The SMEs are crying out for help!

Media Statement by Dr. Ong Kian Ming, Member of Parliament for Bangi, on the 6th of April 2020 on the cries of help from the SMEs in Malaysia

Immediately after the announcement of the PRIHATIN Economic Stimulus Package by the Prime Minister, Tan Sri Muhyiddin Yassin, on the 27th of March, 2020, there was an outcry among the Small and Medium Enterprises (SMEs) that they have been left out from this package. I have been waiting for more than a week to see if the government would listen to the cries from the SMEs. But despite meetings with some of the key Ministers including the Minister of Economic Affairs in the Prime Minister’s Department, Datuk Mustapha Muhammed, and Minister of Transportation, Datuk Seri Wee Ka Siong, assistance to address the specific needs of the SMEs in Malaysia has not been forthcoming.
Let me use the following examples to show how SMEs have been left out of the economic stimulus packages which have been announced so far.

Example 1: Restaurant owner of a small restaurant chain located in shopping malls

The owner of this Food and Beverage (F&B) business has 3 outlets. The owner employs 30 people (10 at each outlet), mostly food preparers and servers, who earn around RM3k per month including allowances and overtime. This works out to an overhead of approximately 100k per month including EPF and SOCSO payments. The owner choose not to have delivery services because she does not want her staff to travel to work and risk getting infected. She still has to pay a monthly rental of RM5k per outlet since the rental not waived by shopping malls which she operates at. She will not likely be able to take advantage of the RM600 a month subsidy from the government because she has to conserve cash flow and close one outlet and retrench 10 staff. She has to incur overhead cost of at least RM100k during the Movement Control Order (MCO) without any revenue.

Example 2: Small manufacturer of non-essential items

This small manufacturer makes what is considered as non-essential items. He employs about 20 people in his operations. His production has been completed halted because MITI only approves manufacturing activities to continue for essential industries during the MCO. This company’s clients are mostly from overseas and as a result of non-delivery, they decided to look for suppliers from other countries. As a result, not only has this company lost its revenue for the period of the MCO, but it has also lost key customers for the rest of the year which it probably will not be able to replace even after the end of the MCO. It can claim the RM600 per month for most of its factory workers who earn less than RM4k a month but with an uncertain business climate, it would prefer to furlough his staff while looking for new customers.

Example 3: Small hotel owner and operator

The owner and operator of a small hotel on an island resort employs 10 service staff and 1 hotel manager. The MCO basically means no revenue for at least one month. And because no one knows when the MCO will end, this hotel cannot take even local bookings for the foreseeable future. The ownership group purchased the hotel with a loan and they is thankful for the 6 month temporary reprieve in loan repayments. But because they are unsure about business prospects moving forward, declaring bankruptcy is becoming a serious consideration rather than borrowing more money to keep the hotel operations afloat. If this is the case, they don’t expect to retain any of their staff.

Example 4: Small retailer in a small town

This small retailer sells stationary in a rented shop lot in a small town. Revenue has fallen to almost nothing during the MCO. He still has to pay a rental of RM2000 during the MCO lockdown. He doesn’t sell his products online because most of his customers are from around the area and he cannot compete with the prices offered by the online retailers. He has 5 staff who are locals. He will apply for the RM600 per month wage subsidy but he isn’t sure how to ‘audit’ his sales revenue figures to prove that it has fallen by more than 50% since January 2020. He may have to incur some costs to undertake this audit. He hopes that business can pick up after the end of the MCO but he isn’t confident his business can survive. He would have burned through close to RM10k to cover his costs during the MCO period, not a small amount for a SME owner in a small town. This bring his cash flow to a dangerously low amount.

Example 5: Long distance bus operator

This long distance bus operator with about 50 bus drivers under his payroll with his routes mostly comprising of interstate routes from KL to other states (including Singapore). The MCO has led to a complete stop to his entire business operations. His bus drivers earn between RM3k and RM4k a month including allowances and overtime. Having the RM600 wage subsidy will only help a little because of his high overheads of more than RM100k a month. Since he does not expect business to pick up after the end of the MCO and even Hari Raya this year will be a very much subdued affair with much less travel compared to previous years, he is unsure if he can keep all 50 of his bus drivers on his payroll in order to qualify for the Rm600 per month subsidy.

