Geoffrey Williams said such regulations will harm Malaysia’s progress towards becoming a digital innovation hub, while Carmelo Ferlito said it will deter investors.
Another economist, Afzanizam Abdul Rashid, said steps must be taken to ensure that online businesses thrive in spite of such regulations.
Williams said the regulations are likely to create obstacles for businesses entering the market and restrict their ability to operate freely.
“When regulations are designed to restrict user freedom, it makes the platform less attractive.
“Consequently, user numbers will decline, reducing the value to advertisers,” he told FMT.
Williams said this will eventually affect revenue and prompt service providers to relocate to regions with fewer restrictions.
He said this will have a negative impact on Malaysia’s ambition to make it as one of the world’s top 20 countries in the global start-up ecosystem as announced by Prime Minister Anwar Ibrahim in April.
When speaking at the KL20 summit, Anwar said the plan was also to have Kuala Lumpur serve as a regional start-up and digital capital hub.
The Malaysian Communications and Multimedia Commission (MCMC) announced on July 27 that a new regulatory framework for safe internet use by children and families will be introduced on Aug 1 for full enforcement on Jan 1 next year.
Under the new framework, social media and internet messaging service providers with at least eight million registered users in Malaysia must obtain an application service provider class licence under the Communications and Multimedia Act 1998.
Communications minister Fahmi Fadzil said social media platforms have responded positively to the need for licensing to ensure safer internet use by children and families.
However, Williams said, given that Malaysia competes in a global digital market, such restrictions can make the local markets irrelevant to multi-billion dollar technology companies.
“Technological innovation thrives in a free and open marketplace. Without this, investment will migrate elsewhere,” he added.
Ferlito, CEO of the Center for Market Education, said the regulation does not present a welcoming image of Malaysia and may potentially deter investors who are looking for an ideal location for their ventures.
He told FMT it will also make Malaysia less competitive than neighbouring countries where the regulatory environment is more lenient.
“Cyberspace is inherently fluid, and investors in this sector do not favour such regulations. What will happen to the next unicorn looking for the best place to launch?” he asked.
Afzanizam, chief economist at Bank Muamalat Malaysia Bhd, pointed out that social media has been an effective tool for micro, small and medium enterprises.
“On one hand, we want to curb wrongdoing arising from the abuse of social media platforms but we also have to ensure that online businesses will continue to thrive,” he told FMT.
“This makes it all the more crucial that the government engages industry players to ensure that any regulation that is eventually implemented is effective,” he added.