MSC: Is this cybercity a bold move or boondoggle?

Building a hitech magnet

By Thomas Omestad

CYBERJAYA, MALAYSIA-In Malay, jaya means success, and that is what this self-styled can-do nation of 22 million aims to achieve here on the verdant outskirts of its capital city, Kuala Lumpur. This once-quiet expanse of palm-oil and rubber trees is giving way to roadways and building sites, the red earth split open to make way for the powerful fiber-optic cables and other components of a fully wired information-age city.

If all goes according to plan, Cyberjaya will be home to a quarter-million people, the jewel in a high-tech belt stretching south for 31 miles from the world's tallest buildings in downtown Kuala Lumpur to a futuristic international airport. Next door will be Putrajaya, a wired government administrative center. The multibillion-dollar, 270-square-mile zone, named the Multimedia Super Corridor, is meant to catapult Malaysia into the ranks of developed nations in 20 years. It is the boldest initiative yet by Prime Minister Mahathir Mohamad. He calls it a "gift to the world."

The question is, of course, will it work? Doubts abound, though backers counter them with upbeat pronouncements. Cyberjaya's marketers report leasing out office space as fast as it is built. A total of 362 companies have won MSC status, entitling them to an income-tax holiday for up to 10 years, exemption from import duties on multimedia equipment, and no-hassle approval of work visas for foreigners. Japan's giant Nippon Telegraph and Telephone Corp. and U.S.-based accounting firm Arthur Andersen are here, and Shell Services International will move in with a 150-person tech center after December.

Yet most of the giants of the information-technology industry have hesitated to sink big investments in the zone. Mahathir has courted Silicon Valley, getting corporate leaders like Intel's Craig Barrett and Microsoft's Bill Gates to join the MSC advisory panel. Microsoft, for one, considers itself a "strong supporter," says Salwana Ali, who directs the company's Cyberjaya training facility for software developers. But its venture, launched in July, is modest: seven employees and a $2.6 million commitment over five years. Sun Microsystems closed an earlier MSC operation for lack of software developers; it now envisions a three-to-four-person office here.

Why the apparent reluctance? One reason is Mahathir himself. He is the MSC's tireless champion. In power for 19 years, Mahathir has made the MSC a top national goal. But the prickly, 74-year-old Mahathir, with a string of controversial actions behind him, may be the project's biggest liability. "We've had real shockers in Malaysia the last couple of years," says Bruce Gale of Political and Economic Risk Consultancy in Singapore.

After the Asian currency crisis of 1997, Mahathir slapped controls on capital flows and pegged the Malaysian ringgit to the dollar. He blamed foreign financiers, particularly George Soros, for the ringgit's fall, which terminated a decade of 8-plus percent annual growth and triggered a recession. Mahathir also sacked his one-time protégé, Deputy Prime Minister Anwar Ibrahim, a potential rival. Anwar was then jailed, beaten, and convicted of corruption and s###my in trials that struck many Malaysians as a vendetta through the courts. Meanwhile, Mahathir, an advocate of "Asian values," stepped up his warnings about globalization and purported Western plans to recolonize developing nations. His resentment may be one reason he is bent on making Malaysia a high-tech bastion. "Enough of us must be assigned to the acquisition of the necessary knowledge and skills of the information age so as to enable us to catch up with our detractors and enemies," he told officials from Islamic countries in June.

"Siliclones." Some foreign investors have been scared off. A major international bank considered basing its electronic money transfers in Malaysia but opted for Singapore instead out of concern that Malaysia might try to regulate Internet access, according to Gale. Indeed, Malaysia faces competition from rival "Siliclones." Singapore, Hong Kong, Taiwan, Thailand, and India all are promoting high-tech districts.

Finally, some question whether the MSC's huge bet on fiber-optic cables will pay off given advances in wireless technology. "The way the Internet is going suggests there's no particular advantage in being in one specific location," concludes Yeoh Keat Seng, CEO of a start-up provider of financial information.