Malaysia’s MSC: Back on Track But Flaws Remain

Posted on May 28, 1999 
Filed Under CNET, Julian

Malaysia’s Multimedia Super Corridor (MSC) project became an easy target for critics last year during its political and financial upheavals.

Street demonstrators were violently arrested in the capital city, anti-government Web sites were monitored, cybercafes were asked to take down personal details of patrons, and foreigners were blamed by the government for all its economic woes.

Could this be the same government vigorously supporting the information age and promising to build a high-tech Silicon Valley of the east?

At the Asia Pacific Economic Cooperation meeting in Kuala Lumpur last November, U.S. Vice President Al Gore joined the mounting chorus against Malaysia when he told delegates: “Any government that suppresses information suppresses the economic potential of the Information Age.”

Renowned author Alvin Toffler pitched in with critical letters to international media.

“The Internet cannot deliver its full economic and cultural benefits in a climate of political fear,” he stated. “Can anyone imagine Silicon Valley, with its pronounced libertarian culture, generating endless innovations and whole new industries in the presence of political repression?”

The comments were in stark contrast to the exuberant response and a flurry of compliments Malaysia received when it first announced the project in 1996.

Even Toffler, in his visit last August as a member of the International Advisory Panel to the MSC, had commended the project for having a broad development framework not only covering technology but also legal, education and cultural components.

One man’s vehicle to the stars

Undoubtedly, the project is ambitious in its scope. The MSC is a 750 sq km area, mostly covered with palm oil and rubber plantations, to be transformed into integrated “intelligent” cities to host government ministries, research institutions and technology companies.

Participants would collaborate, experiment, develop and commercialize new laws, products and services and serve it up to the global marketplace via high bandwidth links.

Prime Minister Dr Mahathir Mohamad had chosen the MSC as his vehicle to the stars. It was to be his crowning achievement after 18 years in power. The MSC would be the pulsating hub of the new digital economy. It would pull his people out from being an agricultural backwater and industrial sweatshop into the Information Age.

The carrot to draw investors to commit early to the project was the government’s offer of “MSC status”.

Companies with MSC status were promised 10-year tax holidays, unrestricted import of knowledge workers, 100 percent foreign ownership of companies, globally competitive telecom tariffs, and preference to tenders for key MSC infrastructure contracts.

Mahathir became the project’s No. 1 salesman, whizzing to the U.S., Japan and Europe to entice investors.

Until September last year, despite the recession, Malaysia’s MSC seemed still on course. The government had formulated pioneering laws on computer crime, digital signatures, telemedicine, copyright and multimedia convergence. The promised infrastructure was being built, and multinational companies had pledged investments.

Then came the jolt.

And it came to pass…

Mahathir, stunned the world by introducing radical currency controls, pegged the ringgit at 3.80 to one U.S. dollar, made the ringgit non-tradable abroad, and locked in stock investments for one year.

He then sacked his deputy and anointed successor Anwar Ibrahim, who was also Finance Minister, for apparent sexual misconduct.

Anwar was deputy chairman of National Information Technology Council and chairman of the MSC Founders’ Council; two key policy-making bodies on the MSC.

As Finance Minister, Anwar had deferred mega projects favored by Mahathir, including the second phase of Putrajaya, the government’s new administrative capital which was a key component of the MSC and the center of an experiment in electronic government.

Anwar’s subsequent arrest on Sept 20, 1998, and the infamous black eye received while in police custody were to incense the world.

A pall of uncertainty descended on Malaysia, and the world pondered the MSC’s viability.

To his credit in the last eight months, Mahathir has closed ranks in his party and government, and persistent speaking engagements and damage control efforts to the international community appear to have paid off.

In April, Anwar was convicted and jailed for six years for using his position to get police to cover up sexual allegations, sounding the death knell for his political career.

The former Finance Minister’s positions in government were replaced, and the chief of police who assaulted him in jail has since resigned, confessed to the beating to a royal commission, and faces trial. The street demonstrations dwindled, then faded away.

By all indications, the battered economy has bottomed out.

Rating agencies have upgraded Malaysia from “negative” to “stable”. The International Monetary Fund, whose aid Malaysia refused at the height of the crisis, and the Asian Development Bank have both conceded that the country’s economy is on the mend.

Signs of revival are creeping in and with it renewed interest in the MSC.

Down the corridors of power

The Multimedia Development Corporation, the one-stop agency developing and promoting the MSC, claims 214 companies have received MSC status as of April 28 this year.

