Overview
Country Commercial Guide: Malaysia’s Digital Economy
The digital economy is one of the fastest-growing sectors in Malaysia. The Malaysian government continues to boost its digital ecosystem by working with international technology providers and partners. That development presents opportunities for U.S. digital technology companies to export their products and services to Malaysia and the ASEAN region in such areas as artificial intelligence (AI), the Internet of Things (IoT), cloud technology, financial technology (fintech), and cybersecurity. To learn more about strategies and specific prospects and marketing development strategies for entering or expanding into Malaysia’s rapidly developing market, U.S. exporters are encouraged to contact their nearest Export Assistance Center in the United States or the Commercial Section at the U.S. Embassy in Kuala Lumpur, Malaysia.
Government officials promote Malaysia as the ASEAN digital economy hub, given the rapid growth of digital infrastructure investment in data centers, 5G telecom networks, cybersecurity, and AI investments. The Malaysian government also aims to promote the country as a leading digital nomad hub in ASEAN while boosting digital adoption and promoting professional mobility and tourism. U.S. companies have the opportunity to provide trusted Digital technologies that interoperate with other leading solutions.
National Focus
The Ministry of Digital serves as the primary government body overseeing digital transformation initiatives. However, various aspects of the digital economy fall under the jurisdiction of other government entities. For instance, the Ministry of Communications regulates internet content, the Ministry of Science, Technology, and Innovation (MOSTI) spearheads AI policy development, and the Prime Minister’s Office is responsible for managing cybersecurity regulations.
The Malaysia Digital Economy Corporation (MDEC), an agency under the Ministry of Digital, was established in 1996 to drive the nation’s digital economy. To further this mission, the Malaysian government launched the Malaysia Digital initiative, a national strategic program aimed at attracting companies, talent, and investment. This initiative also empowers Malaysian businesses and citizens to take a leading role in the global digital revolution and economy.
Launched in 2021, the Malaysia Digital Economy Blueprint (MyDIGITAL) outlines the strategic steps needed for Malaysia to become a high-income nation and a leader in the digital economy. The blueprint aims to drive digitalization nationwide, bridge the digital divide, support the technology sector, and foster a competitive digital economy. A key focus is on Malaysia’s small and medium-sized enterprises (SMEs), which, despite contributing over one-third of the country’s GDP in 2023, lag behind larger corporations in digital adoption. The government has prioritized developing digital capacity among SMEs in three critical areas: data collection, storage, and analysis; cloud solutions and IT infrastructure enhancement; and cybersecurity to protect data and prevent digital disruptions.
Projected Digital Economy Growth
Malaysia has some of the highest penetration rates for electronic wallet payments, which enable users to conduct online transactions from smartphones and computers. Malaysia’s 5G network is rated one of the leading networks in ASEAN for its consistent upload and download speeds. Malaysia is also recognized for its high digitization rates, with internet penetration at over 97 percent and mobile phone penetration at nearly 130 percent. MDEC recorded the digital economy as generating 23 percent of the nation’s GDP in 2022 and anticipates that figure will grow to over 25 percent by 2025.
Malaysia is also emerging as a data center powerhouse amid booming demand from AI. Over the past few years, the country has attracted billions of dollars in data center and AI investments, including from tech giants like Google, Microsoft, and Nvidia. The soaring demand for AI services also requires specialized data centers to store ever-increasing data and computational power necessary to train and deploy AI systems. While the boom in data centers has helped lift Malaysia’s economy, this development has also highlighted the importance to meet future demand for the energy and water needed to run the data centers.
Market Challenges
As a country with a growing upper-middle-income population, Malaysia benefits from a large English-speaking population, a well-established legal framework, and a business-friendly environment. The digital economy is one of Malaysia’s key economic pillars, contributing 23 percent of the country’s GDP. The primary challenge of this fast-developing landscape is for the government to keep pace with the rapidly evolving technology to create sound and lasting policies and regulations.
Regulatory environment
Malaysia’s Personal Data Protection Act 2010 (PDPA) is a comprehensive cross-sectoral framework to protect personal data during commercial transactions. The PDPA lays out strict requirements for collecting and processing personal data. To strengthen the regulatory environment around AI and data unification, the Malaysian government announced plans to undertake three key initiatives: amend the Personal Data Protection Act (PDPA), introduce a new cybersecurity bill, and enact an Omnibus Data Protection Act. In 2021, Malaysia recognized the adoption of the ASEAN Data Management Framework (DMF) and the ASEAN Model Contractual Clauses for Cross Border Data Flows (MCCs), which aim to enable harmonized standards for data management and cross-border data flows within ASEAN.
