In southern Malaysia, once home to wild jungle and palm oil plantations, companies including TikTok, Nvidia and Microsoft are racing to build data centers that will serve as the foundation of the digital economy.
Just a few kilometres from Singapore, Johor state is seeing billions of dollars invested by companies taking advantage of cheaper land and abundant energy for computer infrastructure despite its proximity to Southeast Asia's largest financial centre.
Johor's fortunes may soon be more closely tied to its wealthy neighbor: The state's billionaire motorbike-riding Sultan, Malaysia's king, is leading an effort to link the state with Singapore in a single economic zone that could include tax breaks and easier cross-border trade.
China has a model: Shenzhen began its transformation from a fishing village into a tech metropolis after becoming a special economic zone (SEZ) on Hong Kong's doorstep. Malaysia hopes that Johor will be as vital to the region's digital economy as Shenzhen was to China's manufacturing growth.
“Johor has the potential to become the Shenzhen of Southeast Asia,” said Malaysia's Minister of Investment, Trade and Industry, Tengku Zahur Aziz. “The data center industry could be the foundation for a major transformation of the state into a high-tech manufacturing powerhouse.”
Johor's boom was fuelled after Singapore, which has limited energy resources, imposed a three-year moratorium on construction of power-hungry data centres in 2019. Johor encouraged investment by shortening approval periods from more than three months to as little as seven days.
Robin Khuda, chief executive officer of AirTrunk, a data center company with facilities across Asia, said Malaysia had been the “smoothest” entry point for his company of any market. The group plans to further expand in Johor, Mr Khuda said.
Foreign investment in the state of 4 million people is expected to reach 58.8 billion ringgits ($12.6 billion) in 2022 and 31 billion ringgits in 2023, compared with 10 billion ringgits in 2019, according to statistics from the Malaysian Investment Development Authority.
According to MIDA, Johor's economic growth is expected to outpace national forecasts until 2025.
In Sedenak Tech Park in Johor state, land prices have risen to about 70 to 80 ringgits a square foot from about 40 ringgits a few years ago, according to Adi Yaakob, senior manager at developer J Land Group, a unit of state-owned developer Johor Corporation.
These moves have propelled Malaysia to the top of the list of Asia's fastest-growing data center markets, according to a Cushman & Wakefield report, with the country having a development pipeline of 1.2 gigawatts of data storage capacity, up 600 percent over the next five years from the current 189 megawatts.
Malaysia is expected to account for the majority of Southeast Asia's data center market in terms of capacity by 2035, due to its proximity to Singapore, according to Morgan Stanley research.
The next boost should come from artificial intelligence companies that want to build AI foundational and training models in Malaysia, according to Yeoh Sok Hong, managing director of YTL Power International. He said the company has signed a $4.3 billion deal to build an AI data center in Johor with NVIDIA as the tenant. The deal includes partnering on cloud computing and supercomputer projects. YTL Power's shares have risen more than 100% this year since the announcement.
Meanwhile, TikTok's Chinese parent company ByteDance plans to invest about 10 billion ringgits to set up an AI hub in Malaysia, Minister Tunku Zafrul Aziz said in June. The company is already the anchor tenant of three data centers in Johor. Microsoft has also been snapping up sites, most recently acquiring land in Johor for expansion.
It's all a precursor to a deal to set up a special economic zone with Singapore later this year, a move that has been gaining momentum since the sultan of Johor, a business-friendly state with good ties to Singapore, became Malaysia's king in January.
“The current king is very pro-business and wants Johor to succeed. [the SEZ] “There has to be an effort to move forward,” said Govinda Singh, executive director at property consultancy Colliers International.
But he pointed to past issues between the two countries, including stalled projects. Plans for a high-speed rail line linking Singapore and Kuala Lumpur were halted after the two sides could not reach an agreement.
“The main difference is 1721357041 The King of Johor [Malaysian prime minister] “Anwar is serious about fixing the economy. There is willingness at the national and state levels. … Can it be sustained? You have to be a bit skeptical,” he added.
“At the end of the day, we don’t know if Johor can succeed. [the SEZ]Even with the data center boom.”
Many worry that the proliferation of data centers will increase pressure on resources without creating many jobs — Malaysia still relies on fossil fuels such as coal for most of its electricity — and many aspiring cloud providers don't have renewable energy plans.
Malaysia's Deputy Minister of Trade and Industry Liew Chin Tong said he had “concerns” with parts of the industry and would call for stricter requirements on water and renewable energy use in data centers.
“Finding a balance is my biggest concern. We also want to ensure that the data centre has a ripple effect on the economy, such as localising equipment and parts and creating jobs for Malaysians,” he said.
Yet the two regions are becoming increasingly integrated. The two land border crossings between Johor and Singapore, Woodlands and Tuas Link, are among the busiest in the world.
One engineer working at US semiconductor giant Micron's Singapore fab said he plans to buy property in Johor this year in anticipation of the SEZ's opening, saying “I can afford a house in Johor instead of a small and expensive apartment in Singapore.”
According to Johor state executive committee member Lee Tin Han, the SEZ will make Johor attractive to everyone, from multinational companies to young engineers. “My hope is that one day investing in Johor will be recognised by everyone in the same way as investing in Singapore.”
Johor has always been “considered the frontier of Malaysia,” said Greg O'Shea, Singapore-Malaysia head at supply chain consultancy TMX Transform. “That's really starting to change.”
