SMEs Urged to Upgrade Capabilities, Embrace ESG Standards Under Malaysia’s New Investment Framework

Malaysian small and medium enterprises (SMEs) must upgrade their capabilities and embrace rising global competitiveness and environmental, social and governance (ESG) standards under the New Investment Framework (NIF) to remain integrated within global supply chains, according to an economist.

Bank Muamalat Malaysia Bhd chief economist Dr Afzanizam Abdul Rashid said the government must also strike the right balance in providing incentives under the outcome-based framework without making them too restrictive for SMEs.

He noted that the increasingly challenging global landscape, including rising geopolitical risks, tariffs, and climate-related concerns, requires careful government planning and resource-allocation decisions.

“In the case of SMEs, like it or not, they need to embrace these competitive forces and upgrade themselves. Otherwise, the income inequality will continue to widen,” he said.

He was speaking during a panel discussion titled “Tax Reforms: Navigating the Outcome-Based Era, A Strategic Briefing” at Malaysia’s New Investment Framework (NIF) Seminar organised by the Malaysian Investment Development Authority (MIDA) on Tuesday.

Citing Penang’s experience in the electrical and electronics sector, Dr Afzanizam said local firms could integrate with multinational corporations and eventually scale up their businesses with the right ecosystem and policy support.

“With the right policy, with the right ecosystem, then we can allow more SMEs to upgrade themselves,” he added.

Echoing similar concerns, the Ministry of Finance’s tax division under-secretary Datuk John Patrick Antonysamy said one of the six new investment aspirations under NIF is to extend domestic linkages by encouraging foreign investors operating in Malaysia to integrate local suppliers into their supply chains.

He said the government wants investors undertaking production and business activities in Malaysia to work closely with local companies, particularly SMEs, even if some may not initially meet the required standards or quality levels.

To support this, the government has introduced a domestic linkages tax incentive package, which encourages investors to spend on training local companies and transferring know-how to help them enter global supply chains.

“We want to get the locals into your supply chain,” he said, adding that such efforts would make investments more “sticky” as investors become increasingly reliant on local suppliers.

He said SMEs would ultimately benefit by becoming part of the value chain, in line with the NIF’s broader aim of increasing economic participation and strengthening domestic linkages.

Source: Bernama