By Sharon Lewis and Bobo Chan
*This article is the third of a five-part series on burgeoning digital economies in Southeast Asia. Part 1 | Part 2
Southeast Asia is home to stunning coastal vistas, delectable food, and a long history of cultural tradition. Today, however, Southeast Asia is known for one other thing–a region that is growing its innovative capabilities at full speed.
It would be wrong to see the region as a uniform, homogenized market. For instance, as one of the top 20 global startup ecosystems, Singapore has made its mark in Southeast Asia as a hub for innovation, owing to ease of doing business in the country as well as access to capital networks.
However, even companies in Singapore have to look at the wider Asia Pacific for markets to grow in, as Singapore is simply too compact a market for companies to scale. And Singapore is not the only one; as businesses start to exit China amidst global tensions, Southeast Asian countries are well positioned to seize the opportunity.
Southeast Asia also has a booming Internet economy. A massive 70% of Southeast Asian consumers are expected to go digital by the end of 2020, with a pool of 310 million users accounting for the region’s US$100+ billion Internet economy, although the numbers vary according to country.
In recent time, Southeast Asia has emerged from the shadows in tech and is accelerating the transformation of its digital landscape. Here’s a low-down on where its biggest economies have reached so far.
Malaysia’s GDP (purchasing power parity) is just across the trillion-dollar mark, a few million down from last year.
The Malaysian economy is bouncing back strong, however, showing the strongest post-COVID-19 recovery in terms of growth. 2021 forecasts expect Malaysia to gain over 1% of growth above its 2019 growth rate of 4.3%. The only other country expected to do so is Singapore.
As a country of 32 million individuals, Malaysia is also closer to Singapore in terms of the size of its population, which is also significantly urbanized.
Toward a Digital Future
The Malaysian economy benefits significantly from digital technologies. As of 2018, 18.5% of the Malaysian economy was comprised of digital solutions, and nearly a tenth of its nominal GDP came from ecommerce.
However, the Internet economy in Malaysia is showing growth at a 21% annualized growth rate, with ecommerce and online travel leading the way.
Moreover, Malaysian Internet companies have raised nearly $1 billion since 2015, and between 2015 to 2019, Malaysia added five million Internet users, growing to 26 million in 2019 from 21 million in 2015.
At first glance this may seem a marginal addition, but it is fairly significant. Internet users in Malaysia already represent nearly 80% of its population, and as is true with growth of any kind, growing numbers at a later stage is a slow and more incremental process.
Moreover, despite an absence of home-grown unicorn companies and a small population, Malaysia has still built an Internet economy worth $11 billion, outshining the Philippines, nearly matching that of Singapore and Vietnam, and $5 billion less than Thailand, a country twice its size.
Adding another trophy to the credit of its digital economy, Malaysia is also the second-most digitally advanced country in Southeast Asia, second only to Singapore.
It doesn’t stop there. Barring Singapore, financial literacy in Malaysia ranks the highest among major economies in the region (although still in the lower half globally), with the smallest unbanked population.
In fact, the financial needs of nearly half of Malaysians are well-served, making the country the closest competition to Singapore in Southeast Asia.
Subsequently, digital financial services may not see as significant a growth in revenues as their Vietnamese, Indonesian or Thai counterparts. Yet, revenues are expected to grow to $4.7 billion by 2025, greater than that of the Philippines or Vietnam.
Digitizing Malaysian Enterprises
With such an incredible digital effort, it’s surprising that digital transformation among Malaysian enterprises is not as forward as with some of its neighbors.
22% of organizations in Malaysia say that they are extremely far in their digital transformation journey, on par with the global average of 21%.
Further, six out of ten companies in Malaysia are still at a basic digitalization stage, and less than one in five can call themselves digitally advanced. Key challenges to digitalization that over half of Malaysian SMEs face are related to building digital competency, hiring the right talent, and managing costs.
However, its startup landscape is not without opportunity. With a startup ecosystem value of $15.3 billion, Kuala Lumpur follows on the heels of Guangzhou and Jakarta as an emerging startup ecosystem leader. This represents a strong chance for Malaysian startups to become a key innovation hub in Asia.
The digital economy in Malaysia is receiving strong government backing, such as through initiatives by the Malaysia Digital Economic Corporation (MDEC) which aims to “firmly establish Malaysia as the Heart of Digital ASEAN”, and budgetary incentives.
Another digital milestone for the country is Cyberjaya, a city pioneered as Malaysia’s tech and entrepreneurial hub. Initiated in the late 1990s, Cyberjaya has so far failed of success on account of poor planning and misdirection, some suggest.
However, the region may be receiving a makeover under a new masterplan unveiled by state-owned Cyberview, which has been mandated with the development of Cyberjaya.
The plan will separate Cyberjaya into four districts–North, West, South and Downtown–based on Smart Mobility, Smart Healthcare, and Digital Creative goals.
Each zone is targeted towards a emerging focus area. West Cyberjaya will nurture tech talent through education, North Cyberjaya will act as the ‘Global Business District’, South Cyberjaya is poised to be the ‘Innovation District’ and Downtown Cyberjaya to be a ‘Thriving Commercial District’.
“Ultimately, Cyberview aims to form a holistic technology ecosystem comprising commercial, residential and digital activities,” MD of Cyberview Sdn Bhd Najib Ibrahim said.
“All these elements together will create the most conducive environment for tech companies of any size to thrive, making Cyberjaya the preferred tech business and investment location in Malaysia,” he added.
The Malaysian government has also undertaken greentech initiatives such as the 2009 National Green Technology Master Plan and Electric Mobility Action Plan, a framework to accelerate greentech initiatives, and the ChargEV initiative, which encouraged the use of public electric vehicle charging stations and has reportedly installed 300 charging stations across the country.
While the outcomes may be variable, these initiatives demonstrate Malaysia’s active approach to pursuing digital transformation nationwide.
“Malaysians are already one of the most digitally connected societies in the world, with roughly 80% of the people having access to the Internet, mainly through mobile networks, which is just another sign that Malaysia is well positioned for digital products and services,” VP for growth ecosystem development at MDEC Norhizam Kadir said at a summit last year.
He may well be right. Looking at how Malaysia has spearheaded the adoption of digital technologies, the country may be the little man in a giant’s world but that has not stopped it from pressing forward full-steam ahead with its digital transformation.
Header image by Deva Darshan on Pexels