In 2023, Malaysia attracted a record-breaking total approved investments of RM329.5 billion, 23% higher than in 2022. It kept up the momentum in the first half of 2024 with RM160 billion in approved investments, an 18% year-on-year jump.
So far this year, global technology giants such as Amazon Web Services, Microsoft, Google and Oracle have announced plans to invest at least US$16.9 billion (RM74.5 billion) in the country.
These come on the heels of the world’s hottest tech company Nvidia – maker of advanced chips for artificial intelligence (AI) applications – sealing a partnership with YTL Power International Bhd to develop AI infrastructure in Malaysia, in a US$4.3 billion (RM19 billion) deal that involves establishing a data centre in Johor.
“Malaysia is an important hub for Southeast Asia computing infrastructure,” Nvidia founder and CEO Jensen Huang said when the partnership was announced late last year.
Much of the investments are related to the setting up of data centres, and this has elevated Malaysia as a regional data centre hub with approved investments for such projects amounting to RM114.7 billion from 2021 to 2023.
According to DC Byte’s 2024 Global Data Centre Index, Johor Baru has been recognised as the fastest-growing data centre market in Southeast Asia.
The catalyst for this growth is partly due to the strategy of rolling out the red carpet for tech firms, offering tax incentives and grants to attract high-tech investments.
Nurturing a digital economy
It should be pointed out that the country has a long history of attracting investments from global tech companies such as Intel, Advanced Micro Devices, Dell, etc.
This is partly because the country is blessed with an educated and skilled workforce, excellent infrastructure, relatively low operating costs, political stability, a Commonwealth legal system and English is widely spoken.
In recent years, the country has also been a key beneficiary of the US-China trade war as multinational corporations shifted some of their operations out of China into Asean countries including Malaysia.
Nevertheless, there has been a noticeable change in the government’s strategy to engender Malaysia’s transformation into a digital economy.
Over the past year, Prime Minister Anwar Ibrahim’s administration has unveiled a raft of high-tech-related policies such as the National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP) and National Semiconductor Strategy.
This marks a shift towards a more strategic approach to attract foreign investments, focusing on projects that enhance the country’s technological capabilities such as in AI and data technology.
Some industry observers say the government’s focus on digital transformation has given impetus to the record-breaking investments flowing into the country.
American Chamber of Commerce in Malaysia CEO Siobhan Das said Anwar has sought to improve the ease of doing business while outlining policy areas important for Malaysia’s future such as the NETR, NIMP and strong focus on digital transformation.
Budget 2025 and digital transformation
The emphasis on the digital economy is also reflected in the 2025 budget unveiled last month.
PwC Malaysia head of digital and tax technology partner Yap Sau Shiung said the budget underscores Malaysia’s commitment to advancing digitalisation, fostering AI adoption and promoting inclusive growth.
“The aim of the government’s digital transformation initiatives in Budget 2025 is to propel Malaysia to the forefront of global digital innovation.”
To foster the creation of high-income jobs, a tax deduction will be available to private universities and skills training institutes that develop new courses such as AI, robotics, Internet of Things, data science, financial technology and sustainable technology.
Yap said there is a significant increase in allocations for AI research and innovation in universities including RM10 million for the National AI Office and RM50 million for AI education.
The 2025 budget also offers tax incentives for integrated circuit (IC) design export activities. The allowance for increased exports for companies engaging in selected service activities will be expanded to include IC design services.
“The government has taken a comprehensive approach by enabling investments in digital infrastructure, education, research and development, cybersecurity as well as extended support for SMEs and the local startup ecosystems,” Yap said.
Projections indicate that by 2025, the digital economy will contribute 25.5% to the gross domestic product (GDP) and create up to 500,000 jobs.