By Xavier Kong
This is the first part of a series of articles on Covid-19.
THE novel coronavirus. Covid-19. The Wuhan virus. The derogatory “Chinese Virus” as used by US President Donald Trump. That is the name of the virus that is steadily bringing the global economy to its knees as country after country closes borders or initiates quarantines, leading to the inevitable slowdown of the global economy.
Moving in closer to home, let’s settle on how things look in Malaysia. At the time of writing, a total of 1,518 cases have been confirmed in Malaysia, as of March 23. Out of those, 159 went on to recover, but a total of 14 deaths have also been confirmed.
The first confirmed cases in Malaysia were detected on Jan 25, with the number remaining below a hundred cases total until March 9, when the number of cases first passed 100 to hit 117. Things were going well, with even Japanese netizens praising the Malaysian approach on how well we are handling the Covid-19 outbreak. Everything seemed well in hand – that is, until a particular four-day event from Feb 27 to March 1, which saw a gathering of about 16,000 people in close quarters, despite social distancing being gradually adopted by Malaysians.
This event is the Jemaah Tabligh event held at a mosque in Sri Petaling, and which was, according to the government, solely responsible for almost a thousand of the confirmed cases, which makes for about two-thirds of them, in Malaysia. To make matters worse, there are still those who have not stepped forward for testing, leading to there being unknowns out there who are likely to have the virus, but are either afraid or choose not to step forward for testing.
Enter the MCO
In the face of this, Prime Minister Tan Sri Muhyiddin Yassin announced a Movement Control Order (MCO) which started on March 18, and is set to last 14 days and end on March 31. However, this implementation saw praise as well as criticisms, with the stance taken being seen as a good move to contain the spread of the virus, but these were countered by the view that it might be too little, too late, not to mention the mismanaged way the MCO began.
The MCO constitutes a partial lockdown, aimed at minimising the chances of exposure to Covid-19 through mass gatherings, such as postponing or cancelling mass gathering events regardless of cause, closing non-essential businesses, and restricting eateries from having dine-in customers.
The first announcement of the MCO saw rumours already spreading, with citizens concerned that there would be a full lockdown, leading to panic buying among the people. Further transmission vectors came from the initial order for students to vacate public and private universities, which caused bus stations to be packed with people. Interstate travel requiring a permit from the police also led to gatherings at police stations, with social distancing not very well observed.
Then came the flip-flopping, with university students no longer allowed to leave their residences, and interstate travel being banned. Further exacerbating this are the different levels of quarantine issued by different states, such as Selangor ordering wet markets closed while other states allowing them, or eateries having to close by midnight, which is enforced in Kuala Lumpur and Selangor.
At the same time, the prime minister and his officers give conflicting information, such as the issue of whether or not foreign nationals would be required to pay for screening in Malaysia, or even about the price of face masks.
To be fair, this is the first time for any administration in Malaysia (not that we’ve had many) to handle a pandemic on such a viral, global level. There are definitely things that have been done well, and the government of the day should still be given the proper recognition for those tasks.
SMEs, Covid-19, and staying afloat
Still, most of what is seen from the government seems to be looking towards aiding larger corporations, or the direct individuals. Just look at (sorry for this) AirAsia Group Bhd and Malaysia Airlines Bhd, along with the hotel and tourism industry. This, of course, begs the question: What about the small-to-medium enterprises (SMEs), which are heavily impacted as well?
According to the National Entrepreneur and SME Development Council (NESDC), which includes the prime minister as chairman, SMEs form the backbone of the nation’s economy, and make up 98.5% of the businesses in Malaysia, with the majority of them in the services sector.
As of 2016, SMEs already contribute 36.6% of the nation’s gross domestic product (GDP), with a 2020 estimate of 41% of GDP contribution before Covid-19 landed on our shores. It should also be pointed out that SMEs also make up about 65% of the workforce, which stands at about 10 million people, according to 2018’s numbers. That makes up, what, a third of the Malaysian population?
With as much as the SMEs contribute, and with so many souls employed, it really feels like SMEs tend to get the shorter end of the stick in crisis situations. With all of the resources already at hand for large companies, would it not be better to help the SMEs who – and this cannot be stressed enough – make up two-thirds of the Malaysian workforce?
There are honestly many things that can be done to aid SMEs in Malaysia, assuming the government of the day is willing to take the necessary steps. Cash injections are, as always, a very helpful means of helping the SMEs stay afloat. While the 4% reduction in required employee EPF contributions, the permission to withdraw a set amount of funds from EPF, as well as the move to allow the deferment of PTPTN loan repayments between three to six months will help individuals, what about the SMEs?
