The Covid-19 pandemic, and the unprecedented social and economic costs it has inflicted, provides an important opportunity to scrutinise the interplay between urban development and the economic resilience of small and medium enterprises (SMEs) in the urban market.
SMEs are an integral part of the urban economic landscape as they provide employment opportunities, promote local economic development and innovation, and reduce poverty.
Initial pandemic restrictions took a heavy toll on smaller companies but even after the mandated closures were eased, SMEs still faced many challenges such as employees being unable to return to work, disrupted supply chains, reduced market demand, cancellation of orders and absence of new orders, significant cash flow issues due to fixed expenditures, and little or no revenue.
Smaller firms were more affected by the Covid-19 fallout than larger companies, with the crisis exposing their greater vulnerability. This is because they are overrepresented in sectors that were most affected by the disruption, in particular wholesale and retail trade, accommodation and food services, real estate, professional services and other personal services.
Besides that, SMEs are typically more financially fragile and have smaller cash buffers than their larger counterparts, making them less resilient to crises. They also find it harder to tap into different sources of finance, including from the market. They are usually more reliant on retained earnings and traditional bank debt.
Furthermore, smaller firms are often impacted faster and harder by supply chain disruptions and price increases, as they generally keep less inventories and have fewer supplier networks. They also have less bargaining power when it comes to obtaining more attractive payment conditions.
These vulnerabilities translate into a sharp drop in revenue from the outset of a crisis and at a faster rate than they are able to cut their operating costs, leading to a potential liquidity crisis for SMEs.
CHALLENGES FACED
SMEs in urban markets face a plethora of challenges. Specific barriers and market failures may prevent them from accessing strategic resources, including finance, management capacity and skills, and knowledge networks. This places them at a competitive disadvantage in the global post-pandemic economy.
For many start-ups and SMEs, access to finance in the appropriate forms is hampered by a range of demand- and supply-side obstacles. Failures in financial markets due to asymmetric information and agency problems typically limit SMEs’ and start-ups’ access to credit and they are often under-collateralised, have limited credit history and don’t have the expertise needed to produce sophisticated financial statements.
A lack of management and technical skills as well as machinery and equipment are some of the other challenges that affect the growth of the SME sector in urban areas. SMEs find it challenging to identify technology sources appropriate for their business operations.
FACILITATING BUSINESS GROWTH
As the government understands that threats to SMEs are threats to the economy and society, Belanjawan 2023 has made supporting SMEs a priority through programmes such as direct financial assistance, government guarantees and tax reductions. This will ensure that they become competitive again and are able to increase their business capacity.
Prime Minister Datuk Seri Anwar Ibrahim, in his Belanjawan 2023 speech, emphasised the futility of having large buildings while the plight of the Rakyat living off small-scale businesses is ignored.
He said the nation is already famous for its mega projects and landmarks, so now he wants the country to be known for its small business facilities that are excellent, clean and visually appealing. Thus, the government has provided RM50 million to build and upgrade 3,000 stalls and kiosks as facilities for hawkers in key locations across the country.
In addition, RM176 million has been provided to upgrade and improve business premises and facilities, such as those under Majlis Amanah Rakyat (MARA), Dewan Bandaraya Kuala Lumpur (DBKL), Perbadanan Usahawan Nasional Bhd (PUNB) and the Urban Development Authority (UDA).
As for SMEs, almost RM10 billion has been provided by Bank Negara Malaysia, among others, to reduce their financial burden and encourage business development.
Besides that, Syarikat Jaminan Pembiayaan Perniagaan is guaranteeing up to RM20 billion in SME loans whereby key sectors such as high technology, agriculture and manufacturing are provided with a government guarantee of up to 90%.
Guarantees are also extended to finance by non-banking financial institutions such as credit leasing companies and cooperatives, to specifically benefit small businesses.
URBAN RECOVERY REQUIRES SMES
With the right support, as evidenced by Belanjawan 2023, SMEs will be able to significantly boost the nation’s economic growth. Bringing small businesses back to Malaysian cities and, in turn, revitalising urban communities, must be a priority.
Apart from being vital for the country’s economic recovery, SMEs also provide support to city residents, who include so many of the essential workers the Rakyat had relied on during the height of the pandemic.
The urban market sector has empowered the Rakyat to become business owners, thus reducing urban poverty. They have the skills to run their own business, but they are faced with obstacles such as limited access to finance and markets, lack of business premises and disrupted supply chains.
The government has responded to these challenges by providing several initiatives for hawkers and small traders in urban markets. These include building and upgrading MyKiosk @ KPKT stalls and kiosks across the country; upgrading MARA’s business premises and facilities as well as increasing the number of businesses under the government agency; MARA’s Program Transformasi Premis Usahawan Luar Bandar (TRENT); providing strategic business space for SME entrepreneurs and hawkers under the Malaysia Entrepreneur Hub Program by UDA; upgrading food courts, markets and tamu markets under the supervision of local governments nationwide; increasing business premises under DBKL; and raising the number of bumiputera property ownership in prime locations and providing rental strategies to bumiputera entrepreneurs via PUNB.
With the aforesaid initiatives, the Malaysian government aims to aid the recovery of urban market SMEs, thereby leading the nation’s economy to prosperity.
Source: https://theedgemalaysia.com/content/advertise/belanjawan-2023-to-steer-urban-market-smes-to-recovery