MANY Malaysians would know of Skype but may not have heard of Estonia, the post-Soviet nation in Northern Europe, until last Tuesday. Skype, the internet phone service that Microsoft acquired in 2011, was developed in Estonia’s capital Tallinn, a cobblestoned old town with medieval buildings (about half the size of Penang Island) where about a third of Estonia’s 1.3 million people live.

Dubbed “the most advanced digital society in the world”, Estonia reportedly saves 2% of its gross domestic product a year in salaries and expenses from digitising government services and processes and linking them across one platform. The latter and a digital ID allows citizens to do almost everything from voting, filing taxes, applying for bank loans, paying for parking or challenging parking summonses from their mobile device. Individuals can see who is accessing their data as it is consent-based. Doctors can have access to medical history and the police will know if you have insurance or unpaid summonses, or that the car you are in is yours.

“There are only three services that you cannot do online in Estonia: get married, get divorced and buy real estate. For the Estonian government, a ‘digital service’ means a fully digital end-to-end experience with no phone calls, office visits or physical paperwork. This is the digital government that I envision for Malaysia,” Communications and Multimedia Minister Gobind Singh Deo said at a well-attended breakout session at the “Malaysia: A new dawn” conference in Kuala Lumpur.

Malaysia, which spends 16% of GDP, or 98% of government revenue, on operating expenditure, needs that kind of efficiency savings, if not more.

To transform into a fully digitised government and society, a high-quality world-class infrastructure at affordable prices is a key ingredient — the reason the government is pushing to double internet speeds at half the price for Malaysians and had directed that wholesale prices be slashed.

The Malaysian Communications and Multimedia Commission (MCMC) is also developing the National Fiberisation and Connectivity Plan (NFCP), which targets to have at least 98% of key populated areas covered with at least 30Mbps broadband by 2023. High-impact and strategic industrial areas are to attain that by 2020 and all state capitals by 2023. By 2022, some 70% of schools, government offices, hospitals, clinics, police stations and fire stations will be connected with a fibre network. Cyberjaya and Putrajaya will be testbed areas for the fifth major next generation of wireless technology (5G), the minister declared, adding that for the first time, 100Mbps packages are available in Malaysia for less than RM100 and entry-level 30Mbps packages for RM79 a month.

Malaysia is already late. Singapore was looking at a minimum of 1Gbps five years ago while South Korea plans to have 50% coverage at 10Gbps by 2022. The European Union’s Digital Single Market strategy calls for 1Gbps connectivity for all major urban centres, schools, transport hubs and public facilities, and a minimum of 100Mbps (upgradeable to 1Gbps) for all households by 2025.

“Ultrafast broadband internet connections are becoming the critical foundation of the digital economy, and advanced economies are aiming to make them ubiquitous. These connections, which operate at speeds over 100Mbps, enable individuals to stream videos and engage in e-commerce, businesses to manage their supply chains on cloud computing platforms, and governments to coordinate across agencies in real time. Without ultrafast broadband, innovations such as artificial intelligence, the internet of things and Industry 4.0 will not be feasible,” the World Bank says in a recent report on Malaysia’s digital economy.

Finding the right balance

As plans are being fleshed out, fears of margins and dividends being eaten up by the policy directive have wiped out billions of ringgit in market capitalisation from the local telecoms operators.

“The intention and policy direction are good but there needs to be enough incentive to encourage players to continue investing billions of ringgit in infrastructure. Otherwise, the government will need to find a way to finance the infrastructure investment itself — perhaps it would accept low margins for the good of the country … companies cannot justify taking risks for that kind of [low] returns or if there is no first-mover advantage … why not wait and ride someone else’s network?” a seasoned industry expert says.

Not only are there many interested parties, there are also vested interests.

“Land, as we know is a state matter … When it comes to laying fibre [optic cables] and giving it the priority of a basic utility like electricity or water … the interested parties here are not just consumers, industry players and government — we are looking at [balancing the interests of] consumers, industry players and their shareholders, federal government, state government, local government as well as private companies that have benefited from the system,” he adds.

Gobind says the government is willing to spend where necessary to expedite the process and expectations are that the Universal Service Provision fund — to which the industry contributes 6% of certain revenue annually — could be partly utilised to help digitise the nation.

To be sure, a lot more work is needed to set the nation on the right path and for the growing pains to be worth it.

Decide to be good and invest

Jack Ma declared in June that it was the Multimedia Super Corridor (MSC) that inspired him to start Alibaba in 1999. The MSC — the brainchild of Prime Minister Tun Dr Mahathir Mohamad — was started in 1996. Malaysia has since seen some success in the form of Grab and iFlix but still needs to build its own Alibaba, Apple or Samsung — essentially new innovative brands and inventions to propel the country’s economy and lift competitive advantage.

As the World Bank puts it, “Malaysia is again at a crossroads as the economic model that successfully enabled it to reach upper middle-income status will not sustain robust growth indefinitely.”

“Unlocking the potential of the digital economy will be key to ensuring Malaysia’s successful transition to a high-income and developed economy. The adoption of digital technologies across the public and private sectors, in manufacturing, in services and in agriculture will be essential to enable the growth in productivity that Malaysia needs for broad-based improvements to living standards. Policymakers now face the challenge of accelerating structural transformation to enhance productivity, promote diversification and improve international competitiveness over the medium term,” the bank says in its report.