The National Cyber Security Agency (NACSA) serves as Malaysia’s primary authority for developing and enforcing national cybersecurity regulations. In 2024, the Malaysian government enacted the Cyber Security Bill 2024, establishing a stronger regulatory framework to safeguard the nation’s critical information infrastructure against emerging cyber threats. This legislation will also establish the National Cyber Security Committee (NCSC), chaired by the Prime Minister, to advise the government on cybersecurity issues. Additionally, the Ministry of Communications is responsible for implementing specific measures to address harmful content on online platforms, particularly content that incites racial, royal, and religious discontent (the Three R’s).
Digital Trade Barriers
Malaysia has championed technology initiatives and promoted policies to support digital trade. For example, no data localization/data residency requirements exist under Malaysia’s Personal Data Protection Act 2010 (PDPA). However, challenges to Malaysia’s digital economy development still occur. These barriers include shortages in human and financial capital, especially in the case of SMEs, and challenges in accessing government data. Even though overall access to the internet is high in Malaysia, a digital divide still exists between urban and rural areas. One study by MDEC suggested that 92 percent of urban households have access to the internet, while only 68 percent of rural households do.
Digital Trade Opportunities
Malaysia’s digital economy offers a spectrum of opportunities for trade and investment, fostered by the adoption of cross-sector enabling technologies and the burgeoning expansion of critical industry sub-sectors. The Malaysian government’s focus on developing AI infrastructure, establishing data center hubs, expanding cloud computing, and framework for cybersecurity frameworks will undoubtedly enhance productivity, bolster efficiency, and spur new areas for growth in digital trade.
Malaysia has been a key recipient of billions of dollars in investments for data center infrastructure, with the United States, China, and Australia making significant investments. In parallel with those investments, the Malaysian government launched the Malaysia Artificial Intelligence Nexus 2024 (MY AI NEXUS), a program that signals Malaysia’s aspiration to be a leader in AI technology by promoting opportunities for study and research and the creation of faculties in AI. That technology has stimulated the growth of other sub-sectors, such as advanced computing, quantum computing, and enhanced cybersecurity.
Malaysia’s cybersecurity market is experiencing rapid growth, valued at approximately $540 million in 2023, with a projected compound annual growth rate (CAGR) of 15-20 precent over the coming years. This expansion is fueled by increased digitalization, rising cybersecurity threats, and the government’s efforts to strengthen the nation’s cyber defenses. The Malaysian government is dedicated to ensuring a safe and secure cyberspace by enhancing cybersecurity capabilities across the board. As part of this commitment, the government launched the Malaysia Cyber Security Strategy (MCSS) 2020-2024, allocating $434 million to enhance national cybersecurity preparedness and upgrade the country’s defense measures.
By connecting sensors and software with devices over the internet, the Internet of Things (IoT) technology further enhances the capabilities of smart homes and smart cities. The revenue of the IoT market in Malaysia was estimated in 2022 at over $5 billion. Malaysia’s new 5G network positions the country for further expansion in the IoT market. The growth of the market in Malaysia for Human-machine Interface (HMI), a user interface connection of a person to a machine, system, or device, is expected to be driven by the growing adoption use of Industrial IoT (IIoT) with an increasing emphasis on user-friendly interfaces. Malaysia’s advanced manufacturing sector offers opportunities for HMI in interactions with operators, system integrators, and engineers, particularly control system engineers, in a wide range of manufacturing industries, including automotive, medical devices, and aerospace & defense.
Another digital space where Malaysia has a strong presence is its robust and rapidly expanding fintech sector. The digital payments and mobile wallet sectors are well established. Insurtech, lending, digital remittances, blockchain, and crowdfunding are some areas with particular growth. Given the domestic demand this year, it remains a competitive market, with new entrants regularly entering it.
Helpful Resources:
- I&A’s Office of Digital Services Industries (ODSI)
- National Trade Estimates Report – Digital Trade Barriers
- White House CET List, e.g., Artificial Intelligence -> Machine Learning
- Malaysia Cybersecurity Framework
- Malaysia Digital Economy Blueprint