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CLICK TO ENLARGEEVEN as firms hang on for the long-awaited recovery later this year, the rising cost of doing business is throwing a spanner in the works for companies already plagued by poor sales.
The recent run-up in commodity prices and continued supply chain disruptions from the fallout of the lockdown measures to curb the pandemic have driven up the cost of most things, from raw materials to logistics.
Over the past year and a half, companies have also had to deal with the additional cost of compliance to standard operating procedures and the cost of technology adoption. Businesses that rely on delivery platforms, for example, may also have to bear the cost of additional fees.
There are also concerns that the shortage of labour could add to cost constraints.
According to the latest FMM-MIER Business Conditions Survey, a bi-annual collaboration between the Federation of Malaysian Manufacturers (FMM) and the Malaysian Institute of Economic Research (MIER), production cost has continued to climb in the first half of 2021 (H1‘21) and is expected to rise further in the second half.
The poll notes that the index for current production cost surged to 165 points in H1‘21 from 146 in H2‘20. About 72% of the respondents said they had to put up with higher costs in H1‘21, the highest tabulated since H2‘16.
Only 7% said they had reduced their costs in the first six months of the year, the lowest since H2‘18.
Meanwhile, the expected index for cost of production for H2‘21 has also risen to 166. This implies that production will be costlier soon, with 72% of the respondents projecting this to be the case for the second half.
Notably, inflation has also gone up, although this can be attributed to the low-base effect from last year when the economy was shut down.
But if cost increases are left unchecked, these will be passed through to consumers in order for businesses to preserve margins.
SME associations have urged the government to look into efforts to fight against inflation and lower the cost of running a business, including reducing the prices of raw materials and suppressing the strong increase in the costs of transport and air cargo.
When asked what other assistance respondents require from the government over the next one year or so, corporate tax reduction topped the list, followed by electricity and natural gas discounts and an extension of targeted wage subsidy to all workers in all sectors.
However, there were also considerable requests for the delay or reduction in regulatory cost, including new laws and regulations in the pipeline with cost impact (51%) and the lowering of statutory costs such as licensing, quit rent and assessment fee (49%).