Malaysia’s proposed Budget 2021 has drawn a cautious welcome from tech industry leaders hoping for stronger digital economy measures to cut a recovery path into the new year.
Former banker turned finance minister Tengku Zafrul Abdul Aziz tabled the Perikatan Nasional government’s first budget on 6 November 2020 since coming to power in March noted, “This is the worst economic crisis since the Great Depression in the 1930s.”
Prior to the budget proposals, Malaysia sought to soften the economic impact of Covid-19 related shutdowns with four stimulus packages so far this year valued at RM305 [USD75] billion.
At RM322.5 (US$78.15) billion, Budget 2021 is the largest budget in Malaysian history and comes at a critical time in the nation’s recovery process. Due for debate in parliament this month, the tabled proposals did not generally see any new taxes being proposed or any existing taxes being increased.
“The war is not over until and unless an affordable and accessible vaccine is available. The government is committed to obtain Covid-19 vaccines, among which through the participation of the Covid-19 Vaccine Global Access or COVAX,” Tengku Zafrul admits.
“After a dismal economic performance in 2020 due to the COVID-19 pandemic, the Malaysian economy is expected to rebound firmly in 2021, in line with the expectation of a more synchronised global recovery,” the government said.
‘Fit for purpose’
According to consultancy firm EY, this is ”a fit-for-purpose Budget‘, which meets the immediate needs of the country to encourage recovery, growth and investment.’
Some analysts expected further measures to seed sustainable growth. Economist Geofrey Williams of HELP University told media that the government has not considered the full economic fallout from the pandemic.
Commenting on the government’s optimistic expectation of a V-shaped recovery with a GDP [Gross Domestic Product] growth in 2021 of 6.5%-7.5%, [according to the government’s Economic Report 2020-2021 and echoed by the National Bank], Williams opines that economic improvements ‘could be slow and unlikely until the second half of 2021.’
Such mixed opinions come on the back of falling crude oil prices with contracting revenues from state petroleum company Petronas, Malaysia had already sight in the digitalisation agenda in the mid-1990s.
This agenda’s initial aspirations, which included creating a mini ‘Silicon Valley’ prioritising IT and other tech based R&D, has since expanded to national digital economy aims, and even to becoming a regional digital hub.
Among government agencies with a finger on the country’s digital agenda, Malaysia Digital Economy Corporation (MDEC) has led the charge for almost three decades.
‘Heart of Digital ASEAN’
Pre-budget wishlists from industry leaders did echo some initiatives that would support MDEC’s hope of positioning Malaysia as ‘ the heart of Digital Asean’.
In a statement, MDEC said the measures announced reflected the government’s focus on ensuring a rapidly growing digital economy.
“I believe this is now the time for businesses to embrace the opportunity to pivot and scale operations with digital technology. MDEC will intensify our outreach programmes and field research work to develop the best solutions that will help Malaysian citizens and businesses take on the challenges they now face during this unprecedented period,” said Datuk Wira Dr. Hj. Rais Hussin Mohamed Ariff, chairman of MDEC.
Pointing to the RM100 [USD24.46] million to drive talent development, he said this “ will help facilitate the transition of Malaysia’s existing workforce into the digital economy, a constantly evolving marketplace that places heavy emphasis on digital skills. This will directly help to fulfil the growing demands of the booming Information and Communications Technology (ICT) sector.”
“The objective here is to make Malaysia a digital-first nation and further accelerate its economic growth to ensure there is shared prosperity for all,” he added.
Kicking off a quick straw poll of industry voices, Danny Lee, chairman of Malaysia’s national IT industry association, PIKOM, said: “The budget seems too focused on the Covid19 recovery process, which has already started in June. Therefore, what is being laid out is not a game-changer for Malaysia as it lacks longer-term economic transformation impetus.”
He stresses that eCommerce, cybersecurity, AI, IoT, and especially upskilling and reskilling technology systems will be key economic drivers in an economic recovery and need more attention.
Referencing the Department of Statistics Malaysia (DOSM), Lee said the contribution from the information and communications technology (ICT) sector to the economy continued to expand to RM289.2 [USD70.74] billion in 2019, with a growth of 7.1% contributing 19.1% to the GDP.
The Gross Value Added of the eCommerce industry registered an increase of RM127 [USD31.07] billion in 2019, with a growth of 8.4% compared with RM117.2 [USD4.21] billion in 2018.
“Despite the steady growth, critical technological and digital migration among most small and medium enterprises (SMEs) is low,” he warns. “Bigger financial support is needed to accelerate the adoption of digitalisation in next year’s budget.”
These should include double tax deductions for companies and doubling of the relief amount for personal income tax for certified programs to encourage upskilling and reskilling efforts for working professionals, Lee added.
Another imperative is the waiver of sales and service tax for ICT products and services for the sustainability and development of start-ups, as well as to ensure these companies thrive to the fullest potential.
IBM Malaysia managing director Catherine Lian describes the budget as ‘strategic’ and designed to address the immediate problems faced by the rakyat, further enhanced by the previous Penjana and Prihatin programs.
Welcoming digital transformation initiatives to enhance productivity and competitiveness, Catherine suggested that the government complemented current fiscal and financial measures with a robust policy framework that would enhance Malaysia’s position in the global digital economy.
