COVID-19 BUSINESS PULSE SURVEYS ROUND 4 February - March 2022 Firms’ Recovery from COVID-19 in Malaysia Results from the 4th Round of COVID-19 Business Pulse Survey Smita Kuriakose Finance, Competitiveness and Trang Tran Innovation Global Practice Kok Onn Ting Sarah Hebous 2 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 Acknowledgements This brief was prepared by Smita Kuriakose (Senior Economist), Trang Tran (Senior Economist), Kok Onn Ting (Private Sector Specialist) and Sarah Hebous (Consultant). The survey instrument was customized for Malaysia by Smita Kuriakose, Kok Onn Ting and Trang Tran. Survey implementation and data processing was done by Green Zebras Bhd. The brief and accompanying slide deck were designed by Kane Chong. This brief and the accompanying slide deck were prepared under the guidance of Cecile Thioro Niang (Practice Manager, FCI), and Yasuhiko Matsuda (Country Manager, Malaysia). For more information, please contact Smita Kuriakose (skuriakose@worldbank.org) COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 3 Key findings Results from the Business Pulse Survey implemented between February 4 – March 4, 2022, reveal: • Significant signs of recovery among firms: » Evidence of improved sales among firms and expanded operating hours. Further, firms are optimistic about improved sales. » Employment is recovering to pre-pandemic levels across regions and sectors. » While catching up, recovery among small firms lag that of medium and large sized firms. » While the pace of digital adoption tapered, technology changes brought on by the pandemic seem permanent. Only a small fraction of firms reverted to pre-pandemic manual modes of operation. » Three-quarters of firms adopted hybrid work arrangements but with the economy reopening, the average number of employees working remotely fell from 40% in July 2021 to 27% in February 2022. • Recovery and reopening brings about new challenges: » Firms are finding it hard to fill vacancies with the most affected sectors with unfilled vacancies being Utilities (64% of firms) and Electronics (50% of firms). » While overall cash flow for firms has not deteriorated, about 11% of firms surveyed have filed for insolvency and a further 8% expect to file within the next 3 to 6 months. • Government Assistance and Stimulus Packages: » There is room to wind down government support. A majority of firms that received assistance either (i) expressed no need for continued support as they had fully recovered or (ii) would be able to survive despite being affected by government support winding down. » East Malaysia has the highest share of firms that consider winding down support to be harmful to firm operations. • Looking forward, what is the role for policy to support a robust and sustainable recovery? » There is a need to build resilience for firms, as signified by the recent flooding: Nearly a fourth of the respondents were hit by the floods, of which, the majority (88%) suffered damages to fixed assets. » Malaysian firms are adopting some practices (such as conducting periodic audits of compliance with environmental regulatory requirements and monitoring CO2 emissions) to improve energy efficiency and reduce environmental impact. » Financial barriers to increase environmental practices remain, and the government could consider a range of options to reduce transition costs for firms. » Firms’ perceptions suggest carbon taxes may provide a viable option for Malaysia to raise government revenues while also supporting environmental objectives. 4 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 Methodology The COVID-19 Business Pulse Survey (BPS) is a rapid survey designed to measure the various channels of impact of COVID-19 on firms, firm adjustment strategies, and public policy responses. The World Bank, in collaboration with a private survey company, conducted the 4th round of the Malaysia BPS in February- March 2022, following the 1st round in October 2020, 2nd round in Mid-January to February 2021, and 3 rd round in July 2021. Firms were sampled randomly from an online business panel database, which consists of 100,000+ companies in all sectors and sizes, across Peninsular and East Malaysia. A minimum sample size was obtained