Tech start-ups see rise in spending as governments and businesses widen AI adoption

Artificial intelligence spending in the MEA region is predicted to increase at a compound annual growth rate of 19 per cent by 2023

AI is expected to contribute up to $215bn to Saudi Arabia's economy by 2035. Reuters

Tech start-ups in Dubai expect spending on Artificial Intelligence to rise in the coming quarters as the regional businesses and governments warm up to the idea of AI adoption as means of growth and creating efficiencies.

"AI needs a lot of experimentation and many companies are still hesitant to invest money as they do not want failures .... this is the biggest challenge facing AI … but this will change soon," Noor Alnahhas, the chief executive of Dubai-headquartered technology start-up Nybl, told The National.

With progressive governments, such as Dubai’s, and commercial enterprises undergoing a digital transformation, start-ups expect a sharper focus on the development of core AI technology, Mr Alnahhas.

Spending on AI in the Middle East and Africa is expected to climb by almost 43 per cent year-on-year to $374.2m by the end of this, beating earlier estimates of $310.3 million (Dh1.37bn), according to the latest report by US research company, International Data Corporation.

Nybl, which is working with the Dubai government on several projects involving AI deployment in government functions and the processes, is developing knowledge-driven solutions using behaviour patterns rather than traditional historic data.

Dubai is the most open city ready to “embrace and accept new ideas”, said Mr Alnahhas, adding that this has motivated Nybl to move its headquarters from Houston in the US to Dubai a year ago.

Saudi Arabia and the UAE, the two biggest Arab economies, are aggressively pushing for AI adoption. The technology sector is expected to contribute up to $215 to the kingdom’s economy by 2035, and add $182bn to UAE's gross domestic product, according to an Accenture report released last year.

Last week, Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai, launched a new initiative, the UAE AI Network, which the authorities said would be a key in realising the UAE's Strategy for Artificial Intelligence 2031.  It brought together governments, private entities, international organisations, start-ups, research centres, academic insitutions, business incubators and accelerators to discuss AI.

Despite the potential of growth and support by the government, some AI start-ups in the UAE are still finding it hard to secure initial funding for their ventures.

“Acquiring funds is not a problem in the UAE .… there are multiple VCs [venture capitalists], accelerators and local government is also supportive. But the main issue is the stage at which you are getting [the] funds,” Mohamed Amine Belarbi, chief operating officer of tech education start-up Realedu, said.

“There is enough series A and B investments … but AI start-ups need more early stage or even pre-seed investments.”

The start-up ecosystem in the Middle East and Africa is “not mature like the US and Europe” but it's improving fast and deals such as Uber-Careem and Amazon-Souk have certainly quickened the pace of improvement, added Mr Belarbi.

“You need to show some traction and revenues to investors before selling them any idea.”

Realedu, which was founded in Stockholm, is currently working with nearly a dozen educational institutes in Dubai and aims to raise funds by the end of next month. Focused on the Middle East market, the company started moving its operations to Dubai about four months ago.

Half of the company's seed round is already committed by Krypto Labs in Abu Dhabi and it is looking the raise the other half, he said without specifying the number.

Financial and retail sector firms are at the front and centre of AI expenditure in the region and together they will account for more than 33 per cent of investment in 2020, followed by governments and the telecoms industry, according to the IDC report.

There are “obvious road barriers” in securing funding when it is an AI idea, especially at an initial stage, said Urvashi Satwani, chief operating officer of Audace Labs, part of the Dubai Future Accelerators programme, which collaborates government entities and private enterprises with potential start-ups.

“Still many big companies or investors think that we are just selling a dream that is far from the real life … their priorities are different,” she added.

Started by fresh college graduates, Audace Labs won a project, earlier this year, to develop an app for Emirates Airlines to streamline the work of its cabin crew.