“A focus on international trade agreements that enhance and promote data flows across borders, standards to facilitate digital trade activities and robust data protection and privacy regime that pivots on trust and transparency will ensure that Malaysia remains a competitive player in the digital space,” she said.
Finance minister Tengku Zafrul Aziz has proposed that RM1 billion [USD240 million] be set aside for digital transformation schemes, coupled with RM150 [USD36.69] million in grants for the digitalisation and automatisation of SME enterprises (SMEs) and nearly RM1.2 billion [USD290 million] for microcredit schemes.
In addition, the government also announced RM10 [USD2.45] billion for Syarikat Jaminan Pembiayaan Perniagaan Bhd and RM2.5 [USD0.61] billion for G1 to G4 contractors for small and medium projects nationwide, with MARA to provide RM50 [USD12.23] million in funding scheme for Bumiputera contractors.
“Digital transformation is essentially about creating new business models whereby technology enhances existing ones to be more efficient and productivity, resulting in cost-savings and new revenue streams,” said Catherine.
She noted that the pandemic had nudged companies worldwide to accelerate digitisation especially towards cloud-based remote collaboration tools and enable data-driven insights.
“This is to fast-track innovation and transform operations from an inside out view – for example, HR, procurement, finance and supply chain – and an outside-in view – for example, customer engagement marketing and sales,” she further said, emphasising that having the flexibility of a hybrid cloud architecture is critical.
Hybrid cloud is essentially information technology (IT) infrastructure that connects multiple types of clouds – such as public cloud, private cloud, and on-premises IT – before providing orchestration, management and application portability among them to create a single, flexible, optimal cloud infrastructure for running computing workloads.
“A hybrid cloud strategy helps a company achieve its technical and business objectives more cost-efficiently,” said Catherine.
“The multi-cloud, hybrid cloud environment also provides invaluable advantages for enterprises, especially those needed for survival and growth in an increasingly data-led, expanding digital era,” she further said, adding that it is essential for businesses to succeed in the fourth industrial revolution (4IR).
She added that more companies are turning to application modernisation, process automation, and AI (artificial intelligence) infusion and insights.
The objectives are to deliver better, scalable, and more secure digital services, while serving customers and helping employees work better.
Besides digital transformation, Catherine is also encouraged that the government has also placed emphasis on digital connectivity such as the RM7.4 billion allocation for MCMC to increase broadband services in 2021 and 2022, coupled with telcos expecting to provide RM1.5 billion worth of benefits such as free data and the RM500 million allocation to implement the National Digital Network (JENDELA) initiative in 2021.
“Digital connectivity is the ‘bridge’ to elevate Malaysia’s national competitiveness,” said Catherine.
“We are heartened that Budget 2021 has taken into account this most important factor as we as a nation recover in our goal to become a high-income knowledge-based economy.”
SAP Malaysia managing director Hong Kok Cheong sees Budget 2021 as a ‘people’s budget’ with an emphasis on the rakyat’s [people’s] welfare, business continuity and economic resilience, and that digital transformation, SMEs and IR4.0 indicate that technology remains a key focus area to leverage Malaysia’s national competitiveness.
Hong Kok adds “the RM1 [USD0.24] billion allocated for digital transformation schemes – together with RM150 [USD36.60] million in grants for the digitalisation and automatisation of SMEs and nearly RM1.2 [0.29] billion for microcredit schemes – will go a long way in integrating technology into all areas of businesses, while delivering higher value to customers and stakeholders.”
“With business now in the 4IR era, SMEs need to ‘innovate and transform’, as those which are complacent with a ‘wait and see’ attitude, they could be left behind – and may even become ‘irrelevant’.”
“There is an urgent need now for businesses to make the transition into becoming ‘intelligent enterprises’. In the ‘new norm’, intelligent enterprises can ‘do more with less’, deliver best-in-class customer experience, build resilient supply chains, while inventing new business models and revenue streams.”
Job creation and upskilling of workers With automation threatening various existing jobs coupled with a shortage of qualified talent in emerging roles, there arises an immediate need for the upskilling of present employees.
“Hence we are also encouraged by the finance minister’s announcement that, among others, RM1 [USD0.24] billion would be allocated for reskilling and upskilling programs.”
“Given the current employment situation, every member of the workforce – from frontlines to the C-suite – should continually enhance their skills to help them survive and thrive in the ‘new norm.'”
According to a recent World Economic Forum (WEF) study, the percentage of core skills that would change by 2025 is 40%, with some 50% of all employees needing re-skilling by that time. These percentages could increase even more due to the rising demand for digital tools and processes.
“Digital transformation is no longer an option, but an absolute necessity for businesses to thrive and for the economy to rebound,” commented K Raman, managing director, Microsoft Malaysia.
According to Microsoft’s Culture of Innovation study with IDC Asia Pacific, 77% of organisations in Malaysia want to accelerate the digitalisation of their businesses as a response to Covid-19, by launching new digital products, digital payments, eCommerce and automation.
Meanwhile, 43% of local businesses have indicated that they would further invest in their technology capabilities, cognizant of the fact that a tech-savvy workforce is essential to support businesses’ growth.”
“We believe Malaysia’s success must continue to be driven by people’s capabilities and digital technology and as key enablers,” Raman added. “The Budget 2021 with its rakyat-centric digital-first approach signals a strong direction on the future our nation is building towards – one that will be even more inclusive, digitalised, and resilient.”