EXECUTIVE SUMMARY: The global AI race is increasingly an investment race rather than a competition over algorithms. As demand for compute capacity, cloud infrastructure, and data centres grows, countries are competing to attract the capital underpinning the AI economy. Southeast Asia’s greatest opportunity lies not in developing frontier AI models but instead in positioning itself as a competitive destination for AI-related investment through sound industrial policy, reliable infrastructure, and a predictable investment environment.
KEY POINTS:
- AI is creating a new cycle of global investment that extends beyond AI model development.
- Southeast Asia’s comparative advantage lies in attracting AI-related investment within emerging global AI value chains instead of competing directly in frontier AI innovation.
- Southeast Asia should prioritise investment competitiveness through infrastructure, regulatory certainty, and digital trade policies to secure long-term economic gains.
ANALYSIS:
The real race in AI is no longer about who builds the smartest chatbot; it is now about who can sustain the AI economy through compute capacity, cloud infrastructure, energy, and industrial policy. The growth of AI compute power and demand is thus reshaping industrial competitiveness, global supply chains, and trade policy, thereby making AI infrastructure an increasingly important component of global economic security. Additionally, a small number of technology firms and major powers are increasingly dominating frontier AI model development, and as a result leaves limited scope for smaller economies to compete directly. Furthermore, the AI race is moving from algorithms to infrastructure, which creates new opportunities for economies that may not be at the cutting-edge of frontier innovation but can become essential players within global AI value chains.
The Association of Southeast Asian Nations (ASEAN) has predicted that AI investment could increase the region’s GDP by 10 percent to 18 percent, potentially adding USD 1 trillion to the economy by 2030. However, the region is not competing on equal terms. Singapore’s well-established digital ecosystem has attracted large-scale AI investment, while land and energy constraints have created opportunities for neighbouring markets such as Malaysia. The spillover has been most visible in Malaysia (especially in Johor), where lower costs and expanding infrastructure have worked as a foundation for a rapid rise in data centre investment. In Indonesia, Thailand, Vietnam and the Philippines, different mixes of investment incentives, regulatory reforms and digital infrastructure development are being pursued to secure a place in the emerging AI value chain.
This shift matters because it presents Southeast Asia with a more attainable path to participate in the global AI economy. Rather than competing directly with the US and China in frontier AI model development and AI research, Southeast Asian economies can attract long-term economic gains through investment in AI infrastructure such as data centres, cloud infrastructure, and related digital industries. Such investment strengthens foreign direct investment (FDI), expands digital trade, creates more employment opportunities, and deepens the region’s integration in the global AI value chain. AI infrastructure is no longer solely a matter of technology but also a strong indicator of industrial competitiveness and economic security.
POLICY IMPLICATIONS:
- Prioritise investment competitiveness: Southeast Asian governments should prioritise investment competitiveness through regulatory certainty and provide ease of doing business through investment incentives and cross-border data flows rather than pursuing costly attempts to compete directly in frontier AI development.
- Invest in enabling infrastructure: Industrial policy should focus on enabling AI ecosystems to function efficiently through reliable electricity, digital infrastructure, workforce development, cybersecurity, and talent retention to support the long-term growth of AI ecosystems in the region.
- Strengthen regional cooperation: Enhanced regional coordination on digital trade, data governance, and technical standards would increase the collective attractiveness of ASEAN to investors.
- Comparative Advantage: For Southeast Asia, long-term competitiveness increasingly depends on becoming an indispensable destination for AI-related investment rather than attempting to replicate the technological prowess of larger powers. Southeast Asian economies should position themselves as trusted partners within the global AI value chain through infrastructure that underpins the AI economy.
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