Driven by the principles of 3Rs – “Responsive, Responsible, Reformist” – Malaysia’s Budget 2023 proposals received a cautious welcome from digital industry leaders, with many voices continued the call for stronger encouragement on digital economy efforts as a key growth pillar in today’s fragile global environment.
Unveiled by Malaysia’s finance minister Tengku Zafrul Abdul Aziz, the proposals arising from a RM372.3 billion ($79.6 billion) budget is a RM40 billion increase compared to the budget for 2022. The operating expenditure is RM272.3 billion, compared to the RM233.5 billion in 2022, while the development expenditure is RM95 billion, compared to RM75.6 billion in 2022.
Meanwhile, economic growth in 2022 has been revised up to 6.5%-7% (from 5.3%-6.3%). However, 2023 growth is expected to slow to 4%-5%, with GDP growth averaging 6% in 2023-25.
Zafrul stressed that the focus remains on reforms to uplift Malaysia’s socio-economic resilience as well as enhance the competitiveness of the country’s businesses.
Speaking to local media, Malaysia University of Science and Technology economist Prof Geoffrey Williams pointed to the substantial 12% increase in operational spending and handouts to e-wallets to various groups as “clearly aimed at introducing targeted subsidies through the e-wallet scheme for specific products, at specific shops with a specific e-wallet.”
A deeper look at digital-linked proposals elicited the following comments from industry commentators and leaders.
Farah Rosley, Malaysia tax leader, Ernst & Young Tax Consultants Sdn Bhd viewed Budget 2023 as “comprehensive, disciplined and forward-thinking, with a focus on reforms to build resilience and weather uncertainties amid an increasingly challenging global economic and geopolitical outlook. The Budget also lays the foundation for future growth and competitiveness in strategic areas such as sustainability and digitalisation.”
Farah pointed to the considerations within the proposals recognising the key roles played by small and medium enterprises (SMEs), the informal sector workers and youths as engines for growth and innovation, through the introduction of schemes to promote and bolster development in these sectors.
“These include the reduction of corporate tax rates and the provision of a one-off grant for eligible SMEs, and the introduction of various hiring and training incentives. Collectively, these measures should create a supportive environment for SMEs and serve as a catalyst for economic growth through job creation with increased disposable income.”
James Sivalingam, senior program manager of IDC Malaysia, commended the allocations for connectivity improvement and technology adoption among businesses.
“Malaysia is at a pivotal point in its digital journey, where businesses and public sector agencies in the country are transitioning from the digital transformation era to become digital-first organisations. The planned upgrade to the nation’s communication infrastructure and the initiatives to empower businesses to adopt digital technologies and automation highlight Malaysia’s intent to accelerate the digitalisation initiatives further to become a digital-first economy.”
“If implemented correctly, Malaysia will take a significant step towards growing into a major economic force in the region in the digital era,” said James.
He notes that the Budget’s aims complemented the country’s digital economy blueprint (MyDigital) with its aims of developing Malaysia into a digitally driven, high-income nation. These initiatives include:
- Plans to upgrade the nation’s connectivity and infrastructure. Part of the budgeted plans includes increasing the bandwidth capacity for higher education institutions with the allocation of RM35 million under Malaysia Research and Education Network (MYREN), RM700 million to expand network coverage at 47 industrial areas and 3700 schools and investing 1.3 billion for the continuation of 5G rollout in the country under the JENDELA program.
“This is a step in the right direction as upgrading the country’s communication network, which serves as a foundational infrastructure, will connect people and businesses, enable digitalisation, and open significant economic opportunities for Malaysians.”
Digital and startup ecosystems
- The SME sector has been allocated RM10 billion in loans through Bank Negara Malaysia to encourage automation and digitalisation initiatives.
- IDC also pointed to encouragement of Malaysia’s digital and startup ecosystems. “This can be seen in the RM1 billion investment by Khazanah Nasional Berhad under “Dana Impak,” where RM230 million will be invested in developing local technology startups.”
- Meanwhile, the digitalisation of government functions and services continues with the phased introduction of e-Invoice by LHDN [the inland revenue department], expansion of the Digital AgTech program by MDEC (Malaysia Digital Economy Corporation), and the digitalisation of the entire duty stamping payment process using the Stamp Assessment and Payment System.
- RM20 million is allocated to digitalise the Urban Transformation Centre (UTC) as a hub.
“IDC views these steps as promising incremental improvements towards Malaysia’s digital ecosystem across the government and private sector and to close the digital divide among Malaysians.”
The analyst firm also welcomed a commitment of upwards of RM73 million to upgrade Malaysia’s cybersecurity posture, as a critical imperative, especially in threat monitoring, detection, and reporting, and to develop the nation’s cyber forensic capabilities.
“Continuous investments and capacity building in cybersecurity are necessary to ensure the transformation is secure, resilient, and robust. Furthermore, by developing its native security capability, Malaysia is also addressing digital sovereignty concerns, allowing it to maintain greater control of its digital infrastructure, assets, and data.”
Industry veteran and Commerce.Asia executive chairman Ganesh Kumar Bangah said: “Budget 2023 emphasis, particularly on digitisation, should be well received by the SME community, particularly the RM10 billion in funds from Bank Negara Malaysia (BNM) to automate and digitise SMEs.”
