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Can Malaysia Reap the Benefits of the Digital Economy?

Across the world, digital technologies have been rapidly adopted. This, in turn, has transformed the manner in which business, work and service delivery is conducted. The digital economy promotes development and generates dividends by promoting innovation, reducing transaction costs, boosting efficiency and productivity, and making services cheaper. It also enhances inclusion by providing access to previously excluded segments of the market to a wide range of services. Globally, many countries are strategizing and implementing various plans to benefit from the potential returns of embracing the digital economy.

One such country, Malaysia, has been actively seeking to capitalize on this avenue. Figures from the Malaysia Digital Economy Corporation (MDEC) show to date that Malaysia has attracted digital investments in excess of 320 billion ringgit ($78.60 billion) from around the world. It has also seen the creation of 167,000 new high-value jobs and the emergence of a domestic ICT industry worth over 40 billion ringgit.

Unlocking the Potential of the Digital Economy

Malaysia has made significant efforts to establish the right ecosystem to foster digital entrepreneurship. A range of institutions, including the MDEC, the Malaysian Global Innovation and Creativity Centre and Cradle, have been established to attract investments, provide incentives, facilitate financing and offer training and opportunities to startup firms. Malaysia’s funding ecosystem functions relatively well in terms of supporting firms at the early entrepreneurial stages. The efforts of the government and these institutions, coupled with relatively high levels of digital connectivity and the high-profile success of businesses such as KFit and Iflix, have played a role in encouraging Malaysians to become entrepreneurs.

In 2015, Malaysia launched the eRezeki and eUsahawan initiatives to facilitate the greater involvement of key communities such as youth, micro-SMEs, digital entrepreneurs and the bottom 40 percent (B40) communities in the digital economy. The objective of the eRezeki initiative is to provide opportunities to members of B40 communities to earn additional income by leveraging digital technologies. The eUsahawan initiative is a program intended to make digital entrepreneurship education mainstream among emerging and current micro-entrepreneurs through a community-centric approach. Both these initiatives have proven successful.

However, for digital entrepreneurship to fully realize its potential, several challenges, including the low level of adoption of digital payments, will need to be addressed. Establishing an environment of confidence and trust is essential to build a vibrant e-commerce environment. This can be achieved through a number of means, including establishing a secure and seamless e-payment infrastructure, improving data accessibility and strengthening cybersecurity risk policies and laws. Additionally, the government should continue to build on its various initiatives to develop human capital, including working with the private sector to ensure graduates have the appropriate skills needed to capitalize on opportunities in digital entrepreneurship.

Establishing a Competitive Broadband Market Is Crucial

Malaysia’s quality and affordability of fixed broadband has been a major concern and is a hindrance to wider embrace of the digital economy. Lowering the barriers for entry is, therefore, crucial. To achieve this, strong support should be provided to the Malaysian Communications and Multimedia Commission to implement the existing regulatory framework and to remedy the effects of dominant telecom operators.

Open data flow enables countries to fully reap the potential benefits of the data revolution.

In the short term, these measures should involve enforcing the current regulatory framework to allow alternative operators equal access to cable landing stations and to regulate the upstream markets for IP transit prices. This could increase competitiveness in the fixed broadband market. The government has taken steps by implementing the Mandatory Standard on Access Pricing, which stipulates the ceiling wholesale prices that can be charged by service providers for the facilities and services used by recent telecom operators.

Over the long term, regulations should be enhanced to improve the performance of the national and last-mile network markets to facilitate increased competition in the fixed broadband market. Measures to increase public investment in the execution of public programs could also facilitate increased competitiveness in the broadband market.

Improving the Open-Data Environment

Enhanced data is both an input and a result of the digital economy. Data collection, management, and dissemination are evolving rapidly, streaming into a digital economy in today’s world, which is expected to add $1.4 trillion to the global economy by 2020. For instance, in 2013, data from the publicly funded and freely available global positioning system-supported markets for geospatial data and services was worth $56 billion in the U.S. alone. Malaysia, where the digital economy is estimated to be 18 percent of GDP, is no exception to this symbiotic relationship.

Open data is a framework under which government-held data is made publicly available in formats that can easily be read and used, while still preserving the confidentiality of personal information. Open data is a tool for transparency, accountability, and innovation. Research shows that data openness is highly correlated with national income, as well as the volume and quality of scholarly research conducted in a country. As of 2016, Malaysia’s ranking in the Open Data Barometer, a global measure of how countries are publishing and using open data, was 53 among 115 countries studied, lower than most advanced economies and many regional economies. Achieving open data in Malaysia is possible, but it will require further refinement of legislation, policies, and perhaps most importantly, the mindset surrounding data dissemination.

A more coordinated, integrated, and open-data ecosystem, with clearly defined roles among institutions, is imperative to support Malaysia’s development. Many developed economies have shown that creating a conducive environment for data sharing leverages the growing opportunities that policy analysis, service delivery or the digital economy offers. It also opens new opportunities for collaboration within the public and private sectors and the research community. Malaysia’s current data system consists of almost 100 entities and requires stronger coordination to optimize data collection, management and dissemination. Hence, a broader ecosystem approach is needed to create a data system that is built for open collaboration by government, the private sector, researchers, and the public. Open data flow enables countries to fully reap the potential benefits of the data revolution.

Technology Adoption Is Synonymous with Growth

For Malaysia to successfully achieve high-income country status, it is vital that it continues to apply efforts to unlock the potential created by the emergence of the digital economy. Malaysia successfully achieved middle-income status through a model of economic growth that was mainly driven by large-factor accumulation. With this model generating diminishing returns and with the intensifying need to achieve higher levels of productivity, it is crucial for Malaysia to adopt digital technologies to achieve increased productivity.

Richard Record

Lead Economist, Macroeconomics, Trade and Investment Global Practice at World Bank

Richard Record is a lead economist in the World Bank Group’s Macroeconomics, Trade and Investment Global Practice. Currently based in Kuala Lumpur, he manages the Bank’s engagement on economic policy issues in Malaysia, including publication of the flagship Malaysia Economic Monitor. Richard has previously worked across a number of countries in the East Asia and Africa regions, managing programs on macroeconomics, trade and private sector development.

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