POTENTIALS FOR EU SMES IN THE MALAYSIAN SMART CITY …...1.1. Country Profile ... crisis 2008 -09, the economy managed to recover quickly and to step out of the crisis with an even

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Market Report 2016

POTENTIALS FOR EU SMES IN THE MALAYSIAN SMART CITY SECTOR

Implemented By

SEBSEAM-MSupport for European Business in South East Asia MarketsMalaysia Component

Publisher:EU-Malaysia Chamber of Commerce and Industry (EUMCCI) Suite 10.01, Level 10, Menara Atlan,161B Jalan Ampang,50450 Kuala Lumpur.Malaysia

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Publication Date:August 2016

Disclaimer:‘This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of the EU-Malaysia Chamber of Commerce and Industry (EUMCCI) and can in no way be taken to reflect the views of the European Union’.

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SEBSEAM-M SECTOR REPORT: Smart Cities in Malaysia Smart Cities in Malaysia – Potential for EU SME’s is the first report that streamlines and analyses latest information on major smart city projects in Malaysia from a business perspective. Despite increased awareness for smart city solutions and heavy investments over the last two decades, a drastic information gap is found by the Support for European Business in South East Asia – Malaysia (SEBSEAM-M) project and will be addressed in this report.

The author of this report, EU-Malaysian Chamber of Commerce and Industries (EUMCCI), implements the EU co-funded project SEBSEAM-M which offers EU companies’ assistance in expanding business to Malaysia and utilising it as gateway to ASEAN. Having identified most potential sectors for EU firms, particularly small and medium sized enterprises (SME), SEBSEAM-M is providing industry insights through sector reports on four focus areas.

This smart cities report provides business insights by touching on professional services, transport and infrastructure, energy, utilities and environmental services. The research for this report is aimed towards providing tailored market information for EU firms after reviewing Malaysia’s governmental plans and consulting market insiders.

This report draws its sources from Malaysian governmental authorities and agencies’ official publications, mainstream Malaysian news portals, and authoritative sector-related research journals. EUMCCI and its partners are committed to the goal of being the one-stop authoritative and effective reference publication for EU firms seeking investment and business opportunities in the multicultural Malaysia.

2

Agribusiness Transport and Infrastructure

Energy

Utilities and Environmental

Services

Professional Services

i

Market Report 2016

Executive Summary

Malaysia positions itself as the minimal risk option investment destination that is at a more cost-effective level. Equipped with advanced infrastructure and the majority of the population is English-speaking, second only to Singapore which is centrally located in Southeast Asia. Malaysia is in a proximity with major global trading lanes of the South China Sea. Malaysia’s strategic position is consolidated with its stable political and economic climate in tandem with its strong trading track record with the EU and its leadership within the ASEAN Economic Community. Within a broad definition, smart city is an approach of enhancing a city’s life quality and economic efficiency through applying the latest technology. The role of smart technology becomes increasingly important due to a shift from rural to urban lifestyle around the world. The global trend towards urban living is particularly impactful in Asia, since the continent domiciles around 60% of the world’s population. With an expected urbanisation rate of 70% in 2020, Malaysia is amongst the Southeast Asian countries with the highest ratio of citizens living in cities.

Over the recent years, a strong emphasis on creating a beneficial environment for Information and communication technologies (ICT) companies has paid off, which is most evident in the Technology Readiness Index by the World Bank. Taking into account economic, social and political indicators, Malaysia has the highest ability to exploit ICT among upper-middle income countries and is considered to be on an equal level with Spain or Lithuania.

The Malaysian understanding of a smart city aligns with the Europeans, not least due to taking cities abroad as best practice. Local authorities align their development strategies on six components:• Smart Economy• Smart Government• Smart Mobility

Even though the national roadmap includes application of smart technologies for urban planning, there is not a single and clear lead institution yet. Consequently, projects are planned point by point whereas local authorities only give guidelines to selected master developers who have rather autonomous power to execute projects.

Market experts recommend to approach the master developers themselves in order to access smart city projects. The land developers are very open to foreign firms taking the initiative to promote their solution to them. If smart technology providers can guarantee profitability and sustainability, it is most likely that on top of being awarded to implement the project, they would also gain tax and employment incentives from the government.

• Smart Environment • Smart Living• Smart People

ii

Potentials for EU SMEs in the Malaysian Smart City Sector

This report will highlight five cities which are on their way of becoming smart. Each city has its unique characteristics and approach. A common challenge these cities face is to finding suitable partners which are able to plan, implement and maintain smart technologies.

These developments suggest a growing demand for developers, manufacturer and advisers for smart cities. More precisely, Penang is seen as the next on the list, being one of Malaysia’s largest cities and is currently investing heavily in the transport sector. Future related projects in Greater Kuala Lumpur area have already been confirmed. The most recent project is a modern urban area surrounding Kuala Lumpur’s international airport.

What do these mean for EU firms? These projects reveal a very positive landscape for smart technology providers. Considering the advanced development in the region and a more cost- effective level than Singapore, Malaysia is well-positioned as the minimal risk option for foreign direct investors. The existing obstacles can easily be overcome by having an onsite partner.

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Market Report 2016

Smart City Unique Characteristic

Kuala Lumpur

Iskandar Malaysia

Economic and social centre Focus on smart mobility and transit-oriented development

In close proximity to Singapore

Approach

Integration to the neighbouring country

Cyberjaya

Malacca

Smart city development suffering from competition

Refocus on technology hub and national smart city living lab

Putrajaya City planned from the scratch to be the hub of governmental agencies

Extensive inclusion of green spaces and enhancing city life quality of government employees

World heritage with strongregional connection

Emphasis on green technology and smart grids

iv


TABLE OF CONTENTSSEBSEAM-M SECTOR REPORT: SMART CITY IN MALAYSIA i

EXECUTIVE SUMMARY ii

LIST OF TABLES v

LIST OF FIGURES v

MALAYSIA’S POTENTIALS FOR EU SME’S

1.1. COUNTRY PROFILE 1

1.2. CONNECTOR BETWEEN EUROPE AND ASIA 6

1.2.1 Association of South East Asian Nations (ASEAN) and its Economic Community (AEC) 6

1.2.2 Relations to the European Union 9

1.3. POTENTIAL FOR EU’S SME’S 11

MALAYSIA’S APPROACH TOWARDS A SMART CITY

2.1. THE MALAYSIA PLAN 16

2.2. THE URBANISATION ISSUE 18

2.3. TECHNOLOGY READINESS 19

2.4. THE MALAYSIAN PERSPECTIVE ON SMART CITIES 22

2.5. ACCESSING PROJECTS AND LOCAL INCENTIVES 24

SMART CITY PROJECTS IN MALAYSIA

3.1. ISKANDAR MALAYSIA ‐ THE FLAGSHIP 28

3.2. KUALA LUMPUR ‐ THE ECONOMIC CENTRE 34

3.3. MELAKA ‐ THE MODERN WORLD HERITAGE 39

3.4. CYBERJAYA ‐ THE ORIGIN 41

3.5. PUTRAJAYA ‐ THE GOVERNMENT SEAT 45

CONCLUSION 48

CONTACT POINTS 51

REFERENCES 54

APPENDIX 59

7.1. LIST OF EU INCENTIVES 60

7.2. LIST OF MALAYSIAN INCENTIVES 62

Market Report 2016

v

LIST OF TABLES

TABLE 1: TRADE IN GOODS AND SERVICES (EU-MALAYSIA) 14

TABLE 2: EU ENTERPRISES BY SIZE (2012) 16

TABLE 3: EASE OF DOING BUSINESS (MALAYSIA RANKING) 18

TABLE 4: KNOWLEDGE ECONOMY INDEX, 2000 AND 2012 22

TABLE 5: SMART CITY INDICATORS FOR ISKANDAR MALAYSIA BY REGIONAL AUTHORITY 26

TABLE 6: MAJOR NATIONAL LAND PUBLIC TRANSPORT PROJECTS AND THE BUDGET

ALLOCATED FROM THE GOVERNMENT 40

TABLE 7: OVERVIEW OF TRX AND BANDAR MALAYSIA 41

TABLE 8: OVERVIEW OF SMART TECHNOLOGY SUCCESS STORIES BY CYBERVIEW

REVEALS THEIR FOCUS IN SMART MOBILITY 48

LIST OF FIGURES

FIGURE 1: MALAYSIA IN THE WORLD MAP 7

FIGURE 2: MALAYSIA’S GROWTH AND INFLATION OVER THE LAST YEARS 8

FIGURE 3: ASEAN MEMBERS 11

FIGURE 4: EU-ASEAN TRADE FLOWS AND BALANCE, ANNUAL DATA 2005 - 2015 12

FIGURE 5: SECTORAL ANALYSIS OF THE ENTERPRISE POPULATION AND EMPLOYMENT IN SMES 17

FIGURE 6: PROPORTION URBAN AND RURAL LIVING POPULATION REGARDING

THE UN POPULATION DIVISION 2014 23

FIGURE 7: INCENTIVE STRUCTURE FOR ICT RELATED FIRM

IN THE MULTIMEDIA SUPER CORRIDOR (MSC) 31

FIGURE 8: MEDINI ISKANDAR MALAYSIA INCENTIVE STRUCTURE 32

FIGURE 9: GHG EMISSION REDUCTION BY SECTOR IN ISKANDAR MALAYSIA 36

01Malaysia’sPOTENTIALS FOR EU SME’S

1.1. Country ProfileMalaysia is centrally located in the Southeast Asian Region and includes two regions separated by the South China Sea: The Peninsular Malaysia, where the economic and political centre is located, and East Malaysia (consisting of the states of Sabah and Sarawak), which shares the island of Borneo with Indonesia and Brunei. It has a total land mass of 329,847 square kilometres (127,350 square miles), which is, about the same size as Germany, and is a federation of 13 states and three federal territories. The capital city is Kuala Lumpur, whereas Putrajaya is the federal administrative centre of Malaysia. The official language of Malaysia is Bahasa Melayu (Malay), but English and Chinese are also widely spoken.

As of March 2016, the country had a total population of just over 31 million2. Malaysia is a multi- ethnic, multicultural and multilingual society. The constitution guarantees freedom of religion where 61.3% of the population practice Islam, 19.8% Buddhism, 9.2% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional religions3.

Malaysia’s economy has presented robust growth and low inflation over the last years, with annual GDP growth figures above 4% for all years in the past decade. After the global subprime mortgage crisis 2008 -09, the economy managed to recover quickly and to step out of the crisis with an even stronger GDP growth. The country is expected to continue growing at over 4% per year in the next years4.

2

1. Malaysia’s Potentials for EU SME’s

1 Wikimedia; 2016: Atlas of Malaysia2 Department of Statistics; 2016: Labor Force and Social Statistics

3 EUMCCI; 2015: The Professional Service Sector in Malaysia4 The World Bank; 2016a: Country at a Glance - Malaysia

Figure 1: Malaysia in the world map1

Market Report 2016

The Consumer Price Index (CPI) which measures change over time in retail prices of goods and services representative of consumption expenditure by resident households in Malaysia, showed increase in 2014 (3.2%) compared to previous year 2013 (2.1%).

