The first quarter of 2023 has already seen a complex interplay of factors with the continuing volatile, uncertain, complex and ambiguous (VUCA) situation with the one year anniversary of the ongoing Russia Ukraine crisis, the devastating earthquake in Turkey and Syria, mass layoffs in technology, the collapse of the Silicon Valley Bank, continuing adverse cyber events, rise of inflation, funding, cryptocurrency, Web 3.0 and metaverse winters, and recessionary signs across many industries and countries. On one hand, it is clear that with reducing purchasing power and spending in B2C verticals, resultant IT outlay and budgets have reduced, and on the other hand the COVID-19 induced digital transformation, optimisation and cyber resilience activities across the enterprise have continued to rise. As per this Gartner research, these two opposing forces have resulted in an estimated overall worldwide IT spend increase of 2.4% to almost touch USD 4.50 trillion in 2023 with the rise in IT services, software, data centre systems and communication services spending offset by a significant decline in devices spend. This research by IDC estimates the Asia Pacific (minus Japan) share of the Global Digital Spend to be around 30%.
As far as Southeast Asia (SEA) goes, the rise in urbanisation, mobility, 5G, cloud and IoT adoption, robotics and factory automation, e-commerce and digital experience management, fintech penetration, continued hybrid working, government focus on big data and analytics, and the measures of CIOs and CISOs on combating cyber threats from these extended attack surfaces are increasing IT budgets and spends in the region. According to this analysis by Technavio, IT spending in Southeast Asia is expected to grow at a rate of 7.78% Year on Year from 2022 to 2026.
In line with the global industry vertical wise IT spend trends, SEA is also seeing a decline in IT spend across consumer strong sectors including retail, construction, education, home services, and healthcare. On the other hand, verticals such as banking and financial institutions, insurance, telecom, discrete manufacturing and others are exhibiting stable and even rising IT budgets: especially across larger organisations in these enterprise verticals.
Let us take a closer look at some of the key countries in the SEA region.
Indonesia, the largest economy in SEA
Amidst clear global recessionary signs, the Indonesian government is prioritising newer export markets, attracting investments, renewable energy, cleantech and green economy as well as enhancing environmental, social and governance (ESG) initiatives, besides continuing its digitalisation initiatives across financial and other sectors. The ICT focus areas encompass telecom infrastructure including satellites, Base Transceivers Stations (BTS) sites and fibre optic cables, besides the Telecommunication Equipment Testing Centre (BBPPT), Asia’s largest ICT equipment testing facility and a National Data Centre. Indonesia is surely on its way to transforming from a “consumer” to a digital “producer and exporter”
It is expected that the government and private sector data centres and the resultant ecosystem will further boost adoption of cloud, big data and analytics, artificial intelligence/ machine learning (AI/ ML), as well as emerging technologies such as the metaverse, Web 3.0 and blockchain. Besides mobile and telecoms penetration, the popularity and adoption of e-commerce, smart cities, consumer, enterprise and commercial Internet of Things (IoT), digitalisation of mining, digital literacy in education, and the burgeoning middle class and mushrooming of small and medium enterprises are also contributing to the digital transformation initiatives across various sectors in private, government and institutions.
The Ministry of Digital Economy and Society is the fourth most utilised agency in Indonesia. As per this report by Mordor Intelligence, by 2025, the digital economy is projected to boost Indonesia’s GDP by USD 150 billion and Indonesia is expected to lead ICT budgets and spending across SEA.
As per this McKinsey Research, Indonesia is anticipated to lead not only SEA but the entire APAC in overall IT spending, reaching US $6 billion by 2024.
IDC predicts that ICT spending in Thailand- Southeast Asia’s second largest economy will grow by at least 4% in 2023, despite inflation, cyber risks and supply chain challenges. As per this IDC research, as per the performance of software vendors, the revenues of application softwares especially on collaboration and hybrid working rank the highest followed by system infrastructure software, mainly application performance management (APM), cybersecurity and service management, and lastly application development and deployment especially AI and data platforms.
This research by Statista projects the revenue in the IT services market in Thailand to reach US $2.23 billion in 2023 with the largest chunk being of IT outsourcing.
Massive adoption of cloud, leveraging the open government data project, popularity of software as a service (SaaS) applications, e-commerce, smart manufacturing and 5G are amongst the many factors that are contributing to the continuing digital budgets and spending in Thailand. However, skilling challenges would need to be addressed on priority
The almost 95% 5G coverage by SingTel, mature ICT system, and the large number of public and private centres of innovation, laboratories, data centres, global capability centres and the partnership with educational institutions for a steady skilled talent pool has continued to boost Singapore as one of the global leading ICT hubs and startup ecosystems.
This Mordor Intelligence Report shows that the Singapore ICT spending which was estimated as USD 2.8 billion in 2022 shall grow by a CAGR of 8.2% for the next 5 years. Besides 5G being a pivotal ICT enabler, adoption of cloud, big data and analytics, AI/ ML, IoT, robotics, extended reality and other emerging technologies as well as talent accelerator programmes have boosted ICT spending across multiple industry segments in public and private sectors. Gaming, media, device manufacturing, GovTech initiatives and skilling measures such as jobs skills integrator programmes and the National Productivity Fund are also contributing their part in maintaining Singapore as a vibrant, progressive and innovative worldwide digital hub.
