This article first appeared in Digital Edge, The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024

When Singapore pulled the plug and announced a moratorium on data centres, the floodgates opened and the data powerhouses came pouring into Malaysia. Now, the country is vying to become the data centre hub of the region, as it attracts investments due to more affordable land value, coupled with good infrastructure, and cheaper water and power tariffs.

The rapid growth of data centres has already seen major tech giants like Google and Microsoft investing heavily in the country. Beyond the foreign direct investments, industry experts believe data centres will be a driving force for economic growth and infrastructure development through direct and indirect employment generation, enhanced connectivity and creation of energy infrastructure.

Data centres also ensure the continuous advancement of digitalisation initiatives, says Harish Sridharan, associate director of research at Arizton Advisory and Intelligence, a global market research firm. This is so as strong growth is expected in the areas of e-commerce and cloud services, which will support the growth of the digital economy. Investments in data centres often lead to improvements in internet and communication infrastructures that benefit other sectors.

As Malaysia positions itself as a regional data centre hub, there is a pressing need for skilled talent as these facilities require specialised roles to maintain and operate, says Patrick Chan, vice-president of South Asia for Uptime Institute, a global digital infrastructure authority. However, despite the increasing number of data centres, the talent pool is insufficient to meet the operational demands of the facilities.

“The industry as a whole has had an awareness problem, as many did not know about the industry, nor did they understand the breadth and depth of available jobs and careers,” says Chan.

“Targeted recruitment initiatives have proliferated during this period of vigorous growth in data centre capacity and competition for skilled resources, but these efforts have yet to meaningfully shrink a high and long-standing vacancy rate.”

The roles range from technical positions requiring expertise in networks and controls to managerial positions that oversee projects from inception to completion. These include data centre building and facility managers, environmental health and safety managers, solution architects and structural engineers.

Addressing the talent scarcity is necessary for the sustained growth of data centres, which will require a collaborative approach from the industry, reiterates Harish. To address this, there needs to be strong partnerships between data centre operators and educational institutions to bridge the gaps in skills and knowledge.

For example, data centre operators should offer internships or apprenticeship programmes that provide hands-on experience and practical knowledge.

Princeton Digital Group (PDG), which recently launched the 150mw JH1 campus at Sedenak Tech Park, has collaborated with universities such as Universiti Teknologi Malaysia (UTM), Universiti Malaya and Universiti Teknologi Mara to provide early exposure of data centre development to students. PDG is also working with UTM on the graduate engineering trainee (GET) programme to recruit, train and mentor interns to work on real life projects in different functions within the company.

“As the demand for artificial intelligence (AI) grows, it is creating a ripple effect across various IT and engineering roles, driving demand for specialised skills that can contribute to Malaysia’s vision of becoming a high-skill nation,” says Asher Ling, chief technology officer and managing director of PDG Singapore.

Meanwhile, Equinix Malaysia — which is already operating data centres in Johor and Kuala Lumpur — advocates for public-private partnerships to address the growing demand for skilled professionals to develop comprehensive talent development programmes to create a talent pipeline.

“We clearly identify talent as one of the critical success factors for digital infrastructure deployment. It’s also the workload that is going to go on top of digital infrastructure. At this point of time, AI will be the main driver of the digital economy. It’s not just talent for operating the digital infrastructure but talent for cloud and AI,” says Cheam Tat Inn, managing director of Equinix Malaysia.

“It’s going to be a multi-year strategy in how you build this. The other thing we do is to look at people outside of the data centre industry and train those who can be part of the industry. Rather than look within the industry, we look outside.”

Considering that cultivating new talent is a long-term endeavour, industry stakeholders are banding together to retrain and reskill existing talent, says Mahadhir Aziz, former CEO of the Malaysia Digital Economy Corporation (MDEC).

“This is already being recognised and acted upon by the industry. Engineering skills are highly transferable across various sectors, and with targeted retraining and reskilling programmes, professionals from different backgrounds can successfully transition into the data centre industry,” says Mahadhir.

Certification and training programmes are essential to develop a skilled workforce in the long term. For instance, Uptime Education has created programmes around an education framework that maps professional knowledge development to actual career progression. Additionally, Uptime’s data centre career pathfinder is an exploratory resource that lists more than 230 different types of job roles that span the design, build and operation of data centres.

Amid claims that there is an urgent need for skilled talent, the proliferation of data centres are projected to create 2,325 new jobs, according to the Ministry of Investment, Trade and Industry.

This is because data centres require professionals with specialised qualifications, which means that job creation in the operations phase is typically lower, says Uptime’s Chan.