The country offers a safe, stable and comfortable lifestyle for expats, having developed infrastructures and a population with a high degree of English proficiency. Since Independence, Malaysia has adopted the political system of a parliamentary democracy with a constitutional monarch. The political scene has been characterised by an extraordinary degree of political stability and continuity through an encompassing national coalition of political parties.6

The infrastructure in Malaysia, being one of the best in Asia, is designed to serve the business community. Telecommunications network served by digital and fibre optic technology, five international airports (all with air-cargo facilities), well-maintained highways and seven international seaports enabled Malaysia to be an ideal springboard to the Asia-Pacific market. The provided infrastructure is part of Malaysia’s value proposition specifically for manufacturers7. Malaysia’s politicians identified a sufficient infrastructure and enhancement of economic mobility as important preconditions for growth.

5 Pemandu; 2013: Malaysia's Transformation6 EUMCCI; 2015: The Professional Service Sector in Malaysia

Figure 2: Malaysia’s growth and inflation over the last years5

Steady Growth Amidst Low Inflation

(RM bil)

900

800

700

600

500

400

300

200

100

02006 2007 2008 2009 2010 2011 2012 2013 2014

Real GDP Growth RatesCPIGDP at Constant 2005 Prices

2015 GDP Forecast4.5% - 5.5%

5.6%6.3%

5.4%

7.4%

5.2% 5.6%4.7%

6.0%

3.2%2.1%1.6%

3.2%

1.7%

4.8%

-1.5%

0.6%

2.0%

3.6%


3

Industries in Malaysia are predominantly located in over 500 industrial estates and Free Zones developed throughout the country. These zones are categorised as export processing zones which comply with the requirements of export-oriented industries. There are also specialised parks that have been developed to cater to the needs of specific industries. Examples of these parks are the Technology Park Malaysia (TPM) in Bukit Jalil, Kuala Lumpur and the Kulim Hi-Tech Park in the northern state of Kedah. The latter caters to technology-intensive industries and R&D activities. TPM is considered to be one of the worlds most advanced and comprehensive centres for R&D in the knowledge based industries8.

In 2010, the Malaysian Government announced the New Economic Model and the 10th Malaysian Economic Plan9 that aim to promote Malaysia’s shift to a high-income economy by 2020. This goal is intended to be achieved through the implementation of an Economic Transformation Programme that aims to enhance the role of the private sector and refocus the government's role in the economy as a facilitator and enabler. The country plans to leverage its competitive advantages by prioritising investment and policy support behind a specified number of key growth engines. Hence, the Economic Transformation Programme10 focuses on 12 National Key Economic Areas (NKEAs) which will receive prioritised government support including funding, top talents and Prime Ministerial attention.

The 12 National Key Economic Areas (NKEAs) are: Oil, Gas & Energy, Palm Oil, Wholesale & Retail, Financial Services, Tourism, Electronics & Electrical, Business Services, Communications, Content & Infrastructure, Education, Agriculture, and Healthcare. It is important to note that foreign investors willing to invest in Malaysia on activities categorised as NKRA will be prioritised in government planning and funds allocation. Attracting international capital in financial services is planned to be achieved by making Malaysia's business environment more attractive by reducing regulations and lowering the taxes.

The Malaysian Government is committed to the ongoing support of growth in the non-NKEA sectors. However, it will focus its efforts on the NKEAs due of the significance of the contribution that these parts of the economy can drive.

4

7 MIDA; 2016: Developed Infrastructure 8 Ibid

9 EPU; 2010: Tenth Malaysia Plan10 EPU; 2013: Overview of ETP

Market Report 2016

The programme also identified six Strategic Reform Initiatives (SRIs) made up of following supportive policies that will drive Malaysia’s global competitiveness: 1. Competition, Standards & Liberalization 2. Public Finances Reform 3. Public Service Delivery 4. Narrowing Disparities 5. Government’s Role in Business 6. Human Capital Development

The main thrust of the SRIs is to create an efficient, competitive and business-friendly environment in Malaysia that will allow world-class, local champions to thrive and attract valuable foreign investment. The first results of these reforms are already having an impact, as the market liberalisation of Malaysia service sectors is allowing foreign businesses to register foreign professional staff more easily and legally as local subsidiaries11.

11 Antony; 16th April 2015: Malaysia’s Liberalised Market and Strong Economy Brings European Opportunity


5

1.2. Connector between Europe and Asia1.2.1 Association of South East Asian Nations (ASEAN) and its Economic Community (AEC)Malaysia has a privileged location in the heart of Southeast Asia, representing a gateway to the region and providing a link between China and India, being an English speaking hub alternative to Singapore12. Malaysia is a founding member of ASEAN, which is a political and economic organisation of Southeast Asian countries that was created in 1967 with the aim of promoting commerce and accelerating growth among its members and increasing regional stability. Current ASEAN membership is composed of 10 members (Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) and 1 observer (Papua New Guinea).

ASEAN is an important trade partner of the EU. As of 2015, EU countries exported more than 80,000 million € in goods and services to ASEAN countries, and imported close to 120,000 million €, as can be seen in Figure 4.

6

12 MIDA; 2015a: Guideline for Principal Hub Incentives 13 Wikimedia; 2016: Location Malaysia ASEAN

Figure 3: ASEAN members13

Market Report 2016

The establishment of the ASEAN Economic Community (AEC) in 2015 was a major milestone in the regional economic integration agenda in ASEAN, offering opportunities in the form of a huge market of 2,322.320 million € and over 622 million people. In 2014, AEC was collectively the third largest economy in Asia and the seventh largest in the world15.

The AEC Blueprint 2025, adopted by the ASEAN Leaders at the 27th ASEAN Summit on 22 November 2015 in Kuala Lumpur is aimed towards achieving the vision of having an AEC by 2025 that is highly integrated and cohesive; competitive, innovative and dynamic; with enhanced connectivity and sectoral cooperation; and a more resilient, inclusive, and people- oriented, people-centred community, integrated with the global economy. This Blueprint will not only ensure that the 10 ASEAN Member States are economically integrated, but are also sustainably and gainfully integrated in the global economy, thus contributing to the goal of shared prosperity.

Malaysia is also a partner of the Trans-Pacific Partnership (TPP), having signed the agreement on 4th February 2016. The TPP is a trade agreement among 12 Pacific Rim countries which has not entered into force yet. The TPP is intended to boost economic growth, support higher- paying jobs, enhance innovation, productivity and competitiveness, raise the living standards and promote transparency, good governance, strong labour and environmental protection.

14 European Commission; 2016a: European Union, Trade in goods with ASEAN 15 ASEAN; 2016a: ASEAN Economic Community

Figure 4: EU-ASEAN Trade flows and balance, annual data 2005 - 201514


7

8

16 UK Trade & Investment; 12th April 2016: Greater UK-Malaysia Collaboration in Developing Smart Cities 17 ASEAN; 2016b: The ASEAN Declaration (Bangkok Declaration)

Malaysian and UK governments are jointly making urbanisation manageble and sustainable in Malaysia. Together, they funded the programme called Research and Innovation Bridges, which was funded by Newton-Ungku Omar Cooperation Fund, Innovate UK, Researdh Council UK (RCUK) and the Malaysian Industry Government Group for High Technology (MIGHT). In terms of trade regulations, it is important to acknowledge that Malaysia is a member of the following treaties and has signed the agreements identified below16.

• Asia-Pacific Economic Cooperation (APEC)

• Association of Southeast Asian Nations (ASEAN)The Association of Southeast Asian Nation (ASEAN) is a regional organisation comprising ten Southeast Asianstates which promotes intergovernmental cooperation and facilitates economic integration amongst its members. Since its formation on August 8, 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand17.

• ASEAN Free Trade Area (AFTA)Under AFTA, six members of the Association of Southeast Asian Nations (ASEAN) cut tariffs on nearly 8,000 items. The six countries include Malaysia, Indonesia, Singapore, the Philippines, Brunei and Thailand. Four of the less developed ASEAN nations including Cambodia, Laos, Burma and Vietnam will have a further period to phase in the tariff cuts. The elimination of tariffs should result in product price reductions throughout ASEAN and Consumers will benefit from cheaper prices of goods. Customs Convention on the Temporary Admission of Goods (A.T.A. Convention)

• Economic and Social Commission for Asia and the Pacific (ESCAP)

• Indian Ocean Rim Association for Regional Cooperation (IOR-ARC)

Market Report 2016

18 EU Commission; 2016b: Countries and Regions - Malaysia 19 EUMCCI; 2015: The Professional Service Sector in Malaysia

1.2.2 Relations to the European UnionIn accordance with the EU Delegation to Malaysia, cooperation on trade and economic issues has been the driving force for closer ties between the EU and Malaysia. In October 2010, the Malaysian Prime Minister Najib Razak and the EU leaders launched two major EU-Malaysia bilateral initiatives, namely the negotiations for the Free Trade Agreement (FTA) and for the Partnership and Cooperation Agreement (PCA). These two initiatives are respectively aimed at boosting bilateral trade and investment and at creating a new strategic dimension for the EU-Malaysia political dialogue and economic cooperation. Seven rounds of the FTA negotiations have taken place so far. Technical work is currently ongoing since no new negotiating round has been planned yet18.

The EU is also gradually establishing cooperation with Malaysia in areas falling under the Common Foreign and Security Policy (CFSP) such as maritime security, export control and Chemical, Biological, Radiological and Nuclear risk. Under the Migration EU Expertise II (MIEUX II) facility, European experts are providing training to Malaysian authorities to effectively manage migration through improved border management practices and procedures, and to curb irregular migration with regards to human rights practices. To further foster relations, the EU and Malaysia set up a joint Inter-Parliamentary Union caucus in November 2010. It has 42 members representing both the government and opposition coalitions. (SEBSEAM Report, 201519).

In 2011, Malaysia was the EU's 23rd largest trading partner in goods. Bilateral trade between the EU and Malaysia is dominated by industrial products. The EU mainly imports machinery and appliances, exports electrical equipment and machinery (both ways industrial products account for more than 90% of trade). Other sectors of relevance in terms of EU imports from Malaysia are plastics, rubber, animal, vegetable fats and oils and in terms of exports, mechanical products.

Although EU imports from Malaysia experienced a significant decrease in 2008-2009 (16% fall), they have gradually increased since 2003. With the exception of fisheries, EU exports have also seen a growing trend since 2000, with an 18% decrease in 2008-2009 due to the economic downturn.


9

10

20 EU Commission; 2016b: Countries and Regions - Malaysia

Although Malaysia has not been a major trading partner in services so far, opportunities are increasing due to the country’s liberalisation policies and they will further advance with the full enactment of the FTA. In 2009, Foreign Direct Investment outflows to Malaysia were 1,100 million €20.In terms of trade regulations, it is important to note that Malaysia is a member of the following treaties and has signed the agreements identified below: • International Convention on the Harmonized Commodity Description and Coding System (HS Convention)

• International Convention on the Simplification and Harmonization of Customs Procedures (as amended) (Revised Kyoto Convention)

• World Customs Organization (WCO)

• World Trade Organization (WTO)WTO is an intergovernmental organisation, which regulates international trade. The WTO commenced on 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994. The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments.

