ACCCIM Survey Reports

ACCCIM Malaysia’s Business and Economic Conditions Survey (M-BECS) Report (2H 2019 and 1H 2020F)

Executive Summary of Key Findings

The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) Malaysia’s Business and Economic Conditions Survey (M-BECS) was conducted from December 2019 to mid-February 2020, covering the second half-year of 2019 (Jul-Dec 2019) and expectations for the first half-year of 2020 (Jan-Jun 2020) has received 864 responses.

As the survey was closed before the escalation of the coronavirus disease 2019 (COVID-19) outbreak, we have conducted a Quick-Take survey between 12-16 February to gauge the preliminary impact of the COVID-19’s inflicted negative spillover effects on domestic businesses.

The survey is a good barometer to gauge Malaysian Chinese business community’s assessment and expectations about domestic business and economic conditions as well as their prospects.

It covers questions to measure expectations about the performance and prospects of economy and businessmain factors affecting business performance; and to gauge the implications of current issues and challenges faced by businesses.

An overview and summary of key findings of the survey are as follows:

  1. Weak business conditions continued in 2H 2019. The weakening global economy and domestic economic conditions continued to dampen business performance in 2H 2019. 40.5% of respondents have experienced a deterioration in business conditions; 39.6% indicated a flat growth in business and only 19.9% of respondents have expanded their business.
  2. Businesses were increasingly pessimistic about economic conditions in 2H 2019 as indicated by 37.8% of respondents vs. 33.0% in the previous survey and also about business conditions (39.3% vs. 29.6% previously). For 1H 2020, the number of respondents having pessimistic views about economic prospects rose to 4% from 20.3% in the previous survey and likewise for business prospects (35.6% vs. 19.0% previously). This reflects businesses and investors’ continued uncertainties about global and domestic economy prospects amid the COVID-19 outbreak.
  3. Businesses’ expectations are expected to remain bearish in 2020. Malaysian businesses are keeping vigilant towards both economic and business prospects in 1H 2020 and 2H 2020. The expectations may turn more bearish if the COVID-19 outbreak prolongs to beyond 3-6 months amid the abrupt domestic political crisis, which happened towards end-February, that is after the closing of survey period.
  4. By sector, tourism, shopping, hotels, restaurants, recreation and entertainment (32.8%), professional and business services (27.7%), trading (27.0%), real estate (25.5%) and manufacturing (25.2%) are among the sectors having high percentage of pessimistic respondents in 2020. This is worrisome as the COVID-19 outbreak has already significantly dampened the tourism-related businesses, caused the supply chain disruptions as well as resulted in shortage of raw materials in the manufacturing sector due to a partial and full locked-down in many infected provinces in China amid some restoration of operations and plants’ production in stages, albeit still operating at below capacity. Other dampening factors are lingering uncertainties in trade negotiations between the US and its major trading partners, stubbornly high property overhang, particularly non-residential segment in many places as well as unstable domestic political situation.
  5. A majority of respondents rated “satisfactory” about their cash flow conditions and debtors’ conditions in 2H 2019 and expect the same for 1H 2020. Nevertheless, 6% and 41.4% of respondents rated “poor” on cash flow conditions and debtors’ conditions respectively for 1H 2020.
  6. The capacity utilisation rate is expected to remain unchanged whereby 40.7% of respondents indicated that their plants will operate between 50% and 75% of total capacity utilisation rate in 1H 2020. Nonetheless, 30.6% of respondents project their capacity utilisation rate will be below 50% in 1H 2020.
  7. Business operations (production, sales and raw materials) were generally in line with the business conditions.
  • Sales: A higher percentage of respondents (36.4% vs. 32.8% forecasted previously) reported a decrease in sales volume in 2H 2019, mainly in manufacturing (43.8%) as well as wholesale and retail trade (42.9%) while at the same time 25.1% of respondents have lowered their selling prices (vs. 22.9%). Going into 1H 2020, sales performance is expected to be dampened by recent COVID-19 outbreak.
  • Production: Despite recording higher production in 2H 2019, the inventory level also increased, particularly in the manufacturing sector. There is concerned that the production is unable to keep pace with sales order. As many factories in China have yet to be fully restored or still operating below capacity, this has disrupted the global supply chains and are expected to affect the production level in 1H 2020.
  • Raw materials: 63.2% and 59.5% of respondents reported increases in cost of local and imported raw materials respectively in 2H 2019, partly caused by the depreciated ringgit and higher prices of food and beverages. The ringgit’s further depreciation and supply chain disruptions caused by the COVID-19 outbreak is expected to further jack up the cost of raw materials in 1H 2020.
  1. More than half (58.1%) of respondents have increased capital spending in 2H 2019, a good sign and forward indicator for private investment growth. Lesser respondents (55.1%) expect to increase capital expenditure in 1H 2020 while 40.6% will maintain their existing capital investment level. Given lingering concerns about domestic political environment, lack of access to finance and lack of capital for expansion, more respondents may adopt a wait-and-see approach; not planning to increase capital spending and even consider to reduce capital investment.
