The R&D going nowhere

MALAYSIA has been having the same conversation on research and development (R&D) for more than a decade, at least.

The names in government change. The plans are refreshed. But the core problem remains.

Back in 2014, then prime minister Datuk Seri Najib Razak said in his budget speech that Malaysia’s R&D expenditure as a share of gross domestic product (GDP) was low compared with advanced economies such as Japan and South Korea.

More than 11 years later, Science, Technology and Innovation Minister Chang Lih Kang is making essentially the same point.

He said this month that Malaysia’s R&D spending has remained stagnant at around 1% of GDP, far below leading economies, and added that private sector investment remains limited.

The real story is that Malaysia does not suffer from a lack of awareness. It suffers from a lack of sustained execution.

The World Bank data makes the gap harder to ignore.

Malaysia’s R&D spending came in at just 1.01% of GDP in 2022, well below the 1.99% recorded by upper-middle-income economies.

It falls even further short of the 2.84% recorded by high-income countries.

In other words, Malaysia is not merely behind the advanced economies it likes to benchmark itself against, it is also trailing the broader upper middle-income group it already belongs to.

This matters because productivity growth hinges on innovation.

It improves when firms invest in better processes, new products, stronger technology, and more capable workers.

The World Bank has been explicit that productivity growth is central to Malaysia’s long-term progress, and that rising productivity will become the main engine of economic and income growth as traditional drivers moderate.

It has also noted that Malaysian firms that innovate tend to be more productive.

That last point deserves emphasis. When businesses do not spend enough on innovation, productivity growth weakens.

When productivity growth weakens, wages and competitiveness eventually come under pressure.

It becomes too easy to blame workers for not being productive enough, when firms are not giving them better tools, better systems, or better products to work with in the first place.

Labour productivity is not only a worker issue.

It is a capital allocation issue. It is also a management issue.

As a result, businesses would not be able to reach their true potential and scale up beyond Malaysia.

As for the workers, wages will always be pressured.

Earlier this month, Bank Negara Malaysia (BNM) revealed that wage growth in the country has failed to keep pace with inflation.

From 2019 to 2024, the headline consumer price index increased by 9.3%, while nominal wages per worker grew by just 7.2%.

In other words, this means that the average person must work more hours to afford the same basket of goods.

The central bank called for deeper structural reforms, one of which is to create more high-skilled and high-paying jobs.

It, however, pointed out that high-skill jobs made up only 26% of new positions in 2025, lower than the 2020 to 2024 average of 30%.

“This decline reflects Malaysia’s slow transition from low to high value-added industries, muted adoption of technology and low R&D investment,” BNM said in its 2025 annual report.

To truly strengthen Malaysia’s R&D capabilities, the nation must localise technological innovations and advancements.

Take the Malaysian semiconductor sector as an example, which shows both the strength and the weakness of the current model.

The strength is clear. Foreign direct investment (FDI) helped build jobs, exports and deep links into global value chains, especially in assembly, testing and packaging and electronics manufacturing services.

But, a recent report by Asean+3 Macroeconomic Research Office makes clear that Malaysia’s semiconductor development has been largely FDI-led, with multinational corporations (MNCs) shaping the pace and direction of upgrading.

That means Malaysia’s move into higher value activities depends heavily on MNC decisions, while the government has limited room to compel knowledge transfer or technology upgrading.

This is a useful warning. Malaysia cannot build an innovation economy by depending too heavily on decisions made in foreign boardrooms.

FDI remains necessary and welcome but a country that wants to move up the value chain needs stronger domestic innovation capacity of its own.

Otherwise, it risks being useful, but not indispensable.

The private sector’s role here is impossible to avoid.

Chang himself pointed to the structural issue that around 90% of Malaysian businesses are small and medium enterprises, many of which focus on survival rather than future technologies.

While it is understandable at the firm level, it becomes costly at the national level.

If most businesses are too small, too cautious, or too undercapitalised to invest in R&D, then Malaysia ends up with an economy that is busy but not upgrading fast enough.

Government spending alone will not solve this.

Fiscal space is not unlimited.

But limited fiscal space is no excuse for weak prioritisation.

The question is not only whether Malaysia is spending enough on R&D.

It is also whether the money is being channelled into the right areas, with the right discipline, and with a sharper focus on commercialisation, industry linkages and measurable outcomes.

That means fewer announcements designed to sound futuristic and more pressure on delivery.

It means funding should be tied more tightly to sectors where Malaysia has a realistic path to deepen capabilities, including semiconductors, advanced manufacturing, medical technology, energy systems, agritech and industrial software.

It means universities and public research institutions must be rewarded not only for papers and conferences, but also for patents, licensing, spin offs, and industry collaboration. It means grant systems must become faster, cleaner and less fragmented.

And it means Malaysia needs more medium and large domestic firms willing to treat R&D as a core business function rather than an optional add-on.

There is already evidence that the present model is not enough.

The Statistics Department said total R&D expenditure in 2022 amounted to RM12.8bil, with manufacturing dominating the total.

Yet even with these outlays, official reviews continue to show the national ratio stuck at around 1%.

Malaysia has talked about low R&D spending for too long.

The continuity is striking.

Najib said it in 2014. Chang is saying it in 2026.

If the same diagnosis survives changes in administration, then the problem is no longer rhetorical but rather institutional.

And until Malaysia fixes it, the country should stop pretending that weak productivity is mainly a worker’s failure.

An economy that underinvests in research, technology and commercial innovation should expect mediocre upgrading.