Soonicorn Collective makes its case for Malaysia's Budget 2025 with focus on enhancing digitalisation, boosting startup ecosystem 

• Need to create a more “digitally open government” to reduce cost of business
• Increase market opportunities via reduced red tape, access HRDF contributions    

As the Finance Minister’s Budget 2025 presentation approaches on Friday 18th Oct, I thought it would be good for me to share some of the recommendations that the Soonicorn Collective has presented to the Ministry of Finance in the hopes of enhancing the digitalisation of small and medium enterprises (SMEs) and government services and improving market opportunities for our startups. Most of these recommendations do not require funding, but more of a policy direction by the Minister. While we submitted 14 recommendations, here is a sampling of seven I feel are of significant importance.

#1: Create digital open links to government human resource and tax statutory bodies

The Income Tax Department (LHDN) has successfully created an open API initiative with GST previously and currently with e-invoicing. This has successfully driven change in the digital economy.

However, this has been quite limited while many other initiatives remain closed. Furthermore, each government body has its own website and platform forcing companies to do multiple entries despite the ability of software to simplify matters with a single click.

Our recommendation is for the statutory bodies related to the human resource and taxation industry like Employees Provident Fund, SOCSO and LHDN to adopt an "open government" policy by providing APIs for software platforms to link directly to the statutory bodies own software thus allowing for full digitisation of HR, payroll and tax services as a start.

This will significantly reduce the cost of doing business, improve efficiency and productivity of government services as well as private sector productivity and also reduce incidences of fraud and scams.

#2: Establish a National Data Coordination Committee to improve standardised data collection.

The recent US$280 million (RM1.2 billion) loss from "mule" accounts underscores the need for better data coordination within the financial system. Requiring individuals to provide additional documents such as employment letters, with no guarantee of document authenticity is pointless.  

The lack of reliable data also affects businesses, government welfare programs, and other sectors, leading to inefficiencies and fraud. During the pandemic, MySejahtera demonstrated the benefits of standardised data sharing, allowing businesses to easily verify vaccination status and contributing to economic stability.

To address these challenges, we recommend forming a Data Coordination Committee composed of both the public and private sectors to improve standardised data collection and transfer.

A 2018 UK study estimates data portability could boost its GDP by 1%. If Malaysia implements a similar framework, the expected GDP increase could be up to US$3.73 billion (RM16 billion).

#3: Establishment of a one-stop coordination hub for streamlining multi-level approvals for public sector service providers

Service providers aiming to offer digitisation or solutions to public sector institutions currently face multiple layers of approval from various ministries and agencies, leading to bureaucratic red tape, unexplained rejections, and reliance on intermediaries. This proposal seeks to eliminate these hurdles by simplifying the approval process, allowing direct access to public sector institutions without involving government procurement or funding. The focus is on reducing barriers to market entry and fostering innovation in the public sector.

One example is the provision of services to public schools. Currently, providers offering digitalisation or services to public schools face multiple layers of approval from the Ministry of Education (MOE) at both federal and state levels, often encountering bureaucracy, rejections without clear reasons, and the need to work through intermediaries.

The one-stop hub will act like MIDA (Malaysian Investment Development Authority) where one organisation acts on behalf of all public sector parties and streamlines approvals and removes red-tape. This will speed up the digitisation of the economy and ensure we achieve the nation’s digitalisation goals.

#4: Empowering Malaysian talent development through local HR tech adoption via Human Resource Development Corporation

Currently contributions that companies make to HRDC can be utilised for training and human capital development. This is barely scratching the surface of human capital development and doesn’t fully assist companies to acquire and develop talent.

Local startups have developed technologies that enhance talent assessment, mobility, career development, and learning among others. We recommend that HRDC allow companies to utilise up to 25% of their HRDC contributions (capped at RM2 million annually) to purchase digital HR talent development and management tools from Malaysian companies. This amount should be increased to 30% or RM3 million annually for local tech companies that have both, MD (Malaysia Digital) status and MySTI certification.

(Ed: MySTI or My Science, Technology and Innovation was launched by the Ministry of Science Technology and Innovation in to boost the commercialisation and marketing of home-grown technology and innovation. Goods and services generated via local R&D can be identified by the MySTI logo. A key advantage is that goods and services that have the MySTI logo and certificate will be given priority in Government procurement. It is not clear however if any ministry or public agency/body prioritises buying products and services that have the logo.)

