By Professor Dato Dr Ahmad Ibrahim
For decades, Malaysia’s economic narrative has been one of promise and potential. Yet, as we stand at the crossroads of global technological upheaval, that potential remains frustratingly untapped. A critical symptom of this stagnation is our nation’s anaemic investment in Research and Development (R&D), languishing at around 1% of GDP—a figure dwarfed by the 2.5% target and left in the dust by economic powerhouses like South Korea and Japan, which consistently invest over 4%. The upcoming Budget 2026 is not just another fiscal plan; it is a pivotal opportunity to jolt our innovation ecosystem to life and finally propel Malaysia into the coveted league of high-income nations.
The core of the problem is not just the amount we spend, but who is spending it. The fact that the government shoulders the bulk of the R&D burden reveals a critical market failure: the private sector is not innovating at the scale required. In thriving economies, corporations like Samsung, Toyota, and Bosch are the engines of discovery, driving commercial applications that create wealth and global market leaders. In Malaysia, a chasm exists between laboratory research and the marketplace. The government’s focus on technology in the 13th Malaysia Plan (RMK 13), from semiconductors to the circular economy, is the right vision. But vision without execution is merely a hallucination.
So, what must Budget 2026 do to bridge this gap? The allocation must be strategic, catalytic, and unflinching in its focus on creating a true public-private innovation partnership. First, the government must move from being the primary funder to the primary facilitator. This means designing tax incentives that are irresistible to the private sector. Instead of broad-based deductions, we need a super-deduction model: for every ringgit a company spends on R&D conducted in collaboration with a public university or research institute, they should be able to claim RM 2 or more in tax relief. This would instantly make collaboration profitable. Furthermore, we should pioneer “Innovation Vouchers”—small, easily accessible grants for SMEs to solve specific technical problems with the help of local research institutions, lowering the barrier to entry for smaller firms.
Second, we must strategically channel funds into our national champions and emerging frontiers. The semiconductor industry is a prime example. We are a global packaging and testing hub, but we are missing the high-value design and fabrication stages. Budget 2026 must allocate significant seed funding to 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 critically, we must invest in the most crucial component of any R&D ecosystem: human capital. Our brain drain is a silent crisis. Budget 2026 must launch an “Attract and Retain” talent fund. This would offer world-class, tax-free fellowships and research grants for top-tier Malaysian scientists and engineers abroad to return home, and for international experts to join our institutions. Simultaneously, we need a radical overhaul of our university funding. Tie a portion of public university grants directly to their success in commercializing research and forging industry partnerships. Reward outputs, not just academic publications.
Finally, we must de-risk the most daring ideas. The budget should establish a “Malaysia Moonshot Fund,” a sovereign wealth fund-style vehicle that takes equity stakes in high-risk, high-reward deep-tech startups in areas like artificial intelligence, aerospace, and biotechnology. This is not about picking winners, but about providing patient capital for the breakthroughs that traditional venture capital shies away from. The path to a high-income nation is not paved with low wages and commodity exports. It is built on the bedrock of innovation, proprietary technology, and a fiercely competitive private sector.
The RMK 13 has set the direction. Now, Budget 2026 must provide the fuel. It is time to shift our R&D landscape from one of government-led struggle to a vibrant, competitive, and private-sector-driven powerhouse. The budget must be bold, targeted, and unambiguous in its message: Malaysia is open for the business of invention. Our economic future depends on it.
The author is affiliated with the Tan Sri Omar Centre for STI Policy Studies at UCSI University and is an Adjunct Professor at the Ungku Aziz Centre for Development Studies, Universiti Malaya. He can be reached at ahmadibrahim@ucsiuniversity.edu.my.