The digital economy will be one of the key pillars of Malaysia’s growth, expected to contribute 18.2% of the country’s gross domestic product by 2020, according to the 2017 national budget revealed in October.

Through the Malaysia Digital Economy Corporation (MEDC), a government-owned institution, RM162 million (US$39 million) has been allocated to implement new measures, including creation of the world’s first Digital Free Zone.

Irwan Serigar Abdullah, Malaysia’s treasury secretary-general, said at the budget unveiling that the plan will merge physical and virtual zones, with additional online and digital services to facilitate international e-commerce and invigorate internet-based innovation.

He also introduced a category of new locations for the “Malaysia Digital Hubs,” which will offer technology startups high speed broadband, hotdesking, mentoring and coaching services.

Speaking at the opening of the Huawei Innovation Hub and Malaysia- China Digital Economy Forum in Kuala Lumpur last month, prime minister Seri Najib Razak says the Malaysia Digital Hubs will be a collaboration between government and the private sector.

“Together through MDEC and private sector collaborations, one of the key achievements for 2017 that I look forward to seeing is the establishment of a new category of certified locations called the Malaysia Digital Hubs for the start-up community. Be it a warehouse concept, a space within a building or a campus-like environment, these hubs are where unstructured interactions occur, ideas collide and innovations happen,” he said.

The Digital Maker Movement, which was launched in August through collaboration between the public, private and academic sectors, has received additional funding. The programme aims to transform young people from digital users to producers by teaching them skills such as coding and 3D printing.

To encourage investment in hightechnology innovation, a total of RM200 million (US$45.8 million) from the Working Capital Guarantee Scheme Fund will be specifically allocated to startups to provide them with loans or financing solutions. The government has also introduced a new immigration category called Foreign Knowledge Tech Entrepreneurs to facilitate the inflow of foreign technology talents.

The responses on the budget from the industry have been positive.

Writing in Malaysian newspaper The Sun, Yasmin Mahmood, CEO of the MDEC, said she is delighted that the budget recognizes the digital economy as a key driver.

“Budget 2017 offers the startup community the much-needed support of an ecosystem that suits the nature of their business,” she wrote. “In tandem with growing the local startup community in Malaysia, efforts to attract Foreign Knowledge Tech Entrepreneurs to Malaysia will definitely catalyze the nation’s growth.”

Chris Hemingway, a director in Marks & Clerk's Malaysia office, believes that the initiatives for the digital economy, which includes tax breaks, should help to stimulate innovation and encourage entrepreneurship and spur the growth of intellectual property.

“However, this may be offset by a decrease in IP arising from universities, which have experienced significant budget cuts from the government,” he adds. Under the 2017 budget, public universities will see their combined operating budgets for 2017 slashed by about 19 percent.

The legal framework for IP also has room for improvement to be consistent with international standards, Hemingway says.

“The Malaysian IP office also appears to need additional funding to ensure proper functionality of the online filing system and increase the number of examiners, as currently resources seem to be somewhat limited,” he says.