This article first appeared in Digital Edge, The Edge Malaysia Weekly on September 9, 2024 - September 15, 2024
Following the memorandum of understanding signing for the proposed Johor-Singapore Special Economic Zone (JS-SEZ), much excitement has erupted on the front of strengthening Malaysia and Singapore’s long-standing relationship. The two countries — while typically touted as competitors — are set to benefit from the JS-SEZ in an array of sectors, from semiconductors to manufacturing, with the most recent being the data centre landscape.
Drawing nuances from history as an important maritime trade route, Singapore is strategically located at the south entrance to the Strait of Malacca, making it an ideal location for data centres to be sited and connected to other regions.
However, scant land available and excessive power consumption on the island led the Singapore government to impose a moratorium on data centre construction in 2019, capping the country’s capacity at 1.4 gigawatts (GW).
Consequently, data centre operators looking to establish themselves in Singapore needed viable alternatives. Indonesia’s Batam and Malaysia’s southern state of Johor emerged as preferred options due to their proximity to Singapore. However, considering Johor is just across the Causeway, Malaysia appears to have a slight
advantage.
“Malaysia’s strategic location provides low-latency connectivity to major cities in the region, including Singapore, Bangkok and Jakarta, and it has the edge to facilitate more data centres, particularly AI (artificial intelligence)-focused ones, that could also support the country’s aim to create 3,000 smart factories by 2030,” says Raymond Tong, president of Asia-Pacific at Vantage Data Centers. “Malaysia is emerging as a data centre powerhouse, attracting billions in investments for data centres amid increased demand for cloud and AI services, including the more than US$3 billion (RM13.32 billion) planned investment from Vantage Data Centers.”
As with any economic spillover, Malaysia has been quick to capitalise on the opportunity, leading to the construction of data centre facilities and parks over the past 1½ years, not only in Johor but also in other parts of the country.
Currently, there are four large data centre parks in Johor: Nusajaya Tech Park, Sedenak Tech Park (STeP), YTL Green Data Centre and Nusa Cemerlang Industrial Park, all of which house a mix of hyperscalers and data centre operators.
“Statistically, by end-2024, Johor is projected to host RM17 billion worth of new data centre developments, which is a huge gain not only for the state investment-wise but also for the economic spillover effect that is expected to take place in the long run,” says Datuk Akmal Ahmad, deputy chairman at JLand Group (JLG).
Negeri Sembilan, another land-rich state strategically situated between Johor and Kuala Lumpur, is also benefiting from the rising demand for data centres. One such developer looking to capitalise on this boom is Seri Pajam Development Sdn Bhd. With its 523.23-acre SPD Tech Valley in Senawang slated to be completed in 2034, Seri Pajam is pursuing global players in the tech industry including data centres and semiconductor companies as well as other businesses seeking locations that align with their corporate environmental, social and governance (ESG) standards.
This is just the tip of the iceberg as other big tech companies have made data centre commitments and investments as well. Microsoft, Alphabet (Google’s parent company), Amazon Web Services and Nvidia are among the tech bigwigs that have committed billions to develop cloud servers and AI infrastructure in the country.
Industry players believe Malaysia’s favourable data centre policies have played a significant role as operators enjoy incentives such as 100% tax exemptions on investments in data centres and cloud businesses.
Last year, utility provider Tenaga Nasional Bhd established the Green Lane Pathway, an exclusive and strategic offering for the country’s data centre market, which fast-tracks supply offerings for electricity and under which data centres will be connected three times faster than the normal delivery time, reducing the implementation period of 36 to 48 months to just 12 months, alongside a one-stop centre for data centre investors and dedicated support services.
In early August, Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz said the government would announce guidelines for data centre power usage effectiveness (PUE) and water usage effectiveness (WUE) by the third quarter of the year to boost investments. This is to ensure data centres built in Malaysia meet the minimum sustainability requirements to achieve net zero emissions by 2050.
While all industry players agree that Malaysia will undoubtedly see positive socio-economic impact, from a stronger economy to increased job creation, the country is at a juncture where it needs to ensure the data centre industry grows sustainably and existing infrastructure is equipped to support this rapid growth.
Data centres require vast quantities of water for cooling purposes, which can be problematic in areas facing water scarcity or drought. Implementing water-efficient cooling technologies can help address this issue, says Alvin Gan, head of technology consulting at KPMG in Malaysia.
“Not only that but the heat generated by data centres can influence local ecosystems and urban temperature patterns. Efficient heat management and recovery systems are essential to minimise such effects,” he adds.
JLG’s Akmal says green technologies support sustainability and operational growth, which is why the group is actively exploring renewable energy (RE) solutions. “At the Ibrahim Technopolis (IBTEC) township where STeP is located, we are addressing resource management through initiatives such as solar farms and a water recycling plant, demonstrating our commitment to minimising environmental impact while contributing positively to the local ecosystem,” he says.
IBTEC’s circular economy initiative is a model set to transform both Johor’s and the nation’s economies by reducing raw material consumption, minimising waste and lowering emissions. Akmal says this positions Malaysia as a leader in green growth sectors such as electric vehicles; RE; carbon capture, utilisation and storage (CCUS); and the circular economy.
“Data centres, embedded within this strategic framework, serve as a pivotal catalyst for Johor’s economic transformation, supporting the growth of RE sectors and driving industrialisation in alignment with the Fourth Industrial Revolution (IR 4.0).”
The key to alleviating concerns over the rapid expansion of data centres is to ensure that all players within the data centre ecosystem are equally invested in sustainable growth. This includes adopting energy-efficient practices and exploring green energy options like solar power. If properly managed, the growth of data centres in Johor can drive positive development and economic advancement.