“Outsourcing is also a common practice in data centres, with much of the work being handled by contractors. This is why data centres may not appear to create many direct jobs. Instead, job creation often occurs in ancillary services companies that support these data centres. For example, a large data centre may employ 20 to 30 full-time staff but also rely on 50 to 100 full- and part-time contractors on-site,” explains MDEC’s Mahadhir.

Notably, the construction of data centres itself creates a substantial number of jobs in the civil, electrical and mechanical sectors, says Arizton’s Harish. As the construction phase can span several years, this would provide a significant economic boost to the country. Small and medium enterprises (SMEs) also stand to benefit from the growth of data centres due to increased demand for their products and services.

Currently, data centres under construction in Johor have a combined power demand of 1,000mw, which necessitates over 500 diesel generators for backup power in case of a power supply failure, says Mahadhir. This demand presents a strong case for establishing assembling and manufacturing facilities locally.

“We have direct evidence that Malaysian manufacturers are already benefiting from the data centre boom. Although not all are high-tech manufacturers, they produce critical equipment such as racks, cable management systems, cooling containment systems, electrical distribution systems and fire containment and mitigation systems,” he says.

“We are already witnessing increased investments in Malaysia from manufacturers involved in the data centre supply chain. Malaysia is experiencing growth in its supply chain ecosystem, encompassing semiconductors, electrical and electronics, ICT and data centres. There is a strong expectation that this expansion will continue to include mechanical and electrical systems suppliers in the future.”

Moreover, the incoming supply of data centres into the market will benefit many related sectors such as real estate, engineering, security, mechanical and electrical services, IT software and equipment-related services, says Justin Chee, executive director of valuation and advisory at Knight Frank. This will open up opportunities in the job market for such technical-related skill sets.

“As routine tasks become increasingly digitalised and automated, there will be a growing demand for digitally skilled personnel to manage and monitor these operations,” adds Amy Wong, executive director of research and consultancy at Knight Frank.

Data centres should be considered as integral components of the expanding digital economy rather than isolated assets, says Knight Frank’s Wong. This is as they are a critical part of digital infrastructure that enables technologies such as AI, which will drive a 160% increase in data centre demand, according to Goldman Sachs Research.

“Economic development also comes [from] digital infrastructure. [This is as] information and communication technologies are a part of the gross domestic product of a country. Data centres play a vital role in [this aspect]. When the digital infrastructure grows in Malaysia, it directly impacts the GDP of the country in a positive way,” says Harish.

This bodes well for Malaysia, as the country aims to address the digital infrastructure gap. Government policies such as the National Fourth Industrial Revolution policy and the Malaysia Digital Economy blueprint have focused on expanding the digital economy. When the digital economy grows, the need for digital infrastructure grows alongside it.

“Digitalisation and innovation require an ubiquitous, robust and high-performing digital infrastructure. Advanced technologies, such as Nvidia’s AI servers, cannot simply be run under a desk. They need to be housed in data centres,” says MDEC’s Mahadhir.

For example, AI training workloads require vast amounts of data and immense computing power, which necessitates significant storage and electricity, says Mahadhir. Without infrastructure being built in the country, Malaysian AI innovators will have to rely on infrastructure abroad.

This would involve transferring large amounts of data in and out of the country, which incurs international data transfer costs, delays and productivity losses.

“We are witnessing the beginnings of a virtuous cycle [where] demand in one area drives investment in another, which then fuels further demand. Many companies cannot afford to purchase and operate the expensive and power-hungry AI infrastructure. The new data centres being built in Malaysia will enable Malaysian companies to access and leverage AI capabilities, facilitating their growth and innovation,” says Mahadhir.

With this, SMEs can access technologies and resources that were previously out of reach, says Cheam. A digital ecosystem, coupled with the increasing adoption of cloud computing and AI, presents significant opportunities for SMEs to enhance their operations, expand their market reach and drive innovation.

Data centres will also foster the growth of the domestic semiconductor industry as it creates a demand for service chipsets used in server and storage infrastructure, says Harish.

These facilities are also the foundation for smart cities and automated vehicles, he adds. They enable real-time data processing and analysis that enable the smooth operation of these technologies.

“How long does it take for Facebook to load? It might not even be seconds, it might be milliseconds. From a data centre perspective, even 60 milliseconds is a delay. They want it at six milliseconds. Tomorrow you’re going to [want] to bring automated vehicles to the market, Internet of Technologies and smart cities. All these are powered by data centres. The closer it is, the faster and smarter it is,” notes Harish.

“You need to understand that the entire technology backbone is data centres. If there is no data centre, there is no smartphone. If there is no smartphone, there is no semiconductor manufacturing [and so on].”

