KUALA LUMPUR: The weakening ringgit is posing significant challenges to businesses reliant on imported materials.

The ringgit dropping to 4.800 against the US dollar recently was a symptom of the fall in Malaysia's competitiveness since the Asian financial crisis in 1998. The pair closed at XXXX as at 6pm today.

Economists said companies directly selling imported products or using imported parts, materials or intermediate goods are feeling the pinch as costs rise across the board.

"For companies selling imported products domestically, the higher costs may lead to decreased competitiveness against domestic alternatives, as passing on these increased costs to consumers could result in higher prices.

"If they are re-exported then they will be more expensive coming in but less expensive going out. So the net effect matters," Malaysian University of Science and Technology's professor of economics Dr Geoffrey Williams told the Business Times.

Airlines will most likely face turbulence wirth the weakening ringgit.

Sobie Aviation Pte Ltd independent analyst and consultant Brendan Sobie said the aviation industry is particularly vulnerable to currency depreciation, as a substantial portion of airline costs is fixed in the US dollar.

This could result in higher airfares for passengers, potentially impacting travel demand in Malaysia, a market known for its price sensitivity.

"The concern is higher fares are needed to cover these costs but Malaysia is a price sensitive market and discretionary income (or the amount of money the average person has to spend on travel) can be impacted as everyday costs increase due to this," he said.

Aviation consultancy Endau Analytics founder and aviation analyst Shukor Yusof said the depreciating ringgit is a double-edged sword as it is attractive to potential tourists and investors.

A weaker ringgit makes Malaysia an attractive destination for foreign tourists and investors, as their foreign currency goes further in the country. This could potentially boost tourism revenues and attract foreign direct investment.

However, Shukor said it is detrimental to airlines as its operating costs, especially jet fuel, aircraft leases and acquiring parts for maintenance are denominated in US dollar when income generated is in ringgit.

"The weaker the ringgit, the higher the costs for airlines to fly, hurting all local carriers," he said.

Dollar sellers to gain from ringgit depreciation

In addition, Williams said industries that sell in dollars such as oil and gas, palm oil and commodities are among the key beneficiaries for the ringgit depreciation.

Similarly, he said electrical and electronics companies that sell their products in dollars could benefit from the weaker ringgit. However, the benefits may be offset by higher costs for imported components, highlighting the complex interplay of factors at play.

"Exporters and Malaysian investors overseas will have a good opportunity to repatriate profits and investment returns now at a high rate of 4.70-4.80 they might not see this for long," he said.

Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the depreciation of the ringgit is having a multifaceted impact on the country's economy, with implications for both businesses and households.

Afzanizam said the higher import costs for food-related items, automotive parts and accessories, fertilizers, machinery, and equipment are driving up business costs and living expenditures for households.

"Our import bills would be higher for food related items, parts and accessories for automotive, fertilizers, machinery and equipment. Hence, business cost and living expenditure for households would be affected," he said.

On the flip side, Afzanizam said the tourism sector stands to benefit from the weakened ringgit.

"Foreign tourists, especially those from the US, Europe and certain parts of Asia like Singapore, would find Malaysia more affordable due to their increased purchasing power when converting their currencies to the ringgit," he added.

https://www.nst.com.my/business/economy/2024/02/1018655/importers-feel-pinch-exporters-rejoice