Year Trade in goods EU – Malaysia Trade in services EU – Malaysia

2012

2013

2014

Table 1: Trade in goods and services (EU-Malaysia)

Source: European Commission

EU imports EU exports Balance

18,800 14,500 -4200

18,400 14,300 -4100

19,600 14,000 -4100

EU imports EU exports Balance

3,000 3,900 800

3,000 4,800 1,600

3,200 4,700 1,400

In million €

Market Report 2016

21 Eurostat; 2015: Business Economy - Size Class Analysis

1.3. Potential for EU’s SME’sSMEs are often referred to as the backbone of the European economy, providing a potential source for jobs and economic growth. The EU is home to a vast number of SME’s, including many companies working in the professional services sector. Among these SME’s, there is a growing number of them that are internationalising and seeking new markets, with the Malaysian market representing a potential internationalisation opportunities for EU professional services SME’s looking to expand and internationalise their activities.

As it can be seen on Table 2, SME’s represent over 50% of the employment and value added of all enterprises in the EU, operating in variety of sectors, including information and communication, as observed in Figure 5.

Number of enterprises Number of persons employed Value added

All enterprises

SME’s

Large enterprises

Table 2: EU enterprises by size (2012)

Source: European Commission21

thousands

22.347

22.303

44

133.767

89.690

44.078

6.184.825

3.557.448

2.627.377

Million €


11

12

22 Ibid23 MIDA; 2015b: Liberalisation of the Services Sector

24 EU Commission; 2016: Countries and Regions - Malaysia

Although Malaysia has not been a major EU trading partner in services so far (service exports from the EU to Malaysia totalled 4,7 million € in 2014, as seen in Error! Reference source not found.), opportunities have been increasing due to its liberalisation policies and will further advance with a Free Trade Agreement. European SME from can promote construction development in Malaysia, since this sector is very strong in Europe and is identified as one that is very important to be developed in Malaysia.

On April 22, 2009 the Government had liberalised the services sector to attract more foreign investments, professionals and technology as well as to strengthen competitiveness of the sector. Recognising the growth potential in the services sector, the Government has decided to immediately liberalise 27 services subsectors, with no equity condition imposed. These subsectors are in the areas of health and social services, tourism services, transport services, business services and computer and related services23.

The EU-Malaysia FTA negotiations were officially launched in Brussels on 5 October 2010, in parallel with negotiations for a PCA. Seven rounds of FTA negotiations have taken place so far when a FTA is concluded between the EU and Malaysia, the trade between the two parties is expected to increase even further24.

Figure 5: Sectoral analysis of the enterprise population and employment in SMEs22

Market Report 2016

Wholesale and retail trade; repair of motor vehicles and motorcycles

Manufacturing

Construction

Professional, scientific and technical activities

Accommodation and food service activities

Administrative and support service activities

Transportation and storage

Information and communication

Real estate activities

Water supply; sewerage, waste management and remediation activities

Repair of computers and personal and household goods

Electricity, gas, steam and air conditioning supply

Mining and quarrying

0 5 10 15 20 25 30

Share of SME enterprise populationShare of SME employment

13

25 The World Bank; 2016b: Doing Business in Malaysia26 Ibid.27 Ensari; 2014: What Helps to Make SMEs Successful in Global Markets?

The liberalisation policies being implemented in Malaysia are creating new opportunities in the service sector, namely for EU SME’s, for whom the Malaysian market represents an important potential for expansion, either by exporting directly to the country, or by setting their operations in Malaysia and exploring the market using a local base. In addition, this claim can be furthered strengthened when taking a look at the Ease of Doing Business index25 for Malaysia where they are ranked 18th out of the 189 countries included in the index. Below is the breakdown26 of Malaysia’s ranking on the 10 topics which constitute the Ease of Doing Business index.

There are a number of EU incentives designed to support European SME’s entering in new markets, such as in Malaysia. These incentives are described in the Appendix section.

Small and medium businesses (SMEs) are the heart of Europe’s economy. There are some 21 million SMEs in Europe, supplying about 85% of jobs. All that entrepreneurship allows Europe to control one fifth of world trade. Business success related to entrepreneur, internal factors such as management team, relationship management, product quality etc. and external factors27. International markets offer significant potential for the growth of businesses – and especially of SMEs. At present, about 25% of all SMEs in the EU export their goods and services, about 13% engage in trade, investment and other forms of cooperation in non-EU countries. German SMEs are very successful in international markets. Furthermore, many German SMEs are indirectly involved in the export business as suppliers of major international companies. The international activities of SMEs are supported by a number of measures, including the provision of market

Topics Ranking

Dealing with Construction Permits

Starting a Business

Getting Electricity

Registering Property

Getting Credit

Table 3: Ease of doing Business (Malaysia Ranking)

15

13

38

38

38

Topics Ranking

Paying Taxes

Protecting Minority Investors

Trading Across Borders

Enforcing Contracts

Resolving Insolvency

31

49

44

4

45


14

Market Report 2016

28 Federal Ministry of Economics and Technology Germany; 2012: A successful SME policy for growth in Europe29 The Parliament; 14th October 2015: SMEs key to EU economic success

information, assistance in the search for foreign partners and government export credit guarantees28.

As well as, support for export and partnership development is also important for SMEs. The enterprise Europe network (EEN) is a key instrument, bringing together around 600 business support organisations from over 50 countries, and helping small companies seize business opportunities in the single market29.

Malaysia’sAPPROACH TOWARDS A SMART CITY

02

2

2.1. The Malaysia PlanThe aim of developing the Malaysia 5 year national action plan is for planning of concept and defining the country’s sustainable growth. This will help the country to move from resource– driven economy towards a knowledge-led one.

In the Tenth Malaysia Plan, 2011-2015, the Malaysian government made large investments in transport, digital, and energy infrastructure, in line with rising demand for such assets. Malaysia’s road network grew 68% between 2010 and 2015, plugging more communities into Malaysia’s growth. Several ICT initiatives were also implemented in order to transform the nation into an innovative digital economy. This was driven by the Strategic ICT Roadmap and the Digital Malaysia Initiative.

In the Eleventh Malaysia Plan, 2016-2020, the emphasis will be given on deriving ICT in the knowledge economy through innovation and productivity to enhance competitiveness and wealth creation. The main focus will be given on development of digital content and media subsector, software solutions and services. This will allow the local companies to participate. Also, it is deemed important to invest in equipment of the workforce with specialised skills to facilitate growth in the R&D sector of ICT products and services. Other main growth contributors will be the wholesale and retail trade, financing services and communication subsectors, supported by strong household spending and stable labour market condition. A great focus will be given to the modern and knowledge-intensive industries, including halal, ecotourism and information)30.

The focus areas of the Eleventh Malaysia Plan are summarised as follows: • Focus area A: Building an integrated need based transport system • Focus area B: Unleashing growth of logistics and enhancing trade facilitation • Focus area C: Improving coverage, quality, and affordability of digital infrastructure • Focus area D: Continuing the transition to a new water services industry framework • Focus area E: Encouraging sustainable energy use to support growth

2. Malaysia’s approach towards a SmartCity

16

30 EPU; 2015: 11th Malaysia Plan Strategy Paper 15 -Driving ICT in the Knowledge Economy

Market Report 2016

The transformation from resource–driven economy towards a knowledge-led one will depend on mind-set and behaviour change of businesses, citizens and the public service towards a data driven culture. In the Eleventh Malaysia Plan, the Government has realised the need for the industry to further capitalise on the Internet for revenue generation and to nurture a high- knowledge and skilled workforce. In this regard, efforts will be strengthened to drive ICT in the knowledge economy through four main strategies, namely re-energising ICT industry, ensuring supply of high quality ICT human capital, improving digital infrastructure and pursuing digital inclusion. These will increase productivity through innovation to enhance competitiveness and wealth creation.

In 2012, Malaysia was ranked 48th out of 146 countries in the Knowledge Economy Index (KEI) developed by the World Bank. The KEI represents a country’s ability to generate, adopt and diffuse knowledge. It consists of four sub-indices, namely education and training, information infrastructure, economic incentive and institutional regime, and innovation system.

Table 4: Knowledge Economy Index, 2000 and 2012

Country/ Economy

Sweden

New Zealand

Switzerland

US

Singapore

South Korea

Bahrain

Malaysia

China

India

2012Rank

1

6

10

12

23

29

43

48

84

110

2000Rank

1

9

5

4

20

24

41

45

91

104

Education& Training

6

1

41

13

79

4

45

75

95

111

InformationInfrastructure

2

23

7

18

15

29

1

52

94

122

Economic Incentive& Institutional Regime

4

14

6

26

1

53

48

61

97

99

InnovationSystem

2

22

1

6

4

21

75

42

54

76

Four Pillars


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2

2.2. The Urbanisation IssueAs a global trend, population is growing with increasing dynamics leading to tremendous demographic changes. Particularly, Asia is facing those changes since 60% of the global population lives on this continent. An increasing number of people are going to live urban areas. Experts’ estimate 64% of Asia’s habitants will live in urban area by 2050. Compared to the wider region, Malaysia is a highly urbanised country where the number of city dwellers has exceeded the rural population in 1990’s. This pace will continue and reach the current Western Europe ratio ca. 80% in 2025, which is extremely high for Asian measures31.

Malaysia’s urbanisation rate is increasing with an estimated rate of 70% by 2020. This shift towards urban living had drastic impact on the landscape and the 31 million inhabitants. On one side, with 4,600 Km2 urban area, Malaysia has the fourth largest built-up land in East Asia. On the other side, it has a 44% lower density of population in the urban area compared to the regional average32. Consequently, the distance to commute and travel inside urban areas is relatively high, wherefore preferred means of transport is the private car. Converting city dwellers from private to public transport users is an omnipresent issue in all cities. Local experts consider thereby the EU approach as best practice and do not spring back to have trade missions to explore best possibilities.

Summing up, metropolis face challenges to manage the concentrated population related to environment, social and economic competitiveness issues. The two strategies at national level are designed to address these issues. On the one hand, a centralised decentralisation to key economic areas to avoid overpopulated cities. On the other hand, the application of information and communication technology (ICT) for urban management is to overcome the obstacles onsite.

18

31 United Nations; 2014: World Urbanisation Prospects32 The World Bank; 2015: Malaysia among Most Urbanized Countries in East Asia

Figure 6: Proportion urban and rural living population

1950

Malaysia

South-Eastern Asia

Asia

1960 1980 2000 2020 2040 2050

Pro

po

rtio

nu

rba

n (

pe

r ce

nt)

100

80

60

40

20

0

Market Report 2016

2.3. Technology ReadinessSingapore and Malaysia are considered as prime examples for continuous development over the last decades in ASEAN, leading in more advanced challenges than their neighbours. Additionally, Malaysia as the second advanced developed ASEAN member has to position itself economically among the members, above Singapore and in the global competition.

