Malaysia Budget 2022: the digital nitty gritty

Malaysia Budget 2022
Image by Lano Lan | Bigstockphoto

While Malaysia’s recently announced Budget 2022 proposals received a cautious welcome, digital industry leaders are hoping for even more encouragement given the increased emphasis by many countries on ramping up digitalisation efforts to fuel economic recovery efforts.

Under the umbrella of ‘Keluarga Malaysia’ (Malaysian Family’), the country’s finance minister Tengku Zafrul Abdul Aziz tabled proposals aligned to themes referenced in the 12th Malaysia Plan encompassing post-pandemic recovery, national resilience and reform.

In his speech, Zafrul said: “For Malaysia, it was evident that this year proved more challenging for us. We had initially anticipated that 2021 was to be the year of recovery; unfortunately, the recovery was delayed due to the worsening of the COVID-19 pandemic since the tabling of Budget 2021 a year ago.”

Now that Malaysia has fully vaccinated 95% of its adult population and 62% of teenagers, the country is in a stronger position to jumpstart recovery. The minister said: “Budget 2022 will be the largest budget to date, with an allocation of RM332.1 billion. From this allocation, the government will provide RM233.5 billion for operating expenditure, RM75.6 billion for development expenditure and RM23 billion under the COVID-19 Fund. A total of RM2 billion was also provided as a contingency reserve advance warrant. Even with an expansionary budget in place, the fiscal deficit is projected to reduce to 6% to GDP compared to a fiscal deficit of 6.5% to GDP in 2021.”

In addition to cash handouts and cross-industry incentives, and a one-time tax for high-income companies with revenues of more than RM100 million, are among the proposals.

“Through these packages, the country’s economic growth in 2020 which suffered a contraction of 5.6% has now rebounded with a growth of 7.1% as of the first half of 2021, continued the minister.

“While the third-quarter performance is expected to be slightly affected by the implementation of containment measures under MCO 3.0, growth is projected to recover in the fourth quarter during which almost all states will have transitioned to the fourth phase under the NRP [National Recovery Plan], where all economic and social sectors are allowed to operate at full capacity again,” he added.

Knowledge based jobs and MSMEs

Farah Rosley

Farah Rosley, Malaysia Tax Markets Leader, Ernst & Young Tax Consultants (EY) commented that this budget has been released “against the backdrop of a projected economic growth of 3% to 4% this year, and 5.5% to 6.5% in 2022, which is encouraging and presents a return to the pre-pandemic annual GDP growth trend.”

She also highlighted the proposal to attract strategic foreign investments from multinationals through a special strategic investment fund of up to RM2 billion to complement existing industry value chains, create knowledge-based jobs, and enhance growth opportunities for small and medium enterprises (SMEs).

Bernard Yap

To address the severe pandemic related impact sustained by MSMEs (micro-enterprises and small and medium enterprises), budget 2022 will introduce certain measures, added Bernard Yap, Malaysia Private Client Services Leader, Ernst & Young Tax Consultants (EY).

According to the finance minister’s budget remarks, nearly 37,000 small and medium enterprises (SMEs) have closed down since the outbreak of the COVID-19 crisis.

“MSMEs are vital economic contributors and have been significantly affected by the COVID-19 pandemic. While it was initially forecasted that Malaysia would regain normalcy and economic momentum in 2021, the rapid increase in cases and the ensuing lockdowns had resulted in additional hardships for MSMEs,” explained Yap.

“Some of the key recovery measures proposed for MSMEs include grants, interest-free funding, flexible financing and guarantees through various agencies that are designed to jump-start Malaysia’s entrepreneurial ecosystem. In addition to advancing the entrepreneurial agenda, the Government has also emphasised its commitment to foster innovation in the MSME sector through technological transformation.”

Digital talent matters

Following on from last year’s Budget, some industry commenters voiced pre-budget expectations that the digital theme spotlit by the MyDigital blueprint would continue to receive stronger focus as a key economic catalyst.

Dr Geoffrey Williams

In addition to industry comments reported here earlier, analysts such as economist, Dr Geoffrey Williams, Professor at Malaysia University of Science and Technology had opined to media that “the support for SMEs is very welcome. The RM14.2 billion to support the expansion of SMEs, RM2 billion in targeted relief and recovery facilities for businesses and the RM3 billion to support companies affected during the pandemic is very much in line with what we had hoped.”

Dr Williams later confirmed his views to Disruptive.Asia, which included the note that: “This is a quite normal budget with an increase in total allocation and the normal shopping list of projects but I didn’t have the feel of a budget for growth and recovery nor did it appear to be generous enough to be an effective pre-election budget.”

“It missed an opportunity to provide universal help to a wide range of people and instead came with the same old approach of targeting special groups and projects with relatively small amounts most of which will either not be allocated or will have little impact.”

Turning to the development of a future-ready workforce, a major theme in many commentaries, he said, “The RM6.6 billion allocation to TVET (technical and vocational education and training) is in line with earlier budgets but does not seem to be connected to the extended RM900 grants for apprenticeship schemes also announced. This is a symptom of the disjointed management of TVET and graduate employability which is spread over too many ministries and departments so it is not coordinated effectively.”

“In addition, many TVET providers have been hit very hard by the lockdowns because you can’t switch their courses online if they require practical training. As many as 200 out of 600 TVET institutions had no enrolment according to NAPEI [National Association of Private Educational Institutions].”

“The RM200 million for public-private programmes, the National Dual Training Scheme and industry certification programmes is a good initiative but it must focus on scaling up the dual-vocational education system to move it beyond small-scale pilot programmes.”

