Malaysia sees the digital economy as key to unlocking rural economic growth

Malaysia's Kuala Lumpur by night

Malaysia is making her mark as a Southeast Asian digital hub and serves as a strong case study on the promises and challenges the digital economy faces in bridging the urban-rural divide.

By Dora Heng

The 5th ASEAN Rice Bowl Startup Awards was held in Kuala Lumpur on January 19, 2020. Convened by the New Entrepreneurs Foundation (myNEF) with the support of the Malaysia Digital Economy Corporation (MDEC) and the Malaysian Global Innovation & Creativity Centre (MaGIC), this year’s awards were a testament to the ingenuity, drive and creativity of regional digital entrepreneurs serving their community.

This push towards digitization is reflected in the National Budget 2020 blueprint. From the budget allocation it is evident that the government is a strong proponent of driving economic growth via the digital economy.

Infographic exploring the ways the Malaysian 2020 budget is promoting the digital economy

RM10 million (US$2.5 million) is designated to Malaysia Digital Economy Corporation (MDEC) for the training of micro-digital entrepreneurs and technology experts to leverage e-marketplaces, social media platforms. In addition, RM70 million is allocated to the development of Digital Enhancement Centers across every state to facilitate upskilling of businesses to be eCommerce ready. 

MDEC CEO Surina Shukri said: “The digital transformation agenda for Malaysia continues to be a major catalytic driver for the nation’s economy. We are encouraged to note that Budget 2020 includes proposals which will further accelerate Malaysia’s rapidly-maturing digital economy.”

E-Commerce underpins the growth of the digital economy

In 2018, the digital economy contributed 18.5% to Malaysia’s economy, amounting to RM267.7 billion in gross domestic product (GDP). The e-commerce sector accounts for 43% of the digital economy’s value, contributing RM115.5 billion in revenue. With a forecasted growth rate of more than 20%, this sum could reach RM170 billion by the end of 2020. 

Bar chart depicting the growth of malaysia's e-commerce sector

The growth of the Malaysian e-commerce sector is dependent on a wide pool of active mobile users. In 2019, 91% of internet users in Malaysia searched online for a product or service to buy, and 88% visited an online retail store in their purchasing journey. The nation’s 2019 #MYCYBERSALE event, which took place between September 27 and October 6, saw RM3.2 billion worth of products sold – an eightfold increase on 2018’s figures.

Rural digital entrepreneurs receive governmental support to tap into the thriving e-commerce market

In a bid to foster digital inclusivity, MDEC is partnering with the Desa project with the aim of connecting rural areas to the global e-commerce boom. Supported by e-commerce giants like Alibaba and Lazada, the Desa project enables rural-based entrepreneurs to participate in cross-border supply chains by providing technical support and knowledge in product packaging and e-commerce services.

According to Brian Wong, Vice President of Global Initiatives at Alibaba, “e-commerce will benefit many aspects of the Malaysian society. Apart from promoting rural development and economic inclusion, it also creates the impetus for small and medium enterprises to innovate and tap into the enterprising spirit of the young people, in particular, to speed up business development and create more jobs.”

A pilot project involving a group of Orang Asli villages in Bentong, Pahang was conducted last year where local produce such as organic rice, ginger and groundnuts were sourced and marketed on the Desaku LazMall Flagship Store in Lazada. Stock sold out within 24 hours.   

The DESA project has since scaled to feature 2,198 rural SME entrepreneurs.

Rural communities still face challenges participating fully in the digital economy

Despite the promise of the digital economy, poor connectivity remains a challenge on the ground, especially in rural areas. The urban-rural divide in internet use is significant, 71% of the urban population uses the internet compared to 55% in rural areas.. In rural states such as Kelantan and Terengganu, only 31% and 36% of business establishments have internet connections.

To provide comprehensive internet coverage especially in remote areas like Sabah and Sarawak, the government is entering private-public partnerships with players in the telecommunications sector to implement its National Fiberisation and Connectivity Plan (NFCP) over the next five years. As part of NFCP, RM21.6 billion will be deployed to leverage various technologies ranging from 5G to satellite broadband connectivity.

In addition to upgrading connectivity infrastructure, the government needs to continue to invest in digital literacy training in rural areas to increase familiarity with digital platforms and facilitate the shift towards greater digitization.

As Malaysia continues to follow her blueprint of economic development through digital opportunities, it is important that rural communities are not marginalized in this quest for growth, but instead become active participants in this shared prosperity. The 2020 budgetary allocations are a promising sign for what comes next. 

About the Author

Dora Heng
Dora hails from Singapore but has lived and worked across Asia, North America and Africa. She is interested in how digital economies can support growth across Southeast Asia. She is currently pursuing her masters degree at Harvard Kennedy School of Government.