This article first appeared in The Edge Malaysia Weekly on April 13, 2020 - April 19, 2020

WHEN the government imposed the Movement Control Order (MCO) on March 18, its objective was clear — to contain the spread of Covid-19.

The decision was made on the basis that human lives are more important than the short-term economic impact.

Today, most non-essential manufacturing activities and business operations in the country remain shut and we do not need experts to tell us how damaging this will be to businesses and the economy.

Like it or not, the supply shock that started in China has now spread to Malaysia as the novel coronavirus makes its presence felt all over the country.

Although manufacturers of essential goods are allowed to operate, they may soon face difficulty sourcing for raw materials or delivering their end products once their inventories are depleted.

For many businesses, the supply chain is highly integrated and operates across different sectors, be they essential or non-essential services. In other words, efforts to break the chain of Covid-19 infections will also inevitably break businesses’ supply chain, locally and globally.

But does it really have to be this way? Can we have our cake and eat it too?

Business leaders The Edge spoke to share their experiences and offer suggestions on how things can be improved as they urge the government to start unwinding restrictions on manufacturers and businesses.

So, what does the exit strategy look like?

Relaxing gradually

The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) president Tan Sri Ter Leong Yap opines that it is time for the Ministry of International Trade and Industry (Miti) to allow more manufacturers to recommence operations.

“The Miti’s processing and approval of essential services is one of the six main issues that we highlighted to the government for immediate consideration,” he tells The Edge over the phone.

“For those that are very labour-intensive and those that require their workers to be close to each other physically, the government will probably think twice. Perhaps these manufacturers can be allowed to start off with a maximum 50% capacity so that they can still practise social distancing.”

Ter, who is also the president of the National Chamber of Commerce and Industry of Malaysia, also points out that construction is another sector that should be allowed to resume work gradually.

“If you think about it, most workers are living together in their quarters anyway. Therefore, if the construction site is safe, the government may consider allowing them to start work again,” he says.

As the services sector has been severely impacted by the plunge in tourist arrivals and cautious consumer spending, Ter says it is vital to keep the manufacturing, construction and mining sectors running to help hold up the economy.

“Given that Malaysia’s manufacturing sector is integrated with global supply chains, the MCO’s inflicted disruptions cause not only loss of sales due to diversion of orders but also ‘collateral damage’ on a permanent basis,” he says, adding that Wuhan in China did not shut down its production plants.

Ter, however, stresses that the industries that are allowed to operate must be made to bear the responsibility of maintaining and undertaking the necessary health prevention measures against Covid-19 at all times.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai believes that demand for essential goods, especially food items, personal protective equipment, face masks, sanitisers, gloves, disinfectant, pharmaceuticals and medical devices such as parts for ventilators and respirators will continue to be sustained or even increase.

“The demand for such products is seen not only locally but also globally. Malaysia is part of the global supply chain for many of these products and parts,” he says.

Therefore, the support supply chain sectors, including packaging materials, chemicals and petrochemicals, will continue to see demand.

Besides, support will also be required for new machinery and equipment, parts for maintenance and repairs, and electrical and electronic (E&E) components.

Soh highlights that due to stricter enforcement, there were cases of workers of companies with Miti’s approval granted prior to the announcement of the extended MCO being denied permission to travel to their workplaces. There were even several cases of workers being arrested.

Moreover, disallowing movement beyond the MCO hours is also affecting workers’ scheduled shift work for companies with Miti approval.

“We are aware of cases where the manufacturing entities in the supply chain of essential products are not granted approval to operate as they are not manufacturers of the final essential products approved by the National Security Council,” Soh says.

Based on feedback from 453 respondents of a recent FMM survey on the impact of the MCO on trade, the estimated export loss is RM4.7 billion.

Supply chain is integrated and complex

Interestingly, although the government has listed 10 essential services under the second phase of the MCO (see chart), ACCCIM is urging Miti to expedite the approval of backlog cases as businesses are severely disrupted and customers’ orders are put on hold.

“In the approval process, there were cases of discrimination due to the inconsistency in the interpretation of what is considered as essential service and what is considered as non-essential service. It must be noted that the supply chain is wholly integrated,” ACCCIM says in a March 30 statement.

American Malaysian Chamber of Commerce’s Malaysian American Electronics Industry Committee chairman Datuk Seri Wong Siew Hai concurs.

“The supply chain is a very complicated issue. Everything is inter-connected.

If a principal company wants to run a factory, it has to make sure that all other companies in the supply chain can come together,” he says.

“In that case, you can’t even say a carton box manufacturer is non-essential. Without carton boxes, I cannot ship the products. Then, I need plastic tubes, barcode labels and toner. All these products are not essential by themselves.”

Wong says initially, essential services mainly focused on food and medical supplies. Then, the industry players explained to the government that the E&E sector is also essential.

“E&E is classified as part of the essential supply chain, although some people are confused. The application of semiconductors is in our daily lives, and if you are talking about the Covid-19 outbreak, semiconductors are also components of healthcare and medical devices,” he says.

Wong adds that Malaysia’s E&E sector is also part of the global supply chain and, hence, the government should allow all suppliers of approved principal companies to operate, ensuring that the local players are not left out.

“Bear in mind that it took us more than 40 years to develop the local vendors. If you don’t allow them to operate, some companies may have to source from overseas. Don’t forget, many countries are still running. If Malaysia is not running, we may have to source from other countries, and the local vendors will lose out,” he says.

Commenting on Miti’s processing and approval of essential services, Wong says it is difficult for the government to assess the E&E companies one by one.

“That is why we recommend that the government give us auto-approval. If we [as principal companies] tell you that this is the list of our suppliers, you should approve it first and audit us later,” he says.

“If I submit [applications of] 30 companies for approval, and only half of them are approved, then sooner or later, I will run out of stock [for components] from the other half.”

ACCCIM’s Ter says the association is working closely with the special task force from Miti, which has been “acting very fast”.

“Generally, if you are [in the] essential [category] or if you are part of the essential supply chain, you should be allowed to operate. So, if any [non-essential goods] manufacturers think they should be part of the essential supply chain, they can always come to us and Miti, and we will try to solve their problems,” he says.

“But, of course, we need to assess which part of the supply chain they are in, whether their end products will go to medical care, food or other essential services.”

According to an EY report dated April 8, one of the potential socioeconomic impacts of Covid-19 is a drop in foreign trade as supply chains are affected by the MCO.

The supply chain processes of the aviation and logistics sectors that are affected by the MCO will also result in logistical constraints and business slowdowns.

“The Covid-19 pandemic has disrupted economic activities, including supply chain networks. Businesses lose clarity on demand as buying behaviour shifts drastically. A ripple effect emerges as companies’ sources of supplies are disrupted, compounded by temporary suspension of support services. It is imperative for businesses to rapidly assess, recover and respond to their supply network disruptions,” says EY.

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