Small businesses thinking big in Sarawak

Sarawak’s small and medium-sized enterprises (SMEs) are on course for strong growth this year as more companies tap into spin-off projects engendered by larger players’ investments in the state’s special economic zone.

Investment in SMEs surged to RM8.28bn ($2.36bn) in 2013, a 75% rise on the RM4.72bn ($1.35bn) the year before, Datuk Hamim Samuri, deputy international trade and industry minister, told local press.

The growth rate could reach 40% this year, according to Steve Miller, senior executive vice-president of Malaysia-based Alliance Bank. According to the bank’s data, Sarawak has nearly 43,800 SMEs. Together with the 40,884 such firms operating in neighbouring state Sabah, this means the two states make up 13.1% of the national total of 662,939 SMEs.

Growing contribution

SMEs have been a focus for Malaysia for some time. Some 50,000 SMEs nationwide have received a total allocation of RM23bn ($6.63bn) over the last 20 years through three Ministry of International Trade and Industry (Miti) agencies – SME Corp Malaysia (SME Corp), Malaysian Industrial Development Finance Malaysia Bhd (MIDF) and SME Bank – to develop their businesses.

But intensive development by larger firms in the Sarawak Corridor of Renewable Energy (SCORE) is fuelling the growth of SMEs in Sarawak. Investment in SCORE rose to RM7bn ($2bn) in the first seven months of 2014 – its total investment now stands at RM30.4bn ($8.7bn). Energy-focused Japanese firms have played a large role, ploughing RM15bn ($4.3bn) into the state over the past five years.

“In terms of growth, we see phenomenal SME business growth in Sarawak. And this is the potential that SMEs can actually tap into,” Ting Sie King, Alliance Bank’s senior vice-president and regional head for Sarawak, told the local press.

The government has allocated 481 acres of land for SMEs at the Samalaju Industrial Park within SCORE and has formulated policies to develop more industrial estates to encourage the growth of SMEs. Sarawak’s industrial development minister, Datuk Amar Awang Tengah Ali Hassan, said with more development in SCORE, there would be opportunities for a variety of sectors including catering, logistics and support services.

There are also government incentives for small businesses. The central government in Kuala Lumpur allocated RM2m ($570,000) in 2014 to enhance the competitiveness of locally owned SMEs in the manufacturing and services sectors.

The government is targeting SME contribution to the economy to reach 41% by 2020, up from 32% in 2012. As a result, it is encouraging SMEs to become stronger entities through mergers and acquisitions. Under one programme, merged businesses will enjoy a flat rate of 20% on all taxable income for a period of five years, and will also be exempt from stamp duty on the merger document.

Local growth

Banks in particular are stepping up their financing to SMEs, with EXIM Bank, CGC and Alliance Bank focusing on developing products for SMEs.

CGC is expected to provide about RM400m ($115.4m) to SMEs in 2014 under a wholesale guarantee for unsecured business financing. The guarantee will help mitigate risks, improve lending capacity and promote the development of unsecured SMEs financing business in the country.

CGC holds “entrepreneur clinics” in Sarawak on a monthly basis while Alliance Bank has business centres in each of its five branches in the state. The incentives are helping lead to a diversification in the variety of SME start-ups. Recent examples include laksa paste manufacturer MUSC Food Industries and carbonated soft drinks manufacturer Cinqasa.

Bridging the gap

Despite the positive outlook, critics say SMEs in Malaysia still face many obstacles to growth, including sourcing credit, infrastructural issues and costs.

The international trade and industry minister, Datuk Mohamed, said there were challenges in providing SMEs with access to financing, mainly due to SMEs having poor credit ratings, which disqualified them for loan applications. “SMEs must strengthen their management skills, financial and learning capacities, and fully utilise the support given by the government,” he added.

Another challenge is to increase the productivity and innovation of SMEs. The Malaysia External Trade Development Corporation (Matrade) noted a weak response among Sarawak’s SMEs towards a nationwide e-Trade programme it is developing.

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