Oil on the back burner as GCC pushes for new tech
By Konstantin Tserazov, former Senior Vice President of Otkritie Bank
Despite accruing regular oil revenues, the GCC nations have now set themselves on a course for diversification away from their traditional oil-based economies by pivoting to a digital financial system and different technological sectors.
The six GCC states are increasingly diversifying their economies to knowledge expertise (IT) and digitisation by capitalising on their substantial funding assets, robust infrastructure, and thriving startup ecosystems.
In terms of internet penetration, five of the six GCC nations (Oman being the exception) rank among the top five globally in terms of internet penetration based on the percentage of inhabitants. In Saudi Arabia, Qatar, Bahrain, the UAE, and Kuwait, web penetration is 100% among these countries’ inhabitants. This robust digital basis also gives a solid foundation for these countries’ digital transformation and innovation efforts.
ICT (Information and Communication Technology) spending by the GCC nations is projected to reach AED269.74 billion/$73.3 billion in 2023, which almost corresponds to the whole ICT market in Russia – AED294.4/$80 billion when compared to the standard alternate price of the ruble in 2022.
The foremost drivers of ICT market progress within the GCC region are Saudi Arabia and the UAE, accounting for 74% of all expenditures among the GCC countries. It is essential to note that the total number of inhabitants of the six GCC countries is about 2.5 times smaller than that of Russia, with 59.4 million in the GCC region compared with 146.4 million in Russia.
Approximately 10% of the ICT market in the GCC countries consists of IT companies, with the most significant portion being IT outsourcing. The IT companies’ market in the GCC states is in a complicated stage of maturity, and according to Statista, the projected progress price is anticipated to be around 8% per 12 months over the next five to six years.
The software market in the GCC region is projected to reach AED14.72 billion/$4 billion in 2023. Corporate software, together with ERP, CRM, BI, and other such software, dominates the software market in the GCC countries, accounting for over 40% of the market share, according to Statista. The market is anticipated to develop from 3% to 5% over the next five years.
The growth of the IT sector and digitisation in recent times have been a focus of the federal government policies in the GCC states, with each nation implementing initiatives and packages to promote IT initiatives consistent with their long-term diversification goals.
In the UAE, state-backed programmes seek to boost technological innovation and attract global IT companies to Dubai Internet City. Qatar is also creating an innovation cluster for digital applied sciences called TASMU Digital Valley. Bahrain has adopted a Digital Government Strategy for 2022, outlining its technique for growing a digital state. Kuwait plans to develop IoT and fibre optic communication as a part of its nationwide growth plan, while Saudi Arabia focuses on e-commerce and fintech. Oman is also engaged in IT infrastructure growth and eGovernment initiatives to develop into a digital state.
Saudi Arabia also concentrates on mega-projects like ‘Neom’ – a futuristic metropolis, and ‘AMAALA’ – a project featuring luxurious resorts and ecotourism projects on the Red Sea coast. These initiatives require essential investments in digital infrastructure and trendsetting applied sciences like AI/ML, IoT, edge computing, and 5G.
On the ground
Digitisation of the GCC countries’ economies requires superior infrastructure and information storage. Local corporations have traditionally relied on overseas infrastructure. Amazon Web Services (AWS) opened its first data hub in Bahrain in 2019 and the second in the UAE in 2022.
Saudi Aramco, Saudi Arabia’s largest oil firm, partnered with Google Cloud in 2022 to develop cloud companies in the Gulf nation. In 12 months, two joint information facilities were established by STC, the most prominent telecommunications firm in Saudi Arabia, and China-based Alibaba. The public cloud market share in the GCC countries is expected to exceed AED66.24 billion/$18 billion by 2027, indicating a greater than two-fold progress over the next five years.
The benefit of ‘digital twins’ was vividly demonstrated during the 2022 FIFA World Cup in Qatar, when 40,000 IoT units were used to handle massive crowds of football fans. In Dubai, the Enterprise Command and Control Centre (EC3) uses AI, digital cameras, and thermal imaging to manage 11,000 surveillance cameras, 5,000km of roads, 10,000 taxis, and more.
Continued investments in tourism growth and hosting global events, such as the Asian Winter Games in ‘smart city’ Neom in Saudi Arabia in 2029, are among the main drivers of the IoT market’s progress in the GCC region. By 2030, as per Oliver Wyman’s forecast, there will be over one billion IoT connections in the GCC region.
The digitisation of government entities is progressing in the GCC region. Bahrain’s National Digital Transformation Strategy, adopted in 2022, consolidates current authorities’ information for forecasting and decision-making functions.
In Saudi Arabia, over 130 authorities are implementing information administration functionalities, and the Dubai government’s app, Dubai Now, has processed 20 million transactions worth AED.93 billion/$2.7 billion since its launch in 2015. Apps similar to Dubai Now exist in Saudi Arabia (Tawakkalna Services), Kuwait (Sahel), and Qatar (Hukoomi).
Significant consideration is being given to AI in the Gulf states. The UAE, Saudi Arabia, and Qatar governments invest much more in AI than some European nations. For instance, Saudi Arabia has invested over AED496.8 billion/$135 billion in the Softbank Vision Fund to be among the top 15 countries in AI by 2030. The UAE was also the first to establish a Ministry of Artificial Intelligence. As part of its ‘Vision 2040’ strategy, Oman targets AI to boost productivity and create new jobs for its citizens.
Due to their substantial financial assets and long-term economic policies, the GCC states are poised to become one of the key IT hubs on the planet. It is anticipated that more than 45 unicorns (with valuations exceeding AED3.68 billion/$1 billion) will emerge in the Middle East and North Africa region, with a good portion of them originating in Saudi Arabia.
One of the main challenges that the IT sector in the GCC region faces is attracting a qualified and skilled workforce, mainly as all six GCC countries depend on expatriates to drive their nations’ economic progress.
Featured image: Konstantin Tserazov, former Senior Vice President of Otkritie Bank
Last Updated on 7 days by Middle East News 247