Can the Middle East build its own Silicon Valley?

With a new era of technological change upon us following the large-scale adoption of generative artificial intelligence applications as heralded by ChatGPT, I was reminded this week of the last time we stood at the beginning of the curve when a first-generation iPhone sold for more than $63,000 at auction.

Although there was much fanfare over the Apple device when it came out in 2007, we didn’t comprehend how widespread access to mobile software applications would change our day-to-day lives.

The breakthrough added immense momentum to the digital transformation that had been started by consumer adoption of the world wide web in the 1990s.

The history of the digitalisation of the global economy has been on a long S-curve, disrupting specific industries and segments of sectors, since even before the 1980s.

Each time a device or technology – whether personal computers or mobile phones or AI – has taken hold, society has experienced bubbles and crashes. The businesses that have succeeded over time are the ones that kept evolving their digital capabilities. Amazon is a classic example, changing from a US online book seller to a global behemoth worth nearly $1 trillion and spanning cloud computing, e-commerce and potentially health care with the deal to acquire One Medical.

The Middle East has had an equally non-linear relationship with the impact of technology. The last decade has witnessed a spate of online start-ups with a handful of regional champions emerging such as ride-hailing platform Careem.

Muhammed Mekki, a founding partner at AstroLabs, which has supported and enabled start-ups and tech entrepreneurs, said this week at an event in Dubai celebrating his company’s 10th anniversary, that for him in 2013, it was “definitely palpable … we were really at the beginning of something” in the region.

A decade ago, over the course of about a year and a half, he and his partners got in touch with about 120 start-ups and their founders. This “doubled our excitement about the raw potential, despite a complete lack of ecosystem in terms of funding, regulatory, talent, a lot of stuff that wasn't there … the next thing that we wanted to tackle was [the] thorny, challenging issue [of] community and actually having a home for discussion here in Dubai”.

In 2023, Mr Mekki is seeing the fruition of the past few years with emerging ecosystems for SMEs building new cities in Saudi Arabia, for example, as well as in FinTech, tourism and retail in the kingdom that bode well for the rapid increase of digital sectors.

At the same event, Mudassir Sheikha, Careem’s chief executive, made the point that we still haven’t had a company in the region reach the scale of a Google. This implies both that we have a lot more potential to tap into, in terms of digital growth, but also that there are obstacles to be overcome.

One of those is the fragmentation between markets and countries.

Mr Sheikha said the building of “a $100 billion business, a trillion dollar business in the region, it's just not [going to] happen by just focusing on the UAE. It's also not going to happen by just focusing on Saudi Arabia”. He wondered if anyone could name many UAE start-ups that had found success in Saudi Arabia, or how many Saudi start-ups had succeeded in the UAE.

“So we need to figure out, how do we really take advantage of the scale we have in the region and allow entrepreneurs to more seamlessly access that opportunity,” he said.

Despite a recent softening of macroeconomic conditions across the region, as a result of efforts to control inflation and rising risks that have eroded investor confidence, the outlook is stronger than it was at the end of last year. In the Gulf, we could return to the high rates of growth witnessed in 2022.

The technology start-up scene has also been impacted by the wider picture, and there have been highly publicised job cuts by the largest US companies. Regionally, the tech sector has also seen some cutbacks in both employment and investment.

This will not be a long-term trend. Those that can stay the course during this dip will find plenty of upsides once conditions improve. We will not replicate the Silicon Valley in the Middle East, but there are many entrepreneurs and plenty of talent committed to building an equivalent here that will not only help solve regional problems but will also represent the unique opportunities to be found.

A young population that is highly digitally connected and interested in improving its status and building wealth will help create momentum for the growth of a number of new companies in industries, including health, education, finance and retail.

The next few years will be exciting when the work of the past decade, in terms of building up digital infrastructure, will result in a once-in-a-generation flourishing for the Gulf.