This article first appeared in Digital Edge, The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025

What was once a rather geeky and niche area of discussion, is no longer — data centres have now entered the mainstream. Thanks to the influx of billion-dollar investments into Malaysia, we are seeing a surge of interest in data centres, the technology that powers them, and what this means for the wider ecosystem.

An established electronics manufacturer and a significant player in the semiconductor industry, Malaysia has long aimed to be a global tech hub. Last year, the nation’s digital economy employed more than 1.2 million people and contributed to about a fourth of the country’s gross domestic product (GDP). Malaysia continues to stand to benefit from the AI boom, looking to see a 14% uplift to its GDP by 2030.

However, with the boom comes a fresh set of challenges. In the Budget 2025 announcement, Prime Minister Datuk Seri Anwar Ibrahim addressed the need to embark on a paradigm shift to attract more meaningful investments — and that investments in data centres should not be pursued unless they bring tangible added value to the rakyat, such as high-paying job opportunities and knowledge transfer “rather than merely serving the profit motive of the investor companies”.

This indeed reignites tough conversations surrounding the country’s data centres, sparking the beginning of guidelines and regulations on the industry, and addressing its challenges head on.

Seemingly overnight, the data centre boom has created some 40,000 jobs, which raises concerns about the nation’s ever-widening tech talent gap.

As a whole, Malaysia continues to face a severe shortage of skilled talent, requiring 50,000 skilled engineers in its growing semiconductor sector, but with universities only producing about 5,000 engineers a year.

Conversations around the brain drain, particularly due to the country’s close proximity to economic powerhouse Singapore, have been around for some time, but have not been adequately addressed by the government. Around 1.8 million Malaysians have migrated overseas, with 60% of the diaspora, totalling 1.13 million individuals, residing in Singapore.

Johor Mentri Besar Datuk Onn Hafiz Ghazi is aware of this and has asked for fair benchmarking of pay for local talent, advocating for industry players to pay Malaysians at least 50% of what they pay Singaporeans, especially after benefiting from the low cost of utilities, land and labour in Malaysia, which are 70% cheaper than in neighbouring countries.

The onus is on the government to incentivise data centre operators to offer equitable and competitive salaries to attract skilled Malaysians to return home.

It is no secret that data centres require an inordinate amount of water. Studies have shown that a data centre with a capacity of 100mw uses about 4.2 million litres a day of water for cooling — the equivalent of daily water usage for a city of 10,000 people.

Malaysia’s main water regulator, the National Water Services Commission, was one of the first to raise the flag in terms of resource restraints. Earlier this year, it said the country could face widespread water shortages in the next five years due to climate change, waste and ageing infrastructure.

Experts have also raised concerns about the sheer amount of electrical power required by data centres, particularly in places such as the Klang Valley and other parts of Selangor that have been plagued by power disruptions for years.

Potential electricity demand from data centres is expected to hit over 5,000mw by 2035, according to estimates from Tenaga Nasional Bhd. Applications for data centre power supply in Peninsular Malaysia have exceeded 11,000mw, representing over 40% of the region’s current 27,000mw installed capacity.

This issue was highlighted during a town hall meeting on Budget 2025 with players from the electrical and electronics industry. It was revealed that power outages have occurred at an alarming rate — 73 incidents over the past three years — with 52% directly impacting economic returns.

On Nov 19 in Johor, it was announced that nearly 30% of data centre applications over the past five months were rejected. This move reflects the authorities’ efforts to conserve resources and regulate the industry to ensure maximum benefits for the local economy, signalling a positive shift in the Malaysian government’s resource management priorities.

The rapid advancement of AI has not only increased demand for data centres but also introduced new technical requirements that older infrastructure can’t easily support.

Among these advancements, liquid cooling has moved from an experimental technology to a practical necessity. Years of collaboration between technology companies, researchers and data centre providers have led to the development of more sustainable cooling solutions.

Cutting-edge solutions, such as Precision Liquid Cooling, have gained traction as a reliable method for handling the immense heat generated by AI workloads. It is designed to cool high-performance computing systems by circulating dielectric fluid directly around IT equipment, achieving nearly 100% heat removal and reducing energy consumption by up to 40%.

This method has several advantages over traditional air cooling. Apart from being more energy-efficient, it eliminates the need for bulky infrastructure, optimises space, and removes hotspots that can lead to performance throttling. Precision Liquid Cooling also cuts water usage significantly, helping data centres reduce their environmental impact — a crucial consideration as sustainability becomes an increasingly pressing issue for the industry.

The investments flowing into Malaysia indicate a future where the nation could become a leading global data hub and already has shown positive signs of economic growth.

However, achieving this vision will require overcoming talent shortages and embracing sustainable technologies, while also protecting Malaysians and their resources. It will be exciting to see the result of the challenging discussions Malaysia continues to have alongside the burgeoning developments to come.

Jason Low is the APAC director at Iceotope, which provides liquid cooling solutions

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