Can Malaysia Escape the "Emerging" Tech Market Label? A Realistic Look at Malaysia's Tech Future with Dr. Sekar Jaganathan

Dr. Sekar Jaganathan analyzes Malaysia's tech ecosystem, from AI and fintech growth to scaling challenges and its strategic niche in Southeast Asia's digital economy

Malaysia's tech ecosystem can avoid becoming a perpetual "emerging" market by leveraging its unique position as a digital infrastructure and specialized capability hub, rather than competing directly with regional giants.

To talk about this, we turn to Dr. Sekar Jaganathan, Chief Business Officer at Kenanga Group, whose analysis reveals a nation in strategic transition. He details how government initiatives like MyDigital and the National AI Roadmap are catalyzing growth in AI and fintech, while traditional sectors like manufacturing and energy undergo a pressured but vital digital transformation.

However, Dr. Sekar identifies a critical "Funding Valley of Death" and persistent talent drain as systemic constraints that threaten this potential. The ensuing discussion explores whether Malaysia's focused bet on Islamic fintech, AgTech, and its role as ASEAN's data center can secure its place as a next-wave tech leader.

Interview with Dr. Sekar Jaganathan

How would you describe the current state of Malaysia's tech and innovation ecosystem, particularly in areas like Al, fintech, and digital transformation?

Malaysia's tech ecosystem has evolved from nascent experimentation to strategic execution across three critical domains. The artificial intelligence sector demonstrates growing sophistication, with government-backed initiatives like the National AI Roadmap 2021-2025 catalyzing adoption in healthcare diagnostics, smart city infrastructure, and supply chain optimization.

Local AI startups such as FavePay and Aerodyne are gaining regional traction, though enterprise-scale deployment remains concentrated in multinational operations. In fintech, Malaysia has emerged as Southeast Asia's second-fastest growing market, with digital banking licenses awarded to five consortia in 2022 driving unprecedented competition.

E-wallet penetration reached 87% among urban populations, while blockchain-based remittance platforms reduced cross-border transaction costs by 40%. The Securities Commission's regulatory sandbox has enabled 73 fintech experiments since 2016, fostering innovation while maintaining oversight. Digital transformation initiatives have accelerated across public and private sectors, with cloud adoption growing 68% annually and cybersecurity investments tripling since 2020.

However, infrastructure gaps persist in rural areas, and talent concentration in Kuala Lumpur creates regional imbalances limiting inclusive growth potential.

What key government initiatives or policies have been most effective in supporting Malaysia's tech sector growth in recent years?

MyDigital Initiative Launched in 2021, this comprehensive blueprint targets 70% digital economy contribution to GDP by 2030. It allocates RM70 billion in public-private investments toward 5G infrastructure, data centers, and digital literacy programs—reaching 500,000 SMEs through subsidized digitalization grants. Malaysia Tech Entrepreneur Programme (MTEP) This visa initiative attracts global talent by granting 5-year passes to foreign tech founders and specialists.

Since 2018, MTEP has drawn 2,300+ innovators, with participating startups generating RM890 million in revenue and creating 4,200 high-value jobs. Penjana Kapital & Cradle Fund Government-backed venture capital mechanisms providing RM500 million in early-stage startup funding.

Penjana's co-investment model has catalyzed RM1.8 billion in private capital, while Cradle's grant-to-equity conversion supports 150+ pre-seed companies annually. Digital Free Trade Zone (DFTZ) An e-commerce ecosystem enabling SMEs to access global markets through streamlined logistics and regulatory clearances.

The DFTZ framework reduced export compliance time by 60%, empowering 8,000+ Malaysian businesses to participate in cross-border digital commerce. During the 2026 Budget announcement on Friday 10, October 2025, a whole lot of initiatives were announced to accelerate Malaysia’s position as an AI nation.

What are the main challenges Malaysian startups and businesses face when scaling-access to funding, talent retention, or global market entry?

The Funding Valley of Death While seed funding is accessible, Series A+ capital remains scarce. Malaysian VCs deployed just $1.2B in 2023 versus Singapore's $8.4B, forcing promising startups to relocate for growth capital. Limited institutional LP participation and conservative risk appetites create a $50-200M funding gap for scale-stage companies.

