Gulf States Spearheading AI Investment in Ongoing Economic Transformation

6 min read

In a bid to propel their economies into the future, the Gulf states are increasingly turning to artificial intelligence (AI) as the latest frontier in their ongoing economic transformation. Forecasts suggest that AI will not only contribute significantly to Middle Eastern economies but will also have a profound impact on the global economy by 2030, with projections exceeding $320 billion for the region and more than $15 trillion worldwide.

Recognizing the disruptive potential of AI, regional powerhouses such as Saudi Arabia and the UAE are leading the charge in embracing this technology across various sectors. Already, AI has found applications in finance, manufacturing, retail, education, healthcare, and telecommunications, heralding a new era of efficiency and innovation.

Amidst environmental challenges, including warming temperatures and limited water resources, AI emerges as a crucial tool for ensuring food security through the optimization of crop yields via smart irrigation systems.

The Gulf states are not only investing heavily in AI infrastructure but also fostering an environment conducive to innovation. With significant funds, low-cost electricity, and abundant renewable energy sources like solar and wind, the region is poised to attract global AI talent. Collaborations with international leaders in the AI industry further bolster efforts to establish a robust domestic AI ecosystem.

While the United States and China dominate the global AI landscape, the Gulf region has emerged as an attractive market for both American and Chinese companies seeking to capitalize on its rapid economic growth. Investments from these companies span various sectors, with Chinese firms making significant strides in electric vehicles, autonomous driving, surveillance systems, education technology, and healthcare.

Partnerships between Gulf states and China have drawn attention from the United States, raising concerns about technology transfer and strategic alliances. However, for the Gulf states, pragmatism reigns supreme as they navigate a delicate balance between partnerships with both superpowers to maximize benefits for their emerging knowledge economies.

As the Gulf states forge ahead in their AI journey, they remain committed to creating domestic hubs of AI talent and innovation. Dedicated AI funds and strategic partnerships underscore their ambition to not only collaborate with global leaders but also become leaders in AI technology themselves.

In a landscape often characterized as an AI race between the US and China, the Gulf states prioritize partnerships that align with their vision of fostering indigenous innovation and sustainable economic growth. Rather than engaging in a zero-sum game, they seek to leverage relationships with different international partners to advance their AI agendas and secure their rightful place in the AI-driven future.

Increased Gulf investment in artificial intelligence is the latest trend in the region’s ongoing economic transformation. AI is projected to contribute at least $320 billion to Middle Eastern economies and more than $15 trillion to the world economy by 2030. Regional powers such as Saudi Arabia and the UAE acknowledge the disruptive power that AI holds.

AI has already been adopted by the financial sector in the region, while it is also playing a growing role in automating labor-intensive industries such as manufacturing and retail, digitalizing education and healthcare and improving telecommunications. In a region that is warming at twice the global average, AI is also crucial for food security, given that smart irrigation systems can optimize crop yields amid limited water resources and adverse climate conditions.

The Gulf states are not only aware of the rewards of investing in AI, they are also confident that they offer a conducive environment for AI infrastructure, particularly significant funds, low-cost electricity and massive potential to harness solar and wind energy. Further, increasingly liberalized socioeconomic conditions give impetus to the drawing of global AI talent to the region. As these states are still in the nascent stages of creating a domestic AI ecosystem, they have fostered collaborations with international leaders in the industry.

The US and China are the two leading AI hubs, where the majority of innovation and investment in the industry is concentrated. According to a 2017 study by PwC, by 2030, AI will provide a 14.5 percent boost to North American gross domestic product and a 26 percent boost to the Chinese. Given the leading position of these two countries in the global AI industry, it has inevitably led to a so-called AI race.

Increasingly liberalized socioeconomic conditions give impetus to the drawing of global AI talent to the region While American multinationals such as Microsoft, Nvidia, Google and Meta have pioneered innovation in this field, Chinese AI companies such as DJI, SenseTime and Cambricon have also emerged as market leaders. This competition is not only restricted to innovation but also extends to target markets — both American and Chinese companies see value in the high-growth markets in the Gulf and seek to participate in their rapid economic transformation. In the Gulf region, American and Chinese companies have made inroads in terms of raising funding and providing the latest technologies to regional actors. One avenue of AI technology where Chinese companies have risen to prominence is electric vehicles and autonomous driving. and WeRide, for example, have a significant presence in the autonomous vehicles sector in the UAE.

In Saudi Arabia, several Chinese companies specializing in diverse AI technologies have found a place in the market. These include surveillance systems, education technology and health technology, autonomous driving and technologies for smart cities and smart housing, especially in NEOM, the crown jewel of the Kingdom’s Vision 2030. SenseTime is particularly active, having worked with the Saudi Data and Artificial Intelligence Authority to train local talent in deep learning and computer vision. and Huawei are also working with the Kingdom to enhance research and development in this space. The region’s growing collaborations with China have been handled with caution by the US, especially after America last year restricted the sale to China of certain chips manufactured by Nvidia due to concerns that the country’s companies could potentially access this technology.

Despite American concerns about the role of China in the Gulf’s move toward AI, it is unlikely that the region will reassess its east-facing approach to partnerships in its emerging knowledge economy. China has emerged as a global leader in the provision of high-performing, low-cost technology. In a push to create post-oil economies, the Gulf states are investing across multiple sectors and cost efficiency is a driving factor. Moreover, Chinese companies have been more open to the idea of knowledge transfer, investing in local talent and skill development that supports the vision of the Gulf states to build a robust AI industry.

It is expected that regional actors will continue to seek the most efficient and cost-effective approaches to AI investment

Zaid M. Belbagi

The proximity of these relationships was referenced by the CEO of the leading Emirati company G42, who noted at February’s World Government Summit in Dubai that severing ties with China is “not easy.” While companies have accepted that such collaboration imposes restrictions on their work with American firms, it is unlikely that the region will stick to only one partner in its AI journey. Notable partnerships continue on both sides, such as the upcoming investment by Abu Dhabi’s latest AI investment fund, MGX, in OpenAI’s new chip venture.

The Gulf states’ interest in AI is two-pronged: investing in emerging technologies while also creating domestic hubs of AI talent and innovation. This is exemplified by the recent announcements made by Saudi Arabia and the UAE of the creation of dedicated AI funds. Not only do the two states wish to work with the US and China in the AI space, but they also aim to become global leaders themselves.

Therefore, it is expected that regional actors will continue to seek the most efficient and cost-effective approaches to AI investment, leading to a continuous effort to strike a balance between Shenzhen and Silicon Valley. A degree of dependence between each party will help maintain the equilibrium. The US and China both benefit from Gulf growth markets, neither can impose excessive restrictions on the Gulf states lest they pivot entirely toward the other side and the Gulf states must continue working with both sides to benefit from the latest innovations in the field.

Intent on steering clear of a diplomatic zero-sum game, the Gulf states will foster or avoid partnerships with each side on a case-by-case basis, depending on which one best supports the region’s efforts to create a homegrown AI ecosystem. This was rumored to be the case with regard to MGX courting OpenAI while simultaneously not ruling out partnership with America’s xAI.

While this has been dubbed an AI race between the US and China, from the region’s perspective and in the context of increasingly autonomous foreign policies and a clear commitment to fostering an indigenous knowledge economy, partnerships with different international partners are more helpful.

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