Malaysia to adjust foreign investment criteria for data centres amid industry reset

Details: John Tanner; Category: Investment; 27 July 2026; 11058 views

The Malaysian government is reportedly having second thoughts about its incentives to attract foreign investment for data centre projects as part of a broader move to rethink its strategy to build Malaysia into a major AI data centre hub.

According to a report from The Edge Malaysia on Friday, Treasury secretary general Johan Mahmood Merican said that the government has essentially been too successful in enticing foreign firms with deep pockets to invest in the local data centre industry.

“We perhaps overdid the red carpet for data centres to the extent that now we are almost getting too much of a demand,” he said.

One consequence has been that the government has had to rethink electricity pricing for data centres that put more demand on the national power grid. According to a report from Reuters on Friday, new data centre projects in Johor – which has experienced a massive data centre boom thanks to spillover demand from Singapore – are required to use renewable energy before they can be approved, while projects for Tier 1 and Tier 2 data centres that use excessive amounts of water for cooling will be rejected outright.

Another key issue is that while standard data centres might attract billions of ringgit in investments, they don’t always generate additional spillover benefits for local businesses, or do much to boost employment opportunities, the Edge Malaysia report said.

Johan said the government will readjust its investment assessment framework with a scorecard that better assesses the overall economic value of data centre project proposals to ensure they align more with the country’s economic and policy objectives.

Rather than focus mostly on the size of the investment amount, the scorecard would determine if data centre projects “increase economic complexity, create higher value-added jobs and strengthen linkages with local industries”, the report said.

Earlier this month, a report from S&P Global assessing the government reset on data centres said that dialing back investments and tightening restrictions would help make the country's ambitions to be a regional AI hub more sustainable, in part because it would buy time to boost the necessary power and water resources to support it.

Factoring in the reset, 451 Research by S&P Global projects Malaysia to see 32% compounded annual growth rate (CAGR) for data center capacity from 2025 to 2030, though that's down from 67% CAGR between 2020 and 2025.