Govt budget constraints may limit AI growth potential in Southeast Asia

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Even as the COVID-19 pandemic has sparked demand for technology solutions, the artificial intelligence space in Southeast Asia could experience curtailed growth as a result of cautious investor sentiment, and redirection of public funds towards fighting the virus outbreak.

“We think the COVID-19 outbreak may weigh on regional AI growth negatively. Governments may look to repurpose funds originally earmarked for tech development into other more urgent needs, namely stimulus measures,” Fitch Solutions ICT analyst Kenny Liew told DealStreetAsia.

Governments in Singapore, Malaysia, Indonesia, the Philippines, Vietnam, and Thailand have launched multibillion-dollar schemes to address the impact of the pandemic on public health, business, and welfare.

As a result, Liew said, funding for AI startups and their development will be a key issue, primarily since deep-pocketed investors may look at pulling their purse strings during this period.

“Wealthier countries, such as Singapore, may be able to maintain their tech budgets, but markets that are already running budget deficits could struggle to maintain their funding to the tech and research and development sectors,” Liew said.

Industry players interviewed by DealStreetAsia expressed their concern over funding constraints that could limit growth.

“I do see a more conservative approach moving forward. This won’t be good for truly innovative companies as investors may opt for more ‘sure-bets’,” said Vic Sithasanan, chief growth officer at Singapore’s Everise DX and co-founder of Malaysia’s enterprise AI company Hyperlab. Hyperlab was acquired by Everise, which is backed by a Southeast Asian private equity firm Everstone Group.

“Everyone is cautious and there will definitely be tighter control on spending till we know for sure what the next few years will be like,” Sithasanan added.

Consequently, Sithasanan believes there could be project delays, cancellations amid the COVID-19 outbreak while securing new clients will also be tough.

From a business perspective, however, the biggest challenges for industry players have revolved around the closure of supply chains due to travel restrictions, per experts.

“As our customers in various industries are faced with myriad issues, they are worried because of all the uncertainty. As a result, companies that are not on firm financial footing are having to downscale, take pay cuts or even lay off some of their employees,” said Angie Lim, marketing communication head at Malaysia’s homegrown data technology provider Fusionex.

Custlr, a Malaysian company that launched AI fashion technology with Saratix last year, has delayed its plan to launch in Singapore due to the current virus scare.

“Post COVID, businesses are still inclined to adopting AI efficiency. However, at the backdrop of slow growth due to the virus, businesses out there are more focused on survivability than AI adoption,” said Daniel Chua, founder at Custlr.

Early days: Southeast Asia has a long way to tread

Even before the outbreak of the COVID-19 pandemic, the AI industry in Southeast Asia was playing catch-up to its peers in South Korea, Japan, and China.

“Many Southeast Asian countries are still in the midst of drawing up their AI blueprints, and have yet to make much progress into implementing the frameworks they have drawn up,” said Fitch Solution’s Liew.

He highlighted that AI does not operate in silos but is instead intertwined and interconnected with other disruptive technologies such as 5G. For instance, autonomous vehicles cannot operate with AI software alone but require consistent and reliable communication with other vehicles.

However, in many ASEAN markets, mobile communications infrastructure, while widespread, is still underdeveloped. With the exception of a few markets such as Thailand, Malaysia, and Singapore, 5G still remains a distant dream for the rest of ASEAN region, according to Liew.

“The lack of mature and reliable networks will be a hindrance to broader uptake of this suite of disruptive technologies, weighing on AI adoption as well,” said Liew.

Based on Fitch Solutions Asia Industry 4.0 Market Maturity Index, which assessed the industry infrastructure maturity, demand, innovation and change, as well as the institutional environment, Singapore (71.7) topped the list in ASEAN region, followed by Malaysia (57). Thailand (52.7), Vietnam (37.2), Indonesia (36.7), and the Philippines (26.4) fell below the average index of 56.1.

There was a huge gap when compared to other Asian countries, such as South Korea (82.6), Japan (79.3), Taiwan (74), China (72).

The bright spots in AI

Even as there are a few hiccups in the current scenario, the long-term potential of AI in Southeast Asia remains high and industry players opine that growth in the years ahead would be driven primarily in sectors such as automation and big data analytics.

“The biggest opportunity is to look beyond ASEAN and try to expand (one’s) geographic presence to new markets,” said Sithasanan, adding Everise DX’s revenue in 2020 is on track to be 2.5 times higher than that of 2019.

The opportunity here is to rethink business plans. For instance, creating a cheaper SaaS offer for a different customer segment,” he added.

Among some of the sectors, Fusionex’s Lim foresees areas to grow are big data, cloud computing, Internet of Things, e-commerce, telecommuting/virtual meetings, digital health services, internet education/online learning, and online supply chain management, among others.

“While the pandemic has been very disruptive, and many governments and enterprises might be hesitant to invest too much in anything at the moment, proper use of AI and digital technologies can be used to combat this crisis,” she said, adding that China, Korea, and other countries have already used AI and various internet technologies in fighting the virus.

Custlr’s Chua highlighted that the firm is in the running for a government grant to facilitate a major government based AI work. “Our potential investors are those who have a creative, open approach to AI opportunities in industries that we’re focusing on (fashion, oil and gas, and life sciences),” said Chua.

 

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.