Talent Migration Dynamics Malaysia loses 30% of tech graduates to Singapore and Australia within three years post-graduation. Salary differentials of 40-60% for senior roles, combined with perceived career ceiling constraints, drive continuous brain drain.

Remote work trends have paradoxically intensified this challenge, enabling borderless talent competition. Market Access Barriers Regulatory fragmentation across ASEAN markets requires duplicative compliance investments.

Malaysian startups face limited brand recognition internationally, struggling against Singaporean competitors' perceived credibility advantage. Export promotion mechanisms remain under-resourced compared to manufacturing sector support.

How is Malaysia positioning itself within Southeast Asia's digital economy, and what competitive advantages does it offer compared to neighboring countries?

Strategic Positioning Malaysia has carved a distinctive niche as Southeast Asia's "digital infrastructure hub" rather than competing directly with Singapore's financial services dominance or Indonesia's consumer internet scale. The strategy centers on becoming the region's data center capital—hosting 60+ facilities with 850MW capacity—while developing specialized capabilities in Islamic fintech and halal supply chain technology serving 1.8 billion global Muslims.

Geographic centrality, political stability, and English proficiency create natural advantages for regional headquarters operations. Malaysia's IP protection framework ranks highest in ASEAN, attracting R&D centers from Huawei, Intel, and Dyson. The government's pragmatic approach to data sovereignty—balancing security with cross-border flow—positions Malaysia as a neutral ground for multinationals navigating U.S.-China tech tensions.

• ASEAN Digital Ranking: Ranked fourth in ASEAN, following Singapore, Indonesia, and Thailand.

• Cost Advantage: Operational costs are 40% of those in Singapore.

• Data Center Investment: US$2.1 billion has been committed to data center investment through 2026.

• Digital Workforce: The targeted number of tech-skilled professionals is 22 million.

How are traditional industries in Malaysia-such as manufacturing or energy-adapting to digitalization and emerging technologies?

There are some key pillars for the manufacturing transformation:

Assessment & Pilot Programs

Legacy manufacturers in Malaysia are actively engaging in Industry 4.0 readiness audits. These assessments are crucial for identifying current capabilities, uncovering digital gaps, and establishing the groundwork for future transformation initiatives.

By conducting these audits, manufacturers can better understand the specific areas that require modernization and set clear priorities for digital adoption projects.

Technology Integration

The integration of advanced technologies is accelerating across the sector.

Manufacturers are deploying Internet of Things (IoT) sensors to monitor production processes, implementing predictive maintenance powered by artificial intelligence (AI) to minimise downtime, and utilising digital twins to simulate and optimise factory operations. These digital solutions enable improved efficiency, higher quality output, and greater agility in responding to market demands.

Workforce Reskilling

To support the shift towards advanced manufacturing, there is a strong focus on workforce reskilling. More than 100,000 workers are being trained in new manufacturing skills, ranging from robotics to data analytics.

This investment in human capital ensures that employees are equipped to operate, maintain, and innovate with emerging technologies, reinforcing Malaysia’s competitive position in the regional manufacturing landscape.

Ecosystem Collaboration

Collaboration within the manufacturing ecosystem is expanding, with partnerships forming between multinational corporations (MNCs), small and medium-sized enterprises (SMEs), and research institutions. These alliances foster knowledge sharing, accelerate innovation, and facilitate the adoption of best practices across different segments of the industry, driving sector-wide progress.

Scale & Optimization

Proven digital solutions are being scaled across production networks, enabling manufacturers to optimise operations on a larger scale. By expanding successful pilot programmes and technology applications, companies can achieve greater consistency, cost-effectiveness, and productivity throughout their production facilities.

Digital Transformation in Malaysia’s Manufacturing Sector

Malaysia's manufacturing sector, which contributes 23% of the country’s GDP, is under significant pressure to embrace digitalization in order to remain competitive against regional peers such as Vietnam and Indonesia. The push for transformation is largely guided by the Industry4WRD National Policy, which has played a pivotal role in driving the adoption of smart factory technologies across the nation.

