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Malaysia’s Technological Foresight is Spurring its Economy

Innovation helps enhance competitiveness and accelerate economic growth.

Countries that invest in research and development (R&D), which is supported by effective commercialisation, and offer timely and adequate financing have nurtured companies to successfully introduce enhanced and new products and services nationally and worldwide capturing a significant global market share.

Innovation includes technological innovation as well as non-technological innovation (including organisation, market, business model and financial innovation).

The introduction of the post of science adviser to the prime minister was introduced in 1984 and resulted in a number of financial innovations supporting technological innovation in Malaysia.

This included the introduction of a consolidated research and development grant referred to as IRPA (Intensification of Research in Priority Areas) which worked to support R&D at the national level. It covered industry, medical, agriculture and social sectors.

After observing that research findings require the support of commercialisation to bring R&D products to the market place, the Malaysian Technology Development Corporation (MTDC) was set up in 1992.

It was responsible for spearheading the development of technology businesses in Malaysia by offering commercialisation grants to support researchers wishing to commercialise their findings.

In 1993, the Malaysian Industry Government Group of High-Technology (MIGHT) was set up under the Office of the Science Adviser in the Prime Minister’s Department.

It was co-chaired by the science adviser and a captain of industry to offer feedback of industry needs and perspectives, and input to develop strategies and programmes to nurture and support technology-based businesses.

Recognising that innovation in financing was key to supporting technological innovation, the Office of Science Advisor and MIGHT organised a venture capital conference gathering international and national key stakeholders including representatives from the finance, business and academia to deliberate on the way forward for Malaysia.

Later, a report on Enhancing Venture Capital Financing in Malaysia was prepared. The aim was to engage with all stakeholders – many financial institutions and venture capital companies in and outside Malaysia were approached in a bid to strategise the best business model for Malaysia.

The report was then submitted to the Ministry of Finance. After this report was submitted, it was observed that, in contrast to the western countries which managed the venture capital funds with strategies in place for risk management to ensure a viable investment, in the Malaysian context, the venture capital companies then were relatively more risk-averse and budding entrepreneurs shared with us that it was difficult to access the venture capital funds.

The science adviser was then approached with a proposal to introduce business angel financing as an alternative source of funding to help the country’s start-up companies.

With his support, an extensive review of international business angel financing was conducted and a report serving as both strategist and author was prepared to outline recommendations to introduce business angel financing for Malaysia. This report was submitted to the Finance Ministry.

This resulted in the establishment of the Kuala Lumpur Business Angel Club.

Several recommendations from both reports produced by the Office of Science Advisor on Venture Capital Financing as well as Business Angel Financing, including enhancing tax incentives for venture capital companies and introducing tax incentives for business angel financing and attracting more sources of venture capital funds were incorporated in Chapter 7 of Bank Negara Malaysia’s 10-year Financial Sector Masterplan under the heading Alternative Modes of Financing.

Tax incentives were enhanced for venture capital companies and introduced for the first time to business angels. Additionally, RM300 million was offered for venture capital financing and RM200 million for high-tech financing as debt financing by banks.

Supported by the VC and Business angel incentives, Malaysia’s venture capitalists have transformed the nation’s venture capital and business angel financing landscape accelerating the growth of more tech companies

Leaders were pleased to see that Budget 2020 was providing the tax incentives, aimed at encouraging alternative sources of funding for start-up and attracting more foreign investments from venture capital and angel investors, would be extended until 2023.

This move will support the continuation of the strategies the Office of Science Adviser developed to support Malaysia’s technology-based businesses nearly two decades ago, laying the important foundation of innovation in financing to accelerate technological innovation.


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