Latest news with #MalaysianAcademyofSMEandEntrepreneurshipDevelopment
New Straits Times
8 hours ago
- Business
- New Straits Times
Hormuz crisis could shake Malaysia's supply chains, inflation stability, experts warn
KUALA LUMPUR: The potential closure of the Strait of Hormuz could disrupt Malaysia's supply chains, fuel inflation and strain small businesses, economists have warned. Universiti Teknologi Mara Malaysian Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak said a shutdown of the vital shipping lane could cause far-reaching economic shockwaves. "Some 21 million barrels of oil pass through the Strait of Hormuz daily. If that flow is disrupted, vessels will be forced to divert around the Cape of Good Hope, adding 10 to 15 days in shipping time. "These delays will result in higher freight costs and fuel prices, which would directly impact Malaysia's just-in-time production processes, especially in manufacturing," he said. He added that rising import costs would squeeze margins for SMEs and raise inflationary pressures on consumers. While Malaysia may benefit from higher oil prices as a net energy exporter, Idham cautioned that the gains could be offset by rising import costs and the spill-over effects of global trade and supply chain dysfunction. "Malaysia imports roughly 30 per cent of its refined fuel, so petrol and diesel prices may rise by as much as 20 sen per litre. This could push overall core inflation up by one to two percentage points, disproportionately affecting lower-income households," he said. He said downstream sectors, particularly agriculture, logistics, and manufacturing, would face cascading cost increases, driven by higher fuel and transport expenses, he added. Port Klang, a key regional hub, could also see a decline in throughput as global shipping routes are disrupted and regional trade logistics become more volatile. "Malaysia's export base is diverse, but the manufacturing sector makes up about 31 per cent of GDP. "With limited fiscal space, such as the government debt standing at around 64 per cent of GDP, there is little room to provide broad subsidies or wage relief," he said. He warned that SMEs, which generally have less pricing power and thinner margins, are likely to bear the brunt of volatile input costs. "SMEs don't have the capacity to absorb price shocks the way large corporations do. Many are already operating in a tight environment. "A prolonged crisis could see closures or workforce reductions, further straining the economy." Idham added that the economic impact would extend beyond Malaysia, affecting many Asian economies heavily dependent on Middle Eastern energy imports and export-driven manufacturing. "Countries like China, Japan, and South Korea import large volumes of crude oil and liquefied natural gas from the Middle East. "A disruption would drive up their energy costs, widen trade deficits, and trigger inflationary pressure across key sectors," he said. Rising shipping costs and longer delivery times would also weaken Asia's export competitiveness, leading to higher prices for finished goods such as electronics, vehicles and machinery. Meanwhile, Universiti Utara Malaysia School of International Studies senior lecturer Asrar Omar said Asean countries would face both immediate and long-term consequences if the strait was closed. "The strait accounts for about 20 per cent of global oil shipments, much of which is destined for Asian markets including Asean. "A disruption would cause an immediate spike in oil prices, particularly in liquefied petroleum gas (LPG)," he said. Vietnam and Malaysia, he added, would be among the hardest hit due to their reliance on energy for manufacturing and semiconductor industries. "Higher fuel costs will drive up production costs and undermine competitiveness. "Asean nations would have to seek alternative and more expensive energy sources, compounding inflationary pressure," he said. He added that the tourism industry in Thailand could also be affected due to higher transport costs, while delays caused by shipping reroutes may lead to congestion in the Straits of Malacca. "Asean economies rely heavily on exports, which in turn depend on smooth imports. Rising freight rates and delays will increase trade costs, affecting everything from industrial production to consumer goods," Asrar said. He said that prolonged price shocks could lead to economic slowdowns across the region. "In import-dependent Asean countries, sustained inflation will reduce consumer spending and deter business investment. "If the crisis persists, the long-term effects on consumer prices could be severe." With many Asean nations still lagging in energy transition efforts, Asrar said diversifying supply chains would be difficult. "Asean may have to invest more aggressively in renewable energy and explore alternative trade routes. "There also needs to be a shift from a consumption-based to a production-based mindset to ensure long-term energy and economic security," he said.
New Straits Times
24-05-2025
- Business
- New Straits Times
RON95 subsidy to stay, but economists urge caution over long-term impact
KUALA LUMPUR: The government's decision to maintain the subsidised price of RON95 petrol for Malaysians is expected to shield lower- and middle-income households from immediate inflationary pressures. However, economists warn that the long-term implications of blanket subsidies could strain national finances and encourage illicit activities such as fuel smuggling. Universiti Teknologi Mara's Malaysian Academy of SME and Entrepreneurship Development coordinator, Dr Mohamad Idham Md Razak, said the continued use of blanket subsidies distorts resource allocation, weakens incentives for energy efficiency, and diverts funds from essential sectors such as infrastructure and education. He said that while maintaining the current system may serve short-term political interests, it risks worsening budget deficits, potentially forcing future tax hikes or cuts to critical public services. "The decision to keep RON95 petrol prices stable prevents immediate inflationary effects on lower- and middle-income Malaysian households, who are significantly affected by fuel price changes. "By selectively removing subsidies for foreigners while maintaining them for Malaysians, the government could enhance fiscal efficiency through reduced subsidy leakage, potentially saving up to RM8 billion annually. "This targeted subsidy approach supports equity by ensuring that subsidised fuel benefits those most impacted, rather than enabling cross-border arbitrage," he told the New Straits Times today. Idham added that targeted policies help curb wasteful spending and avoid direct financial burdens on domestic consumers, while also reducing inflationary risks. To address enforcement challenges, including smuggling and resale, he proposed mechanisms such as dual pricing or MyKad-based identity verification. "When properly implemented, such a system allows savings to be redirected towards social programmes or infrastructure projects, promoting broad-based economic growth. "This policy should be part of a wider subsidy reform strategy to avoid sudden market disruptions and ensure long-term stability in the energy sector," he said. Echoing his views, Universiti Putra Malaysia Business School economist Dr Ida Md Yasin said the inflation risk remains low, as most goods and services linked to RON95 prices are currently unaffected. However, she pointed to a more pressing concern, the wide gap between Malaysia's subsidised fuel price and global market rates. "The world market price of RON95 is around RM5 per litre, while the domestic retail price stands at RM2.05. This significant price difference encourages smuggling. "People are smuggling petrol out of Malaysia to sell it elsewhere, meaning the subsidy ends up benefiting non-Malaysians instead of Malaysians," she said. Earlier today, Prime Minister Datuk Seri Anwar Ibrahim assured that the government would not raise RON95 petrol prices for Malaysians. He said a proposal to raise the price had previously been presented to the cabinet, but he had rejected the suggestion. During the tabling of Budget 2025 on Oct 18, Anwar announced plans for targeted RON95 subsidies, expected to be implemented by mid-year. He said the measure could save up to RM8 billion annually, noting that 40 per cent of RON95 subsidies are currently enjoyed by foreigners and the ultra-wealthy. The savings, he added, would be channelled towards improving the people's well-being through investments in education, healthcare, and public transport.
