Political instability in Malaysia continues following the resignation of Tun Dr. Mahathir Mohamad as Prime Minister on 24th February 2020 and the subsequent dissolution of the Cabinet. The Yang di-Pertuan Agong (“the YDPA”). having accepted Tun Dr. Mahathir’s resignation, also consented for Tun Dr. Mahathir Mohamad to continue running the country as interim Prime Minister while waiting for a new Prime Minister to be appointed. On 29th February 2020, after five (5) days of political upheaval, the YDPA finally announced the appointment of Tan Sri Muhyiddin Yassin as the 8th Prime Minister of Malaysia in accordance with Articles 40(2)(a) and 43(2)(a) of the Federal Constitution despite controversies surrounding his appointment.
Article 40(2)(a) of the Federal Constitution allows the YDPA to act in his own discretion in relation to the appointment of the Prime Minister; while Article 43(2)(a) of the Federal Constitution states that the YDPA shall appoint as Perdana Menteri (Prime Minister)a member of the House of Representatives who in his judgment is likely to command the confidence of the majority of the members of that House.
Now, should Malaysian businesses care about the political instability in Malaysia? Does political instability impact businesses, in particular the Small and Medium Enterprises (SMEs)?
Political Instability
The first step toward answering this question is a definition of what is meant by “political instability”.
For the purpose of this write-up, political instability can be defined as propensity of a change in government. A high propensity of a change in government is often associated with uncertainty about the new laws, policies and amendments that will be introduced by the new government.
Who are these SMEs?
The definition of SMEs was based on the total sales turnover by a business in a year or the number of full-time employees employed by a business. SMEs in Malaysia cover all sectors namely manufacturing, agriculture, construction and mining and quarrying and is sub-divided into 3 categories namely micro, small and medium.
The detailed definitions according to the 3 categories are presented in the table below:
Under the new definition, SMEs must be entities that are registered with Suruhanjaya Syarikat Malaysia (Companies Commission of Malaysia) or other equivalent bodies. The following businesses however will not be deemed as SMEs:
- Public-listed companies in the main board such as Bursa Malaysia or main bourses in other countries;
- Subsidiaries of the following entities:
- Public-listed companies in the main board;
- Large firms, multinational corporations (MNCs), Government-linked companies (GLCs), Syarikat Menteri Kewangan Diperbadankan (MKDs) and State-owned enterprises.
SMEs, despite being smaller in corporation size, have significant contributions to Malaysia’s economic growth. 99% of business establishments in our country are SMEs and they have contributed 38.3% of the country’s Gross Domestic Product (“GDP”) in 2018 amounting to US$126.3 billion (equivalent to RM521.7 billion).
SMEs have also generated 66.2% employment in Malaysia and, contributed towards 17.3% of Malaysia’s total export value and have led to the growth of RM40.3 billion in co-operatives turnover.
Policies & initiatives by the previous Pakatan Harapan Government
Knowing the capabilities of SMEs capabilities and its contributions to Malaysia’s economic growth, Tun Dr. Mahathir Mohamad has launched Dasar Keusahawanan Negara 2030 (“DKN 2030”) on 11th July 2019.
DKN 2030 is a policy that “is intended to be the nucleus and catalyst to drive a culture of entrepreneurship in the country, with the ultimate objective of creating a holistic and conducive entrepreneurial ecosystem to support an inclusive, balanced and sustainable socio-economic agenda.” (Source: SME CORP Malaysia: DKN 2030)
The national macro targets under DKN 2030 are to increase SME contribution to GDP to 50.0%, generation of employment to 80.0%, contribution to total export value to 30.0% and for its contribution to the turnover of co-operatives to grow to RM60.0 billion.
In order to achieve the above targets and to help the SMEs in Malaysia, the Pakatan Harapan (“PH“) Government has taken various initiatives which can be seen in the budget bill presented in October 2019 (“Budget 2020”). The following are some of the initiatives provided by PH under Budget 2020:
- RM445 million for Bumiputera entrepreneurs for their access to financing, provision of business premises, and entrepreneurship training;
- RM100 million for the Chinese community entrepreneurs;
- RM20 million for Indian entrepreneurs under TEKUN National’s Skim Pembangunan Usahawan Masyarakat India; and
- RM500 million allocation in guarantee facility for women entrepreneurs.
Do Malaysian SMEs care about the political instability in the nation?
Ipsos Business Consulting (part of Asia Market Intelligence) has conducted a study with over 250 businesses across Malaysia in 2019, a year after PH took over. The study showed that “the slowing down of local economy is a consistent worry across all business segments. The performance of various indicators such as the Bursa Malaysia KLCI Index, declining palm oil prices, fluctuation of the Ringgit, as well as the slowing down of the construction and housing sector have led to some anxiety for Malaysian businesses.”
The Impact
The worries showed by the businesses in the above study areshall be the general concerns of the SMEs today following the current change in the government. It was reported that on 24th February 2020, the day Tun Dr. Mahathir Mohamad resigned, “the local note fell 240 basis points to open at 4.2140/2180 against the greenback, from Friday’s close of 4.1900/1940.” (Source: The Star). It was also reported that “the key index KLCI fell 38.94 points or 2.61% to 1492.94 points – below the psychological level of 1,500 for the first time this year.” (Source: The Star).
Since the change is not a routine turnover of leadership, significant changes in the ideological orientation of the Government is expected to occur.
This change in ideological orientation will lead to uncertainty over the laws and policies which were previously created and/or initiated by PH. The new Government may make amendments to the current laws and policies, which would mean that some of the laws and policies previously initiated by PH may or may not continue to be implemented by the new Government. The budget bill – “Budget 2020” could also be in jeopardy. The non-passing of such bill could tremendously affect SMEs businesses especially SMEs that are planning to invest or expand their businesses.
The coalition partner of the 8th Prime Minister’s party – “Parti Pribumi Bersatu Malaysia” (“Bersatu”), Islamist party “Parti Islam se-Malaysia” (“PAS”) who are known for their Islamic ideology and their focus on Islamic teachings would definitely propose and attempt to push for “religiously inspired policies” to be implemented in Malaysia. For example, for Budget 2020, PAS has proposed a 2.5% tax based on Islamic Zakat principles, on Malaysia-based companies’ cash and bank balances. These religious policies may not have a positive impact on the SMEs in Malaysia.
Most global businesses who currently operate or wish to operate in Malaysia would evaluate the political and legal system in Malaysia. Some of these businesses may choose not to operate or to discontinue their operations because of the different in political and legal systems that may be introduced by the new Government.
SMEs should equip themselves with legal knowledge to survive and remain in the Malaysian market despite the uncertainty in Malaysia’s business climate caused by the political drama and the change in government. SMEs are also advised to keep themselves updated with the political and legal systems around the world if they wish to participate in the international trade so as to prepare themselves against these uncertainties caused by political instability in a country.
Disclaimer: The author is not responsible for accuracy of the views, information, or opinions expressed in this article.
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