for sectors that are important to Malaysia’s economy and are sensitive to the COVID-19 crisis (export-oriented activities: electronics, automotive, tourism related activities) while preserving the sectoral shares in the sampling frame1 . The survey was conducted online and yielded 1,500 responses from respondents in senior management positions at their company (i.e. owners, C-suite or Director level). Malaysia and the Timeline Timeline of Various Stages of Movement Control Order Terminology Period Movement Control Order (MCO) 18 March – 12 May 2020 Conditional Movement Control Order (CMCO) 13 May – 9 June 2020 10 June – 31 August 2020, then extended to Recovery Movement Control Order (RMCO) 31 December 2020 2nd CMCO 14 October – 7 December 2020 2nd MCO 13 January – 4 March 2021  3rd CMCO 5 March 2021 onwards 12 May – 28 June 2021 3rd MCO (upgraded to Full MCO on 1 June 2021) 1 Due to lack of statistics about the true universe of firm, all analyses are done without weights. COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 5 Impact on Firms Recovery is taking hold as evidenced by improved sales among firms and expanded operating hours. These are combined with improvements in employment levels. Firms are experiencing increased demand and are optimistic about improved sales in the next few months. Operational Status Operating hours for firms have expanded, with the share of firms being fully or partially open reverting to pre-pandemic levels. The average change in the hours of operations for firms (compared to the same period pre-pandemic) has turned positive: a first since the BPS started in October 2020 (Figure 1). The share of firms being fully open is converging towards full capacity across all regions (Figure 2). FIGURE 1 FIGURE 2 Average change in hours of operations for firms Majority of firms’ operation status converging return to pre-COVID-19 levels towards full capacity across regions Average change in hours of operation relative to same period Being open (full or below capacity) pre-COVID-19 (%) Share of firms (%) 1 100 0 Kuala Lumpur Putrajaya 90 Cyberjaya Other Central -5 80 Northern Southern 70 Eastern -10 -9 East Malaysia 60 -14 MCO (Mar−Apr 2020) 1st CMCO (May−Aug 2020) R1 Oct 1−15, 2020 2nd CMCO (Oct 14−Dec 7, 2020) R2 Jan 15−Feb 10, 2021 3rd CMCO (Feb 10−May 31, 2021) R3 Jul 8−28, 2021 Oct 1−Dec 31, 2021 R4 Feb 4−Mar 4, 2022 -15 -20 -21 Oct 1–15, 2020 Jul 8–28, 2021 Jan 15–Feb 10, 2021 Feb 4–Mar 4, 2022 Impact on Sales As a further sign of recovery, sales levels are reverting to pre-pandemic levels. Firm sales in February-March 2022 are just 1% lower than pre-pandemic levels, the highest it has ever been since the start of the survey in October 2020 (Figure 3). The recovery is seen across sectors with the manufacturing sector achieving sales above pre-pandemic levels (Figure 4). 6 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 FIGURE 3 FIGURE 4 Sales levels are reverting to pre-pandemic Sales recovery is seen across sectors levels Average change in sales relative to same period pre-COVID-19 (%) Change in sales relative to same period pre-COVID-19 (%) 0 10 -1 0 -5 -5 -10 -10 -8 -20 -12 -30 -15 -16 -40 -18 MCO (Mar−Apr 2020) 1st CMCO (May−Aug 2020) R1 Oct 1−15, 2020 2nd CMCO (Oct 14−Dec 7, 2020) R2 Jan 15−Feb 10, 2021 3rd CMCO (Feb 10−May 31, 2021) R3 Jul 8−28, 2021 Oct 1−Dec 31, 2021 R4 Feb 4−Mar 4, 2022 -20 -22 -22 -25 -26 MCO (Mar−Apr 2020) 3rd CMCO (Feb 10−May 31, 2021) 1st CMCO (May−Aug 2020) R3 Jul 8−28, 2021 R1 Oct 1−15, 2020 Oct 1−Dec 31, 2021 2nd CMCO (Oct 14−Dec 7, 2020) R4 Feb 4−Mar 4, 2022 R2 Jan 15−Feb 10, 2021 Agriculture Manufacturing Construction Services While catching up, recovery in sales amongst small firms lags that of medium and large sized firms. Small firms are now opening up at a similar rate to medium and large firms in February-March 2022 (Figure 5). However, the gaps in monthly sales growth remain persistent: while sales for medium and large firms have more than fully recovered, average sales growth for small firms is still 10% lower than pre-pandemic levels (Figure 6). FIGURE 5 FIGURE 6 Small firms were much more likely to be closed ...but pace of recovery of sales among small but have caught up... firms is slower than that of