KUALA LUMPUR (Sept 11): Manufacturers experienced an increase in costs of doing business in the first half of this year (1H2023) arising from both domestic and external factors, according to the latest Federation of Malaysian Manufacturers' (FMM) business conditions survey.
The bi-annual survey of business conditions showed that most of the costs incurred by the respondents had increased by up to 20% in 1H2023 with labour, maintenance of machinery, raw materials and energy comprising the top cost increases components.
More than half of the respondents (52%) said labour costs had increased by up to 10%, while 23% reported a jump of between 11% and 20% and 9% saw an increase in their costs by more than 20%.
Fory-one per cent of the respondents said energy costs increased up to 10%. An increase of more than 20% for energy was disclosed by 16% of the respondents, of which the majority reported an increase of between 21% and 50%.
Nearly half of the respondents (48%) said machinery maintenance had increased up to 10%, while between 11% and 20% increase was seen by 16% of the respondents.
In terms of raw materials, an up to 10% increase was shown by one-third (36%) of the respondents, an increase between 11% and 20% by a quarter of the respondents. Another 11% of the respondents saw an increase of more than 20%.
FMM calls on govt to strengthen the ringgit performance to alleviate cost increase pressure from manufacturers
In the press conference, FMM president Tan Sri Soh Thian Lai said the cost of doing business was trending up in 1H2023, induced by global supply chain disruption, the implementation of the minimum wage, removal of utilities subsidies by the government and higher import costs due to the weak ringgit against the US dollar.
Soh said the weak ringgit has caused manufacturers to suffer from margin squeeze given that more than half of intermediate goods were imported for processing by manufacturers.
Against this backdrop, Soh has called for the government and Bank Negara Malaysia (BNM) to come up with a solution to strengthen the ringgit against the greenback.
In view of the weak ringgit versus the US dollar, Soh said companies are exploring the use of alternative currencies for their imports and exports to reduce their reliance on the USD.
China's renminbi or yuan is the top choice of most respondents as an alternative currency to the USD for exports and imports, followed by European euro and Japanese yen.
The main reasons for respondents' selection of the alternative currencies are requests from foreign buyers to pay for export proceeds from Malaysia in other currencies and foreign sellers only accept payment in other currencies for imports.
FMM calls for status quo on OPR rates, as 80% of the respondents' profit will be impacted if OPR is raised again
As manufacturers are grappling with a higher cost of doing business, Soh has called BNM, which had lifted the overnight policy rate (OPR) to 3% so far this year, to retain the OPR rate status quo.
Should the OPR increase further by 25 basis points (bps) by the end of 2023, 71% of the respondents will face impacts on revenue, while 80% of respondents see this impacting profit.
Meanwhile, 75% of the respondents said the latest 25bps increase in OPR to 3% in May this year had pushed up their operating costs, while the 25% of respondents said they were not affected by the increase.
Among those companies affected by the increase, 67% said the rate hike had impacted their cash flow and business operations, while 47% are concerned that a possible change in consumer spending habits will affect their sales and cash flow.
Another 40% of the respondents said they had to reduce their capital expenditure, while 38% had to streamline their operations and strategies to maximise profits.
The semi-annual survey by the FMM involved 351 respondents nationwide and it was conducted from July 5 to Aug 18 this year.