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 May-early July 2019, covering the first half-year of 2019 (Jan-Jun 2019) and expectations for the second half-year of 2019 (Jul-Dec 2019) has received 924 responses.

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 business; main 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. Continued weak business conditions in 1H 2019. Continuing a weakening trend in 2H 2018, the survey results indicate sustained softening of business performance in 1H 2019. 42.0% of total respondents rated “deteriorated” business conditions, followed by 39.8% indicated “unchanged” and 18.1% had expanded their business. When compared to 2H 2018, the percentage of respondents experienced “deteriorated” business performance in 1H 2019 has slipped by 6.0% points from 48.0% in the previous survey while the percentage of respondents maintained their business performance has increased by 7.3% points to 39.8% from 32.5%.
2. Cautious business expectations in 2H 2019. Malaysian businesses are keeping a vigilant view about business conditions in 2H 2019, weighed down by a slowing global economy, a protracted trade tensions and softer domestic economic growth. A majority of respondents (54.9%) attached a “neutral” view; 29.6% “pessimistic” and 15.5% “optimistic”. For the full-year of 2019, only 14.1% respondents tagged overall business conditions as “optimistic” while 56.3% were “neutral” and the balance 29.6% having pessimistic views.
3. Anticipate better business prospects in 1H 2020 and 2020F. We observe a shift in pessimism from 2H 2019 to 1H 2020 as there were lesser respondents having pessimistic views (19.0% in 1H 2020 vs. 29.6% in 2H 2019) and higher respondents view business prospects positively (21.5% in 1H 2020 vs. 15.5% in 2H 2019). The improved business optimism is reflected across all sectors.
4. Cautious economic optimism remains in 2H 2019. Overall, businesses are of the view that domestic economy would continue to remain challenging this year, largely influenced by uncertainties surrounding the trade tensions as well as lingering issues about domestic policy landscape. 53.0% respondents were “neutral” about domestic economic outlook in 2H 2019 while 33.0% having pessimistic views, which is 3.4% points higher than in the previous survey when asked about their expectations for 2H 2019. Accordingly, a higher percentage of respondents now having less optimistic views about the economy in 2H 2019 (14.0%) compared to 17.8% in the previous survey.
5. Economic conditions will likely to improve in 1H 2020 and 2020. Businesses anticipate more positive economic conditions in 1H 2020 with the number of optimistic views has increased to 21.4% from 14.0% in 2H 2019 and that of “pessimistic” assessment was 12.7% points lower (20.3% in 1H 2020 vs. 33.0% in 2H 2019). Overall businesses’ expectations for 2020 economic outlook have strengthened significantly: Optimistic: 24.9% of respondents in 2020 vs. 13.5% in 2019; Neutral: 58.1% vs. 54.7% in 2019 and Pessimistic: 17.0% vs. 31.8% in 2019.
6. Amidst softening business conditions, 3% of respondents were “satisfactory” about their cash flows condition and 49.3% on debtors’ conditions in 1H 2019. For 2H 2019, almost the same percentage of businesses expect cash flows (48.8%) and debtors’ conditions (47.8%) to be “satisfactory”.
7. By sector, the respondents in real estate and trading (exports and imports) as well as construction sector have pessimistic views about their business performance in 2H 2019 and in 2020. The trading sector will be dampened by the unresolved trade war between the US and China. The stubbornly property overhang in residential and commercial properties continue to take a heavy toll on the real estate and also inflicted negative spillover to the construction sector, which had slowed markedly in recent quarters.
8. Business operations (production, sales and raw materials) were generally in line with the business conditions.

• Production: More businesses (33.1%) have reduced their production in 1H 2019 compared to 27.3% of respondents have scaled up their production (27.3%). In tandem with domestic and overseas sales volume projection, 7% of respondents indicated that they are planning to increase production in 2H 2019 whereas 28.9% of respondents may reduce their production. Owing to a critical shortage of foreign workers, some Malaysian SMEs have to forgo sales orders diverted from the US-China’s trade tensions.
• Sales: Businesses reported poor domestic sales performance in 1H 2019 with 45.1% of respondents indicated that domestic sales volume has decreased, of which 16.6% suffered more than 10.0% decline. Going into 2H 2019, overall sales performance is expected to be slightly better when compared to 1H 2019.
• Raw materials: 8% and 66.2% of respondents reported increases in the cost of local and imported raw materials respectively in 1H 2019. Of this, 23.6% and 27.0% of businesses reported that local and imported raw material prices have increased by between 6.0% and 10.0% respectively. An equally high percentage of businesses anticipate that the cost of local (64.8%) and imported raw materials (62.1%) will continue to increase in 2H 2019 while 28.8% and 31.5% indicated that the cost of local and imported raw material prices would stay at the current level.

