Budget 2023: Aspirations to strengthen Malaysia’s digital ecosystem - MIDA | Malaysian Investment Development Authority
contrastBtngrayscaleBtn oku-icon


plusBtn crossBtn minusBtn


This site
is mobile


Budget 2023: Aspirations to strengthen Malaysia’s digital ecosystem

Budget 2023: Aspirations to strengthen Malaysia’s digital ecosystem

26 Sep 2022

Automation, digital technology and the development of a future-ready workforce — these are some of the main components that are expected to be part of Malaysia’s Budget 2023.

While this is a welcome teaser, it is not something new as the push for digitalisation has been on the government’s agenda even before the outbreak of Covid-19. As Budget 2023 is set to be tabled on Oct 7, Digital Edge spoke to several industry players to find out their wishes for this year’s budget and how they hope to see the local tech ecosystem develop.

Venture capital allocation to support start-ups and SMEs

Technology entrepreneurship and adoption will be a boon to Malaysia if there is a strong drive to ensure that they are made the main pillars of the economy for the next 10 years, says Dr Sivapalan Vivekarajah, senior partner at ScaleUp Malaysia. The onus is on the government to ensure that the tech industry in Malaysia strives to build a conducive start-up ecosystem.

While the government has made impressive efforts to revive the start-up and small and medium enterprise (SME) ecosystem through fund allocations in Budget 2022, industry players are hoping to get the same, if not better, allocations in the upcoming budget.

The government should focus on the venture capital (VC) industry, talent development and technology adoption, says Sivapalan. Touching on the VC space, he says Malaysia has finally got the structure right with Penjana Kapital — a fund of funds programme — which has worked well in other countries.

In 2020, the government allocated RM600 million, which has enabled the formation of eight VCs and a venture debt fund with a total fund size of RM1.3 billion, but Sivapalan says it should not stop there. This success must continue, he adds, as RM1.3 billion is a drop in the ocean for venture funding.

“The government must continue funding the VC industry on a regular basis and we hope it can allocate up to RM1 billion this time. If done well, these investments will not only bring huge returns in the future but also create huge opportunities for start-ups in the present,” he says.

In Budget 2022, RM20 million was allocated to the Cradle Fund to amplify efforts and build the resilience of start-up economies, while RM45 million was earmarked for the technological transformation towards the Fourth Industrial Revolution (4IR).

Touching on talent development, Sivapalan asserts that start-ups cannot grow without the right talent and the government must fund more talent development programmes for the tech ecosystem, from entrepreneurship to IT and even digital marketing and sales.

“Even micro-entrepreneurs can gain from talent development. This can be done through both government agencies and other development organisations, including tertiary institutions,” he says.

“The government should also provide incentives and funding to encourage technology adoption, especially among SMEs. This will enhance productivity and efficiency, help reduce the need for workers and also help start-ups sell more products and services to the SME sector.”

Sivapalan says he is bullish on start-ups and the technology industry, owing to the resilience displayed by tech entrepreneurs over the last three years. Despite the health and economic threat posed by Covid-19 and the lockdowns that ensued, many start-ups continued to grow and prosper.

“Failure rates have been low and, now, with the opening-up of the economy and borders, we think there will be strong growth going forward. Barring a black swan event, 2023 should be a great year for the tech industry,” he says.

“This is consistent with historic trends. The best start-ups are built during tough economic times. The government needs to act as a facilitator to ensure that great companies are able to grow during this period.”

Invest in stronger data and identity protection laws and infrastructure

Poor cybersecurity measures in Malaysia are not an anomaly but the status quo, signalling a greater need to strengthen the country’s data and identity protection laws.

Joe Seah, chief commercial officer at Innov8tif Solutions Sdn Bhd, says Malaysia was the 11th most breached country in the world in 2Q2022, according to a study conducted by cybersecurity company Surfshark.

Moreover, it was reported that there were 22.5 million Malaysian identity leaks from the National Registration Department (NRD) in April, right after another data breach that affected four million Malaysians from the same database the year before. The most recent case was the iPay88 credit card data breach, which exposed vulnerabilities in Malaysia’s financial systems.