For 2023, the Department of Information and Communications Technology (DICT) has allocated Php 9.8 billion/ USD 0.18 billion for implementation of various projects and programmes. A major thrust of the DICT in 2023 is to build and commission over 9,000 free Wi-Fi hotspots nationwide, along with adding more than 160 new state universities and colleges to boost connectivity, accessibility and e-governance. These 9000 Wi-Fi hotspots would further augment DICT’s Broadband ng Masa Programme (BBMP) which already encompasses extensive fibre lines for the government network backbone for democratising Internet access across various islands and traditionally underserved communities.
These ICT schemes along with Government Data Centres, and e-gov portals are also playing a pivotal role in modernising customs, health and revenue/ taxation systems in the country. There are concerted efforts to improve awareness and combating cybercrime awareness as well.
While a weakening ringgit and recessionary signs are exacerbating the uncertain market and geopolitical environments, the continuing focus of the Malaysian government on its Digital Economy Blueprint (MyDigital) in its 2023 budget is an effective way to combat the difficult situations by transforming into a digital first nation.
Accelerated 5G rollouts under the JENDELA programme and associated upgrade of communication infrastructure including , enhancing bandwidth for educational institutions, Bank Negara Malaysia’s RM 10 billion loan allocation for SME digitalisation initiatives, the Khazanah Nasional Berhad’s Dana Impak fund of which RM 230 million will be invested in developing local ICT start-ups are augmenting the Malaysian government significant e-governance initiatives such as the e-invoicing, e-stamp duty, the Digital AgTech programme, allocation of RM 20 million for digitalisation of the Urban Transformation Center (UTC), and a commitment of RM 73 million in enhancing the country’s cybersecurity posture as per this IDC report.
It is also of significant importance that the ICT budget in the Ministry of Health (MOH) for 2023 has shown almost a ten-fold increase from the previous year. Besides health, the government has continued its focus on trade, agriculture, services, smart cities, finances, content, tourism, and the Islamic digital economy. There are also significant investments and implementations in the area of sustainable and IoT powered smart manufacturing.
There have been many significant digitalisation initiatives by the Ministry of Information and Communications (MIC) under the drive of “Digital Transformation of Hanoi to 2025, with a vision to 2030” especially across Geographical Information Systems/ digital maps, agritech, e-commerce, e-governance and smart mechanical and electronics manufacturing.
It is envisaged 6-6.5% of Vietnam’s overall GDP would be attributed to digital technology companies boosted by strong ICT/ software/ IT services, hardware and electronics exports. Focusing on Cloud, 5G, IoT, AI/ ML, Big Data and Analytics, there has additionally been a rising trend of strong domestic ICT players, robust ICT hubs, improved data centres and startup ecosystems along with significant R&D and Production investments by global majors in Vietnam.
The MIC envisages Vietnam to be amongst the 5 top countries in the globe from revenues in IT services, mobile games and software. As per this Mordor Intelligence Report, the digital economy of Vietnam could hit USD 50 billion by 2025.
There is also an immense potential for Vietnam in the area of renewable energy especially in wind and solar, as per this McKinsey report
In February 2023, the Financial Chief of Hong Kong had allocated over HK $10 billion / US $1.2 billion) as ICT investments. The key focus areas are setting up of a new microelectronics institute for electric car chips manufacturing, a proposed AI supercomputing centre and investments in health tech, and quantum computing.
In addition, the public and private sector as well as academia are boosting the rampant Hong Kong Fintech, HealthTech, smart city and retail tech startup ecosystem which already houses many unicorns. Policy makers are envisaging and working upon Hong Kong to transform into a global ICT hub.
There are similar initiatives by governments, private sector and other stakeholders across other SEA countries including Cambodia, Brunei and Laos to embrace digitalisation and leverage ICT for growth, development, competitiveness, employment, and making a world of difference to their citizens.
What are the main challenges in the SEA region?
There is little doubt on the vast potential of digitalisation and the impact of the enhanced IT budgets in the SEA region. In 2023, it is estimated by IDC that the spend on digital technology in the APAC region will grow by 3.5 times the economy and it is to be noted that the region houses over 7000 startups.
Having said that, there lie some basic challenges that could prove to be significant impediments in realising the benefits from digital transformation.
As per this World Economic Forum Report, there are significant issues across the SEA populations, especially skilling gaps, underrepresentation and lack of inclusivity across specific groups such as women and senior citizens, lack of digital literacy, and cybersecurity concerns.
From the enterprise perspective, functional and business unit silos, lack of expertise and skill gaps, absence of uniform digital strategy, and not enough solid business use cases for emerging technologies such as blockchain and other Web 3.0 are hurdles that business, IT and leadership teams need to address on a war footing, as mentioned in this Deloitte research.
With the Association of Southeast Asian Nations (ASEAN) catching up to India in terms of size of economy, there are also additional opportunities from common trade, technology and transactional platforms within the region.
As Southeast Asia finally rebounds from COVID-19 in 2023, continued focus on digital transformation and the upheaval of ICT infrastructure, solutions and ecosystem by governments, private enterprises and educational institutes is necessary to harness the vast potential brought about by the younger population with rising incomes, willingness to embrace technology, a strong startup ecosystem, and the still low IT and telecoms penetration in the region.