Electric and electronic sector is key to become a high-income country as evidenced in the Malaysia plan. The shift towards a digital economy is not only the strategic positioning of the economy towards Asia and on the global stage, but an absolute precondition for smart cities. As a major action plan of the Malaysian government, the Digital Malaysia programme provides a framework for the country’s ICT development until 2020. Its ultimate goal is the pervasive use of information, communications and technology for governments, businesses and citizens-at- large. The initial core mandate focused on the ICT infrastructure changed to become a utopia for multinational companies to operate in Malaysia. In 2015, 18% of the GDP was contributed by ICT-based companies and thereby exceeded the final target by 1%33.

The ability to exploit technology is crucial to become a digitalised economy. Breaking down this complex issue in a measurable concept, the World Economic Forum has established the Network Readiness Index to analyse the technological readiness of a country. Among the upper-mid income countries, Malaysia has the highest propensity to exploit ICT. The technology readiness is equal to Portugal and Lithuania in the EU (28), succeeding countries as Spain or Czech Republic. The followers in ASEAN are Thailand, Philippines and Indonesia. In this region, only Singapore is performing better being the global technology readiness leader since 201534. More importantly, it displays Malaysia’s competition as regional ICT leader economically. When evaluating the index, Malaysia’s challenging geographical characteristics must be considered, especially when considering the remote areas of East Malaysia.

33 Basu; 2nd February 2016: Malaysia starts planning for digital economy past 2020 34 World Economic Forum; 2015: Global Information Technology Report 2015


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35 SEBSEAM-M; 2016: Transport and Infrastructure Sector - Market Study with Focus on Potential for EU-High-Tech Solutions Provider

Leapfrogging is the key to keep up the pace. The government intends to transfer knowledge to local companies through attracting international innovation leaders as Intel, Siemens IBM and IEEE. In practice, these economic heavyweights already engaging with the government, but government’s project evaluations reveal a lack of knowledge transfer. This leapfrogging does have its negative sides, which are revealed in less profitable industry sectors. One visible example is the absence of any waste incineration plan being established despite Malaysia’s great endeavour to catch up with developed countries and their environmental standards35.

0

2

4

6

8

1. Political and Regulatory

2. Business and Innovation

3. Infratsructure

4. Affordability

5. Skills

6. Individual Usage

7. Business Usage

8. Government Usage

9. Economic Impacts

10. Social Impacts

Malaysia

Singapore

Upper-middle-income Group Average

Global Rank (out of 143)

1

32

67

76

79

85

110

139

ASEAN Country

Singapore

Malaysia

Thailand

Philippines

Indonesia

Vietnam

Cambodia

Myanmar

Value (max. 7)

6.0

4.9

4.0

4.0

3.9

3.9

3.3

2.5

Market Report 2016

In contrary, developing the broadband internet expansion has been very successful. Moving forward, the digital integration of the cities is seen as next milestone36 and a requirement to become globally competitive37. One must take note that the acceptance of new technology is significantly faster in Asia than Europe. However, in Asia Pacific, the top constraint is not budgeting but the expertise38. In fact, Malaysia is pushing several projects in parallel of which selected one with potentials for EU expertise contribution will be presented in this report.

36 Kavanagh; 2015: Smart City "the next big milestone" for Malaysia, says Huawei37 Telkom Malaysia; 2015: Smart Cities: How Iskandar Malaysia is Approaching Green Growth 38 PwC; 2015: Smart Cities in Southeast Asia – Opportunities for Telcos

Smart Economy

• Economic Growth and Value Creation

• Innovative economic growth

• Equitable Wealth Distribution

• Entrepreneurship

Smart Governance

• Public Participation

• Efficient Public and social services

• Private Public Partnership

• Transparent governance

Smart Environment

• Clean environment

• Environmental protection

• Green development

• Green infrastructure

• Smart Growth

• Green Economy Low Carbon Society Blueprint

Smart Governance

• Safety and security

• Low Carbon lifestyle

• Housing quality

• Educational,

• Health Conditions

• Cultural facilities

• Tourist attractiveness

Smart Mobility

• Efficient Road accessibility

• Efficient Public transportation

• Non-motorized accessibility

• Availability of ICT infrastructure

Smart People

• Caring community

• Racial Harmony

• Skilled and Talented Human Capital

Table 5: Smart city indicators for Iskandar Malaysia by regional authority


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39 Razak; 2015: Our Fight against Climate Change40 United Nations; 2016: Millennium Development Goals Database

41 EUMCCI; 2015: Professional Service Sector in Malaysia

2.4. The Malaysian Perspective on Smart CitiesSmart cities are broadly described as the use of modern technology for environmental protection, social wellbeing of the people and economic competitiveness. The government aligns their approach similar to the smart city wheel, which is commonly used in Europe. The smart categories are economy, environment, government, living, mobility and living. So far, a uniform national roadmap on smart cities is not implemented. The table below gives an idea of focus areas by authorities responsible for Iskandar Malaysia. These differ from city to city only in detail due to adoption local features and strategic positioning. On the execution level by companies, modified models which are commonly used applied.

Green technologies play an important role in smart city concepts, as well as for the countries development. Thus, the government aims to utilise ICT to not only create jobs and welfare, but also to reduce the CO2 footprint. In 2015, a commitment has been made to reduce its carbon emission by GDP up to 45% until 2030 with the base year 200539. In reality, the CO2 emission is stagnating around 0.37 kg per PPP $ of GDP40 over the last decade.

Malaysia’s own approach for green buildings is the Green Building Index (GBI) and evaluates six key indicators arranged in categories • Energy Efficiency • Environmental Site Planning and Management • Innovation • Indoor Environment Quality • Material and Resources • Water Efficiency

Established by the local architecture company PAM, the GBI intends to specifically suit Malaysia’s environmental and cultural needs. Application of the standard is not compulsory and in practice not intensively used. Furthermore, market experts criticise the significance of the index41, which partially explain the application of external standards for international projects as the LEED from US or a certification of the Singaporean Green Building Council.

The latest development related to smart technologies is the announcement of the National Internet of Things (IoT) Roadmap in 2015. The rather broad description of the plan identifies creation of an IoT industry, national technology innovation capacity building and becoming a regional development hub for IoT as ultimate goals. Interesting strategies for EU firms is their strategy to offer Malaysia as showcasing of best practices. Furthermore, experts going to be consulted to develop national standards, among them the European based and funded Internet of Things Architects, a consortium advising the EU as well. The strategies therewith not only offer potentials to develop projects, but also to shape the future inspired by EU standards.

Market Report 2016

42 EUMCCI; 2016: Project SEBSEAM-M

23

TouchpointsThe designated lead institution for smart cities development is the Malaysian Multimedia and Communication Commission (MCMC). Their direct role in project execution is incidental. On the national level, the respective institutions share the role as touchpoints, whereof the following are in particular active and relevant for foreign investors42:

Malaysia Development Corporation (MDeC) is an agency under MCMC, has been given the mandate for implementing the national digital transformation and leads the Multimedia Super Corridor (MSC).

Malaysian Industry-Government Group for High Technology (MIGHT) is the platform organised under the prime minister’s office bringing together private, governmental and academic stakeholders.

Ministry of Energy, Green Technology and Water (KeTTHA) implements the development policies in specific industries as their name implies.

Ministry of Science, Technology and Innovation (MOSTI) function is to lead the country towards IoT Hub and developed the roadmap

Telkom Malaysia (TM) is a government-linked company (GLC) and leading telecommunications company. TM Intelsec as subsidiary is engaging in several smart city project through joint ventures.

Tenaga Nasional Berhad (TNB) is a government linked company (GLC) leading the energy industry.

On the next administrative level are the regional institutions which operate separately from each other without streamlining the projects in that area. This seems contradictory to the idea of smart cities where interconnectivity is one key element. Definitions and goals are decided on the regional level, which leads to an inconsistency of interpretation, since no official certification for smart solutions or master plan on the national level has been established.

Interpretation for EU firmsHaving a government using a smart city interpretation leaned on a European system can benefit these EU firms even more. Taking into account the capacity building in local firms and knowledge transfer from foreigners is slower than expected, EU firms can lead with advanced technologies.

The stagnating CO2 emission reduction reveals exemplary two general potentials to dock on to Malaysia. Firstly, in order to reach the closer coming milestones, a boost is needed. Secondly, the local industry is not capable yet to solve the problems all by themselves. International assistance by state-of-the-art companies is not only welcomed, but direly needed.

•

•

•

•

•

•


224

43 EUMCCI; 2016: Project SEBSEAM

2.5. Accessing Projects and Local IncentivesPublic ProcurementIn general, public tenders are arranged for governmental procurements. In practice, the tenders are often limited to locals and openly accessible information is widely spread through the authorities.The ministry in charge of the project is responsible for the tendering processes. The ministry provides openly accessible information which tend to be limited. Foreign firms which are unfamiliar with this system and have no network into the system of tenders tend to be confused to localise opportunities. For instance, the tender information on transport and infrastructure could found under the local land public transport authority (SPAD) Ministry of Transport or Ministry of Work. However, for detailed information, firms must register the local business entity at the Ministry of Finance, which will give notice on upcoming tenders.

Access through Urban DevelopersMarket experts recommend firms to approach the developers directly and propose project. Accessing governmental tenders on smart city projects are mainly practiced for very large scaled projects and are rather laborious. In fact, the master developers are mostly managing sub-developers and new projects. Placing a tender is uncommon for them. Instead, these are welcoming business initiatives able to prove the projects profitability in practice. At that point, firms can stand out with their practical experience and economically sustainable approaches.

On the way forward, it is proved to be beneficial to have a local partner to identify developers and sub developers43.

Market Report 2016

Experience on Cooperation with Private Firms and GovernmentProblems with project execution through private partners and how the national approach looks to encounter them can be seen through analysing exemplary the National Roadmap for Land Public Transport44. Lessons learned implemented to handle future cooperation are unfolded as such:

It identifies a shortage in projects delivery and desired improvements due to an insufficient focus on execution. Hence, in addition to planning, a more rigorous focus on the delivery is set.

For the evaluation of projects, a fact-based approach to manage the trade-offs is applied.

International best practices will be incorporated. For the land public transport sector specifically in the area of connectivity, accessibility, service quality, safety and environmental sustainability.

To minimise the burden of tax payers, different delivery model as Public Private Partnerships or similar models are welcomed.

These paradigms speak for companies which are leaders in their field, of which Europe dominates a convincing number. Experienced firms could benefit from that, if they can prove their profitability in long term through testimonials.

IncentivesThe Incentive policy for foreign direct investments (FDI) is mainly directed by Malaysian Investment Development Authority (MIDA). Its objective is to set up foreign businesses and enhance the value adding process inside Malaysia. Most incentives set by the Malaysian government are concentrating on relieving foreign knowledge worker regulations and giving tax reductions. For ICT sector, the MSC status is the most important, which is given to IT hard & software firms, creative content developers and global business service providers45.

44 SPAD; 2013: National Land Public Transport Master Plan 45 MDeC; 2016: Why MSC Malaysia Status

•

•

•

•


25

226

-

Initially, the status allows incentives only to firms based in defined area around Cyberjaya close to Kuala Lumpur (KL), but it has been extended to further locations, mainly building complexes in GKL. The benefits for EU companies including, but are not limited to exempting quota restrictions on foreign knowledge worker and local ownership requirements46, as well as no taxation on multimedia equipment imports. Furthermore, status holder can choose between the pioneer status, 100% exemption on taxable statutory income for up to 10 years, and 100% investment tax allowance for maximum 5 years. Both concepts are most favourable to EU firms and the decision for one or the other would depend on their actual business plan for conquering the Malaysian market.

