Government's sensibility to support MSMEs (Unedited article)

 Are you employed by one of the micro, small and medium enterprises (MSMEs)? The chances are probably 1 in 2 - about 48.2% of total employment is contributed by MSMEs. However, MSMEs account for only 38.4% of Malaysia's GDP and 10.5% of exports in 2022. Policymakers often see this as less than ideal in terms of labour productivity and challenge them to do more.

Surely, among the 1.17 million MSME establishments, there must be companies that would like to challenge themselves to grow beyond small and medium size, but many more are struggling to survive, which is the harsh reality of entrepreneurship subject to market demand.

There is a gulf in performance when comparing MSMEs with foreign affiliates (companies controlled by foreign investors as majority shareholders), which should show what capital and technological advances as well as an extensive global supply network can do for companies, especially multinationals. Foreign affiliates have only 2087 establishments in Malaysia, but already contributed 17.7% of GDP in 2021. MSMEs have not yet recovered to their 2019 or pre-pandemic GDP levels in 2022, but foreign affiliates have done so quickly in 2021.

Let's examine and compare the manufacturing sector. In 2021, MSMEs employed and engaged almost 4 times more workers than foreign affiliates, but in terms of GDP output, foreign affiliates come out on top, contributing 36.8% of sectoral GDP, 2.2% or RM8 billion more than MSMEs. If the government is concerned about MSME output and export performance, this is the sector the government can work with.

It's good to know that the government will focus on SMEs in Budget 2024, according to Deputy Finance Minister II Steven Sim. More often than not, many politicians seem more concerned with highlighting the country's ability to attract foreign direct investment (FDI). Recognising domestic direct investment (DDI) as an important component of the country's economic development, especially that which comes from the SME sector, shows the Deputy Minister's practicality and sensibility. Sim's concern for SMEs is also evident in his comment that the sector needs a lot of support from various parties, especially from the government. He said the government would help make the sector more sustainable for the country's economic growth, as many businesses were hit hard by the pandemic years ago.

It makes sense for the government to look at MSMEs, because they employ half the workforce, so the government should know that if MSMEs are doing well, then the working population will have more stable jobs and better prospects. Then the talent can be retained, taking the companies to higher levels of performance.

Prime Minister and Finance Minister Anwar Ibrahim had also made the pledge about the unity government's upcoming second national budget, saying that Budget 2024 would focus on MSMEs. He pointed to the government's efforts to promote entrepreneurship as one of the ways to end poverty, presumably on the assumption that job creation by MSMEs would hire from poor households, giving them a more stable income with the guarantee of a minimum wage.

The government has also proposed a progressive wage scheme, so far voluntarily adopted by private sector entrepreneurs, which Anwar says 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 per cent, is a problem that leaves many households in financial difficulty, which does not bode well for the local economy as they do not have much disposable income. So how can we help MSMEs if local people do not have more purchasing power?

Entrepreneurship knowledge and skills can be valuable, as not all MSME managers are well trained in this area. MSMEs often cite 'cash flow' as a problem for their business; the government SME loan may not help if the MSME does not know how to manage its financial problem and may find that its business is not viable due to poor market demand.

It is also safe to say that the adoption of digital solutions for MSMEs is already underway, mostly in terms of administration and marketing, many have turned to e-banking/e-commerce, accounting and point-of-sale (POS) software. These services can be competitive and are now more affordable even for MSMEs. Most MSMEs would prefer to allocate more budget to digital marketing, especially on social media platforms, and less to physical advertising such as newspapers or billboards.

Another hurdle for MSMEs in the manufacturing sector is operations - they tend to have more workers to do the manual labour and, unlike their foreign counterparts, have the capital to invest in the latest cutting-edge technology such as equipment and machinery to produce more efficiently. Many of the modern machines can optimise the operation through electronic sensors, thus reducing human error, and workers may be less tired compared to the manual work they used to do. MSMEs in the manufacturing sector may need a helping hand in capital investing in new technology.

With the government's promises to the MSME sector in Budget 2024, let's look forward to the measures to help MSMEs.