Malaysia’s data centre backlash is loud, popular and wrong

From the highway, a data centre looks like the least glamorous thing money can buy. A windowless grey box the size of several football fields, humming behind a fence, with almost nobody inside.

To its critics it is worse than ugly. It is a parasite, sipping the nation’s water and electricity to stream cat videos and train chatbots for foreign companies, and leaving Malaysians the bill.

It is a powerful image. It is also, in large part, wrong.

Malaysia is in the middle of a genuine boom. Between 2021 and mid-2025, the Malaysian Investment Development Authority (Mida) approved 143 data centre projects worth RM144.4 billion, the bulk in Johor, now Southeast Asia’s fastest-growing data centre hub.

Amazon, Microsoft, Google and Oracle alone have committed around RM69 billion. Yet, they did not have to choose us.

Here is the part the backlash misses.

Penang has run this film before. When Intel opened its first plant in Penang in 1972, critics saw only cheap labour assembling foreign gadgets for export. What they missed was the schooling: over five decades the multinationals trained tens of thousands of Malaysian engineers, who then walked out and built their own firms.

Homegrown champions such as Inari, ViTrox and Greatech, none of which existed thirty years ago, are now worth billions of ringgit.

The factories were never the real prize. The supply chain that grew around them was.

That second wave is already visible. The hyperscalers are largely hiring Malaysian contractors to build these campuses, and the work has climbed from pouring concrete into the higher-margin business of power and cooling.

Gamuda, Sunway Construction and IJM are landing hyperscale jobs worth billions of ringgit, with Gamuda alone winning a RM1.72 billion contract in Negeri Sembilan in April.

Every tower of servers teaches local engineers to run infrastructure they once imported.

Ownership is shifting too. YTL Power has completed Malaysia’s first Nvidia-powered data centre in Johor, running the same Grace Blackwell artificial intelligence (AI) chips that frontier labs in California use.

A Malaysian company operating hardware like that is precisely the capability the country has spent decades trying to buy.

The skilling pledges are softer, and worth reading with a colder eye. Amazon, Microsoft and Google have pledged to train hundreds of thousands of Malaysians in cloud and AI skills, but much of that is broad digital literacy, bundled with the cloud regions to build a local market for the very services these data centres sell.

It creates users, not necessarily the next Inari. The real transfer is in the steel, the switchgear and the operators.

None of this shows up as mass employment, and critics are right that a finished data centre needs few staff. But a KPMG study last year put the sector’s likely output at around RM139 billion a year by 2030, close to 4% of the economy, and roughly 30,900 jobs once the supply chain is counted.

Now the resources, where the fear runs hottest. Sahabat Alam Malaysia, the country’s best-known green group, calls data centres “big energy and water guzzlers”. And that does sound frightening, with Tenaga Nasional Berhad (TNB), the national utility, fielding applications to power more than 11,000 megawatts, around 40% of Peninsular Malaysia’s installed capacity.

But an application is not a plug socket. The government itself has flagged that operating data centres use only about half the power they reserve, and TNB expects real demand nearer 5,000 megawatts by 2035, under a fifth of today’s capacity and spread across a decade.

More to the point, ordinary Malaysians are not paying for it. Under the tariff overhaul of July 2025, the roughly 85% of households using under 1,000 kilowatt-hours a month see the same or lower bills, while heavy high-voltage users such as data centres shoulder the capacity and network charges.

Water is the more emotive worry, and the more answerable. A 100-megawatt data centre can swallow about 4.16 million litres a day, but that figure describes the thirstiest design, not the rules Malaysia now writes.

Since September 2025 the water regulator SPAN, the National Water Services Commission, has pushed operators towards reclaimed water or air-cooled systems.

In Johor, recycled water is now mandatory, and Indah Water Konsortium and Johor Special Water are already supplying 12 million litres a day of treated effluent to cool servers, water that would otherwise be dumped.

Through the boom, Johor’s water reserve margin has actually risen, to about 16.9%.

None of this means the critics are cranks. They forced a necessary conversation, and the government listened. In February, Prime Minister Anwar Ibrahim told the Dewan Rakyat that for nearly two years Malaysia had blocked any data centre “merely taking advantage of cheaper water facilities and lower energy prices”, approving only those bringing genuine AI and high technology.

That is exactly the right filter.

So the question is not whether to host data centres, but on whose terms. Keep saying no to pure resource arbitrage. Make the heavy users pay for their own power and water, and never let a household subsidise a foreign server farm.

Above all, back the Malaysian operators and contractors climbing this value chain, so the know-how that built Penang stays onshore.

Get this right and the humming grey box becomes what Intel’s first shed in Penang once was: unglamorous infrastructure that quietly mints engineers, companies and salaries.

The box beside the highway is not the villain. The villain would be letting the panic talk us out of our next Penang.

The writer can be contacted at kathirgugan@protonmail.com.

The views expressed are those of the writer and do not necessarily reflect those of FMT.