In recent years, numerous executives in Gulf Cooperation Council (GCC) member states have been turning their eyes and budgets toward innovation. Significant investment, both from governments and private enterprises, has been pouring into 5G, artificial intelligence (AI), data solutions, and advanced cybersecurity. The technological landscape in the Middle East has been long overdue for change. This is why it’s important to explore how GCC companies can overcome the challenges of digital transformation.
A 2019 Strategy& report acknowledges the focus of C-levels on digitization and business transformation. But here’s the thing: an Accenture survey shows that 42% of government organizations and private companies are not ready to face disruption. And when it comes to adopting digital transformation, one question pops up more often than others: where should GCC businesses start and how can they prepare for digitization?
Global trends shaping the technology landscape in the Middle East
Of the five global trends shaping the Middle Eastern landscape — 5G, distributed infrastructure, AI and the Internet of Things (IoT), cybersecurity and data regulation, and sustainability — 5G is probably the most interesting.
During 2019, the majority of GCC countries launched commercial 5G services, and these have become the key focus in 2020. The main use cases of wider bandwidth in the GCC region are based around smartphones and the transformation of gaming and customer services. The second step in 5G adoption is expected to be automating operations in the oil and gas industry, the automotive field, healthcare, and smart cities. Edge computing and distributed infrastructure are expected to aid in the mass adoption of 5G.
Bernard Najm, Head of the Middle East Market Unit at Nokia, says that the Middle East has a strong top-down approach, driven by local governments, to adopting new and smart technology for its residents; this tends to help Middle Eastern countries leapfrog into new technologies before the rest of the developing world. I completely agree.
In the meantime, the United Arab Emirates (UAE) and Saudi Arabia seem to be placing their bets on AI. In 2019, we saw a body called the Saudi Authority for Data and Artificial Intelligence established within the Vision 2030 development plan for Saudi Arabia. This institution now aims to become one of the main drivers of digital transformation in the region. And as we advance further into 2020, we see UAE and Saudi authorities launching well-funded initiatives to support AI technology in the Middle East. Overall, the country has invested nearly $135.2 billion in AI over the past few years, which clearly counts as a commitment to developing this technology.
The UAE, in turn, aims to attract around 100 tech companies within the next three years. The acquisitions of the well-known Middle Eastern ridesharing company Careem by Uber and the large Souq marketplace by Amazon (for $3.1 billion and $580 million, respectively) have shown foreign investors that GCC countries have a lot to offer in terms of technical partnerships.
As the startup ecosystem in the region matures, even more venture-backed companies are successfully scaling — a trend that has been noticed by big international players in their respective domains.
Lack of technical talent is a problem, though. This has made UAE authorities re-evaluate long-term residency programs and foreign ownership laws to attract AI professionals. In addition, some serious educational initiatives have been launched by the government in GCC countries. This isn’t surprising if we look at the advancement of AI, cloud computing, and big data. These technologies are dramatically changing the employment market, and the demand for innovative tech talent is extremely high.
Another long-term goal of the Vision 2030 program in Saudi Arabia is sustainability. Following the global tendency, digital businesses in GCC countries are looking for innovative solutions for everything from access to education to reduced emissions. Such initiatives of GCC authorities are bringing more attention to the region from foreign investors who aim to develop sustainability. Right now, Middle Eastern companies are already implementing some of the latest tech solutions in many industries.
How is digital transformation taking effect in the Middle East across industries?
Spending on technology adoption and software development in the Middle East is on a steady rise. SaaS sales are expected to grow by 25%, and investments in big data analytics and AI are predicted to hit $1.2 billion. But the question is, can we already see the actual impact? And where exactly can it be felt?
As it often happens, some industries are faster than others to adopt changes. If we look at the Middle East, there are several fields where we already can see the results of such adoption, revealing industries that should catch up on advancements in information technology.
The FinTech opportunity
Data provided by the International Data Corporation shows that the banking and finance industry in the GCC region will spend an impressive $12.23 billion on technology this year alone. This isn’t that surprising, though, as we look at the six key drivers of tech innovation in the FinTech field:
- Savings and smart investment tech (for example, the FinTech startups Rumman and SmartCrowd)
- Financial health startups and employment tech
- Wider introduction of digital IDs
- Financial literacy (consider startups like Finllect and Merakido, which have introduced financial education via smartphones)
- Access to capital for small and mid-sized businesses (with the help of companies like Fawaterak and Fundbot)
- Alternative lending platforms
Our bet is that these drivers will give digital transformation in the Middle East a steady boost in the coming years.
It’s also important to note that with digital disruption marching around the world, traditional Middle Eastern banks will soon be forced to compete with FinTech giants. And this translates into adopting full-scale digitization. There are only a few digital banks in the MENA region right now, so the potential for FinTech market capitalization is promising — especially given that the largest markets are Saudi Arabia and the UAE. These countries possess two important factors: high mobile penetration and customers ready to embrace digital banking and financial apps.