medium and large sized firms Being open (full or below capacity) Change in sales relative to same period pre-COVID-19 Share of firms (%) (%) 100 10 0 90 -10 80 -20 70 -30 60 -40 MCO (Mar−Apr 2020) 1st CMCO (May−Aug 2020) R1 Oct 1−15, 2020 2nd CMCO (Oct 14−Dec 7, 2020) R2 Jan 15−Feb 10, 2021 3rd CMCO (Feb 10−May 31, 2021) R3 Jul 8−28, 2021 Oct 1−Dec 31, 2021 R4 Feb 4−Mar 4, 2022 MCO (Mar−Apr 2020) 1st CMCO (May−Aug 2020) R1 Oct 1−15, 2020 2nd CMCO (Oct 14−Dec 7, 2020) R2 Jan 15−Feb 10, 2021 3rd CMCO (Feb 10−May 31, 2021) R3 Jul 8−28, 2021 Oct 1−Dec 31, 2021 R4 Feb 4−Mar 4, 2022 Small Medium Large Small Medium Large COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 7 Employment Levels In line with operational status and sales recovery, employment levels are recovering as well, with the automotive sector leading the way. Employment levels are recovering, being just 3% shy of pre-pandemic levels (Figure 7). Employment changes in February-March 2022 across most sectors are registering smaller declines compared to those seen in July 2021 (Figure 8). In the case of the automotive sector, hiring is increasing rapidly with an 8% increase compared to pre-pandemic levels. FIGURE 7 FIGURE 8 Employment levels have reverted to pre- Employment changes are narrowing their pandemic levels declines compared to previous rounds of the survey with the automotive sector rehiring Average change in employment comparedto pre-pandemic Average change in employment compared to pre-pandemic (March, 2020) (%) (March, 2020) (%) -30 Oct 1−15, Jan 15−Feb 10, Jul 8−28, Feb 4−Mar 4, Construction -27 -24 -12 2020 2021 2021 2022 -5 Electronics -20 0 -11 -10 -6 Other Manufacturing -10 -20 -9 -8 Utilities -21 -18 -3 -7 -5 -28 -5 Agriculture & Mining -21 -7 -18 Tourism & Transportation -18 -26 -7 -1 Fin./Real Estate/Biz Services -17 -17 -5 -11 -10 Other Services -16 -15 -1 -16 -11 Other Commerce -25 -9 -1 -16 Commerce (food & beverage) -20 -22 1 -15 -6 -5 Automotive -4 8 -17 -30 -20 -10 0 10 -18 -20 Oct 1−15, 2020 Jan 15−Feb 10, 2021 Jul 8−28, 2021 Feb 4−Mar 4, 2022 Controlling for firm size, sector, and exporter status. Sorted by average employment change in latest survey round. 8 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 Demand and Expectations Outlook Buoyed by the economy reopening, firms indicate increased demand for their goods and services, and more firms have a positive outlook on sales for the next three months. Demand is seen to be rising: 29% of firms reported increased demand, the highest reported across all rounds (Figure 9). Correspondingly, the share of firms that reported reduced orders decreased from 51% in July 2021 to 31% of firms in February 2022. In February 2022, 34% of firms surveyed expected their sales to increase in the next 3 months as compared to 21% surveyed in July 2021 (Figure 10). FIGURE 9 FIGURE 10 More firms experiencing rising demand More firms are having a positive outlook on sales Demand relative to last year Expected change in sales in 3 months relative to same time one year ago Share of firms (%) Share of firms (%) 53 51 60 57 50 53 46 47 40 40 31 31 34 30 29 29 24 26 22 22 23 24 19 20 21 20 18 20 15 13 10 9 10 0 0 Increased Remained Decreased Decreased Increase Remain about Decrease the same (reduced orders) (cancellations) the same Oct 1−15, 2020 Jan 15−Feb 10, 2021 Jul 8−28, 2021 Feb 4−Mar 4, 2022 Jan 15−Feb 10, 2021 Jul 8−28, 2021 Feb 4−Mar 4, 2022 How Permanent are Firms’ Adjustments? As firms are showing signs of recovery with the economy reopening, an important question is whether the adjustments made by firms during the pandemic are permanent or will firms revert to previous modes of operation. The BPS found the popular strategies to deal with COVID-19 remained consistent in the recovery phase, however with varied intensities. Increased use of digital platforms remains the most popular tool even though the pace of increased adoption as a strategy has tapered: 58% of the firms surveyed increased the use of digital platforms in October 2020 and this share was 48% in February 2022 (Figure 11). Increase in remote work also tapered (from 44% of firms in October 2020 to 33% in February 2022. The tapering of increased use of digital platforms and remote work arrangements