The Pitch Deck: Solving subsidy and currency woes with technology

This article first appeared in Digital Edge, The Edge Malaysia Weekly, on November 28, 2022 - December 04, 2022.
The Pitch Deck: Solving subsidy and currency woes with technology
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In my last article, I presented some suggestions on how the incoming government could enhance Budget 2023 with some minor changes. That got me thinking about how we could do a whole lot more than just merely tweaking the budget and how technology can make an even bigger difference, and perhaps even lead to a balanced budget in the future as well as strengthening the ringgit.

Reducing fuel subsidies

Let’s start with fuel subsidies. In June, the Ministry of Finance announced that projected subsidies for petrol, diesel and liquefied petroleum gas (LPG) would amount to a whopping RM37.3 billion. Considering that the development expenditure announced in Budget 2023 came to RM95 billion, this is almost 40% of the entire allocation for development. While there was no breakdown available for the different types of fuels, if we assume that half was for petrol and diesel, then this would still amount to RM19 billion a year.

The government has been considering targeted fuel subsidies only for the poor and not for the higher income population, but implementing this policy has been a challenge. However, we shouldn’t be thinking about how to apportion the subsidy. Instead, the narrative should be about how to reduce the consumption of petrol and diesel so that such subsidies are not needed in the first place. This is where technology can play a role.

The first suggestion is for greater emphasis on getting rid of petrol and diesel vehicles and to replace them with electric cars instead. The Malaysian Automotive Association projects sales of 600,000 vehicles in 2022, more than 90% of which are passenger vehicles. In 10 years, that will amount to six million new vehicles on Malaysian roads, all enjoying fuel subsidies.

While there are currently some tax breaks for electric cars, I suggest that the government go further and have a policy to end the sales of petrol and diesel passenger vehicles by 2030, and only allow hybrids and electric cars to be sold from 2026 onwards, and only electric cars from 2030. This will immediately start a chain reaction to reduce petrol and diesel cars on Malaysian roads. To ensure good take-up of the policy, sales and import taxes should be removed immediately, as well as approved permits to import such vehicles. There should also be a push to get Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua) to start manufacturing electric cars as soon as possible. Even road tax could be removed for electric vehicles in the next 10 years. Such a policy will encourage the public to start buying electric cars as it will reduce both the cost of purchase and ownership of these cars.

Since 90% of petrol and diesel subsidies are for passenger vehicles, if we do this, from 2026, we ought to see a significant reduction in petrol and diesel consumption and thereby significant savings in fuel subsidies. To further reduce diesel subsidies, we should stop the sales of diesel buses and only allow electric buses to be purchased as soon as practicable.

Reducing LPG usage

While it may not be possible to reduce LPG usage in homes or restaurants, gas-powered electricity generation plants are a major consumer of LPG. To reduce the use of LPG, we should encourage the setting up of even more solar-powered power stations and provide long-term tax-free benefits for solar power plants as well as remove any taxes for solar panels and parts.

We have more gas-, coal- and diesel-powered power plants in Malaysia than hydro and biomass combined. While there are environmental issues with building more hydro power plants, by building only solar-powered plants for the next 10 to 20 years, we will not only reduce dependence on gas and diesel but also on coal, which is environmentally unfriendly, fully imported and costly. These two policies will help reduce fuel subsidies to a minimum by 2030 and beyond.

Food security and savings

Malaysia has a highly suitable environment for farming, especially vegetables, yet we import 60% of our food. In 2020, we imported US$12.67 billion (RM60 billion) worth of foodstuffs. Considering the landmass of the country, we should be net exporters, not importers, of food.

With new technologies in foodtech, we don’t even need more land for food production as new methods such as vertical farming — as well as software to manage all aspects of food production, from fertiliser usage to temperature and pest control — can significantly increase food production from smaller land sizes.

Yet, we do so little of this. Farming is still carried out mostly by traditional farmers using old farming methods with low production levels. The Ministry of Agriculture and Food Industries needs to up its game and convert all farms into high-tech ones to ensure that we increase production not just in multiples of one or two but tenfold so that we have food security and can reduce imports substantially.

Companies like Fefifo and Boomgrow have developed new technologies to produce higher quantities of high-quality food using less land than conventional farming. New methods like vertical farms where plants are “stacked” one above the other mean we can essentially grow vegetables in vertical columns of 3m to 4m in height. This method of farming can even be done in empty buildings or factories, thus reducing the need for new greenfield planting areas.

By increasing food production using new technologies, we will save on imports and foreign currency, thereby strengthening our ringgit. If we become net exporters, we can even earn more foreign exchange.

Agritech has grown by leaps and bounds, but it seems to me that Malaysia has adopted very little of this and remains stuck in the mindset of the 1970s. It’s time for the nation to invest in agritech and new farming methods, and stop grumbling about the fact we are importing so much food. The ministries and agencies involved in agriculture or food production need to step up to the plate before our imports cross RM100 billion, which may happen sooner than you think.

There are many other ways in which technology can be utilised to save on subsidies and currency losses. It is time the authorities opened their minds and started thinking differently. The same old ideas won’t save the nation, but technology certainly can.


Dr Sivapalan Vivekarajah is co-founder and senior partner of ScaleUp Malaysia Accelerator (scaleup.my) and adjunct professor at Sunway University’s School of Science and Technology. He is the author of Supercharge Your Startup Valuation.