The digital economy has become the latest focus of governments around the world. Defined as the utilisation of information technologies in the production, marketing, and consumption of goods and services, it is impacting nearly all aspects of states’ economic and social lives. Indeed, the digital economy has become an integral aspect of the economic resilience and development of a country, as underscored by the COVID-19 pandemic. Digital technologies are driving innovation, growth, and employment opportunities, contributing around 16% to the global GDP with the potential to reach 24% by 2025 – the equivalent of $23 trillion (USD).[i]

 

How Are the GCC Countries Positioning Themselves?

 

Not wanting to be left out, the Gulf Cooperation Council (GCC) countries are also taking advantage of the lucrative opportunities that the digital economy offers. At present, the digital economy contributes circa 12% to the GDP of the GCC countries — still slightly below the 18% average of developed economies. However, the GCC countries have come far in the last decade, recording significant growth in the sector — at twice the speed of the OECD countries — and have the potential to match the OECD countries by 2025. If they continue on this trajectory, their digital economies have the potential to add up to $255 billion to the region’s GDP, while also creating 600,000 technology sector jobs by 2030.[ii]

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The GCC countries have been heavily investing in the digital economy as part of their economic development plans — or “Visions” — which seek to diversify their economies away from the dependency on oil. The United Arab Emirates (UAE) went even further and adopted a separate Digital Economy Strategy earlier this year, which seeks to double the contribution of the digital economy to 20% of its GDP within 10 years.[iii] Bahrain and Oman have also launched digital-related strategies within the past year to advance the digitalisation of their economies.[iv] To realise and monitor these strategies, several Gulf countries have also established separate bodies, such as Saudi Arabia’s National Digital Transformation Unit and the UAE Council for Digital Economy.

 

On this basis, GCC countries have been implementing new initiatives to foster a more conducive environment for the digital economy. Dubai Internet City, a technology park, and Saudi Arabia’s Neom, a high-tech smart city project, are both examples of hubs that seek to attract and bring tech businesses together. There is also a heavy emphasis on investing in digital infrastructure and technologies; Saudi Arabia, for instance, announced in February 2022, a $6.4 billion (USD) worth of investments in future technologies including a $1 billion (USD) investment from Neom Tech and Digital Company to launch the world’s first cognitive metaverse.[v] Complementarily to this, there is a growing focus on investing in building the skills and capacity of the local population to develop a domestic tech industry; for example, Qatar joined forces with Microsoft in March to launch the National Skilling Programme to train individuals in advanced digital skills.[vi]

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Emerging Regional and Global Digital Players

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The heavy investment in the digital sector has led Gulf countries to emerge as up-and-coming global players in the digital sector. In fact, the region is rapidly becoming an increasingly competitive area for external actors, notably China and the US, as well as the European Union (EU). In particular, China has taken advantage of the US’s pivot toward Asia, which has left a vacuum in the region. As part of its Digital Silk Road, which seeks to position China as a digital leader, Chinese tech companies have successfully penetrated the Gulf market. This includes Huawei, which has inked large 5G contracts with Bahrain, Kuwait, Qatar, Saudi Arabia, and the UAE.[vii] Beyond 5G, Saudi Arabia has several agreements with Huawei and Alibaba on digital infrastructure and artificial intelligence (AI).[viii] Similarly, the UAE has expanded its cooperation with China, including deals with Huawei on fibre-optics and cybersecurity, as well as joint research centres on telecommunications and AI.[ix]

 

This comes to the discontent of the US, as well as the EU, which has been — unsuccessfully —attempting to pressure the Gulf to limit their cooperation with China. The two have been, so far, unable to compete with China, maintaining digital engagement limited with the Gulf. That said, there has been renewed engagement with the GCC countries — the new EU strategic partnership with the Gulf encompasses engagement on the digital economy (for example, 5G, AI, and digital infrastructures) with an emphasis on a human-centric approach.[x]

 

What Does the Future Hold?

 

The GCC countries appear to be on a trajectory to becoming global competitors in the digital economy. That said, to do so and to fully reap the benefits of the digital economy, there remain gaps, which require addressing.[xi] Firstly, reform of the regulatory framework to be readily adaptable to the fast-paced and ever-changing digital sector should be a focus. Moreover, there should be further emphasis on developing the capacity of the national talent pool in digital skills to bolster the domestic digital market. Finally, Gulf countries should strengthen innovation and localisation by providing further funding and creating rigorous strategies that focus on cultivating an ecosystem that supports start-ups and SMEs, including joint initiatives with the private sector, enacting internationally aligned data standards, and creating technology centres.

