Overview of SMIs/SMEs – Meeting Future Challenges

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SMEs which represent around 99.2% of total business establishments in Malaysia and provide employment for about 56% of the total workforce are an important source of growth for the nation. They will play a major role in Malaysia’s new economic model which envisions transforming Malaysia from a middle-income economy to a high-income economy.

2010 continues to be a challenging year for Malaysian SMEs as economies around the world strive to recover from the global economic and financial crisis. While the government put in place measures to assist local businesses and cushion the impact, continued success and the viability of existing businesses are dependent on the proactive measures taken by SMEs.

Past SME Performance

The Annual SME Report 2008 highlighted that despite the economic slowdown, SMEs in the manufacturing sector continued to maintain high productivity in 2008 led mainly by the export-oriented industries. Similarly, productivity in the services and agriculture sectors continued to increase with the former supported by the transport, trade and finance subsectors, while the latter was encouraged by high commodity prices resulting in revitalisation of idle land. The report emphasised on the instrumental role of ICT such as internet, e-payments and e-commerce in enhancing efficiency, productivity and performance of SMEs. Output and productivity in the manufacturing and agricultural sectors are shown in the tables below.

overview of SME chart

Malaysia’s target is to increase the contribution of SMEs to Gross Domestic Product (GDP) from the 32% charted in 2005 to 37%, exports from 19% to 22% and employment from 56% to 57% in 2010.

defination of sme

Strengthening SMEs – Budget

The government continues to focus on the development of local entrepreneurs, particularly small and medium enterprises (SMEs) in the 2010 Budget proposal.

Currently, there are 79 SME funds and grants totalling RM8.8 billion administered by various agencies. To further simplify access to SME financing, the government is taking steps to consolidate these funds to 33 and for a move for all these funds to be coordinated by SME Corp. The government will also allocate RM538 million for the implementation of various SME development programmes.

A summary of major incentives applicable to SMEs include:

  • RM350 Million to SME Corp for soft loans, capacity enhancement, branding and promotion. The interest rate on soft loans offered by SME Corp will be similar to rates offered by development finance institutions.
  • RM281 million to state economic development corporations.
  • RM200 million for Tabung Kumpulan Usaha Niaga (TEKUN). To enhance TEKUN’s management efficiency, loan approval and repayment processes will be restructured to improve effectiveness to benefit more entrepreneurs.
  • RM57 million for the purchase of business premises, provision of infrastructure outside industrial areas and Skim Kilang Bimbingan among others through SME Bank.
  • RM6 billion for agriculture sector.
  • RM82 million to develop the aqua culture industry.
  • RM899 million for the development of the tourism industry.
  • RM1.5 billion in soft loans for companies employing green technology.
  • RM2 billion in subsidies for farmers and fishermen.
  • RM200 million for the Creative Industry Fund.
  • RM300 million to UDA Holdings to build 300 units of Kedai Desa nationwide.
  • 15% tax rate for local and foreign knowledge workers residing and working in Iskandar region.
  • Corporatisation of Halal Industry Development Corporation (HDC).
  • Tax breaks for SMEs who register their patents and trademarks.
  • Speedier Micro financing approval in six days and disbursement of funds in four days.
  • Low insurance premium for SMEs to safeguard their businesses.
  • Ar-Rahnu micro credit programme to be offered by syariah compliant financial institutions.
  • Tax incentives for healthcare service providers who offer services to foreign health tourists.
  • Tax exemption up to 100% for additional capital expenditure incurred to obtain Green Building Index (GBI) certification of buildings.
  • RM3.5 billion for basic infrastructure and amenities as well as training programmes and socio economic programmes to spur growth of economic corridors.

The emphasis of the budget is on advancing the role of the private sector as the main driver of economic growth and to move the country towards a high income economy. These initiatives are in line with the government’s long-term vision to integrate SMEs into the New Economic Model that primarily will be based on innovation, creativity and high value-added services as well as human capital development. This approach is essential as Malaysia transforms itself into a high-income nation, leveraging on high technology and skilled workforce.

small debt resolution scheme

Meeting Future Challenges

SMEs form the backbone of the economy, as an important economic agent that contributes to job creation and income generation. The government has put in place a number of strategies geared to further develop existing industries and also create new business opportunities for SMEs centered on potential new growth areas through, support, infrastructure, institutional framework and appropriate incentives.
Growth areas identified include among others those in electrical and electronics, medical devices, textiles and apparel, machinery and equipment, petrochemicals, pharmaceuticals, wood-based, rubber and rubber-based products, oil palm-based and food processing.
Biotechnology

One of the main sectors being promoted is the biotechnology sector. Various programmes that include facilitating business start-ups, capacity building and product development are offered to those venturing into the sector. Ranging from agro-biotech, healthcare and industrial biotech, the biotech sector serves as a new source of growth, especially for SMEs that can develop niche products and services.

New Technologies & Green Technology
Various initiatives are made available for SMEs in their effort to acquire new technologies such as the Technology Database, Technology Roadmap Repository, development of i-SMEs as well as the Technology and Innovation Showcase.

There is strong emphasis on green technology and innovation for the year. Strategies to effect growth in this sector are outlined in the National Green Technology Policy and various incentives will be given to encourage R&D together with a supportive regulatory framework.

Service Sector Liberalisation

The liberalisation of the services sector is also expected to spur investments in new areas and create higher value employment opportunities. The services sector is expected to continue to be a key driver of growth and adopting new technologies will be key factors, especially in non-traditional services such as information communication technology, health, education, shared service and outsourcing.
Other niche growth areas identified include Islamic finance, halal food industry, ICT, tourism (education and health) and resource-based industries. To promote high value-added agriculture, emphasis will be placed on aquaculture, floriculture, deep-sea fishing and seaweed production.

Conclusion

Succeeding in the current difficult times will require local SMEs to venture into new markets and explore new opportunities as well as equip themselves with capability and technical know-how. At the same time there is a need to take measures to be prepared to meet any downturns or grab the opportunities offered by an uptrend in the market.