Indonesia proposes sovereign AI fund to boost position as regional tech hub

Indonesia is considering creating a “sovereign AI fund” to accelerate its ambitions of becoming a leading player in artificial intelligence across Southeast Asia.

The proposal is detailed in a 179-page strategy document, seen by Reporters, which outlines a long-term plan to develop the industry through 2030. The fund would be overseen by Danantara Indonesia, the country’s sovereign wealth fund, which manages more than $900bn in assets.

Indonesia is acting amid growing competition in the region

The paper does not name a target sum for the fund but sets a tentative launch date between 2027 and 2029. Officials envisage a public-private financing model, with fiscal incentives to encourage domestic investment in AI. Precise details of those incentives have yet to be set out.

The plan is part of Indonesia’s first national AI roadmap, due to be released this year. It comes as countries across the region compete to attract foreign investment in data centres, semiconductor production, and AI research.

Neighbouring Malaysia has already drawn in billions of dollars from global technology companies eager to expand cloud infrastructure and AI capabilities. Other ASEAN members, such as Singapore and Vietnam, are also stepping up incentives for investors.

Indonesia hopes to position itself as a central player in this fast-growing market.

“Indonesia right now is in the early stages of AI adoption.”

The Report.

The strategy was developed with input from industry heavyweights, including China’s Huawei and local tech group GoTo.

According to an April analysis by Boston Consulting Group, ASEAN economies could see GDP gains of between 2.3% and 3.1% by 2027 as AI adoption spreads. The consultancy noted that Indonesia, as the region’s largest economy, stands to benefit most in absolute terms.

While the potential gains are significant, the strategy paper acknowledges several obstacles. Skills shortages remain a pressing issue, with demand for AI engineers, data scientists, and software developers outstripping supply. Research and development budgets for technology are relatively modest compared to regional peers.

Connectivity outside major cities also lags, limiting access to the high-speed internet required for advanced AI applications.

The report also highlights concerns over the risks of misinformation, cyberattacks, and data breaches — challenges that have become more urgent with the global expansion of AI services.

The communications and digital ministry said the roadmap is still open for public comment before the final version is published.

Global tech firms have already shown interest in the country

Major global technology companies have already signalled interest in Indonesia’s AI market. US-based Nvidia and Microsoft are among those exploring partnerships and infrastructure investments.

The country has also been picked to house a $2.3 billion AI data center to support the region’s AI market, backed by the Damac Group.

Analysts opine that Indonesia has vast potential for AI growth driven by its youth demographic advantage, growing middle class, as well as growth in internet penetration, which makes it conducive for AI products and services.

However, this potential can only be realized with significant investment in education, infrastructure, and research that are key enablers for a competitive AI race.

The roadmap maps Indonesia’s “computational readiness”, assessing factors such as supercomputing capacity, energy requirements, and the availability of skilled personnel. It also recognizes strong partnerships between stakeholders ranging from academia, government, and the private sector as critical for this initiative.

The proposed sovereign AI fund, therefore, becomes critical to this vision. Its proponents are promising to bankroll large-scale projects such as training centers, research hubs, and cloud computing infrastructure.

With such promises coming, the government is upbeat that having a sovereign AI fund will also lure big tech firms to set up operations in the country and drive tech-led economic growth.

Danantara Indonesia – the country’s second-largest wealth fund after the Indonesian Investment Authority – is yet to publicly comment, and its involvement would give some weight to the proposed fund.

Indonesia could become a force to reckon with in AI innovation across the region if the roadmap’s recommendations are followed and successfully implemented.

However, delays in implementation of the recommendations amid growing regional competition could see other countries strengthen their lead while Indonesia only trails behind.

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