BREAKING free from the middle-income trap has been quite a complex and enduring challenge for Malaysia. Despite making significant strides in economic development, achieving high-income status has proven to be elusive.
In the pursuit of sustainable and inclusive growth, Malaysia has been on an ongoing journey that gained momentum following the 1998 financial crisis. The aftermath of the crisis triggered a deep introspection into the country’s economic framework, highlighting the importance of fostering resilience, inclusivity and sustainability.
Recognising the importance of equitable development, the Malaysian government embarked on comprehensive reforms to address socio-economic disparities, promote inclusive policies and prioritise environmental conservation.
Middle-Income Trap: A Perplexing Challenge
Malaysia, just like other countries, has been on an ongoing pursuit to find a solution to this age-long challenging dilemma, characterised by limitations in productivity, innovation and structural reforms.
Despite significant achievements in raising living standards and infrastructure development, the Malaysian economy, to be realistic, has encountered hurdles in propelling itself to the next level of income. It has not been a walk in the park but what it has done is created awareness, signalling the need for everyone to come together to address this.
This has resulted in multiple stakeholders, including the government, private sector players, academia and international organisations, recognising the urgency to overcome the middle-income trap. Since then, comprehensive efforts have been made to address key issues such as human capital development, enhancing productivity, promoting innovation and entrepreneurship, improving governance and diversifying the economy.
While progress has been made, there is a realisation that sustained and transformative actions are still needed to over come the middle-income trap. So, where do we go from here?
Role of Digital Economy in Malaysia’s Transformation
The digital economy has a huge role to play in elevating Malaysia beyond the middle-income trap. Digital transformation and rapid advancements in technology have shaken up traditional industries and created exciting new growth prospects.
By tapping into the power of innovation and fully embracing digital technologies, Malaysia can unlock the true potential of its people and resources. This will drive productivity, enhance competitiveness and pave the way for sustainable development. The opportunities are vast and Malaysia has the chance to harness the digital wave to propel itself to new heights of economic success.
From an economic perspective, the digital economy enables businesses to tap into global markets, expand their customer base and drive efficiency through automation and streamlined processes. The adoption of digital technologies enhances productivity, facilitates access to finance, fosters innovation and promotes entrepreneurship.
Moreover, the digital economy promotes inclusivity, bridging the urban-rural divide by providing equal opportunities for Malaysians to participate in the digital revolution. The nation’s digital economy is expected to contribute between 25%-30% of GDP by 2025, according to the National Tech Association of Malaysia (Pikom). But, the benefits of the digital economy extend beyond economic growth.
They also play a crucial role in social development by enhancing connectivity, access to education and healthcare, simultaneously promoting social inclusion. As digital technologies become pervasive, the government, private sector and society must collaborate to ensure that the benefits are accessible to all Malaysians, leaving no one behind.
Is Malaysia Ready For Digital Era?
The majority of micro, small and medium enterprises (MSMEs) in the country are largely confined to the basic digitalisation stage and have yet to fully reap the real potential of digital technologies. It is a cause for concern given that MSMEs account for 97.4% of the total businesses, contributing 37.4% of the nation’s GDP and 47.8% of total employment in 2021.
The lack of digital skills among the MSME workforce is one of the factors that has delayed the adoption of new technologies across all industries. Future trends suggest
that demand from employers will increase due to their inevitable participation in the digital economy.
Today’s industr y requires employees to combine technical and business expertise with digital skills. Therefore, MSMEs require assistance to develop skillsets among their employees that cover the use of digital technologies for business across sales, marketing, production, planning, finance, operations and IT.
Malaysia Digital Economy Corporation’s (MDEC) Digital Talent Survey 2021 noted that 85% of companies in Malaysia realised the importance of re-skilling their employees. The survey also found that 48% of companies adopted digital platforms for day-to-day operations in 2021, up from 19% in 2020. These require skills in cloud computing, cybersecurity, data analytics, digital marketing and software development.
Malaysia ranks at the top of emerging South-East Asia as the economy with the most potential to attract foreign direct investments (FDI), according to the 2022 Milken Institute Global Opportunity Index. In 2021, our digital economy contributed 23.2% or US$83.6 billion (RM381.01 billion) to the national GDP, as highlighted by the ICT Satellite Account (ICTSA) released by the Department of Statistics Malaysia (DOSM).
MDEC’s Initiatives: Empowering Malaysians for Digital Era
MDEC has been a key driver positioning the nation as a regional digital hub. MDEC has spearheaded various initiatives aimed at equipping individuals and businesses with the skills, knowledge and resources required to thrive in the digital era.
