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Malaysia to dish out RM500 million for venture cap

October 29 1999, Kuala Lumpur -- Malaysia has proposed that central bank, Bank Negara Malaysia, and two commercial banks provide RM300 million to finance venture capital companies (VCCs) to support its drive to shift to a knowledge-based economy.

"VCCs will (also) be given full tax exemption on all sources of income received during its life span or for a period of 10 years, whichever is earlier, " said First Finance Minister Daim Zainuddin said when unveiling the federal budget in parliament today.

He said the tax holiday, however, carries the caveat that VCCs invest at least 70 percent of its funds for seed capital, start-up capital and first stage financing.

Daim said the government was additionally allocating RM200 million to set up a venture capital fund to finance high-tech projects.

He said in line with that, the industrial bank Bank Industri Malaysia Berhad, previously associated with such funding, will be restructured to reflect its high-tech role and will be renamed Bank Industri dan Teknologi Malaysia Berhad (Industry and Technology Bank).

Entrepreneur body, Perbadanan Usahawan Nasional Berhad, will also introduce Islamic venture capital to provide financing facilities to Bumiputera (native) entrepreneurs.

The proposals are expected to be welcomed by companies struggling to raise venture capital for software development and information technology projects. Local banks have previously been criticized for being unsupportive with loans and are skewered more towards property and construction sectors.

Malaysia is projected to record 4.3 percent Gross Domestic Product (GDP) growth in 1999 and 5 percent in 2000. The expansion was in sharp turnaround from 7.5 percent contraction in 1998, the first recession in 13 years, and will beat its earlier conservative projections of one to two percent growth this year.

The budget for the year 2000 provides for government spending of 78.03 billion ringgit and a deficit of RM12.97 billion, or 4.4 percent of gross national product.

Daim said the government needed to improve research activities and develop desperately-needed human resources for the new millennium.

"New technology and R & D (activities) need to be upgraded, given that currently R & D expenditure is still low at 0.3 percent of GNP compared with 3 percent in the United States and Japan," he said.

A sum of RM226.85 million will be allocated for the Intensification of Research in Priority Areas (IRPA) program that will be shared by 36 public research and higher education institutions.

Daim said the government has also laid the foundation for a knowledge-based economy with the Multimedia Super Corridor, where-in 19 companies are already operating.

The four MSC flagship applications E-government, Smart Schools, Telemedicine and National Smart Card have also received RM1.07 billion under the Mid-Term Review of the Seventh Malaysia Plan.

On the Y2K bug in the public sector, Daim said RM470 million ringgit was provided to 23 ministries and departments to upgrade or replace hardware and software and redevelop application systems. Of this sum, RM405 million is expected to be spent in 1999.

To generate skilled manpower for its IT push, Daim said enrolment in science and technology in the institutions of higher learning will be increased and community colleges will be set up to provide more opportunities for post-secondary education.

"The establishment of new institutions of higher learning by the private sector is also encouraged," he said.

Daim also proposed that private institutions of higher learning get reimbursements of up to 95 percent under the Human Resource Development Fund for the cost of staff training in the fields of medicine, engineering and computer science.

Although much of the budget seemed aimed at bringing cheer to the man-in-the-street as a pre-election ruse, Daim denied it was to fish for votes. "As a responsible Government we do not use the Budget for political advantage nor to garner votes."

Daim insisted that "statistics do not lie" and the country was well on the road to recovery mainly because of the capital control measures and corporate restructuring initiated by the government.

In closure Daim also said there was a change in political culture in Malaysia, singling out Web sites as a means to "spread messages of hate" on the nation's leadership.

"We must constantly be vigilant to negative foreign influences that are envious of our success," he said calling the budget a "people's budget".

(US$1 = RM3.80)

(Published in CNET Asia, October 29, 1999)

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Copyright 1999 Julian Matthews.   Disclaimer