Budget 2022 was highly anticipated, not just because it was the first of the Datuk Seri Ismail Sabri Yaakob administration but also because, for the first time in two years, we have an opportunity to reset the economy and refocus on growth, post Covid-19.
In Malaysia, the changes in government have also been the subject of much consternation in the business community — hence the quiet anticipation for Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz to deliver a budget that focuses on rejuvenating and kick-starting the Malaysian economy.
Did he deliver? Yes. There were many good initiatives and definitely more positives than negatives. But there were some omissions. Here is our take on the hits, the misses and the challenges of Budget 2022.
First, this was definitely the people’s budget. There were many goodies for the man in the street, from increased handouts under Bantuan Keluarga Malaysia to funding to create jobs like the RM4.8 billion allocation under JaminKerja to create 600,000 jobs.
There were also many initiatives to support students, from cash assistance and supplementary meal programmes to tablets for tertiary students. As people start to get their lives back together, this support is definitely needed.
There were also many initiatives for upskilling and reskilling programmes, another important area, as many businesses have adopted more technology over the last two years, which has resulted in jobs that may have been replaced by technology.
Technology adoption is not all that bad as this will open up new opportunities, especially in digital marketing, operating high-tech equipment in the manufacturing industry and using new digital systems and platforms.
We need to ensure our workforce is ready for the challenges of tomorrow, especially in an environment where automation is going to replace 800 million jobs globally by 2030. Technology reskilling is going to be needed in the future as all businesses now realise the importance of technology in increasing productivity.
The RM6.6 billion allocated to strengthen and enhance technical and vocational education and training (TVET) is also a good move, as this will allow more young people to be properly skilled for the jobs of the future.
As many businesses are now picking themselves up from the difficult last 18 months, having capital to invest and grow their companies will be critical for recovery. The numerous loan programmes for all types of businesses will certainly help.
This, however, has to be tempered by the fact that not all businesses are in a position to repay such loans and will need time to generate sufficient cash flow. The moratoriums offered under some of the loan programmes will help.
Technology sector initiatives
This time, there were not many standout initiatives for the technology sector. Some of the more important ones were the continuation of the Malaysia Co-Investment Fund matching grants for equity crowdfunding and peer-to-peer financing, with an RM80 million allocation in addition to Bank Pembangunan Malaysia Bhd’s RM100 million investment. This will encourage more companies to raise alternative sources of funding and not only be dependent on loans or grants.
There are some good grant programmes like the RM200 million SME Digitalisation Grant Scheme, the matching grant of RM100 million for bumiputera small and medium enterprises (SMEs) to explore the aerospace industry and the RM100 million smart automation matching grants for 200 manufacturing and services companies.
However, in the grand scheme of things, these amounts are not very large and we hope the government will consider tripling the grant schemes, as technology adoption and digitalisation is critical to improving productivity and move businesses up the technology value chain.
What was encouraging was the streamlining of focus in the Ministry of Science, Technology and Innovation (MOSTI), which is something many of us in the ecosystem have been calling for for some time now. There was an allocation of RM423 million to MOSTI for intensifying R&D activities — a decent amount, though not much more compared to the RM400 million allocated in the last budget.
There were also allocations of RM30 million for an innovation ecosystem one-stop centre known as Innovation Hub for Industrial Revolution 4.0 (4IR) under Technology Park Malaysia (TPM) as well as RM20 million for Cradle Fund to intensify recovery efforts and build the resilience of the start-up economy.
The upside here is that we have a refocusing of effort by Cradle as the main port of call for start-ups through its MyStartup initiative and the soon-to-be-announced Technology Commercialisation Accelerator, a merger of Malaysian Global Innovation & Creativity Centre (MaGIC) and TPM, being the place for 4IR innovations to blossom.
Quantitatively, it will not make much of a dent for the technology sector, considering that the future of the Malaysian economy is digital. While additional budget for grants and other programmes may be outlined in the 12th Malaysia Plan, we hope the government can reconsider repurposing some other allocations to be channelled towards building the start-up and technology ecosystem.
We still have a long way to go to achieve the target of 5,000 new start-ups set by the Malaysia Digital Economy Blueprint. The government can and must play a larger role in making early bets in companies that could become the next Grab, Aerodyne or Carsome. We hope the Malaysian Start-up Ecosystem Roadmap (SUPER) 2021-2030 will address this.
