National security first

The collaboration between Microsoft (MSFT) and Saudi Arabia's G42 represents a significant business opportunity, but also raises concerns over the rivalry between the US and China. Indeed, the collaboration has attracted the attention of U.S. officials who are concerned about the potential transfer of sensitive data to China. According to the New York Times, Biden's office even asked the UAE to distance itself from Chinese tech companies, as G42 has maintained relationships with Chinese firms, including blacklisted ones such as Huawei and BGI (Beijing Genomics Institute). Even earlier this year, before the collaboration was signed, G42 announced a reduction in its holdings in Chinese companies. The pressure from Congress was apparently also felt by Microsoft, which announced changes to the cooperation in early August. The giant will now only lease G42's advanced technology, thus ensuring better oversight of its products.

Strategic motivation

The expansion of the partnership of the aforementioned companies is a strategic move not only for the American company, but also for the country, with their goal of achieving dominance in the field of AI. The $1.5 billion investment, which was sealed back in April this year, allows Microsoft to tap into its rich data resources, while G42 is at the heart of the Emirates' ambitions to become a leader in AI and support the growth of this vast ecosystem. Powered by Microsoft's Azure cloud platform, G42 aims to develop and deploy cutting-edge AI services, including a large Arabic language model, build additional data centres and strengthen the ranks of skilled professionals across the Arab region, Asia and Africa. The UAE's intention to become a technology leader through G42, is supported by its collaborations with other giants including OpenAI, Dell, Oracle, Nvidia and Cerebras, with whom they are developing a supercomputer to train AI.

Middle East ambitions

A relaxed political and bureaucratic environment, a more permissive view of using anonymous citizen data as a source for AI training, and favorable tax conditions in the UAE and Saudi Arabia, are enabling faster adoption of AI technologies. In addition, both countries are striving to transform themselves into a global technology hub, aided by significant financial resources from oil and gas revenues. These factors make the region an attractive prospect for technology companies seeking a global presence in AI. [1]

Saudi Arabia and the UAE as leaders

The attractiveness is evidenced by forecasts for the coming years, with PwC predicting that the Middle East should account for around 2 percent of global AI contribution by the end of the decade, which is about $320 billion, with annual growth across the region of between 20 and 34 percent. In light of the huge investment, it is not surprising that PwC expects the largest financial contribution to be in Saudi Arabia, UAE, followed by the remaining countries of the Gulf Cooperation Council grouping (Bahrain, Kuwait, Oman and Qatar) with Egypt in last place. OpenAI CEO Sam Altman also sees prospects in the region, calling it a "regulatory sandbox," an area where AI can train without disrupting the entire system.

The growing tech landscape in the Middle East

The openness of Arab countries in the AI sector has been captured by other companies besides Microsoft. Amazon's (AMZN) subsidiary, Amazon Web Services (AWS), announced in March the expansion of its data center infrastructure into Saudi Arabia. It is due to launch in 2026. The move will see the kingdom join the UAE, where AWS has been available since 2022, and Bahrain, which was the first Middle Eastern region where AWS launched its services in 2019. Google (GOOG) also expanded its footprint into Saudi Arabia just last year, announcing the availability of cloud services and AI in the Dammam area on 20 August 2024, joining Qatar's Doha and Israel's Tel Aviv. In addition, venture capital firm Andreessen Horowitz and Saudi Arabia's Public Investment Fund are in talks to create a $40 billion fund to focus on artificial intelligence, according to CNBC. The country is thus looking to diversify revenue outside of the oil business.

A double-edged weapon?

The proliferation of artificial intelligence in the Middle East brings efficiency, innovation, and a boost to economic growth, helping companies optimize operations and compete with larger corporations. On the other hand, the dominance of tech giants raises concerns about creating a monopoly, limiting options and increasing dependence on a few players. To tackle these challenges, policymakers and leaders should strike a balance by supporting local innovation and initiatives, according to Alexey Sidorov, chief expert at data provider Denodo. World Wide Technology's (WWT) senior vice president of EMEA sales, Daniel Valle, does not see the situation as negative, arguing that through open source platforms, even smaller companies or institutions can share their knowledge to improve technological advancements.

Olivia Lacenova, principal analyst at Wonderinterest Trading Ltd.

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance.They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.