Budget 2017 spurring the Internet economy for Malaysia

By PIKOM Research Committee

In response to the Budget 2017, PIKOM have critically summarised and collated the salient points relating to the digital economy of the announcements.

The digital economy is expected to reach about 20% by 2020 from the current 17.8%; and over RM305B in investments have been generated so far creating about 160,000 related jobs since 1996 with the inception of MSC.

Can the Budget 2017 leverage on this success and pave the way for the last ‘mile’ towards 2020?

Some encouraging announcements in the Budget 2017 that can potentially spur the digital economy have been noted as follows:

1. MDEC will administer the continuing funding and focus on eUsahawan and eRezeki programmes with an allocation of RM100M. This is a boost for the agency and recognition of their past success in this programme. A focus in developing long-term and sustainable skills and talents in specific target areas and needs of the nation is certainly the right strategy going forward. It is important that such initiatives are sustainable and are ongoing at least until 2025 before you can realise the benefits.

2. An allocation of RM1B to increase the coverage and quality of broadband (up to 20Mbps) oversee by MCMC is certainly a major uplift for the ICT industry. The decision to “double the broadband speed and half the price” in 2 years; which for years the industry has been ‘complaining’ that we are the highest cost broadband country around the region; will make us more competitive and promote greater adoptions. This announcement is perhaps long overdue and we hope the timeline of early 2017 can be met.

3. Allocation of RM162M for e-Commerce (to be administered by MDEC) will certainly spur this sector, given that Malaysia have great potentials to leap-frog and be on par with the other developed countries. According to MITI, the e-commerce trade in Malaysia only contributes 5% to the country GDP. In comparison to the other countries such as South Korea, US and China which exhibit double digit contributions, Malaysia is still lagging behind here. This allocation including the implementation of the Digital Free Zone will augur well for the digital economy agenda.

4. Allocation of RM200M from the Working Capital Guarantee Scheme (WCGS) Fund will be allocated to invigorate start-ups and in addition encouraging investments into high tech start-ups, a new pass category called Foreign Knowledge Tech Entrepreneurs will also be introduced. This will hasten the transformation of ‘Consumption’ to ‘Creative’ culture for the nation; and certainly a great strategy in growing the economic pie in the long run. Whilst RM200M is not a great allocation in comparison to the others, it is a reasonable sum to assist start-ups; and the success of these start-ups will certainly promote and encourage more future entrepreneurs in the country.

5. The introduction of Malaysia Digital Hubs will also allow start-ups community enjoying the full benefits of the MSC Bill of Guarantees and together with introduction of the ‘Foreign Knowledge Tech Entrepreneurs’ pass, these will be catalysts to the growth of start-ups. Whilst the details are not clear yet but it is certainly a strategic move in embracing start-up community into the MSC family and will set a stage for future start-ups.

6. On the personal tax and incentive level, it is timely that the Government recognises that digital devices and gadgets are just as important in spurring domestic consumption and driving the economy both the traditional and the digital economies. Provision of tax relief of RM2,500 (as announced) for items such as broadband subscriptions, smart phone and tablets is a good start but a tax relief effectively means the individual only reaped the benefits of the tax savings; and perhaps a bigger sum of say RM5,000 allocated for this purpose may be more effective.

7. MCMC will also provide free tablets to 430,000 teachers to aid in their teaching, culminating to an allocation of RM340M. This will be another good injection of investments into the ICT industry especially during an ailing economic condition and at the same time the teachers can be more effective in their job. Whilst the digital devices are important as effective medium for teaching, equally critical are the contents and the teachers themselves in equipping themselves with the right knowledge and skills in disseminating the contents to the students. This must also be addressed in particular when computer science and programming related curriculum is going to be introduced into the school system from next year onwards.

In essence the government realised that the Digital Economy agenda is crucial and to a large extent the budget 2017 announcement has reflected this. Already we can see a sense of convergence between the traditional brick and mortar economy and the digital economy. Question remains if these initiatives are sufficed and more importantly how effective is the implementation in the years ahead. Finally, the big challenge now is to ensuring that Digital economy’s GDP contribution of 20% can be achieved in 2020.