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Innovative digital economy will help achieve high income economy: Malaysia's Budget 2011

AvantiKumar | Oct. 18, 2010
Industry reactions to Budget 2011.
KUALA LUMPUR, 18 OCTOBER 2010 Malaysia prime minister Datuk Seri Najib Tun Razak's Budget 2011 proposals include further measures to strengthen ICT's role to help the country achieve high income economy status.

"The Multimedia Development Corridor enters its third phase in 2011," Najib said, during his speech on 15 October. "The focus is on creation of an innovative digital economy to achieve the target of a high-income nation. To enhance the potential of the ICT industry, MY Creative Content Programme will be implemented to encourage the development of local content creation, hosting local content and unlocking new channels for content. This programme involves an allocation of RM119 million [US$38.57 million]."

The PM said the investment allowance period for the last mile broadband service providers would be extended. "In addition, import duty and sales tax exemption on broadband equipment are also extended for two years until 2012."

"[In addition] ordinary mobile phones are subject to 10 per cent sales tax but mobile phones with various applications such as Internet and personal digital assistant (PDA) are exempted from sales tax, said Najib. For the purpose of streamlining tax treatment, the government proposes that sales tax be exempted on all types of mobile phones.

"This budget is a clear signal of the governments' seriousness about transforming the country's economic framework to meet the challenges of an Innovative Digital Economy," said government ICT agency Multimedia Development Corporation [MDeC] chief executive officer, Dato' Badlisham Ghazali. "It is a very good budget for the ICT sector because of the focused and strategic nature of the proposed measures which are aimed at strengthening the eco-system, nurturing talent and creating a culture of innovation and entrepreneurship."

"[These] measures under the MY Creative Content Programme are significant for the multimedia creative content industry," said Badlisham. "The allocated budget of RM119 million [US$38.57 million] will further spur the creation and hosting of local multimedia content.  Today, the creative industry is still a relatively untapped but potentially lucrative trillion dollar industry and development of this sector must be further accelerated as a source of national growth and income." 

"The governments' allocation for business outsourcing services is another area that bodes well for ICT," he said. "Services like these offer a unique opportunity from both a domestic and foreign investment perspective as well as act as a driver for knowledge and skills development.

Nokia Siemens Malaysia chairman Tan Sri Rainer Althoff lauded the proposals and said: "We expect that the allocations of the 2011 Budget will be implemented prudently and deliver much needed investment in achieving the targets of 50 per cent broadband penetration by year-end and 75 per cent by 2015. Ultimately, more resources need to be channelled into education and efforts in improving ICT literacy levels."

"Information and communications technology has a key strategic role as an enabler of national infrastructure, education and human capital development for the NEM [new economic model]," said Juniper Networks Malaysia managing director, Wan Ahmad Kamal. "To support this, the government is on target to achieve 50 per cent household broadband penetration in the near future, and the ICT sector is projected to contribute 10.2 per cent to the country's economy in 2015 under the 10th Malaysia Plan."

"The Budget 2011 announcement of extended exemption in import duty and sales tax on broadband equipment and the abolition of sales tax on Internet-enabled mobile devices are therefore welcome," said Kamal. "They will further stimulate broadband use and narrow the digital divide, with more and more people accessing the Internet from  all types of devices including laptops, phones and other mobile devices in an increasingly diverse online ecosystem.

Intel Malaysia managing director Atul Bhargava and Intel Malaysia country manager Ryaz Patel welcomed the Budget 2011 proposals, and added: "The duty and sales tax exemption on broadband equipment is a positive development that can be expected to accelerate the uptake of broadband services; which in turn may accelerate broadband deployment beyond urban areas, drive greater PC penetration and narrow the digital divide."


Recovered from recession

"Malaysia has recovered from the global economic recession resulting from proactive measures undertaken by the government and the successful implementation of two Economic Stimulus Packages amounting to RM67 billion [US$21.7 billion]," said Najib. "The effectiveness of these measures is reflected by the 9.5 per cent expansion in gross domestic product [GDP] in the first half of 2010 compared with minus five per cent during the same period last year. The global economy is also expected to recover 4.8 per cent compared with minus 0.6 per cent in 2009. Likewise, international trade is expected to expand 11.4 per cent compared with minus 11 per cent in 2009."

"On the domestic front, key indicators also reflected strong economic growth," he said. "The FTSE Bursa Malaysia KLCI surged to 1,496 points on 14 October 2010, the highest since February 2008. Trade performance was encouraging in the first eight months of 2010, with exports increasing 22 per cent and imports 28 per cent, particularly imports of capital goods which rose 18 per cent.

