Cover story: DE Rantau will it boost the talent pipeline?

This article first appeared in Digital Edge, The Edge Malaysia Weekly, on January 9, 2023 - January 15, 2023.
Cover story: DE Rantau will it boost the talent pipeline?
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The lack of a highly skilled workforce has been a perennial problem in Malaysia for decades. Over the years, numerous attempts to reinvigorate our human capital resources have not been successful, mainly due to transitional policies and incomplete structural transformations in talent development.

The latest in a series of attempts to address the dearth of talent is the DE Rantau programme — a work and travel visa project launched under the Malaysia Digital Catalytic Programmes (Pemangkin) umbrella — to establish the country as a preferred digital nomad hub in Southeast Asia.

If all goes as planned with the rollout of DE Rantau, the local gig market is expected to contribute RM5 billion to the country’s GDP by 2025.

“I think it is worth underscoring that in Malaysia, we have a talent deficit when it comes to the digital economy. Skill sets in software engineering and digital marketing are lacking, let alone capacity for data analysts, artificial intelligence (AI) developers and blockchain developers. In this regard, the digital nomad programme, or DE Rantau, will certainly be important,” says Aaron Sarma, general partner at ScaleUp Malaysia, a leading local accelerator.

Digital nomads are becoming the answer for many countries for a variety of reasons. The vastness of the gig economy has encouraged many in the fields of design and technology to switch to remote work. By Mastercard’s estimates, gig workers globally are expected to rise from 43 million in 2018 to 78 million by next year and record an annual growth of 17% to about US$455 billion (RM2 trillion) by 2023.

According to Time magazine, from 2019 to 2021, the number of American workers who described themselves as “digital nomads” — a catch-all term for people who embrace a “lifestyle that allows them to travel and work remotely” — swelled to 15.5 million from 7.3 million, driven by the increase in remote work options in traditional jobs, citing a survey by MBO, a platform for independent workforce management.

Estonia was the first to roll out a digital nomad visa in July 2020, adapted from its 2014 longer-term e-Residency of Estonia programme, as it wanted to attract tech workers and entrepreneurs.

Quite a number of its European counterparts such as Albania, Croatia, Latvia and Spain, as well as Middle Eastern and other Asian nations such as the UAE (Dubai), Taiwan, Thailand and Indonesia (Bali) soon followed suit, hoping to attract more than just regular tourists.

Countries in the Caribbean, South America and the African continent have introduced a similar visa programme, making it easier for applicants to win temporary residency as a means of compensating for their flagging tourism industry as well as to benefit from the expertise of teleworkers, who could be working for a foreign company or as freelancers.

With more than 40 countries vying for the attention of this segment, concerns were raised about whether the applicants would indeed be the crème de la crème of talents that Malaysia needs to bolster its talent pool and contribute to its waning economy or simply give the local tourism industry a boost.

Malaysia Digital Economy Corporation (MDEC), the government agency in charge of the rollout of DE Rantau, wants to make it clear that the programme is first and foremost an endeavour to narrow the talent gap.

“[It is about] attracting tourists who are also digital nomads. But as it is parked under MDEC, which is traditionally about technology rather than tourism, this is more like a federal foreign talent development programme. It is not tourism. It just happens to be helping the tourism sector,” says CEO Mahadhir Aziz.

Both foreign and local remote workers — specifically those who are self-employed or freelancing in digital jobs — who enlist under the programme are welcome to move to earmarked living and working hubs in destinations such as Penang and Langkawi. The nomads are not restricted to those areas but these places serve as ports for them to explore the country and a base to explore the rest of the region. To sweeten the deal, MDEC has worked out a long list of discounts on services and attractive packages provided by ecosystem partners such as Grab, AirAsia, LokaLocal and PayNet.

To qualify, the nomads should be earning more than US$24,000 annually. Foreigners will be issued a multiple-entry Professional Visit Pass, enabling them to stay in the country for up to a year, which can be extended for another 12 months.

According to the FAQs, these nomads could be digital freelancers, independent contractors and remote workers in the domains of IT (including software development, UX, UI, cloud computing, cybersecurity, blockchain technology, AI, machine learning and data-related jobs), digital marketing, digital creative content and digital content development, among others.

According to MDEC, it had received 2,000 applications as of October but the agency declines to reveal how many visas have been approved since the first hub was launched in Penang in September. Langkawi was recognised as the second hub a month later.

Revitalising the local economy

But how meaningful will the DE Rantau programme be if its members are working for a foreign employer?

Mahadhir’s answer: “Apart from DE Rantau, which we worked with the tourism industry to develop, there is also the Digital Trade initiative under Pemangkin and other development projects that we are planning for across seven other verticals. [Once these are announced,] the nomads can participate in them.

“So, we are looking at [projects] like artificial intelligence or blockchain. Some of the [nomads] who are here are probably doing their own projects [in these areas]. So, we [can] have exchange or developmental programmes that we [can collaborate on].”

The DE Rantau pass also serves as an avenue for foreign digital nomads to apply to transition into the Malaysia Tech Entrepreneur Programme (MTEP) or those that secure local employment to qualify as Foreign Knowledge Workers (FKW) — the two other talent enrichment initiatives under MDEC’s purview.

