Singapore should make targeted ‘big bets’ to stretch S$1 billion AI investment, say analysts

[SINGAPORE] Singapore’s latest S$1 billion investment in artificial intelligence (AI) research and development (R&D) may seem small by global standards, but analysts believe that strategic “big bets” will allow the Republic to reap the benefits in the long term.

“The raw size of the investment should not be the only focal point,” Lyon Poh, partner and head of corporate transformation at KPMG in Singapore, told The Business Times.

While the S$1 billion pales in comparison to the International Data Corporation’s 2028 projection of US$175 billion in AI investment in the Asia-Pacific, its strategic deployment could position the nation for long-term competitiveness and growth, he added.

The S$1 billion commitment across five years, announced in January last year by Minister for Digital Development and Information Josephine Teo, seeks to grow Singapore’s AI capabilities by focusing research in priority areas, industry application and talent development.

To achieve its goals, the government should not go head-to-head with global players in terms of spending, said analysts.

Instead, it must identify a few “big bets” and increase ticket sizes for those specific areas, noted Manik Bhandari, data and AI leader at EY Asean.

This could be done by identifying high-growth projects and companies, and then increasing investments there strategically. He pointed to the technology sector, as well as the manufacturing, logistics and built environment sectors as potential winners from such investment.

“These sectors face sustained pressure to raise productivity and defend margins, even as operating costs rise and labour constraints tighten,” he said.

Since they are also asset-heavy and data-rich, they are well suited for applied AI use cases, he added.

Lee Chew Chiat, government and public services industry leader at Deloitte South-east Asia, said that the government should allocate funds to areas in which Singapore has a comparative advantage.

Along with the finance and logistics sectors, he highlighted the aviation, transport and semiconductor industries as those that could benefit from the S$1 billion investment.

Lee added that another way to maximise the investment would be to “leverage the trust companies have in the country’s talent and its robust legal and financial frameworks”.

KPMG’s Poh concurred, saying that with proper investment, Singapore would be able to overcome traditional constraints such as its small workforce size, and at the same time reduce its reliance on offshore or labour-intensive models.

SMEs not left out

Following the announcement of the S$1 billion AI fund, market observers raised concerns about small and medium-sized enterprises being potentially left behind in terms of AI adoption.

However, Poh said that “increased collaboration between the government and large multinationals does not necessarily sideline SMEs”. He believes that the Singapore government has already put in place mechanisms to ensure that SMEs are part of the broader AI transformation.

One such initiative targeting AI usage within SMEs was the recently launched AI QuickStart project by Microsoft, which is backed by the Infocomm Media Development Authority and UOB.

Under the programme, Microsoft and its partner ecosystem will offer SMEs curated solutions that can be customised to their specific needs.

EY’s Bhandari also believes that the AI R&D fund will benefit SMEs. By targeting larger companies first, it could create a “trickle-down effect” allowing solutions, talent and best practices to eventually become accessible to smaller companies, he said.

Still, Lee noted that while some SMEs might be able to leverage AI adoption, others “may lose out”.

“What’s critical is that SMEs and their talent must actively explore new grounds and remain adaptable,” he said.

Potentially a positive

Nonetheless, analysts remain upbeat about the investment, with Bhandar describing it as “a good start”.

He added that to maximise the impact of the investment, the government could invest in adapting foundational large language models for the local context instead of building new models from scratch.

For instance, Singapore already has its own home-grown large language model, Sea-Lion. The model is able to understand local language nuances and has been adopted by large companies such as GoTo Group in Indonesia.

The S$1 billion commitment also aligns with the Economic Strategy Review (ESR) committee’s recommendation for Singapore to double down on its AI investments to position itself as a leader in the AI space.

Poh from KPMG identified agentic AI – an independent reasoning and decision-making AI model – as the next frontier for AI growth in Singapore.

“Agentic AI in particular opens the door to scaling services globally without relying on proportional headcount growth,” he added.

However, Lee warned that to make the most out of the investment, Singapore needs to address concerns such as electricity consumption and water efficiency when companies build data centres and use or develop AI models.

If these concerns remain unchecked, costs will escalate and may eventually make AI adoption “prohibitively expensive”, he said.