September 28, 2020

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Preparing Malaysia for its Digital Future

Digital Transformation in Malaysia

Malaysia has had great successes in industrialising since the 1970s. This transformation has made an agro-based Malaysia into an Asia Pacific smartshop, Malaysia’s Finance Minister recently stated.

Today, places like Penang, the Klang Valley and southern Johor are regional manufacturing hubs fulfilling global demand. These hubs contributed to the rapid rise of Malaysia, making it one of the Asian economic tigers in the 1990s.

However, by the early 2000s, Malaysian manufacturing, especially the electrical and electronics (E&E) sector began to hollow out due to the opening up of China and the emergence of new economies with lower cost structure.

The hollowing out effect has led to the premature deindustrialisation of Malaysia. Low-value services are expanding in place of manufacturing, while within the manufacturing sector itself, high-tech high-value manufacturing growth is stagnating.

Nevertheless, there is still hope; in the form of digital transformation and the Fourth Industrial Revolution.

Reindustrialising Malaysia

Malaysia sees the permanent reorientation of the global supply chain as a golden opportunity to attract new investment and reverse our premature deindustrialisation.

The entrepreneurial state has an important role here. Hence, the government will need to draw an industrial policy to focus Malaysia’s reindustrialising efforts, which requires necessary selective state interventions to prioritise investment in strategic sectors, and structure incentives around specific economic and social goals.

Budget 2020 and Industry 4.0

It is in the context of IR4.0 that the Finance Minister tabled Malaysia’s 2020 Budget. Keeping in mind a key question: why is the digitalisation of the economy important?

Previously, industrialisation required an ample supply of skilled workers, good physical infrastructure, as well as a set of consistent rules of law; now, there is a new dimension that needs to be considered today. It is about data and its uses.

However, the changing nature of industry requires that Malaysia must take Industry 4.0 technology into its embrace if its reindustrialisation exercise is to be successful.

Realising this, Malaysia has put in place its National Industry 4.0 policy (launched in 2018), identifying 5 sectors to prioritize in terms of Industry 4.0 technology implementation (i.e., E&E, machinery & equipment, chemical, medical devices and aerospace).

Generally, Malaysia is upgrading its digital backbone by investing RM21.6 billion into it’s National Fiberisation and Connectivity Plan (NFCP) from 2019 to 2023. This will widen the coverage and raise the speed of broadband internet in the country while providing Malaysians with high-quality internet services at affordable prices.

Moreover, the government is urging the private sector to lead growth. This is where the entrepreneurial state comes in with a comprehensive 4P partnership between the public sector, private sector, professionals and people to maximise the benefits of the NFCP.

When the NFCP is completed by 2023, Malaysia’s digital backbone is expected to be fully ready to support 5G implementation widely. This will give Malaysia the first-mover advantage in the region to reindustrialise faster.

However, the government is laying even more groundwork. It is already testing 5G technology in Malaysia. And the 2020 Budget has measures aiding Malaysian companies to digitalise and enable them to become more productive by adopting new technology.

Direct incentives are being provided; they are worth more than RM21 billion over 5 years for SMEs, large local companies and even multinational corporations to raise the productivity of the Malaysian economy through investment in new technology.

In 2018 as well, the Government provided large funds, either in terms of loan guarantees or grants to encourage digitalisation and the adoption of IR4.0 technology like artificial intelligence, automation, big data and robotics among Malaysian businesses.

Moreover, the regulatory framework to enable the establishment of virtual banking by is being developed and will hopefully be ready by 2020. This will further modernise Malaysia’s banking system, reduce cost and enable inclusive growth.

Disruption and Shared Prosperity

The introduction of new technology as significant as Industry 4.0 will create severe disruption to any economy. The World Bank projects 75 million jobs worldwide would be lost due to automation. Many of these jobs would not be replaced.

Malaysia is experiencing a transition into the Industry 4.0 era and aims to manage the transition well. Hence, the government has unveiled the shared prosperity agenda to ensure the fruits of economic growth can be shared meaningfully across all segments of our society.

The 2020 Budget also has a massive new job programme called Malaysians@Work. The target is to spend RM6.5 billion over 5 years to create 350,000 new jobs across 5 years for youth, unemployed graduates and women, while reskilling or upskilling workers towards technical and vocational education and training (TVET).

The Digital Gap

Shared prosperity must keep in mind progress made in digital payments, as well as digital currencies, and the digital divide it creates. Barriers to access must be lowered to make the digitalisation process inclusive.

To close the gap, Malaysia is adopting innovative methods to hasten the digitalisation of payments in the country as the first step towards a cashless society.

Malaysia will be providing RM450 million worth of digital stimulus to all Malaysians aged 18 years and above earning below a certain income threshold in January and February 2020. This programme works through a one-time electronic cash transfer to qualified Malaysians via their e-wallet.

While there is still much to be done, the Finance Minister believes Malaysia is making good progress in digitalising its economy and enabling the adoption of Industry 4.0 technology, while closing the digital gap.