In July 2024, the Australian government announced an AUD $2 billion (US $1.3 billion) investment into a strategic partnership between the Australian Signals Directorate and AWS in Australia to build a “Top Secret Cloud” for the government.

The sovereign cloud will support Australia’s defence and national intelligence agencies to securely host their most sensitive information. It will also improve the secure sharing and analysis of classified data at speed and scale, and provide an environment where agencies can leverage emerging technologies, like artificial intelligence and machine learning, in their work.

This strategy exemplifies sovereign cloud growth in APAC, particularly in the public sector. An estimated 48% of agencies in APAC are planning to include cloud sovereignty in their cloud strategy in the next 12 months, according to provider Capgemini.

The future may witness the proliferation of sovereign clouds, driven by cybersecurity concerns and data protection regulations that encourage more careful data management across national borders, as hyperscaler cloud providers invest in sovereign cloud services to meet this growing demand.

Sovereign clouds are rapidly growing in the APAC region

The demand for sovereign cloud solutions is rising rapidly in the APAC market.

Research from market intelligence firm IDC suggests 17% of APAC government agencies are already using sovereign cloud services, and a further 30% plan to have adopted this technology by 2025.

In 2022, Capgemini found that 73% of organisations in Australia believed that their companies will adopt cloud sovereignty to ensure compliance with regulations and standards of national, state, or local governments. Capgemini more recently suggested that its data showed 64% of organisations in Australia were actively investigating sovereign cloud as part of their strategy.

SEE: The state of edge computing in Australia

In Singapore, the public sector is embracing sovereign cloud technologies:

• Singapore’s Home Team Science and Technology Agency partnered with Microsoft in 2022 to develop a sovereign cloud to accelerate digital transformation and innovation and address emerging technology needs.
• The Centre for Strategic Infocomm Technologies and Google Cloud announced the pilot of Google Distributed Cloud Hosted to support CSIT’s effort to harness AI in tackling Singapore’s defence and security challenges.

What are the reasons for the sovereign cloud boom?

The rise of sovereign cloud solutions in APAC is driven by several factors, including:

• Geopolitical tensions: A rise in geopolitical disruption and uncertainty, including assertive behavior from some countries like China, raise questions around risk and foreign surveillance.
• Infrastructure control: Governments and enterprises want more autonomy and certainty around the infrastructure they use, helped by having the safety of data centres located within national borders.
• Cybersecurity concerns: Threat actors are targeting the APAC region and entities around the globe, leading public and private sector organisations to want more control over their data security.
• Data protection regulations: The International Association of Privacy Professionals said 137 nations now have data protection and sovereignty laws. These include many APAC countries, creating a complex web of compliance requirements for data across borders.
• Economic benefits: Investments from hyperscalers and governments into sovereign clouds often provide a boost to the digital economy and industry in their local jurisdiction, as they typically rely on some local providers and personnel.
• Low-latency processing: Efficiently storing and processing data is a critical consideration, leading to more demand for localized data handling.

Hyperscaler cloud providers are investing in sovereign clouds

Hyperscalers are investing in forms of sovereign cloud services in the region. These include AWS, Google Cloud, and Microsoft Azure, as well as cloud service providers IBM, Oracle Sovereign Cloud, VMware Broadcom Sovereign Cloud, and NxtGen Sovereign Cloud.

IDC said these offerings fall into two categories: those specifically designed for the sovereign cloud market and branded as such; and those who aim for deployed infrastructure to be “sovereign-by-design” from the start with built-in sovereign controls.

For example:

• AWS has been pursuing a sovereign-by-design approach. In 2023, the tech giant launched its dedicated Local Zones with Singapore’s Smart Nation and Digital Government Group to address the country’s digital sovereignty needs.
• Oracle is investing $8 billion over 10 years to grow Oracle Cloud Infrastructure’s footprint in Japan. The company plans to expand its operations and support engineering teams with Japan-based personnel to help customers and partners meet digital sovereignty requirements.
• Google has signed agreements with Gulf Edge and Indosat Ooredoo Hutchison to bring Google Distributed Cloud to Thailand and Indonesia, respectively, addressing strict data residency, security, and privacy requirements in both countries.

“Many organisations have voiced concerns regarding the limited choice of sovereign cloud partners and the lack of required cloud features, among other notable challenges,” the IDC report said. “Perceptions are expected to shift in 2024, as vendors in the region have dedicated the past few years to establishing their presence in the sovereignty market.”

Is the future of the cloud sovereign?

The explosion in regulations governing data across APAC means that sovereign cloud solutions will be a big part of the future. The sovereign cloud market in APAC is expected to grow rapidly, driven by the increasing need for data sovereignty and compliance.

Hyperscale cloud providers will likely play a dominant role in building these solutions for APAC via an adjustment or addition to their own service propositions for customers, potentially building them together with local government agencies and technology ecosystems.