Malaysia is on a roll.
The Southeast Asian country, mired in corruption scandals and political instability for much of the past ten years, is now slotting itself into the most vital parts of the global tech sector. The AI boom is driving multi-billion dollar investments from companies like Google in Malaysia-based data centers, while both Western and Chinese chipmakers are moving parts of their supply chains to Malaysia’s more neutral territory.
Last Thursday, Malaysia prime minister Anwar Ibrahim touted the country’s “historic” and “region-leading” inflow of foreign investments, particularly in the booming—and strategically-important—semiconductor and data center industries. “In 2024, Malaysia successfully tamed inflation, reduced unemployment and stabilized our currency,” Anwar boasted.
Independent analysts match Anwar's optimism. Oxford Economics, an economic advisory firm, estimated Malaysia’s economy grew by 5.6% last year, stronger than what many analysts had forecasted. Several factors like the outperformance of exports, particularly semiconductors, and foreign investments gave the economy a boost last year.
Bullishness over Malaysia’s economic prospects could be due to political stability. After a succession of prime ministers and parliamentary shenanigans, Anwar has managed to lead a coalition government since Nov. 2022. The veteran politician has sought political legitimacy through economic growth.
“Since Anwar came to power, his priority has been economic development and attracting foreign direct investment. He understood there’s a need for economic development for political stability,” says Rahman Yaacob, research fellow for the Southeast Asia program at the Lowy Institute, an Australian think tank.
The influx of investments reflects the “confidence” of foreign investors, Yaacob says. “They’re willing to put their money where it’s worth.”
Malaysia is now hoping to leverage its position as the chair of the Association of Southeast Asian Nations (ASEAN), the international group representing the region’s various national governments, to bolster its global presence.
“A shifting world economic order, an empowered ASEAN, and a stable Malaysia means we are no longer satisfied with playing the spectator,” Anwar said on Jan. 9 at a conference organized by the Malaysian government and Maybank, the country’s biggest bank. “We must therefore take up the mantle to chart the path forward,” he said.
Malaysia hopes the global tech sector and the AI-driven boom in data centers and semiconductors will drive interest to the Southeast Asian nation, with the country’s economic minister promising that a world-leading chip designer will announce new investment by February. “I think we’ll excite the market,” Minister for Economy Rafizi Ramli said in an interview with Fortune last week.
Yet tricky politics—domestic and international—could complicate Anwar’s ambition to capitalize further on optimism about his country.
Leading ASEAN
Anwar spoke just two days after Malaysia and Singapore signed an agreement establishing a “special economic zone” along their shared border.
The two governments are working to streamline the movement of people and goods between Singapore and Johor, the Malaysian state that borders the city-state. The governments are positioning the SEZ as an attractive region for businesses and investors who can access Singapore's higher-skilled workforce and more developed resources, and Johor's cheaper resources and land.
The agreement is a “major example or test” of integration for ASEAN, said Rafizi Ramli, Malaysia’s economic minister, in his interview with Fortune.
Malaysia takes over as ASEAN’s chair this year, and the country’s economic minister said that his government is likely to pursue further integration across the ten-member international bloc.
In addition to the SEZ, Rafizi suggested that Malaysia will push for an ASEAN-wide grid and “start wiring up the whole region.”
The project aims to integrate the national power systems of its ten members, but it’s easier said than done: The ten ASEAN members don’t even use the same voltages for their electricity.
Tech sector ambitions
In his interview with Fortune, Rafizi said that Malaysia is banking on the tech sector to drive growth.
The Southeast Asian country already has an established presence in the semiconductor supply chain. Malaysia hosts an array of testing, assembly, and packaging facilities, and supplies about 13% of the world’s chips. Intel and GlobalFoundries have set up chip packaging facilities in the country.
Now, Malaysia wants to move up the value chain. “We’re really serious about building up the capacity for [integrated circuit] design,” Rafizi said, adding that the government has wanted domestic design capabilities for a “long, long time.”
He hoped that, one day, data centers will eventually adopt chips designed and manufactured in Malaysia.
The government is set to announce a new tech strategy in early February. Rafizi also hinted that Malaysia will announce a new investment from a “global” chip designer around the same time, “barring any last minute changes.”
Tricky Outlook
Yet hinging political legitimacy on economic progress brings its own risks, says Wen Chong Cheah, an analyst covering Asia for the Economist Intelligence Unit.
For example, what goes up may eventually come down. “The mid-2024 strengthening of the Malaysian ringgit was celebrated as a success, but its decline in late 2024 sparked public criticism,” Cheah says.
The analyst expects Malaysia’s economy to grow at a moderately slower rate in 2025, especially after the it beat expectations last year. “Export gains from frontloaded inventories due to U.S. tariffs in the first half of 2025 may taper off later,” Cheah says.
A few other domestic and international risks could end up threatening the Anwar administration’s record.
Anwar has touted the country as neutral territory as relations between the U.S. and China worsen. Both Western and Chinese companies are investing in Malaysia to help diversify their supply chains. In a 2023 interview with Fortune editor-in-chief Alyson Shontell, Anwar stressed that the U.S. shouldn’t see closer relations with China as "a zero-sum game."
Yet some foreign governments may second-guess Malaysia’s self-professed non-alignment when it comes to geopolitics.
Last year, Malaysia joined BRICS, an intergovernmental organization founded by China, Russia, Brazil and India. Observers increasingly see the group, which is rapidly expanding its membership among the non-Western world, as a way to hedge against the U.S.-dominated international system, particularly in the wake of Washington’s sanctions against Russia after the latter’s invasion of Ukraine.
Rahman notes that Western officials often ask him whether Anwar will abandon the country’s neutral status and instead move closer to Russia and China.
Anwar thus needs to ensure that Malaysia maintains an image of not picking a side.
Otherwise, Malaysia’s hope of tapping the global tech sector could be in jeopardy. Rahman points to the outgoing Biden administration’s move to ration access to the most advanced chips to most of the world (except for close U.S. allies) as a threat to Malaysia’s data center ambitions. The U.S. is also considering additional tariffs on solar panels, which several Chinese companies manufacture in Malaysia.
Then comes the return of Donald Trump, who is threatening to use tariffs to reduce the U.S. trade deficit. In his interview with Fortune, Rafizi acknowledged “more uncertainties” this year, particularly given Malaysia’s trade-reliant economy. “We need to double down on being open, on being neutral, and on being competitive. Defending global trade is very important to us as a country,” he said.
Domestic politics
There's also domestic distractions. Former prime minister Najib Razak, implicated in the 1MDB scandal and in jail since 2022, is appealing to serve the remainder of his sentence under house arrest. The high court, which will have to hear the case, next meets on March 11.
“A lenient ruling in favor of Najib will tarnish the government’s public perception,” Cheah says, while stressing that the judiciary and the executive branch are constitutionally independent. Rahman suggests that foreign investors may be watching closely to see whether the country's politics might become unstable again, affecting the economic agenda.
Rafizi, the economic minister, knows that there are still concerns over policy continuity, considering the current more stable political climate is a more recent development. But he suggested to Fortune one way to ensure continuity of the economic agenda is to demonstrate a clear “value proposition”, which means the pressure is on the current administration to get results fast.
“If these [policies] are all working and you already have investments in this country, it’s unlikely any new administration will come in and say ‘we’ll close you down,'" he said. "If anything, they would like to ride on that success."
