NEWS FROM ASIA-PACIFIC

Julian Matthews, Kuala Lumpur

Multimedia Super Corridor
Marred by Delays

The region’s financial crisis has taken its toll on Malaysia’s Multimedia Super Corridor (MSC) project and doubts have begun to arise on its viability.

The lofty plans to turn a 750-square-kilometer greenfield area south of Kuala Lumpur into a mecca for tech-savvy entrepreneurs of the information age went askew when the economy sunk into recession last year, its first in 13 years.

Delays in key infrastructure, slashed budgets for flagship applications, and the introduction of controversial capital controls has soured the investment climate for the project.

According to a banking source at least 20 local start-up companies with MSC status are already in dire straits.

MSC status qualifies the companies for ten-year tax holidays and unlimited foreign equity and import of knowledge workers.

“The government is trying to rescue them but I believe many of them will have to go under,” he said.

The source says a key failure for the companies was the inability to raise additional seed capital that forced them to downsize and release staff.

“Some of the management and staff of these companies have had to forego salaries since June last year,” he said.

The year and half-long delay for the launch of Mesdaq, a new technology stock market, modeled after the US-based Nasdaq stock market, and aimed at raising venture capital for MSC companies, added to their woes.

“Many companies looked forward for the Mesdaq to provide desperately needed funds to keep their operations going,” he said.

The source said that the companies also found difficulty convincing local venture capitalists and financial institutions to release funding.

“Most bankers and venture capitalists are ultra-conservative. They would rather invest in manufacturing, trading or property rather than software or technology-oriented ventures which they deem as too risky,” he said.

 

Credit Controls Hurt

The credit squeeze was worsened when Prime Minister Mahathir Mohamad introduced capital controls in September which pegged the ringgit to the US dollar and prevented investors from repatriating profits for one year.

One MSC investor, who spoke on agreement his company would not be identified, said those who may have been interested in the project before, have all been spooked by the move.

“Having invited the world to embrace the project, the government must also learn to listen to outside views prior to embarking on sudden moves that will jeopardize the project,” he said.

The investor said the Multimedia Development Corp (MDC) which oversees the project has also made some questionable administrative moves in a bid to stem waning interest.

The agency which is responsible for approving applications for MSC status, recently reduced the cost to apply by one fifth from about

US$2,630 to about US$526, and stated approval was automatic if the companies did not hear from the MDC within 30 days.

“Given their usual foot-dragging, this opens the floodgates for all sorts of companies to obtain MSC status,” he said.