To remain competitive, the govt’s Budget 2024 must ensure easier accessibility of grants to SMEs
by NURUL SUHAIDI / pic MUHD AMIN NAHARUL
GIVEN that SMEs and the business community continue to face ongoing challenges, it is imperative to incorporate adjustments, evaluations and feedback mechanisms into Budget 2024 to enable them to gauge their progress and maintain a competitive edge.
In the previous budget, the government pledged its commitment to support local businesses regaining their competitive edge and enhance business capabilities through offerings such as financial grants and tax reduction.
While the allocation has been helpful for particular businesses, SME Association Malaysia VP Chin Chee Seong said Budget 2023 has not been beneficial for SMEs as most of them are still facing challenges, due to delay in loan and grant approval.
“SMEs had high hopes that the government would focus on bolstering the economy to combat inflation and minimise the cost of living.
“However, owing to unfavourable political conditions and a sluggish global economy, SMEs have faced significant challenges during the first half of 2023 (1H23),” he told The Malaysian Reserve (TMR).
Chin noted that approximately 50% of these businesses have experienced subpar performance, with many struggling to sustain their operations.
“Even in the recent months of July and August, the overall business environment remained sluggish and unfavourable,” he added.
While the allocation of a specific budget for these initiatives varies depending on the country’s economic situation and current SME needs, Chin believed that improving the financial access aspect should be a priority given the impact it brings.
This includes enhancing the accessibility to cost-effective financing solutions tailored for SMEs, encompassing low-interest loans, venture capital funding and sector-specific grants, as well as streamlining the loan application process and expediting approval procedures.
Improving financial access should be a priority in the upcoming budget given the impact it brings to SMEs, Chin says (Pic courtesy of Chin)
Enhance Digitalisation Efforts
Although the government and private sector have been committed to aiding SMEs’ digitalisation, he said the support to foster the adoption of digital technologies and e-commerce platforms among SMEs is still lacking.
“The government can offer financial incentives and subsidies to encourage SMEs to invest in digital technologies like automation, data analytics and artificial intelligence, with the aim of boosting productivity,” Chin said.
Additionally, offering incentives and subsidies specifically for digitalisation and facilitating tech collaborations between start-ups and tech providers can help SMEs to improve their access toward the technology infrastructure.
While doing so, he believed the effort must continue in establishing business incubators and innovation hubs to create environments where start-ups and SMEs can access conducive mentorship, workspace and resources for their development and expansion.
Budget 2024 Wishlist
As for Budget 2024 wishlist and allocation, he proposed the government to reduce the company tax for SMEs as it would allow them to expand their business.
Chin added that reintroducing the Goods and Service Tax may help the government to increase its income to create more government projects.
“At the same time, the government could also allocate more grants to assist SMEs such as by providing low-interest rates of 2%,” he added.
In addition, by facilitating a private and public partnership not only can create a more inclusive and supportive environment for SMEs, it also enables them to participate more actively in government activities and contribute to economic growth and innovation.
“For example, to widen the participation of SMEs in the public sector, the government can dedicate a portion of their contracts to smaller businesses to help them secure a more stable source of income and stimulate their growth,” Chin said.
As the budget must be clear of burden, he said reviewing the current regulatory framework and simplifying the regulation is needed to reduce compliance burden among SMEs, through providing frameworks that are clear, concise and business-friendly including to the business community in the rural region.
“Upgrade physical and digital infrastructure in rural regions to mitigate economic disparities and generate opportunities for SMEs operating in these areas,” he added.
Ng says the path of Budget 2024 must reflect a way that increases funding to help SMEs become more self-sustaining (Pic courtesy of Ng)
Build Self-Sustaining Entrepreneurs
Meanwhile, Small and Medium Enterprises Association of Malaysia (Samenta) president Datuk William Ng said the path of Budget 2024 must reflect a way that increases funding to help SMEs become more self-sustaining, rather than creating a generation of “grantpreneurs” that may impede their efforts to prosper on their own.
He highlighted that most grants are not inclusive as it only benefits a small number of businesses at the expense of building a sizable number of SMEs that are independent and can operate at a wider span of the value chain.
“We have been caught in the low value, low margin trap for far too long because of our inability to move up the value chain,” he told TMR.
Because of this, many SMEs continue to be reliant on low-cost labour, while in reality most of the businesses can no longer compete on the basis of low cost or on being labour-intensive.
