“One’s survival depends on its ability to stay awake, adjust to new ideas, remain vigilant and face the challenge of change” – Martin Luther King Jr
Driven by petro-dollars, Gulf Cooperation Council (GCC) countries have witnessed significant economic growth and development over the last 6 decades. However, since the correction in crude oil prices from 2015 onwards, the oil rich GCC states have struggled to maintain the same rate of economic growth and some economies have been adversely impacted. Consequently, the regional governments have an increased focus on economic diversification to reduce oil dependency.
Over the last few years, the technology sector across the GCC states has gradually evolved from a market dominated by reseller and system integration service providers, to an ecosystem nurturing and developing products and services offering artificial intelligence (AI), robotics, Internet of Things (IoT), data analytics, blockchain, 3D printing etc.
Based on an article published by Atlantic Council, the GCC countries have an internet penetration rate exceeding 70% compared to the global average of ~50%. In a recent study conducted by AT Kearney in 2019, the GCC e-commerce market was estimated to reach USD20 billion by end of 2020. With the increasing number of online shoppers, the GCC e-commerce market is set to witness significant growth.
The acquisition of e-commerce platform Souq.com (USD580 million) by Amazon and ride share application Careem (USD3.1 billion) by Uber has established Gulf states as emerging hubs for digital innovation and development. Further, Amazon Web Services has chosen Bahrain as the hub to host its first data centre in the Middle East, which is expected to result in creating thousands of jobs.
Start-ups/ young growth companies are an integral part of the tech sector, driving innovation, disruptive technology and off late have been gaining momentum in GCC. 2019 was an encouraging year for the tech startups, with a record USD704 million in investments across 564 deals (Source: Dtec Ventures – GCC start-up ecosystem) across the GCC states and wider MENA region. Further according to MENA Research Partners, during the last 10 years, Gulf based fintechs have received USD150 million in private fundings, which is expected to reach USD2 billion in the coming decade. The leading startups in the GCC that were able to raise funds include Sarwa (Fintech, UAE, USD8 Million, Series A), Saee (Logistics Tech, KSA, USD2.4 million, Series A), Lorryz (Logistics Tech, UAE, USD1.4 million, Seed round) to name a few.
The novel coronavirus (COVID-19) epidemic which started in December 2019 has had a severe economic and structural impact globally. The World Health Organisation on 11 March 2020, declared it as a pandemic. Governments across the GCC states have been prompt in announcing stimulus and relief packages, with the UAE being amongst the first GCC countries to announce a package amounting to USD34.3 billion (Source: Arab News), which aims to offer relief to businesses particularly SMEs and real estate sector from loan repayments.
Whilst the pandemic is expected to take a toll on the global economy, one sector that is expected to emerge stronger from the crisis is the technology sector. According to the recent edition of The Economist. work is being conducted from home across the major economies, while school and university students are having virtual classes. Given the challenges posed by the pandemic, most businesses were forced to digitally transform in a brief time to ensure continuity.
Demand for online services including online shopping, VoIP, and instant messaging has increased significantly worldwide. E-commerce platforms are experiencing significant increase in users, particularly the ones dealing with daily essentials, utilities, etc. Given the ongoing lockdown, remote working and online schooling is expected to be the new norm probably over the next few months, which has resulted in telecom regulators in the GCC easing restrictions for various VoIP applications. If experts are to be believed, the cost savings due to these temporary measures may also lead businesses to adopt these behavioural shifts as permanent changes.
Encountering the unprecedented challenges posed by Covid-19 pandemic first hand, organisations across the GCC are expected to adopt digital transformation in more aggressive manner. With the objective to optimise cost, drive efficiency and increase enhance customer experience, organisations are expected to adopt disruptive technologies such as AI, robotic process automation, big data analytics etc. AI powered algorithms are being successfully used by Dubai Police to demarcate vehicles employed by vital sectors from that of individuals in breach of the lockdown. Similarly, AI based virtual hospitals and telemedicine services are already being used in KSA and UAE to improve the accessibility and quality of care among patients and healthcare providers.
Public Cloud Services is another segment which is expected to witness a big uptake, given that most of the online services are now cloud based. Cloud based solutions would also help small businesses to optimise their IT expenditure, while simultaneously offering agility, speed and scale. With the increased adoption of technology, investments in cybersecurity would further increase, as data security and malware threats continues to remain one of the biggest challenges for the industry as a whole.
With the current downturn, the investments in new tech start-ups may witness a temporary slump for the year 2020, as investors reserve cash and are on the lookout for quality deals. However, the tech incubators across the GCC and government backed funds are expected to support the technology and innovation ecosystem in the region and keep the momentum going in the start-up arena.
Further, as global interest rates are likely to remain low for some time to come, this would translate to more cash and investment in equities in the future. On return to normalcy, GCC governments would focus efforts on economic diversification with increased vigour, and the tech sector is expected to be at the forefront of this change. Hence, for potential investors which are GCC centric, the technology sector would offer viable/ attractive investment opportunities going forward in the short to medium term.
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