This article first appeared in The Edge Malaysia Weekly on October 30, 2023 - November 5, 2023

THERE has been a wave of new investments in digital infrastructure in Southeast Asia, driven by the increasing demand for digital services and connectivity that was spurred by the rapid development and adoption of technologies such as 5G, artificial intelligence (AI) and cloud computing.

Malaysia is no exception, as it has seen a slew of announcements relating to new data centre (DC) projects in recent years. From 2021 to March this year, a whopping RM76 billion worth of investments in DC-related projects were approved by the Ministry of Investment, Trade and Industry (Miti) via the Malaysian Investment Development Authority (Mida).

But the rush for DCs, which are known to be energy-guzzling facilities because of their massive network of servers that has to be kept cool, has brought about a whole set of challenges, including power efficiency, security and sustainability.

Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz tells The Edge in an email reply how Malaysia plans to deal with these challenges and why the government sees DCs as a “lead generator” for more technology companies to consider Malaysia for their operations.

Here is an excerpt from the interview.

The Edge: Why does Miti want to make Malaysia the regional hub for DCs? What is the economic impact or growth catalysts it sees from DCs?

Tengku Zafrul: The value of Asean’s digital economy is expected to reach US$2 trillion by 2030, up from US$300 million currently. The development and expansion of DC hubs in Malaysia is crucial to capture these opportunities.

Malaysia has invested substantially in cutting-edge digital infrastructure, including cable landing stations, more underwater cables, 5G and improved fibre connectivity. Malaysia has also captured the attention of global DC players due to our ease of doing business, strategic geographical location, lower cost of entry, abundance of land and our new focus on renewable energy (RE) to reduce the carbon footprint of DCs.

All these enabling, forward-looking policies and initiatives make for a conducive landscape for DC investments and have made Malaysia a hub for DC development. In fact, a study has projected that the DC market share in Malaysia is expected to increase by RM9.36 billion (US$2.08 billion) between 2021 and 2026.

Malaysia’s DC sector has attracted major domestic and international investors. This year alone, Malaysia attracted billions of ringgit in investment commitments, including from players like Amazon Web Services, ByteDance System, Bridge Data Centres, GDS IDC and Malaysia’s YTL Data Centre. This encourages an ecosystem that promotes innovation, healthy competition and advancement.

From 2021 to March 2023, Miti, through Mida — the sole approving committee for incentives — has approved seven DCs, data hosting and cloud-computing services projects with a total investment of RM75.87 billion. As a result, 440 new job opportunities will be created, with more than 80% of them being high-value, high-paying jobs.

Roles such as data scientists, data analysts and data engineers — requiring high skills, significant training and professional qualifications — will drive the digital workforce forward.

Malaysia’s digital infrastructure and DC expansion has also produced a wave of transformation across multiple services sectors such as finance, healthcare, shipping, e-commerce and telecommunications.

Now, with the recently launched New Industrial Master Plan 2030 (NIMP 2030), the growth of DCs in Malaysia is further supported by two of the master plan’s key missions — to advance economic complexity; and to rapidly embrace technology for a digitally vibrant nation.

Are there any special incentives for companies to set up DCs in Malaysia?

Malaysia offers attractive tax incentives through our Investment Promotion Agencies (IPAs) such as Mida to encourage investments in DCs. These incentives encompass exemptions on or reductions in income tax, import duties and sales taxes for eligible DC operators.

The Malaysia Digital (MD) initiatives were introduced in July 2022 by Malaysia Digital Economy Corp (MDEC) as new enhanced national strategic initiatives that include promoting DCs and cloud services providers to accelerate the sustainable growth of Malaysia’s digital economy.

MD-status companies will be offered a specific set of incentives and privileges by the government, subject to compliance with applicable conditions, laws and regulations. With greater flexibility in the offerings, MD-status companies can operate, grow, expand or invest anywhere in Malaysia instead of being confined to MSC cybercities or cybercentres’ locations.

Additionally, the Digital Ecosystem Acceleration (Desac) incentive scheme was introduced in Budget 2022 to strengthen the overall digital ecosystem by attracting technology and digital investments to Malaysia.

The Desac scheme focuses on two types of digital providers, namely: Digital Technology Providers (DTPs) that provide digital services based on IR4.0 and digitalisation technology related to manufacturing and manufacturing-related services (MRS) and Digital Infrastructure Providers (DIPs) such as DCs and submarine cables. For instance, under the DIP category, investors are eligible for an investment tax allowance (ITA) of 100% on capital expenditure for qualifying activities that can be offset against up to 100% of statutory income for up to 10 years.

Is there a target of how many DCs the government wants to attract to Malaysia? If so, what is it and how is the government going to achieve that?

The target encapsulated under Thrust 3, Strategy of the Malaysia Digital Economy Blueprint (MyDIGITAL) 2021-2025, is to build an enabling digital infrastructure with the main objective of providing an enabling environment for local DC companies to specialise in high-end cloud computing services.

Our target is for Malaysia’s DC industry to achieve a revenue of RM3.6 billion by 2025 up from RM2.09 billion in 2022.