"In line with these positive developments, the government revised growth for 2010 to seven per cent compared with six per cent per cent previously. It is significantly higher than minus 1.7 per cent in 2009. The sterling performance is contributed by the expansion of the manufacturing sector at 10.8 per cent, services 6.5 per cent and construction 4.9 per cent. Private investment expenditure is expected to increase 15.2 per cent private consumption 6.7 per cent and exports 11.6 per cent."

"In 2011, the global economy and trade are expected to grow moderately by 4.2 per cent and seven per cent, respectively. In line with this, the Malaysian economy is expected to expand between five and six per cent. However, the government will strive to achieve growth of six per cent."

 Public-private partnerships and entrepreneurship

"The government will further intensify the Public-Private Partnership (PPP) initiative to enhance private sector involvement in economic activities," said Najib, adding that the government would provide allocation as a tipping point for infrastructure support to ensure viability of private sector-led projects.

"Several PPP projects identified under the 10MP will be implemented in 2011 through private investment of RM12.5 billion [US$4.05 billion]. The government will allocate RM1 billion [US$0.32 billion] from the Facilitation Fund. Among the PPP projects are the construction of six major new highways, a gas-power plant in Sabah, as well as medical centres and a Mass Rapid Transit (MRT) in Greater KL (Klang Valley) will be implemented beginning 2011. This project, with an estimated private investment of RM40 billion [US$12.96  billion], is expected to be fully completed by 2020."

"The electrical and electronics (E&E) industry remained the largest contributor to exports with 41 per cent or RM228 billion [US$73.88  billion] in 2009, he said. However, the E&E industry is still focused on assembling activities. We should leverage on our strengths to develop local E&E companies to compete at the international level. A sum of RM857 million [US$277.72 million] is allocated for local companies to invest in high value-added activities, particularly in Penang and the Kulim High-Tech Park in Kedah."

Budget 2011 certainly is a positive step forward in nurturing a healthy entrepreneurial eco-system," said Ministry of Finance venture capital organisation Cradle Fund's chief executive officer, Nazrin Hassan. "Despite the existing avenues, such as the pre-seed and seed grants offered by Cradle, many companies become stagnant after two to four years of growth. Hence, the Entrepreneurship Enhancement Training Programme  (EETP) puts in place a continued education (CE) programme that aims to develop and enhance entrepreneurial leadership skills.

Commenting on the ETTP, Red Hat Asia Pacific Malaysia country sales manager, Basheer Ali Majeed, said: "Enterprises will be greatly encouraged to adopt innovative new solutions such as open standards-based cloud computing infrastructure and virtualisation technologies, which greatly increases the efficiency and utilisation of computing resources. Open Source Software is hailed as the next evolutionary step in how software is developed and consumed."


 R&D, human talent, and green technology

"Ultimately, it is research and technological advancement together with the availability of domain experts that are the key factors for innovation and competitiveness that will play a critical role in transitioning of Malaysia towards an innovative, market-driven R&D and knowledge-driven economic powerhouse," said Malaysian applied research agency MIMOS president and chief executive officer, Dato' Abdul Wahab Abdullah.

Wahab welcomed the government's move to allocate a sum of RM411 million [US$133.19 million] for research and development and commercialisation (R&D&C) activities next year. "This is critical in order to accelerate the commercialisation process of locally developed technologies and provide an innovation eco-system for the industry."

The PM also proposed the restructuring and strengthening of education and training with the allocation of RM29.3 billion [US$ billion] to the education ministry, RM10.2 billion [US$3.3 billion] to the higher education ministry) and RM627 million [US$203.18 million] to the human resource ministry.

A Talent Corporation was to be created under the prime minister's office in early 2011 to work on an expert workforce database locally and internationally.

Dell Global Business Centre chief executive officer Bobbi Dangerfield welcomed the Talent Corporation initiative. The catalyst for a developed nation is a rich pool of highly qualified, skilled and knowledgeable workers. Malaysia is in dire need of nurturing more knowledge workers and strengthening the talent pool in the country to propel the country's economy to greater heights. It is evident that there is a shortage of skilled workers who are innovative and capable enough to meet the growing demands of the market, especially in the ICT industry.

"Budget 2011 also placed great emphasis on advancing the creative industry," said Autodesk Malaysia country manager, Tan Choon Sang (CS Tan).  "This has been recognised as a strategic growth sector and we look forward to the development of the creative industry policy. We will continue to enable Malaysian designers and artists up the value chain from Made in Malaysia' to Design in Malaysia' and put our local designers and artists on the international map." 

