MSMEs Continue To Progress In 2024 Despite Digital Challenges

By Durratul Ain Ahmad Fuad

KUALA LUMPUR, Dec 22 (Bernama) – Malaysia’s micro, small, and medium enterprises (MSMEs) have continued to progress this year despite facing challenges in adapting to market changes and regulatory shifts, particularly in their transition towards the digital-first economy.

At the same time, MSMEs are also looking forward to collaborating with the government to address trade barriers and create more opportunities, while continuing to play a vital role as the backbone of the country’s business sector.  

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Challenges and Progress for Digital-First SMEs

Small and Medium Enterprises Association (SAMENTA) president, Datuk William Ng, highlighted that small, and medium enterprises (SMEs) that have embraced digitalisation are thriving.

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However, traditional businesses that have yet to adopt new technologies have been struggling to boost their sales -- further proof that their need to become digitally adept is necessary to ensure their business survival in a technological era.

Ng noted that recovery post-pandemic has been encouraging, especially for SMEs in growth sectors such as semiconductors, business services, agriculture and artificial intelligence (AI).

“However, businesses in the retail sector, for example, had to contend with the emerging consumer preference for e-commerce and the involvement of foreign players, notably from China.

“This has led to higher rental costs and a decline in both volume and value of sales,” he said.

Additionally, the increased compliance requirement related to environmental, social, and governance (ESG) reporting has caught many SMEs off-guard, forcing them to go through a steep learning curve to comply with requirements set by principals and customers, he said.

Ng said SMEs that embraced digitalisation and AI in their operations from the outset have benefited from the flexibility that comes with the technology, as it allows them to operate from anywhere, and the employees can work from home when necessary. 

“Unfortunately, many traditional businesses are struggling to adapt, which has resulted in declining profit margins and stagnating sales,” he added.

To help them adapt, SAMENTA has conducted more than 12 seminars and events to encourage SMEs to digitalise, including in partnership with government agencies such as Malaysia Productivity Corporation, Malaysia External Trade Development Corporation (MATRADE) and SME Corp.

“We plan to intensify these efforts in 2025 to ensure more SMEs can transition successfully,” Ng added.  

Shifting the narrative for SMEs

Ng stressed the need to broaden the narrative for SMEs, particularly since 84 per cent are in the services sector.

“Focusing solely on industrial development and exports is insufficient. We need to change the narrative from ‘Made-in-Malaysia’ to an ‘Innovated-by-Malaysia’ to allow our creative economy, including SMEs involved in research and development, branding and packaging design, retail, financial services, training and distribution sectors to benefit from a stronger national brand,” he said.

He added that SAMENTA will continue to work with various government agencies to reduce the costs and barriers to doing business for SMEs.

“We can continue to incentivise our SMEs to get into the high growth, high-value sectors – but the majority of SMEs are more concerned about the bread-and-butter issues.

“Hence, keeping inflation low and reducing red tape at all levels of government, will be far more helpful than any amount of grants or incentives,” Ng said.  

Government Support for SMEs

Under Budget 2024, the government allocated RM44 billion specifically for loans and financing guarantees for SMEs.

From January to August, RM5.76 billion in financing was provided to 261,651 MSME entrepreneurs through the Entrepreneur and Cooperatives Development Ministry (KUSKOP).

This helped to enhance the capacity and capability of MSMEs through integrated and targeted development programmes, such as the Vendor Capacity Development Programme 2.0, which involved 30 vendor companies with an allocation of RM3.5 million.

According to KUSKOP, as of Sept 30, 2024, SME Corporation Malaysia started implementing the Business Accelerator Programme for 197 MSME entrepreneurs with an allocation of RM34.12 million.

On Sept 19, the Statistics Department (DOSM) reported that the number of MSMEs grew from 907,065 in 2015 to 1.07 million in 2022, while gross output increased from RM1.0 trillion in 2015 to RM1.3 trillion in 2022, reflecting the increasing importance of MSMEs to the economy.

As such, it does not come as a surprise that MSMEs contributed 39.1 per cent or RM613.1 billion to the nation's gross domestic product (GDP) last year.

The services and manufacturing sectors were the main contributors to MSMEs’ GDP, representing 84.8 per cent of the total, with the agriculture sector contributing 9.1 per cent, followed by construction (4.5 per cent) and mining and quarrying (0.5 per cent).

Impact of Diesel and Likely RON95 Rationalisation on Businesses

On the diesel subsidy rationalisation, Ng expressed his concern about the potential removal of RON95 fuel subsidies.

"Therefore, if possible, we ask the government not to remove the RON95 subsidy abruptly but to do it gradually so that SMEs can adapt and absorb the increased operational costs.

"Otherwise, it will cause the prices of goods to increase by around 30 to 50 per cent if implemented at once,” he said.

-- BERNAMA