Published on 28 Jun 2021.
SMEs’ business sentiment has tumbled yet again amid the reimposition of MCO this year. The 2Q 2021 RAM Business Confidence Index (BCI), concluded in early June, nosedived 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.
Note: The latest RAM BCI survey polled 173 firms, chiefly SMEs and micro enterprises. It commenced just before the nationwide imposition of the tightened MCO 3.0 on 25 May 2021 and concluded in early June after the announcement of the full lockdown.
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.
Cost cutting still SMEs’ main survival tactic
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 cashflow. If no further assistance is extended, they could face inevitable closure in the next few months.
Smaller firms need more short-term assistance
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. 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’ cashflows until the economy recovers.
Conclusion – Is there light at the end of the tunnel?
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. 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. As the nation’s backbone, the survival and recovery of SMEs are crucial to the long-term economic development of Malaysia.
Woon Khai Jhek, CFA
(603) 3385 2512
(603) 3385 2505
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.
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RAM Holdings is a leading provider of independent credit research and advisory services. RAM Holdings (formerly known as Rating Agency Malaysia Berhad) was established in November 1990 as a catalyst for the domestic debt-capital market and as the nation’s first credit-rating agency. Its shareholders comprise both local and foreign financial institutions. On 1 July 2007, the rating operations were novated to a newly formed subsidiary, RAM Rating Services Berhad (or RAM Ratings). Today, RAM Holdings spearheads the cultivation of new businesses and continues to provide training as well as economic research that promotes financial and credit expertise, in addition to soft skills. For more information, log on to www.ram.com.my
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