“Very rarely is anyone held accountable for such disasters and the situation has yet to improve,” says Seah.

“Our data privacy laws and infrastructure need to be strengthened and upgraded. Much has been said on the topic, and the internet is full of well-thought-out and deliberate recommendations, drafted by lawyers and think tanks. What this country needs is action, and hopefully this year’s national budget and political conversations will reflect that.”

Data privacy is identity protection, says Seah, adding that unscrupulous players have a wealth of Malaysian personal information at their disposal, thus making digital businesses highly vulnerable to synthetic identity fraud, bot attacks and the like.

Asean is particularly vulnerable to this, he adds, as a quarter of the region’s web traffic is populated by bots that steal personal information and conduct malicious activities.

“We hope to see minor forms of identity verification services being enforced for general digital services. Our current eKYC (electronic know-your-customer) regulation for financial services has done well in ensuring banking customers are authentic and legitimate, but other sectors can benefit from a lighter form of such regulations as well.

“Full-fledged eKYC measures for regular businesses might be an overkill, but it is important to add barriers to prevent fraudsters from freely conducting their criminal activities. Even Facebook warns us about using unknown devices when logging in. We should update our present laws and infrastructure to reflect our commitment to digitalisation, especially in such a globalised world.”

Apart from beefing up cybersecurity, Seah says there are many digitalisation gaps that still need to be addressed, such as basic connectivity — which is still an issue in Sabah, Sarawak and rural areas. The country’s 5G deployment is lagging behind that of its Asean neighbours, thus setting Malaysia back tremendously, he adds.

Giving credit where credit is due, however, Seah says much of Malaysia’s efforts have been placed on digitising the industrial sector and key export industries. Supercomputers, drones, simulation technologies, advancements in chip designing and testing have been a boon for the economy.

“The rakyat should be the key beneficiary of our digitalisation efforts, regardless of their socioeconomic status,” he says.

“The Malaysian digital landscape also needs to make our technologies more elderly-friendly. An ageing population is already a challenge in places like China and Japan, and it will certainly happen here in Malaysia. It is best that we prepare for the eventuality which, in certain ways, is already here.”

Strengthening Malaysia’s AI road map and infrastructure

Artificial intelligence (AI) has proved to be the ideal path to a prosperous and sustainable future and should be made a long-term initiative to modernise the country, support the digital economy ecosystem and provide employment opportunities for the younger generation. With that in mind, Wise.AI CEO David Lim says the government should allocate a long-term budget specifically for AI research and building an AI workforce.

This is already being done overseas. The US government is set to pass a bill to increase the annual budget of the Defense Advanced Research Projects Agency by US$3.5 billion (RM14.6 billion), with total authorised funding raised to US$7 billion over the next five years. In Germany, the government will spend €230 million (RM959 million) on AI funding for research and development (R&D), and over €190 million will be allocated to young scientists.

In China, the government is determined to become the world’s powerhouse in AI innovation with an increase in R&D expenditure by 10.6% in 2021 and more than 7% each year over the next five years.

“To encourage the adoption of AI technologies, the government can provide incentives for companies to purchase AI services. For employees to overcome the fear or feeling of uncertainty of adopting advanced technology, the government can allocate a budget for providing basic AI courses to the public by working with industry players,” says Lim.

“To speed up R&D efforts and ensure the commercial feasibility of R&D projects, it’s important to allocate a budget for knowledge transfer and collaboration with overseas AI leaders.”

Budget 2023 should also have allocations for the setting-up of an IR5.0 industry advisory panel and project initiatives, where humans and machines can assimilate and work together. Lim says this should be the focus because AI will play a significant role, particularly in the manufacturing industry, given that this is one of the leading economic sectors for Malaysia.

Last but not least, Lim says AI governance is vital, especially on the AI code of ethics. Budget 2023 should have an allocation to set up an AI governance committee that will safeguard consumer interests and provide them with confidence in using AI services, he adds.

Source: The Edge Markets