Budget 2020: Malaysia gets it (mostly) about the Digital Economy

• 5G Ecosystem Development Grant of RM50m won’t move needle
• Slow adoption of productivity tools hurt businesses, targeted grant aims to help

The Malaysian government clearly gets it that the nation needs to prepare well, and prepare fast, in order to be a winner in the digital economy, that is already upon us. It has made “boosting economic growth in the New Economy and Digital Era” as the first pillar of its 2020 Budget that was introduced yesterday by Lim Guan Eng, Malaysia’s Minister of Finance.

With the Digital Economy being all about workers upskilling themselves to be ready for future jobs, the second pillar of investing in talent is especially crucial. Here I really like the TVET focus carved out. For example, the strengthening of Technical and Vocational Education and Training (TVET) with an allocation of RM5.9 billion to ensure the pipeline of skilled and semi-skilled workers will remain robust.

At the same time, there is an allocation of RM11 million, (a relatively small amount) to the Ministry of Energy, Science, Technology, Environment and Climate Change (MESTECC) to encourage the uptake of STEM education.

[RM1 = US$0.24]

Still, if you were to look at some of the specific incentives introduced to support the Digital Economy for 2020, your jaw may drop at the small amounts given to support this acceleration to becoming a digital powerhouse nation and some of the incentives may induce bouts of head scratching as well as to questioning the logic behind them.

To the jaw dropping example, we have the 5G Ecosystem Development Grant worth RM50 million that the government hopes will “significantly enhance Malaysia’s economic competitiveness” through seeding technological developments by Malaysian companies to ride the global 5G wave. Lim’s specific remark here was, “The government wants Malaysians to be prepared for the coming 5G era.”

I’m sorry but RM50 million won’t move the needle to achieve the great things hoped for here. Although it is not mentioned where the money will come from, I suspect it will be contributed by the Malaysian Communications and Multimedia Commission or MCMC.

With Finance Minister Lim always talking about stretching public funds for maximum impact, the RM50 million should be matched by the same amount from the telco hardware and software players chipping in together. I am talking about the likes of Nokia, Ericsson, ZTE, Huawei, even Samsung, some of the Japanese network players, the Softbank owned British chip designer ARM Holdings and of course the American chip makers like Intel, Broadcom, Texas Instruments etc. Whoever has an interest in wanting to do business in Malaysia’s 5G market.

A RM100 million a year grant for at least four years? Now we’re talking and giving our tech entrepreneurs and companies a chance to think bigger than just fighting over a small RM50 million sum.

And if the government grant is not coming from the MCMC, and I would be surprised if it is not, then our telco operators must contribute as well to the matching amount.

Of course, if the Axiata Group-Telenor merger had gone ahead, the global innovation centre they would have established in KL would have become the fertile ground from which possible Malaysian tech innovators in 5G could have arisen.

By the way, this standalone RM50 million grant is surprising when considering the RM25 million matching grant announced to spur pilot projects around applications such as drones, autonomous driving, blockchain and based on fibre and 5G. Why the different approach for much tougher technology development challenge?

Now for the head scratching, logic defying example, we have the RM70 million allocated to build 14 one-stop Digital Enhancement Centres in all states to facilitate access to financing and capacity-building for businesses, especially small and medium-sized enterprises (SMEs).

The funding will be allocated to Malaysia Digital Economy Corporation (MDEC) to set up these centres. Here come the head scratching moment. Lim says that the initiative is an extension of the 100 Go Digital programme.

Now if you know what this programme is, then you need to take over running DNA from me. Because in my seven years of running DNA, we have not carried a single article on this programme. Neither can I find anything about it online as well, though Singapore has something called SME Go Digital.

[Ed note: MDEC has since pointed out to me that this is a very new program

That mystery aside, and taking the word “build”, literally, it defies logic that we need to actually build 14 centres, one in each state, likely in the capital as that is where the majority of SMEs are located.

It would be a total waste of money to do so. I say just use an existing government facility and channel the full RM70 million to the purpose of capacity building for our SMEs. Actually, I wouldn’t be surprised if the government came out to clarify that this will not entail actually building 14 facilities.