The MyDIGITAL blueprint has targeted to attract RM70 billion investments in digitalisation with the digital economy contributing 22.6% to the country’s gross domestic product (GDP), together with 500,000 job opportunities, by 2025.

To that end, Mida and MDEC — with support from the relevant investment promotion agencies (IPAs) have crucial roles to play in attracting, coordinating, promoting and facilitating all digital investments in Malaysia, in addition to strengthening coordination among all IPAs in the country.

At the heart of Malaysia’s digital transformation are MyDIGITAL and the Digital Investment Office (DIO). These strategic initiatives underscore the country’s unwavering commitment to growing the economy through digital technology.

MyDIGITAL, launched in February 2021, is designed to strengthen the foundation and development of the country’s digital infrastructure. It sets the stage for a holistic digital transformation while the DIO acts as a catalyst, facilitating investments in digitalisation for both local and international DC players. Together, they will create an ecosystem that fosters innovation, collaboration and attracts businesses and investors from all corners of the globe.

In an extraordinary decade-long transformation, Malaysia has made substantial progress in its transformation towards the digital economy. With over 30 established DCs and a flurry of upcoming projects, Malaysia is set to revolutionise the digital landscape.

Some argue that DC operations require high usage of energy and not that many talents. What are the government’s views on this, especially with Malaysia striving for net zero emissions by 2050?

As indicated in the Mid-Term Review of the 12th Malaysia Plan, the DC ecosystem will be accelerated by boosting high-growth, high-value (HGHV) industries. The DC business model is complex, involving technology and infrastructure that could be difficult to manage.

If we consider the whole DC value chain, we can see there are four main components for DCs: the facility itself; the industrial equipment (mechanical, electrical and plumbing, or MEP); the IT hardware; and the software. There are also DC operations, like the management of facilities and IT services — such as hosting and infrastructure as a service (IaaS) — as well as power and connectivity. All these present opportunities for jobs, many of which are highly technical, high-paying jobs.

So, the key question is whether we have a robust talent pipeline to feed into the whole DC value chain, not about whether DCs per se will employ enough people. The whole DC value chain requires highly skilled talent such as network engineers, network solutions officers and network analysts.

On ensuring a robust talent pipeline — it is not just for DC operations, but also for the successful achievement of NIMP 2030’s objectives — Miti is working closely with a few ministries, such as human resource and higher education, to ensure we have sufficient workers to be reskilled and upskilled, as well as enough students taking up STEM (science, technology, engineering and mathematics) and TVET subjects for this sector’s skilled labour requirements.

Furthermore, as we build DCs, they will naturally become a ‘lead generator’ for more technology companies to consider Malaysia for their operations, thereby creating the critical tech base that we need to contribute to NIMP 2030’s ‘economic complexity’ and ‘rapid tech-up’ missions by our industries.

On the usage of energy by industries, we will be guided by the 12th Malaysia Plan’s (12MP) pillars of sustainability (economy, social and environment), which aim to achieve net zero greenhouse gas (GHG) emissions by 2050.

Malaysia is also in the process of developing the Long-Term Low Emission Development Strategies (LT-LEDS), which will outline strategies and action plans for GHG mitigation, particularly for the main economic sectors, towards achieving the 2050 net zero emissions aspiration.

We will also be guided by the National Renewable Energy Policy and Action Plan, which spearheads the RE uptake in Malaysia, and the National Energy Policy 2021-2040, which is focuses on energy security and meeting the nation’s growing energy demands.

Our aspirations towards net zero emissions by 2050 and decarbonising the economy are also strongly supported by the New Energy Transition Roadmap (NETR). The NETR will guide Malaysia’s transition towards a greener, more sustainable economy, complemented by NIMP 2030’s strategy to unlock opportunities in new sectors such as green manufacturing and circular economy.

Can you elaborate on DC operations that are said to be using cost/energy-saving cooling technology, using power from ‘green’ grids from hydro or solar, to make the investments more environmentally friendly?

There is no reason why NIMP 2030’s mission on rapid tech adoption cannot be complemented by its push for net zero emissions. Thus, the development of eco-friendly or green DCs is a priority towards achieving sustainable industries, including in resource-consuming high-tech sectors. This is the kind of balanced growth espoused by the Madani Economy framework.

In line with those goals set out by NIMP 2030, Malaysia’s investment criteria will be adjusted to cover several important aspects that need to be emphasised for DC investments. These include effective cooling technology, harnessing power from RE and maximising energy efficiency by optimising tech maintenance such as energy-efficient equipment selection, better overall power management, careful data management as well as advanced energy batteries and storage systems.

Even features such as the use of eco-friendly or renewable building materials, and proper electronic waste management will be considered in approving investments.

As mentioned earlier, all these activities along the whole DC value chain will open up a whole new world of green business and investment opportunities. And just as a rising tide will lift all boats, these will also help build our SMEs’ capacity for their integration into the regional and global value chains, which also facilitates NIMP 2030’s missions to increase economic complexity, as well as secure economic security and inclusivity.

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