could be partly explained by the reopening of the economy and end of mobility restrictions, where a portion of the firms are reverting to their normal operations. COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 9 FIGURE 11 Tapering of firms using digital platforms and remote work but rising share of firms launching new products Strategies implemented or planning to implement to deal with COVID-19 Share of firms (%) 58 57 Increased use of digital platforms 52 48 44 45 Increase in remote work 42 33 31 31 New products 29 32 0 20 40 60 Oct 1−15, 2020 Jan 15−Feb 10, 2021 Jul 8−28, 2021 Feb 4−Mar 4, 2022 As the economy reopens, the share of employees working remotely declined but hybrid work arrangements are on the rise. The average share of employees working remotely declined from 40% in July 2021 to 27% in February 2022, consistent with the pace of reopening. Adoption of hybrid work arrangements are the most popular adjustment strategy in February 2022 with 77% of firms surveyed adopting this mode, compared to 46% of firms that opted for fully physical work arrangements during the end of mobility restrictions (Figure 12). Adoption of digital technologies is likely a permanent trend. The survey found COVID-19 increased digital technology adoption for various business functions and the majority of firms expect to continue or increase use, with a tiny fraction (between 2% and 5% of firms across different business functions) reverting to pre-pandemic manual systems (Figure 13). FIGURE 12 FIGURE 13 Hybrid work arrangements among firms are on Majority of firms continue to use digital the rise technologies, while a small share of firms are reverting to manual pre-COVID-19 systems Use of remote working options Expected use of digital technologies post-pandemic Share of firms (%) Share of firms who started or increased use (%) 80 77 61 60 58 53 48 48 60 40 46 45 28 24 22 22 22 21 20 20 40 20 19 18 5 2 2 3 3 20 17 0 Digital Social Data CRM ERP 9 7 platforms media analytics or SCM software for sales or for software payment marketing 0 solutions Time of survey End of mobility restrictions Yes – increasingly Yes – but to lesser extent than during COVID-19 Fully physical Hybrid Fully online Yes – to the same extent No – we will revert back Fully online denotes all or almost all sta working remotely, i.e. at least 95%. as during COVID-19 to before COVID-19 10 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 Challenges being faced by firms As reported earlier, firms are experiencing rising demand in the recovery phase. As a result, some firms are finding it hard to fill job vacancies. On average, 37% of firms surveyed reported difficulties in filling vacancies. The sectors with the most affected firms with unfilled positions are Utilities (64% of firms) and Electronics (50%) (Figure 14). FIGURE 14 Utilities and Electronics are sectors that are most affected by unfilled vacancies Unfilled positions Share of firms (%) 80 64 60 50 46 48 44 39 40 40 38 33 29 23 20 0 Other Commerce Other Tourism & Fin./ Other Construction Automotive Agriculture Electronics Utilities Commerce (food & beverage) Services Transportation Real Estate/ Manufacturing & Mining Biz Services Cash flow has not worsened significantly, but 19% of firms are filing or expected to file for insolvency. In fact, firms that fell into arrears dropped from 28% in July 2021 to 23% in February 2022. Moreover, firms at the risk of falling into arrears also declined from 35% of firms in July 2021 to 32% of firms in February 2022 (Figure 15). However, 11% of all firms (and 26% of firms that stated they had difficulty accessing finance) reported they filed for insolvency and another 8% of all firms (and 19% of firms that stated they had difficulty accessing finance) are expected to file for insolvency. Conditional on size, sector, and region, firms who reported difficulties accessing finance also reported higher employment losses relative to pre-pandemic levels. FIGURE 15 Cash flow situation among firms has not worsened but 19% of firms are filing or expected to file for insolvency Financial shocks Share of firms (%) 80 79 79 79 75 75 69 63 60 59 59 53 38 39 39 40 37 35 32 29 31 28 23 24 23 20 11 8 0 Less than one Less than six Customers