[COLUMNIST] Malaysia’s emerging data centre boom: Seizing opportunities and powering a sustainable future

Globally, the appetite for cloud computing, AI, and related digital services has soared. Generative AI applications alone can be at least ten times more energy-intensive than a conventional internet queries (IEA, 2024). As organisations deploy increasingly complex AI workloads, data centres have naturally followed suit, driving an “exponential” expansion: storage capacity is set to more than double in just five years.

Malaysia’s data centre development pipeline underscores the country’s ambitions. With a potential 1.2GW in the works—a 600% growth over five years—Malaysia is solidifying its position as an attractive destination for data-centric businesses. This expansion is not merely incidental; our strategic location within ASEAN offers excellent regional connectivity and low-latency access to major Asian markets. Moreover, consistent government facilitation—through initiatives under MITI (Ministry of Investment, Trade and Industry), MIDA (Malaysian Investment Development Authority), and TiPM (Technology Innovation Park Malaysia)—signals a commitment to welcoming foreign direct investment in digital infrastructure.

Data centres are notoriously energy-hungry, and Malaysia’s current reliance on fossil fuels may pose a challenge to achieving net-zero emissions by 2050. Integrating renewable energy sources—from solar and hydro to potentially nuclear power—thus becomes an urgent priority. Although large nuclear power plants require extensive time and resources to operate safely, the introduction of Small Modular Reactors (SMRs) could offer a more feasible pathway for Malaysia.

The intersection of digital infrastructure, telecommunications, and energy policies in Malaysia often lacks a unified framework. Clear and harmonized guidelines on land zoning, renewable energy adoption, and even water usage are critical. Government announcements, such as intentions to restructure data centre incentives with a “scorecard” approach, are promising but must be accompanied by transparent, streamlined processes that reduce uncertainties for developers.

While Malaysia seemingly produces a high number of STEM graduates, a disconnect persists between academic curricula and industry needs. Brain drain, coupled with insufficient emphasis on specific technical skills—ranging from cybersecurity and cloud computing to advanced cooling system design—undermines the country’s capacity to manage next-generation data centres. Technical and Vocational Education and Training (TVET) can partially alleviate workforce shortages, but broader reforms in education are needed to align with these evolving digital and engineering demands.

Despite the capital intensity of data centres, they usually create only a modest number of direct jobs—30 to 50 permanent roles per facility, or in some cases up to a couple of hundred. Yet the broader multiplier effect can be substantial. For instance, a major data centre investment from Google or Amazon can catalyse local construction, ICT services, and renewable energy projects. According to Uptime Institute (2021), as many as nine different job domains—from design and construction to operations and maintenance—emerge across a data centre’s lifecycle.

Moreover, the presence of top cloud giants often attracts ancillary tech firms seeking low-latency processing and robust connectivity, thereby boosting the local digital ecosystem. Malaysia could emulate global best practices by offering incentives that specifically reward the hiring and training of local talent—especially in advanced engineering and digital fields—to ensure that economic benefits remain in-country.

The urgency of the climate crisis, coupled with data centres’ ballooning electricity demands, has put nuclear energy—including SMRs—back into the policy spotlight. Although large-scale nuclear power stations demand considerable lead time, SMRs are designed for modularity, potentially lowering capital expenditure and speeding up deployment.

In “Nuclear Power as an Option in Malaysia’s Energy Mix”, EMIR Research underscores that while nuclear remains among the safest energy forms, it requires robust regulatory, operational, and waste management frameworks. Collaborations with China and Russia—both pioneers in SMR technology—could compress Malaysia’s nuclear learning curve. From the vantage point of geopolitics, Malaysia’s expressed interest in deepening relationships with BRICS offers potential platforms for technical assistance and financing, including the New Development Bank (NDB). It also aligns with Malaysia’s policy of “active neutrality” between superpowers, leveraging both U.S. and Chinese expertise without excessive dependency on either.

The government has an essential role in reducing both the financial risks and high operational costs that data centre operators face. Initiatives like the Digital Ecosystem Acceleration Scheme (DESAC) offer 100% investment tax allowances on qualifying capital expenditures, reflecting a willingness to attract cutting-edge industries. However, as highlighted by budget analyses from EMIR Research, the introduction of a “super-deduction” could take these incentives even further (“Budget 2025 – powering data centres”). This approach, mirroring the UK’s “full expensing” scheme, would allow firms to deduct more than the actual cost of capital investments in renewable energy and green technologies, thus accelerating returns on investment and incentivizing further growth.

Additionally, the government could integrate data centre operators into its broader sustainability agenda. For instance, awarding additional tax breaks to facilities that adopt robust water-saving measures, advanced cooling systems, or on-site renewable energy solutions would align commercial and environmental interests. Such a “scorecard” could also incorporate advanced metrics for local job creation, R&D collaborations with universities, and community development programmes—ensuring that data centre investments generate equitable benefits for Malaysian society.

In the evolving global tech rivalry, Malaysia’s policy of “active neutrality” can be a strategic asset. As noted in the EMIR Research editorial “Active Neutrality in the Pursuit of AI Innovation”, Malaysia’s balanced stance between the U.S. and China can attract investments from both camps, particularly in AI and cloud computing. This neutrality, if managed wisely, not only insulates Malaysia from geopolitical vagaries but also fosters a competitive environment where global and regional players vie to establish data centres, R&D labs, and AI hubs within our borders.

By intensifying alliances with multiple partners, Malaysia can also drive technology transfers and capacity-building. Joint research initiatives—especially those involving nuclear technology, renewables, and AI—would bolster local expertise, reduce reliance on external talent, and cultivate indigenous innovation ecosystems.

Data centre expansion must be integrated into a broader strategy that views tech infrastructure as a lever for sustainable growth. This involves:

• Proactively incentivising on-site renewable energy or advanced cooling technologies—such as liquid immersion cooling—can help the industry manage both electricity consumption and operational costs.

• A national upskilling roadmap that bridges industry-academia gaps is crucial. Partnerships with leading cloud and semiconductor firms can offer internships, mentorships, and specialized certification programmes.

• Government-linked organisations like TiPM can drive translational research in areas such as energy efficiency and AI operations in data centres. By institutionalising the Input-Output-Outcome-Impact (IOOI) framework, MRANTI ensures that each R&D dollar spent translates into tangible economic benefits.

• Clear, transparent guidelines for land use, water sourcing, and connectivity deployment reduce regulatory bottlenecks. An integrated framework across telecommunications, energy, and local authorities can expedite data centre projects without compromising environmental standards.

Malaysia stands at a pivotal juncture where burgeoning data centre demand intersects with ambitious climate targets and dynamic geopolitical shifts. By embracing a holistic approach—one that merges green technologies, cohesive policy-making, and robust talent development—our nation can transform into a future-ready data centre hub.

Yet, this journey demands a fine balance of investment, diplomacy, and innovation.

By capitalising on opportunities, Malaysia can ensure that data centre growth not only powers AI-driven progress, but also nurtures homegrown expertise, protects the environment, and fosters inclusive economic development—a truly MADANI approach for the digital age.