Govt, telcos, financial firms to lift M'sia IT sector

These three sectors are expected to spend most on technology in Malaysia, thus helping its infocomm technology industry to grow in 2009 despite a slowdown.
Written by Lee Min Keong, Contributor

KUALA LUMPUR--Malaysia's infocomm technology (ICT) sector is expected to grow moderately in 2009, getting its boost from the likely biggest spenders on technology in the country, namely, the financial services industry (FSI), government and telecommunications companies, said analysts and industry players.

The country's national ICT association Pikom sees ICT growth next year at 5 percent, compared to its forecast of 7 percent in 2008.

Pikom chairman David Wong Nan Fay said: "We foresee organizations cutting down on ICT spending and budget. However, we are confident that the government's stimulus package will help boost the economic engine throughout the year."

The association expects the public and telecommunications sectors to continue to lead in ICT investment and consumption activities through the rollout of High-Speed Broadband (HSBB) and WiMax services nationwide, as Malaysia aims to achieve 50 percent broadband penetration of households by 2010, said Wong, adding the government's spending in education and e-government projects will boost spending in the public sector.

According to IT research firm IDC, the FSI, government and telecommunication sectors in Malaysia will still remain among the "largest spenders" in 2009 although total IT spending will be affected by the anticipated slowdown due to the current economic situation.

"Increasing unemployment levels and lower disposable income will likely lower consumer spend on IT. IDC expects [Malaysia's] 2009 IT market value to be adjusted down by US$186 million to reach US$6 billion and the market growth, reduced from 7.6 percent to 4.4 percent," IDC said in a recent statement.

The IT research firm said the Malaysian government is expected to cushion the negative impact with a series of different ICT-related initiatives supporting domestic demand.

"The promotion of Malaysia as a potential shared services hub may continue to support business investments. However, the outlook for export of goods and services is weakening," IDC added.

However, IDC expressed confidence that the Malaysian government's stimulus plan announced last month would help support the local IT industry. "The government has committed to pump in 400 million ringgit to kick start the HSBB project which was part of the 7 billion ringgit stimulus plan.

Jaygan Fu Ponnudurai, IDC Malaysia's associate analyst of personal systems research, said: "This is also mirrored by the recent announcement of the e-book program whereby students throughout the state of Terengganu will eventually discard their textbooks for virtual textbooks stored mini-notebooks."

Growth initiatives
Ponnudurai also highlighted several initiatives by the Malaysian government which could alleviate the negative impact of the global financial crisis on the local ICT sector. He said the government's 2009 Malaysian Budget specifically states that accelerated capital allowance on ICT for small and midsize businesses (SMBs) will eventually lead to increased IT hardware, software and services adoption.

In addition, he said, the government also enhanced a culture of corporate social responsibility (CSR) by granting tax deductions to private organizations that involve themselves in projects that preserve the environment. This will drive organizations to adopt Green IT usage in everyday business operations through exemplary IT systems management and procurement of IT systems, he added.

"Lastly, the Budget 2009 is leading towards human capital development which will indirectly encourage the adoption of ICT in Malaysia," said Ponnudurai.

IDC, in a Dec. 1 statement, said Islamic banking is another segment that may continue to do relatively well in the Asia-Pacific excluding Japan region next year with liquidity flowing in from the Middle-East. This will benefit the FSI in Malaysia, Indonesia and Singapore (to a lesser extent).

Elaborating on this, Ponnudurai said: "In the past months, there has been a growing trend of banks deciding to make their Islamic banking arms operationally autonomous, making these subsidiaries better able to pursue opportunities in the Middle East and to respond to the government's initiatives to make Malaysia an Islamic banking hub."

"As for opportunities, IT players should look into programs that would encourage the enhancing of banks' existing IT infrastructures to allow smooth transition from conventional banking towards Islamic banking," he added.

Pikom's Wong said the association hopes the government would allocate more money to knowledge-based-economy activities, especially those that promote e-commerce and local content development for specific target communities, as well as provide incentive schemes for PC ownership, the promotion of ICT products and services globally, and enhancing the development of knowledge workers.

Pikom said other incentives which could provide a boost to the local IT sector include:

  • Reducing the high cost of broadband services, thus making broadband affordable and easily accessible to the masses. Achieving the targeted broadband household penetration rate of 50 percent from the current 16.6 percent will result in tangible contribution of 1 percent to Malaysia's GDP and will create 135,000 new jobs by 2010.
  • Exempting duty for purchases of equipment and software used in the delivery of IT services, thus lowering the cost of doing business.
  • Tax deductions for Malaysian companies that adopt qualified IT/BPO (business process outsourcing) processes and services from MSC Malaysia status companies.
  • Forming an investment vehicle to champion the industry through provision of funds, grants and soft loans to help local ICT companies stimulate demand and encourage productivity.

Wong said Pikom is also embarking on various initiatives to assist its 1,000-plus members during the economic slowdown. This includes promoting and developing Malaysia as a preferred high-value-added outsourcing hub in the region, export promotion programs to help local ICT companies to go global and enhance competitiveness, and creating demand for the industry via lead generation services.

Lee Min Keong is a freelance IT writer based in Malaysia.

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