“In an ever-growing competitive business environment, technology is the ‘secret sauce’ for SMEs to realise greater productivity and operational efficiencies. SMEs should be savvy in implementing their digitisation initiatives and invest wisely, particularly in eCommerce, to broaden their markets and realise new revenue streams, and digital marketing to differentiate themselves from regional competitors, build brand loyalty and increase profitability.”
In his welcome comments, integrated telecommunications infrastructure company edotco CEO Adlan Tajudin highlighted both connectivity and sustainability measures in the Budget.
“We welcome the RM700 million allocation to accelerate Phase 2 of the JENDELA rollout, as well as the planned RM1.3 billion expenditure by Digital Nasional Berhad (DNB) to expand nationwide 5G coverage. Connectivity is necessary to ensure participation in future digital economies and to bridge the digital divide, especially for disadvantaged and vulnerable sectors of society.”
On sustainability, Adlan agreed with the government’s stance that business cannot continue as usual when it comes to planetary health.
“The sustainability mindset has been slow to gain steam in Malaysia, so green incentives such as the RM 1 billion allocated under both Bank Negara Malaysia’s High Tech and Green Facility, as well as the Low Carbon Transition Facility, can encourage companies to take the first steps in joining the environmental crusade. Achieving meaningful change requires that all parties are committed to enshrining environmental, social and governance (ESG) principles into all aspects of our operations – and lives.”
The finance minister’s budget speech included climate change and ESG initiatives including a feasibility study of a carbon tax, and the introduction of a sustainability framework and targets for a fully compliant portfolio and carbon neutral operations for government linked companies.
Interestingly electric vehicle charging equipment manufacturers will be given a 100% income tax exemption on statutory income or a 100% investment tax allowance from the year of assessment 2023 to 2032. There is an allocation of funds for eco-friendly project development such as those supporting carbon market development and forest restoration.
5G emphasises ‘Digital First’ theme
Concurrent with the tabling of the Budget proposals, the nation’s SWN approach to 5G rollout moved forward finally to a new milestone with the announcement that all six telcos have reached consensus on their individual access agreements to lease the 5G network with Digital Nasional Berhad (DNB).
DNB chairman Asri Hamidon told media that the 5G network has achieved 33% coverage of populated areas as against a target of 40% by end-2022. He said DNB will continue to roll out the 5G network and infrastructure with a target of 80% coverage of populated areas by 2024.
“In addition, the local 5G ecosystem has grown rapidly, with 12 device brands now offering more than 100 5G-compatible models for use in Malaysia. As such, we are encouraged by the establishment of the infrastructure to facilitate the rapid adoption of 5G by the rakyat [the people], businesses, and government.”
Advancing digital R&D efforts via MRANTI Park
In addition, the Budget 2023 allocation of RM18 million to further develop MRANTI Park – a.k.a. Malaysian Research Accelerator for Technology & Innovation Park, a site formerly known as Technology Park Malaysia – into a global innovation hub is another move advance Malaysia’s technological research and development efforts.
Welcoming the move, MRANTI CEO Dzuleira Abu Bakar opined that this was a move forward in the national efforts to attain a Top 20 rank in the Global Innovation Index.
She intends to position MRANTI Park as a national focal point for research & development and commercialisation and innovation.
MRANTI is one of three entities established by the government to develop an innovation ecosystem – the others are a research management unit under the prime minister’s economic planning unit (EPU) and the Malaysian Science Endowment (under the ministry of science, technology and innovation (MOSTI). So far, the government has approved 99 overall projects and programmes worth RM5.6 billion in 2021 and 2022 under the 12th Malaysia Plan (12MP).
Furthermore, the increased emphasis on cloud technologies to drive digital adoption and growth has been echoed in the MyDigital announcement, with its prioritisation of hyper-scale data centres as prime engines of a digital society.
This vision also includes cloud service providers (CSPs) as major digital transformation enablers, and four CSPs received approvals initially to build hyper-scale data centres in Malaysia during the next five years: Microsoft, Google, Amazon and Telekom Malaysia.
Malaysia is ready for 2023
Looking ahead, IDC’s Sivalingam concludes that Malaysia is ready for a challenging 2023, facing global economic uncertainties, inflationary pressures, and a weakening Ringgit.
“However, strong fiscal policies and support and an expansionary budget policy will help cushion global and regional economic shocks while stimulating growth. Moreover, technology spending, specifically IT Services and Software segments, has been traditionally resilient against economic downturns in the region. IDC expects this trend to continue in 2023, where the effect on ICT spending is marginal.”
In a recent leadership blog Leaping Beyond the Pandemic: Top Business Priorities for a Smart Rebound, Shazurawati Abd Karim, executive vice president of TM One, Telekom Malaysia’s enterprise and business solutions arm, said the time is ripe for organisations to adapt and develop plans and processes not only for business recovery but also growth.
Shazurawati continued that despite ongoing challenges in global supply chains, talent availability and volatile market conditions, “business leaders should begin to reset their organisations through a robust growth agenda. Over the last two years, I have spoken with many senior business executives who have shared how they have accelerated their transition to digital solutions. The majority of business leaders are today pushing sustainable growth as their topmost priority, together with the drive for innovation and differentiation.”
The piece, which outlines three factors important for every business to succeed in an increasingly digitalised global world, included the comment:
“In fostering resilience, businesses have raced to adopt digital technologies such as cloud and IoT along with initiatives to encourage workplace transformation. We are also seeing businesses shift from being shareholder-centric to stakeholder-centric, and the emergence of a digital economy that embraces the needs of all Malaysians, not just a select few.”
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