Adjusted loan Fell in Expect to Filed for Expect to month of cash months of cash at least three terms or arrears fall in arrears insolvency file for available available months behind schedule insolvency in payments Oct 1−15, 2020 Jan 15−Feb 10, 2021 Jul 8−28, 2021 Feb 4−Mar 4, 2022 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 11 Government Support With these signs of firm recovery, the larger question for public policy is whether the government can proceed to wind down support? The survey found that the majority of firms found government support to be very/quite helpful (78% of large firms, 74% of medium size firms and 61% of small firms - refer to Figure 16). A third of the firms across all size groups expressed no need for continued support (Figure 17). A further 53% of large firms and 44% of small firms cite they would survive despite being affected if the government were to wind down support. FIGURE 16 FIGURE 17 Majority of firms found government assistance Majority of firms cite they either don’t need or to be helpful will survive without the government extending assistance How beneficial has government support been to your business? Impact on company − end of stimulus package Share of firms (%) Share of firms (%) Small 9 29 46 15 1 Small 34 44 16 6 Medium 6 20 49 25 1 Medium 32 51 13 4 Large 4 16 47 31 1 Large 33 53 9 4 0 20 40 60 80 100 0 20 40 60 80 100 Not helpful at all Quite helpful Very critical No need, recovering Harmful, not yet recovered Not very helpful Very helpful A ected, but can survive Critical, risk of insolvency Further analysis shows that firms’ perception of the impact of withdrawing government support is correlated with their sales shock, with firms that need further government assistance experiencing significantly worse sales losses than those who do not need further assistance (Figure 18). Furthermore, firms in need are not less productive at baseline (if not more) as in Figure 19, providing a rationale for continued support to these firms. FIGURE 18 FIGURE 19 Firms in critical need of government assistance Firms that need the government assistance to be extended are correlated with significantly extension are not less productive than firms worse off sales levels that don’t Change in sales (%) Baseline labor productivity 10 9 5 0 0 -2 -10 -5 -20 -18 -22 -10 No need, A ected, Harmful, Critical, No need, A ected, Harmful, Critical, recovering but can survive not yet risk of recovering but can survive not yet risk of recovered insolvency recovered insolvency 12 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 While there is space to wind down the government assistance in the recovery phase, there are differences across firms to be cognizant of. East Malaysia has the highest share of firms that express the need for the stimulus to continue, with 27% of firms surveyed in East Malaysia indicating the need for continued government support (Figure 20). Many small firms (22% of small firms), who have not yet fully recovered as shown previously, also reported higher levels of support needed (refer to Figure 17). FIGURE 20 East Malaysia has the highest portion of firms in need of further assistance Impact on company − end of stimulus package Share of firms (%) East Malaysia 22 50 20 7 Eastern 35 46 15 4 Northern 35 47 15 3 Other Central 32 50 13 4 Kuala Lumpur/Putrajaya/Cyberjaya 34 50 9 6 Southern 37 48 11 4 0 20 40 60 80 100 No need, recovering A ected, but can survive Harmful, not yet recovered Critical, risk of insolvency Policy options for a robust and sustainable recovery As signs of recovery take hold, the survey looks into other policy options for the government to build the resilience of the private sector for a robust and sustainable economic recovery. With narrowing fiscal policy space, the BPS explores policy options on trade policy, fiscal reforms, building resilience of private sector against natural disasters (floods), and adaptation to environmental requirements. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is expected to open new international markets for Malaysia. However, 40% of small firms and 40% of firms in East Malaysia are unaware of the CPTPP, raising questions of whether they would be able to benefit from newly signed FTAs (see Figure 21 and Figure 22). Firm perceptions also suggest competition will increase if the CPTPP enters into force (Figure 21) across all firm size categories. For example, for small firms where the difference of perception is the most obvious, 27% of firms perceived the CPTPP to have an adverse effect on them, while 16% of small firms view the CPTPP in a positive light. Therefore, policy makers can put in place measures to help firms overcome financial constraints, capacity constraints, or informational barriers to take advantage of these opportunities, while incentivizing firms to invest in adequate technologies and processes to lower transition costs. COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 13 FIGURE 21 FIGURE 22 40% of the small firms are not aware of the 40% of the East Malaysian firms are not aware of CPTPP the CPTPP Impact of opening up sector as a result of the CPTPP Impact of opening up sector as a result of the CPTPP Share of firms (%) Share of firms (%) Kuala Lumpur/ 16 22 19 14 12 17 Putrajaya/Cyberjaya Large 18 21 18 15 18 11 Eastern 18 18 15 10 11 27 Northern 17 18 18 11 9 26 Medium 19 19 21 16 11 15 Southern 15 19 13 13 17 23 Other Central 16 15 21 13 13 22 Small 11 16 18 8 8 40 East Malaysia 10 15 21 7 6 40 0 20 40 60 80 100 0 20 40 60 80 100 Adverse impact and may need Adverse impact but will survive Adverse impact and may need Adverse impact but will survive to exit the market to exit the market Neither negative nor positive impact Fine as competition is good Neither negative nor positive impact Fine as competition is good Positive impact as new market I don’t know what the CPPTP is Positive impact as new market I don’t know what the CPPTP is opportunity becomes available opportunity becomes available With increasing debts, fiscal reforms are an important reform agenda in the current post-COVID-19 environment. The survey explores options for the Malaysian Government to raise revenues that are ‘acceptable’ to firms. While providing sales tax exemptions for vehicle purchases for the next 10 years is among the most popular measures among firms (increasing vehicle ownership), the same share of firms (57%) cite the introduction of carbon tax as the most acceptable/acceptable measure by the government to raise revenues (by taxing emitters). Therefore, introducing carbon taxes may provide a viable option to both raise revenues and address climate change mitigation objectives (Figure 23). FIGURE 23 Carbon tax and vehicle sales tax exemption are the most acceptable options to raise revenue for the Government Tax changes Share of firms (%) Sales tax exemption for vehicle purchases 24 33 26 12 5 Introduce carbon tax 28 29 26 12 6 Increase excise duty for gambling/alcohol/cigarettes 30 26 24 12 9 Introduce luxury goods tax 23 29 28 13 7 Stop income tax exemptions 18 29 32 14 6 Increase corporate income tax 17 26 29 18 10 Return to GST 15 24 28 18 15 Introduce tax on petroleum products 12 21 27 21 18 Introduce inheritance tax 11 22 34 18 15 0 20 40 60 80 100 Most acceptable Acceptable Neutral Not acceptable Strongly not acceptable 14 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 Increasing firm resilience to face natural disasters is vital as signified by the impact of the recent floods. Nearly a fourth of the respondents were hit by the floods in December 2021-January 2022. 88% of firms affected by the floods suffered an average of RM60,000 in damages to fixed assets (Figure 24). FIGURE 24 Close to one fourth of firms surveyed were affected by the December 2021-January 2022 floods Type and cost of damage among a ected firms 100 70,000 88% 60,000 60,000 80 52,000 50,000 60 54% 40,000 (RM) (%) 30,000 40 20,000 20 10,000 0 0 Working capital Fixed assets Number of firms a ected by floods is 352. Share of firms Average cost The survey also looks into environmental and climate change mitigation measures. The survey found that the majority of firms (73%) are willing to pay for a better environment, compared to 27% of respondents who answered they would not (Figure 25). Further, 53% of firms surveyed find tax tools being less disruptive than user-charge tools (47%) (see Figure 26). Both groups cite their maximum threshold for willingness to pay for a