From the DFTZ to an initiative for East Malaysia, here are 5 policy plans to get an overview of Malaysia e-commerce

2017 has been great for the Malaysian e-commerce scene as the government has pledged various resources to fast track its development.

This was evident as we saw the government’s partnership with Jack Ma and Alibaba to set up a Digital Free Trade Zone (DFTZ), the first of its kind outside of China.

This was further bolstered as the government recently declared the digital economy as one of its eight key thrusts to the country’s growth plan for the year 2020. Along with those major events, the country saw 5 other notable budget allocations and initiatives that are expected to benefit e-commerce in the country.

Rolling out the Digital Free Trade Zone

What was announced?

• 5 million (USD19.7 million) will be allocated to construct the first phase of Digital Free Trade Zone (DFTZ) in Aeropolis, Kuala Lumpur International Airport (KLIA), to create a regional gateway for e-commerce.

How will this benefit e-commerce?
The cooperation between the Malaysian Digital Economy Corporation (MDEC – an agency assigned to oversee the development of e-commerce in Malaysia) with the Chinese e-commerce giant Alibaba to set up the DFTZ in Malaysia is a huge win for SMEs and e-commerce.

In a post-budget comment, Datuk Yasmin Mahmood, the CEO of MDEC mentioned that the DFTZ will “Go Live” on November 3rd and 1,900 export-ready SMEs will be flagged to begin their export journey.

The budget allocation will see the initiation of physical and virtual zones aided with online and digital services to facilitate cross border e-commerce and invigorate internet based-innovation. Among it will include:

• e-Fulfilment Hub that will digitise trading operations such as customs clearance, foreign exchange services, financing services and logistics solutions which is expected to make bilateral trade more seamless

• Satellite Services Hub that will facilitate end-to-end support and knowledge learning for companies targeting consumers on the Southeast Asian level

• e-Service Platform that will digitally connect users with government and business services across the region

Once successfully implemented, the DFTZ is set to benefit SMEs and is projected to attract more than RM700 million (US$165 million) worth of investments.

Additional incentives for Venture Capitalists

What was announced?

• A sum of RM1 billion (US$240 million) will be provided by major institutional investors for investment in venture capital in selected sectors, coordinated by the Securities Commission (SC)

• Expansion of income tax exemption to include management and performance fees received by venture capital management company, effective from year of assessment 2018 to 2022

• Facilitate venture capital companies to invest in venture companies, minimum investment in venture companies be reduced from 70 per cent to 50 per cent, effective year of assessment 2018 to 2022

• Companies or individuals investing in venture capital companies will be provided tax deduction equivalent to the amount of the investment made in the venture companies, limited to a maximum of RM20 million annually

• Extension of income tax exemption incentive equivalent to the amount of investment made by an angel investor in venture companies to 31 December 2020.

How will this benefit e-commerce?

In the past six years, the top 10 e-commerce startups in Malaysia have raised a collective total of RM14 billion (USD3.3 billion) to develop their online platform for consumers. The incentives provided by the government would encourage further investments into e-commerce startups.

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Yasmin from MDEC also notes that this is a visionary move as the startup ecosystem will be job creators of the future. By the year 2025, the digital economy is expected to create more than 60,000 jobs in Malaysia.

Stimulating innovation through a regulatory sandbox

What was announced?

• To drive further innovation from startups in the country, the government will continue to create a conducive ecosystem to benefit from innovation. To that end, the government will expand its regulatory sandbox approach to facilitate company’s ability to their new innovative ideas and business model with the assistance of related regulators.

What does this mean for e-commerce?
Still in its infancy in Malaysia, the regulatory sandbox remains a new initiative in Malaysia. Following the success of the United Kingdom’s (UK) , countries such as Hong Kong, Australia, Singapore and Malaysia have tested the innovation formula to drive innovation from fintech companies.

In May 2017, BNM announced that four entrants will participate in the initiative which allows them to experiment innovative financial products or services within a well-defined, controlled and ‘safe’ space.

If the initiative can be useful for startups beyond the fintech industry, it will be highly beneficial as it will provide an avenue for their products and ideas to be tested before implementing it on a larger scale.

Development of communications infrastructure in East Malaysia

What was announced?
A sum of RM1 billion (US$240 million) will be allocated through the Malaysian Communications and Multimedia Commission (MCMC) to improve communication infrastructures and broadband facilities in Sabah and Sarawak.
How will this benefit e-commerce?
Though the adoption of e-commerce in East Malaysia remained slow, the growth potential remains high. . A recent study showed that online shoppers in East Malaysia spent 75 per cent more time searching for products online and are 10 per cent more likely to shop using a desktop when compared to consumers in West Malaysia.

One possible rationale is consumers found it easier to shop via desktop as it provides a more stable internet connection as compared to mobile broadband.

The government’s allocation of RM1 billion to improve its telecommunications infrastructure should boost the number of mobile internet users. Though this has an indirect effect on e-commerce, it has the potential to spur the number of online shoppers from East Malaysia in the near future.

Equipping the young generation with basic tech capabilities

What was announced?
A total of RM250 million (US$58.9 million) will be allocated to the education sector to improve the existing Enhanced Computer Science module and Coding programmes implemented in primary and secondary school curriculums.

In addition to this, a sum of RM190 million (US$44.8 million) will be allocated to upgrade 2,000 classes into a 21st Century Smart Classroom to enhance creative-based learning and innovative thinking.
How will this benefit e-commerce?
MDEC has forecasted that the digital economy needs more than one million digital workers, such as coders, application developers and software engineers, by 2025.

The strategy of joint public-private-academia collaboration would be vital to encourage the youth community from just being users of digital innovation to become producers or digital innovators.

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Malaysia currently lacks in local tech professionals and this is a vital move to ensure Malaysia will have the needed workforce to support the futuristic economy.

Malaysia is putting a lot of energy into improving its e-commerce infrastructure, and these 5 initiative provide a nice overview of specific policies to achieve this goal.

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