Helping SMEs by re-envisioning PPP

The logic is more compelling now than ever before.

286 0
286 0

Published by Malay Mail & The Malaysian Reserve, image from Malay Mail.

The Covid-19 crisis should provoke a re-envisioning of our public-private partnership (PPP) system to benefit more SMEs.

The logic is more compelling now than ever before. Now is the time to seize the moment to reshape the economy. We need to ensure that SMEs not only survive and restart but also assume their rightful mantle when the recovery returns.

And lending a helping hand through PPPs – at this time – could be one of the ways to ensure the sustainability of our SMEs.

As it is, Prime Minister Tan Sri Muhyiddin Yassin has announced additional measures to the original Prihatin Economic Stimulus Package on April 6 to the tune of RM10 billion.

These additional measures are specifically targeted at SMEs and include:

― Increasing the wage subsidy scheme by RM7.9 billion. This sees the original allocation increasing from RM5.9 billion to RM13.8 billion.

― A total of RM2.1 billion in grants would be channelled to micro businesses registered with the Inland Revenue Board (IRB).

These additional measures have been welcomed by the SME Association of Malaysia. Its President, Datuk Michael Kang, said that it would definitely help ease the cashflow of some 700,000 SMEs in the country, particularly the small businesses.

And they would complement and supplement the existing measures under the original PRIHATIN such as the Special Relief Facility Fund (RM5 billion) which is channeled by Bank Negara though the commercial banks.

However, during this unprecedented time, perhaps the government could also reflect on something more fundamental, namely the structure of the PPP.

In Malaysia, PPP has been skewed towards conglomerates and corporations. This is unsurprising given that the general policy approach has conventionally been that of “pump priming” the economy on the basis of infrastructural development.

So, for example, a typical PPP would be a mega-project involving the construction of rail lines (such as the MRT) for public transportation or development of urban centres (such as planned city like Putrajaya).

The nation has developed rapidly as a result, therefore, in part thanks to PPP.

But now is the time for the SMEs to play their role too and have a bigger share of the economic cake accordingly.

Doing more for SMEs is consistent with their ubiquitous presence in and impact on our economy. 

In 2018, SMEs comprise 89.2 per cent of all businesses in the services sector. For manufacturing and construction, SMEs comprise 5.3 per cent and 4.3 per cent, respectively.

In terms of the SMEs participation in and contribution to the supply chain (value-added), 64 per cent were in the wholesale and retail trade, F&B and accommodation. Twenty per cent were in finance, insurance, real estate and other types of financial services. 

Majority of SMEs (68.1 per cent) supplied directly to multinational companies (MNCs) with 21.6 per cent supplying indirectly through intermediaries, ie. another SME. Approximately 16.4 per cent supply indirectly through MNC.

In the same year, SMEs’ contribution to the GDP stood at RM521.7 billion and its share of exports was at RM171.9 billion.

However, SME GDP growth is projected to expand at a moderate pace of 5.8 per cent in 2019 compared to 6.2 per cent in 2018. For example, in the services sector, tourism had been targeted to contribute more in 2019 with RM 92.2 billion for tourist receipts. As it is, the Covid-19 outbreak has dashed that goal.

Now, in co-opting SMEs into PPP, the approach is to firstly provide government contracts (procurement).

SMEs are to be at the forefront of the supply chain of the selected or participating sector or subsector ― as well as along the spectrum.

So, SMEs would no longer be a secondary or tertiary player but the principal player here.

Towards that end, there is a need for the Vendor Development Programme (VDP) to be accelerated during this period so that SME participation can increase to 50 per cent for now.

The VDP involves government procurement which relates to the supply chain across all sectors of the economy. For now, the focus could be on critical assets such as sanitisers, gloves, surgical masks, other types of personal protective equipments (PPEs) and even ventilators.

This approach enables income to flow directly to the SMEs. Also, PPPs that directly include SMEs enables the government to directly engage with these stakeholders and thereby assess the extent of cashflow needs.

In turn, the appropriate book orders can be negotiated under terms that are favourable and specific to the needs and conditions of the participating SMEs.

At the end of the day, however, SMEs are the undoubted leaders and principal stakeholders of employment in Malaysia.

Without SMEs surviving in order to restart, their capacity in terms of providing the backbone of the employment in the country would be in jeopardy.

For now, SMEs need support with their cashflow (a common problem) and one of the ways to tackle this is for the government to provide direct cash transfer in the form of PPPs.

Jason Loh Seong Wei is Head of Social, Law and Human Rights at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

In this article