  2. The top five factors that would influence and impact business performance are: (i) Government policies (51.5%); (ii) Domestic competition (47.3%); (iii) The Ringgit’s fluctuations (39.5%); (iv) Domestic political situation (38.8%); and (v) Manpower shortage (31.3%).
  3. “Government policies” have emerged as business community’s top concern (second and fifth ranking in earlier surveys). 3Cs (Clarity, Consistency and Continuity) are what investors and businesses need for certainty and better planning. The Government is in the midst of drawing up new economic and industrial development plans to chart Malaysia’s future economic direction and development path. These plans while ambitious but must also be realistic in implementation. Policy flip-flops should be avoided as it hurts businesses and worrying investors.
  4. Political stability is a variable of great importance in building a coherent and continuous path for sustainable economic development. Unstable political environment would undermine investors’ confidence, deter investment decision by both local and international investors on wary about policy continuity. Rampant political bickering, conflicts and infighting would distract the Government’s efforts to manage the economy and address business issues. In this critical juncture, the Government needs to strengthen domestic economic and financial resilience to weather against external headwindsaddress cost of living and cost of doing business, and rectify structural weaknesses that impacting our competitiveness.
  5. The respondents were asked to provide feedback and views on two topical issues: (A) Digital Transformation and Industry 4.0; and (B) Foreign Workers (FWs).
  • Digital Transformation and Industry 4.0
  • Slightly more than half of respondents (51.0%) have acknowledged that “Digital transformation to Industry 4.0 could boost the industry’s and Malaysia’s global competitiveness”. For those respondents that have disagreed, 62.9% of them were unsure about the positive impact and return on investment after incurring high fixed costs of investment.
  • Lack of platform and mechanism to assist firms accessing and developing their capabilities (as voted by 60.6% of respondents) and lack of clear standards for equipment or system that supports local and global inter-operability (60.0% of respondents) are the top two problems faced by businesses when embracing or adopting digital transformation and Industry 4.0 in Malaysia.
  • The survey results showed that the respondents’ adoption of digitalisation/automation is low as only 22.6% of respondents reported that they have implemented digital transformation and Industry 4.0.
  • Business segments that most businesses have undergone the transformation as part of Industry 4.0 are sales (36.8% of respondents voted “Highly transformed” and “Strongly transformed”), marketing (36.6%), internal company administration (36.0%) and services (34.6%).
  • The survey findings revealed that the respondents have low applications of digitalisation and technology in “Procurement and purchasing”, “Research and development” and “Production”. In this regardMalaysian businesses, especially SMEs have to harness digital transformation so as to increase production efficiency, enhance product value via R&D and reduce the leakage of resources.
  • Generally, while over-dependency on foreign workers (FWs) can be reduced via digital transformation and Industry 4.0, it may not be applicable across-the-board. The Government needs to evaluate and consider the need of FWs on a case by case basis, regardless of the requirement of low-skilled, semi-skilled or skilled FWs.
  • The top two issues cited by companies applying government’s loans or grants are complicated application process (48.9% of respondents), time consuming and tedious procedures (46.7%).
  • The industry players urge the Government to reduce import duty and sales tax on heavy machinery and equipment used for automation (39.1%) and rapidly improve the digital infrastructure connectivity between urban and rural areas (37.1%) in order to unlock the potential in automation/digitalisation over the next one to three years.
  • Foreign Workers (FWs)
  • About 62.7% and 60.9% of respondents in the manufacturing and construction sector respectively revealed that they are facing shortage of FWs. More than 60% of respondents in these two sectors indicated that they need foreign workers in 2020 and 2021.
  • For services sector, tourism, shopping, hotels, restaurants, recreation and entertainment (32.8%) and real estate (36.4%) are facing significant shortages of FWs compared to other sub-services sectors.
  • ACCCIM urges the Government to consider the following measures:
    1. All gainfully employed illegal foreign workers (thus has an employer) be automatically eligible to be registered as documented foreign worker via an efficient, transparent process with certainty and clarity without the payment of a punitive penalty fee but a nominal fee.
    2. A Single Ministry/One-stop Agency should be vested with the authority to address all issues concerning FWs. (1) Specific legislation and governing of recruitment and employment of foreign workers should be enacted and be placed under the purview of Ministry of Human Resources (MOHR); and (2) Kementerian Dalam Negeri (KDN) and Jabatan Imigresan Malaysia (JIM) should only confined to the issuing of document papers for the employment of FWs after approval by MOHR.
  • To phase out third-party agents in bringing in the migrant workers. The role has to be taken by the employer; and it is the responsibility of employer to handle the workers and sending them back when the contrast is over.
  1. In efforts to increase labour productivity and production efficiency, FWs’ levies collected should be ploughed back into a Designated Industrial Revolution/Adjustment Fund that provides financial support or technical assistance to firms to facilitate automation, mechanization and technological development. Digitalisation and Industry 4.0 require new future workforce that equipped with high technical skills to operate new processes.


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