Malaysia's distant 2020 vision

COMMENT by Ioannis Gatsiounis*
From Asia Times Online of August 16, 2006

KUALA LUMPUR - The bell tolls in Malaysia in 2020, the deadline the United Malays National Organization-led government has given itself to deliver the Southeast Asian country from developing- to developed-world status.
Former authoritarian leader Mahathir Mohamad launched the ambitious campaign in 1991, which aimed broadly to create a progressive scientific society and position Malaysia as a regional hub for leading innovative technology companies. The stepping stone of that plan was the establishment of the Multimedia Super Corridor (MSC), unveiled in 1996 as Malaysia's answer to Silicon Valley, which includes a 728-hectare futuristic "intelligent garden" city known as Cyberjaya. The government project is expected eventually to cost US$5.3 billion and usher Malaysia into the information age.
Malaysia was arguably in a better position to take the leap than most developing countries. After years of rapid manufacturing-led growth, its infrastructure was nearly world-class. Regionally, the levels of the country's gross domestic product and education were higher than most of its neighbors'. Oil and gas production was providing handsome revenues that could be used to spark technology-oriented spending.
To Mahathir, the MSC and Cyberjaya, which in Malay translates to "cyber success", seemed a visionary, win-win proposition.
Nowadays, nothing informs Malaysia's sense of success or failure more than the fate of its high-tech sector. Yet it's becoming increasingly clear that the country's so-called 2020 vision is fast falling out of focus. Malaysia now lags behind both China's and India's science and technology sectors, and regional rivals Singapore and Thailand now attract more foreign direct investment. Even Malaysia's political leaders have at times lamented the country's "first-class infrastructure, but third-class mentality".
Nor has private-sector innovation taken off to the degree first envisaged by government policymakers. To the contrary, the glaring lack of home-grown technology firms means that holders of information and technology degrees currently make up about 20% of Malaysia's unemployed university graduates, who apparently lack the knowledge and skills needed to compete in the global technology marketplace.
When the government has tried to fill the private-sector gap, it has often missed the mark. The government's pet Information Communication Technology projects, including the Smart School Project, the Worldwide Manufacturing Web and Borderless Marketing Flagships, have all flopped because of mismanagement, overspending and poor execution, critics say. There are recent reports claiming that as many as 90% of state-led ICT startups have gone belly-up, according to Technopreneur Association of Malaysia president Farith Rithaudeen.
That poor record has been a drag on the entire science and technology sector, souring private-sector sentiment and drying up the venture-capital funding for other so-called technopreneurial pursuits, including the startup ICT ventures that should be leading the country up the value-added information-technology ladder.
Consider, for instance, the case of Sentinel Technology, a small Malaysia-based research-and-development-oriented ICT firm. Mohamad Asendy, the startup's chief executive officer, said his company recently developed new anti-piracy software that he contends has the capacity to become a global market leader.
The company even held discussions with Microsoft's Malaysia division, which according to Asendy was duly impressed with the innovation and encouraged Sentinel to divulge how the technology works so that Microsoft technicians could test its effectiveness.
Asendy said he preferred first to formalize legal protection for his firm's innovation, but he lacked the RM300,000 (US$81,500) he needed to apply for a US patent. The Malaysian government offered him a RM50,000 grant, Asendy said, but in efforts to land the additional funding needed for the requisite marketing, accounting and legal requirements to apply for the patent, he was frequently asked in exchange to give up a majority stake in the intellectual property.
When he tried to obtain further government funding to patent his innovation, he was first directed to the Internal Affairs Ministry, which after a long wait redirected him to the Science, Technology and Innovation Ministry, he said. From there, he was told he would first have to get MSC status before he could apply for funding. The innovation, many months later, still is not legally protected.
The government is often at the root of Malaysia's innovation problems, scientific surveys say. A Global Entrepreneurship Monitor, a worldwide research project to be released soon that aims to describe and analyze entrepreneurship processes, recently surveyed 45 local ICT experts and 2,000 Malaysian nationals about the country's entrepreneurial environment.
The study's results reflected poorly on the government's performance, claiming that its policies disfavor new firms, and that government bureaucracy and regulation and licensing requirements impede new firms from expanding. It raised doubts about the government's competence and effectiveness in supporting new and growing firms. The study singled out the lack of financial support, quality of education and training, and overall market openness as other main factors holding back Malaysian entrepreneurs.
For all these discouragements, however, Prime Minister Abdullah Badawi's government is not abandoning his predecessor's high-stakes, high-tech dream. In part, that's because it's impossible to brush the ambitious scheme under the rug. Wired with high-speed fiber optics, the MSC spans a whopping 777 square kilometers.
Moreover, the government has poured billions of dollars into the MSC's infrastructure and provided huge tax breaks to companies that have agreed to locate there. Meanwhile, Abdullah, who on the whole has demonstrated a disdain for the profligate megaprojects favored by Mahathir, has nonetheless reaffirmed his government's commitment, some say blindly, to all matters high-tech.
For instance, the Ninth Malaysia Plan (2006-10), the country's recently minted economic-policy blueprint, allocates RM1.5 billion to technology-oriented schemes, a 40% increase from the previous plan. One of the plan's main thrusts is "to raise the capacity for knowledge and innovation and nurture first-class mentality". The document is spangled with terms such as "knowledge-based", "science", "innovation" and "research and development".
