Making the case for keeping SMEs afloat

PETALING JAYA: An economist has given warning that the government must ensure the survival of small- and medium-sized enterprises (SMEs), lest the failure to do so cause a “domino effect” on the economy.

Geoffrey Williams of Malaysia University of Science and Technology said SMEs were both buyers and sellers, buying supplies such as groceries, ingredients, parts and components for resale, while also being suppliers to larger companies.

Williams said if an SME folds, it won’t be able to buy from wholesale suppliers, and it will leave larger companies with fewer options to source their parts.

“The bigger companies might also go overseas so that’s a permanent loss to local suppliers,” he said, in response to a World Bank report on cash flow problems faced by SMEs.

According to the report, a median Malaysian company had only two months of cash flow left, while the average firm has about 4.9 months worth.

Williams said that generally, SMEs remain vulnerable despite Putrajaya’s assistance as they rely heavily on revenues. “So if they have no customers they have no income, it’s as simple as that.”

He added that SMEs hold very small cash reserves, “often no more than a few months”, while government initiatives had been far too small, such as wage subsidies, and far too complicated to apply for.

It has also been irrelevant to the needs of SMEs, such as offering e-commerce grants. “The most recent grants are only RM1,500 and that won’t cover even basic costs like rent.”

Williams called for unconditional support grants to be given to SMEs to be spent as they choose based on the needs of their businesses. “Let business owners decide for themselves.”

The Small and Medium Enterprises Association of Malaysia agreed that there would be a domino effect if SMEs collapsed.

The association’s president, Michael Kang, said: “If we fail, the whole supply chain will fail too.”

Smaller enterprises must be allowed to operate, to ensure the sector survives the Covid-19 crisis, he said. Otherwise it would negate the aid Putrajaya handed out in the past under the different initiatives.

“If we aren’t allowed to operate, there will be no cash flow. How will we survive?” he told FMT.

Kang had earlier this month warned that 50,000 more SMEs would be out of business if lockdown measures were to be extended another six months, and that about 100,000 companies have already ceased operations.

There was also the possibility that if SMEs were to fold, it would increase unemployment, especially in the manufacturing sector, he added. – FMT

by Sean Augustin

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