In terms of cash assistance to the people, Ng said even if the government must provide cash to certain income groups, such hand-outs must be made usable only with local retailers or food and beverage players to enable the cash remains locally.
“In the past, we have allowed unlimited use of these handouts, which benefitted among others, foreign-owned marketplaces and foreign dropship operators selling sub-par products to Malaysians. That has to stop. Keep the cash circulating within the local economy,” he said.
As such, he added that Samenta’s wishlist for Budget 2024 are based on three core principles —fostering independent SMEs, upgrading the SMEs in the value chain and narrowing the financing gap for a competitive SMEs environment.
In building self-sustaining entrepreneurs, he said the government can transition the SME assistance from direct grants to matching grants, low-interest loans and financing guarantees to ensure government assistance can reach as many SMEs as possible and eliminate “grantpreneurs” and grant-leakage.
He also believed that it should be made mandatory for businesses to register with relevant agencies such as the Companies Commission of Malaysia, Malaysia External Trade Development Corp and SME Corp, to ensure assistance can be disbursed based on data and suitability and to eliminate intermediaries.
“We need to empower trade associations to provide mentoring, business information, linkage to government programmes and capability-building activities by providing matching grants for association activities,” Ng said.
When it comes to improving the value chain, he said emphasis must be placed on developing internal capabilities that will help the company remain competitive on a global scale such as the capacity to supply other countries’ businesses through intense matching and capability-building initiatives.
Meanwhile, to enhance competitive advantages and the image of a particular business, he said the government must encourage them to invest in research and development through a matching grant of up to RM50,000 and collaborating with industry and subject experts, patent licensing as well as academicians.
“For example, encourage SMEs to upgrade their packaging design through matching grants of up to RM20,000 while supporting our creative and gig economy,” he added.
Overall, the budget must also consider ways to attract skilled employees while improving lives so that businesses are not operating through cheap labour.
In that regard, Samenta suggested the government assist SMEs in employing skilled local workers through joint financing by sponsoring the technical and vocational, education and training fees for the bottom 40% income families.
As businesses are also facing pressure to contribute positively to the environment, Ng said RM2 billion can be allocated for low-interest loans with a limit of RM1 million per eligible company.
“This can assist them to transition to low-carbon operations, including the purchase of new machinery, plant upgrade, consulting fees, training and certification costs,” he said.
In addressing the issues of financial access, he believed in providing loan guarantees for up to RM10 billion with guarantee costs capped at 0.5% for eligible SMEs for the purpose of operational upgrades and working capital.
Lastly, he said a 2% tax reduction for the first RM300,000 taxable income is also beneficial to reinvesting these savings in business development.
Masfara stresses that providing training and support for high-impact talent in SMEs and giving grants on time is crucial (Pic courtesy of Masfara)
Meanwhile, Diet Ideas Sdn Bhd founder and CEO Masfara Wahidah Abdul Rahman viewed the previous Madani Belanjawan budget as friendly to SMEs.
However, she said more efforts and execution are needed to ensure the budget is able to meet the majority of the SMEs.
“For example, to ensure the target is reached, a minimum target in terms of percentage needs to be considered, such as 90% of SMEs in Malaysia are benefitted from this budget,” she told TMR.
For Budget 2024, she believed more allocation is needed to enhance the access to finance and supporting the talent.
She also hoped that more funding was available for early-stage start-ups in the area of technology to fuel innovation and improve traction.
Immediate and Long-Term Efforts
With SMEs contributing to the stable economic growth in a country, immediate and long-term efforts must be in place to ensure they remain competitive, subsequently supporting the national aspiration.
To remain competitive, she said the government must ensure there are many grants accessible to the SMEs.
Additionally, providing training and support for high-impact talent in SMEs and giving grants on time is crucial to improve the business matching and digitalisation aspect, she added.
“It is not easy to compete with large corporations without the help of the government as there are already many large corporations who have monopolised in certain sectors of industries,” Masfara said.
In terms of allocation for productivity such as employee consultation, training or certification, she said it was good for all SMEs, but the government has to ensure it reaches the targeted SMEs.
In this environment, businesses cannot run from challenges that can significantly impact their operations and viability.
Despite the challenges, she remained optimistic about business performance for the end of the year.
“We have taken measures to address the economic uncertainty and inflation by reducing the company expenditure and improving employee efficiency,” Masfara added.
- This article first appeared in The Malaysian Reserve weekly print edition