Malaysia Raises Ante On Venture Cap For IT Companies

Posted on October 29, 1999 
Filed Under Julian, Newsbytes

By Julian Matthews

Malaysia is earmarking 200 million ringgit (US$52.6 million) to set up a venture capital fund for high-tech projects and proposes a tax-holiday for venture capital companies (VCCs), First Finance Minister Daim Zainuddin announced today in parliament as part of his federal budget speech.

“Financing of venture capital must be enhanced to encourage the development of new high technology industries as the engine of economic growth,” said Zainuddin.

He added the government is also proposing central bank, Bank Negara Malaysia, and two commercial banks set up another fund worth 300 million ringgit ($78.9 million) to finance VCCs.

However, he said at least 70 percent of the funds given must go for seed capital, start-up capital and first stage financing of promoted activities such as advanced electronics, biotechnology, precision engineering, advance manufacturing and information technology.

Daim said VCCs will also be given tax holidays for ten years or for the duration of its life span, whichever is earlier as a means to encourage their growth.

The financing will go a long way in raising venture capital growth in Malaysia and support its Multimedia Super Corridor project since stymied by lack of support in that area.

The minister said that, although the government was pushing information technology (IT), the private sector also needed to boldly shift from a production-based economy (P-economy) to a knowledge-based one (K-economy).

“To assist in this transformation, the Government will allocate 5 million ringgit ($1.32 million) to develop a K-economy Master Plan. Malaysia will also host the Global Knowledge II Conference in early 2000,” he said.

Malaysia is expected to record 4.3 percent gross domestic product (GDP) growth in 1999, signaling a recovery from the recession of 1998 when its economy contracted by 7.5 percent. A 5 percent growth is projected for 2000.

The budget for the year 2000 provides for government spending of 78.03 billion ringgit ($20.5 billion) and a deficit of 12.97 billion ringgit ($3.41 billion), or 4.4 percent of gross national product.

Daim pointed out that Malaysia was also lacking in research activities and skilled workers. “Currently R&D (research and development) expenditure is still low at 0.3 percent of GNP compared with 3 percent in the United States and Japan,” he said.

He said enrollment in science and technology courses in public universities will be increased and new private sector institutions also set up to meet the lack of human resources.

Daim said so far 19 companies are already operating in the Multimedia Super Corridor and 1.07 billion ringgit ($281.6 million) allocated for four flagship applications: E-government, Smart Schools, Telemedicine, and National Smart Card.

Exchange rate: $1 = 3.80 ringgit

Published in Newsbytes, Oct 29, 1999.

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