The efforts in place, and what else could work
March 24 saw the Ministry of Entrepreneur Development and Cooperatives (MEDAC) announcing that it had actually been offering deferments of repayment of funding disbursed by agencies under its ambit to entrepreneurs and cooperatives beginning March 16, but why the eight-day wait in announcing this?
Another issue to note here is the Sales and Services Tax (SST). In the times of Covid-19 and the MCO, the SST represents a burden on SMEs, which are almost exclusively in the services sector, and the public which pays for the tax eventually.
Take the example of restaurants and eateries. Not only have they lost the income generated from dine-in customers (including people who order a drink while waiting for their takeaway), they still have to pay their staff, cover the utilities, pay the rent, and pay SST. Honestly, a deferment of that 6% to a time when breathing becomes a little easier would not go amiss. What good can come from pushing SMEs beyond the brink at a time like this, especially with the economic boost offered after this crisis blows over?
The deferment of taxes such as the SST function well enough as cash injections for SMEs, as the money that would otherwise have to go to the government can be used to pay their staff or their bills.
However, as warned by Muhammed Abdul Khalid, former economic adviser to the seventh prime minister, any stimulus or aid package for SMEs should not be used to bail out large companies. He also mentioned that, as of the second stimulus package, efforts were insufficient.
In a letter to Malay Mail, he noted that business and personal income taxes should be reduced for the year, and suggested that bank and credit companies reduce loans for a few months.
“Wage subsidies can help offset their costs, but they must be reminded that this assistance is not meant to ‘bail out’ firms, but to assist workers directly,” he said.
Another big-ticket item for SMEs, as has been mentioned a few times already, is the rent for their premises. With dwindling business (and no, food deliveries and takeaways are not enough to offset the loss of dine-in customers), many of the smaller businesses and eateries are struggling to meet rent payments as it is. Would it not be fair for landlords to lower their rent for the period, or allow for the deferment of rent payments?
This is an issue not just in Malaysia, but across the world as a whole, as businesses suffer from the lack of customers walking in through their doors. Some rental contracts allow for this, through a “force majeure” clause, which basically covers unforeseeable circumstances that prevent someone from fulfilling a contract, such as natural disasters or epidemics.
Even those rental contracts without this clause can be argued, according to Philip Koh, senior partner at Mah-Kamariyah & Philip Koh Advocates & Solicitors, that it is possible to rely on Section 57 of the Contracts Act 1950, which provides that if a contract becomes impossible to perform, the defaulting party may have an avenue for legal excuse.
“This impossibility cannot mean mere commercial impossibility or practical constraints on the part of the tenant alone. Courts have given judicial interpretation using force majeure categories. Therefore, it is arguable in circumstances of Covid-19 measures that a force majeure event has occurred, especially in light of governmental regulations,” he said in an article.
Moving forward
In the end, this is about handling a national-level crisis on multiple levels, and doing a level best so that no one is left behind. Even then, it requires everyone, be they the government or the people, to pull their weight in times of crisis.
At this point, as much as the stabilisation of the national economy would be a good thing, it may be time to let go and focus on the nation surviving as a whole instead. There should be no worries of a possible downgrade, for a downgrade would be the least of the concerns should a large number of the population be unable, over a short time, to pay their bills or even to put food on the table. Maybe worry about keeping the economy afloat after making sure the people are okay?
As it stands, the MCO has done wonders in terms of controlling the spread of Covid-19 among Malaysians. Refer to the chart comparing the number of cases in Italy and Malaysia over a similar period of time. With contact tracing and the MCO, Malaysia has managed to hold down the curve a lot better than Italy, while similar errors were made in terms of announcing the quarantine.
There is also the relieving news that a vaccine has been greenlit for clinical trials in China, with volunteers already receiving the vaccine. There is also word that the drugs hydroxychloroquine and azithromycin, generally used for the treatment of malaria, also work to suppress Covid-19 in afflicted patients, with studies being conducted following a preliminary study by Gautret et al.
In the words of Prof Francois Balloux of University College London: “Health and the economy are closely linked. The correlation between per-capita GDP and health (life expectancy) is essentially perfect. If the Covid-19 pandemic leads to a global economy collapse, many more lives will be lost than Covid-19 would ever be able to claim.” – March 24, 2020
Other parts in this series of articles:
Part 2: Covid-19: What the experts say to expect
Part 3: Covid-19 hits economy really fast and hard
Part 4: Covid-19: How the government should stimulate the economy
