Business

Gulf economies need a gameplan for Tech

Gulf economies need a gameplan for Tech

Technology is transforming the global economy.

In particular, eight essential technologies — artificial intelligence (AI), robotics, Internet of things, virtual reality, augmented reality, blockchain, drones, and 3D printing — are having the greatest impact. GCC countries can take advantage of these trends and position their economies for a successful digital future if they adopt a five-point plan.

The $1b mark is just a taster

The pace of technological innovation and disruption means that major new global companies are constantly appearing. There are 10 times more unicorns (companies worth over $1 billion) than five years ago. One in 20 of these new companies are “decacorns” (worth over $10 billion), including one Chinese company with a value of $75 billion.

Such is the pace of change that around half of S&P 500 companies are set to be replaced over the next 10 years. The impact is already being felt in the GCC, with Strategy& estimating that digital directly and indirectly contributes between 5-15 per cent of GDP.

Make a grab for opportunities

Meanwhile, as the costs of technology decrease, new applications will proliferate. The effect of the eight essential technologies, and the interplay between them, presents a major long-term opportunity for national economies, promising faster GDP growth and job creation, while enhancing global competitiveness.

One such area is AI. PwC’s “Global Artificial Intelligence Study” (2017) predicts that AI will boost gross domestic product worldwide by nearly $16 trillion by 2030. China will reap the largest benefit, seizing 26 per cent of that amount, with the US taking 15 per cent.

Another major focus of technological change is robotics, which are rapidly replacing humans in dangerous environments and manufacturing processes. New practical applications continue to emerge.

Need for a catch up

Despite these global successes, the GCC region has in the main been marked by a lack of innovation, exports or investment in the field of digital technology. The region’s ambitious plans for economic diversification and transformation can only be successful if they are underpinned by a viable and sustainable framework for the digital economy.

Get cracking on the Plan

Governments should implement a “five-point plan”. First, they should identify the technologies which fit their country’s current strengths and strategic priorities, and then commit wholeheartedly to winning in those areas.

It is important to set clear targets. The strategic plan “Made in China 2025” defines that country’s focus areas, including new technology, high-tech ships, and the automated control of machining tools. The UAE has prioritized AI by devising a dedicated strategy, creating a specialized ministry, and investing in relevant education and awareness.

The country is also promoting AI in vital sectors such as healthcare, aviation, and transport.

Gaps in R&D

Second, investment in research and development (R&D) is indispensable. GCC countries have R&D spending of 0.5 per cent to 1 per cent of GDP, compared to more than 3 per cent for economies such as Japan, Germany, and South Korea. As a result, the number of patent applications and volume of technology exports from the GCC are significantly lower than in peer countries.

This matters because the link between R&D and innovation is well established. In the US, many of the top tech players were assisted by active government funding of R&D, and through the government handing patents to local companies for a low fee.

GCC countries could also look to emulate the UK, which is contemplating a digital super-regulator to oversee fields such as data privacy, blockchain, and AI across the whole industry spectrum

- Tarek El Zein

Third, GCC governments should continue to adapt regulations to changing market needs. In advanced digital economies, regulatory testing environments are used for this purpose. Bahrain, Kuwait, Qatar, Saudi Arabia, and the UAE have used this approach for financial technology.

GCC countries could also look to emulate the UK, which is contemplating a digital super-regulator to oversee fields such as data privacy, blockchain, and AI across the whole industry spectrum, and allowing grass-roots innovation to flourish.

Mentor talent and lots of it

Fourth, governments need to ensure that their countries have a trained pool of digital talent and that there are appropriate labor laws. Job requirements for the digital economy will demand skills that are currently scarce in the GCC region. The education system must keep up with technological change, continually updating relevant courses.

Partnerships between universities and digital businesses, setting up internships and apprenticeships, should be encouraged. Meanwhile, labor laws should adapt to the realities of a growing digital economy and its need for a flexible workforce.

Fifth, governments should support an aggressive campaign to localize the digital industry by supporting the creation of local technology champions that are globally competitive and seek to export their products. Throughout the world, local technology champions, such as Alibaba, Baidu, and Tencent have enjoyed a pivotal role in transforming China’s economy.

Government support typically comes in the form of policies to limit foreign competition, relaxed regulations for in-sector and cross-sector expansion, and exclusive access to large government contracts.

The GCC now has an opportunity to capture the economic benefits promised by the essential eight technologies. With the right plan, its economies can thrive and innovate.

- Tarek El Zein is a Partner with Strategy& Middle East, part of the PwC network.