The recent government stimulus package has been widely criticised for failing to take care of the small medium enterprises (SME). On the other hand, there is also a corresponding backlash saying that taxpayers’ money should not be used to save private businesses. After all, SMEs should be prepared to take the risk in the first place – this is part and parcel of capitalism. Some have gone to the extreme of attacking entrepreneurs for being greedy because what they visualise is the fancy cars and fine dining enjoyed by these bosses and now they are crying for help. I see the merits from both sides but there is way more to ponder if we look deeper.

First of all I don’t agree with government bailing out any business because they will create moral hazard and those who think they are too big to fail will take this opportunity to see how far they can go. At the same time, we cannot deny the fact that SMEs currently contribute close to 40% of the country’s GDP and majority of them are in the service industry which also means they provide a lot of jobs. Metaphorically, you cannot protect the eggs and leave the hens to die in a thunderstorm just because the former are more vulnerable.

The recent wage subsidy announced by the government is certainly laudable but I’m not very sure how many will benefit from it because you have to show a 50% drop in sales from January 2020 and you cannot impose any unpaid leave or cut salaries of employees. Judging from the fact that market demand will not recover quickly in the next 6 months, I believe some SMEs might as well impose a significant pay cut or retrench their workers. What’s the point of receiving RM600 subsidy per worker if the net cost of retaining them is way higher. Furthermore, if businesses recover faster than expected, they can always hire again from a large pool of unemployed workers at more favourable terms. Job losses over the next few months is inevitable as I believe most employers will go through the same evaluation.

Almost everyone who borrows money from the bank enjoy loan repayment moratorium for 6 months but there is no rent moratorium mentioned at all. Most SMEs suffer because rental constitutes a large part of their fixed cost, especially retailers and F&B operators. Imagine landlords who get loan moratorium but still enjoy the cash flow from rental income. Isn’t this a form of subsidy to them even though they are the least vulnerable ones? Landlords with loans tied to their commercial properties should only be given repayment moratorium if they provide rental deferment to their tenants at the same time.

Most SME owners I know are generally surviving the crisis provided the MCO is not further extended. That means they have cash buffer of more than a month, which shows good liquidity management. I’m glad that it strengthen my faith in SMEs which I always admire for their survival instinct and adaptability. Personally, most of the products and services I enjoy are mainly provided by SMEs which tend to be more customer centric. For those who cannot survive the current crisis, they will inevitably go through constructive destruction which is prevalent in capitalism. After all, there could be many other economic factors which can impact short term market demand even if there is no Covid-19. Those who survive will emerge stronger and more robust in their risk management because we all are now convinced that it is indeed possible to have zero customer for a month.

One thing is for sure, most people including businesses will go through self-imposed austerity in the coming months. Coupled with job losses, there will be a massive draining of confidence in the market which leads to recession. The economists will tell you that confidence is one of the biggest determinants in economic activity. In layman terms, it’s what you believe you can do that matters instead of what you can actually perform. When everybody thinks that recession is on the way, it becomes a self-fulfilling prophecy.

Right now, all the indicators I know are pointing towards a difficult time in property, construction, retail, hospitality, travel, automobiles, banking, oil & gas etc. Will there be good value to be unveiled? Hopefully.