THE Malaysian micro, small, and medium enterprises (MSMEs) are the bedrock of the economy. They account for 37.4% of the nation’s economic output and account for 47.8% of the country’s employed persons. This is based on data from the Statistics Department.
In 2020, MSMEs' GDP contracted by 7.3% against the 5.5% contraction in the nation’s economy, while in 2021, the MSME registered economic growth of just 1% against the overall economic growth of 3.1%.
The key drag was within the services and construction sectors as MSMEs struggled to cope with the pandemic. Those involved in the construction sector contracted 15.4% and 4.6% in 2020 and 2021 respectively, while those in the services sector experienced negative growth of 9% and 1.2% for the same period respectively.
According to data from the Statistics Department, in 2021, Malaysia had 1,226,494 registered businesses that are defined as MSME and they account for 97.4% of total overall business establishments. Of this, some 964,495 businesses are defined as micro and they represent 78.6% of the total number of MSMEs in the country.
SMEs totalled 242,540 and 19,459 businesses and they account for 19.8% and 1.6% of total MSMEs respectively.
In terms of sector, 83.8% of our MSMEs are in the services sector, while construction and manufacturing represent 8.0% and 5.8% of total businesses respectively.
For the manufacturing sector, a medium MSME is one with an annual sales turnover of more than RM15mil but less than RM50mil per annum or having 75 employees or more but less than 200. A small MSME is defined as a business that has an annual sales turnover of more than RM300,000 but less than RM15mil or has a total number of employed persons of more than five but less than 75.
For the services and other sectors, a medium MSME is a business with more than RM3mil but less than RM20mil annual turnover or employs between 30 and less than 75 persons. A small MSME in the services or other sectors is a company with a sales turnover of between RM300,000 to RM3mil per annum or has a total number of employees of between five and not more than 30.
A micro MSME in any sector is a business with an annual turnover of less than RM300,000 per annum or employs less than five persons.
Funding issues, not having enough workers, compliance costs and meeting new legislative and regulatory changes are the key challenges faced by MSMEs, in particular for the small and micro MSMEs.
Funding aside, MSMEs today are faced with other challenges too and this includes environmental, social, and governance (ESG) issues as well as climate change while the introduction of any new legislation increases the cost of doing business in terms of compliance cost. As MSMEs are part of the entire ecosystem of product or services supply chain or are producers of the end products or services themselves, there is now a greater need for them to adopt ESG practices and to conform to demands made by stakeholders.
For micro businesses, lack of manpower is one of the biggest challenges due to the small nature of the business itself. With an annual turnover of less than RM300,000 a year, how does one expect nearly one million businesses to adhere to ESG best practices? What will be the implication if they do not meet the demands of what ESG entails?
In 2023, all micro-SMEs (excluding professional enterprises) would also need to adopt a minimum wage policy of RM1,500 per employee. Some of them are not ready for this and are struggling to stay afloat.
Sometimes the noise cancels out the music. We make grand plans, create Government organisations and propose great schemes for MSMEs. But the reality is some can’t avail to the facilities. It is as if there are two songs being played simultaneously. And no one is listening. There is need for more engagement with the Associations and more proactive thinking to keep them afloat. Many still need a moratorium – a further 6 months at least, to keep them above water. Can we do that?
Reference:
One size does not fit all, Pankaj C. Kumar, The Star, 5 Nov 2022
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