainties caused by the pandemic.
Todd said most SMEs stated that the risk of investment is not worth taking, and that more stimulus packages are needed to tackle such setbacks.
On the recently announced RM15 billion Malaysian Economic and Rakyat’s Protection Assistance Package (Permai), Todd said the initiative may not suffice for SMEs.
“I think the recent Permai package is helpful, but the concerns are, it may not be sufficient, especially if the MCO is extended. I believe wage subsidies should be increased.
“Secondly, the package does not sufficiently address the longer-term challenges. So, I believe further stimulus measures will be needed to achieve this,” he said.
Meanwhile, the IDEAS report recommended the government to enhance the upskilling programmes, and Technical and Vocational Education and Training in producing graduates with the right skill sets.
The report also recommended a reform of burdensome regulatory practices, as many entrepreneurs are not recognised by the system and thus, cannot access aid.
According to Malaysian Association of Hotels CEO Yap Lip Seng, 85% of the association’s members are requesting a minimum wage subsidy of RM1,200 and above.
Alternatively, the hotel industry proposed a percentage-based subsidy based on pay level.
For example, employees with monthly pay of up to RM4,000 are allowed to get 50% wage subsidy, while the quantum of wage subsidy is reduced to 30% for employees with higher monthly payment between RM4,001 and RM8,000.
Yap said the hotel industry is expected to suffer a total loss of RM6.53 billion in 2020 on the back of low occupancy rates for hotel rooms.
As such, a larger subsidy is needed to help the industry sustain itself.
The World Tourism Organisation forecasts that the sector will take up to four years to return to pre-pandemic levels, depending on whether the cross-country travel ban is uplifted and the working on Covid-19 vaccination.