Malaysia

imagePOLITICS SLOW MALAYSIA’S MULTIMEDIA ZONE

Country Guide: Malaysia

Upside Magazine

March 1999

By David James

David JamesMalaysia’s Multimedia Super Corridor (MSC) was big news in 1995 when it was launched by Prime Minister Mahathir Mohamad as Malaysia’s “gift to the world,” a comprehensive government-backed development program for the Information Age. The concept was grand: a huge section of land between Kuala Lumpur’s city center and the new KL International Airport set aside for technology industries, a Multimedia University to train “knowledge workers,” a high capacity (2.5 to 10 gigabit) digital fiber optic backbone, and a new “cybercity” called Cyberjaya where technopeople would live happily ever after and everything would be “smart,” as in smart cards, smart homes, smart schools and smart partnerships. The MSC would become a test bed for multimedia and IT applications, linked to other global cybercities, and it would even become the platform for an “International Cybercourt of Justice.”

The MSC is Malaysia’s Field of Dreams. “Build it - and hype it - and they will come.” Lately people have been asking whether anyone is coming to the MSC - and whether this corridor actually leads anywhere.

Some progress has been made. While the fiber optic backbone is not yet in place, roads and streets for Cyberjaya and a technology park have been constructed and an MSC office building is fully functioning, with the government’s Multimedia Development Corporation acting as a one-stop shop for potential investors. The government has also issued regulations that enable foreign investors to own 100 percent of an MSC enterprise and that exempt them from immigration restrictions on the employment of foreign workers and from Malaysia’s new currency and capital controls. New “cyberlaws” give added protection to intellectual property, recognize digital signatures, and authorize telemedicine services. A new stock exchange, the “MESDAQ” (for the Malaysian Exchange of Securities Dealing & Automated Quotation), has been authorized to promote capital formation and IPOs for startups. In addition, Malaysia pledges that telecom costs in the MSC will be globally competitive and that there will be no Internet censorship.

Last fall I attended the Multimedia Asia ’98 expo and conference in Kuala Lumpur. The expo was packed with young technophiles examining the latest multimedia offerings, and the conference featured panel discussions and workshops about the MSC and various multimedia issues. The highlight of the conference was a live 90-minute “ Virtual Commonwealth ” Internet dialogue, with streaming video, linking panelists in Kuala Lumpur, Washington, Geneva and Brussels. The dialogue, chaired by Prime Minister Mahathir, discussed a wide range of issues relating to the Information Age, including issues of national sovereignty, ethics and cultural differences. In the course of the dialogue, Mahathir, well known for his efforts in protecting Malaysia from foreign influences, admitted that he did not know where the MSC and the Information Age would take Malaysia, but he indicated that he was determined to follow its star.

To participate in the MSC, and gain the benefit of its various legal exemptions and tax incentives, technology companies - domestic and foreign alike - must apply for “MSC Status” and show that they (1) will be a provider or heavy user of multimedia products and services, (2) will employ a substantial number of knowledge workers, and (3) will transfer technology or knowledge to Malaysia or otherwise contribute to the development of the MSC and the Malaysian economy. To date more than 180 companies have been granted MSC Status. Most of these companies are IT service providers, and most are Malaysian, although there are a number of international companies including Hewlett-Packard Company, L. M. Ericsson, Intel Corporation, Nokia Group and Lucent Technologies.

To date, few MSC Status companies have taken up residence in Cyberjaya. Facilities and infrastructure are still under construction, and many business services are not readily available. “Cyberjaya is some 25 kilometers south of Kuala Lumpur and Petaling Jaya, where most of the companies have their offices, and rents in Cyberjaya are high even compared to prime city rentals,” says Sanjoy Bose, managing director, Asia Pacific, of ICG Systems Bhd., Kuala Lumpur. “Many companies joined the MSC just to market themselves, obtain tax breaks and work permits, and have the opportunity to get government contracts,” he adds. So there is no heart and soul, and no critical mass, to the MSC as yet.

On the other hand, some companies are actively involved with the MSC. L. M. Ericsson, for example, has four MSC Status companies, one of them a joint venture with Hewlett-Packard. According to Rabbe Wrede, regional manager of Ericsson Data Malaysia, the MSC offers a number of important advantages: an excellent geographic location for Asian operations, high speed fiber optic infrastructure, a large pool of knowledge workers many of whom were educated in the United States and Europe, low wage rates, and strong government support.

