National Budget 2018 – MDEC’s Budget Commentary

October 27, 2017

Datuk Yasmin Mahmood, Chief Executive Officer,

Malaysia Digital Economy Corporation (MDEC)

We are delighted that Budget 2018 is focused on accelerating growth and enhancing the wellbeing
of the rakyat as well as in further enhancing Digital Malaysia. The Digital Economy continues to be a
key driver of growth, contributing some 18.2% of Malaysia’s GDP this year, and expected to exceed
the projected target of 20% earlier than 2020.

Just last Friday (20 October 2017), Prime Minister Dato’ Sri Najib Tun Razak hosted the 29th
Implementation Council Meeting (“ICM”) and emphasised on the importance of the Digital Economy,
and how it can become the new engine of growth for Malaysia. At ICM, Prime Minister Najib also
announced a new stream of initiatives to boost nationwide digital transformation, and details of
these initiatives – both new and existing – were unveiled at today’s Budget 2018 announcement. 

Digital inclusivity and generating income for the rakyat

The RM100 million allocation for the eRezeki and eUsahawan programmes would ensure that the
Digital Economy continues to be inclusive for the well-being of the rakyat, and in particular the B40
and M40 groups.

With both programmes going into their third year, we estimate that 150,000 rakyat would be
trained in 2018; resulting in 341,745 rakyat participating in both programmes with an estimated
total income and revenue of RM544 million according to calculations.

We are also pleased to note that digital inclusivity has also been extended to a new flagship initiative
called eLadang to encourage farmers to leverage the latest smart farming technologies (such as IoT
[Internet-of-Things] and BDA [Big Data Anaytics]) to improve yield and pendapatan.

Talent Development for the Future of Work

A total of RM250 million has been allocated for future education of the National Transformation
2050 (TN50) generation, and would be used to develop Science, Technology, Engineering and
Mathematics (STEM) centres and improve Computer Science modules, including for Coding
programmes. From the RM250million, RM190million is allocated for two thousand classes to be
transformed into Smart Classrooms for 21st Century learning to increase creative and innovative

MDEC is pleased with this allocation as this would ensure Malaysia’s students have exposure to the
#mydigitalmaker education initiative launched last year.

This is a joint public-private-academia initiative with the aim of transforming the youth community
from being users of digital innovation to producers or digital innovators. This includes skills such as
coding, app development, robotics, embedded programming and creative technology; all of which
will ultimately help to strengthen problem-solving and creativity amongst our future generation.

Our forecast reveals that we need one million digital workers, such as coders, application developers
and software engineers, by 2025. With the continuous emphasis on talent development for the
future of work, this is indeed encouraging for Malaysia to continue nurturing our bright young

Nurturing Malaysia’s startup ecosystem

It was also announced that the Malaysian Government will assist startups by introducing a slew of
initiatives to encourage venture capital activities. The Prime Minister announced that investors from
major institutions will allocate RM1 billion for venture capital investments in selected sectors.

These initiatives include income tax exemption being widened to include management fees and
performance fees, as well as a reduction in minimum investment limit in a venture company from
70% to 50% from 2018 to 2022. Companies or individuals investing in venture capital companies will
be given a tax deduction equivalent to the amount of their investments, which will be limited to a
maximum of RM20 million ringgit per year, just as income tax exemptions equivalent to the amount
of investments by angel investors in venture companies will be extended until 31 December 2020.

This is a visionary stance by the Malaysian Government as the start-up ecosystem is the job creators
of the future. We introduced two highly successful initiatives last year, the first being the Malaysia
Digital Hub initiative that supports start-ups and communities while creating greater opportunities
for them to connect to the ASEAN and global digital ecosystem; and secondly, the Malaysia Tech
Entrepreneur Programme (MTEP) – an initiative by the Malaysian Government that aims to attract
global technopreneurs and help them to realise their fullest potential out of Malaysia and to scale
their businesses regionally and globally.

Fortifying the Fourth Industrial Revolution and Digital Economy

The Malaysian Government would also be providing grants worth RM245 million under the Domestic
Investment Strategic Fund to upgrade Smart Manufacturing services. This move is aimed at
supporting investment and business activities under the Industrial Revolution 4.0.

In addition, the Futurise Centre in Cyberjaya will be upgraded as a one-stop centre for corporate
companies and universities to develop product prototypes as well as to boost innovation. The
government will also extend incentive periods for Fast Capital Allowance by 200 per cent on
automation appliances for assessment year of 2018 until 2020, while incentives for the
manufacturing and services sector for Fast Capital Allowance by 200 per cent will also be given. For
information communication technology appliances, capital allowances – including computer
software expenditure – can be claimed from assessment year of 2018 until 2020.

These moves stem from the reality today that, in a hyper-connected world, it is becoming
abundantly clear that artificial intelligence (or “AI”) is the defining force of the Fourth Industrial
Revolution. AI is the natural progression from data analytics, and as such, Malaysia should start
looking at developing a National AI Framework. This will then be an expansion of the National BDA
(Big Data Analytics) Framework. AI is the “game changer” for the Fourth Industrial Revolution.

Digital Free Trade Zone (DFTZ)

DFTZ is proving to be a massive game changer for Malaysia which will see Malaysia’s SMEs doubling
exports, and establish Malaysia as a regional trans-shipment hub for e-commerce logistics while
creating 60,000 jobs by 2025.

I am happy to say that the DFTZ will “Go Live” on 3 November and 1,900 export-ready SMEs will be
flagged off to begin their export journey. This is an encouraging number of SMEs as our previous
target was 1,500 SMEs.

For the first time, the world will see a physical and virtual zones with additional online and digital
services to facilitate cross border eCommerce and invigorate internet based-innovation.