Figure 7: Incentive Structure for ICT related firm in the Multimedia Super Corridor (MSC)

ICT Related Business in the Multimedia Super Corridor (MSC)

IT Hard &Software

Firms

CreativeContent

Developers

Global BusinessServiceProvider

General Incentive

Relief of Restrictions on Foreign Knowledge Worker

Relief on Local Entity Ownership

Tax Exemption on MultimediaEquipment Imports

Selective Incentive

Pioneer Status 100% Exemption on Taxable

Income up to 10 years

100% Investment TaxAllowance

Market Report 2016

As one picked further example, the Medini Incentive and support packages are particularly tailored for smart city solution providers in the Medini districts of Iskandar Malaysia. The fiscal incentives are arranged into three tiers:

Firstly, physical property developer can apply for full exemption from withholding tax payments, for technical services, assistance or advise, interest or royalty until end of 2020. Secondly, consulting firms can enjoy income tax exemption for management, supervisory or marketing services until 2020. The third group are operators which are leasing or building facilities in the service sectors of tourism, healthcare, education, creativity, finance or logistics. These can apply for a 10 years’ income tax exemption or an investment tax allowance 5 years. The support package allows more flexible regulations on recruitment of foreign knowledge workers and the foreign exchange administrative ruling47.

47 Medini; 2015: Incentives

Figure 8: Medini Iskandar Malaysia Incentive Structure

Relief of Restrictions on Foreign Knowledge Worker

Physical Developers Consulting Firms

OperatorsLeasing orBuildingFacilities

(Selective)

Income TaxExemption

up to10 Years

InvestmentTax

Allowanceup to

5 Years

Withholding Tax Exemptionuntil 2020 (on receiving) Income Tax Exemption

TechnicalServices

Assistanceor Advisory

Interest orRoyalty

Management Supervisory Marketing


27

03SMALL CITY PROJECTS IN Malaysia

3.1. Iskandar Malaysia ‐ The Flagship

OverviewLocated in the state of Johor across the border to Singapore, Iskandar Malaysia (IM) is the prime example of smart cities. With 2300 km2 or 12% of the state, this project covers 3 times the area of its neighbour country, which itself is a leader for smart city solutions and competing with the projects in Malaysia. Considered as the hinterland to ASEAN’s most developed country, Iskandar is inhabiting many commuters living across borders. Benefiting from spill-over effects, Johor has become the second strongest region after Greater Kuala Lumpur. The ultimate goal is to become a strong and sustainable metropolis of international standards48.

At the moment, IM is in the second of three phases, with the focus on strengthening the current position, gaining maturity of the projects and generating growth. Until early 2016, investments are estimated to around 43,000 million €49 and further 16,000 million €50 are expected for the next 20 years. Several milestones have been achieved, above all the extensions of the ICT network. On the other side, economic, infrastructure and mobility seem to be the most critical ones due to challenges mentioned below.

3. Smart City Projects in Malaysia

48 IRDA; 2016: Smart City Iskandar Malaysia Framework49 Ibid50 Nishioka; 2016: Mitsui in Big on Malaysia project to Build High-Tech Metropolis


29

2

51 Iskandar Malaysia; 2016: Iskandar Malaysia Making Further Inroads in Realising Smart City Initiatives in Line with CDPii

30

AuthoritiesIskandar Regional Development Authority (IRDA) is the designated federal government body in charge. It is tasked as a one stop agency with the objective of regulating and driving various stakeholders in both public and private sector towards realising the vision. Statutory power and function is the planning, by integrating and recommending policies and strategies of the government and local authorities, as well as IM’s facilitation and promotion. Their authority includes assigning land to developers and giving them guidelines to achieve the vision stated in their Smart City Iskandar Malaysia Framework. From the moment of developing, subcontracting and realising project, the master developers taking over the responsibility.

Smart City SolutionsIRDA aligns their guidelines the model displayed in the chapter on Malaysia’s perspective on smart cities51. Giving a broad idea where to dock on to, however, developers have their own categorisation of activities. Medini Iskandar, for example, is putting safety, connectivity, liveability and efficiency in focus.

The master developers execute the vision in the 5 designated flagship zones Johor Bahru City, Nusajaya, Western Gate Development, Eastern Gate Development and Senai-Skudai. Each zone has its own characteristics and state of development, whereof flagship zone B Nusajaya has with 50% the highest maturity. More interesting for EU firms, it is the hot spot for smart technologies.

Highlighting Nusajaya, also known as Iskandar Puteri, it is a collaboration of three master developers with different shareholder backgrounds. Developer UEM Sunrise is member of the local UEM Group which is publically listed on the main market of Bursa Malaysia. Iskandar Investment is a government linked company (GLC) with federal, state and public shareholders. Medini Iskandar Malaysia is a GLC as well, but with foreign shareholders Mitsui from Japan and United World Infrastructure from United Arab Emirates.

Market Report 2016

52 UTM-Low Carbon Asia Research Centre; 2013: Low Carbon Society Blueprint for Iskandar Malaysia 2025

Strategic PositioningIM unique characteristics is to complement Singapore and its comprehensive city-from-the- scratch approach. Hence, the strategic position is similar to its neighbour very broad, ranging from business districts over ICT Hub to a low-carbon city.

In order to become Malaysia’s second ICT Hub, three designated areas are in planning, namely Nusajaya tech park, Senai Hi Tech park and Sendenak Iskandar data hub. However, these projects should not only fulfil Malaysian standards and needs, but also aim to attract Singaporean based firms. Hence, Nusajaya Tech Park, which is light and medium industry will be the first township with Singapore’s Building and Construction Authority’s Green Mark for Districts – Gold Award. Applying international standards, i.e. Singaporean’s, reflects IM strive to become a global ICT hub.

The low-carbon city master plan is an international cooperation and aims to encounter the increase of GHG emission. Taking 2005 as a base year, IRDA is aiming dampen Green House Gas (GHG) emission by 40% by 2025, whereof passenger transportation and waste management should save relatively the most.

Figure 9: GHG emission reduction by sector in Iskandar Malaysia52


31

0

5

10

15

20

25

30

35

31.3

18.9

11.4

MtCO2eq

2005 2025BaU

2025CM

Waste

Freight transport

Passenger transport

Commercial

Residential

Industry

+175%

-40%

2

53 Hammim; 2014: Iskandar to up Energy Efficiency54 UEM Sunrise; 2015: Mitsui Partners Ascendas and UEM Sunrise to Jointly Offer Build-to-Suit Developments for Lease in Nusajaya Tech Park

55 UK Trade and Investment; 2016: Greater UK-Malaysia collaboration in developing smart cities56 Telkom Malaysia; 2016: TM Collaborates with UEM Sunrise and Iskandar Investment for Provisioning of Smart Services

32

CollaborationsIM is one out of 10 partnering city Global Energy Efficiency Accelerator Platform (GEEAP), a subproject Sustainable Energy for all (SE4ALL) led by UN and World bank. With support of the network, the global improvement rate for energy efficiency and share of renewable energy should be doubled by 2030. IRDA’s guidelines targeting to use 11% of required energy from renewable source while reducing the overall consumption by 20% by 202553.

On the bilateral Asian stage, Japanese and Singaporeans are most present. In Singapore, a Joint Ministerial Committee has been established to enhance integration of both cities. The well-established governmental represents also Singapore’s position as by far largest investor. In Japan, Mitsui, for example, entered in 2015 a joint venture with local firms to develop parts of Nusajaya Tech Park with a projected development value of 100 million €54. From the academic standpoint, these supported Japanese universities, among others Kyoto University, and the Council for Japan Society Promotion Science collaborated with the University of Technology Malaysian to create the Low-Carbon City 2025 plan.

The UK Trade and Investment Authority recognises potential in this field evidenced through arranging the third Connected City trade mission for UK based firms in 2016. Several Memorandum of Understandings have been signed between British and local firms in the field of research and development, sustainable smart city innovations, as well as materials and technologies for green buildings. Revealing interest and serious intention from both sides, the trade mission is considered as very successful and let the UK spearheading smart city engagements from EU side so far55.

Local collaborations are mainly between MNE’s and GLC’s, especially joint ventures for specific projects. Iskandar Innovation56, UEM Sunrise and TM Intelsec established the joint venture Nusajaya Smart and Connected City. Its intention is to design and build a smart city infrastructure as well as provide smart building and smart city services for Nusajaya, including security services, energy and facility management.

Market Report 2016

57 IRDA; 2016: Smart City Iskandar Malaysia Framework

ChallengesIRDA itself identifies major challenges for smart city projects which will be tackled by connecting government, research institutions and industry, incentives and attracting foreign investments and knowledge57.

Institutional framework – There is a lack of specific policy and strategy by the federal government, regulations are not mandatory and shortfall of stakeholder participation. Market experts mentioned that the pace of innovation and implementation of the private industry is faster as the government authorities.

Business Environment - the incentives are still estimated as limited, as well as an existing shortage of skills and knowledge workers. It is intended to be tackled through further FDI’s, local capacity building and exploring monetary and fiscal measures.

Human Capital – there is an insufficient number of institutions which additionally have a limited technical capacity. This will be addressed with financial grants and assistance and tighter collaboration between Government, industry and research institution.

Smart city research and innovation – shortcoming of funds for R&D and lack of platforms for networking. The solution will also be establishing a tighter collaboration between Government, industry and research institution, also on local, regional and international level.

Potentials for EU firmsIRDA and the other stakeholders are seeking for international support and advice from smart city best practices. These offer in return incentives and IM as a global living lab. There is a strong interest of collaboration with the private firms which could use the city as showcase. EU firms can take the initiative and propose innovative solutions to IRDA or the master developer. These seem to be very open for firms taking the initiative by proposing profound concepts. The UK business delegation proves potentials for European companies in smart city projects.


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58 Inside Malaysia; 2012: Snapshot Greater Kuala Lumpur and Klang Valley

34

3.2. Kuala Lumpur ‐ The Economic Centre

OverviewWith 1.8 million habitants, the national capital Kuala Lumpur (KL) is, even for European standards, moderately populated. Similar to metropolis as London or Paris, the city is embedded in a large urban area spanning over 2.800 Km2 referred as Greater KL (GKL) Area or Klang Valley. The region domiciles 1/5 of the population which contributes 30 % of the national GDP58 that makes KL from economically and social standpoint the centre of Malaysia, whereas the political centre is outsources to Putrajaya.

Due to its important role, the Greater KL region enjoys special interest in the economic development process as a National Key Area. This entails in 9 Entry Point Projects (EPP) aiming to transform GKL into an urban metropolis with global weight, whereof all EPPs contribute to the smart city idea.

