Silicon Valley. Frankfurt. London. Paris. Dublin. Singapore. Hong Kong. India. Malaysia.

All nations where you’d expect to see racks of CPUs that power our data-driven world, well, all bar Malaysia. Is Malaysia on the rise, or will it become another case study added to research on the resource curse?

Data centers are the centerpiece of cloud-based technology, are essential to the functioning of our interconnected world. Traditionally, they are found in highly developed, technologically advanced nations.  

However, a new contender to the field has emerged. Johor, previously known for palm oil and rubber plantations, is emerging as an industrial hub, with major multinational corporations like Nvidia, GDS International, YTL Power and Princeton Digital Group setting up operations while Microsoft purchases land in Kulai. Currently, Johor has 13 data center facilities across over 1.6 million sq ft, making it the 8th largest in Asia-Pacific with 3 new centers under construction, with more likely on the way. This has made Johor the fastest growing market in South East Asia as per DC Byte’ 2024 Global Data Centre Index, with Johor projected to attract 3.6 billion USD in new investments this year, adding to the previous 11.6 billion USD in 2022. 

Whilst Malaysia already has 16 data centers constructed in the capital, Kuala Lumpur, these primarily cater to the domestic market and have not attracted as much attention, with Johor projected to exceed Kuala Lumpur in terms of “live capacity”. Johor’s boom can largely be explained by Johor’s proximity to Singapore, which has attracted MNCs, especially after Singapore’s moratorium on data center developments since 2019. 

However, there was a relaxation of the ban in July 2022 to aid post Covid-19 recovery, with the Singapore Economic Development Board and IMDA launching a pilot scheme allowing companies to bid for permission to develop new data centers. This has allowed Equinix, GDS, Microsoft and Bytedance to gain permission for 80 MW of new capacity, and AWS announcing plans to invest $9 billion into Singapore data center infrastructure, potentially hampering Johor’s development.  More recently, Singapore’s Green Data Centre Roadmap unlocked 300MW additional capacity with the potential for more development based on climate and sustainability commitments.This begs the question as to whether the development boom in Johor will be short-lived. 

However, projections of Johor overtaking Singapore to become the largest market in Southeast Asia are likely not overly optimistic. The Malaysian government is very keen to advance its digital economy, with the Minister of Johor, Datuk Onn Hafiz Ghazi, promising special economic regulations and incentives for investors as part of the Johor-Singapore Special Economic Zone. This emphasizes the synergetic role that Johor and Singapore will likely play: the SG+ initiative launched by Singapore’s Economic Development Board encourages MNCs to establish HQs in Singapore while leveraging its network of free trade agreements, including the SEZ Johor, to mitigate Singapore’s space limitations.  This makes upscaling in Johor far less resource-constrained than Singapore, with relatively cheap land, water and electricity resources,  a major factor helping Johor attract more than 50 centers in 2 years in contrast to Singapore taking 15 years to attract 70. 

Additionally, many corporations will want to expand their presence in Johor given the spillover effects of the US-China trade war, encouraging both Western and Chinese diversification across Southeast Asia. As notable with various US semiconductor firms establishing presences in Penang that advantage of cheap labor, an English-speaking population, industrial parks and a free-trade zone.

Malaysia could benefit from both Chinese and Western data centers emerging, allowing for the upskilling and grooming of local talent, potentially even resulting in other technological growth. For example, Malaysian YTL Power and Nvidia recently struck a deal to develop AI infrastructure at YTL’s data center in Johor using processing power from data centers. In future, Malaysia could attract semiconductor players and generative AI players. 

However, another concern will be dealing with the resource intensive nature of data center operation, with the Johorian government expressing concerns over sustainability. This can be evidenced by the fact the Singaporean moratorium was largely driven by environmental regulations and sustainability concerns which Malaysia must address. These concerns have been expressed by Datuk Mohd Noorazam Osman, Mayor of the Johor Bahru city council, who argues that whilst attracting foreign investment is important people should not get too hyped about data centers and instead prioritize domestic and local needs, with 250,000 Johorians experiencing water shortages in 2019 and hour-long power outages in December 2023.

Questions of sustainability are also key when considering whether the development of data centers will truly support Johorians and Malaysians. Currently data centers account for 79% of approved digital investments, pigeonholing Malaysia’s digital economic growth. Additionally it is imperative to ensure MNCs will not simply use Malaysian resources without upskilling the local workforce and businesses to ensure Malaysia can become a bigger player and ensure fair, equitable, and sustainable development. The government has acted on this, with the Malaysia Digital Economy Blueprint (MyDIGITAL) focusing on developing and upskilling digital talent as well as supporting local data center companies in reaching the global market by encouraging partnerships with international tech providers.

While an exciting development, it is important for Johor to maintain its focus on ensuring foreign direct investment benefits locals instead of merely driving short-term economic growth to avoid falling into the all-too-familiar ASEAN trap of over-reliance on foreign direct investment, particularly from China, allowing it to truly claim its place among to the aforementioned litany of major data center players.