Digital Middle East

A time of transition

by Jacques BAJON

Second only to oil exports, the Gulf states are focusing more and more on investing in tech companies and in national digital transformation schemes to secure their future.

A market driven by Internet services

Consumers are driving the digitisation of services in the Persian Gulf, thanks to high rates of mobile connectivity and heavy use of services like social media. Other countries in the region are less advanced, as is the transition of their governments and businesses. Health, commerce, government and banking are, however, the priority sectors for digitising business operations and services.

Telecoms will continue to play a central role in the market, but lose some of its relative value: going from 75% of total revenue in 2018 to 70% in 2023. The stagnation of telecom services, and digital content for a time – feeling the impact of the crisis in the ad market over the past few years, tied to the drop in oil prices – will be offset by the growing momentum of Internet services.

Telecom services' dominance in the Middle East will dwindle

Progression of the Middle East's digital services market, by segment

Source : IDATE DigiWorld

Regional media and telecoms leaders

The media and telecoms sectors remain highly concentrated and dominated by regional heavyweights. Etisalat based in the United Arab Emirates, Ooredoo in Qatar, STC in Saudi Arabia have created subsidiaries in the region, but also in Africa and Asia Minor. Over in the media, sector, Al Jazeera and BeIN (Qatar), MBC (UAE) continue to maintain both a regional and international dimension.

Internet services are still dominated by global giants, starting with the top American platforms (Facebook, YouTube, Instagram…). IT segment leaders have been building their footprint in the region more recently, which has included the opening of datacentres by Oracle (Abu Dhabi), Alibaba Group (Dubai) and Microsoft (Dubai and Abu Dhabi) and the launch of Amazon Web Services in Bahrein.

Soverign funds: major contriubtors to economies' diversification into digital tech

Main sovereign funds in the Middle East

Source : IDATE DigiWorld, Al Arabiya, based on Sovereign Wealth Fund Institute

Sovereign funds’ diversification into future technologies

Sovereign funds have been gradually diversifying into new technologies over the past several years. They are investing in tech companies and in specialised venture capital funds that then acquire a stake in startups.

Sovereign funds Mubadala (Abu Dhabi) and PIF (Public Investment Fund, Saudi Arabia) are focusing increasingly on artificial intelligence, biotech and FinTech. PIF and Mubadala invested 45 and 15 billion USD, respectively, alongside Japan’s SoftBank, to launch Vision Fund, the world’s biggest tech venture capitalist (100 billion USD). Mubadala has also created a 400 million USD fund to invest in European tech firms.

A record 564 investment deals in 2019

Middle East and North Africa country rankings by number of venture capital investments in startups in 2019

Source : IDATE DigiWorld based on MAGNiTT

National digital transformation and start-up development schemes

To reduce their dependence on oil revenue and revive local economies, digital agendas have been incorporated into national digital strategies. Saudi Arabia’s “Vision 2030” includes an ambitious e-government project, for instance. Also noteworthy is NEOM, the 500 billion USD city of the future mega-project, which advertises itself as an “international” zone based in Saudi Arabia, and spilling over slightly into Jordan and Egypt. Another example is “Digital UAE” which includes the smart city projects of Abu Dhabi and Dubai, and a proactive 5G scheme. Working in partnership with SoftBank and Microsoft, the Mubadala fund is also behind the Hub 71 startup incubator project in Abu Dhabi. UAE has become a hub for FinTech, e-commerce and transport startups. Tech innovation funding in the Middle East was in excess 700 billion USD in 2019 (in more than 500 start-ups), which marks a 12% increase from the year before.

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