Malaysia's SME sector may be outpacing growth in the economy, but the strong growth in the sector is weighed down by declining productivity and by fewer adults starting new businesses.
The release last week of the latest annual report for SME Corp, the agency that co-ordinates SME development, reveals that last year the SME sector expanded by 6.1%, above the overall economic growth of 5%. Since 2004 the sector has outpaced economic growth (see Graphic 1 below).
The plan, which forms part of the government’s drive to transform the Malaysia into a high income nation by 2020, aims to increase SME contribution to GDP to 41% and their share of total exports to 23% by 2020.
Writing in the report Malaysia’s Prime Minister Najib Razak, who also chairs the National SME Development Council, attributed this in part to a series of proactive measures undertaken by the government since early last year to cushion the impact of the economic slowdown.
He added that SME growth was sustained by continued domestic demand, particularly consumption and investment activities as well as provision of additional financial assistance.
In 2015, 150 SME development programmes were implemented with total funding of 5 billion ringgits ($1.2bn) that reached out to more than 580,000 SMEs and its employees.
Razak said the government remains committed to SME development, with 125 programmes amounting to 4.4 billion ringgits ($1.05bn) being undertaken by the various ministries and agencies, mainly in the area of financing, human capital development, market access and innovation and technology adoption.
Two major flaws
Yet something is amiss - the productivity gap between SMEs and large firms is widening, while fewer adults are starting up businesses. This is worrying.
Telling for example is that a recent survey by the SME Corp of 2,000 firms found that less than a fifth of all SMEs use the internet to sell their products or services.
While the government in June made good on a 2011 promise to set up a single gateway for business registration and licensing (http://malaysiabiz.mampu.gov.my), much more is needed to boost start-ups and innovative firms.
Meanwhile Malaysia fell seven places to 25th out of 138 economies in the latest Global Competitiveness Report released last week by the World Economic Forum.
Doing more to make it cool to be an entrepreneur - by for example attracting start-ups to set up in Malaysia or running more school and university entrepreneurship initiatives - may help ensure that SMEs are able to contribute more than just growth, but also new ideas.
This may stand the country in good stead in its ambitious plan to become a developed nation by 2020.
Timm is a South African who writes on small business. He last visited Malaysia in 2012. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a