SMALL and medium enterprises (SMEs) are set to adjust their prices by 25% to 30% in an attempt to stay afloat, now with the added pressure of paying the new minimum wage of RM1,500 to workers, industry experts said.

They have been contending with the increasing cost of raw materials and other logistics, made worse by Russia’s war on Ukraine, which has further inflated prices and their overheads.

SME Association of Malaysia president Ding Hong Sing said SMEs are expected to increase their prices by 15% to 30% in June.

The new minimum wage alone has contributed to a 25% rise in monthly operating cost, while SMEs are only making 10% to 15% in profit, he said. They cannot even break even, he added.

“Businesses are adjusting prices not for the purpose of profit, but so that we can balance our books,” Ding told The Malaysian Insight.

“If we keep using our reserves to run the business, we will eventually run out of money to buy raw materials and maintain operations.”

Member SMEs in the association have reported that they are now paying an additional RM20,000 to RM1 million in wages with the new minimum wage, which came into effect on May 1.

Many of them feel that the rate of increase to the minimum wage, previously at RM1,200, should have been gradual, rather than a rapid hike of RM300 per worker.

“SMEs will be forced to increase prices by 25% to 30% if we cannot balance overheads and profits.

“But if the price of raw materials falls, maybe there will be no need. We’ve felt the pinch since November and started losing money in January and February.

“With the Russia-Ukraine war now, we are under even more pressure. We’ve made suggestions to the Human Resources ministry to provide rebates for staff accommodation and such but there has been no update.”

Foo Nge Kee, president of Sabah SME Association, said businesses in the state are expected to adjust prices by 10%.

“Right now we are just trying to stay afloat by relying on our savings,” he said, also disagreeing with the timing of the higher minimum wage.

Federation of Malaysian Manufacturers president Soh Thian Lai, said some manufacturing companies were already paying wages above the minimum wage rate, but the impact of legislating the new rate and making it mandatory has led to an overall increase in costs across the board.

“It causes an immediate increase of 25% to 36% of the basic salary, which will have a knock-on effect on the overall payroll cost and have a spiralling impact on business cost.”

Soh said manufacturers are also facing increased cost of raw materials and logistics.

“The industry’s ability to absorb the higher operating costs in the current business environment is limited as can be seen from press reports on the rise in prices of food items in the past few weeks where Malaysia’s inflation, as measured by the consumer price index, has increased to 2.3% in April from 2021.”

The government should continue to mitigate the impact of the minus wage in raising labour costs by providing double tax deductions for the implementation of productivity-linked wages and lean management initiatives, lowering corporate taxes and continuing to provide financial assistance for automation and mechanisation for companies, especially SMEs, he said.

Tourism, too, especially for small and medium-sized operators, are finding the minimum wage hard on business, said Malaysia Budget Hotel Association president Emmy Suraya.

The group has requested the government postpone the RM1,500 wage implementation with a memo to the Tourism, Finance and Human Resources Ministries, and are awaiting a reply, she said.

The RM300 increase in wages per worker is a 25% hike, but the hotel and tourism sector has yet to fully recover and will not until tourists arrivals return to their pre-Covid-19 peak. – June 2, 2022.