1. What is AI?

2. The market

3. Investment environment

What is Artificial Intelligence?

In its broadest definition, artificial intelligence (AI) refers to computer systems that are able to perceive their surroundings, reason, acquire new skills, and act in accordance with their goals. Digital assistants, chatbots, and machine learning are just a few of the AI applications already in use.

Various industries have different adoption prospects for AI. The financial industry in the Middle East and Africa presents the highest opportunity for AI, according to research by the International Data Corporation (IDC); it is expected that $28.3 million, or 25% of the region’s total predicted AI investment for 2021, will be used to develop AI solutions. Then comes the manufacturing sector and public services, such as healthcare and education.

The possibility of profits at the industrial level will likely depend on two main variables:

1. The ability to automate workflows; the early benefits of AI are expected to be greatest in labour-intensive industries with high automation potential, such as retail and healthcare. These industries should significantly benefit from the deployment of AI in terms of labour productivity.
2. Use cases for product improvement at the national and regional level: Industries with strong use cases for AI applications are more likely to innovate during the early phases of AI development. The AI Impact Index was created by PwC’s Data Analytics team in the US using a qualitative analysis to determine the scope of product improvements we may anticipate by 2030. The investigation looked at approximately 300 use cases to determine the potential for improving products through personalization, product quality, consumer time savings, and product diversity. According to the score, the health, automotive, and financial services industries have the greatest potential for product improvements.

Despite the potential for more immediate profits in some industries, it seems unlikely that these industries will continue to be the only ones that develop and use AI technologies. The demand for inputs from other economic sectors will increase as these industries expand due to AI’s direct effects. In a similar vein, the higher earnings brought on by these sectors’ better labour productivity will boost consumer demand across the board. The entire economic impact of AI will increase as a result of these indirect and induced effects, which are expected to be felt by businesses and consumers across the economy.

Investment environment

The world is advancing toward AI, and given its infancy, there is a chance for the Middle East to play a significant role in the global agenda. There are already areas in the region that have embraced AI and the new digital era, according to research from the International Data Corporation (IDC), spending on cognitive and artificial intelligence (AI) systems in the Middle East and Northern Africa (MENA) region increased from $37.5 million in 2017 to over $100 million by 2021, or 32% annually.

Particularly the UAE, Saudi Arabia, and Qatar have shown a great commitment to the creation and application of AI technologies. Governments in these areas of the region have encouraged businesses in the region to make significant investments in new technology. However, acceptance outside of the Gulf economies has been slower. The variations in adoption rates are caused by, for instance, infrastructure and accessibility to skilled labour, which are important enabling variables for AI development. 

In terms of capex and the number of foreign businesses participating in the sector, the UAE is the top recipient of inward IT FDI in the region and is now rated 10th globally (2011-2020). Dubai received USD4.4 billion of the UAE’s inbound FDI in the IT sector, followed by USD922 million for Abu Dhabi, USD149 million for Sharjah, and USD432 million for other emirates. The UAE was ranked seventh in telecommunications infrastructure and sixth in local online services by the UN E-Government Development Index. UAE-based startups raised about USD 577 million in venture capital overall in 2020.

It is necessary to keep in mind the negative effects that oil price volatility is having on the region’s economic prospects and hence governments are compelled to look for alternate sources of funding and development. By investing in AI technologies to boost non-oil sectors, the Middle East may be strategically positioned in the years to come.

Investment incentives

AI is expected to revolutionise the world’s economy over the coming decade. By 2030, analysts predict that AI will have generated close to USD16 trillion for the global economy. The UAE made AI a strategic national priority in 2017, establishing the UAE’s Strategy for Artificial Intelligence 2031 and appointing the first Minister of State for Artificial Intelligence in history, H.E. Omar Bin Sultan Al Olama. This was done in view of the UAE’s priority to leverage its transition to a knowledge-based economy. By 2030, PwC predicts that AI will have contributed about 13.6% of the UAE’s GDP (96 billion dollars), the greatest GDP share in the Middle East. The GDP contributions of AI in Saudi Arabia, the GCC4 (Bahrain, Kuwait, Oman, and Qatar), and Egypt are 12.4%, 8.2%, and 7.7%, respectively.

The UAE and the emirate-level authorities have technology-based visions that offer investment prospects for strategic alliances with major tech corporations as well as smaller businesses that may be able to offer cutting-edge solutions for integrating tech into government services. Many start-up incubators provide funding, coaching and mentorship, access to industry experts, residency visas, office space, and venues to advertise to potential customers and investors to tech startups wishing to establish themselves in the UAE. Examples worth mentioning are:

1. Futurism Program, Dubai: A six-week accelerator program led by the Dubai Department of Tourism and Commerce Marketing with a focus on venture capitalists in the startup and tourism ecosystems. If chosen, candidates can work with industry leaders as mentors and collaborators, present their concepts at Gitex Technology Week, and have the potential to win AED 100,000, licenses, visas, and office space for the best start-ups.
2. AIM Startup, Dubai: An annual innovation exhibition and pitch competition organized by the Ministry for Economy that provides start-ups with the chance to network with financiers, businesses, industry professionals, and elected officials.
3. StartAD, Abu Dhabi, a global accelerator guiding seed-stage technological start-ups to establish, build, and scale their businesses, is based at NYU Abu Dhabi.

At a CAGR (Compounded annual growth rate) of 27%, the market for cloud infrastructure services in the MENA region is anticipated to increase from US$2.66 billion in 2017 to US$8.79 billion by 2022. The establishment of cloud nodes by IBM Cloud, Oracle Cloud, and Alibaba Cloud in the Gulf States has also contributed to the growth of global cloud service providers in the country.

Global spending on Internet of Things (IoT) software and hardware is expected to increase quickly, from 726 billion dollars in 2019 to 1.1 trillion dollars in 2023, with the Middle East alone representing a multibillion dollar market. Dubai is in a great place to take advantage of that investment.