Malaysia Data Centre Industry Boom Sustainable?

Malaysia is rapidly expanding its data center industry, positioning itself as Southeast Asia’s fastest-growing data center hub. Johor is leading the charge, attracting multi-billion-dollar investments from global technology firms. Malaysia expects this development to modernize the economy and create thousands of high-paying jobs. However, concerns over economic and environmental sustainability are mounting.

The country is desperate for foreign direct investment (FDI), as recent figures show a decline in inflows compared to regional competitors like Indonesia and Vietnam. Data center projects are seen as a critical lifeline to boost FDI and strengthen Malaysia’s economic position. The government is actively courting major cloud and technology firms, offering incentives to encourage investment in digital infrastructure.

However, these data center projects are not entirely new. Malaysia’s push to become a data center hub began with the launch of the Iskandar Puteri data center project in the 2010s. With Singapore facing land and energy constraints, Johor positioned itself as a spillover destination for data center expansion. Malaysia offered cheaper land, lower operating costs, and close proximity to Singapore, making it an attractive alternative. The strategy aimed to complement Singapore’s strict regulations while allowing businesses to maintain data operations near the island state.

Many of these projects were originally planned years ago but were put on hold during the COVID-19 pandemic. Now, as global economic activity rebounds, Malaysia is ramping up its data center expansion. However, questions remain about the long-term sustainability of this approach.

Unlike manufacturing or tech hubs, data centers do not generate significant employment opportunities. They require specialized skills in engineering, cooling systems, and cybersecurity, but once built, they operate with minimal staffing. While the construction phase creates temporary jobs, the industry does not provide the same level of long-term employment as other sectors.

Malaysia is already a leader in semiconductor manufacturing, supplying chips to global markets. However, the bulk of the workforce in these factories consists of foreign workers, mainly from Indonesia and Vietnam. Most Malaysians avoid factory jobs, preferring careers in white-collar industries, leading companies to rely on migrant labor. This raises concerns about whether data center expansion will truly benefit the local workforce or simply attract more foreign workers for construction and maintenance roles.

This also raises an important question: what happens once all the data centers are built? Malaysia may soon find itself with an oversupply of data center facilities but no additional economic value. Without a broader strategy to integrate these facilities into a larger digital economy—such as AI research, cloud computing services, or IT hubs—the country risks creating an industry that generates revenue for foreign firms without delivering significant benefits to local workers or businesses.

Countries like Singapore have imposed moratoriums on new data centers due to environmental concerns. Malaysia, however, has yet to adopt such restrictions, prioritizing FDI growth over sustainability. To balance economic gains with environmental responsibility, stakeholders are urging the government to implement stronger regulations and incentives for energy-efficient, green-powered data centers.

Despite these challenges, industry leaders remain optimistic. Many firms are exploring alternative energy solutions to reduce environmental impact. If Malaysia can strike a balance between FDI attraction and sustainability, it could solidify its position as a leading digital infrastructure hub in Southeast Asia. However, without a clear long-term strategy, the country risks investing heavily in an industry that may not deliver sustained economic growth.