For decades, Malaysia’s economic story has been one of promise and potential. Yet as we stand at the crossroads of global technological upheaval, that potential remains frustratingly untapped.
A glaring symptom of this stagnation is our nation’s weak investment in research and development (R&D), stuck at around 1 per cent of GDP – far below the 2.5 per cent target and a fraction of what economic powerhouses like South Korea and Japan invest, often exceeding 4 per cent.
The upcoming Budget 2026 is not just another fiscal exercise; it is a critical opportunity to revive our innovation ecosystem and propel Malaysia into the ranks of high-income nations.
The issue is not only how much we spend, but who is doing the spending. The fact that the government shoulders most of the R&D burden reveals a fundamental market failure – the private sector is not innovating at the scale or speed required. In thriving economies, corporations such as Samsung, Toyota and Bosch are the engines of discovery, driving the commercial applications that create wealth and global market leaders.
In Malaysia, however, a vast gap separates laboratory research from the marketplace. The government’s focus on technology under the 13th Malaysia Plan (RMK13) – from semiconductors to the circular economy – is a step in the right direction. But vision without execution is merely a hallucination.
So what must Budget 2026 do to close this gap? Allocations must be strategic, catalytic, and unflinching in their pursuit of a genuine public–private innovation partnership.
First, the government must evolve from being the primary funder to becoming the chief facilitator. This means designing tax incentives that the private sector cannot ignore. Instead of broad-based deductions, we need a super-deduction model – for every ringgit a company spends on R&D in collaboration with a public university or research institute, it should be able to claim RM2 or more in tax relief. This would instantly make collaboration profitable.
We should also pioneer “Innovation Vouchers” – small, easily accessible grants for small and medium enterprises (SMEs) to address specific technical challenges with the help of local research institutions. This would lower the entry barrier for smaller firms and spur a wider innovation culture.
Second, we must strategically channel funds into national champions and emerging frontiers. The semiconductor industry is a prime example. Malaysia is a global packaging and testing hub, but we lack presence in high-value design and fabrication. Budget 2026 must establish a National Semiconductor Design Fund, co-investing with private ventures to create homegrown chip design firms.
Similarly, for the circular economy, grants should be directed towards scaling up local innovations in plastic-to-fuel technologies, advanced recycling, and sustainable materials – positioning Malaysia as a regional green tech hub.
Third, and perhaps most crucially, we must invest in the lifeblood of any R&D ecosystem: human capital. Our brain drain is a silent crisis. Budget 2026 must introduce an “Attract and Retain Talent Fund”, offering world-class, tax-free fellowships and research grants to entice top Malaysian scientists and engineers abroad to return home – and to draw leading international experts to our institutions.
At the same time, our universities need a radical funding overhaul. Tie a portion of public university grants directly to their success in commercialising research and forging industry partnerships. Reward real-world outputs, not just academic publications.
Finally, we must de-risk the boldest ideas. Budget 2026 should establish a “Malaysia Moonshot Fund” – a sovereign wealth fund-style vehicle that takes equity stakes in high-risk, high-reward deep-tech start-ups in fields such as artificial intelligence, aerospace, and biotechnology. This is not about picking winners, but about providing patient capital for breakthroughs that traditional venture capital tends to avoid.
The path to a high-income nation will not be built on low wages or commodity exports. It will rest on the bedrock of innovation, proprietary technology, and a dynamic, competitive private sector.
The RMK13 has charted the course. Budget 2026 must now provide the fuel. It is time to transform Malaysia’s R&D landscape from a government-led struggle into a vibrant, private-sector-driven powerhouse. The message must be clear and unambiguous: Malaysia is open for the business of invention – and our economic future depends on it.
The views expressed here are the personal opinion of the writer and do not necessarily represent that of Twentytwo13.
