Revitalising Malaysia’s economy through tough times

Aishah Afandi

KUALA LUMPUR (BERNAMA) – With jobs in the services and manufacturing sectors hanging by a thread due to an economic downturn, particularly in the second quarter, economic revitalisation is the pulse in rebuilding the Malaysian economy as the country fights COVID-19.

From measures of easing the burden of taxes and providing job security, the National Economic Recovery Plan (PENJANA) worth MYR35 billion is expected to address the issues by rejuvenating the economic sectors that have been badly affected by the pandemic, especially small and medium enterprises.

According to the Department of Statistics Malaysia (DOSM), unemployment is expected to range between 3.5 per cent and 5.5 per cent this year and as at March, about 610,000 people were unemployed, for a jobless rate of 3.9 per cent.

The DOSM has also predicted that the country is heading into an economic recession in the next four to six months based on the leading indicators as the nation’s economy is heavily dependent on commodity-based and value-added industries that hire low-skilled and semi-skilled workers who are earning low wages.

TAX EXEMPTION: A MAGNET FOR FDI

As COVID-19 has affected businesses globally combined with growing tension between Washington and Beijing; multinational corporations (MNCs) are increasingly cautious of their investments.

KPMG Malaysia head of tax Tai Lai Kok said the Malaysia has placed bold measures to boost investments following the introduction of the 10 to 15 years of tax exemption for new foreign direct investment (FDI) in the manufacturing sector which involves capital investment of MYR300 million or more.

“The 100 per cent investment tax allowance for five years for existing companies that relocate their overseas facilities to Malaysia would allow Malaysia to differentiate itself and encourage investors to choose Malaysia as the preferred investment destination in the region,” he said.

Tai said these incentives, which are targetted for the manufacturing sector, ought to be extended to the services sector which could play an equivalent role in boosting the domestic economy.

“It is hoped that the necessary guidelines and conditions accompanying such incentives can be released quickly as much time will be required for MNCs to make such significant investment decisions and hence, the sooner clear and unambiguous guidelines and conditions are formalised, the more likely favourable decisions can be arrived at,” he said.

Besides tax incentives for the corporate sector, the government will also provide 100 per cent exemption on export duty on crude palm oil, crude palm kernel oil and processed palm kernel oil from July 1 to December 31, 2020.

According to Deloitte Malaysia, export duty on these products can range anywhere from zero per cent to 30 per cent, depending on the value per tonne.

“The removal of this export duty will reduce the price of Malaysia’s palm oil on the export market and provide a much needed boost to the industry,” it said it a tax note.

With the bullish outlook for the commodity sector, the Malaysian Palm Oil Board (MPOB) expects the CPO price to rise to an average of MYR2,500 per tonne this year, outpacing last year’s average of MYR2,100.

On Friday, CPO futures ended higher, boosted by the export duty exemptions, as well as lower stockpile.

WAGE SUBSIDY, DIGITISATION PUSH: A STRONG THRUST FOR SMES

Small and medium enterprises (SMEs), as well as micro businesses were among the most affected sectors due to the economic shutdown in April.

Representing 98.5 per cent of the country’s business establishments and making up more than 80 per cent of employment, uplifting the sector is the key to rebuilding the nation’s backbone economy.

Under PENJANA, the initiatives focus on job security, empowering gig economy, re-skilling and easing cash flow for businesses.

An analyst said that the three-month wage subsidy extension would also provide direct and immediate cash-flow support critical to sustain businesses.

 “With the wage subsidy extension, the number of unemployment will slow down as businesses are expected to pick up the pace in the coming months,” she said.

The wage subsidy programme will provide a subsidy of MYR600 per employee for all eligible employers up to a maximum of 200 employees, especially those involve in sectors that are prohibited from operating during the movement control order (MCO) and Conditional MCO.

According DOSM’s data, the majority of SMEs are facing cash-flow problems in paying salaries to their workers due to depleting income during the MCO period and slow cash-flow after the MCO was lifted.

Besides that, she said that COVID-19 had forced SMEs that had been delaying their digitisation efforts before to embrace it in line with the new normal.

“If previously SMEs were still relying on the brick and mortar business model, the pandemic has utterly shifted purchasing trends to online and contactless (payments),” she said.

LOCAL EQUITY, RINGGIT AND MARKET MOVERS

According to Bloomberg, the FBM KLCI traded between 1,207.80-1,694.55 in the 52-week range with year-to-date returns standing at -2.04 per cent.

Throughout last week, Bursa Malaysia traded on a higher note, reflecting signs of bullishness on the back of economic recovery, supported by retail and institutional investors.

The market’s performance was heavily influenced by the US-China trade tiff, crude oil price volatility, commodity demand, as well as the ongoing COVID-19 pandemic which has caused business closures globally.

As countries with advanced biotechnology capabilities such as China, India, the United States (US), the United Kingdom (UK) and Cuba are conducting clinical trials to produce the COVID-19 vaccine, optimism for a full economic recovery by year-end is riding high globally.

Several key sectors, most notably healthcare, have been top gainers since the onset of the pandemic.

Top gainers include Top Glove, Hartalega as well as Rubberex Corp – all of them are involved in supplying medical gloves worldwide.

Research houses are optimistic that the equity market will continue the upward momentum and is expected to end on a higher note by year-end, ranging from 1,550 to 1,620.

Despite a tough outlook for the ringgit, it is expected to trade in a volatile mode in line with other emerging markets. However, a positive note is on the horizon after the local unit ended on a higher note on Friday, backed by the National Economic Recovery Plan.

With PENJANA in place, which is the fourth of six phases of Malaysia’s recovery efforts prior to the 2021 Budget and 12th Malaysia Plan next year, the local economy is expected to move on a stable mode to regain its strength and rebound in the fourth quarter of this year.