Malaysia's 2009 budget under fire

Government unveils new budget that some market players say lacks emphasis and offers little incentives to drive the local infocomm technology industry.
Written by Edwin Yapp, Contributor

KUALA LUMPUR--The country's 2009 budget lacks emphasis and offers inadequate incentives needed to drive the local infocomm technology (ICT) industry, say market players.

The Malaysian government last week unveiled its new budget, outlining several measures to help citizens deal with the tougher economic climate.

However, some industry players in the ICT sector expressed their disappointment over what they said was a lack of emphasis on ICT in this year's budget, compared to previous years.

In his speech during a parliament sitting Friday, Prime Minister Abdullah Ahmad Badawi outlined several initiatives that lightly touched on ICT, but did not allocate funds specifically to ICT ministries or projects.

While the budget places key thrust on developing quality human capital, no specific incentive addresses the ICT industry.
David Wong, Pikom

Some notable initiatives tabled include the proposal to enable claims for the Accelerated Capital Allowance (ACA), on expenses incurred to acquire ICT equipment, to be processed within a year--down from the current two years.

Other key initiatives include the allocation of 14.1 billion ringgit (US$4.2 billion) to improve the quality of education at institutes of higher learning, and a five-year tax exemption for venture capital companies that invest at least 30 percent of their funds in startups.

The 2009 budget also earmarked some 300 million ringgit (US$88.8 million) under the Strategic Investment Fund, to finance the implementation of private-public partnership projects, including those involved in the creative industry segments.

In contrast, over 1 billion ringgit (US$295.9 million) was allocated to various funds and research institutions directly related to the ICT sector, as tabled in last year's budget. Import duty and sales tax exemptions were also given on broadband equipment and consumer access devices.

The Association of the Computer and Multimedia Industry (Pikom) noted that Budget 2009 was a "people-friendly" one, but added that it offered "limited incentives for the development and growth of the ICT industry".

Pikom Chairman David Wong said in a media statement that while the association welcomes the one-year claim proposal for ACA on ICT expenses, Budget 2009 falls short of addressing the needs of the ICT industry moving forward.

"While the budget places key thrust on developing quality human capital, no specific incentive addresses the ICT industry," Wong said. "This is a serious concern as skills shortages remain acute in the industry. Unless it is addressed aggressively and decisively, it will lead to erosion of our competitive edge."

He also noted that nothing specific has been offered to boost business process outsourcing (BPO), despite the government's bid to tap this market as an area of growth.

Johnson Khoo, managing director for Hitachi Data Systems (HDS) Malaysia, said that given that the country aspires to be a major participant in the knowledge-based economy, HDS is "disappointed that Budget 2009 did not place more emphasis on ICT as a driver for the country's economic growth".

"There is a critical need for the government to redouble its efforts and incentives to attract more ICT investments," Khoo said in a statement.

Intel had also hoped for more emphasis on ICT, which the chipmaker believes is a key factor to accelerate Malaysia's competitive edge in the global economy.

"We had looked forward to more incentives to reduce infrastructure costs, including the removal of import duty and sales tax exemptions on broadband equipment and consumer access devices," Ryaz Patel, Intel's Malaysia country manager for sales and marketing, said in a media statement. "Such a move would accelerate broadband deployment across the nation, help drive greater PC penetration and narrow the digital divide."

Little to cheer
According to a senior industry executive specializing in entrepreneurship, apart from the incentives on post-graduate studies and focused effort and fund on creative content, the new budget leaves little to celebrate.

"There's a whole bunch of impediments that the government could have addressed but did not," he told ZDNet Asia on condition of anonymity.

"For example, it could have increased local market access by pledging a certain amount of ICT projects to local software developers in a 'Buy Malaysia First' effort."

Other areas that could have been addressed, he added, included expanding foreign market access by tapping government-linked companies (GLCs), and providing commercialization grants to plug the seed funding gap.

Instead, he noted that the budget demonstrated the government's lack of interest in supporting the growth of the local ICT industry, focusing instead on the usage and diffusion of ICT to improve productivity.

"I question the government's seriousness and continued support for the ICT industry. If they've changed their minds and [want to make] an about-turn, they should be clear on this and not keep the people guessing."

Renuka Sena, deputy president of the Technopreneur Association of Malaysia (TeAM) noted that whilst the budget highlighted initiatives focused on building new ICT entrepreneurial ventures it offered insufficient commercialization funding.

"Very few venture capitalists are funding early-stage companies, so there is a very real funding gap that exists," said Sena, in an e-mail interview. "This gap needs to be addressed."

V. Sivapalan, a season entrepreneur and principal of Ventura Partners, added that the budget also offers nothing specific to develop the knowledge economy.

"No benefits were given to ICT companies and companies that use ICT," Sivapalan told ZDNet Asia in an e-mail. "There was also nothing for the Multimedia Development Corporation (MDeC), [government agency] Biotech Corp, no mention of R&D (research and development) grants, and nothing on education for the ICT sector."

Edwin Yapp is a freelance IT writer based in Malaysia.

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