Trends 2021

Middle East 2021: Focus on start-ups & AI in post-Covid recovery

In the wake of the economic impact of the travel restrictions caused by Covid-19, the Middle East will be looking to expand on its knowledge economy plans in 2021.

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Trends 2021

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While Covid has caused uncertainty across the globe, its impact in the Middle East has been felt differently. The human cost has been significant, particularly in certain countries, but the economic costs have been the real focus for 2020.

Hardest hit has been Iran with a reported 48,246 deaths and more than 960,000 cases. Reports of a health system on the brink of total collapse and ongoing and emerging geo-political crises have sent shockwaves through the region too. Other countries have seen lower rates and have been able to contain the spread of the virus. Saudi Arabia has had more than 5,000 deaths. The UAE has seen just 572 deaths in total, Qatar 237, Israel more than 2,000. There are concerns about under-reporting and lack of testing in countries like Lebanon and Syria where official figures place the number of deaths at 1,018 and 409 respectively.

Economic fall-out

But it is the economic impact that is sending the most shockwaves through the region. Already facing the need to move away from a reliance on oil and gas as the bedrock of the economy, the Middle East has faced significant threats to its economic stability over the last year.

As demand for oil fell due to travel restrictions as a result of the pandemic, so did oil prices. A price war between Saudi Arabia and Russia in March saw oil prices tumble to the lowest price since 2002, reaching $23.03 a barrel. Following the truce reached in April, oil production was cut by both countries. This combined with intervention by the OPEC saw stabilisation of prices, but the IMF notes that they are still well below pre-COVID-19 levels. “As a result, a large part of the region’s growth revision is driven by weakened activity among oil exporters in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region,” an IMF report said.

This also raises concerns about debt sustainability, with the report going on to say that “debt-to-GDP levels are now projected to reach an average of 95 percent of GDP by the end of 2020 in MENAP oil-importing countries.”

Most worryingly another IMF report stated that “Our economic outlook estimates that, five years from now, countries in the region [Middle East and Central Asia] could be 12 percent below the GDP level suggested by pre-crisis trends — compared with 9 percent for emerging markets and developing economies. What’s more, a return to the pre-crisis trend could take more than a decade.” It is likely that this will trigger an acceleration of transformation to knowledge-driven economies as oil-producing countries seek to mitigate the impact.

Good news for start-ups?

It’s not all bad news though, as interest in the Middle East’s start-up ecosystem has seen increased investment. Building on 2019’s record investment year, which, according to Magnitt, saw a record 564 start-up investments take place across the MENA, amounting to $704 million in total funding, 2020 has not seen a significant slowdown in investment. Magnitt found that as much as $693 million had been invested in the region's start-ups this year.

June saw the MENA challenge hosted by Orange Ventures which expanded seed investment activity for tech start-ups in the Middle East and Africa region. According to Venture Burn, the new challenge aims to finance as many as 100 MENA start-ups over the next five years. The seven initial winners included Egypt’s 7Keema, an e-health platform and Jordan’s Back Office For Business (BOB), an online sale and ordering solution.

In November, $60m venture capital fund, Plus Venture Capital, announced it would invest in 120 early-stage start-ups across the region. The fund founders indicated that this was in preparation for “an anticipated tech boom after the Covid-19 pandemic”. In fact, the feeling was that many of the start-ups in the region were actually doing better as a result of Covid and there were fewer struggling start-ups than anticipated.

Google too is in on the action with its accelerator programme which is funding seed to series A start-ups in the region. The closing date is the end of December. International acquisitions, like Germany’s Delivery Hero scooping up grocery platform Instashop, have also signalled continued faith in the start-up ecosystem.

To Israel’s benefit

Politically the Abraham Accords have been interesting for the tech sector too, signalling the increasing openness towards Israel and its high-tech development. The Accords, brokered by the United States, have created ties between Israel and the UAE and Bahrain. Many now see the UAE as a gateway for Israel’s tech companies to make inroads into the broader region. Israeli entrepreneurs are likely to be the first wave to make the move to Dubai, although larger tech companies may take more time to move into the Emirates.

It will be interesting to see how a Biden presidency might change the way the Middle East positions itself and what impact that might have on knowledge economy plans. The Accords have set the tone for now and the UAE has positioned itself for a more favourable relationship with the US with its strengthened ties with Israel. In contrast, President-Elect Biden has made it clear that he intends to reassess the US’ relationship with Saudi Arabia and that may spell changes for one of the United States’ Middle East allies.

AI accelerates

Artificial Intelligence (AI) has been high on the agenda this year, particularly in Saudi Arabia, which launched its National Strategy for Data and Artificial Intelligence in October at the Global AI Summit. The Kingdom has also signed Memorandums of Understanding (MoU) related to AI with key international tech companies, such as Huawei, Alibaba and IBM.

Building on its Vision 2030, championed by Crown Prince Mohammad Bin Salman, the focus is on changing Saudi Arabia economically and socially to support the goal of becoming a world-leading country recognised for its work and innovation in data and AI. The aim is a top 15 place in terms of AI globally by 2030 and the creation of 20,000 AI and data specialists by that time.

Saudi is also banking on its NEOM project, a $500 billion plan that will create a high-tech urban community in the north-western desert and which has been called the biggest single AI projects in the world. Visions of flying cars and an artificial moon have been marred by accusations of evictions and exclusion. The planned site is home to the Huwaitat tribe, a minority population that spans Jordan, the Sinai Peninsula and the Kingdom.

The Kingdom is not the only Middle Eastern country to be looking to AI. Bahrain launched the Artificial Intelligence Academy at Bahrain Polytechnic, in collaboration with Microsoft and Tamkeen, while the UAE appointed a minister for AI Affairs – the first country in the world to do so.

Overall, it has been a year of crashing downs and optimism-stimulating ups. The challenge for the region in 2021 is capitalising on those strengths – continued interest in start-up investment, a rapid shift to knowledge skills and the potential to reengineer relations with the US – to minimise the impact of the negatives. It’s not going to be an easy ride, but then it is unlikely that any region will emerge from 2020 unscathed.