Since 2018, there has been notable progress, with 340 manufacturers implementing advanced automation solutions. Prominent electronics companies like Panasonic and Infineon have established showcase facilities that exemplify the benefits of digital transformation. These facilities utilize AI-driven quality control systems, resulting in a remarkable 73% reduction in defect rates.

Despite these advancements, the sector’s digital transformation is predominantly concentrated among large enterprises. Small and medium-sized enterprise (SME) manufacturers, which account for 76% of the sector, continue to face significant barriers. These include limited access to capital and gaps in digital literacy, which hinder their ability to adopt and leverage new technologies effectively.

Efforts to support SMEs through government-subsidized Industry 4.0 readiness audits have so far reached only 12% of eligible companies. The findings from these audits highlight stark disparities in implementation across the sector, posing a challenge to achieving comprehensive modernization and digital readiness for all manufacturers.

Energy Sector

Evolution Malaysia's energy sector is undergoing a profound transformation, driven by significant investments in digital technologies and a growing focus on renewable energy integration. Petronas, the national oil company, has spearheaded this evolution by investing $2.3 billion in digital transformation initiatives.

These efforts include the deployment of artificial intelligence (AI) for predictive maintenance on offshore platforms, which helps to identify and address potential issues before they escalate, thus improving operational efficiency and safety. In addition, blockchain technology has been implemented for liquefied natural gas (LNG) trading settlements, streamlining processes and enhancing transparency within the sector.

The adoption of digital solutions has also accelerated the integration of renewable energy sources into Malaysia’s energy mix. Since 2020, solar energy capacity has increased by an impressive 340%, a growth made possible in part by the implementation of digital grid management systems.

These digital systems have successfully reduced integration costs by 28%, making renewable energy projects more economically viable and attractive for further investment. Despite these advancements, the sector continues to face significant challenges.

The existing power grid infrastructure is aging and presents a major constraint to the widespread adoption of distributed renewable generation. To address this, an estimated $15 billion in smart grid investments will be required to modernize the grid and support the ongoing energy transition. However, there is resistance to digitalization among coal-dependent power producers, who are concerned about the risk of stranded assets.

This hesitation has the potential to slow the overall timeline for the sector’s transition towards a digital and renewable-focused future.

Looking ahead, what sectors in Malaysia do you see offering the strongest potential for tech-driven growth over the next 5 years?

HealthTech & MedTech Aging demographics and medical tourism revival position Malaysia for $8B digital health market by 2028. Telemedicine adoption surged 620% post-pandemic, while genomics research and AI diagnostics attract biotech investments. Government support for health data interoperability will unlock precision medicine opportunities.

AgriTech & Food Security Climate pressures and food import dependencies drive $3.2B agritech investment potential. Precision agriculture, vertical farming, and aquaculture automation can boost productivity 45%. Malaysia's palm oil industry digitalization creates exportable agtech IP for tropical agriculture markets across Africa and Latin America.

Supply Chain & Logistics Tech ASEAN's emerging manufacturing hub status requires sophisticated logistics infrastructure. AI-driven route optimization, autonomous warehousing, and blockchain-enabled trade documentation present $5B market opportunity. Malaysia's strategic location and port infrastructure create natural competitive advantages in this sector.

Islamic Fintech Malaysia's Shariah expertise and regulatory leadership position it to capture 35% of the $200B global Islamic fintech market. Digital sukuk issuance, halal supply chain financing, and zakat automation platforms offer unique differentiation unavailable to competitors. Government-backed Islamic Digital Economy Masterplan targets $12B sector value by 2030.

"Malaysia's competitive advantage lies not in replicating Singapore's financial services cluster or Indonesia's consumer internet scale, but in cultivating specialized capabilities at the intersection of Islamic finance, digital infrastructure, and traditional industry transformation—sectors where first-mover positioning still remains available."

Success depends on addressing systemic constraints: talent pipeline development, late-stage capital formation, regulatory agility, and execution excellence in translating policy ambition into market reality. The next five years will determine whether Malaysia captures its potential or remains a perpetual "emerging" technology market.