Prihatin Stimulus from 27th March - What's in it for Malaysian startups?
By Raja Hamzah Abidin April 6, 2020
- Startups asking if stimulus good enough to survive?
- Hopes now on today’s specific announcement for SMEs & startups
Without doubt the COVID-19 outbreak has turned out to be a ‘black swan’ type event for the global economy and Malaysia. Trillions of dollars of shareholder value wiped out in a matter of weeks in public markets, the question is what now for private markets and thus startups? When the Prime Minister announced a two week extension of the Movement Control Order on March 25th 2020, the question on most startups mind was ‘is this enough to survive?’
Comparison of 2020 Malaysia stimulus vs 2008 Global Financial Crisis
On the surface, the stimulus package announced on the 27th of March 2020 sounds like a significant figure of RM250 billion (US$57.4 billion), a huge step up in the amount spent in the Global Financial Crisis (GFC) in 2008. As show above, most countries have deployed stimulus packages that are significantly more than what was spent during the GFC in 2008.
As a percentage of GDP, Malaysia’s stimulus package of 15.6% is significantly higher than the US at 9.35% and Singapore at 10.5%. Some noticeable similarities across all stimulus packages is that the government is trying to protect the people’s welfare through one-off payments, protecting businesses across all sectors especially hard-hit sectors such as food, tourism and aviation through government guaranteed loans and injecting more money into healthcare to tackle the outbreak.
However, which initiatives in Malaysia have a direct impact to our tech startups? Now I know that later this afternoon, the government is going to announce another package specifically for SMEs and with a startups in mind as well.
Any specific startup initiatives announced will have been from the feedback last Fri when the government listened to the main technology agencies including MDV, Magic, Cradle etc in terms of funding needs for Malaysia's startups. I understand that the government is considering all options for startups. Hopefully we will see some impactful announcements.
But in the meantime it is worth highlighting which initiatives from the Second Stimulus on 27th March are useful for startups.
1. Wage subsidy of RM600
Startups need to prove a fall of revenue of 50%. This should not be an issue for the startups which are affected by MCO. I’ve heard startups’ whose revenue dropped anywhere between 30% to even 100% as an effect of the MCO. Most startups have regional exposure, thus the restriction of movement in Singapore, Indonesia, Philippines and Thailand would have affected in some ways or form. However, given the restrictions of this wage subsidy I have not heard of any startups who have taken this up. If severely affected, most are just choosing to reduce burn by cutting work hours or asking staff to take leave at this time.
2. Special Relief Fund for SME’s
As this is channeled through conventional banks, there is little room to apply for most tech startups who are generally on the path to profitability but still in the cash burning stage. I have seen a jump in requests for venture funding ever since the MCO started, as most startups still believe in their existing business models but need some extra runway and flexibility to survive. Venture debt is a potential solution, I’m sure the folks at MDV will see a spike in applications over the coming months.
3. RM50 milion allocation for e-hailing drivers
A one off allocation is good, but the government can’t be expected to keep on funding them if the MCO extends. There are between 100,000-200,000 e-hailing drivers of Malaysia, a huge number, and a high percentage of them are from the B40 community which means they need to be supported. I suspect a solution to re-tool some of these drivers to food delivery will help both the drivers and the F&B industry
4. 6 month loan moratorium
Limited impact for startups given the lack of debt financing they take up. However, I do see opportunities for venture debt financing in the short term.
Overall I think this budget is a good start for the broader public especially the M40 and B40, keeping in mind fiscal discipline and the growing fiscal deficit which is targeted at 4%. Comparing our current package to the GFC package, it is clear that the objectives are different given and that we are facing a much bigger economic crisis in COVID’s case. Whats next? I think the whole market is awaiting this afternoon’s measures for SME’s and startups in Malaysia. Will they be disappointed or relieved?
Raja Hamzah Abidin is Managing Partner of RHL Ventures, a multi-family private investment firm championing growth for the best businesses in Southeast Asia.