“MTEP is valid for one year to up to five years and they can be registered under the FKW if they work with companies in Malaysia [with MSC Malaysia status or information and communications technology companies]. The nomads can come here first to work on [their other] projects [from] overseas and then find jobs in Malaysia as well,” says Mahadhir.

“So, the [MTEP and FKW] are two additional offerings that we feel [will entice] digital nomads to come to Malaysia. The mechanism is being ironed out.”

And if the segment finds Malaysia appealing enough for them to establish businesses here, the diversity of talent and experience it would bring to the local landscape could be far more impactful.

“I know there are certain reservations from the locals who are hesitant about an influx of foreigners as we open our doors. But having different inputs, additional experiences and different kinds of ideas is how a country develops. If I were a local founder, I would think that this would challenge me to test out my ideas,” says Mahadhir.

However, seeing that Malaysia is neither the first nor the only country in the region to have introduced such a programme, industry observers are reserved about its prospects and potential impact.

Thailand has introduced a 10-year visa to attract skilled workers and investors, targeting one million people from Japan and other advanced economies over the next five years. The long-term visa is designed to make key sectors like automobile, electronic and biotechnology more competitive.

Bali, on the other hand, allows remote workers to reside there tax-free for up to six months. A five-year iteration is currently being considered given the island’s immense popularity.

“While it may draw tech talents to enjoy longer stays in Malaysia while working, it is unclear how this will solve the country’s tech talent shortage. For example, a remote worker exercising employment for a foreign company in Malaysia limits the beneficiary of their skill sets to the foreign employer, while a conventional hire of a skilled foreign employee by a Malaysian company will be more beneficial in managing tech talent as it allows for foreign-local skill transfers via proper training plans, coaching and more,” says Chee Ying Cheng, global employer services executive director at Deloitte Malaysia.

It would be more appropriate for the government to lean into its existing digital training initiatives to create and nurture tech talents, she adds. “For example, MDEC has a host of digital training, upskilling and reskilling initiatives such as MyDigitalWorkforce Work in Tech, Digital Up, Let’s Learn Digital and the Digital Skills Training Directory, which can be reviewed and enhanced to meet our tech needs.

“It would be more beneficial for the government to invest in nurturing talent and focus on preventing any exodus of talent from Malaysia rather than bringing in IT professionals who are looking for work-life balance.”

Malaysian companies are certainly having trouble recruiting and retaining the kind of specialist tech talents that DE Rantau is wooing, says ScaleUp’s Sarma. “It is important to acknowledge that having a digital nomad programme is a step in the right direction.

“However, we are not the first to the starting line in this initiative and there are other programmes around the world that are competing with ours. Just do a quick Google search on ‘Best Digital Nomad Destinations in 2022’, and you will see that Malaysia is not on any of the lists. If no one knows about us, no one will come.”

Nevertheless, he believes that the digital nomad programme does add value to the local tech ecosystem. “But it is nuanced. We want foreign skilled talent to work in Malaysian firms. This helps with knowledge transfer and allows our workforce to adopt best practices. That said, we need to make sure the digital nomads work for Malaysian firms and not merely for the local branches of foreign companies,” he says.

“However, our founders need to have the capital to attract these talents to work for their firms. Without the availability of capital, digital nomads in Malaysia will be employed by foreign start-ups or multinational corporations. While it will contribute in terms of economic stimulation, it will not drive the needed growth in the digital economy in the long term.

“Malaysia needs to work on branding itself as a great digital nomad destination. We also need to further bolster our local ecosystem by building great companies that are looking for talent. Finally, we need to partner with international programmes that have access to talent who are looking for great destinations.”

Frost & Sullivan’s head of consulting (public sector and government) Barry Lim believes that DE Rantau has the makings of an attractive talent drive but that hinges on how pervasive and structurally sound the programme is.

“Studies show that digital nomads spend more than one-third of their global income in the local economy while staying for a longer period, which is from three to 12 months. The Malaysian digital nomad programme should be designed to leverage even more value through a structured and wide-reaching quality of service to the digital nomad,” he adds.

“It should be remembered that to qualify for the digital nomad visa, the applicants are usually globally aware professionals who would demand higher levels of service — beyond mere nice beaches and good food. A proper far-reaching, high-impact digital nomad programme, however, needs to be structurally integrated into all levels of government policy, adjacency programmes and initiatives, and executed not just at the level of MDEC.”

Given that the initiative is still relatively new, it is crucial to revisit the elements that work and identify those that are restrictive, he says. “[This is] to ensure the biggest economic near- and long-term effects can be derived from the digital nomads’ customers on a consistent and prolonged basis.”

Local tax regime needs to evolve

Then there is the matter of taxation, social security and employment rights. Malaysia’s territorial tax system requires employment income derived in the country to be taxed, regardless of where the payment is made. MDEC stresses that these kinks — which are a global problem as far as nomadism is concerned — are still being ironed out.