9. Businesses’ cautiousness about their capex spending plans in 2H 2018 have turned somewhat positive in 1H 2019 whereby more than half of total respondents (58.8%) have increased their capital expenditure, leaving only 6.1% and 35.1% of them were either maintained or lowered the spending on capital investment respectively. The increase in capital expenditure may be partly aided by the GST and income tax refunds, which totalled RM17.1 billion as at end-April 2019.
10. Going forward, the percentage of businesses planning to increase capital expenditure is expected to maintain at a relatively high percentage (55.5%) for 2H 2019, suggesting that businesses may be starting to have a clearer approach about the business strategy and planning ahead and intend to invest for long-term.
11. The top five factors that would influence and impact their business operations and domestic business environment: (a) Domestic competition (44.8%); (b) Government policies (43.4%); (c) Lower domestic demand (43.0%); (d) Increase in prices of raw materials (38.3%); and (e) Ringgit’s fluctuations (36.1%).
12. Government policies is ranked as second most important factor by respondents, marking a jump from the fifth placing in the previous survey. This reinforces ACCCIM’s view that it is important for the Government to consistently foster a stable and conducive business environment for economic growth and business investment. Besides the 3Cs (Clarity, Consistency and Continuity), businesses want a competitive tax regime, investment friendly business environment and supportive regulatory landscape. Last but not least, an efficient public delivery service. The immediate priority is to ease the shortage of foreign workers through the simplification of procedures. The proposed amendments to the Employment Laws must take into consideration business practicality and not to be over-regulated amidst a challenging business environment when operating costs are of concern to the business community.
13. The respondents were asked to provide feedback and views on two issues: (A) Tourism – Harness the Untapped Potential; and (B) Domestic Direct Investment (DDI).

• Tourism – Harness the Untapped Potential

A high percentage of respondents (78.2%) were widely concurred that Malaysia has not done enough to tap the vast potential of tourism related business opportunities.

81.0% of respondents also acknowledged that Malaysia’s tourism is lagging behind its neighbours. The results revealed the following elements are very important for tourism development: Safety and security; the cleanliness of tourism destinations as well as infrastructure and facilities such as local transportation services and connectivity. Amongst the proposed measures are as follows:

• Simplified visa rules, the rollout of e-visas or visa-exemption are crucial to facilitate and ease entry of travellers and tourists as indicated by 52.7% of respondents.
• Airport is the first touch point for tourists when landing in Malaysia. Front-services counters at airports must be enhanced with the support of well-staffed and offer friendly services as well as can speak a few languages.
• The preferred tourism products are eco-tourism, which tops the list with 78.0% of total respondents, followed by culinary tourism (73.4%), cultural tourism (55.6%), recreational tourism (49.5%), agro-tourism (48.8%) and medical tourism (37.7%).
• Malaysia is very popular on its melting pot and delicious foods. It is proposed that Malaysia to organise an annual mega food fiesta in major states to showcase colourful diversity of Malaysian food culture. Some nationwide food hunting tours should be organised to drive Malaysia as a food heaven.
• Niche markets such as medical tourism, education tourism as well as meetings, incentives, conferences and exhibitions (MICE) industry should be promoted as these are high quality tourism products.
• 3% of respondents are of the view that the Government should further enhance the effectiveness of tourism promotion, marketing and branding.
• As there is a lack of tour guides, particularly Chinese speaking, to handle the tourists from China, it is also proposed that to conduct a short and simplified course for part-time tour guides to take care of tourists from China.
• The 2020 Budget should rollout more tourism-related measures and provide more allocations to support tourism-related activities and development. This is to facilitate the industry stakeholders in preparation for the Visit Malaysia Year 2020.
• Domestic Direct Investment (DDI)
• The survey findings revealed that 7% of respondents indicated that they either have invested or plan to invest in Malaysia over next 12-24 months while 57.3% have no intention to invest over next 12-24 months.
• Within the group of respondents planning to invest, 1% of respondents are adopting “wait-and-see” approach as they are still waiting for a clearer direction on the economy and government’s policy landscape as well as weighed by the uncertainties surrounding global economy.
• Within the group of respondents have no intention to invest, 6% of respondents cited uncertain international environment as well as lingering wary about domestic economic landscape causing them to hold back their investment decisions.
• Three factors were cited as most affecting business investment decision: (i) Economic and business prospects ranked by 62.5% of respondents; (ii) Government policies – domestic policy uncertainty (48.8% of respondents); (iii) Shortage of skilled manpower (26.9%) and high cost of capital (26.6%).
• When asked what businesses expect from the Government to stimulate domestic investment? 2% of respondents want the Government to provide better policy clarity and consistency, followed by 55.0% to create a competitive and conducive business environment and 43.6% each for a reduction in corporate tax rate and simplify the rules and regulations as well as lower compliance cost respectively.
• A clearer and more focussed policies as well as business friendly regulatory environment are deemed necessary to facilitate medium-and long-term investment planning. We propose the following measures:

1. Draw up a National Investment Strategy Plan to revitalise private investment, with equal emphasis placing on DDI, especially for SMEs. Formulate an appropriate incentive framework based upon a clear, transparent and predictable business and investment climate.
2. Enhancement in policies transparency, investor’s protection and non-discrimination practices among all the sectors. Monopoly practices must be minimized or eliminated so that domestic businesses can become stronger via free competition environment.

• A balanced infrastructure and economic development between urban and rural. For instances, improving the logistics supply chains between urban and rural as well as enhancing better internet coverage with better internet speed in rural area.

1. The establishment of a one-stop investment agency to undertake all investment approvals and improve the flows of communication between different governmental departments and agencies. It will definitely help to expedite domestic investment decisions as well as attracting foreign direct investments.
2. In efforts to revitalise private investment and encourage business expansion, an upfront announcement on a progressive reduction in corporate tax rate to 20% within the next three years in 2020 Budget.

• More than one-third of respondents indicated the desire to provide facilitation funds and grants to SMEs in assisting them for the readiness of Industry 4.0. It is disheartening to note that less than 15% of respondents were aware of the government’s loans or grants for Industry4WRD related incentives. Overall, there are more than one-third of respondents (8%) were unaware of the incentives surveyed.

Download Full Report