1. Attracting 100 of the world’s most dynamic firms within priority sectors 2. Attracting the right mix of internal and external talent 3. Connecting to Singapore via a high-speed rail system 4. Building an integrated urban mass rapid transit system 5. Revitalising the Klang river into a heritage and commercial centre for Greater KL 6. Greening Greater KL to ensure every resident enjoys sufficient green space 7. Creating iconic places and attractions 8. Creating a comprehensive pedestrian network 9. Developing an efficient solid waste management ecosystem

Market Report 2016

59 Adis; 2016: Top 10 transit oriented developments (TODs) to watch out for in Malaysia in 2016 60 UN Habitat; 2012: Kuala Lumpur to host World Urban Forum in 201861 Kuala Lumpur City Hall; 2004: Kuala Lumpur Structure Plan 2020

Hot topic at present is the public transportation system and its integration in the region. In the budget of 2016, 200 million €59 are allocated only solve KL’s transport and traffic jam problem. Whereas the people’s favoured means of transportation is their car, the authorities emphasise in their development agenda the role of rail solutions, largest projects are highlighted in the table below. More details on this industry sector, also the high-speed rail connection to Singapore, can be found in the Potential for EU-High Tech Solutions Providers in the Malaysian Transport & Infrastructure Sector 2016 report by SEBSEAM-M.

Kuala Lumpur’s global weight for urban planners will be evidenced by being the host for World Urban Forum in 2018 of the UN60.

Local AuthoritiesCity Hall Kuala Lumpur (CHKL) is the lead institution and developed the Kuala Lumpur Structure Plan 2020, which frames the broad urban planning for the capital city. Even though CHKL is leading the development, the responsibility for the planning, capital works, operation and maintenance of almost all infrastructure and utilities in Kuala Lumpur are with independent partners, mostly private profit orientated corporations. Consequently, direct control over is outsourced to the industry stakeholders61. The key figure for the land development 1 Malaysia Development Berhad (1MDB) with its real estate subsidiary cooperates with private companies and for large scale projects with global firms.

Due to the complexity and amount of ongoing projects, numerous further authorities are involved regarding their specific responsibility. Therefore, it is recommended to have a local partner identifying involved authorities for single projects.

Table 6: Major national land public transport projectsand the budget allocated from the government

Project ProgressType Budget

Sungai Buloh – Putrajya MRT (52 Km)

Sungai Buloh – Kajang MRT Project (51 Km)

LRT Lane 3 (36 Km)

BRT Klang

Opening Mid 2016

2017 (start) - 2020

Implementation

Opening Mid 2017

Rail

Rail

Bus

Rail

6.1 Billion

2.18 Billion

330 Million

6.9 Billion


35

2

58 Inside Malaysia; 2012: Snapshot Greater Kuala Lumpur and Klang Valley

36

Strategic PositioningKL is for the vast majority of foreign firms the entry point to Malaysia due to its business opportunities and rate internationalisation. It offers a first testing ground, in particular for business culture and procedures, as well as competent international partners as close by. The competition thereby is not on the national level, but on the global level. To become a global business hub, in particular for Islamic finance, and offering quality life similar to Singapore is ranked first. Hence, showcasing plays a minor role in practice, but large scaled projects.

CollaborationsKL does not have a smart city master and not one leading institution specialised on smart city solutions. Consequently, collaborations are very project orientated and comprise of stakeholders with various backgrounds from different countries. From the EU side, it is again the UK spearheading the collaboration, which sent a trade mission themed on smart cities to KL as first stop followed by IM on their journey.

Smart City SolutionsThe urban development is transit-orientated, meaning entire building complexes are built from the scratch around major public transport stations and create a standalone system. The most prominent existing example is the area surrounding KL’s main train station KL Sentral. These new building complexes follow the idea of full integration into the local infrastructure and to implement state-of-the-art technologies, among others for green buildings. Hence, Kuala Lumpur approach for a smart city is point by point. Two ongoing complementing examples are the Tun Razak Exchange (TRX) and Bandar Malaysia.

Market Report 2016

Tun Razak Exchange (TRX) will be first financial district by 2019 and underlines Malaysia’s claim to be global leader in Islamic finance. The township includes 26 residential, retail, leisure and cultural buildings on 0.28 Km2. The master developer is TRX City, formerly known as 1MDB Real Estate. Partners for the construction are the Australians from Lend Lease and Mulia Group, Indonesia’s market leader in land development. The entire township will fulfil the highest technological standards for green building. Therefore, the GBI Platinum standard does not solely serve as a yardstick, but additionally the US measurement LEED Neighbourhood Development Gold.

Bandar Malaysia is TRX’s sister project initiated in 2015 with focus on business hub and with 1.8 Km2 it will be KL’s single largest piece of land development. Its master plan includes, besides the focus on integration and green buildings, an emphasis on smart mobility and a crime prevention through environmental design. The kick off for the first phase has been done in June 2016, when bringing in the consortium IWCH-CREC with Chinese, Malaysia and London-based banks as major shareholders and master developer. Compared to other projects in Malaysia, Bandar Malaysia has very sufficient financial back up from numerous international stakeholders63.

One of the most present smart technology examples with the contribution from EU firms is the Touch ‘N Go Smart Card System. Initially, the electronic payment system was intended for toll collection on highways only. The chip card’s use has since been extended to parking services, public transport, theme park and cashless payment at retail outlets. The chip technology in turn is provided by the Dutch manufacturer Philips. Furthermore, the introduced Smart Tag system is a card reader sending data over long distance and therewith enabling a non-stop service for car drivers. Developer of the technology is the Austrian firm EFKON, which established a joint venture with UEM to implement the system.

Table 7: Overview of TRX and Bandar Malaysia62

62 Adis; 2016: Top 10 transit oriented developments (TODs) to watch out for in Malaysia in 201663 New Straits Times; 16th June 2016: Bandar Malaysia Marks New Milestone with Three Landmark Agreements Signed

Project Name DeveloperPublic Transportation Status

Bandar Malaysia

Tun Razak Exchange

1MDB, IWCH-CREC and further partners

1MDB partneringwith Lend Leaseand Mulia Group

MRT – Bandar Malaysia (2 stations to be build)

MRT – Tun Razak Exchange

Launch 2017 (20 – 25 Years)

First buildings open in 2017/18

G. D.Value

33,000 million €

9,000 million €

G .D. Value: Gross Development Value


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Largest milestone for urban planning in KL, the SMART Tunnel, has been rewarded among others with the UN Habitat Scroll of Honour. SMART stands for Stormwater Management and Road and implies the duel use as a motorway tunnel or drainage system to encounter flash floods. It is with nearly 10 Km the longest multi-purpose tunnel in the world. The stroke of genius is an engineering cooperation of Gamuda, one of the largest national engineering consultant, and the Mott MacDonald UK. In the further execution, it has been referred to several further specialists from the EU to enable this tunnel, among others using German tunnel construction machinery.

Interpretation for EU firmsThe major difference from KL to other cities is – it is not a playground and projects have a high development budget. The Touch ‘N Go system and SMART Tunnel are an evidence that local endeavours need the contribution of highly specialised firms and are eager to step into a cooperation. Projecting into the future, TRX and Bandar Malaysia are excellent examples for future demand of similar collaborations beyond the field of mobility. KL’s role as National Key Area and its target to attract global heavy weight firms, is in particular beneficial for EU MNE’s.

Market Report 2016

64 Melaka Green Tech Corp; 2014: Melaka Green City Initiatives – Melaka Develop State Phase 265 Further details can be found in SEBSEAM-M’s 2016 report Transport and Infrastructure Sector - Market Study with Focus on Potential for EU-High-Tech Solutions Provider66 Melaka Green Tech Corp; 2014: Melaka Green City Initiatives – Melaka Develop State Phase 2

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3.3. Melaka ‐ The Modern World Heritage

OverviewMalacca city is not only a world heritage, but one of the most advanced urban areas in Malaysia. Prime Minister Najib declared the state Malacca in 2010 as developed based on OECD indicators64. The region, which domiciles 840,000 habitants on 1,650 Km2, is slightly larger than Greater London region. Following the example of Singapore, Malacca’s most spectacular project is the development of an artificial off-shore island called Malacca Gateway Project.65

Strategic PositioningBehind the historical façade of Malacca is a local pioneer in green technology and energy efficiency. Malacca claims to be the greenest city, which has many overlapping with smart city solutions, in particular with smart energy systems. Malacca is not directly competing with other national cities, but puts tourism in the centre. However, the city will be first with a smart grid and test ground for its roll out in whole Malaysia66.

AuthoritiesThe specifically founded Melaka Green Tech Corp is leading the development from governmental side cooperating with various national and international stakeholders. In cooperation with MIGHT, the innovation hub Global Clean Tech Innovation Program with yearly holding events has been established. The Silicon Valley inspired incubator supports innovative ideas and commercialise them. Since the plan emphasises the energy sector, the national energy company and GLC Tenaga Nasional Berhad is an omnipresent partner.


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67 CIMT; 2016: Prioritizing-Actions-and-Innovative-Financing-for-Implementation-of-the-Melaka-Green-City-Action-Plan68 Bernama; 3rd March 2015: Melaka Expects RM5.4 Billion in Green Technology Investments By 2020 69 AUO; 2015: AUO SunPower Solar Cell Fab Dedicated

70 Bernama; 28th March 2016: TNB Smart Meters First Phase to Roll Out in Melaka in 201771 Jensen; 2015: Danish Company and State of Malacca Aim High on Energy Efficiency in Buildings

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CollaborationThe endeavour to become a smart city is supported by strong international collaboration. Malacca is Malaysia’s contributing city for the Green City Action Plans by Indonesia-Malaysian- Thailand Growth Triangle, a cooperation supported by the Asian Development Bank. Furthermore, it’s nationwide the only city joining United Nation – Urban Environmental Accords. Malacca’s significance will be emphasised by being considered to host the Urban Environmental Accords summit in 201767. The initial idea of the network is that mayors often have the most significant influence on the implementation environmental friendly project and developed their own agenda. The Summit brings together the mayors and experts in order to discuss the progress.

Smart City SolutionsAs master plan serves the Melaka Green Technology City State Blueprint until 2020. To attract target investments, the Green Special Economic Zone has been established in 2011, which allows tax exemptions over 15 years for investors in key sectors. In 2015, the state government expected to gain 1210 million €68 further investments in to reach the 2020 milestones. Major projects are in the solar energy industry, roll out of a smart grid and energy efficiency.

Melaka World Solar Valley is a gazetted area of 72.48 Km2. The land use is not only for collecting sun energy, but also to manufacture solar panels with AUO Sunpower as the textbook example. The Taiwanese USA joint venture build a solar cell manufacturing plant which has the capability to produce approximately 1400 megawatts of solar cells with up to 24 percent conversion efficiency69.The historical city is earmarked to be the showcase for smart grids. The federal government funded its expansion with 2 million €70 including an already concluded finished research, revealing that households with low technological standard are interested in smart meters. The lead Tenaga Nasional Berhad, plans to roll out the first smart meters 2017, whereas Malacca is used as a testing ground. If the project is successful, it is intended to equip the entire country with these measuring devices until 2021. The digital meters, which are free of charge for households, are manufactured abroad and imported from USA and France.

