By Yeoh Seng Hooi
Many from think-tanks, who have not dealt or engaged extensively with SMEs, have tried to champion the SME cause by concluding that “TPPA has a negative impact on SMEs.” When we refer to SMEs, we refer to the entire spectrum and not just a particular ethnic grouping.
Reading the same PwC report that a certain adviser has alluded to, Sec 2.4 has summarised that “42% of SMEs are already in fully liberalised sectors…these SMEs are likely to be positively impacted by the market access for goods, investment and cross-border trade in services chapters due to greater market access.”
From our discussions with SMEs, many welcome the greater opportunity for greater market access. Any competitive advantage against SME exporters from China, Indonesia or Thailand would be welcomed. A professor from Taiwan has shown at a talk in Sunway University recently that from his VAR model, the trade impact from US is still greater than China for every 1% reduction in GDP.
The significant trade linkage with the US is pronounced and would continue to be so over the next 10 years. While some have selectively dwelt on the trade figures alone, the impact on investments have been conveniently left out. The same report has indicated that “Investment is projected to rise by USD136~239 billion over 2018-2027…” Other than the creation of employment, there is the multiplier effect of supporting ancillary industries that are providing the linkages; be they in goods or services.
In the present global economic climate that has affected consumer confidence, we need jobs so as to boost domestic demand per capita and in aggregate. If Vietnam is a signatory to the TPPA and Malaysia is not, where do we think the US investments would flow? The competition for FDI is presently more acute and intense, and we cannot afford to lose out.
Compared to the trend up to 2001, the graph for new capital formation in Malaysia has been on the decline thereafter. The private sector has to be the dominant avenue for employment which comes from new and expanding foreign and domestic investments. We cannot depend on the public sector to absorb the pool of fresh graduates who enter the workforce annually.
Competition is already here for the merchandise trade with AFTA, China-ASEAN FTA and other FTAs. If one cares to analyse the rising trade imbalance with China, there is greater cause for concern for SMEs. Malaysian SMEs who are interested in expanding have adapted well and look forward to greater market access and lower NTMs.
The Malaysian market of 30 million is too small for us to look inwards. SMEs have to export if they wish to have continued growth.
What the government can do in a competitive environment is to facilitate and not frustrate.
Increasing levies, creating monopolistic outfits, allowing mid-tier rent seekers that raise the cost of doing business would worsen the competitive capabilities of SMEs. On capacity building, the government can work closely with the Small Business Administration (SBA), USA to tap into the information, programmes and training that have successfully been implemented.
The government can assist through policy initiatives and fiscal incentives to strengthen capabilities and reduce the handicap faced by SMEs as they compete locally and abroad.
Access to finance is still an issue for SMEs as they face working capital constraints. Even development banks have relied on collateral-based lending and this does not fulfill the intended objective to address the funding needs of SMEs.
Malaysia leads in ASEAN with licensed crowd funding platforms. This equity funding initiative and P2P lending should offer alternative sources to address the funding gap faced by SMEs. Equity Crowd Funding (ECF) is still at a nascent stage of growth and the government can help to promote this.
The government can spur the ECF industry and support the funding needs of SMEs by offering a similar incentive like the Angel Tax Incentive. The fiscal benefit should be available to the 3 classes of investors including the retail investors. There need not be any administration under Cradle.
As long as the investments are via the 6 licensed ECF platforms, the investors would be eligible for this fiscal incentive.
Double deductions for registration of trademarks (TMs) overseas as the costs incurred can be high if the SMEs have to register their brands in multiple countries. The AEC has taken off but, the common registration of TMs under an ASEAN registry has yet to be implemented.
While the government cuts costs in unnecessary operating expenditure, the allocation for capacity building programmes should be further enhanced.
Matrade and MITI have done an excellent job to promote and facilitate exports. However, the amount of financial support under the MDG is not sufficient. In view of the challenges faced by SMEs to penetrate new markets, the fiscal support through programmes like the MDG should be increased.
E-commerce is another channel for SMEs to leverage without heavy capital outlays to tap the opportunities arising from the TPPA. There are plenty of IT platforms to connect buyers and sellers.
Currently, the SMEs concentrate on B2B but for B2C to grow in a meaningful way and exponentially, the issue of back end fulfilment has to be tackled.
In view of the above arguments and based on feedback and insights from our members, as well as other pertinent information from the PricewaterhouseCoopers and ISIS reports covering the concerns for SMEs, SAMENTA supports the TPPA with the hope that the government would assist the SMEs to capitalise on the opportunities available.
Yeoh Seng Hooi is the national secretary for the Small and Medium Enterprises Association ( SAMENTA).
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