Published on 07 Dec 2020.
Business sentiment remains bleak on the next three months, as indicated by the results of the latest RAM Business Confidence Index (RAM BCI) survey for 4Q 2020. The overall index was little changed at 35.9 (3Q 2020: 33.7), still substantially below the threshold of 50 for sentiment to turn optimistic. The results suggest that businesses may be feeling the pressure from the third wave of COVID-19 and the reinstatement of the Conditional Movement Control Order (CMCO) in the Klang Valley since mid-October 2020. Nearly 70% of the survey respondents indicated that the CMCO had further eroded their business cashflow, by an average of 30%-35% to date.
Source: RAM BCI
Respondents prefer cashflow-easing measures to address immediate needs
Without any brighter business prospects for now, the recovery paths of SMEs and micro enterprises appear challenging. To help these small businesses, additional support is needed to address their most immediate challenges. As such, it is unsurprising that the SME respondents want initiatives that will help alleviate pressure on their cashflow, which had been hoped for under Budget 2021. Almost 80% of the surveyed firms indicated tax reductions as the most helpful measure they need but were not sufficiently addressed by the Government. Other preferred initiatives include a longer period of wage subsidies and extended bank loan moratorium, as voted for by about 65% and 55% of respondents respectively.
On the other hand, Budget 2021 provided for various schemes and incentives to promote digitalisation and automation. While these initiatives are important for long term sustainability, SMEs viewed them as being less critical for now. This highlights the importance of financial measures that can help small businesses overcome their immediate challenges of sustaining cashflow. As such, less than 10% of the surveyed pool believe that Budget 2021 will be able to improve their chances of survival within the next year.
Source: RAM BCI
Note: Percentages sum up to more than 100% as firms are allowed to pick more than one response
Cashflow issues may lead to repercussions for labour market
To manage their cashflow in an extremely tough year, SMEs have taken multiple steps to stay solvent. The most common action (by more than 50% of the respondents) is reducing staff count and/or cutting salaries. As SMEs in Malaysia employ about 66% of the overall work force, this does not bode well for the labour market or productivity.
Policymakers ought to engage with SMEs and micro enterprises to explore targeted financial support, which will allow these firms to stabilise their cashflow in the immediate to medium term. Once this hurdle has been overcome, they will be better poised to plan and execute changes to future-proof their businesses through digitalisation.
The RAM Business Confidence Index (RAM BCI) is a comprehensive survey conducted by RAM on forward looking business sentiment and topical issues faced by the small and medium business community in Malaysia. Released quarterly, the index offers a timely barometer of future economic activity to guide businesses’ investment decisions and planning as well as provide inputs for strategic policymaking by various stakeholders of the economy. This is done through the indication of positive and negative sentiment on five key aspects that are pertinent to their business operations over the next three months. The five business aspects surveyed are turnover, profitability, hiring, capital investment and capacity utilisation. An index value of 50 is the neutral benchmark while a value above 50 indicates positive sentiment by the firm; below 50 shows negative sentiment.
Woon Khai Jhek, CFA
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