Regional cooperation crucial as Southeast Asia s AI boom accelerates

AI competition in Southeast Asia intensifies as the region becomes a pivotal battleground for resources and innovation. The AI boom is driving investments in semiconductor manufacturing, data centers, and research hubs, with some analysts projecting a 10-18% GDP boost for the region by 2030. However, this rapid growth raises concerns about the strain on Southeast Asia's power, land, water, and industrial capacity.

Southeast Asia has become a hub for tech giants seeking to expand computational capacity and diversify supply chains amid global geo-economic rivalry. The region's sprawling data centers and technological parks reflect the growing demand for AI infrastructure. Yet, the AI race among ASEAN's 11 sovereign member states is a complex landscape, with each country offering distinct advantages in terms of resources, connectivity, and talent.

The Hinrich Foundation emphasizes that the success of Southeast Asia's AI boom hinges on regional cohesion. The ASEAN Digital Economy Framework Agreement (DEFA) and the long-standing vision of the ASEAN Power Grid are crucial steps towards more substantive regional coordination. These initiatives aim to boost energy security, renewability, and physical infrastructure across the region, which are essential for supporting the AI economy.

Despite the progress, Southeast Asia's digital economy is not yet an outright ASEAN achievement. Malaysia, formerly Singapore's data center market, is gaining ground after Singapore imposed a moratorium on new data centers due to land, water, and energy constraints. Vietnam, Thailand, the Philippines, and Indonesia are emerging as attractive destinations for large-scale AI projects, attracting investments from major tech companies like Amazon Web Services, Microsoft, and Google.

Southeast Asia's semiconductor industry is also expanding rapidly, with Vietnam and the Philippines becoming key players in assembly, testing, and packing (ATP) processes. Established hubs such as Malaysia and Singapore are focusing on higher-value segments like chip design and fabrication to attract tech investments. To attract tech investments, Southeast Asian nations offer different fiscal and regulatory incentives, such as preferential corporate income tax rates and exemptions for AI companies.

However, individual countries' competing fiscal and regulatory concessions weaken their bargaining power. Infrastructure underpinning the AI economy, such as power grids, subsea cables, and cloud services, are increasingly spanning national borders, necessitating stronger regional coordination. The ASEAN Digital Economy Framework Agreement (DEFA), set to be signed in November 2026, could be a significant step towards amplifying the region's gains and providing collective leverage in the AI economy.