In recent years, the rise of homegrown startups in Malaysia demonstrates the country’s rapid development in many sectors, especially during and post-COVID-19. For example, the 2020 e-Conomy SEA report by Google, Temasek, and Bain & Company highlighted an 87% year-on-year (YOY) growth in eCommerce. It also forecasted that the digital economy’s gross merchandise value (GMV) would rise from USD 11.4 billion in 2020 to USD 30 billion by 2025. These trends look set to continue due to Malaysian government initiatives directly or indirectly impacting the startup ecosystem. 

Aju Murjani, Head of Southeast Asia at Software AG discusses how Malaysia’s technology landscape is evolving

While the International Monetary Fund (IMF) revised its 2023 global growth trends to 2.8%, research from the Malaysian Industrial Development Finance (MIDF) forecast that Malaysia’s gross domestic product (GDP) would grow by 4.5%. Inflationary pressures look likely to reduce, economic expansion is possible due to China reopening after an extended lockdown, and the job market is resilient. Moreover, startups in Malaysia are using the initiatives developed by the government to gain more financing for their businesses.

An array of government initiatives for homegrown startups

After the 2023 Budget announcements, the central bank of Malaysia, Bank Negara Malaysia (BNM), increased its fund for small and medium-sized enterprises (SMEs) by RM 1.3 billion to RM 9.7 billion. Some of the BNM funds for SMEs are to provide financing at reasonable rates, while others are for providing relief and support to businesses that need it.

Some key examples of the government’s initiatives include:

High Tech and Green Facility (HTG): This initiative commits RM 1.1 billion for sustainable economic recovery. It enables startups to innovate and invest in technologies like green tech, biotech, and others.

Low Carbon Transition Facility (LCTF): The LCTF offers RM 1 billion, with participating financial institutions matching the funding to SMEs to enable them to adopt low-carbon and sustainable business practices. It means companies can focus on using renewable energy, seek sustainable raw materials, and more. LCTF aligns with the government’s vision for net-zero emissions by 2050.

Automation and Digitalisation Facility (ADF): This government resource uses its RM 1.5 billion budget to encourage businesses to adopt digital processes in their operations and automate to improve efficiency and productivity. The government seeks to boost its digital economy to contribute 25.5% of GDP by 2025, up from 22.6% in 2022.

Micro Enterprises Facility (MEF): The MEF uses RM 500 million to support digital gig workers, the self-employed, and microenterprises by offering working capital.

The role of GLICs and GLCs

Malaysian Prime Minister Datuk Seri Anwar Ibrahim said during a discussion on Budget 2023 that government-linked investment companies (GLICs) and government-linked companies (GLCs) could contribute to the concept of Malaysia Madani (Civil Malaysia). This new policy focuses on sustainability, renewable energy, development, innovation, and good governance. PM Anwar said the GLICs and GLCs could bring corporate social responsibility (CSR), support workers, hire new graduates, and increase investment in important growth sectors.

Thus, GLICs will invest RM 1.5 billion in local Malaysian startups. There will also be a tax deduction of up to RM 1.5 million for listing expenses on the stock market until 2025. The Malaysia Co-investment Fund (MyCIF) will offer RM 40 million to provide alternative funding methods for companies. These funds will help to attract talent in highly innovative sectors.

The bright future of startups in Malaysia

Even though forecasts indicate the total investment in Malaysia in 2025 will be USD 107 billion, late-stage funding for startups has been a problem, whereas early-stage funding has been better. As such, the government can use tax incentives, improve the ease of doing business to attract foreign investment and work on regulations to simplify listing companies locally to boost late-stage investments.

For several reasons, many startups will likely need help attracting funding from venture capital (VC) firms in 2023. Geopolitical tensions are ramping up in the region, with China and the United States sabre-rattling over the fate of Taiwan. Climate change concerns remain a significant issue, challenges of supply chain disruptions and foreign VC firms experiencing monetary pressures from their struggling economies are all other factors.

Regardless, the government’s initiatives have opened multiple financing avenues to maintain the rise of homegrown startups in Malaysia. The effective implementation of capital grants and funding can bring benefits and enhance the startup ecosystem in the country. According to the 2020 e-Conomy SEA report, talent acquisition remains a critical issue needing addressing if the economy wants to grow.

Startups in Malaysia can reach customers through smartphones, whose forecasted penetration will be 89.06% in 2023 and 89.48% by 2025. It means more excellent connectivity and access to financial technology (fintech) solutions. Moreover, the country began 5G services, and the target is to cover 80% of populated areas by 2024, meaning fast speeds, smart technology integrations for productivity, artificial intelligence, and more.

If innovative government initiatives are employed correctly, the startup ecosystem will thrive and encourage the continued expansion of the digital economy in Malaysia.