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UAE & Saudi Arabia: Economic diversification through SMART tech

Saudi Arabia and the UAE are focusing on using advanced technology to foster economic growth as part of their broader development plans. The success of these initiatives will depend heavily on their ability to attract foreign investment. The UAE stands on a strong footing in this regard, while Saudi Arabia will need to make considerable progress in business environment reform and improving human capital.

 

Economic diversification high on political agenda

Countries across the GCC remain committed to economic diversification and reducing their reliance on hydrocarbons, via various “Vision” development plans. The region’s two largest economies, Saudi Arabia and the UAE, have adopted Vision 2030 and Vision 2021 strategies, respectively. A prominent theme in both is the use of advanced technology to foster economic growth. Both programmes present significant opportunities for companies across the energy, telecommunications, automotive and construction sectors.

 

Flagship projects aim to promote UAE’s knowledge-based economy

The UAE is focusing on developing conspicuous, high-value and technology focused projects as a way to promote the emirates – particularly Dubai and Abu Dhabi – as global technology hubs. One initiative underway is Hub71, which was launched in Abu Dhabi in March 2019 by Mubadala Investment Company, Abu Dhabi Global Market, Microsoft and SoftBank. The facility aims to support technology start-ups and strengthen the country’s entrepreneurship ecosystem. Promoting the emirate as a choice destination for tech companies and building-up technology knowledge domestically is a key component of the UAE’s digital strategy.

Another major project in Dubai is Smart Dubai 2021, which is made up of 100 initiatives across the economy, mobility, environment and others. Besides these flagship projects, the auto and solar power sectors have emerged as investment hotspots, in line with ambitious government initiatives in these areas:

 

 

Saudi Arabia: paving the way for Industry 4.0

The integration of technological solutions into the economy is a key component of Saudi Arabia’s Vision 2030 and there are a number of initiatives underway that will help facilitate this gradual shift towards a digital economy. For example, the development of a 5G network, which Huawei announced it will be deploying in the kingdom over the coming year, will be crucial to the adoption of Industry 4.0.

Furthermore, a handful of companies have announced plans to develop Internet of Things platforms, including Nokia and Siemens and, in a move similar to the UAE, the kingdom has outlined ambitious plans to build a smart city called Neom. In terms of specific sectors that are primed for investment, the cloud computing and smart meter industries have significant potential for growth:

 

 

Attracting foreign investment key to realisation of SMART plans

While the governments of the UAE and Saudi Arabia will play an important role in financing and promoting the technology aspects of their respective Vision agendas, the success of such plans will also be dependent on the ability to attract foreign investment into their economies.

The UAE stands on a strong footing in this regard, given that it has a favourable business environment, a proven track record of commissioning large-scale infrastructure projects and initiatives, and a reputation for attracting skilled workers. In fact, over the last year the Emirati government loosened its foreign ownership and labour restrictions, passing a law permitting 100% foreign ownership in certain sectors in November 2018, and introducing long-term visas for non-GCC expatriates in February 2019.

While there are exemptions to these laws, whereby higher levels of foreign investment will not be permitted, for example in petroleum exploration and production, the utilities sector and within banking and finance activities, the new regulations do highlight a general shift towards greater openness for foreign investment in the country. Illustrating this, the UAE is ranked in first position in the GCC in the World Bank’s ease of doing business index and 11th globally. Moreover, foreign direct investment (FDI) into the country has been steadily rising over recent years, totalling $10.4bn in 2017 compared with $5.1bn in 2008.

 

Inward FDI Stock, in USD millions (Source: UNCTAD)

 

Saudi Arabia presents a far more challenging business environment to navigate, illustrated by the country’s ranking of 5th in the GCC and 92nd globally in the World Bank’s ease of doing business index. Inward FDI has also fallen significantly over the last decade, totalling just $1.4bn in 2017 from $39.5bn in 2008. As highlighted by the individual components of the World Bank’s index, major barriers in Saudi’s business environment include resolving insolvency, trading across borders, starting a business and accessing credit.

In addition to the areas highlighted by the World Bank, weakness in the labour market is particularly pertinent to the realisation of Saudi Arabia’s technology ambitions. Low female participation rates, an uncompetitive education system – particularly in the science, technology, engineering and manufacturing (STEM) disciplines – and the implementation of Saudisation policies that makes employing foreign workers more difficult, are all contributing to a shortage of skilled workers.

 

Ease of doing business index by component, global ranking (Source: World Bank)

 

Labour market reforms particularly pertinent for Saudi

Business environment reforms are underway as part of Saudi’s Vision 2030 and progress has been made, particularly in the areas of digitising business red tape. Going forwards, the government is likely to prioritise its privatisation programme and promote public-private partnerships within its economy.

Policies that could improve human capital in the kingdom include channelling more resources into STEM education and realigning relative public sector and private sector wages. At present, generous public sector compensation packages limit the attractiveness of private sector employment. Even with these reforms, expatriate labour will be essential to the realisation of Vision 2030’s technology aims. As a result, achieving a balance between ensuring Saudi nationals benefit adequately from technology related job creation and limiting labour costs for foreign companies will be crucial.

 

Georgina Hayden is an energy consultant and co-founder of research and analysis firm, North Shore Analysis. She has a special interest in the low carbon economy, and the challenges and opportunities facing stakeholders operating in an increasingly digitalised, decarbonised and decentralised energy system. Before that, she was Head of Power & Renewables Research at Fitch Solutions. She holds a master’s degree in Geopolitics, Territory and Security from King’s College London.

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