Transformative blueprint for Malaysia

Economy Minister Rafizi Ramli.

THE Kuala Lumpur 20 (KL20) blueprint is set to be unveiled in the week ahead. Comprising more than 20 transformative reforms to jumpstart Malaysia’s business ecosystem, the blueprint is expected to make the country an attractive place for startups and venture capitalists.

Economy Minister Rafizi Ramli speaks with StarBizWeek about the plan. Below are excerpts of the interview.

StarBizWeek: What is the main goal for KL20 in terms of actions and decisions?

Rafizi: The main goal for KL20 is to feature concrete, translatable actions that represent a change in governance and decision-making processes. This includes establishing a supportive environment for startups with advantageous commercial terms and streamlined regulatory procedures.

This initiative is designed to enhance the ecosystem for startups and attract more venture capitalists (VCs) to invest in Malaysia.

How many deals are expected to result from KL20?

While there is no specific number, the expectation is substantial due to several segments participating, including sovereign wealth funds – both local and international – announcing their presence and commitment, and venture capitalists indicating strong interest in Malaysia.

The focus is not just on attracting these entities but also on the significant announcements expected to be made that could further solidify investment intentions.

What is the focus of the investments in Malaysia and why is it attractive to sovereign wealth funds and venture capitalists now?

Although it is KL20 digital and tech, investments are heavily targeting the high level semiconductor industry, specifically in integrated circuit (IC) design, leveraging Malaysia’s historical strength in the global semiconductor supply chain.

With the recent global supply chain vulnerabilities, heightened by geopolitical tensions and the Covid-19 pandemic, there’s always a concern about the semiconductor supply chain globally. In the last 10 to 15 years, there were a lot of investments going into China.

And now, many international investors, especially within the semiconductor industry including those China-based and Chinese companies, have to consider de-risking and hedging towards geopolitical changes around the world. Malaysia is a perfect place for it.

In the last few decades, Malaysia’s position in the global semiconductor supply chain is at the back end, where we are very good at packaging and testing. We did try with wafer once but the technology moved so much quicker than the foundry only serves older electronics using these chips.

So, Malaysia was always bypassed because we were considered just a packaging and testing hub. But the margin in there is very small and it will never be able to step up to the next one. Now, the front-end involves IC design.

But, there is a reason why it was very difficult before, because it was a chicken and egg. For you to make a big impact having your IC design utilised around the world, you need to have people using it.

Now, China presents such a big market in terms of utilisation of these chips and IC design and Malaysia now fits into the meeting point between all these. All these changes present a confluence of positive developments that Malaysia suddenly makes perfect sense.

Rather than starting from scratch, here you have a country that has already established itself as a major supply chain player in the global semiconductor industry.

We have enough to begin with IC chips. It just requires government focus and government’s putting together the ecosystem because before this they were fragmented.

With KL20, it connects all the dots that enhance Malaysia’s attractiveness a lot more than what it was two years ago.

Why is there a pressing need for economic restructuring in Malaysia and how does KL20 play a role in addressing this challenge?

People talk about how the government’s income as a share of gross domestic product has been decreasing over the years in the last decade. If you look at the finer details, actually, tax collection has gone up. But, the one that has been coming down is the income from oil and gas (O&G).

The reality is, it is going to happen sooner rather than later, the depletion of O&G is having a major impact on the economy. Given the fiscal position of the country, we have been having a fiscal deficit since 1998 and there is an urgent need to reverse that situation because there is no point talking about debt reduction if we continue to clock fiscal deficit.

So, all this cannot happen unless the structure of the economy changes. The structure of the economy can only change in one direction, which is moving up the value chain. It is a natural progression for us to build on the strength that we already have and the one industry that stands out against the rest is semiconductor.

It is basically a structural necessity that we change the makeup of our economy. If in the past I suppose successive administrations could have seen it, we know that the large bulk of our import is from semiconductors, albeit it is just back-end. But we had enough from commodities and O&G, that the semiconductor industry wasn’t really a priority.

However, going forward, this country has no choice. This is the only way forward, no matter how difficult it is, no matter how complicated it sounds. The only march forward is to go up the value chain. We are blessed and the time is opportune because all the geopolitical changes in the world actually favour us.

But what the government needs to do rather than allow the industry to sort it out itself is that we need to basically connect the dots and give confidence to the world that that government will give all the support and facilitate everything and we will align macro policy going forward to facilitate this. If anything, that’s what KL20 is.

Do we have the sufficient human capital, skills, requirements, capacity and knowledge?

Indeed, my greatest concern at the moment is whether we possess the necessary human capital, skills, knowledge and capacity to leverage and capitalise on the growing interest in Malaysia’s investment opportunities. Over the past year, we’ve engaged with investors worldwide and it’s clear that Malaysia’s potential is well-recognised.

