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IDEAS: Government’s COVID recovery strategy must prioritise the resilience of SMEs

  • The series of movement control orders (MCO) imposed last year to curb the spread of Covid-19 has led to massive disruptions in business operations, and the reintroduced MCO 2.0 is likely to disrupt our economy further in the coming months.
  • Past economic stimulus packages (ESPs) rolled out to support SMEs in the worst-hit sectors, namely, manufacturing, retail, and tourism, were crucial in alleviating the financial constraints of many industry players, but there were a number of implementation gaps and overall focus on survival, rather than building resilience.
  • IDEAS calls for future ESPs to be implemented more effectively and for the government to pursue a COVID recovery strategy which supports SMEs to build resilience for future shocks.

Kuala Lumpur, 27 January 2021 Institute for Democracy and Economic Affairs (IDEAS) has published Policy IDEAS No. 70, “Post COVID-19 Recovery: Building SME Resilience”, co-authored by IDEAS research manager, Lau Zheng Zhou, research assistants, Sabrina Tang and Yohendran Nadar Arulthevan. Lockdown measures such as last year’s MCO and the current MCO 2.0 have restricted mobility, limited operating hours for businesses and imposed mandatory closure of non-essential services have badly hurt the economy. According to Bank Negara Malaysia, our near-term growth in 2021 will be affected by the re-introduction of stricter containment measures. Hence, it is vital that the government offers robust and comprehensive economic stimulus packages (ESPs) to all the SMEs to sustain businesses and promote a more sustainable economic recovery in the future.

The report offers evidence-based insights for policymakers to better understand shortcomings in policy measures and potential areas of growth by assessing the ESPs in some of the worst hit sectors (Manufacturing, Retail and Tourism) in Malaysia.

The report concludes that the majority of initiatives in the ESPs focussed on responding to the immediate crisis, with significantly less focus on building resilience for the future. The report highlights several challenges with the rollout of government support to SMEs, including the timeliness of support, lack of awareness among SMEs and practical challenges accessing support. The report also identifies several challenges with measures intended to help SMEs to adapt to the “new normal” through digitalisation and automation. For example, the hidden costs of moving online, such as commissions and different staff requirements, has hampered the transition for many smaller retailers. In manufacturing, government grants for automation have tended to skew to higher-tech projects, when many SMEs are concentrated in the low technology sectors and therefore miss out on support.  Across the board, a high rate of informal workers and businesses had limited access to support.

The key recommendations based on the findings of the research are:

  • Implementation gaps in the government’s crisis response measures should be addressed to better prepare for future crises.
  • Public policy nudges towards automation ad digitalization need to match with current industry needs and capabilities.
  • Regulatory reforms are recommended to increase adaptability of industry players to all situations.

IDEAS CEO Tricia Yeoh commented, “As Malaysia is still healing from the lockdown measures in 2020, I urge the government to consider the recommendations this paper puts forward as Malaysia enters another round of lockdown in 2021. Economic measures in the past and ESPs implemented did not benefit a majority of SMEs due to implementation gaps such as information asymmetry, lack of timely updates and ineffective disbursement method for relief funds. Furthermore, policy focus in 2020 seems to lag behind in terms of providing certainty in the direction of future economic development. Hence, there is a pressing need for future ESPs or national Masterplans to be rolled out more effectively to address existing structural challenges to help SMEs build resilience.”

The paper, “Post COVID-19 Recovery: Building SME Resilience” can be downloaded here.

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2021-01-27T14:18:11+08:00 27th January 2021|Media Statements|Comments Off on IDEAS: Government’s COVID recovery strategy must prioritise the resilience of SMEs