"The allocation to enhance skills of engineering graduates and technical employees as well as train graduates in ICT to enhance their employability is a wonderful move that will leverage the benefits of technology to create a highly skilled, industry standard workforce. Educational institutions as well as industry players like Cisco have continuously contributed to helping the country achieve this goal that serves as a catalyst for Malaysia's success," said Cisco Malaysia managing director, Anne Abraham.

"With the focus on human capital development in this budget, it is clear that the government understands that much of this transformation sits squarely on our ability to deliver the right quality and quantity of talent," said MDeC's Badlisham. 

"There is an urgent need to increase efforts to attract, motivate, enhance and retain talented human capital from within the country and abroad," he said. "Specifically for the ICT sector, where technology is fast-changing, the measures offered will help address the shortage and quality issues on a short-, medium- and long-term basis. The RM50 million [US$16.20 million] allocated to MDeC to train graduates in ICT to enhance their employability under the Finishing School' initiative will support efforts to upskill an additional 25,000 graduates to meet demand in the ICT industry."

In addition, the prime minister outlined new incentives to advance green technology, which included Pioneer Status and Investment Tax Allowance for the generation of energy from renewable sources and energy efficiency activities to be extended until 31 December 2015. Import duty and sales tax exemption on equipment for the generation of energy from renewable sources and energy efficiency will be extended until 31 December 2012, and tax exemption on the income derived from trading of Certified Emission Reductions certificate will be extended until year of assessment 2012.

"Malaysia is committed to reducing carbon emission intensity to preserve the environment," he said. "For this purpose, the government will implement among others, the Programme on Blending of Biofuels with Petroleum Diesel (B5 Programme) on a mandatory basis beginning in Putrajaya, Kuala Lumpur, Selangor, Negeri Sembilan and Melaka in June 2011."

While generally applauding the Budget 2011 proposals, NetApp managing director, ASEAN,  Scott Morris, pointed out that the adoption rate in Malaysia for green technologies is still very low in comparison with other more mature markets.

"To green or replace any component of the existing data centre requires additional capital investment, and this begets the question of what kind of an immediate return of investment that they can obtain. NetApp's approach to reduce power consumption is very simple: consolidate your storage to be more efficient, said Scott. Businesses need help to increase efficiencies in their data centre with a consolidation plan that will yield significant results."


 Era of the government knows best' over

"The government upholds the concept of 1Malaysia as the fundamental philosophy in driving the nation's development path," said the Malaysian prime minister. "The Government Transformation Programme or GTP and Economic Transformation Programme or ETP will be a guiding force in this journey. The six National Key Result Areas (NKRA) and the New Economic Model with its eight Strategic Reform Initiatives will be the framework for the nation's economic transformation. The implementation of the development programmes will be realised through the 10th and 11th Malaysia Plans (10MP and 11MP)."

"The era of 'the government knows best' is over," said Najib. "In formulating this budget, the government consulted and took into considerations views from various parties comprising the public and private sectors, focus groups, media, 1Malaysia blog as well as lab sessions."

Symantec Malaysia country manager Alex Ong said Symantec applauded the Prime Minister's initiatives in consulting the views of the public and private sectors in the development of Budget 2011 and also urged caution over security.

"As the harmonisation of sales tax treatment of smart mobile devices with ordinary mobile phones would certainly see a greater adoption of such devices," said Ong. "Symantec has observed globally that the increase of broadband adoption also increases the malicious cyberspace activities in a country, resulting in higher risks of cyber threats to users."

"As more mobile devices are able to access the Internet, including the more affordable models, the divide between 'ordinary' phones and feature phones is increasingly closing in," said Nokia Singapore/Malaysia & Brunei general manager, Vlasta Berka.  "Furthermore, in today's era of connectivity and with the continued rise in social media, we have always viewed mobile technology as a staple and a must-own, rather than a luxury."

Commenting on infrastructure and crime proposals in Budget 2011, surveillance solutions firm Axis Communications, Malaysia country manager, Nafis Jasmani, said: "We are encouraged by the decision to establish 25 additional special courts offering a promising channel for the rakyat [the people] to seek for assistance when an incident takes place. The process of prosecution will be more efficient with the aid of advance surveillance technologies such as HDTV network cameras, which is essential, especially for surveillance operations where greater image detail and better image quality is required."

"While we feel that the government is on the right track with the GTP and ETP, there is a need to prioritise and focus on implementation of these development programmes," said Hitachi Data Systems Malaysia managing director, Johnson Khoo. "The nation is at a critical stage of its economic development and the government must endeavour to focus on delivering these initiatives. We no longer have the luxury of depending on natural resources and labour-intensive manufacturing activities as economic drivers."