Go Small And Deregulate To Spur Economic Growth

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Malaysia’s new industrial policies, including the New Industrial Master Plan (NIMP) and now the New Investment Incentive Framework (NIIF), focus too much on large-scale, “high-value” businesses and may be mixed news for investment if they turn into patronage cascades.
From a supply-side perspective, investment policies must be market-driven and not based on government intervention. They should emphasise low tax and low regulation incentives.
The new NIIF targets of “high-value” activities and “economic spillovers” are red flags which suggest that proposals will be pre-screened for preferred recipients, vested interests and already connected partners.
This may raise barriers to new players, reduce access to help and close down competition, especially for small businesses.
Overall MSME (micro, small and medium enterprises) and start-up policy in Malaysia has underperformed.
Although there are a large number of MSMEs accounting for 98% of all companies the fact is that 78.5% are micro-enterprises with fewer than five employees.
So they are very small and mostly an alternative to formal employment in a larger company.
Around 89.2% of MSMEs are in the services sector including retail outlets and these are small-scale, low value-added shops and shop-lots.
Only 20% of MSMEs are owned by women, and youth entrepreneurs are also under-represented. So programmes targeting women and youth have not delivered good outcomes.
The contribution to GDP is below 40% and although employment is around half of all people with jobs, their salaries and productivity tends to be low.
We also know that MSMEs struggle with even minimum wages.
All of this shows that government interference in SMEs is not working.
A better approach is to reduce regulations and red tape, replace grants, loans and programmes with tax exemption for all companies below RM3 million revenue, remove MSMEs responsibility for collecting SST by replacing it with an electronic payments tax (EPT), allowing wages to be determined by the market and using reverse tax credits to support incomes.
Even small-scale stores, roadside outlets and hawkers offering everything from cheap breakfasts on the way to work, to cheap meals in the evening, as well as non-food essentials play an important role in industrial and enterprise development on the ground.
Most micro-enterprise income and investment stays within the local communities because the owners are often community members themselves and get their supplies from local outlets.
A hawker who can make RM500 per day from say selling breakfasts or small fruits at RM10 each to just 50 people can make RM3,000 per week over six days or RM12,000 per month. Even if they keep just a third of this after costs and labour they have net income in-line or above with average wages.
For these enterprises, the government should simply step aside, make permits easy and cheap and allow the micro-enterprises to get on with their business freely.
Most hawkers are not asking for government help, they just want to run their business without interference from government or local councils.
There are already lots of credits and loans. Small-scale businesses do not normally ask for credit or loans because it is difficult to repay and actually their costs are low already.
Hawkers should be allowed to locate wherever they find customers, often en-route to work. Centralised hawkers centres are off high footfall routes and people will not go out of their way to visit a Hawker Centre unless it is directly on their way to and from work or directly outside their workplace, university or shopping area.
The overall lesson for industrial development is that countries with lower taxes and lower regulations create a more competitive, agile, innovative and creative industrial sector which creates real, sustainable long-term growth. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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