A year later, small businesses say feeling the pinch from Pakatan’s costly reforms

SMEAM president Datuk Michael Kang Hua Keong said that PH’s reform agenda was rushed into without factoring in the unique challenges faced by local micro and small businesses. — Picture by Choo Choy May
SMEAM president Datuk Michael Kang Hua Keong said that PH’s reform agenda was rushed into without factoring in the unique challenges faced by local micro and small businesses. — Picture by Choo Choy May

KUALA LUMPUR, May 8 — To small or startup firms, reforms are not necessarily good for business.

For them, tighter regulations, stringent environmental compliance standards, and labour market reform under Pakatan Harapan’s first year in power came at a very high cost.

And as the PH government enters its first year in Putrajaya, many of these low-capital companies say they just cannot cope, so one after another are forced to close shop.

Datuk Michael Kang Hua Keong, president of Small and Medium Enterprises Association of Malaysia (SMEAM), said in an interview last month that PH’s reform agenda was rushed into without factoring in the unique challenges faced by local micro and small businesses.

Consequently, smaller firms are forced to comply with “first world” regulatory standards more suited for medium or large-sized enterprises, which is driving operations costs up for businesses that typically run on a tiny budget and make less than RM300,000 average.

“A lot of them are still what we call backyard industry,” he told Malay Mail.

“They don’t have the capacity like those in the first world, so all these new regulations is very costly especially for the micro and small businesses whose profit margin tend to be very low.”

SME Corporation, a federal agency tasked to spur the sector, defines microenterprises as businesses that employs less than five full-time staff or with an annual turnover of less than RM300,000, both for the services and manufacturing.

But despite their small size, microenterprises account for 70 per cent of all SMEs and employ the most number of workers, with up to seven million staff under its payroll.

The PH administration, in recognition of the sector’s contribution to job creation, allocated RM17.9 billion to help spur SMEs under Budget 2019. It was among the biggest financial boosts the industry had ever received in recent years.

Yet, Hua Keong claimed the move yielded little positive effect for most micro industries, whose growth rely not only on adequate funding, but also a highly “supportive” business ecosystem.

The latter, the SMEAM president alleged, is what is lacking now.

He said the PH administration’s move to tighten regulations such as licencing, health and environmental certification, or impose a minimum wage and block foreign worker recruitment has hurt small businesses the most.

This, he believes, came as a result of PH racing to adopt legal and administrative standards set by rich economies.

“What they need is some flexibility,” he said. “For example you cannot expect a budget hotel to meet standards set for a three-star hotel. They don’t have the money.”

Startups, particularly, have struggled to keep up with the stricter requirements, according to Hua Keong. He claimed PH administration imposed additional industry licencing or certification criteria, which inhibits new businesses or toughens existing ones by piling on costs.

The SMEAM president cited the problem faced by small-scale food manufacturers as a good example of reform yielding unintended consequences: requiring producers to install a central waste management system as part of the government’s push to go green have strained their budget, and a number are forced to cut costs by laying off workers.

Hua Keong said such a requirement was far too costly even for small SMEs, a sector with an average turnover of between RM15 million and RM300,000 and RM3 million to RM300,000 for manufacturing and services respectively. They form around 25 per cent of SMEs.

“Small manufacturers just cannot afford,” he said. “Infrastructures like this, the government should help small companies instead...build more technology parks and house them there with a central waste management system.”

The sheer amount of industries involved at this level and the overlap of authorities that enforce and regulate makes it difficult to verify Hua Keong’s assertion. SMEs account for nearly all the country’s businesses, employing up to 10 million people.

But as the president of a group that represents SMEs, Hu Keong claimed the complaints underscored genuine industry grouses that are often disregarded with “suspicion” because the new government prefers policies that are grounded on idealism, and not pragmatism.

“We support the leadership of Tun Dr Mahathir Mohamad and we believe in his idea of Malaysia Incorporated,” he said, referring to the private-partnership drive that marked the Mahathir administration of the 90s.

“But we need a clear and supportive policy. We want the government to listen, to heed our advice and not just listen to third parties, or socialists.”  

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