Malaysia must turn US$50bil AI investment into high-value jobs, technology gains [WATCH]

KUALA LUMPUR: Malaysia must turn a proposed US$50 billion (RM204 billion) investment in artificial intelligence (AI) and data centres by a global investor into higher-paying jobs, technology transfer and stronger local businesses, rather than simply expanding its digital infrastructure, economists say.

Prime Minister Datuk Seri Anwar Ibrahim said on Saturday that Sarawak and Peninsular Malaysia had been identified as locations for the proposed investment.

The investment, potentially one of the largest of its kind in the region, presents an opportunity to accelerate Malaysia's digital economy, but its long-term value will depend on how much economic activity, expertise and income it generates domestically, economists said.

Nikkei Asia reported on Monday, citing a call between Anwar and SoftBank Group Corp founder Masayoshi Son last week, that the Japanese conglomerate was discussing participation in the investment plan focused on AI and data centres.

SoftBank is expected to contribute only part of the proposed amount, with project financing and other funding sources likely to cover the balance, the report said.

Universiti Kuala Lumpur Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said the proposed investment could boost economic growth, create skilled jobs and expand opportunities for local suppliers.

He said Malaysia's data centre industry contributed RM14.1 billion to the economy this year, compared with RM900 million in 2021, highlighting the sector's rapid expansion.

However, he said the next challenge was ensuring that investment translated into broader economic benefits.

"Enforcing a 30 per cent local sourcing requirement would help generate a much higher domestic economic multiplier," he told Business Times.

Aimi said the investment could create skilled jobs in data centre management, engineering, cloud computing and AI, alongside indirect employment in construction and cybersecurity.

With unemployment at 2.9 per cent in August 2026, Aimi said Malaysia should focus on creating quality jobs that move workers into higher-value roles.

He said the government also wanted investors to go beyond providing facilities to house servers and support AI adoption, home-grown innovation and technology transfer.

He added that data centres in Johor had largely been "concrete shells", providing storage facilities rather than more advanced computing capabilities.

"Meaningful technology transfer would require giving local companies access to cloud infrastructure and training to use AI platforms, enabling them to develop higher-value digital capabilities," he said.

Aimi said local businesses could also benefit from procurement opportunities in cooling systems, electrical equipment, construction, engineering and professional services, provided they had the expertise and capacity to meet investors' needs.

On tax revenue, he said investment incentives could limit direct tax contributions from data centre operators, making taxes paid by local vendors and skilled workers, alongside utility payments, important sources of economic benefits.

He added that operators must pay market-rate, unsubsidised electricity tariffs and cover the cost of their full reserved electricity capacity, even if actual consumption is lower, to prevent subsidy leakage.

Minister in the Prime Minister's Department (Sabah and Sarawak Affairs), Datuk Mustapha Sakmud, said on Tuesday the US$50 billion investment in the AI sector in Sarawak is expected to serve as a new catalyst for economic growth in the Borneo region, particularly through the creation of high-skilled job opportunities and broader economic spillover effects.

"We highly welcome Sarawak's involvement in the AI ​​sector, as it will not only boost the state's economy and create career opportunities for locals, but the resulting benefits will also extend to Sabah.

"Wherever the Prime Minister goes on the international stage, he consistently highlights the potential of these two states," he said when met after appearing as a guest on the programme The Nation, produced by Bernama TV, at Wisma Bernama here today.

Meanwhile, Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak said the proposed investment could strengthen Malaysia's digital economy, attract high-value activities and create skilled jobs in AI, cloud computing, cybersecurity and engineering.

However, he said the actual economic benefits would depend on how much of the proposed investment materialised and how effectively local businesses participated.

"Malaysia should prioritise technology transfer, local procurement, competitive wages and sustainable tax revenue rather than focusing solely on the investment figure.

"The ultimate measure of success is how much value remains within the domestic economy," he said.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said job quality and career progression should be key measures of the investment's success.

"I suppose the measure of success beyond GDP is how many high-quality, high-paying jobs are created for the locals," he said.

He said workers should also have opportunities to advance their careers and pursue further studies.

Afzanizam said Malaysia had a strong proposition for attracting technology investment, citing its peaceful environment, educated workforce, multicultural society and widespread English proficiency.

In July, S&P Global Ratings said Malaysia could nearly triple its data centre capacity by 2030, supported by its proximity to Singapore, strong connectivity and growing power and water capacity.

However, the rating agency said rising costs and tighter approval requirements posed execution challenges as the country shifted from rapid expansion towards more sustainable growth.

Companies that have been involved in AI data centres in Malaysia could benefit from the investment, which is touted as the largest single investment in the region.

Construction companies such as Gamuda Bhd, Sunway Construction Group Bhd, and MN Holdings Bhd are among the names that could bid for the project. In the power sector, Tenaga Nasional Bhd, YTL Power International Bhd, and Malakoff Corp Bhd are also in the line to benefit from such a massive project.

Renewable energy developers such as Solarvest Holdings Bhd, Samaiden Group Bhd, Pekat Group Bhd, Northern Solar Holdings Bhd and Cypark Resources Bhd could bid for Corporate Renewable Energy Supply Scheme (Cress) to support the investment.

In the water infrastructure, Salcon Engineering Bhd, Aliran Ihsan Resources Bhd, which is a member of MMC Group, and Ranhill Utilities Bhd could also benefit from the investment.

POWER AND WATER CAPACITY CRUCIAL FOR DATA CENTRE GROWTH

Aimi said Malaysia's infrastructure was not yet ready to support US$50 billion in data centre investments without further upgrades.

He said 57 data centres were operating with a combined power capacity of 6,237 megawatts (MW), while another 60 projects requiring 11,172MW were undergoing approval or construction.

"Data centres account for about 10 per cent of Malaysia's energy consumption, a figure expected to rise to one-third by 2035.

"BMI projects that data centres in Johor alone could consume 18 per cent of Peninsular Malaysia's electricity by 2031, up from six per cent in 2026," he said.

To manage demand, Aimi said the government required operators to commit to power purchase agreements of eight to 10 years before Tenaga Nasional Bhd expanded the grid.

Operators must also bear the cost of upgrading the transmission network, preventing households from shouldering expenses for electricity capacity that data centres may not fully use, he added.

Water availability is another concern, with a single 50MW data centre requiring about 788 million litres annually.

Aimi said the government was encouraging the use of reclaimed water and closed-loop cooling systems to reduce consumption.

For example, ZData's RM8 billion data centre in Gelang Patah, which has GreenRE Platinum certification, uses 100 per cent reclaimed water and plans to utilise 630,000 megawatt-hours of solar energy from 2028.

He also noted that a Digital Infrastructure (Data Centre) Bill was being drafted for submission to the Cabinet in 2027 to align industry growth with power and water capacity and promote circular economy practices.

Meanwhile, Idham said Malaysia had the capacity to support digital infrastructure expansion, but readiness depended on each project's location and requirements.

He said AI data centres require substantial electricity, reliable water supplies and resilient grid infrastructure.

"Rapid expansion without proper planning could strain utilities and undermine environmental sustainability.

"Investment approvals should therefore be aligned with confirmed infrastructure capacity, renewable energy development, water-efficient technologies and clear sustainability targets," he said.