 

Within this context, there are ample opportunities for the EU to expand its partnership with the Gulf countries. A key component of such cooperation could concentrate on data standards. The EU has vast expertise in the field, specifically through a human-centric lens, having designed and implemented its own data protection and privacy regulation: the General Data Protection Regulation (GDPR). Hence, the EU could provide guidance on best practices on data standards as the GCC countries devise their own regulations. In parallel, EU member states could continue to sign bilateral agreements with the Gulf, such as the recent agreement between Saudi Arabia and Greece to build a data cable project linking the two regions.[xii] Furthering such cooperation between the two would be beneficial to all parties involved, granting both sides access to new markets and investments opportunities.

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31 August 2022

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References

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[i] Oxford Economics, and Huawei, Digital Spillover: Measuring the true impact of the digital economy (Oxford Economics and Huawei, 2017). https://www.huawei.com/minisite/gci/en/digital-spillover/files/gci_digital_spillover.pdf.

[ii] Bahjat El-Darwiche, Tarek El Zein, Dima Sayess, Melissa Rizk, and Raul Katz, Energizing the digital economy in the Gulf countries (Beirut, Dubai: PricewaterhouseCoopers, 2021). https://www.strategyand.pwc.com/m1/en/ideation-center/research/2021/energizing-the-digital-economy-in-the-gulf-countries/energizing-the-digital-economy-in-the-gulf-countries-spread.pdf.

[iii] Emirates News Agency, ‘Chaired by Mohammed bin Rashid, UAE Cabinet meeting approves establishment of UAE Council for Digital Economy,’ Emirates News Agency, April 11, 2022. https://wam.ae/en/details/1395303038462.

[iv] Times of Oman, ‘Oman launches National Digital Economy programme,’ Times of Oman, October 21, 2021. https://timesofoman.com/article/108307-oman-launches-national-digital-economy-programme; Bahrain Information & eGovernment Authority, ‘Bahrain Launches Telecommunications, ICT, and Digital Economy Sector Strategy (2022-2026),’ Bahrain Information & eGovernment Authority, January 12, 2022. https://www.iga.gov.bh/en/article/bahrain-launches-telecommunications-ict-and-digital-economy-sector-strategy-2022-2026.

[v] Wired, ‘Saudi Arabia unveils more than $6.4bn in technology and startup investment at LEAP22,’ Wired, February 2, 2022. https://wired.me/business/saudi-arabia-unveils-more-than-6-4bn-in-technology-and-startup-investment-at-leap22/.

[vi] Microsoft, ‘The Ministry of Communications and Information Technology and Microsoft Officially launch the National Skilling Program and Inaugurate the Digital Center of Excellence in Msheireb Downtown Doha,’ Microsoft News Center, March 17, 2022. https://news.microsoft.com/en-xm/2022/03/17/the-ministry-of-communications-and-information-technology-and-microsoft-officially-launch-the-national-skilling-program-and-inaugurate-the-digital-center-of-excellence-in-msheireb-downtown-doha/.

[vii] John Calabrese, ‘The Huawei Wars and the 5G Revolution in the Gulf,’ Middle East Institute, July 30, 2019. https://www.mei.edu/publications/huawei-wars-and-5g-revolution-gulf - _ftn1.

[viii] Saudi Gazette, ‘Saudi Arabia signs strategic MoUs with three technology giants on AI,’ Saudi Gazette, October 22, 2020. https://saudigazette.com.sa/article/599453.

[ix] Rhett Hatch, ‘What the United Arab Emirates Sees in Huawei,’ National Interest, March 26, 2022. https://nationalinterest.org/blog/buzz/what-united-arab-emirates-sees-huawei-201462.

[x] European Commission, Joint Communication to the European Parliament and the Council (Brussels: European Union, 2022).

[xi] Bahjat El-Darwiche, Tarek El Zein, Dima Sayess, Melissa Rizk, and Raul Katz, Energizing the digital economy in the Gulf countries.

[xii] Saudi Gazette, ‘Saudi Arabia, Greece agree to build data cable project,’ Saudi Gazette, July 27, 2022. https://saudigazette.com.sa/article/623358.