“Of these companies 139 are already operational with 9,916 employees and investments worth 1.193 billion ringgit (US$314 million),” said its executive chairman Dr Othman Yeop Abdullah in a statement.

Othman said 29 of the approved companies can be considered “world-class”.

“Considering that we opened application only in early 1997 and targeted to attract 50 such companies by 2003, I think it is a great achievement by any standard,” he said.

Othman reaffirmed that MSC companies are exempt from capital controls and Malaysia will not censor the Internet, albeit with a caveat: “But the moment you download and disseminate any information deemed as seditious or pornographic, then your actions come under existing laws.”

He adds that the cybercafe ruling to register patrons has also been lifted.

Infrastructure-wise, the initial phase of Putrajaya has been completed and the Prime Minister and 850 staff of his department will start shifting next month, after an eight-month delay.

The shift will be the first wave of government ministries and departments migrating to the new complex from Kuala Lumpur, and will have about 16 million sq ft of gross office floor by year’s end.

Located 25 km from KL, Putrajaya is a sprawling township of over 4,581 hectares which will support a population of 330,000. It is expected to be completed in stages over 20 years at the cost of 22 billion ringgit (about US$5.8 billion).

Putrajaya is the twin city to Cyberjaya, also a key component of the MSC, and being built as the host city to technology companies.

Othman said the opening of Cyberjaya scheduled for year’s end has been brought forward to mid-year as an indication that the project is on course.

An express rail link project linking the Kuala Lumpur International Airport, which is the southern gateway to the MSC, and the capital city, is also back onstream after being bogged down by contract delays. Set to be ready last June, its completion date has been pushed forward to the first quarter of 2002.

Mesdaq, the high-tech stock market styled after the U.S.’ Nasdaq Stock Exchange, was finally launched last month after an 18-month delay. Mesdaq was targeted for technology companies, particularly in those in the MSC, to raise much-needed capital to fund their ventures.

Emerging from a black hole

Investors of MSC status companies continue to pledge their support for the project.

“Malaysia is the right place for us to build our technology, to innovate and to do the very complex development work,” said Biztone.com CEO Darryl Carlton. Carlton is pioneering the delivery of Java-based Enterprise Resource Planning software over the Internet, and shifted base from Australia two years ago.

He admitted that Malaysians lack skills in international product management and marketing but is optimistic “that this will change over time”.

Content aggregator Alam Teknokrat Sdn Bhd, which operates the Alta Vista search mirror for the Asian region, spent US$7 million in the last two years and plans to expand staff from 20 to 60 by the year 2001.

“The implementation of capital controls did not affect us. In fact, the fixed exchange rate helped plan our business with more certainty. The latest positive indicators justified the policy,” said Aimi Aizal, director of sales and marketing.


New world order?

Boston Tan, a director of software developer Software International Sdn Bhd, another MSC company, said the project had taken a lot of flak due mainly to the stalled economy which caused a chain reaction of delays.

“There were high expectations because of the hype,” he said. “But the vision of a single location to share knowledge and exchange ideas has not been lost.”

He agreed that the venture capital market is still under-developed, but the MSC “is not a ticket to money and companies should not wait for hand-outs”.

“The government and MNCs can’t play Santa Claus. Companies must have sound business plans,” he added.

Software International’s Tan said the MSC needs to score a few success stories in order to raise its credibility.

One investment adviser, who declined to be named, noted that even if the economy was out of the woods, the flaws in the MSC remain.

He pointed out that Malaysia still had a chronic shortage of skilled labor, technical staff and software expertise, and had a high piracy rate.

“Bankers and financial institutions are still overly cautious towards funding technology ventures. They would rather put their money in construction and property development, things they can see and feel, rather than a software startup,” he said. He added that such ignorance was a serious stumbling block to the MSC.

“To get to a knowledge-based economy, one must also promote the free exchange of ideas and opinions and openness rather than suspicion and distrust. The accusations hurled at the media and Internet users, and the Anwar incident, did more harm than good,” he said.

As late as last month, Mahathir rapped Malaysians for spreading “lies through the Internet”.

“This is like a knife, a sharp knife, that we can use to carve beautiful things or to kill people. But those with no brains use it to destroy other people,” he was quoted as saying.

Can a government that claims it will not censor the Internet continue to deal with such free flow of information? Only time will tell and the MSC’s success depends on it.

Published in CNET Asia, May 28, 1999: Pg 1 | Pg 2 | Pg 3 | Pg 4 | Pg 5 | Pg 6
by Julian Matthews, Malaysian correspondent

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