The Philippines faces stiff regional competition for artificial intelligence (AI)-focused data-center investments — the server facilities that house the computing capacity behind AI and cloud services — with the World Bank (WB) identifying reliable power, connectivity, skills, and governance as the key considerations in attracting such projects.

In its October East Asia and Pacific Economic Update, the World Bank reported that the number of data centers across East Asia has grown rapidly over the past decade, with China accounting for the largest share of new facilities and Indonesia, Malaysia, and Thailand accounting for most of the remaining growth.

“Malaysia and Thailand are among the top 10 recipient countries worldwide of data center investment, together with other emerging markets and developing economies (EMDEs) like Brazil and India,” the report added.

The multilateral lender noted that electricity prices are higher in the Philippines and Thailand than in Malaysia, Vietnam, and China. However, it found that energy prices were broadly uncorrelated with where data centers are located. Instead, greater power-generation capacity and grid reliability, faster broadband, adequate water resources, and stronger governance were associated with more data-center investment — a distinction that frames the Philippines’ competitive challenge around infrastructure and governance fundamentals rather than power costs alone.

“Data center operators prefer markets with abundant energy and water, reliable power, and high internet speeds, less red tape, better institutional quality, and a skilled workforce,” the bank said. “The factors necessary for competitively producing computing services — skilled labor and reliable energy, water, and fiber networks — are abundant in advanced economies and scarce in EMDEs,” it added.

The bank's findings quantified these dynamics: a one-standard-deviation increase in grid reliability — a gauge of typical variation in the bank's country comparisons — was associated with 20% more data centers, while the same increase in governance was associated with a doubling in the number of data centers. On the workforce side, a one-standard-deviation increase in the share of college graduates was linked to 30% more facilities.

“Infrastructure quality, human capital gaps and administrative efficiency have been in some instances binding constraints for the construction of data centers,” it said. “Projects have been delayed due to insufficient investment in power and fiber infrastructure, delays in connections to energy grids, and the challenges of coordinating across multiple government agencies,” it added.

According to the World Bank, improving these fundamentals could attract data-center investment in “a more fiscally sustainable manner than direct incentives such as tax abatements or energy subsidies.”

“State support can be limited to remedying clear market failures,” it added.

— Justine Irish D. Tabile, BusinessWorld