Kuala Lumpur, April 20, 2020 – Manufacturers are facing tremendous strain on their revenue and ability to sustain business amidst the COVID-19 pandemic and the Movement Control Order (MCO). More than 50% of the respondents of a recent survey conducted by the Federation of Malaysian Manufacturers (FMM) on the impact of the MCO on employment revealed that revenue had dropped by more than 50%. This has led to the inability of businesses to sustain their operations beyond three months if the MCO continues to be extended and conditions do not improve. 44% of the respondents indicated that they would only be able to sustain their business with the current workforce for three months while 34.1% only managing to sustain business for one month.

The survey conducted from April 6 to April 10 had a response from 419 companies, majority (89.5%) from manufacturing and manufacturing-related and support services. 53.7% were from the non-essential product sectors and thus were not able to operate while 63.9% of those from the essential product sectors managed to obtain approval to operate during the MCO1 and MCO2 period. 16% of the respondents were in a unionised environment.

Impact of MCO on Employment

Working from home proved to be a challenge for many companies as either work processes were unable to be performed remotely or companies were not prepared with the necessary infrastructure to support employees working from home. It was evident from the survey that the 30% that obtained approval to operate were able to work with 50% staff strength or less. However, the majority 70% comprising of some essential product manufacturers who were not granted approval and all the non-essential product manufacturers were unable to work or faced difficulties in working from home. Of this 70%:

• 24% were unable to work at all with no employee being able to work from home
• 44% had employees working from home with 31.7% only having 5-10% employees working from home, 27% with less than 5% working from home and 17% with >10-20% working from home.

Government Initiatives Introduced to Retain Employees – Wage Subsidy Programme

The initiative introduced by the Government, namely the Wage Subsidy Programme (WSP) was welcomed by employers and is a great relief to many in mitigating their cash flow constrains. This was especially helpful for employers who had to continue paying full wages during this MCO period as instructed by the Government irrespective of whether work was performed or not. The Government had acknowledged the severe constraints faced by employers and announced their agreement on April 6, 2020 for negotiations between employers and employees on the terms of employment during the MCO including cost cutting measures such as pay cuts and unpaid leave. However, it must be recognised that this negotiation process with employees or employee representatives would not be an easy task for most employers.

• 78% of the respondents of the survey have either applied or are planning to apply for the wage subsidy. However, given the limit of 200 claims imposed on eligibility of large companies as well as the ineligibility of those earning wages above RM4,000 for the wage subsidy, 15% of the respondents were unable to claim the wage subsidy for all their employees which averaged 377 employees earning ≤RM4,000 and an average of 143 workers earning >RM4,000.
• Of the 22% of respondents that did not apply for the wage subsidy, majority were not able to meet the 50% reduction on revenue as the impact on sales may only be seen during the second half of 2020. In addition, some felt that the amount of wages was too high to be maintained for companies to comply with the WSP conditions that employers have to continue paying full wages during the WSP period and are not able to implement any cost cutting measures during the WSP period and the three months following the WSP for those employees earning ≤RM4,000.
• Majority, 74% of the survey respondents also opined that the wage subsidy was inadequate to retain employees in the next three to six months without any pay cuts or retrenchment.

- 74% replied that the wage subsidy should cover all employees irrespective of wage level with some suggesting that the ceiling be set at RM8,000 instead of the RM4,000 currently.
- 57% replied that the subsidy should be more than 50% of wages
- 51% replied that the wage subsidy period was too short and should be for at least 6 months for employers to be able to wade through the impact and aftermath of the COVID-19 and MCO.

Likely Cost Cutting Measures In Next 3 to 6 months to Sustain Business While Preserving Employment
Given the inability of businesses to sustain their businesses with the current workforce, some of the likely cost cutting measures that employers would undertake in the next three to six months in order to preserve employment include freezing headcount (67%), instituting unpaid leave (59%), removal of some non-contractual allowances and benefits (59%), forced annual leave (59%), reduction on work days per week (39%), reduction in some benefits agreed in the collective agreement for the unionised companies (34%) and reduction in hours work per day (29%).

Overall, for companies that have to resort to pay-cuts, the likely percentage cuts to be implemented by the different category of workers are as follows:

Top management staff:
- 37.8% of respondents are likely to cut pay in the range of >10-20%
- 22.7% are likely to cut pay in the range of >20-30%

Managerial level staff:
- 36% are likely to cut pay in the range of >10-20%
- 28% are likely to cut pay in the range of >5-20%

Executives:
- 54% are likely to cut pay in the range of 5-10%

Non-Executives:
- 51.7% are likely to cut pay in the range of >5 to 20%
- 38.% are likely to cut pay in the range of <5%

Majority of companies in unionised environment (62%) are unable to negotiate to implement cost cutting measures to save jobs resulting in 48% of these unionised companies having to resort to retrenchments or lay off in the event that the unions refuse to accept the cost cutting measures such as reduction in working days or hours.

The impact on some companies is greater than others and some might have to resort to lay-offs / retrenchments. 63% indicated that they may have to resort to such cost cutting measures with 47% having to do so within the next three to six months. Majority (78.7%) of companies would have to lay off / retrench up to 30% of employees with 27% indicating that they would have to lay off between 21-30% of employees followed by 22% having to lay off between 11-20% of employees.

Further suggestions to the government to address employment related and other issues during and immediately thereafter the MCO
The respondents urge the Government to consider the following during and immediately thereafter the MCO period:

• Wages Subsidy: Extend to all employees irrespective of wage level; remove sales/revenue reduction condition; and extend the wage subsidy to at least 6 months.
• Factory Operations: Allow partial work force to work with control and guidelines, minimal work force, including non-essential products manufacturers to operate with at least 50% work force, to cater for export market as well
• Tax/EPF/Levy Exemption: Complete exemption/reduction of EPF contribution from April to December; waive Year of Assessment 2020 income tax for all corporations irrespective of size and also personal income tax be fixed at 10% on the maximum scale and suspend the monthly tax deduction (MTD) deduction for a period of 6 months; full suspension of foreign worker levy for a one year period.
• Financial Assistance: Ensure that there is consistency across all financial institutions in the treatment of interest during the moratorium period. Banks should not compound interest but rather waive or reduce the interest during the moratorium period to further assist companies affected; Special Soft Loan scheme of RM5 billion with a low 2% interest rate for companies to cover the fixed capital payments such as rents and utilities as well as administrative payments including salaries during this period.
• Overhead costs:
  - Utility Bill: All industrial power users irrespective of the kilowatt usage a month to get at least a 15% discount in electricity for the next six months. In addition, to remove maximum demand charge for medium and high voltage industrial customers for cement, iron & steel, petroleum and chemicals processing industries. Also, reduce natural gas tariffs by 35% until end of 2020 and remove the “Take or Pay” penalty clause imposed on customers given the current impact on business as well as the overall drop in oil prices;
  
  - Other Administrative Bills: Waiver of assessment tax, quit rent, etc.

• Infrastructure support: Enhance the internet accessibility and speed with free access & enhance the cyber security

Tan Sri Dato’ Soh Thian Lai
President, Federation of Malaysian Manufacturers

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Date: 20 April 2020