Lim also spoke of establishing, not building – though it could mean the same thing – three new digital libraries in Kedah, Perak and Johor to spur “knowledge-sharing and education through digital-enabled content."

Again, I am sure, Minister of Communication and Multimedia, Gobind Singh Deo, will have enough resources on the ground in each of these states, to offer one of his ministry’s facilities for this purpose. Waste not a cent on any pointless construction here as that will not help the government achieve its goal of pushing the nation towards digital transformation.

These two particular grants aside, there is a lot I like about the various digital initiatives announced.

For example the RM20 million for MDEC to further grow digital content champions in the e-Games, animation and digital arts space. This support no doubt serves as validation to the impressive work being done by the outstanding Hasnul Hadi Shamsudin who leads MDEC’s creative content efforts.

Digitalisation boost for SMEs

Moving away from MDEC to our SMEs, the 50% matching grant amounting to RM5,000 each should give some incentive for SMEs to digitise their operations. In this case the grant is specifically for ERP, e-POS and e-payroll services. A subtle criteria of this grant is that it actually refers to cloud based services as it uses the term “subscription services” which is the standard business model for cloud computing based services.

What I especially like here is the generous support and the cut-off point in helping SMEs. The matching grant is to be made available over a five-year period but will be limited to the first 100,000 SMEs owners quick enough to apply to take advantage of the benefit.

And while the RM5,000 amount may not seem incentive enough for an SME owner to take advantage of it, Effon Khoo, who runs SaaS payroll and HR services for SMEs, contends that it is enough for a full year of service for any SME that has 20 staff and below.

“RM10,000 in general, is good enough for a 20 pax size SME to get HR, accounting, POS, webstore cloud subscription sorted out. And it improves the business operations a lot,” he says.

As someone who deals with traditional SMEs, daily, Khoo has noticed how a slow adoption of productivity tools has hurt businesses. “Sometime it's just a needle to move the company to improve operations. You will be surprised that there are so many companies still running operations the old way, for example using paper to apply for leave. Many still struggle to pay payroll online,” he notes.

Nonetheless he sees his clients being more receptive now with this incentive. Joel Neoh, cofounder of Fave is also excited about this incentive, adding, “we want to see how we can potentially work with the government to encourage SMEs to adopt more digital solutions with the allocation of this 50% matching grant.”

RM20 million for Cradle

A lack of receptiveness, meanwhile, has never been a problem for Cradle Fund, when it comes to entrepreneurs wanting to join its outstanding Coach & Grow Programme (CGP) that was designed and managed by Proficeo Consultants Sdn Bhd.

Acknowledging the strong impact of the C-level coaching programme, Lim pointed to the 469 companies that had gone through CGP since 2012 and which collectively generated RM2.3 billion in revenue with RM300 million in exports. Cradle’s reward for a job very well done was a RM20 million allocation for further training and grants.

Now, whether it was from his excitement of his CGP programme being mentioned in the budget, or not, Dr V Sivapalan, cofounder of Proficeo was in an upbeat mood when I had a quick chat with him. His thoughts on the budget were equally bullish. “Generally, I think this is one of the best budgets we have seen in a very long time,” he told me.

He was especially amazed by the number of initiatives for entrepreneurs. As the author of a book on innovation called, Blue Sky Innovation, Sivapalan especially liked the RM1 billion investment incentive for Fortune 500 companies & Global Unicorns that would have to invest at least RM5 billion in Malaysia in the high tech, manufacturing and creative economy sectors to qualify for that incentive.

“That’s really innovative,” he said, adding “of course we need to ensure we meet other requirements like talent, speed of approvals and even other supportive policies but kudos to the government for such innovative thinking.”

And finally, as the president of the Malaysian Business Angels Network (MBAN), Sivapalan was really pleased that the venture capital and Angel tax incentives had been extended until 2023. These incentives were due to run out this year.

Now that the government has done its job, Siva says, “The rest of us have to step up to ensure that we take advantage of these incentives to make Malaysia the best place for business to flourish.”