To be sure, there have been some bright spots on Malaysia's ICT horizon. In May, US technology giant Dell announced it would set up a technology and development center in Cyberjaya. The center will focus on various value-added projects, including software design, and employ up to 1,000 workers.
Narayanan Kanan, senior vice president of the development division of the Multimedia Development Corp (MDeC), the agency tasked with overseeing and directing the MSC, said the Dell deal was a positive development - though he played down any suggestion that such major foreign investments were out of the ordinary. About 1,500 companies currently have MSC status and as many as 10 new ICT-innovating companies are being added to the corridor's roster each week, he said.
However, critics contend that Kanan's assessment is overly rosy and glosses over some of the hard-market realities looming over the MSC's long-term viability, which if not quickly addressed could eventually spell doom for the entire multibillion-dollar enterprise. They contend that many of the foreign MSC-registered companies have established centers here for basic distribution purposes rather than innovative pursuits.
The country's ICT sector is suffering from various "market failures", including a severe shortage of seed-funding and so-called angel investors, said Nazrin Hassan, an adviser to the Technopreneurs Association of Malaysia.
Hassan contends there are about seven times as many venture capitalists providing startup funding for technopreneurial ventures in neighboring Singapore. "In order to see growth in technopreneurs you have to take chances [with funding]. Many [Malaysian] technopreneurs have died off waiting for seed funding."
Meanwhile, Malaysia's education system requires a serious overhaul to spur the sort of innovation needed to move Malaysia up the ICT value-added ladder. As in many Asian countries, the Malaysian school system emphasizes rote learning and quantitative rather than qualitative education, critics say.
"We have not developed a capacity for lateral thinking," said Kuala Lumpur-based educationalist F R Bhupalan. "We have straitjacketed our students and not allowed them to engage in meaningful analysis."
The situation is exacerbated by draconian legislation, such as the Universities and University Colleges Act, which requires incoming university students to take a pledge to the government and bars them from joining political parties. Fear and feudalistic deference have long infected Malaysia's education system, experts say, and in turn the classroom often punishes rather than rewards creative thinking and risk-taking.
Nor has education funding always been well targeted. For instance, the government recently invested RM300 million on a Smart School program for 80 schools, which broadly aimed to center education on ICT. About 60% of the project's funding went toward hardware, and procurements were frequently smeared with allegations of mismanagement and misappropriation.
"Many ICT contracts were awarded to the wrong people, some with no experience or reputation, but with the right connections," said Chris Chan, chief executive officer of TMS, a Cyberjaya-based Internet company. "We have high tech visualized nicely - the implementation's been flawed."
That raises hard questions about the viability of about 500 new education-oriented projects detailed in the Ninth Malaysian Plan.
The Badawi administration is reacting to the criticism. For instance, this year the government replaced MDeC's chief executive officer with industry insider Badlisham Ghazali, the previous director and general manager of Hewlett-Packard in Malaysia, who has more than 18 years of ICT-related work experience. Rumors abound that more key MDeC posts will be filled with industry players rather than crusty bureaucrats.
If true, such moves could make a big difference, said Chan, who for one doesn't buy the notion that Malaysia's small talent crop - its total population is a mere 24 million - poses a major problem to becoming a global ICT leader.
"You don't need that many people to produce positive change," Chan said. "Appointing qualified, successful enterprisers rather than government appointees is a positive first step."
Kanan acknowledged that the government is trying to change its old tack. Government policymakers have recently narrowed their previous broad focus down to six strategic ICT areas, including software and hardware design, creative multimedia contents, shared solutions and outsourcing, he said.
The government intends to roll out the MSC to other areas of the country and offer new, juicier incentives to attract more multinational corporations, Chan said.
MDeC communicates regularly with the Education Ministry concerning what kind of graduates the industry requires, Kanan said. The ministry declined to comment on what specific policy steps it has recently taken to encourage more creativity and innovation among ICT students.
Efforts to improve funding for startups, including three funds of undisclosed amounts pertaining to science, technology and innovation, have recently been established by the government, but were hardly enough to create the critical mass of technology-oriented ventures needed to realize the government's 2020 vision, Kanan said.
But critics say most of the government's plans lack concrete details, suggesting that it is paying lip service to the overwhelming need to change the venture's focus fundamentally. They suggest detailed plans for creating better linkages between local universities and the ICT industry. That would ensure curriculum meets industry standards and requirements, allowing foreign investors easier access to strategic tie-ups with local firms and encouraging the government to invest in more locally produced ICT software and hardware, which are all badly needed.
Currently, the government accounts for about 80% of Malaysia's total annual ICT consumption, the project's advocates note. And, they argue, Malaysia has in the past performed admirably with its back against the economic wall, particularly during the 1997-98 Asian financial crisis, which Malaysia handled its own way and arguably weathered better than its neighbors.
Until now, a certain mix of talent, pragmatism and will power has enabled Malaysia to develop beyond expectations. Excelling in the ultra-competitive ICT industry, though, will likely require something extra, a formula Malaysia is still grasping for. But it's becoming increasingly clear that the private sector, rather than the government, should be leading the country's ambitious drive into the brave, new global information age.

*Ioannis Gatsiounis, a New York native, is a Kuala Lumpur-based writer and previously co-hosted a weekly political/cultural radio call-in show in the US.

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