The horizon towards Malaysia’s digital economy
The world’s economy is currently driven by digital technology, and Malaysia is also positioning itself to become a key player in this space to attract foreign investors. Recently, Malaysia signed a memorandum of understanding with China to simplify information sharing on cross-border trade. The digitized data-sharing platform facilitates trade, particularly for customs authorities of the two nations. Apart from that, Microsoft has invested USD 2.2 billion towards Malaysia’s economic digital transformation, including the upskilling of some 200,000 workers. Google has also shown interest in developing a data centre as well as a “cloud region”, or literally a commercial hub where cloud computing services for various markets are hosted, which will cost up to USD 2 billion.
Malaysia Digital Economy Corporation’s (MDEC) chief executive officer Mahadhir Aziz shared that total digital investments in the country soared to MYR 46.22 billion (USD 9.8 billion) in 2023 to surpass a MYR 30 billion target, proving the competitiveness of the country’s digital economy across the ASEAN region. Thanks to the framework of the New Industrial Master Plan 2030 (NIMP 2030) and continuous investment in information and communication technology (ICT) services, Malaysia is now the third-highest in the ASEAN region’s ICT Development Index.
Malaysia hopes to be at the forefront of digital economy by 2030, but how important is this sector for the country and its investors?
Backbone of the digital economy
The ICT service is very important in driving Malaysia’s continuous digital transformation as it creates new prospects in local and regional markets as individuals, businesses, and governments embrace digital solutions. With the development of advanced ICT infrastructure, this has impacted other industrial sectors and expanded digital economic opportunities available in Malaysia.
Graph 1 indicates that the ICT sector received the highest total investment in 2023 at MYR 63.7 billion (USD 13.5 billion) – 76.2 per cent or MYR 48.5 billion (USD 10.3 billion) of which were foreign investments. The increased adoption of big data analytics, internet of things, artificial intelligence (AI), and blockchain technologies in Malaysia continue to attract even more foreign investors.
Aziz believes that investing in digital infrastructure lays the foundation for the success of Malaysia’s burgeoning digital economy. With the NIMP 2030, this will unlock the potential of Malaysia’s digital economic opportunities and encourage market competitiveness especially for micro, small and medium enterprises (MSMEs) which are quick to embrace digital solutions.
As seen in Graph 2, the digital economy in Malaysia has increased through the years. The digital economy grew by 14.8 per cent from MYR 359.3 billion (USD 76.27 billion) in 2021 to MYR 412.3 billion (USD 87.51 billion) in 2022. According to the MDEC, the value of e-commerce transactions amounted to MYR 1.15 trillion (USD 244.65 billion) with up to more than 1.5 million MSMEs adopting the service between 2016 and 2023. The abundance of digital investments, together with the strength of the digital economy, has resulted in increased trust of Malaysian users which, according to the Ipsos Trust Track 2023, jumped from 23 points in 2022 to 51 points in 2023.
Opportunities in AI
Aziz shares that AI could enhance the productivity and support decision-making of businesses. For example, AI can assist the logistics industry to optimise routes, reduce waste, and improve energy efficiency. In fact, the use of AI in container ports is already on its way and is expected to have a positive impact on the entire chain of cargo and marine services.
AI adoption in the retail and e-commerce sector can bring products and services to more domestic or international markets. Right now, the Malaysian government is providing AI training and information campaigns to the public to encourage wider usage. With the improvement of digital skills across the country, the government believes that people can leverage these skills to help businesses grow.
Economy Minister Rafizi Ramli announced the plan to utilize the government’s venture capital Golden Pass to attract global unicorns and develop highly digitalized tech startups. Under the Golden Pass, investors get fee exemptions on visas for corporate executives and secure office space in established startup hubs. In May, the government also announced the Malaysia Digital (MD) Tax Incentive to stimulate the Malaysian digital economy’s growth. New investments under the MD incentive program offers zero taxes on intellectual property (IP) income, and a 5 or 10 per cent tax rate on non-IP income for 10 years. Meanwhile, business expansions may avail of a reduced tax rate of 15 per cent for five years.
These tax breaks demonstrate that Malaysia is open for more business opportunities that can positively impact its digital economy. With the readiness of AI technology and the booming digital economy in Malaysia, we see an environment that’s supportive for foreign investors to participate and thrive.