In the field of energy efficiency is local authority betting on green buildings. A recently launched project comprises the retrofit of 3 large building in Malacca. An EU firm, Danish Management Group (DMG), has been contracted over a period of 10 years and has only been achieved through the Centre for Indonesia-Malaysia-Thailand Triangle Growth. The endeavour with a development volume of 5.4 million € allocates 80,000 Km2 and aims to save 5 mil kWh. However, this is only the first stage and will be extended after success71.

EU Firms PotentialsMalacca drives an industry driven approach. The authorities MIGHT and Melaka Green Tech Corp actively trying to involve and fund academics, as well as the industry side. In particular, DMG shows the great potential for EU firms. Their first project with the Centre for Indonesia- Malaysia-Thailand Growth Triangle was their gate opener to the other two countries. DMG is now promoting green initiatives in further 32 states and provinces in the growth triangle.

Market Report 2016

72 Kobie; 2016: Inside Cyberjaya, Malaysia's failed Silicon Valley

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3.4. Cyberjaya ‐ The Origin

OverviewCyberjaya flagship zone is the nucleus of the 7 MSCs and covers 28 Km2. It gained international recognition as test ground Malaysia’s new national ID’s. In 2001, MyKad was the first national photo ID’s with computer chips saving fingerprint biometric data. Today, the self-proclaimed Cybercity domiciles well known firms as Dell, IBM and Ericsson. However, the city is undergoing a drastic reorientation of its strategic positioning.

Strategic PositioningInitially, the idea to create Malaysia’s own Silicon Valley about half an hour from Kuala Lumpur was in long-term not fruitful. Even though, about 800 companies are based there, whereof 40 are Multinational enterprises (MNE), the created jobs are mainly support and call services with average salaries. Additionally, the national competition increased due to the roll out of further MSCs until early 2000s. MDeC is now changing the strategic position towards a self-sustaining global technology hub in Malaysia. The refocus is on Internet of Things in particular Smart Cities and intends to use the spirit of local start-ups. By doing so, Cyberjaya claims to be the living lab for Smart City innovations72.


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73 Cyberview; 2014: Cyberjaya Global Technology Hub Blueprint

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Becoming a living lab means for Cyberjaya’s stakeholders becoming a technology hub with specialisation. To identify the opportunities, the Cyberjaya Tech Hub Blueprint73 has been developed. Through this study, possibilities for specialisation are identified with strong emphasis on broadening the technology focus on four technology areas is thereby the major change, whereas ICT remains the key.

• ICT - information security - creative content technologies, - mobile internet cloud computing big data analysis • Green Technology • Bio-Technology • Smart Grid Technology.

By broadening the strategic focus, Cyberjaya aims to attract specialised firms in their field, however, competition nationally with IM and international with Singapore, Japan and South- Korea remains.

AuthoritiesThe leading governmental institution is the supervisor of all MSCs – MDeC. Land master developer Setia Harum is supported by 20 established sub developers, among others UEM Sunrise. The mandate to realise the tech hub transformation is given to the GLC Cyberview. Key figure for realising the smart city living lab is Cyberview, which mainly cooperate with local organisations.

Market Report 2016

Majority of the projects are related to mobility, whereof Smart Traffic Management System is the prime example. The cooperation comprises the stakeholders Cyberview, TM Intelsec, MDeC and the national research and development institution in ICT, MIMOS. With LTE technology equipped traffic light are observing the traffic, actively react on the situation and thereby reduce waiting time for road users. Cyberjaya is utilised as living lab, future plans intend to implement the system in Kuala Lumpur, Penang and IM.

Table 8: Overview of smart technology success storiesby Cyberview reveals their focus in smart mobility74

74 Cyberview; 2016: Cyberview Living Lab – Success Stories

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Project Name Description

Smart Parking

Smart TrafficManagement System

Parking spot tracking system for smartphone devices

TM intelsec

LTE equipped traffic lights reacting traffic conditions

Partner

TM intelsec

IP Network CCTV

Electric Vehicle

surveillance system incorporated with Malaysia’s Emergency Response System

GTC Global

Wireless Cyberjaya energy management tool enabling real-time electricity consumption through wireless sensors

MDeC

Malaysia’s first Electronic vehicle sharing program Cosmos

Smart City SolutionsCyberview has several success stories to share, whereof the Smart Traffic Management is one of the most recent and significant. Tested in Cyberjaya, this tool is planned to roll out to the whole Malaysia.


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ChallengesCyberjaya’s challenges are similar to IMs, namely human resources, funding, investment, knowledge transfer and governmental regulations. Additionally, Cyberjaya is facing high competition on all levels, on national level heavily with IM and on the international stage with Singapore. The governmental plan to overcome the challenges is through transfer know-how of overseas MNEs to local firms and commercialise innovations, even though in practice this method has not been proved successfully75.

Potentials for EU firmsEU firms willing to engage in applying and sharing their expertise can profit, especially since the governmental authorities still tend to prefer foreign firms and GLCs for public procurements. The current situation of repositioning offers is seen critically market experts. On the other hand, it offers great potentials to co-design Cyberjaya itself and by showcasing roll-out concepts in the whole country.

75 Cyberview; 2014: Cyberjaya Global Technology Hub Blueprint

Market Report 2016

76 Smart City Business Institute; 2015: Green, Smart and Connected Putrajaya77 New City Foundation; 2014: Putrajaya, Malaysia: Designed as an Intelligent Garden City 78 Putrajaya Corporation; 2013: Towards Putrajaya Green City 2025

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3.5. Putrajaya ‐ The Government Seat

OverviewPutrajaya with its 20 Km2 is the most people focused and local approach of a smart city. In 1999, the seat of the federal governments’ administrative centre moved to the city planned from the scratch in order to avoid overcrowding and congestions in Kuala Lumpur. The special feature is, in contrary to other smart cities, the population consists nearly entirely of ethnical Malays and is a completely local endeavour. The city gained international recognition through their 2014 Putrajaya ePrix, by pioneering one of the first official race championships with electrically powered vehicles.

Smart city projects have been initiated in 1995 and reached a maturity of 65%76. In 2014, an investment of 66,000 million €77 is needed to fulfil the milestones 2025. Besides reaching the ambitious goal of 350,000 habitants, in 2015 amounting to 88,000, there is a strong focus on green technology and integration of nature in the city concept. Core idea for Putrajaya is to become an Intelligent Garden City78. Hence, already more than one third of the city is parking area or open space.

AuthoritiesPutrajaya Corporation is leading the city’s development from governmental side. The master developer is the GLC Putrajaya Holdings is responsible from industry side. Both are founded in the process of establishing the new governmental seat. Since it is a local endeavour, the public accessibility to tenders, procedures and organisational structure is less transparent.


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International CollaborationHowever, the opaque system does not exclude international collaboration. The feasibility study for Putrajaya’s Green City 2025 project is a cooperative work between Japanese and Malaysian universities, similar to IM. Among others, model for the action plan to reduce carbon emission was none less than Tokyo.

Smart City SolutionsAs a neighbour of Cyberjaya, both are not competing with each other, since the primary goal is to build infrastructure, and governmental administrative offices and facilities. In contrary, an integration of the two smart cities is desired through the Cyberjaya Putrajaya Hub (CPU Hub). One project to enhance the integration is the loop city concept, inspired by best practice examples like in Washington DC’s Georgetown. Further endeavours stated in the Putrajaya Green City 2025 master plan are aiming on green technology with key the elements smart buildings and the use of non-fossil fuel transport.

The flagship project for green buildings is the Perdana Putra Complex, which is the largest existing building in Malaysia going to attain GBI Platinum Ranking. It is part of a 4 stage process, starting with governmental sample case buildings. After expanding to all governmental building, public buildings and finally commercial buildings will be targeted to reduce their CO2 footprint. By doing so, Putrajaya is one of the largest projects in the field of green buildings in Malaysia79.

Besides natural gas vehicles, Putrajaya is looking forward to electric vehicles. In the end of 2016, a demonstration project quick charging electric engine bus system is set to be operational. This will complement the already pilot project using Renault electric vehicle for tourist transportation.80

Potentials for EU firmsThe local endeavour makes it more difficult for foreign firms to contribute, but does not exclude them as the Japanese collaborations show. Above all, the inclusion of gardens and electric public transport, seem very dynamic and the driving force. Consequently, EU green tech firms could find their opportunities, if they have a partner in Malaysia to bring them in the local network.

79 Putrajaya Corporation; 2015: Putrajaya Building Sector Carbon Emissions Monitoring and Reporting Programme and PGC2025 Updates80 Ibid

Market Report 2016

81 Achu; 23rd May 2016: KLIA Aeropolis to drive Msia's ambition of becoming airport cities leader

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Positive Vision of Future Smart CitiesBesides ongoing projects, future ones are already in the pipeline, whereof the most promising are Penang in northeast and the expansion of smart city master plans to further areas in GKL. At the moment, Penang’s hot topic on the agenda is its Transport Master Plan, which is already picking up the idea of smart mobility in the meaning of an integrated urban area. More details to the Penang’s endeavour can be found in SEBSEAM-M’s report on EU-High Tech Solutions Providers in the Malaysian Transport & Infrastructure Sector published in 2016.

The GKL, or more precisely cities in the state of Selangor, are eager to follow its regional neighbours KL, Cyberjaya and Putrajaya. The most recent project announced, which has been confirmed in mid-2016, is a modern urban area surrounding the Kuala Lumpur International Airport (KLIA). Under the project name KLIA Aeropolis, it is planned to develop an area of 4 Km2. With an estimated investment of 15,000 million € over the next 15 years, authorities aim to bring in domestic, as well as foreign investors to the project81.

These two projects show a still growing potential for smart technology providers. It is most likely that authorities not only rely on foreign financial investments, but also on foreign expertise in smart city development and its technology, similar to former projects. SEBSEAM-M and its implementer EUMCCI is acting in the frontline to gain most recent updates in this sector, however, more importantly, being proactive with the Smart Technology Committee to shape the future of urban development in Malaysia. Taking part in the committee means connecting to relevant stakeholders and develop with them national standards for upcoming projects.


04CONCLUSIONS

4. Conclusion

The concept of Smart Cities is gaining an increasing attention in response to the increased proportion of population living in cities. This report critically evaluates the needs, resources, priorities for the development of the smart cities in Malaysia.

Malaysia offers a growing and diversified landscape for smart city solutions. Projects show investments in up to double digits billion € amount to solve the urbanisation issue and enhance the cities’ global competitiveness. Current national priority is to position the country as showcase for smart city solutions and in-long-term establishing a local industry able serve the need for technology. The five smart cities picked up in this report, share the broad idea of a smart city, but characteristics and approaches differ.

The local industry capacity is not sufficient to serve the requirements of smart city master developers. Nevertheless, the governmental master plans tend to set ambitious milestones even for Asian circumstances. Hence, authorities and smart city developers identify a demand for foreign expertise and knowledge transfer. To feed the demand, industry and authorities are specifically seeking for innovation leaders and multinational enterprises able propose, implement and maintain smart technologies for urban areas. In turn, tax incentives and relieving restrictions for foreign firms are allowed, if these can prove to contribute to the local industry. This can create the positive environment for collaboration with the European ICT companies. This can be facilitated by EUMCCI via EU co-funded project SEBSEAM, which offers 28 European companies to expand their business in Malaysia and ASEAN per se. The capacity of ICT sector will be strengthened via strong emphasis on broadening the technology focus on four technology areas: information security, creative content technologies, mobile internet, and cloud computing, big data analysis.

