On March 22, Prime Minister Datuk Seri Najib Tun Razak officially launched the Digital Free Trade Zone (DFTZ), the first e-hub in the world that is established together with the Alibaba Group and the Malaysia Digital Economy Corporation (MDEC). The launch was done at the second Global Transformation Forum hosted by the Malaysian government.
Present at the event was founder of Alibaba, Jack Ma, together with many e-commerce representatives gearing up to hear about the future of Internet Economy.
You’ve probably come across many headlines detailing the launch of this e-hub but many still remain confused on why it’s considered such a big deal. We break it down to you to understand the big step taken by our country in an effort to spearhead Malaysia towards a more innovative economic future.
First up, let’s talk about who exactly is involved in this.
This project was first announced in Budget 2017 by our Prime Minister. The government allocated RM 162 million to implement programmes in alignment to the country’s goal of making 2017 the year of the Internet Economy. Examples of the programmes include the Digital Maker Movement and the Malaysia Digital Hub.
To further this vision, Najib brought Jack Ma on board as Malaysia’s digital economy adviser in hopes of being closer to becoming a fully sustainable developed digital economy nation.
Memorandum of Understandings (MoUs) have also been inked between Alibaba affiliates and Malaysian entities to enhance DFTZ. Some of them include:
- Malaysia Airports Holdings Berhad (MAHB) will work with Cainiao Network, the logistics arm of e-commerce giant Alibaba Group to develop a regional e-commerce and logistics hub in the KLIA Aeropolis, the planned integrated airport city, as part of the DFTZ.
- Catcha Group is made the master developer of the Kuala Lumpur Internet City (KLIC). The KLIC will be a component of the DFTZ, which aims to house at least 1,000 Internet related firms.
- Maybank and CIMB will work with Ant Financial Services Group, Alibaba’s financial payments arm, to enable the Alipay mobile wallet in Malaysia.
Now that you know the game players, time to understand what the game is about.
- The DFTZ is the world’s first special trade zone that will promote the growth of e-commerce by providing a state-of-the-art platform for SMEs and enterprises to conduct the businesses and services.
- This will be Alibaba’s first e-hub outside its home base in China. It’s meant to allow SMEs (small and medium enterprises) and “the younger generation” more access to global markets by lowering trade barriers.
- It’s part of Jack Ma’s plan to build an Electronic World Trade Platform (eWTP).
- It’s part of the National E-commerce Strategic Roadmap which aims to double Malaysia’s e-commerce growth from 10.8% to 20.8% by 2020.
- Malaysia plans to formulate an attractive package for the DFTZ to encourage more people to join the country’s e-commerce sector.
- Future plans include establishing an “independent satellite support service” which will complement the DFTZ facility.
Do Malaysians need to care about this?
Well, not all Malaysians need to perhaps, but those involved in businesses or have plans to do so should definitely take note of the huge advancements that can happen from this launch.
- Levelling up the playing field.
One of the biggest advantages of this is that it gives room for online traders to compete in a healthy environment.
The Minister in the Prime Minister’s Department in charge of the Economic Planning Unit (EPU), Abdul Rahman Dahlan said the concept would mirror the existing Free Trade Zone where businesses were given incentives, including tax exemptions.
“The establishment of DFZ would stimulate the economy as it gives room for online traders to compete in a healthy environment. Locations of the businesses will no longer be a hindrance to traders. For instance, a trader in Kota Belud would have an equal opportunity to market or sell his items, as a trader from the Klang Valley. This is the future of the digital economy,” said Abdul Rahman.
- Following demands of online shopping over in-store shopping.
The growth of e-commerce is inevitable. President of Malaysian Digital Association (MDA) Serm Teck Choon said with more Malaysians buying things online, DFTZ is sure to help in boosting up the whole e-commerce sector.
“Whether you are large corporations looking to start your e-commerce initiative, or an SME which is leveraging on digital, or even a consumer who wants to buy cheaper products online—you should benefit from the incentives including tax exemptions, especially if this digital free trade zone works similarly to other free trade zones in the real world,” said Teck Choon.
It’s said that through DFTZ, the purchase of goods via the Internet or e-commerce worth RM1,200 and below will be exempted from paying tax. This is a step up from the current rule where goods worth RM500 and below purchased through e-commerce were not subjected to any tax.
- Potential to boost the contribution from digital connectivity economy.
President of Internet Alliance (an association for Internet service providers) Chan Kee Siak said currently, the contribution from the digital connectivity is about 16% and that DFTZ could successfully boost it to as high as 25% and beyond as soon as by year-end.
“IA believes so because the local Internet community is a fast adapter and knows how to organically leverage on any (good) initiative quickly,” said Kee Siak.
DFTZ also has potential to double the growth rate of local SME’s goods exports by 2025 and create 60,000 jobs by then. Currently, SMEs contribute 37% GDP today where 97% of businesses are SMEs and microenterprises. With DFTZ, it can grow up to 60% to 80%.
The DFTZ is divided into 2 main phases.
- 1st phase: Developing a regional e-commerce and logistics hub near KLIA.
This hub will function as a centralised customs clearance, warehousing and fulfillment facility for Malaysia and the region. It’ll help speed up clearance for imports and exports.
The DFTZ will also be connected directly to Hangzhou’s Cross-Border E-commerce Pilot Zone (which is also the location of Alibaba’s headquarters) via Alibaba’s OneTouch e-services platform. It’ll digitise many of the trading operations like customs clearance, foreign exchange services, financing services and logistics solutions which will ease bilateral trade.
- 2nd phase: Kuala Lumpur Internet City (KLIC)
This is set to be the premier digital hub for global and local internet-related companies targeting Southeast Asia. It will facilitate end-to-end support, networking and knowledge-sharing aiming to drive innovation in the internet economy and the eCommerce industry.
KLIC will take the form of a 500,000sq ft area in Bandar Malaysia in Kuala Lumpur serving as a place for SMEs to get on board e-commerce as well as provide a place for startups who want to innovate in the area of e-commerce.
Catcha Group is the master developer and the project is estimated to have a gross development value of US$1.13 billion. The hub is expected to be launched end-2019.
The Future Of Malaysia’s Internet Economy
Being a part of Southeast Asia with a population of about 600 million, it’s crucial for Malaysia to leverage off modern economy means and find ways to work with other member countries. The DFTZ is one of the bigger stepping stones towards realising Gartner’s predictions that by 2025, every industry will be transformed by digital business.