Published February 19, 2009

Falling local sales worry Malaysia SMEs

Some are seeing orders shrink by as much as 80%

By PAULINE NG
IN KUALA LUMPUR

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CURRENTLY surviving on past orders, Malaysian manufacturers say the dearth of new ones could tip them over, particularly if domestic demand continues to slip in the same way that global consumption has all but disappeared.

The warning comes on the heels of manufacturing sector sales plunging nearly 21 per cent in December to RM37.4 billion (S$15.6 billion) from the previous year and 17.2 per cent month-on-month.

Of 106 industries covered by the department of statistics, 63 posted a drop in sales value, the largest falls recorded in refined petroleum products, electrical and electronics, and basic industrial chemicals.

Small to medium sized enterprises (SMEs), which employ 5.6 million or slightly over half of the country's workforce, have seen orders dry up by 50-60 per cent - in more extreme cases 80 per cent, according to SMI Association of Malaysia president Chua Tiam Wee.

'It came about pretty fast in the last three months; the next six months will be crucial as we expect the situation to deteriorate especially in the export and commodity-based industries,' he told BT.

There are an estimated 548,000 SMEs and they account for 99.2 per cent of the 600,000 active companies registered in the country. Because they form the back-bone of the economy, their health is a good barometer of the economy.

According to the secretary of the association, Lee Teck Meng, 90 per cent of 45,000 upstream manufacturers were already in 'crisis mode' owing to the sharp reversal in demand. He added that the majority of SMEs do not have reserves which can tide them beyond half a year.

In the past three years, domestic consumption had been a reliable engine of growth, expanding steadily by double digits annually. However, it has begun sputtering noticeably especially after the Chinese New Year period. Given Malaysians' love of eating, many take the 15 per cent decline in food product demand as a significant indication of serious belt tightening.

Mr Chua believes that steps must be taken quickly to boost domestic demand if jobs and companies are to be saved. 'Of some consolation is that 27 per cent of our SMEs manufacture for export, but the bulk or 70 per cent are focused on the domestic market.'

Besides ensuring that banks keep credit lines open, he suggested the government's forthcoming second stimulus programme be as broad-based as possible, with a focus on maintaining disposable income.

A second round of pump-priming in the form of a mini-budget is expected in March but because nothing has been seen of the first stimulus injection of RM7 billion announced in November, there are grave concerns that the attempts could fall short.

On the employment front, official statistics reveal that 1.031 million were employed in the manufacturing sector in December, nearly 20,000 or 2 per cent less than in November. The number was 68,106 or 6.2 per cent less than a year ago.

Already on shorter work hours and fewer shifts, many SMEs say retrenchment of local workers will be a last resort. Many employ foreign workers - some up to 40 per cent of their workforce - and will not renew contracts.

Mr Chua proposed that an existing RM2 billion SME fund be enlarged as most of the allocation has already been taken up. Other suggestions include the reduction of corporate taxes, stamp duties and service taxes, as well as allowing firms to offset profits in previous years with anticipated losses in the coming years.

Privatisation or outsourcing the management of planned infrastructure projects might help fast track their implementation, he added.