THE business sentiment of Malaysian small medium enterprises (SMEs) has tumbled yet again amid the re-imposition of movement control order (MCO 3.0) this year.
The 2Q 2021 RAM Business Confidence Index (BCI) which was concluded in early June nose-dived to a record low of 33.2, from 38.7 in the preceding quarter.
An index reading of 50 and below signifies pessimism in business outlook through the next six months.
The survey which polled some 180 firms highlighted the plight of SMEs in trying to survive yet another round of movement restrictions and business closures in the form of MCO 3.0.
Firms were most pessimistic about sales – most prevalent among the “high touch” sectors of retail and business services with about 90% citing the weak economy as their main challenge.
Conversely, close to 90% of manufacturing firms polled cite rising business costs as their main challenge. This is consistent with the recent surge in the cost of major raw materials following a commodity upcycle and a surge in global shipping costs amid supply bottlenecks.
More than half of firms surveyed have resorted to cost cutting measures in the past year. With the continuation of MCO 3.0, about 40% believe cost cuts are necessary to remain viable.
This is particularly true of smaller firms that already have limited cash flow. If no further assistance is extended, they could face inevitable closure in the next few months.
Given the tough operating environment, the vast majority of firms, especially SMEs and those in high touch sectors, have voiced the need for short-term assistance.
“The continuation of wage subsidies and loan moratoriums, both of which are available under PEMERKASA+, are reliefs firms need the most at 36% and 17% of surveyed firms respectively,” RAM Ratings pointed out in a statement.
“Another 15% of firms also needed additional loans to stay afloat. Over and above moratoriums, banks may need to extend additional lending to tie over firms’ cash flows until the economy recovers.”
Despite the tough challenges in the last two years, over 80% of survey respondents envisioned business recovery within a year, but to below pre-pandemic levels, according to the rating agency.
“While we applaud the various assistance measures for businesses and SMEs, we urge policymakers to extend immediate assistance to the more vulnerable entities in the services and retail sectors,” noted RAM Ratings.
“As the nation’s backbone, the survival and recovery of SMEs are crucial to the long-term economic development of Malaysia.” – June 28, 2021
