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Factory workers in Shah Alam, Malaysia. Photo: Reuters

Coronavirus: Malaysia’s lockdown dooms 150,000 SMEs, fuelling fears of exodus by multinationals

  • The closure of small and medium-sized enterprises has led to 1.2 million job losses and hurt the supply chain for MNCs, an industry group says
  • Vaccinations are key to reopening economy as demand from US and China picks up, but the government must also have a clear plan, an analyst says
Half of Malaysia’s 900,000 small and medium-sized enterprises (SMEs), which employ about 50 per cent of the country’s 15.9 million workers, could fold if the current Covid-19 national lockdown is extended beyond September, an industry group has warned.

Since the pandemic broke out last year, at least 150,000 SMEs have shut, resulting in 1.2 million job losses, the Small and Medium Enterprises Association of Malaysia (Samenta) said.

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More than 90 per cent of all companies in Malaysia are SMEs. In 2019, the 900,000 such firms employed 7.3 million people, contributing some 550 billion ringgit (US$130 billion) to the economy that year.


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“We are talking about half of that [US$130 billion] being wiped out, and there is no meaningful way that it can be recovered through other means in the short term,” said William Ng, chairman of Samenta Central. “This would create mass unemployment that even our informal sector and gig economy would not be able to support.”

Malaysia went into a total nationwide lockdown from June 1, shutting all social and economic sectors except essential businesses, as the number of daily Covid-19 infections exceeded 8,000.

A food delivery rider in Kuala Lumpur rides in an empty street amid the lockdown. Photo: DPA

The government has said the economy will reopen in stages when the average number of daily cases falls below 4,000. During this phase, companies will be allowed to welcome back up to 80 per cent of staff into the workplace.


On Thursday, Malaysia recorded more than 13,000 infections, underscoring the challenge it faces in containing the pandemic and dashing hopes of reopening the economy any time soon.

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MP Ong Kian Ming of the opposition Democratic Action Party said there was a “total lack of coherence” by the government on how to restart the economy in a safe manner that prevented further loss of lives and livelihoods.

“Far too many businesses are feeling hopeless because they have lost confidence in this government’s ability to come up with sensible and logical policies during this pandemic,” said Ong, a former deputy minister of international trade and industry.

SMEs have not received enough assistance and if the lockdown continues, “many more of them will be shuttered, perhaps permanently”, Ong said.

A worker at a plastic containers factory in Pulau Indah, Malaysia. Photo: Reuters

Those that are still in business are worrying over their future.

Wong, the owner of a company in Kuala Lumpur that supplies building materials, said he had recorded no revenue for the past two months but was still paying his suppliers in Europe.

Despite the loss of income, the businessman has not cut salaries or retrenched any workers as they were like a “close-knit family” to him. To conserve resources, all investments on product research and business development had also been put on hold, added Wong, who asked to be known only by his last name.


“To continue paying salaries while not having any revenue is a huge responsibility and financial burden. But now is the time to help them,” he said, adding that many of his workers had been at his firm for more than 10 years.


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Impact on multinationals

The shrinking SME sector was a worrying development as such businesses accounted for 98.5 per cent of all firms in Malaysia and nearly 40 per cent of the country’s pre-pandemic GDP, said Yeah Kim Leng, professor of economics at Sunway University Business School.


The impact on the country’s output would amount to some 6.6 per cent of GDP, he said.

Samenta’s Ng said many SMEs were part of the supply chain of multinational corporations (MNCs) in Malaysia. “We can expect an exodus [of MNCs] by year-end if our SMEs are allowed to fail,” he said.

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On July 12, finance minister Tengku Zafrul Abdul Aziz told Bloomberg that Malaysia would lower its growth outlook for this year, signalling the government may forecast a growth rate of around 4 per cent, down from its earlier forecast of 6 to 7.5 per cent.


But Yeah said the positive GDP growth anticipated this year “may not materialise if the lockdown continues through the rest of the year”, as the number of business closures, bankruptcies of firms and individuals, loan delinquencies, job lay-offs and wage cuts continued to grow.