In addition, Professor Williams believes that allocations for higher education suggest that “higher education isn’t a priority again with an allocation of RM14.5 billion for 2022 compared to RM14.4 billion for 2021. This is an increase of only 0.7% and not even enough to cover the rise in prices since inflation is 2.2%.”

“It isn’t enough to address structural issues, improve quality or provide better pay and conditions to faculty and staff. It remains very much behind our international peers,” he said. “Again there was nothing in particular for private higher education which has been hit hard by the lockdowns. As many as 20% of private higher education institutions may have shut down permanently due to the crisis.”

He also highlights that the switch to online is expensive for users. “And now there is a push to revert to on-campus teaching. There has been a drop in numbers, especially from overseas and the fall this year and last year will have an effect on future revenues. Nothing has been provided to help private universities cope with this.”

On that note and given the pivot to a more home-based digital lifestyle, the extension of the RM2500 tax relief to Malaysians for the purchase of personal digital devices (mobiles, computers and tablets) is welcome, said Danny Lee, chairman of the National ICT Association of Malaysia (PIKOM).

PIKOM commented that the industry’s demand for skilled talent to drive growth remains imperative. The industry association is collaborating with two government agencies, HRD Corp and Malaysia Digital Economy Corporation (MDEC) to further develop digital technology skills training programmes.

In addition, the government’s pivot to the cloud “is long overdue and it is hoped this will put the uptake of cloud services in the public sector. The allocation for IR4 transformation, drone industry development, e-sports and start-ups augurs well for the digital agenda. These are aligned to the MyDigital initiatives.”

PIKOM also offered a nod to the future: “While there have been some noteworthy inclusions in Budget 2022 and the need to cushion the rakyat [the people] from the effects of the pandemic, it is regrettable that not enough is provided for the digital and tech industry. We hope that this can be rectified in the future budgets.”

Cloud first

The increased emphasis on cloud technologies to drive digital adoption and growth was earlier reflected in the MyDigital announcement, which focused on hyper-scale data centres as a prime enabler of the future of work and society in Malaysia.

Cloud service providers (CSPs) were noted as digital transformation enablers in the announcement. Approvals were given to four CSPs at the time to build hyper-scale data centres in Malaysia over the next five years: Microsoft, Google, Amazon and Telekom Malaysia.

Imri Mokhtar

Telekom Malaysia’s (TM) managing director and group chief executive officer Imri Mokhtar lauded the inclusive Budget 2022 for its focus on Keluarga Malaysia’s prosperity, business resilience and sustainable economy.

“As the enabler of Digital Malaysia and building on its existing 640,000 km of fibre network nationwide, TM is committed towards the Government’s digital initiatives encompassing Jalinan Digital Negara (JENDELA) and the Malaysia Digital Economy Blueprint (MyDigital),” said Imri.

“As the only home-based Malaysian Cloud Service Provider (CSP), we are committed and ready to play our role in accelerating the Government’s digital transformation under the MyDigital agenda with our eight (8) data centres, cloud platform and cybersecurity solutions,” he added.

“We also commend the Government’s continuous efforts to empower businesses, particularly the MSMEs through various financial assistance initiatives. Through our unifi Business, we are already offering our 375,000 MSME customers with special packages of business solutions with connectivity so they can future-proof their business and stay ahead of the competition. Additionally, as a GLC [government linked company], TM will provide its full support to Jalinan GLC initiatives to accelerate the nation’s economic recovery.”

Looking forward to further development of the digital infrastructure, minister Zafrul said the National Digital Network (JENDELA) initiative will be intensified next year with a provision of RM700 million to continue with digital connectivity efforts in 47 industrial areas and 630 schools, especially in rural areas.

Digital nation

Preparing the workforce for the demands of 4IR and a ‘hybrid normal’ calls for a revolutionary approach as governments are being forced to develop and implement plans to squeeze generational shifts down to a matter of a few years.

And with its ambitions of becoming a digital ASEAN hub, Malaysia is aware of the digital transformation efforts the world has embarked on. Talking of the immediate region, IDC’s latest FutureScape: Worldwide Future of Work 2022 Predictions report elicited this comment from Sandra Ng, group vice president for ICT Practice, IDC Asia/Pacific.

“As of July 2021, we have 28% of organisations in Asia/Pacific already in the most progressive stages of digital transformation maturity, up from 18% pre-COVID in 2019,” said Ng. “The world is now firmly anchored in a digital-first economy. However, the economic and business outlook for the next 3 years remains highly fluid because of a growing range of global challenges including the pandemic. An enterprise’s success in the next 12-36 months will be defined by how well it navigates these crosswinds.”

When the finance minister announced the budget allocations for TVET, he said, “Under the 12MP [12th Malaysia Plan], the Government has identified (TVET) as one of the game changers to meet the labour demand from our industry. Emphasis will be on meeting the current needs of the industry. Accordingly, an additional allocation of RM200 million will be provided for collaboration with industries including the National Dual Training System (SLDN) and industry certification programmes.”

Commenting on the budget allocation of RM2.625 billion to the communications and multimedia (KKMM) ministry, KKMM’s minister Tan Sri Annuar Musa said this would help to transition Malaysians to a higher standard of living enabled by opportunities in the digital world. “The time has come for the government to lay a foundation for the country’s transformation to a progressive digital economy.”

“In the coming new year, the 5G service will be expanded to 36% of high-density areas, including in main towns of Johor, Selangor, Penang, Sabah and Sarawak. “The provision of the 5G service can create a new technological landscape and offer better and faster user experience, thus bridging the digital gap and opening up new job opportunities.”

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