Tech companies targeted as Digital Free Trade Zone launched
These incentives come amid a broader national strategy designed to expand the digital economy.
The tech industry has been identified as a key future growth driver, with the government rolling out a series of plans to improve digitalisation rates of businesses and boost the technological literacy of individuals.
ICT-related businesses have accounted for 18.2% of GDP so far last year, according to the MDEC, and are on track to exceed the target of 20% by 2020, highlighting the importance and growth potential of the sector.
A key component of plans to boost ICT growth was realised with the launch of the Digital Free Trade Zone (DFTZ) in November 2017, the first of its kind to be established outside China.
Located in Kuala Lumpur International Airport, the DFTZ offers technical and market expertise, as well as tax incentives to assist businesses looking to export their goods and services abroad, while also acting as a digital headquarters for local and international tech companies operating in Malaysia.
The development, jointly established by the government and Chinese e-commerce firm Alibaba, is also expected to provide local businesses with an opportunity to break into the Chinese market.
“Around 1900 export-ready small and medium-sized businesses (SMEs) are initially expected to utilise the DFTZ’s services”, said MDEC’s CEO, Yasmin Mahmood, to the regional press, with the site expected to double SME exports and create 60,000 new jobs by 2025.
Fintech services earmarked for expansion
As well as SMEs, the financial technology (fintech) segment also stands to benefit from the government’s commitment to technological advancement.
Given mobile phone and internet penetration rates of 141% and 81%, respectively, banking industry leaders have identified significant potential for fintech products and services in the country.
These factors, combined with the country’s increasing rates of digitalisation, have led to a series of fintech developments.
In May 2017, Bank Negara Malaysia (BNM), established both a regulatory “sandbox” for the segment, and a unit called the Financial Technology Enabler Group to facilitate the entrance of new players and innovation in the market.
Six companies are currently undergoing testing within the regulatory sandbox, each over a 12-month period. Three of these firms – GoBear, which was the first to join in January 2017; WorldRemit; and a joint venture called CIMB Bank & Paycasso Verify – are foreign owned. The remainders are domestic firms GetCover, MoneyMatch and Jirnexu, which was the last to come onboard in late October 2017.
The Islamic finance segment has also earmarked fintech as a key area of potential growth.
Speaking at the Islamic Fintech Dialogue seminar in Kuala Lumpur in October 2017, Marzunisham Omar, the Assistant Governor of BNM, urged the Islamic banking segment to take a leading role in developing the digital banking ecosystem, arguing that offering shariah-compliant fintech products and services could help accelerate the adoption of such technology in the country.
While growth in the global Islamic financial services industry has slowed in recent times, Malaysia has bucked this trend, with the segment expanding by around 10% last year, according to the Islamic Financial Services Board’s “Industry Stability Report” for 2017, highlighting the potential room for growth in digital products.