MDEC’s initiatives play a pivotal role in empowering Malaysians, equipping them with digital skills, supporting digital entrepreneurship and driving digital transformation across sectors.
One of MDEC’s flagship initiatives is the Digital Skills Training Directory, which focuses on enhancing digital literacy and fostering talent development through training programmes in data analytics, artificial intelligence, cybersecurity and e-commerce. These programmes aim to bridge the digital skills gap, ensuring that Malaysians are equipped with the necessary competencies for the digital economy.
Initiatives such as the eUsahawan programme and the Global Online Workforce (Glow) programme provide support and resources for aspiring entrepreneurs to start and scale their businesses. By nurturing a vibrant ecosystem of digital start-ups, we aim to cultivate a culture of innovation, encourage job creation and drive economic growth.
In our efforts to drive digital transformation across sectors, MDEC assists SMEs through initiatives such as the SME Digitalisation Grant. This grant incentivises SMEs to adopt digital technologies, enabling them to enhance productivity, access new markets and remain competitive in the digital age.
MDEC’s collaborations with various stakeholders, including government agencies, industry players and academia, have been instrumental in creating an inclusive digital ecosystem. By fostering partnerships, knowledge sharing and capacity building, MDEC ensures that the benefits of digital transformation are accessible to all Malaysians.
The Way Forward: Seizing Digital Opportunity
To effectively break the middle-income trap and unlock the full potential of the digital economy, we must continue our commitment to comprehensive reforms. A multi-faceted approach is essential, encompassing policies that prioritise digital infrastructure development, innovation, digital talent acquisition and supportive regulatory frameworks.
Investing in digital infrastructure, such as broadband connectivity and data centres, is crucial to ensure reliable and high-speed Internet access across the country. This infrastructure serves as the foundation for digitalisation efforts, and enables businesses and individuals to fully participate in the digital economy.
According to McKinsey & Co, automation in Malaysia might replace up to 25% of hours worked or 4.5 million comparable workers by 2030. Fostering digital literacy and skills development is essential to equip the workforce with the necessary capabilities to thrive in a digital world. This includes initiatives to enhance digital skills training, promote STEM (science, technology, engineering and mathematics) education and encourage lifelong learning to adapt to the evolving demands of the digital economy.
There should also be a stronger emphasis on creating an enabling environment for entrepreneurship and investment in digital industries. This can be achieved through streamlined regulations, tax incentives and venture capital funding mechanisms to support the growth of digital startups and attract foreign direct investment. According to the Global Startup Ecosystem Report (GSER) 2022, Malaysia was among the top 15 economies for funding, with our ecosystem comparable to a fruit close to ripening.
Creating a conducive regulatory environment is vital. Effective regulations should strike a balance between promoting innovation and safeguarding public interest, while also providing a level playing field for both established players and startups.
Digital Malaysia: A Long Road Ahead
While a lot has been done, there remains more to be done. Breaking the middle-income trap in Malaysia requires sustained efforts and collaboration from all stakeholders. The digital economy provides a transformative pathway to accelerate growth, enhance productivity and foster inclusivity.
Public-private partnerships can facilitate the development and implementation of digital strategies, promote research and development and encourage investments in digital infrastructure and startups.
It is noteworthy that digital has progressively increased its share of the national economy and is now approaching 25% of GDP. The launch of Malaysia Digital under the aegis of MDEC earlier this year represents a significant step towards achieving our digital economy goals.
Towards this end, Malaysia Digital has the challenging yet exciting role of growing and developing an inclusive and pervasive national digital economy encompassing all segments of the business and social landscape.
Our approach is based on three pillars: Driving digital adoption among businesses and the people; supporting local tech enterprises, talents and technopreneurs to compete globally; and attracting high-value digital investments and global tech giants to Malaysia.
To showcase the growth of Malaysia’s digital economy and how we are moving Malaysia forward in the digital sphere, earlier in July, MDEC alongside Malaysia’s Ministry of Communications and Digital launched “Horizon”.
Horizon is a go-to resource for both local and global players, providing vital insights and information on the country’s digital landscape, as well as unravelling the complexity and trends of Malaysia’s digital economy through in-depth analysis, sharp commentary and data-driven insights, allowing readers to navigate this dynamic and ever-changing scene.
Source: https://themalaysianreserve.com/2023/08/09/harnessing-the-power-of-digital-economy-for-sustainable-inclusive-growth/