Worldbox: Malaysia rides to success on the tech revolution

Malaysia appears to be shifting to a permanently higher level of growth, driven by a surge in foreign investment into tech sectors. Adrian Ashurst, CEO of Worldbox Business Intelligence, explains the economic and political factors driving this trend.

Investor and market sentiment towards Malaysia has been transformed in the past couple of years. Back in November 2022, our country risk report on Malaysia highlighted the significant challenges facing Anwar Ibrahim, who was appointed prime minister following the inconclusive general election of 19 November. These challenges included “steering an economy that faces surging inflation and is experiencing a fragile recovery following the Covid-19 pandemic”.

There was no shortage of pundits back then arguing that Anwar Ibrahim’s reign would prove short-lived, and that Malaysia could easily slide into political chaos and its economy into the “sick man of Southeast Asia”.

An economy on the verge of take-off

Fast-forward to today and the global tech giants are pouring money into the country at an incredible pace.

Bloomberg reported in September 2024 that Anwar can take a lot of the credit for the turnaround:

“Investors are flocking to Malaysia once again amid a booming artificial intelligence sector and improving political stability. After a rapid turnover of leaders, Prime Minister Anwar Ibrahim has consolidated his power, enacted reforms and launched economic plans to improve the country’s outlook since coming into power in late 2022.”

Bloomberg added that tech giants including Microsoft Corp., Nvidia Corp. and Amazon.com Inc. have pledged to invest billions of dollars in Malaysia’s infrastructure as Anwar bets on the country’s non-aligned stance and resilient economy to weather it through any geopolitical storm.

Malaysia is encouraging companies to invest in five sectors: electrical and electronics, digital economy, chemical and petrochemical, healthcare, and aerospace.

AI and semiconductors driving the boom

The country is having particular success in the realms of artificial intelligence (AI) and semiconductors.

Malaysia is emerging as a data-centre powerhouse in Southeast Asia and Asia more generally as demand surges for cloud computing and AI.

Data centres are needed because AI processes – such as deep learning and natural language processing – require immense computational power. Training complex AI models also involves processing vast amounts of data, which necessitates high-performance computing capabilities.

Data centres store computing machines and related hardware equipment. They contain the computing infrastructure that IT systems require, such as servers, data storage drives, and network equipment. As such, they provide the necessary foundation for AI businesses to run their computer-intensive workloads efficiently and reliably.

Over the past few years, Malaysia has attracted billions of dollars in data-centre investments from the likes of Google, Nvidia and Microsoft.

Much of the investment is flowing into the city of Johor Bahru (JB), across the straits from Singapore. Indeed, JB is now the fastest-growing data-centre market in Southeast Asia – and if all of Malaysia’s planned data-centre capacity comes online, it will become one of the largest hubs in Asia.

Market-friendly policies, as well as plenty of low-cost land, abundant energy and water for cooling, have boosted Malaysia’s appeal. The country has also benefited from Singapore’s decision in 2019 to try and limit data-centre growth.

Malaysia has had considerable success in attracting semiconductor firms looking to diversify away from Taiwan amid Sino–US tensions. It already has significant expertise in the assembly, testing and packaging of chips.

Semiconductor, data-centre and other technology firms are also being lured to Malaysia by an abundance of well-educated IT professionals, who can be employed at much lower salaries than in the more advanced economies, including neighbouring Singapore. Critically, the workforce also speaks English.

Reaping the rewards of education

Over the past 20 years, the education system has focused on science, engineering and maths-related subjects. It now has one of the highest levels of STEM graduates in the world, according to FDI analysis of figures compiled by UNESCO. That means international tech firms are easily able to find skilled local workers. Highly skilled expats are also moving to the country, lured by its low cost of living and low taxes.

Other advantages include relatively high levels of productivity and an advanced infrastructure compared with neighbouring countries such as Indonesia and Thailand. Malaysia’s position on major global trade routes means it is also easy for international companies to import and export goods.

The northern island of Penang is one of the areas of the country that is benefiting most from the boom in inward investment in semiconductors and other tech sectors.

Last year, Penang, known as the “Silicon Valley of the East”, attracted US$12.8 billion in foreign direct investment, exceeding the total achieved from 2013 to 2020 combined. Investors included Intel, which set up a US$7 billion plant; Micron, which set up its second assembly and testing plant; and Infineon, which has announced plans to invest US$5.4 billion to expand its facilities over the next five years.

Penang Chief Minister Chow Kon Yeow has said that the rejuvenation of Penang’s semiconductor industry is largely due to the US’s decision to block exports of chips and other related technology to China. That drove many semiconductor producers to seek manufacturing bases outside China.

Other Malaysian states are now bidding to grab a piece of the computer-chip pie. Selangor, for example, is developing the biggest industrial park dedicated to the design of integrated circuits in Southeast Asia. It is also luring investors with subsidies, tax breaks and visa exemptions. Sarawak and Johor also have ambitions in this area.

Economic turnaround already underway

The latest figures show the economy is already strengthening significantly as Malaysia embarks on what could become a multi-year boom driven by the technological revolution. Economic growth accelerated to 5.9% on an annual basis in the second quarter, up from a 4.2% expansion during the previous three months.

Bank Negara Malaysia, the country’s central bank, said that private consumption remained robust in the second quarter, supported by strong private and public-sector investments. Exports, meanwhile, grew by 8.4% in the second quarter, up from 5.2% in the previous quarter, as Malaysia continued to benefit from global companies’ supply-chain shifts.

Moreover, international funds became net buyers of Malaysian equities in 2024, and the country is home to one of the best-performing markets in Southeast Asia this year. The ringgit has also recovered from the 26-year low against the dollar it reached in February, emerging as the top gainer across developing markets in 2024.

By maintaining an open economy, Malaysia appears well placed to ride the technological boom. In 2023, Malaysia reported a record influx of close to US$70 billion in investments, up from around US$40 billion during the previous year. Given all the country’s advantages, Worldbox Business Intelligence expects that trend to continue. Indeed, we believe Malaysia to be among the most exciting economies in the world at the moment.

Source: Worldbox Press Release

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