SMEs need more than fiscal incentives

malaysia-economy-ringgit

By Seng H Yeoh

It’s that time of the year after the unveiling of the Budget. From the reports, the emphasis was targeted at the B40 and M40 to cushion them from the slower economic growth. There were some fiscal pump priming through direct transfers such as BR1M and some tax incentives to boost the anaemic property sector.

What goodies were offered to the SMEs that have often been cited as a major engine of growth for the Malaysian economy?

Let us break down the analysis based on demand and supply determinants.

For SMEs, the imposition of the GST has affected local demand and many consumers have reduced their expenditure to adjust. Figures that depict a significant drop in retail sales do not augur well for SMEs. Consumers will cut spending when expectations and confidence levels in the economy are low.

As a responsible government, attention should be directed to advocating sound macro-economic policies rather excessive politicking. A social atmosphere that is imbued with fear has a negative impact on consumer spending and also business investments. SMEs will be reluctant to invest further when the economic climate is choked with uncertainties.

Policies such as the flip-flop on the hiring of foreign workers, extending the Anti-Profiteering Act, and increases in tolls, have also increased the costs of doing business. The faster implementation of efficient public transportation systems that reduces the cost of travel and eases economic losses from traffic jams will be a boon for SMEs.

Workers can now reach the office on time at lower transportation costs. This in turn will enhance labour productivity and raise disposable income. There will be less dependence on ownership of private vehicles.

In the case of housing, too much of the average worker’s income is spent on accommodation. The availability of affordable public housing for rent would free the disposable income of young couples in the first five years of their working lives. The net result should be a corresponding rise in consumer spending.

On the supply side, many SMEs have been affected by the rising prices of industrial land and properties. While the local council and public agencies have enforced the by-laws and enactments stringently, what alternative and affordable industrial space is offered to SMEs?

Singapore has their flatted factories that are zoned for selected industries. The different sizes and affordable rents enable SMEs to operate in a clean and green zone supported by general amenities. For example, there is no necessity to individually build ramps for containers in flatted factories. The result is lower capital outlay by SMEs.

An integrated industrial commune encompasses a crèche, common meeting rooms, food court, and admin support for the benefit of both the workers and businesses. The net result is a lower cost of doing business and a higher disposable income for the workers.

Some have argued that access to finance is a stumbling block to SME growth. Is that really the case? There are sufficient sources of funding from traditional banks to crowdfunding and even soft loans from the Ministry of Finance. Most SMEs that are viable should be able to secure some form of funding.

The extension of the RM1.5 billion guarantee under the SJPP till 2025 is most welcome. But, how much of that amount still remains is a more pertinent issue for SMEs.

The real impediments to domestic economic growth are consumer confidence and the costs of doing business. Lowering the corporate tax of SMEs by one per cent is merely a band aid fiscal response without the intended outcome. If the profits for SMEs are dwindling, a slash in corporate tax would not stimulate investments and create more jobs.

What about the export competitiveness of the SMEs to expand their market beyond local confines? Here, the productivity of the workforce is of paramount importance. Enough has been parlayed on the significance of innovation and automation.

Capital investment is contingent on a medium to long-term perspective. SMEs would not borrow and reinvest if the economic horizon is hazy. For process improvements and creativity, contributions are derived from a skilled and educated workforce.

Instead of politicising education, let economic factors have the overriding influence. While China is an important export destination, the rest of the trading world still uses English as the lingua franca. Anyone who deals with international customers would understand the importance of correspondence and communication. The weak soft skills of our graduates affect SMEs who hire them. When the standard of Science and Maths has dropped, do we expect contributions in process improvements from the workforce?

The emphasis on Technical Vocational Education and Training (TVET) and the conversion of disused Teachers’ Training Colleges into Polytechnics and Vocational Schools are laudable. SMEs are in need of skilled and properly trained blue-collar workers.

What else can the government offer to stimulate growth amongst the SMEs? To put it in a different perspective, the question should be reversed i.e. what shouldn’t the government do?

For one, GLCs should not crowd out and try to compete with local SMEs. GLCs should nurture or acquire champions and compete in vast international markets.

The government should stay out of meddling and provide investment guidance in the private goods segment. Instead, increase development expenditure in education, public transportation, healthcare, public housing and other public goods.

A stimulating Budget is not just about handing out a plethora of fiscal incentives. More than that, the role of the government is to provide a conducive socio-economic environment that facilitates growth. We are in a transient state of the new normal where traditional fiscal and monetary instruments have not hit their targets. A quick look over our southern border can provide some useful measures to adopt.

In summary, the government can generate the feel good factor in both businesses and consumers as indicated above. When government policies generate confidence instead of uncertainties, SMEs will thrive and new startups will be spawned. Consumers will raise their spending when their jobs are entrenched and prospects of new hiring is bright. The economic stimulant from rising demand will be the harbinger of growth for SMEs.

Seng H Yeoh is an FMT reader.

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