THE road ahead remains a rocky one for businesses as movement restrictions persists.

       With many still not allowed to operate – and those that come under essential sectors only operating at a limited capacity – SMEs are looking into various options to help them weather the storm.

       According to the Q2’2021 RAM Business Confidence Index (BCI) survey by credit research and advisory services firm RAM Holdings Bhd, small businesses that have been hard hit are mostly looking at cost cutting measures as their main survival strategy.

       The survey, which polled some 180 firms, found that more than half of the respondents have resorted to some reduction in operating costs in the past year. Additionally, about 43% believe they may need to institute cost cuts in the near future to remain viable.

       “This is particularly true of smaller firms that already have limited cashflow. If no further assistance is extended, they could face inevitable closure in the next few months, ” says RAM.

       Other initiatives employed by firms to remain viable include turning to e-commerce sales channels and revamping their product line-ups. Many also intend to invest further in enabling remote and flexible working arrangements to maintain their workforce.

       These measures will be crucial in helping companies hold out until the economy is fully reopened and consumer confidence returns.

       SMEs are, understandably, downbeat about the near-term prospects given the ongoing restrictions and limitations.

       RAM notes that SMEs’ business sentiment tumbled in the second quarter of this year following the reimposition of the movement control order. The Q2 RAM BCI, concluded in early June, nosedived to a record low of 33.2, from 38.7 in the preceding quarter. An index reading of 50 and below signifies pessimism in business outlook through the next six months.

       “The survey results indicate that firms were most pessimistic about sales, with over 60% (against 47% previously) citing dim prospects over the next three months. As a result, the sales sub-index hit a new low of 24.9 after two consecutive quarters of improvement, ” adds RAM.

       Chief of their concerns is the weak economy and rising costs amidst declining sales.

       Notably, the “high touch” sectors of retail and business services have been the most affected by the lockdown and are, therefore, the most concerned about weak sales and profits in the next quarter.

       Conversely, RAM says close to 90% of manufacturing firms polled cite rising business costs as their main challenge. This is consistent with the recent surge in the cost of major raw materials following a commodity price upcycle, along with the surge in global shipping costs amid supply bottlenecks.

       Regulatory issues have also been cited as a challenge for businesses.

       In a recent statement, the Small and Medium Enterprises Association (Samenta) Malaysia highlighted that based on its survey of those under the essential list that have applied for the International Trade and Industry Ministry’s (Miti) approval under CIMS 3.0, about 11% of applications are still pending.

       The Federation of Malaysian Manufacturers (FMM) also notes that factories have to face multiple raids by different enforcement agencies who have different interpretations of the standard operating procedures and Miti’s approvals.

       Given the tough operating environment, it is no surprise that some 73% of respondents in RAM’s survey have voiced the need for further short-term assistance.

       Topping the wish list are the continuation of wage subsidies (36%) and extended loan moratoriums (17%) – both of which are available under Pemerkasa Plus – as well as access to new loans (15%).

       “It is also heartening to highlight that almost 30% of the surveyed firms are able to stand on their own, hinting at their strong survival instincts that bode well for entrepreneurship, ” adds RAM.

       According to Samenta, 23% of respondents to its survey expect to lay-off employees this time around compared to only 7% when it conducted a survey in January 2021. The wage subsidy had helped reduce job losses then and many have advocated an extension of the Wage Subsidy Programme, especially for SMEs that are not allowed to operate up to December.

       However, it adds that only 18% had applied for the loan moratorium under Pemerkasa Plus. For those who applied for the loan moratorium, 36% were still pending while 18% were rejected.

       Samenta urges financial institutions to simplify the vetting process to help SMEs tide through the cashflow crunch.

       Despite the tough challenges in the last two years, RAM says 84% of surveyed firms hold out hope that both the economy and their businesses will recover within a year, although the majority envision their businesses to remain below pre-pandemic levels.

       “Optimism helps overcome adversity and the nascent economic recovery will certainly benefit from such sentiment.

       “While we applaud the various stimulus packages for businesses and SMEs, we urge policymakers to continue to extend immediate assistance to the more vulnerable entities in the services and retail sectors. As the nation’s backbone, the survival of SMEs is crucial to the long-term economic development of Malaysia, ” it says.