PETALING JAYA: Many small and medium-sized enterprises (SMEs) in Malaysia are feeling the pinch of ringgit weakness, as it has led to an increase in cost pressures on their operations.
According to the SME Association of Malaysia, the decline in the value of ringgit vis-à-vis a rising US dollar has not only adversely affected the bottom lines of many companies, as raw material input costs increase, but the currency volatility has also resulted in cash flow problems for some.
“The ringgit’s depreciation has a negative impact on the production costs, cash flow and profits of most SMEs,” SME Association of Malaysia deputy president Michael Kang (pic)told StarBiz in an email.
He noted that many local SMEs had been grappling with higher production costs, as the bulk of their raw materials were imported. Exacerbating the pressure on their margins was the fact that most SMEs sell predominantly in the domestic market.
According to Kang, some SMEs were also facing difficulties in settling their payments to overseas suppliers due to the ringgit’s weakness.
“A majority of SMEs here do not actually have access to banking facilities such as loans and guarantees to meet their financing needs, so they depend on credit terms from their overseas suppliers,” Kang explained.
“But now, many have been badly hit because the ringgit has depreciated so much against the US dollar; some SMEs can’t even afford to settle their obligations to their suppliers and this may affect the future import of raw materials for their businesses,” he added.
Kang said that while there was no definite threshold, the ringgit’s exchange rate at around 3.5 to 3.6 against the US dollar would be ideal for the sustainability of SMEs in Malaysia.
The ringgit on Friday settled at 4.3168 against the US dollar, after hitting a new 17-year low of 4.3798 a day earlier.
The ringgit was at around 3.4 to 3.5 against the greenback early this year.
While the weakened ringgit would seemingly boost the export competitiveness of Malaysia, Kang said not all SMEs are benefiting.
“Only SMEs with export businesses are benefiting, but then again, not all of them are, as foreign buyers are now asking for discounts,” he explained, adding that the mainstay of the majority of SMEs in Malaysia was in the domestic market.