The Small and Medium Enterprise (SME) Annual Report 2007 was released today by His Honourable Prime Minister, Datuk Seri Abdullah Ahmad Badawi. The SME Annual Report 2007 is one of the National SME Development Council's key outreach initiatives to ensure SMEs and policymakers have access to information pertaining to the status, progress, performance and policies for development of SMEs across all sectors.

The SME Annual Report 2007 provides an overview of:

• the prevailing international and domestic economic climate with a focus on potential in new markets;
• performance productivity of SMEs in the manufacturing and agriculture sectors, with information on how increased ICT and e-Payment utilisation can reduce costs in the medium term;
• programmes implemented in 2007 and planned for 2008 to promote the development of SMEs, with several success stories of SMEs who have benefited from the programmes; and
• strategic growth areas, including information on the enabling physical infrastructure and incentives put in place by the Government to encourage SME participation in these areas.

Improved Productivity Performance

Productivity of SMEs in the manufacturing and agriculture sectors showed positive growth. In 2007, the growth in productivity of SMEs in the manufacturing sector stood at 5.3%. SMEs comprise 96% of establishments in the manufacturing, contributing 30.7% of total manufacturing output. The productivity gained was attributed to continuous investments in modern technology and advance production processes which led to the delivery of higher value added products and services.

The agriculture sector recorded a productivity growth of 2.8% and contributes significantly in terms of revenue and employment. SMEs in the agriculture sector are mainly involved in the farming sector, including the cultivation of both food and non-food crops, livestock breeding, fisheries and aquaculture. In 2007, farm level productivity registered an improvement due to greater emphasis on large scale commercial farming, adoption of latest farm technologies and the development of agripreneurial skills through incubation programmes.

The Report also highlights the benefits of adopting advanced technologies including ICT and electronic payments (e-payments) in improving productivity and lowering their cost of doing business. SMEs can use ICT to assist them in the decision making process and improve business process flows. In addition, SMEs will find that by utilising e-payment solutions, they will be able to transact in the domestic and global markets more efficiently.

National Agenda for SME Development

SMEs are important contributors to the sustained growth and resilience of our economy. To ensure the sustainable growth of the SME sector, the Government has translated policies and strategies to promote SME development into initiatives aimed at building capacity and capabilities of SMEs, putting in place an enabling infrastructure for SME development and also to enhance access of financing for SMEs. Arising from the commitment and the collaboration of the Ministries and Agencies to implement SME focused programs, t here has been significant improvements in the delivery of programmes to SMEs with 72% of programmes implemented in 2007 achieved or exceeded the targets set. The remaining programmes are ongoing.

Programmes in 2007 Boost Capacity and Capabilities of SMEs

In 2007, over 286,000 SMEs benefited from the implementation of 189 programmes, which were implemented by 14 Ministries and their related Agencies, involving an expenditure of RM4.9 billion. The focus of programmes in 2007 was on enhancing the capacity and capabilities of SMEs, particularly in the areas of skills upgrading, entrepreneurship development, marketing and promotion, product development and technology enhancement . Programmes aimed at enhancing capacity and capabilities of SME benefited over 248,000 SMEs . In terms of enabling infrastructure, a total of 7,700 SMEs benefited from development programmes focused on improving and building new physical infrastructure to support SMEs in their business operations. The clustering of industries was further encouraged in 2007 to reduce transportation and logistics costs by facilitating the movement of goods and supply of raw materials and to share common facilities.

Financing Options Meeting Spectrum of Needs

Financing to SMEs continued to expand significantly in 2007. Banking institutions and development financial institutions ( DFIs) continued to be the largest provider of funds to SMEs, approving RM63.2 billion to over 132,000 SME accounts, exceeding the projected target of RM51 billion to 110,000 SME accounts. In 2007, Bank Negara Malaysia embarked on several key initiatives to encourage banking institutions and DFIs to provide microfinance facilities, resulting in six commercial banks and three DFIs providing micro financing facilities amounting to RM271.0 million to more than 26,000 micro enterprises as at end March 2008.

In addition, a RM300 million Venture Capital Fund for the Agriculture sector was established and the Credit Guarantee Corporation widened their scope of guarantee beneficiaries to include selected Islamic banks and DFIs to allow for wider outreach to SMEs. C omplemented by the various Government funds and schemes, commercial banks and DFIs are expected to remain the main providers of funds to SMEs in 2008 with RM70 billion in loans expected to be approved and disbursed to about 140,000 SME accounts.

Positioning For Growth

The Government has identified the services and agriculture sectors as areas of focus to be promoted for SMEs as an important source of earnings. The concerted development of these sectors is part of the national development strategy to venture into potential growth areas, namely food production and tourism to broaden the economic base. This will provide the basis for sustained growth of the economy.

In 2008, 198 programmes are being implemented with a financial commitment of RM3.2 billion. These programmes are mainly aimed at encouraging the development of innovative products and automating processes, to keep pace with global demand for high quality and competitively priced products and services.

The Census of Establishments and Enterprises 2005 indicate that SMEs contribute 42.1% (or RM8.7 billion) of the total output of the agriculture sector. The rising cost of food has intensified national efforts to transform the agriculture sector into the nation's key growth sector. The rising global demand for food provides significant opportunities for income generation for SMEs in the agriculture sector. With the aim of developing Malaysia into a net exporter of food by 2010, Government programmes such as promoting contract farming, the development of national food terminals and feedlot centres, as well as other incentives are in place to promote swifter adoption of modern and commercial scale production techniques as well as greater use of ICT and biotechnology.

About 87% of SMEs are in the services sector, and this sector is expected to generate an increase in its contribution to GDP over the next decade . The Tourism sub-sector has seen an increase in foreign exchange earnings from RM17.3 billion in 2000 to RM46.1 billion in 2007. The increase in tourism activities generates spillover effects into other sectors of the economy such as the hotel industry, retail businesses, restaurants and transportation. Tourism receipts accounts for 7.4% of GDP in 2007. The tourism sector and other growth areas along with supporting programmes have been highlighted in the SME Annual Report 2007 to help SMEs tap into opportunities offered by this growing sector.

National SME Development Council
24 July 2008

See also: Small and Medium Enterprise (SME) Annual Report 2007 Publication