As the leading industrialized economies move to intelligent manufacturing – or industry 4.0 – it will be interesting to see whether the developing economies of Southeast Asia can take the opportunity to leapfrog ahead with economic development. Industry 4.0 goes hand-in-hand with smart production and energy use. The latter may be referred to as Energy 4.0, with the pre-oil era, the oil era, and the new and renewable energy era, as Energy 1.0, 2.0, and 3.0, respectively. This article proposes a vision to invite further discussions in the region’s policy-making and think-tank communities. The point is that Industry 4.0 and Energy 4.0 should be promoted and developed in juxtaposition with conventional industrialization and conventional energy infrastructure systems in the region.
Certain commoditized clean technologies and green industries, as integral parts of Industry 4.0 and Energy 4.0, should be given priority for Southeast Asia. It is these high value-added, high-efficiency industries that could drive the leapfrogging of income levels in the region. Although new technologies for intelligent production, clean energy, and green industries are still being developed in leading industrialized economies, many are quite mature and ready to be commercialized or even commoditized. Commercialized means the technologies are adopted by private investors; commoditized means the technologies are available from a competitive upstream market with many competing suppliers. The success in manufacturing low-cost solar photovoltaics, wind turbines, smartphones, and robotics equipment in China shows how the business model of importing mature technologies, which are embedded in specific manufacturing machineries (from Europe, Japan, and North America), and combining them with cheap local production factors, such as land, labor, finance, energy, and entrepreneurs, can be successful. Today, the products from these industries in China are both cheap and of surprisingly high quality, thanks to mature technologies and modularized production. As local industries accumulate knowledge, skills, and experience, even sophisticated and imported key components may eventually be produced locally.
For example, the integration of new and renewable energy, smart grids, and electric mobility form a major green field with mature technologies that represent an investment opportunity for Southeast Asia countries. The success of electric scooters and tricycles in Chinese cities show that certain electric mobility technologies are mature, low cost, and simple, even if the supply chain is relatively small. In contrast, the supply chain of conventional internal combustion engine vehicles is sophisticated and has significant hurdles in economy of scale.
Following the greening of the energy and mobility sectors, tourism-related services could be elevated to provide environmental goods and services, such as old-age care, convalescence hospitals, general health care and medical services, or sports resorts. There is clear evidence that the Thai economy is moving fast to develop these two clusters of sectors. Indonesia has successfully turned Bali into a destination for international investors in luxury properties located in natural resorts. The country has recently decided to build High Temperature Gas Reactors (HTGR), which is evidence that proven, advanced, clean technologies can be turned into a business in this region.
There are many more inspirations for opportunities. The global effort in greening the supply chain now underway implies that the timing is about right for Southeast Asian countries to attract more foreign direct investment in certain greened segments of these supply chains. One immediate opportunity in this regard is for global investors to develop global carbon-offset energy or other industrial projects in Southeast Asia. Local economies could also produce and supply non-toxic and non-conflict material/minerals, such as biofuel and biomass. Hydrogen, which potentially could be the clean fuel for electric mobility, could also be mass-produced from natural gas and integrated gasification combined cycle from coal (both commodities are abundant in the region). HTGR also have potential.
Developing high-end agriculture and food processing, such as eco-farming, is another intrinsic advantage that Southeast Asian countries can develop to supplement East Asia’s industrialized economies, where safe, delicate, quality food is highly valued. Above all, within a well-preserved environment (assuming high pollution, large-scale conventional industrialization does not dominate), R&D centers with world-class infrastructure could be developed to support not only local Industry 4.0 and Energy 4.0, but also play a role in global RD&D networks, grabbing a share from the world’s knowledge economy. Singapore and Malaysia have had some success in this regard.
A knowledge based economy, substantiated by the concept of Industry 4.0 and Energy 4.0, has fewer infrastructure requirements. An example can be seen in how rapidly ICT has been adopted in Southeast Asia, another in booming industries such as tourism (including air ticket booking, hotel booking, and restaurant booking), design, internet and phone banking, call centers, among others.
Since the infrastructure for conventional industrialization is modest in Southeast Asia, the region has the option to avoid going down the conventional infrastructure and industry path to industrialization. Investment could rather target Industry 4.0 and Energy 4.0, to create a different extension or compliment to the existing global value chain and build a regional production and services network.
The global economy is an era of tremendous financial capital and liquidity, looking for investment opportunities, especially in the developing economies. The formation of the Asian Infrastructure Investment Bank is just one prominent example. The countries of Southeast Asia have many more options than before. They need to be more selective about what kind of infrastructure they want to build and what kind of industrial capacity they want to create. The choices should be strategic. By looking to Industry 4.0 and Energy 4.0, the region’s chances of leapfrogging ahead would be that much better.
Dr Yanfei Li is an Energy Economist of the Economic Research Institute for ASEAN and East Asia (ERIA). He specializes in energy markets, energy policy, and economics of technological change, serving the interests of both academic and public sectors.