Regulation does not mean hindering innovation—on the contrary, it can foster it by creating a structured environment where ethical, secure, and equitable AI solutions thrive. Far from being a barrier, thoughtful governance frameworks can drive creativity, attract responsible investments, and position nations as leaders in trustworthy AI development.

Against this backdrop, Malaysia stands at a pivotal moment in the global AI race. While we are making strides in adopting and adapting AI technologies, this progress also highlights our vulnerability to external dependencies—particularly on foreign-developed tools, infrastructure, and governance frameworks. By embracing robust AI governance, Malaysia has the opportunity to not only mitigate these risks but also catalyze homegrown innovation that aligns with our values and priorities.

For years, Malaysia has followed a familiar pattern: importing cutting-edge technologies, tailoring them to local needs, and grappling with the consequences of decisions made far beyond our borders. But does being a follower necessarily mean we must remain powerless?

However, not leading in AI capabilities does not preclude Malaysia from leading in other critical domains—such as ethical AI governance, regulatory frameworks, and capacity-building initiatives. While we may lack the technological prowess to design frontier AI models, we can still play a transformative role in shaping how these technologies are governed, safeguarded, and deployed responsibly.

This article explores how Malaysia can transition from a follower to an influencer in global AI safety & AI governance – where innovation & regulation can go hand in hand.

Drawing inspiration from smaller nations like Estonia and Singapore—both of which have successfully influenced global norms despite lacking technological dominance—we argue that Malaysia can lead in governance even if it is not leading in AI development. By aligning with our established frameworks, such as the National AI Roadmap 2021-2025, the National Guidelines on AI Governance and Ethics, and the establishment of the National AI Office, we propose actionable steps for Malaysia to position itself as a regional and global leader in ethical AI governance.

In doing so, Malaysia can not only mitigate risks such as economic dependency and sovereignty concerns but also unlock tangible economic benefits. For instance, projections suggest that AI could contribute RM115 billion to Malaysia’s GDP by 2030. By leading in governance, Malaysia can ensure that this growth is both sustainable and aligned with our values, fostering high-quality innovations while attracting international investment

The Challenges & Risks of Being a “Passive Adopter” in AI Regulation

While we are making strides to catch up, being passive adopters of foreign AI systems places Malaysia at risk in two critical ways: loss of sovereignty and economic dependency. These risks are especially pressing given Malaysia’s growing prominence in the semiconductor industry and its strategic importance as a potential site for data centers.

For instance, recent U.S. export controls on advanced semiconductors and AI accelerators could affect Malaysia’s access to cutting-edge hardware necessary for training large-scale AI models. Although Malaysia currently benefits from exemptions for certain consumer-grade chips, tighter controls could disrupt industries reliant on such technology, further exacerbating vulnerabilities.

1. Loss of Sovereignty

Relying on foreign AI tools means decisions about their functionality, ethics, and limitations are made elsewhere—often with little regard for local priorities. This loss of sovereignty manifests in several ways:

• Mismatched Priorities: Imagine an AI-powered healthcare system imported from abroad that fails to address diseases prevalent in Southeast Asia or overlooks traditional medicine practices integral to local care. Such misalignments highlight how foreign-developed systems may not serve Malaysia’s unique needs.
• Data Oversight Concerns: Data centers in Malaysia could host AI systems that embed foreign oversight mechanisms, limiting our control over domestic data and decision-making. For example, reliance on cloud services provided by foreign entities could expose sensitive national data to external jurisdictions, undermining Malaysia’s autonomy.

Unchecked reliance on foreign AI erodes national autonomy, leaving Malaysia vulnerable to decisions driven by external interests. This dependency compromises our ability to shape policies that align with local values and priorities, ultimately weakening Malaysia’s sovereignty.

2. Economic Dependency

Beyond sovereignty concerns, Malaysia faces the risk of deepening economic dependency when it relies heavily on imported AI tools and infrastructure instead of fostering local innovation ecosystems. This reliance has far-reaching implications:

• Stifling Homegrown Talent: By prioritizing foreign technologies, Malaysia risks stifling its homegrown talent and entrenching long-term reliance on foreign tech giants. Without robust investment in local R&D e.g. on the AI triad – compute, data, and algorithm, Malaysia’s capacity to innovate independently will remain constrained.
• Impact of Export Controls: Recent U.S. export controls on advanced semiconductors and AI accelerators underscore this vulnerability. Even though Malaysia currently benefits from exemptions for certain consumer-grade chips, tighter controls could disrupt industries reliant on such technology. For example, dismantled gaming GPUs like the Nvidia GeForce RTX 4090 have been repurposed for industrial use in some countries, raising concerns about their misuse in developing frontier AI systems. If Malaysia becomes overly reliant on such imports, it could face disruptions in critical sectors.
• Foreign Investment Dynamics: Foreign companies investing in Malaysia’s data center boom may prioritize their own operational needs over local capacity-building, deepening economic dependency. This dynamic limits Malaysia’s ability to innovate independently, creating a cycle where we remain perpetually behind.