Speaking at the Khazanah Megatrends Forum 2018 last Monday, Finance Minister Lim Guan Eng called for the private sector to innovate and pursue diversification and assured that the government will be supportive of those efforts, “If there are ways in which the government can help, either minimise the risk of innovation or improve the general business ecosystem in Malaysia, we will do it.”

“We must focus on sectors and industries that are high value-added, externally oriented — to force companies to be globally competitive — in line with future megatrends such as demographics, climate change and industry 4.0, and have important links with the rest of the Malaysian economy.

“We will not simply support a new industry just because it is new. While we do need to pursue economic diversification, not all diversification makes sense. We will support a new industry only if it benefits Malaysia’s economic future. Only then can we really move up the value chain and move towards a higher-income, higher-wage economy,” said Lim, who had earlier said Malaysia is not in austerity mode but will be smarter in its spending as it deals with a RM1 trillion debt burden.

Nobel laureate Joseph Stiglitz agrees that the country needs to “spend smartly” on its people and invest in building competitive advantages while putting the right value in the country’s resources so that future generations are not deprived of them.

Policymakers are also rightly talking about giving priority to investments — be they local or foreign — that would help create better paying jobs for Malaysians, especially those that come with new technology. We may need to acquire new technology and make sure we learn a lot faster. Whatever it is, it is important to put in place the right policy direction if Malaysia is to succeed in boosting its economic diversity.

Lim acknowledged this by citing the work of Professor Ha-Joon Chang, director of the Centre of Development Studies, University of Cambridge, who said nobody is bad at everything and that countries became good at certain industries not because they were destined to be good, but because they decided to be good and made the necessary investments in machines, research and upskilling workers.

“The economic history of developed nations is also a history of government-led or government-driven initiatives — Nokia in Finland, the internet and GPS in the US, cars in Japan, electronics in South Korea — to boost the economic diversity of their nations,” Lim says, referring to how Toyota and Samsung both started in textiles before moving on to be successful in automotives and electronics respectively. Nokia’s genesis had more to do with milling paper than making phones.

Petroliam Nasional Bhd is one of the companies here with the resources to create that new successful business for itself and the country.

Just as Malaysia’s palm oil hails from Africa and rubber from Brazil, a competitive advantage can be built with the right policy and enough investment. It is important to harness an industry’s benefits for the country while they last and at the same time build new industries that will continue to support growth when the older industries run their course.

Beyond the physical infrastructure, Malaysia needs to make sure its workforce is well-prepared to thrive in the digital economy.

“Recognising these challenges, the 11th Malaysia Plan (11MP) incorporates several goals related to productivity, including boosting the annual growth rates of total factor productivity (TFP) and labour productivity to 2.3% and 3.7% respectively, from 2016 to 2020. Achieving those ambitions is crucial to establishing the digital economy as a growth engine in a knowledge-based, innovation-led economy,” the World Bank says.

The 11MP mid-term review, to be released this Thursday, should provide more clues on policy direction on these fronts ahead of the Budget 2019 announcement on Nov 2.

Minister of Economic Affairs Datuk Seri Mohamed Azmin Ali spoke about economic diversification last Monday and said the 11MP mid-term review will include steps to tackle issues and development challenges the country faces. Progressive socioeconomic policies will also be introduced to complement current institutional reforms as real economic growth must also mean enhancement of the purchasing power of the people. The latter was also emphasised by Prime Minister Tun Dr Mahathir Mohamad in his closing address at the Khazanah Megatrends Forum.

“Going forward, economic growth will also be driven by high-tech sectors that underlie the potential of the digital economy in ensuring Malaysia’s transition to a high-income and developed economy. In this regard, public and private sector collaboration is essential to ensure quality investments and innovations, bearing in mind that Malaysians are among the most digitally connected citizens in the world,” Azmin said.

It is hoped that policy direction will also help transform Malaysia into a truly digital society, like Estonia, and more.

Changes to USP fund

The country’s telecommunications players pay up to 6% of their annual revenue to the Universal Service Provision (USP) fund — which had a balance of RM8.5 billion as at end-2016 — and have long asked for the contribution to be reduced given that it is underutilised.

There is talk that the contribution may be raised, even as policymakers restructure the USP fund to be more transparent and flexible, but players could be allowed more avenues to claim rebates for their work in underserved areas. This could not be immediately confirmed at press time.

The latest balance in the USP fund is unknown and Communications and Multimedia Minister Gobind Singh Deo would only say last Tuesday that an audit report will be tabled in parliament “soon”. It would be interesting to see details of how the money has been spent, especially in light of the spending needs to fibre up the nation.

Recall that on June 20 the minister had said an audit would be conducted on the USP fund as well as the Malaysian Communications and Multimedia Commission (MCMC) fund, whose financial statement showed a RM800 million balance as at end-2016.

The MCMC Fund was established under the Communications and Multimedia Act 1998 while the USP Fund was established under the Communications and Multimedia (Universal Service Provision) Regulations 2002.