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Malaysia: Forget about politics, what really has to be done Malaysia: Forget about politics, what really has to be done
by Murray Hunter
2021-06-22 07:52:59
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Over the last week, political pundits have been reporting the events and rumors around the Yang Dipertuan Agong, or King Sultan Abdullah Sultan Ahmad Shah, calling up all political leaders one by one for meetings. With each meeting, there have been various proposals made for how Malaysia should be governed in the short-term, and stories of who will step aside for who, although some of these stories are deliberately misleading to confuse.

In the middle of this week, a council of rulers meeting is planned to be held. This meeting will not solve the crisis, but frame the modus operandi the king will use to come to a decision. A decision many are not privy too. Any formula for a solution to Malaysia’s current political problem, at this stage is only speculation.

However, no matter what solution is reached, what parties and personalities govern, whether it be by emergency decree or subject to the scrutiny of parliament, the nation’s problems are the same.

After the dust settles later this week, the new government, if there is to be one, must focus on governing, and solving the country’s immediate issues.

What requires urgent action by the government?

maly001_400There has been a general feeling by the business community and much of the general public, that attention on what needs to be done in the economy has been disrupted through political infighting. The current situation, midway through 2021 is critical to the very survival of hundreds of thousands of micro-enterprises and SMEs, with the continuation of the EMCO. The SME sector is critical as it directly creates 39.9 percent of GDP, and employs 7.1 million people, 58.4 percent of the total workforce, and many more within the informal sector.

There are lessons to be heeded from the same situation twelve months ago when the country was under a similar Movement Control Order (MCO). Insufficient funds went to households to directly increase consumption. Groups, such as civil servants received relief payments, when many from the informal sector missed out. Allowing individuals to access their EPF and handout packages at the time did little to ward off hardship. With an extended MCO, direct cash handouts to those households that need assistance will be necessary to ward off more families going deeply into poverty. The government, at its current level foreign debt still has latitude to borrow offshore, so funds can be allocated to generate consumption and increase liquidity within the economy.

There are three immediate interrelated problem areas which must be immediately addressed to save the country from a pending inimitable disaster.

This means kickstarting the economy so people can live without dipping into their savings, rely on handouts, or go into debt. This is interrelated with growing unemployment, and the dramatic increase in the under-employed who are unable to make ends meet. While awaiting a solution to the previous two problems, cash needs to be injected into households to assist in their survival and create grassroots economic demand that can drive business.

Although economists predict a modest 6 percent GDP growth rate this year, an extended MCO will erode this. This figure doesn’t count the contribution from the informal sector, which supports many people, and has been severely hit by the MCO, receiving very little assistance. According to an Informal Sector Workforce Survey, by the Department of Statistics Malaysia, this effects 17.4 percent of the total workforce in Malaysia, where 0.62 million have lost work and are unpaid. Wage subsidies have excluded this group, which in addition have dependents to provide for.

An extended MCO will worsen this and could even tilt the economy into recession. Businesses which still remain operational will have severe liquidity problems. Assistance is needed to help lever micro-enterprises and SMEs into buoyant liquidity, first to survive, then to take advantage of a recovery.

There needs to be a drastic increase in lending to ease the business liquidity crisis. Government must assist the liquidity of over 900,000 SMEs through putting political leverage over the banking sector, which incidentally much of it is owned by GLCs. There should be a debt moratorium, and schemes where the government guarantees are put in place over SMEs proprietors putting up collateral, which most don’t have. The counterintuitive practice of banks restricting lending when lending risk is high due to a poor economic environment must be reversed.

Exports from the ASEAN region have crashed during the pandemic. With the low value of the Ringgit and the low inflation rate, there are optimal conditions for an export led recovery. This is especially the case when large firms are exiting China, and looking for alternative manufacturing bases. Industries that employ Malaysian workers should be targeted and assisted at both enterprise and industry level to grow through exports. Assisting large multinationals that employ foreign workers, and receive 10 year tax holidays from MIDA aren’t making a large contribution to boosting local economies. Public infrastructure to assist these companies in laid out industrial parks further takes away taxpayers’ Ringgit.

Many SME proprietors have long stopped taking salaries, curtailed operating expenditure, and reduced staff to the minimum to prolong survival. Relief packages must benefit SMEs and not MTEs and GLCs. The SMEs that need the most assistance is those which manufacture a local product and target local consumers. Rapid increases of sales for these ‘labour-intensive’ SMEs will create demand for Malaysian jobs to soak up local unemployment. Relief packages could be framed in a way to pay subsidies to companies that “employ a Malaysian.”

Special attention also needs to be given to the tourism industry, food and beverage, and retail industry, where business operations are severely curtailed during the EMCO. It is clearly evident that international borders will not be re-opening anytime in the near future, and the incomes lost through foreign tourism must be made up some way.

In tackling under-employment, local government must become micro-enterprise friendly. New stalls should not be prosecuted for not having licenses or opening up in forbidden locations, but rather assisted to become by-law compliant. Unemployed, desperate Malaysians who have no income shouldn’t be further burdened by bureaucracy.

There needs to be a pro-Malaysian worker policy, where for example, security companies who employ Malaysian over foreign workers are given preference in contracts. The gig economy is taking away jobs from university graduates, so schemes must be put in place for firms to be encouraged to take on a graduate, rather than contract out work to a consultant/contractor.

The government has to find innovative ways to male Malaysian workers more attractive to employers. This may mean giving up the countries reliance on foreign workers in some sectors.

A consumption recovery is necessary, so that domestic investment will follow to boost employment. Its going to be very difficult to increase foreign investment in these times, as FDI in Malaysia fell 68 percent in 2020, as compared with 2019. Existing SMEs that must be focused upon to drive the economy. Money has to be put directly in consumers hands, so consumers can buy products produced by SMEs. This is where much of Malaysia’s under-employment exists. The proposal to extend subsidies on fuel and cooking oil wont go very far in assisting families.

A new fresh look must be taken of rural Malaysia where both unemployment and underemployment exist. Rural micro-enterprise needs an urgent boost with direct grassroot programs to create sustainable micro-enterprises. This also needs innovative approaches, but these ideas can be found operating in the rural areas of Malaysia’s near neighbors.

In the health area, the government is locked into vaccinating the Malaysian population as a means to end the clear and present threat of the Covid-19 pandemic. With 6-7000 cases per day, with outbreaks all across the country, the success of the vaccine rollout is paramount. There have been criticisms about vaccine rollout logistics, vaccine procurement aligned with top politicians, and vaccine hesitancy has become a problem, as some fear side effects like blood clotting. There needs to be a decisive Covid19 plan, transparency and strong leadership driving it.

The government must switch over from blanket MCOs to specific targeted protection of the aged and vulnerable. If this can be achieved, Malaysia can then learn to live with Covid, where the young and healthy can work and operate businesses. Failure to achieve this will result in untenable hardship and a possible deep recession within Malaysia.

This is but one scenario to solve Malaysia’s outstanding issues. The new administration, if there is one, must be creative and generous to its citizens in getting them through these hard times. This will require taking a look at the economy in new ways.

Murray Hunter’s blog can be accessed here

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