Soundbytes

National Budget 2018 – MDEC’s Budget Commentary

October 27, 2017

Datuk Yasmin Mahmood, Chief Executive Officer,
Malaysia Digital Economy Corporation (MDEC)

We are delighted that Budget 2018 is focused on accelerating growth and enhancing the wellbeing of the rakyat as well as in further enhancing Digital Malaysia. The Digital Economy continues to be a key driver of growth, contributing some 18.2% of Malaysia’s GDP this year, and expected to exceed the projected target of 20% earlier than 2020.

Just last Friday (20 October 2017), Prime Minister Dato’ Sri Najib Tun Razak hosted the 29th Implementation Council Meeting (“ICM”) and emphasised on the importance of the Digital Economy, and how it can become the new engine of growth for Malaysia. At ICM, Prime Minister Najib also announced a new stream of initiatives to boost nationwide digital transformation, and details of these initiatives – both new and existing – were unveiled at today’s Budget 2018 announcement.

Digital inclusivity and generating income for the rakyat

The RM100 million allocation for the eRezeki and eUsahawan programmes would ensure that the Digital Economy continues to be inclusive for the well-being of the rakyat, and in particular the B40 and M40 groups.

With both programmes going into their third year, we estimate that 150,000 rakyat would be trained in 2018; resulting in 341,745 rakyat participating in both programmes with an estimated total income and revenue of RM544 million according to calculations.

We are also pleased to note that digital inclusivity has also been extended to a new flagship initiative called eLadang to encourage farmers to leverage the latest smart farming technologies (such as IoT [Internet-of-Things] and BDA [Big Data Anaytics]) to improve yield and pendapatan.

Talent Development for the Future of Work

A total of RM250 million has been allocated for future education of the National Transformation 2050 (TN50) generation, and would be used to develop Science, Technology, Engineering and Mathematics (STEM) centres and improve Computer Science modules, including for Coding programmes. From the RM250million, RM190million is allocated for two thousand classes to be transformed into Smart Classrooms for 21st Century learning to increase creative and innovative learning.

MDEC is pleased with this allocation as this would ensure Malaysia’s students have exposure to the #mydigitalmaker education initiative launched last year.

This is a joint public-private-academia initiative with the aim of transforming the youth community from being users of digital innovation to producers or digital innovators. This includes skills such as coding, app development, robotics, embedded programming and creative technology; all of which will ultimately help to strengthen problem-solving and creativity amongst our future generation.

Our forecast reveals that we need one million digital workers, such as coders, application developers and software engineers, by 2025. With the continuous emphasis on talent development for the future of work, this is indeed encouraging for Malaysia to continue nurturing our bright young talent.

Nurturing Malaysia’s startup ecosystem

It was also announced that the Malaysian Government will assist startups by introducing a slew of initiatives to encourage venture capital activities. The Prime Minister announced that investors from major institutions will allocate RM1 billion for venture capital investments in selected sectors.

These initiatives include income tax exemption being widened to include management fees and performance fees, as well as a reduction in minimum investment limit in a venture company from 70% to 50% from 2018 to 2022. Companies or individuals investing in venture capital companies will be given a tax deduction equivalent to the amount of their investments, which will be limited to a maximum of RM20 million ringgit per year, just as income tax exemptions equivalent to the amount of investments by angel investors in venture companies will be extended until 31 December 2020.

This is a visionary stance by the Malaysian Government as the start-up ecosystem is the job creators of the future. We introduced two highly successful initiatives last year, the first being the Malaysia Digital Hub initiative that supports start-ups and communities while creating greater opportunities for them to connect to the ASEAN and global digital ecosystem; and secondly, the Malaysia Tech Entrepreneur Programme (MTEP) – an initiative by the Malaysian Government that aims to attract global technopreneurs and help them to realise their fullest potential out of Malaysia and to scale their businesses regionally and globally.

Fortifying the Fourth Industrial Revolution and Digital Economy

The Malaysian Government would also be providing grants worth RM245 million under the Domestic Investment Strategic Fund to upgrade Smart Manufacturing services. This move is aimed at supporting investment and business activities under the Industrial Revolution 4.0.

In addition, the Futurise Centre in Cyberjaya will be upgraded as a one-stop centre for corporate companies and universities to develop product prototypes as well as to boost innovation. The government will also extend incentive periods for Fast Capital Allowance by 200 per cent on automation appliances for assessment year of 2018 until 2020, while incentives for the manufacturing and services sector for Fast Capital Allowance by 200 per cent will also be given. For information communication technology appliances, capital allowances – including computer software expenditure – can be claimed from assessment year of 2018 until 2020.

These moves stem from the reality today that, in a hyper-connected world, it is becoming abundantly clear that artificial intelligence (or “AI”) is the defining force of the Fourth Industrial Revolution. AI is the natural progression from data analytics, and as such, Malaysia should start looking at developing a National AI Framework. This will then be an expansion of the National BDA (Big Data Analytics) Framework. AI is the “game changer” for the Fourth Industrial Revolution.

