RISING costs of raw materials and fluctuations in the exchange rate are slowing down the recovery of the manufacturing sector, following the slump caused by the Covid-19 pandemic, the Federation of Malaysian Manufacturers (FMM) said.

FMM has just released its business conditions survey, which stated the sector did not fare as expected.

The survey said 65% of respondents urged the government to take appropriate action to stabilise the ringgit.

FMM president Soh Thian Lai said a stable exchange rate is crucial because 65% of intermediate products are imported.

In the report, 70% of the respondents were also worried about the impact on business recovery and growth, and another 64% were worried about energy costs.

Small and Medium Enterprises Association president Ding Hong Sing said there is a slowdown in the manufacturing sector at this time of the year, which will only pick up in July.

However, Ding told The Malaysian Insight the slowdown was unusual, not one the industry had expected.

He said the “normal” drop in output during the slowdown is around 10% but this year it contracted by 20-25%.

“The whole supply chain was affected by the price hike,” he said, and added that since Chinese New Year the market has gone quiet.

“Previously, when we slowed down, companies were not under too much pressure but with the rising costs of raw materials, overheads and salaries, companies registered negative earnings once orders slowed down.”

Ding said for some large companies, paying salaries has become a concern.

“Salaries are generally fixed overhead costs. When output is reduced dramatically and revenue plummets, paying salaries could be a big problem,” he said, adding that the same problem applied to hiring new staff.

Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) treasurer-general Koong Lin Loong said the manufacturing sector makes up 24% of the national economy and, therefore, is an important cog in the nation’s wheel, so any aberration would have a major impact.

“One quarter of the GDP is manufacturing, which shows its importance, so when this sector is affected our economy will definitely be affected.”

Koong said in the second quarter of last year, the manufacturing sector grew by 9.2%, followed by 13.2% in the third. However, it only expanded 3.9% in the fourth.

He said with this knowledge, it could hence be presumed the first quarter of this year would not be much better.

He also said an ACCCIM outlook and business assessment survey report for the second half of 2022 and the first half of this year showed that more than 50% of respondents were facing the same problems: rising costs of raw materials, high operating costs, an unstable ringgit, staff shortages and an uncertain political climate.

“The whole environment is suffering,” he said.

Economic aid needed

Koong has some suggestions on how to recover from the slump. First, he said, the government needs a stable policy, “not one that changes overnight.”

Secondly, he said the government should pay serious attention to the rising cost of raw materials and the unstable ringgit.

“Since these things are beyond the control of the industry players and the layment, it must be handled by the government.”

He suggested the government sit down and talk to importers on stabilising the prices of raw materials.

Koong said, with the economy yet to fully recover from the pandemic, the government should reconsider providing economic assistance packages.

The assistance should be targeted instead of one across the board, he said, adding that the government could get banks to agree on giving loans and on loan payment restructuring.

Koong said some companies that took out loans before the pandemic are now saddled with high-interest repayments.

“In short, provide funds for businesses to be strong and assist those with problems repaying the interest with debt restructuring.”

Koong hoped the government would open more dialogues and exchanges of ideas with the business community before drawing up any recovery policy. – March 23, 2023.