Do we need another SME master plan?

 

The SME Master Plan (2012-2020) ended just as the Covid-19 lockdowns began to hit small and medium enterprises (SMEs) hard.

Many thousands closed and will never reopen and many thousands more have still not recovered.

This is leading some, mostly consultants in the master plan business, to call for a new SME master plan to continue the work of the past.

We can only hope that these calls will fall on deaf ears because the last SME master plan was not the high impact, “game changer” it was designed to be.

SMEs account for 97% of all companies in Malaysia and are often called the “backbone” of the economy. The reality is rather different.

Around 78% of SMEs are micro-enterprises with fewer than five staff. Most do not have regular income nor declare profits.

By 2020 they accounted for less than half of employment, 48% against the target of 62% in the SME Master Plan. They contributed 37.4% to GDP and 13.5% to exports … below the targets of 41% and 25% respectively. This got worse during the pandemic.

In Germany for example, SMEs account for 99% of companies, 54% of employees and 60% of GDP value-added. They are also responsible for 70% of training and account for 17% of exports.

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Part of the underperformance is because the SME Master Plan was poorly designed and implemented. By its nature the SME sector should be vibrant, competitive and agile but government plans often crush entrepreneurs.

Many do not know of the opportunities or do not know how to apply. Many more do not qualify because they have no track record, their documents are not in order, their cash flow is irregular or their credit rating is poor.

Others are cautious about soft loans because they do not want to take on any form of debt or they do not want to share private information with government agencies. They also do not want to deal with compliance red-tape.

Training and other capacity building programmes are not interesting or take time from the business which SME owners cannot afford when they are working 24/7.

There are many other reasons why SMEs have not been interested, and which schemes have not been taken on board. Often the schemes are simply not relevant to their businesses.

SME initiatives are often spread across ministries or agencies and there are too many replications as well as small projects and programmes aimed at specific interest groups. This causes confusion in aims, design and implementation, making the impact ineffective.

So it is expensive and time-consuming to develop a new master plan when the problems SMEs face are already well known.

Instead the government should get out of trying to help or worse run SMEs and simply make life easier for them by reducing taxes, raising tax thresholds and exemptions, cutting red-tape for permits and regulations and opening more opportunities for government and government-linked companies (GLCs) contracts. They can also privatise small and unprofitable subsidiaries of GLCs to stop them from competing with SMEs.

They should help SMEs with cash flow problems by forcing large companies to pay early and easily. Delayed payments by big companies and government agencies to SMEs severely damages cash flows and holds back business growth.

Scaled-up programmes are much better along with less red-tape for SME development. The SME ecosystem should be redesigned with feedback from SME associations such as Samenta and should remove government interference rather than create new plans for government intervention.

Above all, with the gig segment accounting for more than 25% of the economy, the entire concept of SMEs and the small enterprise ecosystem needs to be re-imagined. This cannot be done with yet another master plan. - FMT

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The views expressed are those of the writer and do not necessarily reflect those of MMKtT.