Digital Free Trade Zone (DFTZ)

DFTZ is proving to be a massive game changer for Malaysia which will see Malaysia’s SMEs doubling exports, and establish Malaysia as a regional trans-shipment hub for e-commerce logistics while creating 60,000 jobs by 2025.

I am happy to say that the DFTZ will “Go Live” on 3 November and 1,900 export-ready SMEs will be flagged off to begin their export journey. This is an encouraging number of SMEs as our previous target was 1,500 SMEs.

For the first time, the world will see a physical and virtual zones with additional online and digital services to facilitate cross border eCommerce and invigorate internet based-innovation.

Why it is necessary for the current era of disruption

The IT industry has been in a state of flux over the last 12 months thanks primarily to disruptive technologies of all sorts appearing and rocking the status quo for many industries. This has become so extensive that it is imperative for all to identify current or upcoming trends that have the potential to influence the marketplace. Businesses need to be able to learn and adapt, or be left behind.

Future-proofing, of course, is critical here.

Consider the likes of iflix, Grab, AirBnB, Amazon, and other on-demand services that have appeared over the last five years. While their goal is to provide an entirely new level of service that is unprecedented for all, they have challenged the norm and forced many industries as a whole to face change. Mainstay players must now figure out how they can take on these fast-accelerating upstarts.

In fact, disruption – now a buzzword among innovators – has become a true force to be reckoned with as it has become a major wake-up call for businesses that are complacent or appear to be laggards.

Disruptive Effects

As the world struggles to embrace change that the digital age heralds at a never-seen-before rapid pace, it is clear that there is a revolution taking place right now with technology taking centre stage. Technology has, and still is, changing all the rules and propagating the fact of how disruption is now the new norm.

Once this understanding gains more traction among businesses, the next step is to consider future-proofing for the variable factors that these disruptive forces might bring to the table.

Let’s start with how disruptions affect businesses.

As consumers change according to trends, businesses must be ready for a never-ending game of evolution and be quick to absorb, understand, and adapt to rapid transformative processes. If they don’t, there is no chance for them to ever catch up. This applies to all industry sectors as disruption is not discriminative and will have a knock-on effect among inter-related verticals.

Disruption is an inevitable process that, by how it progressed over the last few years, has now become nigh unstoppable. In fact, the premise that it appears to focus in limited sectors is false as many business leaders have pointed to digital transformation as one of the major factors feeding the continual growth of many socio-economies.

The way forward is for all to embrace the idea of being disruptive or disrupted, rather than fearing it.

Digital Take-Up

Future-proofing covers a broad stroke of processes that mostly rely on engaging the digital native. That one aspect alone is a necessity as it will enable businesses to be more aware and highly relatable to the ever-changing landscape that on-going and soon-to-come disruptions have brought about.

Having such engagements in mind will give rise to interest or, perhaps, instantly spur many towards transforming how they operate to make it more technologically inclusive and be fully prepared for the oncoming wave of disruptions.

This is, essentially, a crucial factor for businesses to keep in mind as they study and figure out what is needed for future-proofing.

Understanding the digital native certainly goes above and beyond deploying new technologies and enhancing how the workforce operates. In fact, the two inter-linked functions would only work when more start to understand and embrace the need to become digitally enabled, not just from a business perspective but in how they go about their daily activities as well.

Digitally Driven

With the Fourth Industrial Revolution now in full-swing, companies can no longer second guess themselves as newer innovations continue to show up and consistently shake-up the existing state of affairs. Industrial trends like Big Data Analytics, Internet of Things, Virtual and Augmented Reality, Mobility, and eCommerce have already broken the proverbial glass ceiling as they move to digitise the world. Seeing as these five empower the digital economy, it further reinforces the notion that they should not be under-estimated or disregarded.

Businesses must be immersed with any one, or all, of these influential factors to ensure their technology offerings are future-proof and able to take on these seismic shifts that the world is now experiencing.

The world had not been ready for the likes of Uber, AirBnb, and Alibaba. Even home-grown disruptors like Tripda and Hermo have started making in-roads for the ride-sharing and facial care spaces, further proving that industrial competitors are not the ones who will start any shake-ups. The use of advanced technologies will be vital to this and, thus, it is only appropriate that businesses step up their efforts to spur digital transformation from within at all levels.

MDEC is driving the digital economy in Malaysia

In Malaysia itself, as a core path towards the development of a high-income knowledge-based economy, Malaysia Digital Economy Corporation (MDEC) has acted as the driving factor pushing for a fully connected digital economy.

SMEs, which have long been the backbone of Malaysia’s economy will continue to play a strong part and are deemed by MDEC to be agile enough to compete effectively in this disruptive landscape. The rise in e-Commerce activity over the past few years has been significant, and MDEC expects SME exports to strongly push towards the 2020 goal of 30%.

Whatever it may be, the truth is that versatility is king today and will be in the future.