From palm oil to data: Malaysia builds AI hub on Singapore's doorstep
Companies take advantage of cheaper land and more abundant energy
Mercedes Ruehl in Johor Bahru
July 19 2024
In what were once wild jungle and palm oil plantations in southern
Malaysia, the likes of TikTok, Nvidia and Microsoft are racing to
install the building blocks of the digital economy: data centres.
Billions of dollars are being invested in the state of Johor, just a few
kilometres from Singapore, by companies taking advantage of cheaper land
and more abundant energy for computer infrastructure while staying close
to south-east Asia's biggest financial centre.
Johor's fortunes may soon be more closely tied to those of its wealthy
neighbour. Malaysia's king, the motorbike-riding billionaire Sultan of
Johor, is championing an effort to bind his state closer to Singapore in
a single economic zone, expected to include tax breaks and smoother
cross-border trade.
There is a model in China, where Shenzhen's transformation from fishing
village to tech megapolis started after it became a special economic
zone (SEZ) on the doorstep of Hong Kong. Malaysia hopes that Johor can
be as integral to the regional digital economy as Shenzhen has been to
China's manufacturing growth.
"Johor could become the Shenzhen of south-east Asia," said Tengku Zafrul
Aziz, Malaysia's investment, trade and industry minister. "The data
centre industry can form the backbone of a broader transformation of the
state into a high-tech manufacturing powerhouse."
The boom in Johor gathered pace after Singapore, which has limited
energy resources, placed a three-year moratorium on construction of
power-hungry data centres in 2019. Johor spurred investment by cutting
approval times from more than three months to as little as seven days.
Robin Khuda, chief executive of AirTrunk, a data centre with facilities
across Asia, said Malaysia had given the company its "smoothest" entry
to any of its markets. The group planned to expand further in Johor,
Khuda said.
Foreign investment into the state of 4mn people hit RM58.8bn ($12.6bn)
in 2022 and RM31bn in 2023, compared with RM10bn in 2019, according to
figures from Malaysian Investment Development Authority.
Johor's economic growth is expected to outpace national forecasts up to
2025, according to Mida.
At Johor's Sedenak Tech Park, land prices have gone from about RM40 per
sq ft a couple of years ago to about RM70 to RM80, according to Adi
Yaacob, a senior manager for JLand Group, the developer. The group is
part of Johor Corporation, the state development company.
The activity has pushed Malaysia to the top of the list of Asia's
fastest-growing data centre markets, according to a report by Cushman &
Wakefield. The country has a development pipeline of 1.2 gigawatts of
data storage capacity, an increase of 600 per cent in the next five
years from its current 189 megawatts.
Malaysia is predicted to make up the majority of south-east Asia's data
centre market in terms of capacity by 2035 thanks 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 or training models in Malaysia, according
to Yeoh Seok Hong, managing director of YTL Power International. His
company has struck a $4.3bn deal to build an AI data centre in Johor
with Nvidia as a tenant — an agreement that involves a partnership in
cloud computing and a supercomputer project. YTL Power's share price is
up more than 100 per cent this year since the announcement.
Meanwhile, ByteDance, TikTok's Chinese owner, plans to invest about
RM10bn to set up an AI hub in Malaysia, minister Tengku Zafrul Aziz said
in June. The company is already an anchor tenant at three data centres
in Johor. Microsoft has also been snapping up sites and recently
acquired land in Johor to expand.
All of this is a prelude to the establishment of an SEZ with Singapore,
which is due to be agreed this year. The push has gained momentum since
the business-friendly Sultan of Johor, who has good relations with
Singapore, became Malaysia's king in January.
"The current king is very pro-business and wants Johor to be successful.
I think Johor needs something like [the SEZ] to move forward," said
Govinda Singh, an executive director at real estate consultancy Colliers
International.
But he pointed to past problems between the two countries including
stalled projects. A plan for a high-speed rail link between Singapore
and Kuala Lumpur was abandoned after the countries failed to reach
agreement.
"The main difference [now] is the Johor king and [Malaysian prime
minister] Anwar are really trying to get the economy up and running.
There is willingness at national and state level . . . Can it last? You
have to be a bit sceptical," he added.
"Ultimately I am not sure Johor can be successful without [the SEZ],
even with the data centre boom."
Many wonder if the data centre surge will increase pressure on resources
while not contributing many jobs. Malaysia still relies on fossil fuels,
including coal, for most of its power. Many aspiring cloud providers
have no plan for renewable energy.
Liew Chin Tong, Malaysia's deputy minister for trade and industry, said
he was "uneasy" about some parts of the industry and wanted more
stringent requirements for water and renewable energy use in data centres.
"Finding the balance is what I am most concerned about. We also want to
make sure data centres will generate spillover to the economy, such as
localisation of equipment and parts as well as creation of jobs for
Malaysians," he said.
Still, both places have become increasingly integrated. The two land
crossings between Johor and Singapore, Woodlands and Tuas Link, are
among the busiest and most congested border crossings globally.
One engineer working at US semiconductor giant Micron's Singapore
fabrication plant said he intended to buy property in Johor this year in
anticipation of the SEZ. "I can afford a house in Johor as opposed to a
tiny, expensive apartment in Singapore."
A SEZ would make Johor attractive to everyone from multinationals to
young engineers, according to Lee Ting Han, a member of Johor state's
executive council. "What I hope is that investing in Johor is one day
regarded by everyone as the same as investing in Singapore."
Johor was always "regarded as the Wild West in Malaysia", said Greg
O'Shea, the head of Singapore and Malaysia for supply chain consultancy
TMX Transform. "That is really starting to change."