PUTRAJAYA must implement effective economic policies to aid small and medium enterprises (SMEs), which have been hit hard by the Covid-19 pandemic, said the Institute for Democracy and Economic Affairs (IDEAS) in its latest policy paper report. 

Its report titled “Post Covid-19 Recovery: Building SME Resilience” found the majority of the government’s economic stimulus package was focused more on immediate crisis response rather than long-term resilience-building. 

The series of movement-control orders (MCO) imposed last year to curb the spread of Covid-19 has led to massive disruptions in business operations and the introduction of MCO 2.0 this month is likely to disrupt the economy further in the coming months, the report said. 

While past economic stimulus packages did help alleviate financial constraints towards worst-hit industries namely, manufacturing, retail, and tourism, the report highlighted several challenges with the rollout of government support to SMEs, including the timeliness of support, lack of awareness among SMEs, and practical challenges accessing support. 

It also identified several challenges regarding measures intended to help SMEs to adapt to the “new normal” through digitalisation and automation. 

“For example, the hidden costs of moving online, such as commissions and different staff requirements, have hampered the transition for many smaller retailers. 

“In manufacturing, government grants for automation have tended to skew to higher tech projects, when many SMEs are concentrated in the low-technology sectors and therefore miss out on such support. 

“Across the board, a high rate of informal workers and businesses had limited access to support.” 

The policy paper, co-authored by research manager, Lau Zheng Zhou, and research assistants, Sabrina Tang and Yohendran Nadar Arulthevan, offered evidence-based insights for policymakers to better understand shortcomings in policy measures. 

It also provided potential areas of growth by assessing the stimulus package in some of the worst-hit sectors like manufacturing, retail, and tourism. 

“As Malaysia is still healing from the lockdown measures in 2020, I urge the government to consider the recommendations this paper puts forward as Malaysia enters another round of lockdown in 2021,” said its chief executive officer Tricia Yeoh.

She said the economic measures did not benefit a majority of SMEs due to implementation gaps such as information asymmetry, lack of timely updates, and ineffective disbursement method for relief funds.

She added that the policy focus last year seemed to lag behind in terms of providing certainty in the direction of future economic development. 

“Hence, there is a pressing need for future economic stimulus packages or national master plans to be rolled out more effectively to address existing structural challenges to help SMEs build resilience.” 

Increase wage subsidy 

In a webinar discussion of the policy paper today, IDEAS’ research director Laurence Todd said the quickest lever to ease economic distress among SMEs was to increase wage subsidy. 

“If we increase the spending now to save SMEs, that has to come hand in hand with the other reforms to support longer-term recovery, otherwise we will be in the same position for the next shock,” he said.

Under the recently announced Permai package worth RM15 billion, for a period of one month, eligible employers will receive a wage subsidy of RM600 for each of their employees earning less than RM4,000. 

In addition, the wage subsidy limit of 200 employees for each employer will be increased to 500 employees. 

This initiative involves an additional allocation of RM1 billion which is estimated to benefit 250,000 workers employing more than 2.6 million workers.

Todd said while the Permai package was helpful, the amount might not be sufficient should the MCO be extended.

On top of that, he said the package does not sufficiently address the longer-term challenges, such as too much focus on high-tech automation.

“The nature of government support should be more reflective of industry realities to be effective,” he said. 

“This needs to be improved, and I believe further stimulus measures will be needed to achieve this.” 

Tourism sector hit hard 

Malaysian Association of Hotels’ (MAH) CEO Yap Lip Seng, who was a panelist for the webinar, said they have numerous times said the wage subsidy was insufficient for the tourism industry. 

“It may be sufficient for manufacturing, it may be sufficient for other industries but the tourism industry was the first to get hit, it was also hit the hardest, and will be the last to recover. We need more than that.” 

Yap said MAH has proposed a percentage-based wage subsidy in comparison to other countries. 

“Look at Singapore. The government is paying 75% of wages, and it maxed out at S$4,600 (RM14,000), per dollar per employee per month, United Kingdom at 80%, Canada at 75%, with Australia giving A$3,000 (RM12,500) per month per employee, whereas we are only at RM600 ringgit and that’s with terms and conditions,” he said. 

Yap said the tourism industry cannot survive solely by banking on domestic tourism, even though local tourists account for 55% of the industry’s business. 

“Per capita for local tourism expenditure is just RM432 whereas an international tourist would bring in around RM3,000. On top of that, local tourists may opt for places like Airbnb or their relatives’ houses,” he said.

The report also recommended that implementation gaps in the government’s crisis response measures be addressed to better prepare for future crises.

It also said the public policy should nudge towards automation and digitalisation to match with current industry needs and capabilities. 

It further added that regulatory reforms are implemented to increase adaptability of industry players to all situations. 

Malaysia yesterday logged 3,585 new cases, taking the nation’s total caseload to 190,434, with 11 deaths reported, taking the toll of fatalities to 700. – January 27, 2021.