Friday, 5 May 2017

(The Star) DFTZ – the wheels of change

I recently read a very interesting interview by the managing director of Daimler-Benz who noted that there have always been three constants in life: death, taxes and CHANGE!

The concept of “change” is often scary, hard and uncomfortable. As we enter the digital economy, change is something that is necessary and unavoidable, for the betterment of the country and all Malaysians.

Forty years ago, as the fundamentals of our economy transitioned from mining and agriculture to manufacturing, the local logistics industry grew in importance and became the backbone of trade for the country.

As trade grew, we became the 23rd largest exporting nation in the world.

However, on the back of underdeveloped transport and lo­­gis­­tics services and a slow, strict regulatory environment for dealing with exported and imported goods, the logistics industry struggled to keep up with the growth in trade.

To ensure the sustainability of the industry, we took on the visionary Logistics and Trade Facilitation Mas­­terplan in 2015, which has successfully facilitated the logistics in­­dustry, simplified many processes and procedures, and strengthened partnerships with the private sector.

Despite being on track to reinvi­gorate the logistics industry, we are also equally aware of the need to ensure the sustainability of the sector.

With the economy projected to grow progressively, we require a disruptive change within the industry to continue to support the nation’s growth and achieve the key results laid down in the masterplan.

The first of its kind, the Digital Free Trade Zone (DFTZ), will create this much-needed disruptive innovation for the logistics ecosystem.

The Digital Free Trade Zone

Combining both physical and virtual zones, the e-hub jointly esta­blished by Alibaba Group and Malay­sia Digital Economy Corp will comprise three main components.

The first component of DFTZ is a 17.5-ha e-fulfilment hub. The hub will allow internet retailers to ma­­nage the end-to-end of the supply chain at a central location.

Strategically located at KLIA Aeropolis, the DFTZ’s e-fulfilment hub will speed up import and export for e-traders and ease accessibility towards key central locations around Kuala Lumpur and within the region.

In fact, it is expected to deliver packages within 72 hours to Asean countries through the good air connectivity at KLIA and sea connecti­vity at Port Klang.

Furthermore, with Port Klang already being one of the best seaports among the Asean countries, many overseas suppliers could ship to Malaysia by sea instead of air to reduce costs.

Upon full completion of DFTZ by 2025, the e-fulfilment hub is anticipated to handle and move up to US$65bil (RM280.8bil) worth of goods around the Asean region.

More importantly, the e-fulfilment hub will transform how local traders, especially small and me­­dium enterprises (SMEs), in Malay­sia conduct their business.

Today, around 97% of businesses in Malay­sia are either SMEs or micro businesses and they collectively contri­bute only 37% of the gross domestic product. With the tilt towards DFTZ, local traders will now be able to market their products to the global market easily via e-commerce and an improved logistics ecosystem.

The second key component of DFTZ is the 500,000-sq ft Satellite Services Hub in Bandar Malaysia’s Kuala Lumpur Internet City. The DFTZ’s Satellite Services hub will bring together global and local internet-related companies, specifically service providers in cross-border trade, such as financing, last-mile fulfilment, insurance and other services.

Aside from an increase in service offerings, the increased communication and transparency, where multinational companies and SMEs can exist on an equal footing, will give plenty of room for the local businesses for exposure and growth.

And finally, the third component of DFTZ is a virtual zone, which is the E-Services Platform.

This is a platform offering integrated services where logistics processes will be aligned and streamlined, reducing inefficiencies in the supply chain.

Collectively, these components will create a holistic logistics ecosystem, thereby reducing cost of trade and increasing trade volumes.

Aside from supporting the logistics ecosystem, DFTZ will also be a part of the global vision for the set-up of the Electronic World Trade Platform that will reshape how trade is done and potentially replace the roles of traditional world organi­sations.

The platform will serve to assist small and medium enterprises in participating in world trade by over­coming complex regulations, processes and barriers that are currently hindering their participation in global commerce.

Implementation of DFTZ

Divided into two phases, the first phase of DFTZ involves the development of the KLIA e-fulfilment hub. This initial phase will be rolled out before the end of 2017 by Alibaba, its global parcel tracking platform Cainiao, Lazada and Pos Malaysia.

Meanwhile, the second phase will see the completion of the Satellite Services Hub at KLIC at the end of 2019. The virtual zone, on the other hand, will be developed in tandem with the other developments.

While it may still take a few more years for us to reap all the benefits from these developments, the proliferation of e-commerce into the nation will significantly change not only the logistics industry, but also the entire economy of Malaysia.

With total global business to customer e-commerce sales expected to grow to US$2.3 trillion (RM9.95 trillion) by 2017, the set-up of DFTZ is expected to drive foreign direct investments and local exports, elevating our positioning on global trade as it handles up to RM287bil worth of goods around the Asean region.

It will also provide a level playing field for local SMEs. DFTZ also has the potential to double the growth rate of local SMEs’ goods exports by 2025 and create 60,000 jobs by then.

Our experiences in establishing free trade zones have taught us some invaluable lessons in adapting to a globalised digital economy.

The next key task will be for the Ministry of Transport and the Government to take those lessons and put into place a level playing field that can adapt to changing global conditions while remaining transparent and accountable with clear governance in place. We are currently in the process of developing the regulations that will ensure that governance matters are firmly prioritised in the free trade zone.

To this end, I firmly believe that upon the completion of DFTZ, Ma­­lay­sia will see the most disruptive innovation taking place, reshaping the local businesses and carving a position for Malaysia in the digital economy.

Datuk Seri Liow Tiong Lai is Minister of Transport Malaysia and MCA president. The views expressed here are entirely the writer’s own.