Redefining Research and Development towards Sustainable Development and Growth

It has been found that innovation fueled by research and development (R&D) has a profound impact on economic growth. The Organisation for Economic Co-operation and Development (OECD) estimates that one per cent increase in R&D spending could elevate the economy by 0.61 per cent. As such, many countries around the world are positioning R&D as an important key to fostering sustainable development and growth.

With increased emphasis on this segment, greater synchronisation or standardisation for the methodology of collecting R&D data is required towards facilitating cross-country comparisons, which could be a valuable source of information for policy makers. Being cognisant on this matter, the OECD issued the Frascati Manual, a comprehensive and internationally accepted guideline for collecting and reporting data on R&D.

Its introduction has enabled countries across the globe to adopt an acceptable definition of R&D, which indirectly contributes to intergovernmental discussion pertaining to good practices for science and technology policies. To align with the requirements under the Frascati Manual, Malaysia through the Finance Act 2018 has introduced a new R&D definition as follows:

Research and Development means any systematic, investigative and experimental study that involves novelty or technical risk carried out in the field of science or technology, with the objective of acquiring new knowledge or using the results of the study for the production or improvement of materials, devices, products, produce, or processes, but does not include:

1. quality control or routine testing of materials, devices or products;
2. research in the social sciences or the humanities;
3. routine data collection;
4. efficiency surveys or management studies;
5. market research or sales promotion;
6. routine modifications or changes to materials, devices, products, processes, or production methods; or
7. cosmetic modifications or stylistic changes to materials, devices, products, processes, or production methods.

Subsequently, the Finance Bill 2021 which was tabled in Parliament and unanimously passed on 23 December 2021, proposed amendments to the Promotion of Investments Act 1986 (PIA). Effective from 1 January 2022, the definitions of “Contract Research and Development Company” and “Research and Development Company” under Section 2 of the PIA require companies to be approved as a research and development (R&D) status company by the Minister of International Trade and Industry (MITI).

Companies in the business of providing R&D services namely, Contract R&D Companies and R&D Companies that wish to apply for R&D tax incentives will be granted R&D status (subject to MITI’s approval) for a period of five (5) years. Companies approved with this status may apply for extensions to the Malaysian Investment Development Authority (MIDA). However, the granting of the approval is subject to consideration by MITI and the Ministry of Finance.

The Finance Bill 2021 further provides that existing Contract R&D Companies and R&D Companies, which have been approved prior to 1 January 2022, and which intend to fall within the new definitions, are required to notify MIDA within the grace period (between 1 January and 30 June 2022) for consideration. For this purpose, the companies are required to provide documents to prove that they are undertaking activities relating to R&D as defined under the PIA, and that they are complying with conditions imposed previously in their approval letters. Failure to do so will cause the companies to cease possessing their status as approved companies fulfilling the new definitions.

Moving forward, the implementation of this initiative will contribute towards orderly development of R&D activities in Malaysia. This augurs well with the emphasis on research, development, commercialisation, and innovation (R&D&C&I) as stipulated under the Twelfth Malaysia Plan, 2021– 2025 (12MP), as well as the National Investment Aspirations (NIAs) that seek to enhance Malaysia’s economic complexity through local R&D&C&I. Furthermore, this initiative will complement the country’s drive to transition to a high-income economy between 2024 and 2028, as forecasted by the World Bank.

For more information, please contact Advanced Technology and Research and Development Division, MIDA.

As projected in the National Study on Human Capital (2012), Malaysia needs eight million STEM workers by 2050. On the global scale, the World Economic Forum (WEF) reported that the 75 million current job roles may be displaced by the shift between humans, machines and algorithms, while 133 million new job roles may emerge at the same time; where newly emerging occupations are set to grow from 16 per cent to 27 per cent by 2022. The growing occupations would include data analysts and scientists, artificial intelligence (AI) and machine learning specialists, software and applications developers’ analysts, big data specialists, digital transformation specialists and information technology services specialists.

Maintaining the importance of STEM subjects in charting Malaysia’s future, as outlined in the Malaysia Education Blueprint 2013-2025; strategic joint initiatives will be implemented by ministries. In the forefront, the Government has rolled out the first National Science and Technology Enrollment Policy to target at least 60 per cent of students focuses on science subjects. The initiatives implemented include mentor-mentee, STEM ambassador and STEM mini theatre programmes. The Government will continue to strengthen the Technical and Vocational Education and Training or TVET. Under the 2021 Budget, an amount of RM6 billion has been allocated for TVETs programmes support.

As the government’s principal investment promotion and development agency, the Malaysian Investment Development Authority (MIDA) has stepped up its effort in preparing local talents for future jobs, sharpening the country’s competitive edge in becoming the preferred investment destination. MIDA has been collaborating with policymakers, industry players and academic institutions to undertake several initiatives, namely Technical Internship Programme, E-Career fair, MIDA Apprenticeship Programme and Post School Finishing Programme in IC Design (PSFP-IC), to steer the right skilling and continuous technology grading of the local talents.

Preparing the workforce for future industries is not a straight forward strategy. MIDA will continue to offer support and engage relevant stakeholders to map out possible schemes for local students and talents to equip themselves with the technologically developed skills of future needs of the industries.

As Malaysia moves into the Fourth Industrial Revolution, technology achievements are imperative in creating a living environment which is fast, intelligent and dynamic.