World Bank: Malaysian SMEs have less cash flow to withstand Covid-19 crisis compared to peers in Indonesia, Vietnam

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A row of shops are closed for business in Kuala Lumpur January 13, 2021. A median Malaysian company only has two months of cash flow left, the World Bank found. ― Picture by Shafwan Zaidon
A row of shops are closed for business in Kuala Lumpur January 13, 2021. A median Malaysian company only has two months of cash flow left, the World Bank found. ― Picture by Shafwan Zaidon

KUALA LUMPUR, June 24 — Malaysian firms beset by cycles of movement curbs are less equipped to withstand shocks compared to their regional peers, with less cash in hand to face a crisis like Covid-19, the World Bank said in its latest Economic Monitor report.

A median Malaysian company only has two months of cash flow left, while the average firm has about 4.9 months worth, which is lower than its counterparts in countries like Indonesia and Vietnam, the institution said, citing findings from its Business Pulse Survey that analysed the pandemic’s impact on businesses.

Malaysian companies, especially smaller and micro enterprises, now face pressing liquidity constraints as mobility restrictions hit both production and demand. Over half of those surveyed also said they are either far behind in debt repayments or face risk of falling into arrears.

“In addition, 60 per cent of firms are either in arrears or at risk of falling into arrears within the next six months,” the report said.

“Firms appear to be less willing to borrow due to fear of repayment risks, with sellers also appearing less willing to provide credit.”

The World Bank said the Covid-19 crisis has exposed longstanding structural weaknesses of local SMEs, which have been underperforming those in peer countries, both in terms of output and productivity levels even before the pandemic hit the country.

SMEs contribute to around half of all employment in the manufacturing sector but only account for 31 per cent of output, underscoring weak productivity. In the services sector, Malaysian firms’ labor productivity levels lag behind those of its aspirational and transitional comparators, the study found.

The productivity gap could be further widened by Covid-19’s impact on tourism and retail sectors, the bank said. Analysis of the BPS data shows that the pandemic has had an asymmetric impact on sectors and regions.

“In particular, the food & beverage sector experienced higher closure rates, particularly in the northern states, where vendors largely rely on travellers from Kuala Lumpur and Selangor to patronise their food trails,” the report said.

“By contrast, other manufacturing sectors have experienced particularly high closure rates in East Malaysia.”

The bank said the differences point to the need for tailor-fit policies and programmes to identify sectors or regions where more support is needed.

Malaysian SMEs have been slow to invest in upskilling and research and development compared to its peers.

Analysts have said Malaysia needs government support for deeper structural changes to get the country out of the middle-income trap, but political leaders have been slow to act. The government had aimed to be a “high-income nation” by next decade.

The World Bank said without accelerated economic transformation, the country had limited potential to create high value jobs.

The June edition of the Economic Monitor report was released yesterday.

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