“Malaysia’s income tax law was developed to accommodate traditional working arrangements. Currently, individuals under the digital nomad visa could be subject to Malaysian tax if their working period in the country exceeds the tax-exempt threshold. However, they may be protected from the Double Tax Agreement (DTA) that Malaysia has with their country of residence — that exemption aims to protect the individual with a short-term physical working presence in a host location,” says Deloitte’s Chee.

“For social security, unfortunately, EPF (Employees Provident Fund) and Socso (Social Security Organisation) largely cater to the benefit of Malaysian citizens and permanent residents. In the absence of a local employment contract, digital nomads may not be protected by the local employment law.”

She believes that a more agile tax policy that complements the newer employment structure is needed if the local economy is to prosper accordingly.

“We could be looking at a refreshed tax policy that is more aligned with the tourism agenda of boosting the local economy. This may be the time to revisit the return of the Goods and Services Tax as we foresee increased consumption,” she says.

“On a related note, with foreigners residing in Malaysia for a considerable duration, it is worth pondering whether their presence would boost the local property market and drive up short-term rents. By taking advantage of their higher [home] country currency value, some may even consider investing in property in Malaysia and setting up a base in Southeast Asia for leisure or future work opportunities.”

Frost & Sullivan’s Lim asserts that it is vital to get DE Rantau right from the outset. “The ideal balance is to ensure more economic inputs from the digital nomad than what he or she extracts. Certainly, safety nets should be required from day one. For example, someone with strong existing insurance coverage, the ability to prove that their economic linkages with their home country or base are secure [such as persistently high levels of income and fixed assets] and are in good legal standing.

“Otherwise, the designed programme should create as many consumption-revenue routes as possible for the digital nomad to ‘put money’ into the local economy. Receiving countries such as Malaysia derive revenue from digital nomads mainly through spending on domestic services and not direct taxes.”

Ultimately, the attractiveness of the programme’s benefits will be the biggest draw, says ScaleUp’s Sarma. “For digital nomads, the challenges are to ensure there is a stable place for them to work. This has to do with the overall attractiveness of the ecosystem.

“This could include things like visa policies that eventually allow for long-term stays, affordable housing options, a good quality of life, access to a strong tech ecosystem, the local culture and entertainment options, and the accessibility to and quality of healthcare and education.”

To make the programme attractive, MDEC has partnered with the likes of super app providers such as AirAsia and Grab, payment solutions provider PayNet and co-working spaces such as Jetpack.

AirAsia’s head of strategic partnerships Fung Yizhen says foreign DE Rantau pass holders get a discounted price for its Super+ subscription. The key product, which underpins the regional behemoth’s offering, allows subscribers to enjoy unlimited flight redemptions and unlimited food deliveries throughout the subscription period.

Despite its regional presence, the offer is only available to digital nomads who choose to work out of Malaysia, she says. And it is likely to remain that way for the time being.

“As an Asean native, I enjoy travelling to Phuket and Bali, which are beautiful destinations. To that, I would like to add that Malaysia is also [an attractive] choice. Moreover, the country’s proximity to other Asean markets makes it an excellent springboard from which to visit all these cities and tourist locations,” Fung tells Digital Edge.

Beware of the growing backlash

MDEC says the presence of digital nomads not only encourages talent migration but also aids the recovery of the tourism industry and boosts local spending. However, it would be prudent for the government to be cognisant of any negative impact on local communities.

Globally, there is a growing backlash against the negative impact of this type of tourism, cautions Chee. Popular remote work destinations such as Bali, Mexico City and Portugal are already starting to stir against the transient community as locals are being priced out, she observes.

In July, the activist collective Observatorio 06000 hosted a carnival-like protest against gentrification in Mexico City. “Housing, yes! Evictions, no!” the protestors urged. “Mexicano wake up, they are going to raise your rent!” reported the online portal Euronews.

“A large influx of digital nomads compounded with loose regulations put locals in negative situations such as increased housing prices, loss of their local neighbourhood, overwhelmed community resources meant for locals, and commodification of their culture. The government would need to review the medium- and long-term impact of its DE Rantau programme, especially in rural hubs like Kedah and Langkawi, to ensure that locals are protected and not displaced by the influx of digital nomads,” she says.

Sarma concurs that gentrification and potential displacement are worrying, especially in remote hubs. To allay any distress that may arise, he suggests that those who sign up for the digital nomad programme undergo cultural integration to allow for a more seamless living experience for locals and nomads.

However, establishing the DE Rantau hubs in localities outside Kuala Lumpur has its perks, Chee acknowledges.

“As for digital freelancers and independent contractors, there may be some competition for local gig workers, but it will be minimal on the basis that the competition for jobs is in cyberspace. Instead, their presence may raise the quality of services offered and this is something DE Rantau can capitalise on, by putting into place structured knowledge and experience-sharing programmes, especially in places outside the Klang Valley,” she says.

According to the 2021 MDEC Digital Talent Snapshot in Malaysia report, more than half of Malaysia’s digital talents are based in Kuala Lumpur and Selangor, leaving little to no skilled talent supply in other states.

“Digital nomads may also introduce healthy competition to their local counterparts, where their presence and deliverables would act as a catalyst for the latter to upskill and match the offering of digital nomads,” says Chee.

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