The Johor-Singapore Special Economic Zone (JS-SEZ) is anticipated to pull much of the digital infrastructure shift away from the Middle East, some market observers based in Malaysia have opined. They have pointed out that despite the energy and supply chain crises now engulfing the world, the pace of development of the JS-SEZ has not slowed down because of the war.
Johor State Councillor Lee Ting Han had reportedly said yesterday that the impact of the war is “not completely negative.” “With global risks rising, some investors may take more time to finalise their investment decisions, but there are also investors who are accelerating their diversification,” he told local press. “If Johor and Singapore continue to be positioned as a reliable, low-friction and implementation-oriented base in Southeast Asia, the net benefits for the new special economic zones are actually positive.”
“From our exchanges with the industry, it can be seen that operators tend to choose relatively safe areas and those with ready and good infrastructure,” he added.
As of yesterday however, there is no evidence on the ground to suggest any actual shift from the Middle East. There is however increasing discussions of such a scenario with Malaysia and Singapore being tip to be the prime beneficiaries, according to a research firm.
JS-SEZ is a Singapore-Malaysia initiative to strengthen both countries’ business ecosystem through improved cross-border connectivity and freer movement of people. Four times the size of Singapore (3,500 square kilometres), it encompasses Iskandar Malaysia, Pengerang, and nine flagship zones across 11 sectors including digital economy of which data centers are an integral component.
Sr. Samuel Tan, the CEO and founder of Olive Tree Property Consultants, believes that Johor will be the main beneficiary. “Hyperscale data center operators are now prioritizing regional diversification, which does not mean they are abandoning the Middle East market, but accelerating the construction of redundant disaster preparedness centers in Asia to ensure global uptime.”
A redundant disaster recovery center is a standby infrastructure site designed to take over swiftly if the primary data center fails. Traffic will automatically switch to other nodes that are operating normally to ensure business continuity.
The special economic zones, Tan observed, are seeing two new trends, firstly, inbound capital in general is slowing down but at the same time, investment-related capital is accelerating driven by the safe haven demand of enterprises.
“The trend of balancing geopolitical risks is already evident. The recent attacks on digital infrastructure in the Middle East has forced large-scale cloud service providers to reassess the risk of concentrating their infrastructure in one particular region. Investors see the new special economic zones (in Southeast Asia) as a decoupled growth engine that can hedge against instability in the Middle East,” Tan explained.
The Johor-based consultant also believed that the authorities in Malaysia will implement stricter environmental standards in the future to control the impact from the soaring number of data center buildups in the country.