Opportunities in AI Governance: Lessons from Being David in a Goliath World

History demonstrates that size and technological dominance are not prerequisites for influence. Smaller nations have repeatedly punched above their weight by crafting innovative policies, frameworks, and norms that others adopt as global standards. Estonia transformed itself into a global leader in digital governance through innovations like the “data embassy” and X-Road—a decentralized data exchange system now used by countries such as Finland and Iceland.

Similarly, Singapore’s Model AI Governance Framework set a global benchmark for ethical AI deployment, inspiring nations like Australia and Canada to adopt similar principles. These examples illustrate how small players can shape global standards, foster innovation, and resist external pressures by focusing on strategic, forward-thinking solutions.

For Malaysia, these opportunities lie in leveraging its unique geopolitical position and existing governance foundations to shape global norms in emerging technologies like artificial intelligence (AI). By investing in compute governance and AI safety, Malaysia can position itself as a pivotal player while fostering economic growth and technological sovereignty.

1. Leading the “Compute South” Coalition

One of the most significant untapped opportunities for Malaysia is championing what we call the Compute South—a coalition of Global South nations advocating for equitable access to advanced computing resources. Currently, the concentration of compute power in the hands of a few dominant players (the Compute North) exacerbates global inequality. By rallying support for this coalition, Malaysia could leverage tools like Hardware-Enabled Governance Mechanisms (HEMs) to ensure that smaller nations have access to cutting-edge technologies without compromising safety. This initiative would enhance national security, drive economic progress, and position Malaysia as a leader in global AI governance.

Offline Licensing HEMs

Offline Licensing HEMs enforce renewable licenses that temporarily authorize the use of certain AI hardware features. If Malaysia were to invest in adapting these mechanisms for broader use, it could become a hub for manufacturing and exporting HEM-enabled chips designed specifically for emerging markets. This would open up lucrative trade opportunities while promoting safer AI usage globally. For example:

• Economic Benefits: Malaysian companies could meet growing demand for secure, scalable computing solutions, generating revenue and creating jobs.
• Global Influence: By setting terms for the deployment of HEM-enabled chips, Malaysia could influence global standards for AI safety and governance.

Fixed Set HEMs

Fixed Set HEMs prevent consumer-grade GPUs from being aggregated into supercomputers for dangerous AI development. By investing in research and production of such technologies, Malaysia could meet global demand for secure, scalable computing solutions, positioning itself as a key supplier to both regional and international markets. For instance:

• Consumer Device Security: Equipping gaming GPUs and consoles with Fixed Set mechanisms would prevent their misuse in unauthorized supercomputers, addressing concerns about dismantled gaming GPUs being repurposed for industrial AI development.
• Regional Leadership: Malaysia could lead the way in producing HEM-enabled consumer devices, fostering partnerships with other Global South nations and creating a network of mutual support.

Fostering Partnerships Across the Global South

Leading the Compute South coalition would also foster partnerships with other Global South nations, creating a collaborative ecosystem that spurs innovation, generates jobs, and stimulates economic activity across multiple sectors—from semiconductor manufacturing to AI-driven industries like healthcare and agriculture.

2. Championing ASEAN Collaboration on AI Governance

As the chair of ASEAN this year, Malaysia has a golden opportunity to rally ASEAN nations around a unified approach to regulating advanced computing hardware and software. Just as Estonia led Europe in digital governance and Singapore shaped ethical AI frameworks, Malaysia could spearhead regional collaboration within ASEAN to establish shared standards for AI development and deployment. This initiative would enhance regional security, reduce dependency on foreign technologies, and create new economic opportunities—particularly by fostering an innovation-based economy that leverages smart governance and regulation rather than viewing them as barriers.

History shows that robust governance frameworks can catalyze innovation. For instance, the United States’ regulatory clarity around data privacy (e.g., HIPAA) and technology export controls has enabled its tech sector to thrive while maintaining global trust.