While there were many good initiatives and programmes, the government missed out on some larger opportunities that could have made an even bigger difference to the economy, especially the technology ecosystem.
In the last budget, the government allocated RM600 million for a venture capital matching grant and this brought in an additional RM900 million in private sector matching funds and eight new VCs were set up through Penjana Kapital.
Many of them have started investing their funds and this is having a massive positive effect on the start-up ecosystem. We had hoped the government would continue funding the VC industry, as this has to be a long-term initiative and not just a one-off effort. Hopefully, in future, there will be at least RM600 million in annual funding to boost the VC and start-up ecosystem in the country.
On a related note, while we understand that there was a need for the government to generate revenue to pay for this very substantial budget, we are extremely concerned about the increase in the stamp duty rate and the so-called “prosperity tax” on companies with an annual taxable income of more than RM100 million. While it is not directly correlated with the digital economy, we are very concerned about the impact of these kinds of taxes on the investor class and their perception of investments in the Malaysian market.
On the Monday after the budget announcement, the FBM KLCI plunged 9.3%, or more than RM33 billion. More needs to be done to attract investors to back the best Malaysian companies. The much-bandied-about corporate tax incentive for start-up investments needs to be implemented and tax relief needs to be given for investors to repatriate funds in Malaysian companies.
Previous digitalisation grants helped increase the rate of technology adoption in the country and post-Covid-19; there is a realisation that technology is not a nice-to-have but a must-have.
The government has an opportunity to push the digitalisation agenda by increasing the amount of grants beyond what has been stated above and also broadening the sectors that could use the grants.
The RM100 million smart automation matching grant will benefit only 200 companies. This is a drop in the ocean compared to the over 900,000 SMEs in the country. We would have preferred a much larger amount to benefit at least 2,000 companies as a start — that would take Malaysian manufacturing up several notches in automating our factories. Perhaps this can still be considered by the Ministry of Communications and Multimedia to be implemented by the Malaysia Digital Economy Corporation (MDEC).
The RM100 million grant to explore the aerospace industry has been allocated only for bumiputera companies. This limits the potential of the industry as there are many talented non-bumi Malaysians and entrepreneurs who could have contributed to this industry. Malaysia has a long history of developing aerospace innovations that goes back more than 20 years to the days of MEASAT. There is talent in the market. Perhaps the minister could consider allocating at least 30% of this to non-bumis.
While we laud the minister for many excellent programmes and initiatives, it is a common complaint that accessing many of the loans, grants and programmes is a difficult and time-consuming process. Many of the budget initiatives from 2021 were also not fully implemented, with some even below 30% in terms of implementation.
The Ministry of Finance (MoF) should consider having a website with information for various beneficiaries, with a clear process to extract these benefits through the various agencies and ministries involved.
To ensure that the initiatives are fully and effectively implemented, it needs to look into all the processes and paperwork involved to make it as simple as possible to apply and receive approval and disbursement.
The need is immediate. Delays in implementation will hold back the growth of the economy and affect the lives and livelihoods of the people.
There also needs to be transparency and accountability. Clear key performance indicators (KPIs) need to be set and the public should have access to track progress over time. We would also recommend that prior to announcing Budget 2023, that MoF disclose an impact report to outline the results of how the initiatives from this budget were deployed to the public.
While last year’s budget was more about helping people survive the pandemic both in a healthcare and economic sense, this budget needed to be skewed more towards economic recovery. This is an appropriate budget that provides the much-needed support for the people as well as businesses. If it is effectively implemented, it will go a long way towards supporting the growth of the economy post Covid-19.
Thus, execution is the key to its success. Every arm of government must be pushed, cajoled and encouraged to ensure all initiatives and programmes are implemented urgently. Only then will we see the real benefit of this budget. In the start-up world, we tell our companies that, ultimately, their success is about speed to market. Our message to the government is that the success of this budget (or any budget) will be speed to the rakyat.
Dr V Sivapalan is co-founder and senior partner of Scaleup Malaysia Accelerator and Proficeo Consultants. Aaron Sarma is co-founder and general partner at ScaleUp Malaysia Accelerator as well as co-founder of start-up studio Remote Ventures.