What Malaysia’s Budget 2018 Announcement Means for E-Commerce

This year has been great for Malaysian ecommerce, as the government has pledged various resources to fast-track the sector’s development. This was evident in the government’s partnership with Alibaba to set up a Digital Free Trade Zone (DFTZ), the first of its kind outside of China.

Further bolstering this, the government recently declared the digital economy as one of its eight key thrusts in the country’s growth plan for 2020. Along with this were other notable budget allocations and initiatives that are expected to benefit ecommerce in the country:

The corporation 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 3 November and 1,900 export-ready SMEs will be flagged off 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:

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

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

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.

To drive further innovation from startups in the country, the government will continue to create a conducive ecosystem to gain greater benefits from innovation. To that end, the government will expand its regulatory sandbox approach to facilitate companies test their new innovative ideas and business model with the assistance of related regulators.

Still in its infancy in Malaysia, the regulatory sandbox remains a new initiative in Malaysia. Following United Kingdom’s (UK) success, countries such as Hong Kong, Australia, Singapore together with Malaysia has 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. The rolling out of this initiative for startups beyond the fintech industry will be highly beneficial as it will provide an avenue where their products and ideas can be tested before implementing it on a larger scale.

A sum of RM1 billion (USD 240 million) will be allocated through the Malaysian Communications and Multimedia Commission (MCMC) to improve communication infrastructures and broadband facilities in Sabah and Sarawak.

Though the adoption of e-commerce in East Malaysia remained slow, the growth potential remains high. A recent research showed that online shoppers in East Malaysia spent 75% more time searching for products online and are 10% more likely to shop using a desktop when compared to consumers in West Malaysia. One possible rationale was because 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 will definitely 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.

A total of RM250 million (USD58.9 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 (USD44.8 million) will be allocated to upgrade 2,000 classes into a 21st Century Smart Classroom to enhance creative-based learning and innovative thinking.

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. 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.