Both these countries go even further, offering funding, licensing, and help with regulatory compliance, which makes for an auspicious opportunity for FinTech companies and startups to develop their products.
…and the next top star on our list is retail
So what about innovative retailers? Well, these have a big unexplored market nowadays. 5G technology is expanding at full speed, and a significant part of the GCC region’s population is made up of tech-savvy youth — a good combination for the smooth and fast adoption of new tech. GCC governments are also positive about eCommerce development: we can see that in Dubai, authorities are investing big in Dubai Commercity, a free-trade zone for eCommerce retailers.
Another breakthrough can be seen in online shopping. The COVID-19 outbreak has rocketed the industry. According to Kearney Middle East, 79% of consumers in the UAE and 95% in the Kingdom of Saudi Arabia are spending more online amidst the pandemic — and most of them plan to keep their new shopping habits. With the number of technological advancements and startups in this area together with the strong competition, you don’t want to miss out on the opportunities.
It’s not surprising that big retail brands like The Luxury Closet, Diazole, Wadi.com, Souq (now owned by Amazon), and others are already making use of global tech trends to reshape the industry and bring more sustainability to their online stores.
For instance, some stores are introducing AI to enhance the customer experience by using chatbots, voice assistants, or machine learning-based personalization. Others emphasize implementing blockchain technology for secure transactions: a promising trend for accelerated payment processing, safe cross-border transfers, and fraud protection.
Another good newly adopted practice lies in mobile wallets and payment gateways. Integrations with PayPal, CyberSource, MasterCard, and other mobile payment processors make shopping faster and more enjoyable, leading to even bigger revenues.
IoT for merging physical and online shopping is another widely adopted trend in the Middle East. Industry giants are adopting the use of beacons and sensors for personalization, providing cross-sell offers, releasing updates on product availability, and more.
Big data is being used for advanced analytics and predictions for tracking customer behavior, product pricing, website visitor flows, demand forecasting, and more. Data is the new oil, isn’t it?
In general, the focus of the eCommerce sector is consumers and analytics. Software developed by Middle Eastern retailers includes everything from augmented reality (AR) apps, payment systems, and advanced marketing tech to advanced data collection and analysis systems with the help of biometrics and IoT devices.
Last but not least, eLearning
Other recent points of interest for Middle Eastern governments are initiatives aimed at adopting and promoting eLearning among GCC countries. For example, UAE authorities have supplied 435 public schools with EdTech software to ensure more students can access education. Kuwait has digitized all textbooks and introduced eLearning methods to all schools as part of its eEducation plan.
The Middle Eastern education market isn’t falling behind either. Four types of technology fuel digital transformation here: learning management systems, mobile eLearning, virtual classrooms, and podcast technologies.
Also, recognizing the need for specific tech skills for digital transformation, authorities are investing in educating future AI specialists, data analysts, software developers, cybersecurity professionals, and more. For now, a pressing need for talent makes GCC technical giants look for the right people among prominent European and Indian vendors.
eLearning is part of a long-term sustainability strategy in the Middle East right now, making it an important tool in combating educational inequality and economic heterogeneity in the region.
Smooth digital transformation of GCC businesses
Despite the digital transformation in the Middle East backed by governmental support, there remain a few challenges. One of the first is the lack of needed expertise in the local market. To cover this pain point, GCC companies partner with foreign tech companies and software vendors to access the necessary skills for digitization. The modern landscape makes it too risky to wait for the required capabilities and knowledge to grow internally. Even with strong government initiatives in IT education, it will take several years to graduate specialists with the necessary skills.
So as not to miss key opportunities, many GCC businesses are turning to European companies for expertise in AI solutions, cloud computing, and data analytics. But successfully executing a digitization strategy depends on several factors:
- Clearly defined goals. Companies should ask themselves what they need to achieve by investing in advanced technology, defining what business process or area they plan to optimize and what KPIs they plan to target.
- New performance management systems. To make sure investments overcome the proper pain points, creating a new system can be crucial.
- Clear lines of authority within the company. A digital transformation program needs a chief officer responsible for it.
- Right capabilities for digital transformation. Companies not only have to compensate for a lack of expertise by hiring external vendors but also should establish training programs for employees.
Applications of advanced tech from 5G systems to smart city solutions were to be displayed at the Dubai Expo 2020 in October this year. However, the exhibition has been postponed till next year due to the pandemic.
Hopefully, more opportunities and disruptive ideas will arise during this time and generous investments in startups and tech education will further the GCC’s movement toward digital transformation. Meanwhile, partnerships with reliable companies to fill in the gaps in technical capabilities will help to accelerate digitization in the Middle East.