(Dec 6): The data centre market in Southeast Asia has experienced robust growth over the last few years, driven by increased internet penetration, accelerating digital transformation, and rising demand for cloud services. 

According to DC Byte, data centre supply in the Southeast Asia 5 (SEA-5) markets of Malaysia, Indonesia, Thailand, Philippines, and Vietnam grew at a remarkable 70% compound annual growth rate over the last five years from 2018 to 2023.

And Malaysia sits at the forefront of this data centre growth. In the last two years, RM99 billion (US$21.7 billion) in data centre investments have been announced, with another RM149 billion in the pipeline, according to data from Malaysia Digital Economy Corporation (MDEC).

Part of this increase can be attributed to a spillover effect when Singapore enacted a moratorium on new data centres in 2019. Although this was lifted three years later, it was replaced with an initiative imposing new conditions and a selection process for data centres. This occurred amid growing demand, and led to a surge of investments in data centres in neighbouring countries.

As new data centres are built across Southeast Asia, Malaysia has gradually emerged as a front runner due to its affordable real estate, strong telecommunications infrastructure, and reliable power supply. 

To be clear, the Malaysian authorities have always been highly supportive of data centre developments, and have sought for years to position Malaysia as a regional hub.

More recently, the Malaysian Investment Development Authority (Mida) and MDEC have jointly established a Digital Investment Office. This office serves as a one-stop centre between the government and investors to coordinate and facilitate digital investments, accelerating the development of data centres. 

In 2023, the Ministry of Digital Communications was also split into the Ministry of Digital and Ministry of Communications to better focus on building the infrastructure needed to spearhead the country’s digitalisation efforts.

Various other government-backed schemes have also aimed to propel Malaysia forward as a leader in the digital economy, and enhance its attractiveness for data centre investments. These include MyGovCloud and Malaysia Digital.

The consistent focus and a renewed push to develop a strong digital ecosystem have already yielded dividends. Malaysia recorded RM66.22 billion in investments in the digital sector within the first six months of this year, an amount that has already surpassed the value for 2023, according to Digital Minister Gobind Singh Deo.

The combination of favourable government policies and a sharp increase in opportunities has led to a surge of data centre investments and development in Malaysia. 

These investments have since grown and given rise to a vibrant data centre ecosystem and supporting industries, helping Malaysia to solidify its position as a data centre hub.

Already, public cloud giants have established or announced plans to build cloud regions in Malaysia. Amazon Web Services was the first to launch its Malaysian cloud region in August, with plans to invest RM29.2 billion through 2038. 

And earlier this year, Google committed to developing its first data centre and the establishment of a cloud region in Malaysia with a US$2 billion investment, while Microsoft said it will invest US$2.2 billion to advance new cloud and AI infrastructure in Malaysia.

Malaysia is also working to strengthen its position with a possible Johor-Singapore Special Economic Zone. The idea is to bolster economic ties between Malaysia and Singapore, creating a synergy that would attract more companies to invest in both Singapore and Johor in the south of Peninsular Malaysia. 

Ultimately, this would facilitate trade, stimulate economic activities, and create job opportunities on both sides of the border.

Currently, Malaysia’s data centre market development pipeline consists of a massive 1.2GW planned, representing 600% growth over the next five years. However, the country is not stopping here; it is actively working to support the continued growth of the vibrant supply chain ecosystem surrounding data centres. 

Malaysia already boasts a diverse range of industries, including semiconductors, data centre equipment manufacturing, cloud hyperscalers and AI data centres. By encouraging investments along the value chain, Malaysia aims to strengthen this ecosystem. This will allow data centre operators to source locally for faster time-to-market as well as provide high-value jobs through ecosystem integration.

Furthermore, the rapid growth of data centres also benefits other sectors such as the green energy sector.

According to MDEC, data centre investors are increasingly requesting renewable energy, preferably matching their consumption. This high demand for renewable energy offers Malaysia the opportunity to expand its renewable ecosystem, aligning with the government’s aim to reduce carbon emissions through its energy transition road map.

Data centres have become a strategic imperative in the AI era, as AI requires massive amounts of computing power and data to train, test, and deploy AI solutions and applications. And the modern, hyperscale data centres in Malaysia are ideally suited for the rise in generative AI workloads.

As demand for AI inference eventually surpasses AI training, some predict that future AI data centre will shift from the US and Europe to other regions with sizeable populations. In Southeast Asia, Malaysia is an ideal location as a new AI hub. 

The benefits of AI are set to extend far beyond just data centres. As Gobind told The Edge last month: “You have got industries that have problems which they can overcome using AI. That again is a solution that’s AI-based. You’ve got new companies that will build up. They will start, new economies will emerge, new industries will emerge.”

By encouraging data centre investments and facilitating the growth of its data centre supply chain, Malaysia is creating a robust ecosystem that supports AI development and attracts global tech giants to establish their AI operations locally. 

This strategic positioning not only bolsters Malaysia's digital economy, but also enhances its global competitiveness in the rapidly evolving digital landscape, ensuring that Malaysia remains at the forefront of an AI-driven future.

Rizwal Zakaria is the Malaysian business development director of EdgeConneX, a global hyperlocal to hyperscale data centre solutions provider.