The establishment of data centres also triggers a series of infrastructure upgrades in the surrounding regions due to their considerable need for power, water and cooling systems, says Chelwin Soo, director of land and industrial solutions at Knight Frank.

These improvements can include upgraded electrical grids, enhanced water supply systems and improved connectivity solutions, which not only serve the data centres but also benefit the local communities.

“As a result, the land for data centres and those in proximity to these developments typically appreciates in value when the land plots are acquired with the benefit of these infrastructure,” notes Soo.

Additionally, numerous submarine cable systems are now considering landing points in Malaysia to connect data centre clusters with other regional hubs, which increases international connectivity, adds Mahadhir.

It is well-known that data centres are “power guzzlers”, given the tremendous amounts of power used for its servers and systems. Water consumption is also high as it is necessary for cooling.

To address the significant power consumption of data centres, operators are continuously exploring energy-efficient measures.

The growing emphasis on corporate sustainability will be a key motivator for data centres to adopt renewable energy to reduce their carbon footprint and achieve net-zero emissions. For example, Europe’s Climate Neutral Data Centre Pact aims to make data centres climate-neutral by 2030.

In Malaysia, guidelines are set to be introduced that would ensure the country meets minimum sustainability requirements to achieve net-zero emissions by 2050.

This might prove to be another opportunity for the country. For instance, Malaysia can stimulate growth in the renewable energy sector by prioritising renewable energy sources for data centre operations, says Knight Frank’s Soo.

The growing demand for power and cooling solutions will also drive investments into the energy sector, says Arizton’s Harish.

“With the data centre industry providing guaranteed offtake for renewable energy, the solar PV industry can confidently secure financing, construct solar farms and contribute to the nation’s aspirations for renewable energy capacity building,” notes Mahadhir.

While the data centre industry has potential for growth and investments, there needs to be careful consideration of its long-term implications. Malaysia must strike a balance between attracting data centre investments and safeguarding national interests.

“We talk about AI, data centres and the like, and indeed it is a new growth area for Malaysia. But at what stage do you say we have had enough of it? Where is the tipping point? I think if we reach a point where 20% of our electricity demand is used for data centre purposes and that is more than the residential total demand, that would be a tipping point,” says Pankaj Kumar, managing director of Datametrics Research and Information Centre, a local think tank.

Pankaj recommends a comprehensive national data centre policy with clear objectives, strategies, regulations and performance metrics for the industry. For instance, data centres should pay higher rates for electricity and water to reflect their intensive consumption.

Although tax incentives can attract investments, these stimuli should be time-bound to prevent long-term revenue loss.

“We need to have data centre policy at the national level in terms of what we want to do, what we want to attract, how we want to attract them, how we want to discipline them and how we want to judge them. If they are not adopting green technologies and they are taking [power] from the grid, there should be a different tariff for data centres,” says Pankaj.

“They should not be enjoying normal tariff rates like what other industries enjoy. Malaysia should also look at the tax breaks we are giving [data centre operators]. Some of these [data centres] are going to be very profitable, and I worry [that] if most of these data centres are wholly-owned by multinational companies, the likelihood is that they will repatriate profits to their homeland. To me, I think we should have a withholding tax imposed on the dividends that are repatriated back.”

While the immediate economic benefits of data centre development are primarily focused on land sales, construction and supply of utilities, policymakers must also focus on creating an ecosystem that encourages value-added activities, concur industry experts.

This as the number of looming data centres are steadily on the rise. This is because data centre projects are estimated to reach at least 4.7gw over the next 10 years in Malaysia.

This also means that the availability of power is a critical factor in determining the success of data centre projects, says Harish. Malaysia has already allocated a significant portion of its power capacity to data centres, and the demand continues to soar. Building and upgrading the necessary infrastructure, including substations and transmission lines, take time and substantial investment.

Currently, most large-scale data centres being constructed today are build-to-suit (BTS) facilities designed for single tenants by builder-operators, says Mahadhir. These projects usually involve pre-agreed technical specifications and long-term contracts, ensuring the data centre’s lifespan can be extended through future upgrades and retrofits.

The BTS model typically means there is no spare capacity for sale, as these data centres are custom-built for specific clients. In Johor, all BTS data centres already have confirmed clients, eliminating the risk of oversupply.

Oversupply happens when the infrastructure is built and there are no clients to uptake the data centre offerings.

“There will not be an oversupply of data centres for now because the demand for data usage and internet users will continue to increase by double-digit growth for the next few years. The world’s mobile data usage is also recording an increase and is projected to continue to increase,” says Knight Frank’s Chee.

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