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Budget 2023: Powering the digital economy by resolving the digital and data divide

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By Professor Dr. Hafezali Bin Iqbal Hussain

The term digital divide can be explained by looking at the gap between demographics and regions that have the ability and capacity to access modern communications technology relative to those who don’t. The division arises from technical proficiency, financial ability as well as access (or rather the lack of it) to the internet. A gap which widens as technology develops. This has created a new category of inequality in this century.

In the early part of the digital revolution, digital divide often referred to the gap between those who had access and could afford mobile phones versus those who did not. However, in today’s context the gap refers to the division, which is evident in developing versus developed countries, communities living in cities versus those living in rural areas, segments of society which are younger and more educated versus those who are older and less educated as well as between men and women. The pandemic highlighted the digital divide between demographics as learning shifted online across the country, a student from remote parts of the country had to trek through the jungle and climb a tree to get internet signal. It serves as a poignant example where the innovation achieved from online teaching and learning, which took years to develop, is facing a technological bottleneck.

The data divide, an effect which arises from the digital divide, is a disparity between the ability to create commercial value from the use of data to gain wealth and solve social and environmental challenges.

This has created a gap between the data have and have-nots.  The traditional economic model which concerns output (production of goods and services) requires decisions on what to produce, how it will be distributed across the economy as well as what is done from the earnings of the production. In today’s world, the digital economy is redefining the main choices that need to be made in the context of a new model: the ability to monetize large volumes of digital data as well as platformisation. Digital platforms have now become central actors in the economy whilst data is the key resource in the economic process. The interaction between the two creates value and the ability to utilize the outcome of the interaction will affect the ability to capture the value being created.

In the Malaysian context, the digital economy has emerged as a key part of creating value and distribution during the pandemic and is expected to keep growing. Thus, businesses across the country will need to adapt and identify ways in which value is being created. However, the micro and SMEs have struggled to transform their businesses and partake in the digital economy. The main reason behind inability to transform arises from the access and use divide given the limited access to technology and the skills necessary to unlock the potential from digitalisation. In addition, the data divide also creates a gap between the Davids versus the Goliaths due to the quality-of-use gap where large corporations are far more able to harness opportunities from data relative to their smaller peers.

The digital and data divide points towards a structural problem in the nation’s strive towards harnessing the potential gains from the digital economy. These firms’ risk being left behind and missing out on the economic gains as the country focuses on reaping the benefits of digitalisation. Business owners facing these problems which require rapid adaption will be facing a dilemma as it triggers a flight, fight, or freeze response from the behavioural perspective. This is where fear and inertia may cause small businesses to adopt the freeze response rather than embracing change. These firms would end up doing nothing at all and focusing on survival. Thus, there also needs to be a greater push to increase the uptake of digitalisation by removing the scepticism which could prove costly for these small businesses and society. 

Given that SMEs employ most Malaysians it is critical that the budget aims to close the gaps in connectivity and skills given that it leads to differences in wealth. A widening gap would also potentially lead to greater gender discrimination as well as lower social mobility. Micro and small businesses are seen as riskier by traditional banks and financial institutions. In addition, considering that these firms lack the skills to prepare proper financials they would typically have limited financial history which is an important criterion for credit underwriting.

Incentivising these businesses to shift to a digital model allows a greater ability to now partake in the financial ecosystem given that transactions are now having an electronic trail. For starters, banks, and financial institutions and even the upcoming digital banks would be able to form partnerships with these firms to provide small ticket financing which are tailored to suit their needs based on the ability to harness transactional data which came about due to the shift to a digital model. To resolve affordability of smartphones and laptop computers among the micro and small firms, the budget would also need to provide interest free financing to make the shift affordable. In addition, internet tariff subsidies would attract a greater degree of adoption of platformisation among the smaller firms. The two-pronged strategy will enable greater interaction between the ability to monetize data as well as platformisation among entrepreneurial SMEs. Overall, it will lead to economic growth which is more robust and sustainable.

  • Overall, the budget as expected was expansionary, in-line with the expected headwinds in the economy especially on the global front as well as slowdowns in major trading partners.
  • Projected growth of 4.0 – 5.0% is a good indicator on the economic resilience of the country, which is expected to be driven by the services sector.
  • The increase of quantum as well as coverage for financial aid under JKM and BFM is well planned given that the execution is followed on by funding the social mobility for those in the hardcore poor category which includes initiatives for venturing into farming, services sector as well as other potential entrepreneurial endeavours. 
  • The focus on gender equality is also evident given various initiatives which include tribunals for sexual harassment as well as funding for women entrepreneurs under various schemes. In addition, the push for increasing the role of women in corporate leadership via the Securities Commission also would be beneficial for corporate Malaysia given that empirical evidence shows numerous benefits of having gender diversity on boards which include reduction in excessive risk taking as well as more prudent investment decisions. The sustainability of the current economic recovery is also supported via the introduction of return-to-work incentives which is the tax exemption from 2023 to 2028 for women who have taken career breaks.
  • The pre-school financial aid for RM 150 per child regardless of income will provide much needed relief to parents whom children are returning to school.
  • Income tax reduction of 2% for the M40 will be helpful in increasing the disposable income which allows those in this income strata to cope with the expected increase in cost of living.
  • ePemula initiative for the youth and M40 will accelerate digitalisation efforts.
  • In September 2022, Dr Mohsin Ali and Prof Dr Hafezali wrote in the Edge about the importance of insuring gig workers, thus we are happy to see the SOCSO mandate being enhanced for gig workers where implementation has also been made feasible with an 80% subsidy from the government.
  • The increase of stamp duty exemption from 50 to 75% for houses from RM 500,000 to RM 1million will encourage more young people to purchase their first house. This is especially important given that those purchasing houses in these price brackets are not qualified for government affordable housing schemes.
  • Reduction of income tax for SMEs for the first RM 100,000 from 17% to 15% will prove encouraging for entrepreneurs, likely leading to expansion of business in the following years.
  • The fund allocation of RM 10b for SMEs in order to facilitate the automation and shifting to a digital business model will ensure resilience and sustainability going forward. It provides a much-needed boost to transform these businesses in the ongoing economic recovery.
  • Anti-scam measures will ensure the resilience of the digital economy as well as ensure trust and security in online transactions.
  • Increasing connectivity of rural areas as spelled out in the budget will reduce the digital divide and provide greater opportunities leading to reduced income inequality.
  • Increasing the coverage of 5G across densely populated areas serves as another impetus in focusing on the digital economy and benefits will be enjoyed across the board allowing firms to harness the power digital technologies hence reducing the data divide

Professor Dr. Hafezali Bin Iqbal Hussain is the Head of Research in the Faculty of Business and Law and Director of Digital Economy and Business Transformation Impact Lab at Taylor’s University. Taylor’s Business School is the leading private business school in Southeast Asia for Business and Management Studies based on the 2022 QS World University Rankings by Subject.