better environment to be about 20% of the cost of goods sold. FIGURE 25 FIGURE 26 73% of firms are willing to pay for a better Tax tools are slightly preferred over user- environment charge tools, but the maximum threshold is approximately 20% of the cost of goods sold Willingness to pay for a better environment Least disruptive type of instrument among firms who are willing to pay Share of firms (%) for a better environment 60 Yes 53 No 47 40 27% 22 20 20 73% 0 Tax tools User-charge amount – Pay to pollute Share of firms (%) Maximum threshold (%) COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 15 Malaysian firms have been adopting some environmental practices, with reducing energy consumption being the most adopted measure (36% of firms) as shown in Figure 27. Firms invest in energy efficiency, with 69% of firms conducting periodic audits of compliance with environmental regulatory requirements as the most adopted method, followed by monitoring of CO2 emissions (57%) (see Figure 28). FIGURE 27 FIGURE 28 The top environmental practice adopted Top energy saving measures among firms include by Malaysian firms is to reduce energy periodic audit of compliance with environmental consumption regulations and monitoring of CO₂ emissions Environmental practices Investment in energy e ciency Share of firms (%) Share of firms (%) Reducing energy consumption 36 Periodic audit of compliance with environmental regulatory requirements 38 31 Promoting environmentally (internal or external) 34 friendly ways of working Reducing waste or reusing waste 33 Monitoring CO emissions 31 26 (yearly or more frequently) Raising awareness among employees, 30 clients and other stakeholders Choosing sustainable suppliers 28 Energy consumption targets 51 Choosing greener infrastructures 26 and equipment ISO 14001 Environmental management systems 49 Trying to switch to renewable energies 23 ISO 50001 Energy Management Optimizing employees’ transportation 22 Measuring and analyzing LEED certification 47 18 greenhouse gas emissions 0 10 20 30 40 0 20 40 60 80 With the majority of firms willing to pay for a better environment, the government can design support measures to alleviate constraints specific to firm types to encourage more firms to adopt environmental standards. Overall, financial costs are the most cited (40% of firms) obstacle inhibiting the adoption of environmental standards (Figure 29). The most useful type of government assistance to help firms adopt environmentally friendly practices are tax incentives across all firm sizes. The second most useful type of government assistance varies by firm size: advisory and technical support are considered most useful for large firms (48%), while access to subsidized loans and to government procurement if certified as a green producer is considered most useful by 38% of small firms (Figure 30). FIGURE 29 FIGURE 30 Financial costs is the major obstacle to adopting Tax incentives are the preferred tools by firms to environmental standards adopt environmental standards, but other options varied among firms by size Major obstacles adapting to better environmental standards Most useful type of government assistance for adopting environmentally Share of firms (%) friendly practices Share of firms (%) Financial costs 40 47 Tax incentives 46 50 COVID-19 36 36 Advisory support 45 48 Lack of incentives 33 35 Grants 43 Unclear rules 47 33 30 Technical support 41 Lack of government support 31 48 38 Subsidized loans 37 Lack of information 28 40 Access to government 38 procurement if certified as 30 Lack of expertise 26 green producer/provider 30 0 10 20 30 40 0 10 20 30 40 50 Small Medium Large 16 COVID-19 BUSINESS PULSE SURVEYS Firms’ Recovery from COVID-19 in Malaysia ROUND 4 February - March 2022 Next Steps As Malaysia enters the recovery phase of the COVID-19 crisis, the current Round 4 of the BPS offers analysis to understand how firms in Malaysia are recovering from and adapting to the pandemic and the reopening of the economy. The 1st round of the Malaysia BPS was conducted in October 2020, the 2nd round in mid-January-early February 2021, 3rd round in July 2021, and 4th round in February-early March 2022. Implementation of Round 5 of the BPS is planned in July 2022.