AI is poised to drive Southeast Asian business growth, but hurdles remain

AI’s economic impact in Southeast Asia: Artificial intelligence is poised to drive significant growth in Southeast Asian digital economies, with the region projected to reach $263 billion in gross merchandise value (GMV) in 2024.

• The latest e-Conomy SEA report, jointly released by Temasek, Google, and Bain & Company, highlights the increasing importance of AI in fueling economic expansion across six key Southeast Asian markets.
• Profitability in the region is expected to reach $11 billion in 2024, marking a 24% increase from 2023 and a 101% jump from 2022.
• Revenues are forecasted to grow by 14% year-on-year, hitting $89 billion in 2024, while GMV is set to increase by 15% from the previous year.

AI investment and infrastructure: Southeast Asia has seen a surge in AI-related investments and infrastructure development, positioning the region as an attractive market for AI-enabled products and services.

• An estimated $30 billion was invested in AI infrastructure in the first half of 2024 alone, reflecting accelerated consumer interest in AI applications.
• Searches related to AI have grown 11 times over the past four years, indicating rising public awareness and curiosity about the technology.
• Several countries have committed substantial funds to build AI-ready data centers, with Malaysia pledging $15 billion, Singapore $9 billion, and Thailand $6 billion in the first half of the year.

Market characteristics and opportunities: The Southeast Asian market presents unique opportunities for AI adoption and growth due to its demographic and technological profile.

• The region boasts a total population of 612 million, with Indonesia and the Philippines accounting for 280 million and 119 million respectively.
• High digital literacy rates and smartphone penetration, coupled with online penetration rates between 73% and 83%, create a fertile ground for AI-powered solutions.
• AI applications are driving value across various sectors, from AI-powered travel planners to generative AI fraud detection systems.

Challenges and considerations: Despite the optimistic outlook, the report highlights several challenges that need to be addressed to fully realize AI’s potential in the region.

• Cybersecurity remains a significant concern, with the need for enhanced measures to mitigate the risks of online scams and sophisticated cyberattacks.
• The report emphasizes the importance of building digital trust through collective efforts to protect the region’s growing digital economies.
• While consumer interest in AI’s benefits outweighs concerns about its risks, there is still a need for balanced awareness and education about both advantages and potential drawbacks.

Strategic imperatives for businesses: To capitalize on AI’s transformative potential, businesses in Southeast Asia must adopt strategic approaches that go beyond mere experimentation.

• Florian Hoppe, partner at Bain & Company, stresses the need to align AI initiatives with core business objectives to address real-world problems and create tangible value.
• Investing in AI talent and building scalable, adaptable infrastructure are crucial for sustained growth and long-term success in the AI-driven economy.
• Pro-innovation policies supporting AI growth and governance are identified as key factors in creating more opportunities within the digital economy.

Broader implications: The integration of AI into Southeast Asia’s digital landscape is set to reshape the region’s economic future, but success will depend on addressing key challenges and fostering a supportive ecosystem.

• As AI continues to drive economic growth, there will likely be an increased focus on developing regulatory frameworks that balance innovation with ethical considerations and risk mitigation.
• The region’s commitment to AI infrastructure development may attract more global tech companies and startups, potentially positioning Southeast Asia as a hub for AI innovation in the coming years.
• The emphasis on digital trust and cybersecurity in the face of AI advancements suggests that these areas will become critical differentiators for businesses operating in the region’s digital economy.