The FDI angle:

• Microsoft's $1.7bn plan in Indonesia is the latest in remarkable US big tech investments in emerging markets (EMs).
• Over $25bn has been pledged to digital infrastructure in EMs by Amazon, Microsoft and Google since 2022.
• These US big tech titans control vast critical digital networks in the developing world.
• Why does this matter? FDI by these cloud providers helps to boost US influence vis-a-vis China in geostrategic countries and regions.

Microsoft has committed to its largest-ever investment in Indonesia. On April 30, the tech giant pledged $1.7bn to build cloud infrastructure and support artificial intelligence (AI) skills development in the south-east Asian country. 

The move makes business sense. Rivals like Amazon and China’s Alibaba, Tencent and Huawei all have cloud hubs in Indonesia. The country’s data centre market, particularly in its capital Jakarta, is expected to boom as other regional hubs like Singapore run out of space and power capacity. 

It is also part of a broader trend. Since 2022, Microsoft, Amazon and Google’s parent company Alphabet have collectively pledged more than $25bn to ICT and internet infrastructure projects in emerging markets, according to fDi Markets (data up to March 2024). Among others, Amazon said in March it plans to invest $5.3bn into new cloud infrastructure in Saudi Arabia and is already deploying $6bn into data centres in Malaysia. Meanwhile, Google is laying subsea internet cables to connect Fiji, Guam and French Polynesia in the Pacific.

In fact, these three US tech titans committed more capital over the same period than all investors from China, Singapore, the UAE, India and Canada combined. EU-based data centre investors collectively managed less than a fifth of their total. Annual capital expenditure into all property and equipment by Microsoft, Alphabet and Amazon is now in excess of $200bn, according to their financial statements. 

The cost of US big tech supremacy

US big techs dominate global cloud infrastructure. More than 60% of the world’s large ‘hyperscale’ data centre capacity, and 55% of hyperscale data centres, are accounted for by the three US tech titans, according to Synergy Research Group (SRG). Two-thirds of the $76bn spent by enterprises on cloud services globally in the past quarter went to Amazon (31%), Microsoft (24%) and Google (11%).

Indonesia has welcomed Microsoft’s digital infrastructure plan. President Joko Widodo met with Microsoft CEO Satya Nadella on April 30 at Merdeka Palace, his official residence in Jakarta. The partnership between Microsoft and Indonesia was hailed as a way to “open up new horizons” and position the country as a contributor to the global tech supply chain.

But this also raises some questions. 

“These are private investments, but US companies’ global digital infrastructures do provide the US government with visibility and other options,” argues Vili Lehdonvirta, a professor at the Oxford Internet Institute, who has co-authored research into how cloud computing has become an “acute front” in the US-China technology rivalry. 

“The US is currently the dominant infrastructural power in the world’s digital economy,” adds Mr Lehdonvirta, who argues that China is now trying to challenge that dominance, particularly in south-east Asia. 

Overseas investments by US big tech remain way ahead of their Chinese counterparts, however. About $18.5bn has been pledged to digital infrastructure investments by Chinese companies since 2020, which is less than half the capital deployed by Amazon alone, according to fDi Markets.

John Dinsdale, research director at SRG, says that Chinese companies’ overseas data centre investments tend to be smaller than those made at home and focus on the Middle East, Latin America and only parts of the Asia-Pacific region. “They are competing in some selective minor markets, but I wouldn’t characterise it as a big threat [to US hyperscalers],” he adds.

The need for computing power and data storage is set to grow even more with the use of AI. Over the next five years, consumers and businesses are expected to generate twice as much data as all the data in the past decade, according to JLL, a real estate advisory. This is expected to lead global storage capacity in data centres to double to 21 zettabytes by 2027.

Against this backdrop, US big three will announce more FDI projects in the developing world, and so will their Chinese counterparts. Recipient countries will have to walk a fine line between meeting their domestic demand for data services and being caught in the crossfire of the US-China geopolitical feud. 

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