Technology by no doubt is transforming the global economy. In particular, eight essential technologies – artificial intelligence (AI), robotics, Internet-of-Thing (IOT), virtual reality (VR), augmented reality (AR), blockchain, drones, and 3D printing – are having in my opinion the greatest impact of the 4th Industrial Revolution.
Countries in the Middle East can take advantage of these trends and position their economies for a successful digital future if they adopt a five-point plan. 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 USD) than five years ago. One in 20 of these companies are “decacorns” (worth over 10 billion USD), including one Chinese company with a value of 75 billion US-Dollar.
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 and estimating that digital directly and indirectly contributes between 5-15% of GDP. Meanwhile, as the costs of technology decrease, new applications will proliferate. The effect of the eight essential technologies, and the interplay between them, in my opinion presents a major long-term opportunity for Middle East economies (as well as India), promising faster GDP growth and job creation, while enhancing global competitiveness.
The Middle East 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 – especially in the GCC – for economic diversification and transformation can in my opinion only be successful if they are underpinned by a viable and sustainable framework for the digital economy.
Governments in my opinion 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 whole heartedly to winning in those areas. It is in my opinion highly important to set clear targets. The strategic plan “Made in China 2025” for example defines clearly that country’s focus areas, including new technology, high-tech ships, and the automated control of machining tools. Another example is the UAE (United Arab Emirates) which has prioritized artificial intelligence (AI) by devising a dedicated strategy, creating a specialized ministry, and investing in relevant education and awareness. The UAE is also promoting AI in vital sectors such as healthcare, aviation, and transport.
Second, investment in research and development (R&D) is in my opinion indispensable. GCC countries for example have R&D spending of 0.5% to 1% of GDP, compared to more than 3% 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.
Third, Middle East governments should in my opinion continue to adopt regulations to changing market needs. In advanced digital economies, regulatory testing environments are used for this purpose. In the GCC Bahrain, Kuwait, Qatar, Saudi Arabia, and the UAE have used this approach for financial technology. Middle East countries could also look to emulate the UK (United Kingdom), which is currently 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.
Fourth, governments in my opinion 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 Middle East 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 in my opinion 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.
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 Middle East, and especially the GCC now has an opportunity to capture the economic benefits promised by the 4th Industrial Revolution. With the right plan, its economics in my opinion can thrive and innovate.