"We know it is not easy to manage the currencies, but the entire industry and nation is facing the impact of the weakening ringgit", Federal of Malaysian Manufacturers president Tan Sri Soh Thian Lai for the Press Conference release of the FMM Business Conditions Survey 1H2023 results - MARIA IBRAHIM/The Star
PETALING JAYA: The Federation of Malaysian Manufacturers (FMM) has urged the government to come up with a solution for the weakening ringgit, following the uptrend in the cost of doing business in the first half of 2023 (1H23).
FMM president Tan Sri Soh Thian Lai said the major factors behind the increase were the global supply disruptions, the withdrawal of utility subsidies and the higher import cost due to the weakening ringgit against the dollar.
Soh said the weak ringgit had caused manufacturers to suffer from a margin squeeze, as 55% of intermediate goods are imported for processing. He then said if the ringgit hovered around RM4.60 to RM4.70, manufacturers will have to face difficulties when trying to absorb the cost.
“We know it is not easy to manage the currencies, but the entire industry and nation is facing the impact of the weakening ringgit,” said Soh at the release of FMM’s Business Conditions Survey for 1H23.
As the ringgit continues to weaken against the dollar, he said companies were exploring ways of using alternative currencies for their imports and exports to reduce reliance on the dollar as the main form of transaction.
Based on the survey, Soh said China’s yuan was the top choice of the respondents as an alternative currency to the dollar, followed by the euro and yen.
The main reason for this was due to requests from foreign buyers to pay for export proceeds from Malaysia in other currencies; while foreign sellers only accepted payment in other currencies for imports.
FMM also urged the government to reintroduce the goods and services tax (GST) at a rate of 4% for the benefit of the nation and the country’s long-term economic growth.
Soh said this suggestion was given based on the country’s lack of revenue, in which he said if it is not implemented, Malaysia would face a continuous deficit.
As for the B40 group and people with an income of below RM4,000, Soh said if the tax was deducted from their monthly pay, then the government could opt to provide assistance in the form of food, transport and electricity vouchers.
On another note, Soh urged Bank Negara to retain the overnight policy rate (OPR) at 3%. “Should the OPR further increase by another 25 basis points by the end of 2023, 71% of the respondents will face a major impact on their revenue, while the remainder will face minimal effects,” he told the media yesterday.
Soh said with the risks in the global economy tilted towards the downside and flagging external demand still weighing on the Malaysian economy, the manufacturing sector’s six-month business outlook remained cautious and pragmatic.
As for maintaining growth of businesses in 2H23, he said the respondents were planning to maintain their current 1H23 position for the next half.
“Around 27% are considering streamlining their production lines, while 18% will likely engage in high-growth projects and only 8% are interested in digitalising their business,” he said.
In general, Soh said the economic outlook for 2024 was also cautiously optimistic with 35% of respondents saying the economy would improve in 2024, while 39% remained neutral, followed by 25% being pessimistic.
Commenting on the recent 12th Malaysia Plan, Soh said the government’s allocation of RM90bil every year would spur optimism if fully implemented.
“I think it is a good sign that the government made the decision on development budgets. But the most important thing is that the RM90bil must be executed and implemented without any leakage or waste,” he said.
Soh also shared his view on the progressive wage model introduced by the government, saying that it should be voluntary and not mandatory, adding that it should only be implemented in certain sectors.
“This is because it is not a simple process. It includes training, retaining, rescaling, upskilling and also career progression in the company,” Soh said.