However, our ability to quickly seize this opportunity depends on various factors including the availability of capital and skilled manpower, with the latter often being more challenging due to the longer timeframe needed for development.

One of the critical shortages we face is in the fields of electronics, digital technology and tech. The reality is that we cannot afford to wait until our workforce is fully prepared before we start inviting investments; these processes must occur simultaneously.

As we harness market forces and emerging opportunities, our strategy involves pivoting our workforce to meet these new demands. This approach will be multi-faceted.

For example, consider the field of electronics engineering, crucial for the semiconductor industry.

Reflecting on my personal journey, I graduated as an electronic engineer during the tech boom of the 80s and early 90s. However, by the time I completed my studies, I felt that a career as an engineer in a manufacturing setting was not desirable, primarily because it did not seem financially rewarding.

Consequently, I opted to become a chartered accountant. This sentiment was not unique to me but was shared by many over the last two decades, during which the semiconductor sector was not viewed as a high-end or fulfilling career path in Malaysia.

Only in the last 10 to 15 years have perceptions begun to shift, with the semiconductor and related industries gaining more interest. It’s crucial now more than ever that we revitalise these sectors and encourage more individuals to pursue careers in electronics and semiconductor fields.

We have major semiconductor companies in Malaysia like Intel and Infineon but often, our talent gets poached or opt to work overseas due to better opportunities in places like Singapore or Taiwan. Many Malaysian engineers end up working abroad in IC design because there simply aren’t enough companies focusing on this area back home.To address this, part of our strategic initiative includes attracting more IC design startups to Malaysia. By creating more opportunities in IC design locally, we aim to reverse the brain drain and make Malaysia a hub for semiconductor design and manufacturing.

This effort will not only provide more high-skilled jobs for Malaysians but will also help balance our economy away from its traditional reliance on O&G.

What changes are being made to attract and retain startups and high-tech companies in Malaysia?

Significant efforts are being made to streamline business processes and make it easier for foreign startups and venture capitalists to operate in Malaysia. This includes providing expedited immigration processes, ensuring these entities can start and operate their businesses with minimal delays.

Additionally, there is an emphasis on creating a more dynamic, welcoming business environment that not only attracts but also retains foreign talent and investment.

What is being done to boost local VC activities and reduce dependency on government funding?The government is focusing on creating a robust local VC ecosystem that reduces the dependence on government funding. This involves attracting credible international VCs and facilitating the formation of local VCs to build a sustainable investment environment.

The strategy includes unlocking domestic capital, encouraging private investment from family offices and mobilising local resources to support VC activities. The nature of startup funding begins with the availability of big funds and that is why sovereign wealth funds are important.

Now, sovereign wealth funds are mostly limited partners. They don’t necessarily go and find startups themselves because they manage a big fund portfolio. So, this will usually be parcelled out to the next tier of VCs and these VCs are General Partners usually. Therefore, you don’t even need matching grants.

What initiatives are in place to support early-stage startups?The government is increasingly focusing on the pre-seed and seed stages of funding, recognising that these are critical phases for the development of a healthy startup ecosystem.

Policies have been adjusted to direct more resources and support to these early stages, ensuring that startups have the necessary capital to develop and scale their innovations.

What are the expectations for KL20 and could it become a recurring event?The expectation is that the successful execution and outcomes of KL20 will justify making it an annual event. However, this depends on its ability to generate meaningful business opportunities, attract investments and significantly impact the local and regional economies.

The aim is for KL20 to catalyse long-term benefits, making it a cornerstone event for Malaysia’s tech and investment sectors.

What lessons have been learned from previous initiatives and how is KL20 different?KL20 has been designed with the lessons from previous initiatives in mind, focusing on creating a more holistic and sustainable approach to developing Malaysia’s VC ecosystem.

Unlike past efforts that targeted specific sectors or were driven by speculative gains, KL20 aims to build a comprehensive and robust ecosystem that supports a wide range of digital and tech ventures.

The government’s role is structured around facilitating and enabling market-driven growth rather than dictating or overly influencing specific economic activities.

How is Malaysia positioning itself compared to regional competitors like Singapore in attracting tech startups and investments?Malaysia is positioning itself as a culturally and economically connected alternative to Singapore, with a lower cost of doing business and a lifestyle that is potentially more appealing to international talents.

The strategy includes showcasing Malaysia’s advantages such as its strategic location, linguistic capabilities and existing industrial strengths to differentiate it from other regional hubs and attract diverse global startups and investments.

KL20 is not an event for the sake of an event. It’s meant to basically move up the notch. Malaysia did not pitch internationally before. This is like the country pitching to the world, just like startup founders have to pitch to VC firms.

But we can only pitch, going forward, if we have something to show and that is why I hope from KL20, we are able to gain new grounds.