“If the pandemic [is not contained], the economy could reach a tipping point that makes it harder to resuscitate, especially if some of the manufacturing production that is part of the global supply chain shifts to other countries,” he said, adding that it could also affect Malaysia’s long-term goal of becoming a high-income nation.

A man receives a Covid-19 vaccine dose in Kuala Lumpur, Malaysia. Photo: EPA-EFE

Unemployment woes

Malaysia’s economy shrank by 5.6 per cent last year, more than the 1.5 per cent decline in GDP caused by the global financial crisis in 2008 but less severe than the 7.5 per cent contraction during the 1998 Asian financial crisis.

“However, the unemployment rate currently stands at 4.8 per cent, worse than during the Asian financial crisis when it peaked at 3.4 per cent in 1999 before trending down,” Yeah said.

When the pandemic first broke out last year and Malaysia went into a nationwide lockdown, the unemployment rate shot up to 5.3 per cent in May from the pre-pandemic average of 3.3 per cent.

In April this year, it inched downwards to 4.5 per cent.

“If the current nationwide lockdown is extended, we may see unemployment spiking up to above 5 per cent as experienced at the outset of the pandemic last year,” Yeah said.

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While banks and financial markets have weathered the crisis relatively well, SMEs and the hospitality and tourism-related sectors have borne the brunt of the damage.

In the first nine months of 2020, tourist arrivals to Malaysia fell by 78.6 per cent to 4.29 million from 20.1 million in the previous corresponding period.

The delay in reopening the economy and postponed investment activities would dent rehiring and job creation, Yeah said.

“For businesses and firms that have shut permanently or relocated to other countries, the loss of jobs will be permanent,” he said.

Job growth is closely tied to economic revival and the adjustment of various sectors and industries to the post-pandemic landscape.

Yeah said Malaysia needed to focus on creating high-skilled, higher-paying jobs that involved automation, industrial upgrading and the adoption of digital technologies to reduce its reliance on cheap foreign labour.

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Political uncertainties are also weighing in on the country’s recovery. Earlier this month, the United National Malays Organisation (Umno) announced it would withdraw its support for the Perikatan Nasional alliance led by Prime Minister Muhyiddin Yassin. Umno is part of the ruling coalition.

“The heightened political uncertainties, although having minimal impact on daily lives and functioning of the markets, are compounding the country’s woes in containing the pandemic and further loss of lives and livelihoods,” Yeah said.

“In the medium to longer term, the unstable government and policy direction will have a damaging impact on investor confidence and the country’s investment attractiveness to both local and foreign investors.”

Vaccination led-exit

In the meantime, the country has been ramping up its vaccination programme in a bid to inoculate 80 per cent of the population by the end of the year.

Yeah said the accelerated immunisation plan was expected to sufficiently reduce daily new cases to allow for a loosening of restrictions on economic activities, especially factory operations, in the coming months.

The recovery in global demand led by China and the US also “augurs well for a quick resumption of Malaysia’s economic growth trajectory”, especially for the electronics and automotive sectors, as well as parts and components suppliers.

“Once the pandemic subsides, expected by the end of the year, the release of the pent-up domestic demand will complement the external-led impetus in sustaining growth momentum,” Yeah said.

Boxes of the Sinovac Covid-19 vaccine in a warehouse in Shah Alam, Selangor. Photo: Bloomberg

But the government also needed a strong blueprint for exiting the crisis, he said.

“The vaccination-led exit strategy will need to be complemented by clear and comprehensive short, medium and long-term economic plans to resuscitate the hard-hit industries, reinvigorate the fragile sectors and unleash the technology-intensive and innovation-led sectors that include green growth and digital industries,” he said.

SME owner Wong said Malaysia was “so far doing a good job” with the vaccination drive.

The country now has one of the world’s fastest vaccination rates, with more than 500,000 vaccines shots administered on Thursday. About 33.2 per cent of Malaysia’s 32.7 million people have received at least one vaccine dose.

While the trend is encouraging, business stability is still shaky as virus variants continue spreading, Wong noted.

“The possible emergence of more dangerous variants like Delta will force our shores to be closed or movement restrictions to apply for some time yet,” he said.