A New Source of Growth for Malaysia: Digital Trade and the Digital Economy

A New Source of Growth for Malaysia: Digital Trade and the Digital Economy
By Dr Juita Mohamad on 01 July 2021

South-East Asia | Economic Integration

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MSMEs are crucial to the growth of Malaysia’s digital economy

 
The outbreak of COVID-19 and resulting movement restrictions throughout Malaysia have triggered a boom in digital trade for businesses and micro, small and medium enterprises (MSMEs). Food delivery services, for example, have recorded a 30 percent increase in total orders since March 2020.
 
This increase in online orders was matched by a sharp spike in digital platform registrations by retail businesses, marts and restaurants that saw digitally-enabled trade as an opportunity to reduce revenue losses and retain customer bases while the Movement Control Order (MCO) limited in-person consumer activity.
 
The pandemic made it clear that digital trade promotes inclusiveness and a somewhat level playing field. As digital trade platforms enable sellers and restaurants to continue providing their services during movement restrictions, income flow has remained relatively steady and encouraged the formalisation of businesses. Even when businesses do not have a physical restaurant or shop, they can operate from their homes.
 
There is huge potential when it comes to digital trade in the digital economy. According to a 2018 report by the Department of Statistics Malaysia’s (DOSM), Malaysia’s digital economy – including e-commerce and information technology – is estimated to be about RM270 billion, or about 18.5 percent of GDP.
 
As Malaysia faces the 4th Industrial Revolution and policymakers work towards overcoming the myriad hurdles to bring Malaysia into the ranks of the world’s high-income economies, it is becoming increasingly important to strengthen and support the local digital economy ecosystem. By strategically tapping into the digital trade sector, the Malaysian government can propel the MSME community to be more competitive in both the local and international markets.
 
The MSME community is critical to Malaysia’s economy and accounts for approximately 98% of total business establishments in Malaysia. Even before the pandemic, MSMEs provided a significant portion of employment for Malaysians. In 2018, it was recorded that 66.2 percent of the workforce in Malaysia were employed by SMEs. In the same year, SMEs contributed RM 522.1 billion to GDP, equivalent to almost 40% of GDP.
 
The growing importance of digital trade and digitalisation in Malaysia was recognised in the 2021 Budget. The Malaysian government will prioritise MSMEs in post-pandemic recovery by allocating funds towards promoting digitalisation and automation across different sectors.
 
While the digital economy provides significant opportunities for growth, there are hurdles yet to be overcome in order to MSMEs to fully take advantage of these benefits. Recently, it was highlighted that Malaysian businesses have been slower than expected to adopt digital technologies, lagging behind the global average with only 29 percent of businesses having a web presence, and just 5.2 percent of businesses engaged in e-commerce in 2015.
 
Government support is needed to overcome these challenges and equip MSMEs with the proper knowledge, infrastructure and tools in the immediate term to facilitate the growth of this important sector. Looking ahead, the establishment of a strong and resilient digital economy cannot be emphasised enough, especially when Malaysia is expected to join in more multilateral, mega-trade like the CPTPP.
 
Bolstering the sustainable growth of Malaysia’s digital trade both locally and internationally would be vital to both unlocking productivity gains in the Malaysian economy, and propelling Malaysian businesses into the international arena. Policymakers need to pay close attention to the inclusiveness of these efforts to ensure that, first and foremost, MSMEs and smaller businesses are included as an integral part of these efforts.


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Dr Juita Mohamad, a 2021 Indo-Pacific Fellow, wrote A New Source of Growth for Malaysia: The Digital Trade in the Digital Economy, an Indo-Pacific Analysis Brief, for the Perth USAsia Centre. 

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