This article first appeared in The Edge Malaysia Weekly on February 22, 2021 - February 28, 2021

THE Malaysia Digital Economy Blueprint has laid out a series of ambitious targets for the country’s digital economy, not least of which is to attract some RM70 billion in foreign and local investments into the digital economy. Notably however, the blueprint does not set out a time frame for this investment target.

Even so, at this preliminary stage, the government appears to have taken a prudent, back-to-basics approach with the blueprint, with a view to correcting certain long-standing deficiencies.

Joachim Sebastian, managing director of local technology-enabled transhipment and repackaging company Everpeaks Sdn Bhd, commends the government on acknowledging and prioritising a number of very fundamental issues that have held the economy back for years.

“I think it’s telling that the first thrust of the blueprint goes straight to addressing issues around digitising the civil service. Being able to deliver the various approvals and licences, as well as facilitate online payment of government services would go a long way towards ensuring that Malaysia remains an attractive transhipment destination.

“Without government services at large being available to be delivered and paid for online, there is really no way we would be able to reliably capture that RM70 billion in local and foreign investments in the years to come.”

Orangeleaf Consulting Sdn Bhd, a local low-code solutions provider, notes that the blueprint says all the right things, but ultimately, the proof of the pudding is in the eating.

“I was pleasantly surprised to learn of the focus on digitising the civil service, because the digital economy will never truly take off unless the governance infrastructure also goes digital,” says founder Tim Hendricks.

“We would have liked to have seen a comprehensive breakdown of just how the blueprint is going to be executed over the next few years. While it felt good to hear these announcements, and I like the initiatives the blueprint spells out, what I really want to know is the ‘how’ of it all,” says Orangeleaf co-founder Ellice Hendricks-Ng, Hendricks’ wife.

NanoMalaysia CEO Dr Rezal Khairi thinks the blueprint will yield the requisite RM70 billion investments as he is confident it will refocus the digital economy from one that primarily depends on technology to one that produces and exports its own technological innovations.

“On this front, the blueprint has allowed for the creation of a series of working groups, one of which is the Emerging Technologies Working Group,” he says.

As one of the pioneering members of this particular group, Rezal says it will bring together key government agencies, as well as private sector players, with a view to advancing and subsequently commercialising new and disruptive technologies.

“This working group will be chaired by Minister of Science, Technology and Innovation Khairy Jamaluddin. At this juncture, other members of the working group include MIMOS Bhd, Technology Park Malaysia, as well as the Academy of Sciences, Malaysia,” he adds.

While the blueprint in its present form is comprehensive, Sebastian expresses concern about priorities that are seemingly at odds with one another.

Specifically, while the blueprint goes into a lot of detail about leveraging

technology to significantly improve economic competitiveness, it also references a need to broaden the government’s tax base, as a means to capture revenue from the digital economy.

This is on top of a pre-existing digital services tax, as well as a withholding tax on foreign digital services that already elicits a measure of economic heartburn.

The 10% withholding tax is a problem for Malaysian businesses, Sebastian says, because while it is meant to be imposed on the foreign entity, in cases where the foreign business refuses to pay the tax, it inevitably falls on the local business engaging the digital service to pick up the tab.

“Let’s take the example of advertising on social media. Under the relevant regulations, Facebook collects a 10% withholding fee for any money spent on a social media marketing campaign.

“In this instance, the government does not realistically have any way to compel Facebook to pay that tax. As a result, Facebook simply debits the 10% withholding tax from our end. In the long run, running digital marketing campaigns at scale can become inefficient and cost-prohibitive.

“I can understand the government wanting to prevent leakages, but I think this has to be balanced against the need for our digital economy to be competitive relative to our regional neighbours.”

Meanwhile, Orangeleaf’s Hendricks cites long-standing frustrations with the immigration process, and expressed disappointment that it was not addressed in the talent portion of the blueprint.

The company has thus far been unable to scale or develop the young and emerging local talent that Hendricks has hired, because he cannot hire the kind of experienced, foreign talent that his business needs at this juncture.

Hendricks-Ng says dealing with the various government agencies and ministries in charge of approving entry for high-end talent is almost a full-time job in itself.

“We are a nearly three-year-old company and entirely self-funded. We just don’t have the time or resources to keep putting in applications to hire foreign talent.

“It takes a lot of effort just to seek out a few of the relevant individuals and get a foot in the door. But then, we’re just shepherded from one department to another without any kind of resolution or final outcome,” she says.

So far, Hendricks has resisted the temptation to bypass the local job market entirely and directly engage tech workers in other countries.

“I’m building solutions for local and foreign clients that I don’t actually need to meet face to face. It isn’t that much more difficult to simply engage foreign tech talent with all the experience and competencies that we require.

“However, between the choice of hiring a strictly remote tech worker and bringing in one or two experienced internationals, I would much prefer the latter option. This way, not only can we take on more complex projects but these experienced tech workers will also be able to mentor and train the local talent that we’ve already hired,” he says.

In addition to local clients, Orangeleaf also has a slew of international clients across the region, and their need for appropriately experienced foreign tech talent is only going to become more acute.

“I understand there is a nationalistic interest in ensuring that Malaysian tech workers are employed, but in the short term, there are simply not enough workers here with the kind of experience we require. If we were able to hire one or two experienced workers, we could run a lot of valuable reskilling and knowledge transfer for the local tech workers that we’ve employed,” Hendricks says.

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