The Malaysian government announced last Friday the establishment of a venture capital fund totaling RM500 million (US$132 million) as an alternative source of capital financing for the local information and communications technology (ICT) industry.

The plan was revealed together with the announcement of the government's annual budget for 2001 (Budget 2001).

To ensure that the fund is fully utilized, the government is ready to outsource the management of the fund.

Recognizing the risks associated with venture capital, the government is also prepared to assist business angels in investing equity in capital start-ups.

"I proposed that investments in venture companies at start-up, seed capital and first stage financing be given deductions equivalent to the amount invested against the statutory incomes of the investing companies. However, to avoid abuse of this incentive, the investor is only allowed to divest his shares in the venture company after it has been listed," said Finance Minister Tun Daim Zainuddin.

The Finance Minister also announced that an agency to coordinate the national development of venture capital would be established under the Ministry of Finance. This agency will formulate, coordinate and monitor all policies, strategies and incentives as well as supervise the development of the venture capital industry.

According to Tun Daim, several listing requirements on the Malaysian Exchange of Securities Dealing and Automated Quotation (Mesdaq) will be liberalized to facilitate the access of venture capital companies to the capital market. For example, Mesdaq will reduce the requirement that 70 percent of the listing proceeds be used in Malaysia.

In addition to the venture capital fund, there are also other non-cash incentives that are related to the ICT industry. Some of them are incentives that address the brain-drain phenomenon, enhance computer literacy, induce R&D, and reduce the cost of doing business in Malaysia.

The Association of the Computer and Multimedia Industry Malaysia (Pikom) lauded the government for its continued support for the ICT industry to accelerate the country's transformation from a production-based economy to a knowledge economy.