Similarly, the European Union’s General Data Protection Regulation (GDPR) not only set a global benchmark for data protection but also spurred innovation in privacy-preserving technologies like federated learning and differential privacy. Even China’s stringent yet strategic regulations on AI ethics and algorithmic transparency have positioned it as a leader in responsible AI applications tailored to societal needs.

These examples demonstrate that governance and regulation are not antithetical to innovation—they can be powerful drivers when designed thoughtfully. By championing ASEAN-wide collaboration on AI governance, Malaysia can emulate these successes, positioning itself as a hub for responsible AI innovation that attracts investment, talent, and partnerships.

Regional Hubs for AI Training and Innovation

One concrete step is developing regional hubs for AI safety and governance training and innovation, equipped with Hardware-Enabled Governance Mechanisms (HEMs) such as Offline Licensing or Fixed Set mechanisms. These hubs would serve as safe spaces where researchers and developers from across ASEAN can collaborate without fear of contributing to dangerous frontier AI models. Such an initiative could attract significant investment and talent, positioning Malaysia as a leader in responsible AI innovation.

For example, international organizations and tech companies eager to align with ethical practices would likely fund these efforts, further boosting Malaysia’s economic prospects. The U.S.-based Partnership on AI and the EU’s Horizon Europe program have already shown how public-private partnerships in AI governance can drive both innovation and economic growth. By creating similar ecosystems within ASEAN, Malaysia could tap into this trend, fostering startups and research initiatives focused on ethical AI solutions tailored to regional challenges, such as healthcare, agriculture, and disaster management.

Moreover, these hubs could help Malaysia transition toward an innovation-based economy by nurturing local expertise in cutting-edge areas like HEM-enabled chips and secure compute architectures. Startups emerging from these hubs could design products specifically suited to ASEAN markets, ensuring compliance with global safety standards while addressing unique regional demands.

Fostering ASEAN-Wide Agreements on Compute Governance

Malaysia could also champion ASEAN-wide agreements on compute governance to reduce reliance on foreign technologies and foster technological sovereignty. For example, Malaysian startups could design and export HEM-enabled chips tailored for regional needs, generating revenue while ensuring compliance with global safety standards. This approach aligns with successful strategies seen elsewhere: South Korea’s semiconductor policies, which combine strict quality control with government-backed R&D funding, have made it a global leader in chip manufacturing. Likewise, Taiwan’s focus on governance-driven innovation in semiconductors has solidified its position at the forefront of global supply chains.

By adopting a similar model, Malaysia could strengthen its technological sovereignty and contribute to sustainable economic growth. A regional agreement on compute governance would also allow ASEAN nations to harmonize diverse perspectives, creating governance frameworks that are more universally applicable and influential. For instance, ASEAN could adopt a risk-based regulatory framework inspired by Malaysia’s own National AI Roadmap 2021-2025, which emphasizes iterative learning and adaptability.

Such harmonization would make ASEAN an attractive destination for multinational corporations seeking to deploy AI responsibly. It would also enable smaller nations within the bloc to pool resources and expertise, leveling the playing field against larger competitors like China or the U.S. In doing so, Malaysia could position itself as a bridge between East and West, offering balanced approaches to AI governance that incorporate diverse global perspectives.

Conclusion: Leading Through Governance in the AI Era

The global AI landscape is often dominated by a handful of technologically advanced nations, but Malaysia and other smaller countries need not compete directly in the race for hardware or tech infrastructure, where resources may be limited.

Instead, we can leverage our unique strengths to carve out a leadership role in AI governance, safety, and ethics—areas that are equally critical to shaping the future. By championing initiatives like ASEAN-wide AI governance frameworks and leading the Compute South coalition, Malaysia can position itself as a hub for responsible AI innovation. These efforts are not just moral imperatives but also economic opportunities that align with our values, reduce dependency on foreign technologies, and foster sustainable growth.

Call for Empowerment: Redefining Global Power Dynamics

As ASEAN chair, Malaysia has a unique platform to drive regional collaboration on AI policies. The missed opportunities in AI governance and safety represent fertile ground for Malaysia to assert its influence and build strategic partnerships that benefit both the nation and the region. By focusing on our strengths in policy design, ethical frameworks, and inclusive innovation, we can achieve both economic prosperity and global recognition without needing to follow the traditional paths of technological dominance.

Malaysia’s moment is here. Will we rise to meet it?

In the next article, we will explore how these opportunities translate into tangible economic benefits, debunking the myth that regulations and governance hinder innovation. We’ll also delve deeper into compute governance and how Compute South nations can contribute meaningfully to global AI governance. Follow me on LinkedIn and my blog for the next article in this series.