MARCH 12 — The conflict in the Middle East, especially the impact on oil prices and supply-chains is providing a significant shock to the global economy and spiking, volatile oil prices and fracturing trade routes are delivering a sharp jolt to the global economy. 

Large corporations have contingency funds, risk teams, and boardroom strategies to respond to this but most of Malaysia’s small businesses have none of that. Nonetheless writing them off would be a serious mistake.

Just over one million micro, small, and medium enterprises (MSMEs) generated 39.5 per cent of Malaysia’s GDP in 2024, driven overwhelmingly by services and manufacturing, which together account for 84.7 per cent of the MSME base. 

Agriculture, construction, and mining make up the remainder. On exports, MSMEs contributed 14.3 per cent of total shipments, which the New Industrial Master Plan (NIMP) 2030 aims to grow to 25 per cent. 

Behind those statistics sits a more human number, 8.1 million Malaysians or nearly half the entire national workforce, draw their wages from MSMEs. 

Microenterprises dominate the sector at 70.1 per cent of the total, with small firms at 28.2 per cent and medium enterprises at just 1.6 per cent.

What happens to them now hinges on a single variable: how long this conflict lasts. Fortunately, history offers a useful guide, and three scenarios emerge, two probable, one less so.

The most likely outcome is a short shock. Washington has already declared most of its strategic objectives met, suggesting a contained conflict. 

If that holds, the trajectory would resemble the aftermath of the 2003 Iraq War, an initial spike in oil prices and market volatility, followed by a relatively swift recovery. 

Global markets stabilised faster than most expected after “shock and awe”; supply chains adapted; prices normalised. Malaysian MSMEs, in this scenario, face a temporary disruption that most can absorb.

Three structural features explain their resilience. First, the vast majority of MSMEs serve domestic customers with established relationships that Middle Eastern turbulence simply does not reach. 

Second, most carry a cash-flow buffer of two to three months, enough to absorb a short shock without cutting staff. MSMEs as employers are deeply reluctant to shed workers unless forced. 

Third, facing fierce local competition, most MSMEs will squeeze their own margins before passing costs on to customers. The pain will be real but manageable.

The second scenario is a conflict stretching across several months which is less likely given current signals but not implausible. 

The Covid-19 lockdowns taught us that “temporary” crises have a habit of extending themselves. 

A prolonged surge in oil prices would gradually erode the margins of businesses dependent on imported components and the cumulative pressure on cash flows would test even resilient operators. 

That said, Malaysia enters this period with a meaningful advantage because the ringgit’s current strength against most global and regional currencies makes import costs cheaper, while government subsidies on petrol, diesel, and electricity keep fuel and power bills from spiralling.

A prolonged, open-ended conflict is the least likely scenario, but it would demand a wholesale rethink of policy support for MSMEs. 

Even without that worst case materialising, the current volatility is itself a signal. Crises reveal structural vulnerabilities that calmer times obscure and this one is no different.

This moment, in our view, is precisely the opportunity policymakers should seize, not merely to cushion MSMEs against a passing shock but to accelerate their transformation. 

The government already provides significant support through concessionary finance and grants, but three realities about MSMEs must shape how that support is designed.

First, many MSMEs are culturally averse to debt, even on generous terms so financial assistance alone will not move them. 

Second, the overriding anxiety in any small business is cash flow and the fear of missing payroll, not covering running costs or running dry. What helps most here is direct, unconditional relief, lower taxes and cash-flow grants untethered from training requirements or bureaucratic conditions.

Third, the burden of compliance and regulation remains a daily drag on MSME productivity. Cutting red tape is not a political slogan for these businesses, it is the difference between thriving and merely surviving. 

Freeing MSMEs to make their own decisions on wages, investment and technology adoption is the single most powerful lever available to government.

Beyond stabilisation, the government must also push MSMEs toward new business models. E-commerce adoption, AI-powered marketing, and above all, sharing economy platforms offer pathways to markets that were previously inaccessible: local, regional, and global. 

The Malaysian Digital Economy Corporation (MDEC) already runs effective programmes supporting sharing economy initiatives. 

Smart, cross-ministry policy coordination could transform these programmes from useful pilots into genuine engines of MSME competitiveness.

The institutional architecture is already in place. SME Corporation, SME Bank, the SME Association of Malaysia, and Samenta which is Malaysia’s oldest SME organisation, collectively offer the outreach, resources and development programmes that could amplify any government push. 

What is needed now is not new institutions but sharper coordination, bolder ambition, and a willingness to treat this moment of disruption as the starting pistol for long-overdue structural change.

Malaysian MSMEs have weathered shocks before. With the right policy response, the storm blowing in from the Middle East need not be a crisis. It can be a catalyst. 

* Dr Paolo Casadio and Dr Geoffrey Williams are independent economists and policy specialists in the Asia-Pacific region. The views expressed are their own.

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.