Example 6: A small gym owner and operator

Gym owner with three gyms in suburban parts of the Klang Valley located in shop lots. Because his revenue streams are based on the subscription models (1 month, 3 month, 6 months and one year), he still has cash flow to sustain his business during the MCO period. But because of this subscription model, his business has not dropped by 50% since January 2020. Hence he doesn’t qualify for the RM600 wage subsidy. He still has to pay his electricity bills and also the rental of more than RM10k for his three gyms and also the wage bills for his gym manager and 6 personal trainers (2 per gym) which works out to more than RM10k. He is likely to close one of his gyms after the end of the MCO and let go two of the personal trainers.

Example 7: Event Organizer

This event organizer specializes in organizing corporate functions like annual dinners and award dinners. This company has a payroll of close to 100 people since the events organized are big scale events which requires many people to coordinate. Some of the staff are also content creators for the publication arm of this company – video, articles, corporate write-ups. A majority of the employees have been with the company for more than 5 years and are earning a good wage (more than RM4k a month). Many events had been postponed or scaled down as a result of the COVID19 virus. The MCO has put a complete stop to these events. Given that the Director General (DG) of the Ministry of Health has advised against large scale gatherings for the next 6 months, this company has no choice but to undertake a Voluntary Separation Scheme (VSS). Given these circumstances, the RM600 wage subsidy and the discounts in electricity bills are not very helpful.

Example 8: Distributor of non-essential items

Distributor of non-essential items, mostly to the service sector employing about 10 people. He obtains his supplies from overseas and has experienced some bottlenecks in clearing his stock from Port Klang. Because of policy confusion among the ministries, he has not been able to transport his goods from his warehouse to his customers. When he finally managed to fulfil the orders of his customers recently, he was told that he would have to wait until the MCO is lifted before he can be paid since the products cannot be sold to customers during the MCO. If the MCO is extended until the end of April or later, he is not sure if he has the cashflow to continue to pay all of his 10 workers even with the RM600 per month wage subsidy.

Example 9: Mid-sized law firm

She is one of three partners in a mid-size law practice employing about 20 lawyers, 2/3rds of whom earn more than RM4000 a month. Because revenue / billings for clients are case dependent, she and her partners are not sure if the billings for the period of the MCO would have dropped by 50% compared to January 2020. In any case, because of the wage profile of her lawyers, the RM600 wage subsidy is hardly enough to cover the overheads. Difficult decisions will have to be made including retrenchment for non-partner senior lawyers because of their relatively higher wages.

Example 10: Printer in East Malaysia

Printer in East Malaysia which prints banners, posters, Chinese New Year and Hari Raya cards, angpows and duit raya packets, corporate diaries and so on. Employs about 20 people including graphic designers and marketing staff. Business has been slow because of the COVID19 virus. He has enough cash flow to sustain his operations for another 2 months. He is not sure if he wants to make use of the Special Relief Fund (SRF) loan facility provided by Bank Negara Malaysia for SMEs because he does not want to take on additional debt which he is unsure if he can service after the 6 month loan moratorium is over. In the meantime, he is contemplating how many staff he can retain for the rest of 2020 based on his projected revenue going forward.

These examples are not meant to be comprehensive. They are meant to illustrate the challenges which SMEs across the service and manufacturing sectors are facing now because of the direct and indirect impact of the COVID 19 virus which have been exacerbated by the MCO. The experiences of specific individuals and companies have been reported widely in the media.

The SMEs are crying out for help but until now, their cries does not seem to have been heard by the government. What they need is assistance to address the following three challenges: (i) Challenge of covering overheads as a result of the MCO (ii) Challenge of an uncertain business environment in 2020 after the lifting of the MCO (iii) Challenge of policy uncertainty (including the extension of the MCO or having another MCO later in the year). Will the government hear their cries this week, the third week of the MCO or will their cries continue to fall on deaf ears?