A boom in infrastructure and technology brings fresh investment to Southeast Asia

Just over a decade ago, four out of five Southeast Asians did not have access to the internet. Nowadays, they are the most engaged mobile internet users in the world. Technologically speaking, the region is advancing in leaps and bounds, and views that Asian entrepreneurs merely piggyback on Western innovation are rapidly becoming a thing of the past.

Photo credit: Fancy Crave

Consequently, venture capital and private equity investment in the region has risen sharply, with technology companies attracting the bulk of new capital.

Urbanization demands innovation

Southeast Asia is progressively becoming a global hotbed for innovation, with cities such as Jakarta, Ho Chi Minh, Singapore, and Penang setting a strong example. More and more solutions built for Southeast Asia are being scaled across the globe, with a young, tech-savvy, and increasingly urban population joining the global economy.

The backbone of this tech boom in Southeast Asia is the need for innovative solutions in the face of evolving demographics. Millions of people across the region are making their way toward its biggest cities, according to projections by the United Nations, Asia is one of the world’s fastest-urbanizing regions and will have a 64% urbanized population by 2050.

Expanding urban population centers put a strain on existing infrastructure, and this in turn creates a wealth of opportunities to innovate. Education, finance, traffic, housing, energy, food, water, and health all require out-of-the-box solutions. Indeed, the region is seeing an increase in capital directed toward fintech, agritech, and eco-living solutions precisely because of the market opportunities created by urbanization.

While a rapidly urbanized population may place pressure on essential services, Southeast Asia’s flourishing digital economy means the region is well-placed for its predicted population shift. A recent report by Google, Temasek, and Bain and Company found that the region’s internet economy is valued at US$100 billion and is likely to reach US$300 billion by 2025, showing that a highly digitalized society will alleviate, and even profit from, infrastructural burdens.

According to the Asian Development Bank, regional infrastructure demands may reach as high as US$3.1 trillion by 2030, necessitating increased investment needs of US$210 billion on top of today’s figures. While steadily increasing urbanization is likely to be problematic down the line without the right infrastructure in place, investors are beginning to seize on tech as a sustainable and profitable solution to accommodate explosive growth.

Several countries have already set up plans to provide for future investment in the construction sector to fulfill demands for major energy and water infrastructure projects. These include the Vietnam Socio-Economic Development Plan and the Indonesia National Medium-Term Development Plan.

Realizing that population explosion will create bureaucratic nightmares, many cities now are preparing to digitize their government departments and public services. Singapore, so far, sets the example here for the region. The country ranked sixth out of the world’s smart cities in 2018 for its “Smart Nation” initiative, a nationwide approach to using digital technologies to ensure sustainability and well-being. The city-state is considered a trailblazer with regards to safety, mobility, healthcare, and administration.

That said, Myanmar is also making waves with its 25-year urban development plan, inspired by the smart city developments in place in Singapore. Initiatives include placing internet-of-things sensors throughout the city to monitor water issues – a move that’s designed to ultimately improve Myanmar’s water treatment and waste management systems.

Investment flourishes

All this predicted growth and innovation has led investors to pour capital into the region following a decade-long period of economic stagnation. Private equity and venture capital soared as the number of deals quadrupled over a five-year period. Technology companies accounted for around 40% of those deals in 2017, up from around 20% three years beforehand. These figures are set to rise over the next few years as more and more companies and private equity investors take an interest in the region’s booming startup scene. Tech companies in Southeast Asia were collectively valued at US$4.9 billion in the first half of 2019.

Some of the most active tech investors in Southeast Asia include the US venture fund 500 Startups, which was named as the region’s most active tech investor in 2017. Through its regional affiliate 500 Durians, its portfolio includes the Indonesian startups Bukalapak and HappyFresh, as well as the Singapore-based Carousell and Grab.

Other major investors include Indonesia’s East Ventures (which has invested in tech unicorns Tokopedia and Traveloka) and Singapore-based Golden Gate Ventures (Gojek and Printerous). (Disclosure: East Ventures is an investor in Tech in Asia.) Establishing an appetite for acquisitions, Global Infrastructure Partners bought out the Singapore-based renewable energy firm Equis Energy in a US$5 billion deal in 2018.