Chances are you are employed at a micro-, small- or medium-sized enterprise (MSME). Data show that MSMEs hire about 48.2% of the working population in Malaysia.
However, MSMEs accounted for only 38.4% of the GDP and 10.5% of exports in 2022. Policymakers see this as less than ideal in terms of labour productivity.
Among the 1.17 million MSMEs in the country, there must be some companies that would like to challenge themselves to grow, but many more are struggling to survive, which is the harsh reality of entrepreneurship subject to market demand.
There is a gulf between the performance of local MSMEs and their foreign affiliates (companies with foreign investors as majority shareholders), which show what a large capital, technological advancements, and an extensive global supply network can do for companies.
Foreign affiliates have only 2,087 establishments in Malaysia but contributed 17.7% of GDP in 2021. Local MSMEs have yet to return to their pre-pandemic GDP levels in 2022 but foreign affiliates had done so quickly in 2021.
In 2021, MSMEs employed nearly four times as many workers as foreign affiliates in the manufacturing sector. However, in terms of GDP output, foreign affiliates outperformed MSMEs, contributing 36.8% of sectoral GDP, which is 2.2% or RM8 billion more than what local MSMEs contributed.
If the government is concerned about MSME output and export performance, this is the sector where the government can focus its efforts.
It’s good to know that the government will prioritise SMEs in Budget 2024, as announced by Deputy Finance Minister II Steven Sim. Often, politicians seem more preoccupied with foreign direct investment.
The deputy minister showed practicality and sensibility in recognising domestic direct investment, particularly in the SME sector, as a crucial component of the country’s economic development.
Sim’s concern for SMEs is also evident in his statement that the sector requires significant support, especially from the government. He emphasised that the government would help make the sector more sustainable for the country’s economic growth, given the challenges many businesses faced due to the pandemic in recent years.
It makes sense for the government to focus on MSMEs because they employ half of the workforce. Therefore, the government should understand that if MSMEs thrive, the working population will have more stable jobs and better prospects. This, in turn, will enable talent retention and elevate companies to higher levels of performance.
Prime Minister Anwar Ibrahim, who is also the finance minister, has also pledged that next year’s national spending plans will have a significant focus on MSMEs. He has highlighted the government’s efforts to promote entrepreneurship as a means to alleviate poverty, assuming that job creation by MSMEs will provide stable incomes for poor households with a guaranteed minimum wage.
The government has also proposed a progressive wage scheme, which private sector entrepreneurs have voluntarily adopted. Anwar has stated that this scheme is incentive-based and linked to productivity levels.
Perhaps the government has realised that the low contribution of labour wages to GDP, at 32.4%, is a problem that leaves many households in financial difficulty. It does not bode well for the economy when households lack significant disposable income.
So, how can we help MSMEs in the face of a lack of purchasing power?
Entrepreneurship knowledge and skills can be valuable because not all MSME managers are well-trained in these areas.
MSMEs often cite “cash flow” as a problem for their business. A government loan may not be helpful if the MSME does not know how to manage its financial issues, potentially leading to an unviable business due to poor market demand.
It is worth noting that the adoption of digital solutions for MSMEs is already underway, particularly in terms of administration and marketing. Many have embraced e-commerce, accounting, and point-of-sale software. These services have become more competitive and affordable, even for MSMEs.
Most MSMEs would prefer to allocate more of their budget to digital marketing, especially on social media platforms, and less to physical advertising, such as newspapers or billboards.
Another challenge for MSMEs in the manufacturing sector is their operations. They tend to rely more on manual labour, unlike their foreign counterparts, who have the capital to invest in cutting-edge technology and machinery to enhance efficiency.
Many modern machines can optimise operations with electronic sensors, reducing human error,and making work less physically demanding for employees.
MSMEs in the manufacturing sector may require assistance in investment in new technology.
As the government is committed to boosting MSMEs in Budget 2024, we can look forward to aid and measures to elevate the sector.
175th article for Agora@TMI column, published on The Malaysian Insight, 9 Oct 2023
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