 Doing this will accelerate reskilling, upskilling, and workforce mobility and by leveraging on HR tech to assess individual capabilities and align career paths, funds can be better utilised. The results of this will be enhanced skill development, improved career progression, increased job satisfaction and retention, higher employability as well as a boost to the local tech industry.

#5: Enhancing teacher compensation in STEM to drive educational excellence in science and technology.

The objective of this is to attract and retain top Science, Technology, Engineering and Maths (STEM) educators by significantly increasing their compensation, enhancing education quality, and addressing skills shortages. Malaysia is falling behind in STEM education which has an impact on the technology industry including semiconductor, software, robotics and AI. It is critical to address this by ensuring STEM educators are well compensated to attract the best to become STEM teachers.

We recommend that salaries for STEM teachers be aligned with industry standards matching public sector salaries to the private sector. There should also be performance-based bonuses and additional allowances for exceptional teachers. Offer grants for advanced degrees and certifications and create pathways for career advancement with higher pay and leadership roles. STEM teachers who excel should be given enhanced benefits like health insurance, childcare benefits and even flexible hours.

Increasing STEM teacher compensation will attract high-quality educators, improve teaching standards, and address skills gaps, driving long-term educational and economic benefits. The point is to find and hire the best of the best in STEM and this can only happen if they are given special privileges commensurate with the importance of improving national standards in STEM.

#6: Launch AI initiatives by GLCs to accelerate adoption and enhance global competitiveness

Artificial Intelligence is going to transform the technology sector like the Internet did in the 1990’s. To ensure greater adoption we recommend that the government develop a comprehensive AI policy for GLCs to accelerate the adoption of AI to improve efficiency and productivity and to enhance global competitiveness.

To do this we recommend that all GLCs should commit to awarding at least RM10 million annually in AI project contracts to local startups, thereby fostering innovation and providing growth opportunities for the local ecosystem.

The government via agencies like MDEC should create platforms or initiatives to encourage partnerships between GLCs and local AI startups, promoting knowledge exchange and collaborative development. The government and GLCs also need to Invest in AI training programs and resources to upskill the workforce within GLCs and local startups, aligning with the Prime Minister's AI goals for the country.

AI is a game changer and we must all play a role to ensure that the nation and our companies are not left behind by the global movement towards AI adoption.

#7: Mandated GLC startup acquisitions

There is currently a serious lack of activity in the merger and acquisition space for startups in Malaysia. This lack of M&A means investors including Angels, Equity Crowdfunding investors and VC funds are unable to exit and obtain a return on investment on their investments. This lack of returns also means profits are not available for recirculation as new investments. Without an active M&A scene, the startup investment space will continue to remain in the doldrums.

In more mature countries the larger companies are active acquirers not just for financial reasons but also for innovations, market access and for talent. In Malaysia the largest companies don't make even a single acquisition a year.

To encourage more M&A we recommend that the government mandate GLCs that have a net profit of at least RM500 million a year to make at least one startup acquisition each year. While one acquisition doesn't seem to be a lot there are at least 20 GLCs that will qualify and this means at least 20 acquisitions are possible each year. The GLCs that make more than RM1 billion can make more than one acquisition, but the mandate is for at least one acquisition.

Acquisitions will immediately stimulate more investments and more innovations - the entire digital economy will get into a positive flywheel and Malaysia will become a tier 1 startup ecosystem in a short time.

Also, innovative startups often create better and cheaper solutions than GLC in-house teams. Therefore, such acquisitions will drive more efficiency, productivity and cross-pollination of ideas into GLCs - that they can immediately bring in talents and products/services acquired into their giant customer bases and create rapid financial returns.

This is a strong signal for the rest of the market that exits happen regularly in Malaysia and the country is recognising its home-grown innovations while inviting international players to do the same. This will stimulate more investments and reinvestments of gains from exits and create a healthy and active M&A space in Malaysia.

This is something that is greatly lacking in Malaysia and is holding us back from being a stronger ecosystem. This will also help propel Malaysia into the top 20 startup ecosystems in the world and achieve the goals of the KL20 initiative.

These are just seven of the 14 recommendations we submitted to MOF. While we don’t expect all of these to be accepted, we believe all of them will help move the needle for the startup ecosystem and for productivity and profits for the government and private sector. In a short few days we will know. We remain hopeful.

Dr. Sivapalan has a Ph.D in Venture Capital from University of Edinburgh, Scotland, is Co-Chairman of the Soonicorn Collective, Senior Partner of ScaleUp Malaysia Accelerator and Adjunct Professor in the School of Science and Technology, Sunway University. He is the author of the book “Supercharge Your Startup Valuation”.