Press release

Malaysia’s Digital Economy forecasted to reach RM 275 billion (USD 60 billion), accounting for 16% of the GDP by 2025

June 7, 2023| Kuala Lumpur | Malaysia
June 7, 2023

E-commerce is expected to reach RM 141 billion (USD 30.7 billion) in 2025

According to Twimbit’s “The State of Malaysia’s Digital Economy” research paper, the findings indicate that its digital economy has grown to a total of USD 44.8 billion. This amount accounts for 14% of the country’s GDP in 2022.

There are over 2,063 startups in the entrepreneurial landscape of Malaysia, with e-commerce and marketplace startups comprising 25% of the total. These startups have collectively raised a total of USD 665 million in private funding in 2022 (Exhibit 1).

“Startups are at the forefront of Malaysia’s digital economy, disrupting traditional markets with innovative technology and new business models,” said Tan Boon Leong, Research Analyst at Twimbit. “Carsome, an integrated car e-commerce platform which raised USD 290 million in funding, was a standout performer in this sector.”

Exhibit 1. The state of the digital economy landscape in Malaysia in 2023 (2019-2023)

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Source: Twimbit  

Malaysia faces increasing pressure to expand beyond B2C e-commerce and capture new revenue streams. Because of this hyperfocus on B2C, the B2B e-commerce market has remained largely untapped, a great opportunity for many investors to achieve good results.

B2B e-commerce holds tremendous potential for substantial scalability. Approximately 80% of SMEs have yet to leverage any B2B e-commerce platforms or supply chain management platforms.  

“The closest we have is Dropee, an e-commerce startup, which has successfully raised a total of USD 8 million within two years (2020 – 2022),” expressed Tan Boon Leong. “There is a need for change, and to achieve that, we first must break the barriers that have moulded us and start anew”.

Budget 2023 initiative by Malaysia Madani aims to accelerate a highly supercharged B2B e-commerce market in 2025  

Budget 2023 by Malaysia Madani has proposed a government-led funding to accelerate enterprise digitalisation and automation. The key highlights of the government initiative include:

  • RM 1 billion (USD 217 million) funding by Bank Negara to assist MSMEs in automation and digitalisation
  • RM 20 billion (USD 4.3 billion) loan initiative that SMEs in technology, agriculture and manufacturing sectors can undertake to expand economic growth and value

Twimbit analysts predict this initiative will encourage many businesses to expand their portfolio and branch into B2B e-commerce, particularly in the back-end operations. Currently, only 20% of SMEs, on average, use IT systems to manage their back-end supply chains or inventories, leading to low digital adoption among businesses in Malaysia.

The government-funded initiative will enable various opportunities for businesses to undergo a rejuvenated transformation. This initiative aims to help businesses optimise internal processes, increase overall efficiency, implement new business models and introduce more innovative products and services.

Boon expects that Budget 2023 will drive innovation to the forefront, paving the way for a revitalised digital economy in Malaysia by 2025.

Reducing investor spend puts pressure on startups to reassess geographical expansion

During the COVID-19 pandemic, startups flourished, driving growth and sparking innovation, establishing a transformative change in the Malaysian digital economy. This momentum has established Malaysia as the leading startup hub, positioning itself as a dominant force within the broader Southeast Asian startup ecosystem.  

However, as the pandemic slowly dissipates and the economic status reverts to its status quo, investors have begun to exercise more caution in investing in new and established startups. (Exhibit 2)  

Exhibit 2: The lifecycle of Malaysian startups in 2022

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Source: Twimbit  

Most startups often struggle to establish their position following the initial growth phase. However, unlike other startups across Southeast Asia, Malaysian startups possess vast opportunities to expand and solidify their position in the dominant digital market.  

“Grab, Carsome, Jobstreet and Fave are successful startups with one common aspect – they all originated from Malaysia. As proven, Malaysia is more than capable of producing startups that can achieve scale and expand in Southeast Asia,” Tan Boon Leong expressed.

Boon also expressed how Malaysia’s diverse demographic and strong digital literacy empowers startups to expand domestically, acting as a strong springboard for establishment. Malaysian startups can enjoy the advantage of swiftly establishing their core principles within a shorter timeframe with less difficulties in promoting digitalisation. This advantage is particularly notable when compared to other startups in nations with lower levels of digital literacy.  

“It is time we started to look inward for our growth in the digital economy,” said Tan Boon Leong.  

The rise of microcredit demand with e-wallet transactions drives the Malaysian digital economy

E-wallet transactions in Malaysia are estimated to be valued at USD 15 billion in 2022, with projections from Bank Negara predicting its transactional value to rise to USD 20.6 billion in 2025.

Currently, e-wallet transactions represent only 2% of the total e-payment transactions in Malaysia. However, approximately 70% of the nation does not own a credit card, leaving many opportunities for fintech's to embed microcredit products, such as P2P lending or BNPL. These advancements aim to increase the digital lending transactional value to RM 14 billion (USD 3 billion) by 2025.

Twimbit clients can read more in “The State of Malaysia Digital Economy: Growth and Opportunity 2023”  

About twimbit

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