Wrede believes that government support is the most significant advantage of the MSC, and he contrasts the MSC’s government-backed development model with Silicon Valley’s private enterprise model. “Ten years from now it will be interesting to compare the growth of the MSC to the early growth of Silicon Valley,” says Wrede.

For Stanley Ng, manager of the application developers customer unit of Microsoft (Malaysia) Sdn Bhd, the MSC’s key advantage is Malaysia’s growing pool of knowledge workers. “Malaysia now has over 7,000 professional software developers, and that number will soon grow to more than 30,000,” says Ng.

Lately, however, in the wake of Malaysia’s economic and political problems, investors are beginning to question whether the government can or will sustain its commitment to the MSC. They do not question the government’s commitment to policy; the halls of government reverberate with reassurances from Prime Minister Mahathir on down. Rather, investors question whether Malaysia will have the money to complete the MSC’s infrastructure and help fund the MESDAQ, R&D grants, and various incentive programs.

I recently asked Tun Mohamed Suffian, the former chief justice of Malaysia’s supreme court and a bit of a cynic concerning government programs, if he thought government funding of the MSC was a problem. He responded, “Not at all. If they don’t have the money, they’ll just spend it anyway.”

Apart from government funding, there is the question of whether the private sector will fund the investor side of the MSC. Last September, Malaysia introduced currency and capital controls designed to stem currency speculation and stabilize its faltering economy. Critics have labeled the controls as a significant deterrent to foreign investment, and recent capital flow data suggest that new foreign investment is indeed drying up. Moreover, the capital controls have driven a stake in the heart of MESDAQ, the new stock exchange for tech companies and other startups. “The original plan was to list several technology companies by early 1998, but the capital controls and poor economy have put MESDAQ on the back burner,” says Alan Tan, a business consultant in Singapore. “Currently, MESDAQ is still a concept at best.”

Soon after Malaysia’s capital controls were introduced, Prime Minister Mahathir sacked his deputy PM and finance minister, Anwar Ibrahim, and placed him on trial for corruption and sex-related offenses, charges that Anwar’s supporters claim were trumped up to thwart Anwar’s challenge to Mahathir’s leadership. Rather than quiet the political waters, the sacking of Anwar has only strengthened his “Reformasi” movement.

Thus foreign investors are now facing an economic and political double whammy: the possibility that Malaysia’s fixed exchange rate (3.8 ringgit to the dollar) and capital controls will negatively impact the value and repatriation of their investments, and the possibility that the Anwar matter will bring about a change in government.

Ironically, Anwar was, and may be again, a positive factor for the MSC. Anwar is a believer in free markets and a global approach to economic policy. According to one observer, who spoke on condition of anonymity, “If Anwar somehow returns to power or influence, it could be a very positive development for the MSC and for Malaysia’s financial markets generally. As finance minister, Anwar had some very clear ideas on how the MESDAQ could help the MSC get off the ground. MESDAQ was a bold and clever initiative and shows that Anwar certainly has financial acumen and daring.”

The MSC is presently long on concept and short on attainment, but it is too early to write it off as a Field of Dreams. Malaysia is a proud country of grandiose schemes and unrelenting efforts. Skeptics who once derided the size and scope of the new Kuala Lumpur International Airport and the Petronas Twin Towers - claimed to be the tallest buildings in the world - are now silent. The new airport rivals Singapore and Hong Kong as a gateway to Asia, and the towers are a handsome symbol of Malaysia’s progress.

"The MSC holds the key to our competitive survival," claims Tengku Datuk Mohd. Azzman Shariffadeen, permanent secretary of the National IT Council. "It is the super engine that can churn the ripples into tidal waves."

"The grand vision of the MSC is correct and absolutely imperative to the next generation of growth for Malaysia," adds Jerry Wu, group chief executive of Lester Technology Group Sdn Bhd, an MSC Status company that recently launched a new digital signing smart card.

Those are super grand thoughts. And they fit nicely with Malaysia’s current national slogan: “Malaysia Boleh!” - “Malaysia Can!”

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