Smart City Unique Characteristic

Kuala Lumpur

Iskandar Malaysia

Economic and social centre Focus on smart mobility and transit-oriented development

In close proximity to Singapore

Approach

Integration to the neighbouring country

Cyberjaya

Malacca

Smart city development suffering from competition

Refocus on technology hub and national smart city living lab

Putrajaya City planned from the scratch to be the hub of governmental agencies

Extensive inclusion of green spaces and enhancing city life quality of government employees

World heritage with strongregional connection

Emphasis on green technology and smart grids

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Major challenges are related to matching demand and supply, since there is no centralised platform or authority managing smart city projects on the federal level and cross-project engagement is lacking especially towards foreign firms. Recognising this weakness, EUMCCI is working with the smart technology committee towards a closer cooperation between stakeholders and developing industry standards.

When reviewing the entire picture and interpreting it for EU firms, it reveals a very positive landscape for smart technology providers. Considering the advanced development in the region and a lower price level than Singapore, Malaysia positions itself as the minimal risk option for foreign direct investors, where existing obstacles can easily be overcome through having an onsite partner.

Market Report 2016

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05CONTACT POINTS

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IPR SME HelpdeskURL: http://southeastasia-iprhelpdesk.eu/enContact Number: +861085275705

Summary: Companies interested in starting a business in ASEAN region, may look for information on the Southeast Asia IPR SME Helpdesk. This website offers practical, business-focused information and several business tools, including e-learning modules and case studies. The Southeast Asia IPR SME Helpdesk gives as well access to industry specific webinars.

European IPR HelpdeskURL: https://www.iprhelpdesk.eu/Contact Number: +352252233333

Summary: EU SMEs involved in transnational partnership agreements can get a free of charge support on Intellectual Property (IP) and Intellectual Property Rights (IPR) matters on the European IPR Helpdesk.

East Asia Business ExchangeURL: http://www.eabex.org/Contact Number: +60362867320

Summary: To be updated regarding the regional initiatives in the East Asia region, interested entities may join the East Asia Business Exchange (EABEX), aimed at enhancing the competitiveness of the SMEs in the region. This business matching portal provides access to buyers and sellers from 13 Asian countries and valuable business tools.

EU-Malaysian Chamber of Commerce and Industry (EUMCCI)URL: www.eumcci.comContact Number: +603-2162 6298

Summary: EUMCCI offers business support for EU companies in Malaysia and ASEAN. With its Smart Technology Committee and broad network to urban development stakeholders, it is the first touchpoint for provider of smart city solutions.

Malaysia Digital Economy Corporation Sdn. Bhd. (MDEC)URL: msc.mdec.myContact Number: +603-8315 3000

Summary: MDeC has been given the mandate for implementing the national digital transformation and leads the Multimedia Super Corridor (MSC).

Malaysian Investment Development Authority (MIDA)URL: www.mida.gov.myContact Number: +603-2267 3633

Summary: Malaysia’s principal agency promoting investments in the nation and has dedicated departments promoting green technology procurement; another primary contact point for EUES-related incentives.

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5. Contact Points

Market Report 2016

Malaysian Industry-Government Group for High Technology (MIGHT)URL: www.might.org.myContact Number: +603 8315 7888

Summary: MIGHT is a platform organized under the prime minister’s office bringing together private, governmental and academic stakeholders.

Ministry of Science, Technology and Innovation (MOSTI)URL: www.mosti.gov.myContact Number: +603-8888 9070

Summary: MOSTI’s function is to lead the country towards Internet of Things Hub and is a valuable contact point for innovative high-tech companies.

Ministry of Energy, Green Technology, and Water / Kementerian Tenaga, Teknologi Hijau, dan Air (KeTTHA)URL: www.kettha.gov.myContact Number: +603-8883- 6000

Summary: Main source of information on Malaysia’s official green development policies and ongoing projects.

The Kuala Lumpur Centre for Sustainable Innovation (KLCSI)URL: www.klcsi.comContact Number: +603-27145801

Summary: KLCSI is a collaborative hub to develop innovative and sustainable solutions to improve KL’s living environment, as well as is engaging in smart city projects outside of Kuala Lumpur.

Medini Iskandar MalaysiaURL: www.medini.com.myContact Number: +60- 2742 7090

Summary: Medini is one of the master developer is Iskandar Malaysia, expert in smart cities and open-minded towards EU firms with innovative solutions.

Telkom Malaysia (TM)URL: www.tm.com.myContact Number: + 603-2240 4848

Summary: TM is a government-linked company (GLC) leading telecommunications company. TM Intelsec as subsidiary is engaging in several smart city project through joint ventures.

Tenaga Nasional Berhad (TNB)URL: www.tnb.com.myContact Number: +60-2296 6077

Summary: TNB is the government linked company (GLC) and leading the national energy industry engaging in smart grid projects.


53

06REFERENCES

6. References

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Putrajaya Corporation; 2013: Towards Putrajaya Green City 2025. URL:http://www.ppj.gov.my/cpnavigation/general/Towards_Putrajaya_Green_City_2025_Inventory_of_Putrajaya_GHG_E missions_2012.pdf [Accessed 15th August 2015]

Putrajaya Corporation; 2015: Putrajaya Building Sector Carbon Emissions Monitoring & Reporting Programme & PGC2025 Updates. Putrajaya Green City 2025, URL: http://www.mofa.go.jp/files/000118239.pdf [Accessed 15th August 2015]

PwC; 2015: Smart Cities in Southeast Asia – Opportunities for Telcos. Price Waterhouse Coopers, URL: http://www.pwc.com/ph/en/consulting/assets/smart-cities-in-southeast-asia-report.pdf [Accessed 15th August 2015]

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07APPENDIX

7. Appendix

7.1. List of EU IncentivesAs SME owner, it is possible to benefit from EU funding through grants, loans or, guarantees. Support is available either directly (with EU grants) or through programmes managed at national level. SMEs can also benefit from a series of non-financial assistance measures in the form of programmes and business support services. Small businesses and start-ups are the major beneficiaries from the Competitiveness and Innovation framework programme which runs between 2014 and 2020. More than 1100 million € of EU funding will be directed to loans and risk capital investments to help 350,000 SMEs start up, grow and innovate.

In addition to that, 2 600 million € will fund actions to help SMEs bring innovative ideas to the market, to apply ICT and renewable energy technologies, and benefit even more from the internal market. Structural Funds Direct from the European Commission aid to SMEs in order to co-finance their investments is only possible in the economically less developed regions (the so-called 'convergence' regions).

In other regions, priority has been given to actions having a high leverage effect (e.g. entrepreneurship training, support services, business incubators, technology transfer mechanisms, networking, etc.), as opposed to direct aid to individual SMEs.

From public funding to contractual modelsTraditionally, a lot of energy and transport infrastructure have been financed directly from public funds. There is, however, a need to better use the limited public financial resources and change the model for financing new “smarter” infrastructures. This requires the funding model to realise a SMART CITY shifts from the use of "traditional" tools such as public (e.g. municipal, regional, national) resources to contractual models of Public Private Partnership (PPP), able to attract private capital. There are essentially two categories of (private) investors: i) big investors able to sustain high financial pressures, and ii) small investors able, by associating, to establish a "critical mass" sufficient to trigger processes of urban transformation foreseen in SMART initiatives.

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Num. Providing Agency

1 EC through Horizon 2020 Program

SCC-1-2016-2017: Smart Cities and Communities lighthouse projectsInnovation ActionBudget: 69,500,000Opening Date: 04 October 2016 Deadline: 14 February 2017

https://ec.europa.eu/research/participants/portal/desktop/en/opportunities/h2020/topics/23581-scc-1-2016-2017.html

2 European Investment Fund (EIF)

COSME Loan Guarantee Facility (LGF)

The COSME Loan Guarantee Facility (LGF) is a window of the Single EU Debt Financial Instrument which supports European enterprises' growth and research and innovation (R&I). LGF is part of COSME (Programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises), an initiative launched by the European Commission and managed by EIF. Through COSME LGF, EIF offers guarantees and counter-guarantees, including securitisation of SME debt finance portfolios, to selected financial intermediaries (e.g. guarantee institutions, banks, leasing companies, etc.) to help them to provide more loans and leases to SMEs. By sharing the risk, COSME guarantees allow the financial intermediaries to expand the range of SMEs they can finance, facilitating access to debt finance for many SMEs who might be having difficulties in accessing the traditional banking system.

http://www.eif.org/what_we_do/guarantees/single_eu_debt _instrument/cosme-loan-facility-growth/index.htm

3 European Investment Fund (EIF)

InnovFin SME Guarantee FacilityThe InnovFin SME Guarantee Facility will be deployed by eligiblelocal banks, leasing companies, guarantee institutions, etc. which are selected after a due diligence process following the launch of a Call for Expression of Interest. Once selected by EIF, these local partners act as financial intermediaries.

EIF, acting for both EIF and the EU as the implementing body, covers a portion of the losses incurred by the financial intermediaries on loans, leases and guarantees between EUR 25 000 and EUR 7.5 million which they provide under the InnovFin SME Guarantee Facility. In this way, the EU and EIF allow the provision of more debt financing to innovative SMEs and Small Mid-caps (up to 499 employees)

http://www.eif.org/what_we_do/guarantees/single_eu_debt _instrument/cosme-loan-facility-growth/index.htm

Incentive


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Num. Providing Agency

1 Malaysian Investment Development Authority (MIDA)

I-incentives (One Stop Centre for Incentives)URL: https://incentives.mida.gov.my/Incentives/Modules/Public/In centiveList.aspx

Summary:• One-Stop online portal for Malaysian Federal Government offered incentives.• Notable Smart Cities-related incentives: - Incentives for Green Technology - Incentives for High Technology Projects - Incentive for MEDINI – IDR Status Company o Knowledge, Education & ICT Development

2 Multimedia Super Corridor (MSC)

MSC StatusURL:http://www.mscmalaysia.my/what_is_msc_malaysia_status http://msc.mdec.my/

Summary:Potentials for• ICT-based and ICT-facilitated businesses that could catalyse Malaysia’s smart cities’ initiative.

Benefits• 100% exemption from statutory income.• 100% Investment Tax Allowance (ITA)• Eligibility for R&D Status.

Incentive

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7.2. List of Malaysian Incentives

This publication is co-funded by

the European Union

CONTACT DETAILSSuite 10.01, Level 10, Menara Atlan, 161B Jalan Ampang, 50450 KLTel: +603-2162 6298 Fax: +603-2162 6198 Email: [email protected]

For more information, helpdesk for EU companies can be found at www.eu-sme.my and www.eu-sme.com.my

Documents

POTENTIALS FOR EU SMES IN THE MALAYSIAN SMART CITY …...1.1. Country Profile ... crisis 2008 -09, the economy managed to recover quickly and to step out of the crisis with an even