Gulf states race to build desert data centres for AI power - but lag behind Europe

UAE and Saudi Arabia both want to become the regional AI superpower, and are building expensive data complexes

The G42 tech conglomerate is central to the UAE’s AI efforts. Its data centre unit, Khazna, operates 23 facilities in the country and has another seven under construction. Photo: G42
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One of the best places to view the Gulf states’ unfolding rivalry over artificial intelligence is inside an unmarked building in an industrial park near a golf course on the outskirts of Dubai. The windowless facility is cool and extraordinarily clean. Upon entering, guests step on to sticky blue floor mats designed to prevent stray sand particles from making their way inside. Like the scorching heat outside, any speck of desert dust could be hazardous to the multimillion-dollar equipment stored within.

The 23,648-square foot (2,197-square metre) complex opened in September, 18 months after construction began. It’s the fourth facility in the United Arab Emirates operated by Equinix, a data centre developer based in Redwood City, California. The company is also weighing expansion into neighbouring Saudi Arabia.

Saudi Arabia and the UAE both want to become the regional AI superpower, and their budding rivalry has kicked off a race to build expensive desert data centres to support the technology. Data centres alone won’t transform any country into an AI heavyweight, but no country can become one without them.

Countries want the facilities within their borders for technological reasons – being close to customers can ease access to services and speed it up – and for geopolitical reasons because the valuable data housed in the servers will be subject to local regulations and insulated from foreign meddling.

In Saudi Arabia, where the economy still relies heavily on hydrocarbons, AI tech is part of Crown Prince Mohammed bin Salman’s Vision 2030 strategy, which aims to identify new revenue sources. It has launched major research centres and ministries devoted to AI and produced large-language models similar to OpenAI’s ChatGPT, as has the UAE.

And both counties are hoarding thousands of customised chips, according to the Financial Times. This week, Bloomberg reported that OpenAI chief executive Sam Altman recently met government officials and investors in the UAE to discuss how the private sector can work with countries to support large-scale AI infrastructure.

In early March, Abu Dhabi announced an AI investment fund that could swell to $100 billion within a few years, and Saudi Arabia’s sovereign wealth fund is in talks with venture capital powerhouse Andreessen Horowitz about allocating as much as $40 billion to AI investments.

“The region is business-friendly,” says Kamel Al Tawil, Equinix’s managing director for the Middle East and North Africa. “The economy is strong. Power prices are stable. We’re seeing a lot of momentum.”

The Gulf countries lag Western Europe in data centres. At the end of 2023, the UAE had 235 megawatts of data centre capacity and Saudi Arabia had 123 megawatts, compared to Germany’s 1,060 megawatts, according to research firm DC Byte. To close the gap, the UAE is planning to expand capacity by 343 megawatts, and Saudi Arabia says it wants to add 467 megawatts over the next few years.

The AI revolution: What does our future look like?

The AI revolution: What does our future look like?

The economic stakes are high. A recent report from PwC estimates that by 2030 AI will contribute $96 billion to the UAE’s economy and $135 billion to Saudi Arabia’s, putting the two states behind only China and North America as regions where AI will have the greatest impact on gross domestic product.

Many observers also describe an unspoken antipathy between Saudi Arabia and the UAE – even as officials deny any rivalry exists. “I cannot stress this enough: I don’t think Saudi Arabia is ever a threat to the UAE, and I don’t think the UAE is ever a threat to Saudi Arabia,” says Omar Al Olama, the UAE Minister of State for AI, Digital Economy and Remote Work Applications.

The UAE is smaller, but it has several advantages. It started building data centres more than two decades ago as part of its Dubai Internet City initiative, which also involved innovation centres and office space, and has 52 data centres in operation, according to DC Byte.

Colm Shorten, a senior director at Jones Lang LaSalle, which operates data centres in the region, says the UAE is the most tech-savvy of the Gulf states thanks to its willingness to try new techniques and equipment. “It’s the place to be, and it will be for the next several years,” he says.

Central to the Emirates’ AI efforts is the G42 tech conglomerate, chaired by National Security Adviser and Deputy Ruler of Abu Dhabi Sheikh Tahnoun bin Zayed.

G42 is ambitious – it is working with Cerebras Systems, a start-up based in Sunnyvale, California, on customised chips to compete with Nvidia’s. Its data centre unit, Khazna, operates 23 compounds in the country and has another seven under construction. Some of these will be devoted to hosting cloud servers for Microsoft, one of G42’s partners.

“Our focus today is, for sure, developing one of the largest data centre clusters in the world right here in the UAE,” says Peng Xiao, G42’s chief executive.

Saudi Arabia, by contrast, has 60 data centres, according to DC Byte, but many have lower power capacities than the Emirati complexes. About half of its complexes were built by Center3, a subsidiary of the kingdom’s largest telecoms company.

Chinese tech giants Alibaba Group Holding and Tencent Holdings also operate data centres in the country, and luxury real estate developer Damac Properties Dubai has pledged to spend $600 million on data centres there. Damac didn’t respond to a request for comment on its plans.

In March, the kingdom announced commitments from tech companies including Amazon to invest $10 billion in data centres.

But Saudi Arabia’s politics – as well as its strict rules governing cybercrime and data protection – have been blamed for discouraging multinationals from working in the country.

When Silicon Valley giants Amazon and Google announced plans in late 2020 to expand cloud-computing operations in the kingdom, the news was met with fierce criticism from civic organisations over the country’s human rights record.

Anthropic, a buzzy OpenAI start-up, ruled out Saudi Arabia’s participation in its coming financing round because of what it described as national security concerns.

But Saudi Arabia offers lower energy rates for large cloud providers. The UAE has held “lots of discussions” about a similar subsidy, according to Mr Al Tawil, the Equinix executive, but nothing concrete has been announced. The UAE’s government media office didn’t respond to a request for comment.

Saudi Arabia is also considering plans that would make it easier for foreign companies to secure approval and licensing to build digital infrastructure. Were those to move forward, it could mean the country “will be ahead by 2030,” says Carl Roberts, a veteran industry adviser with Dubai-based Hadaara Consulting.

The biggest challenge may be just ensuring that the heat-producing, water-guzzling computing facilities needed for advanced AI can operate effectively in the desert.

The latest chatbots and AI models are computationally intensive. Mr Al Tawil estimates that the servers needed to run advanced AI models require up to eight times as much electrical power as those used for corporate email or cloud data storage.

When servers use that much energy, the equipment gets much hotter much faster, which can lead to expensive power cut or even damage. Many operators in the Gulf are turning to novel techniques such as liquid cooling, a method of chilling the equipment directly rather than reducing the temperature of the surrounding air. Other developers have toyed with a more experimental tactic known as immersion cooling, in which servers are submerged into tubs of coolant.

Using unproven methods can be costly, especially when experienced technicians aren’t readily available. “You need hundreds of gigawatts of data centre power for AI, and the infrastructure isn’t there,” Mr Roberts says. “We’re a long way from having these big data centres where AI is the focus.”

Once those data centres do go up, there’s still the daunting task of creating a tech ecosystem from scratch. Mechanical engineers, facility managers and other kinds of technicians are scarce in the Gulf, says Davide Ortisi, head of the consulting firm Data Center Nation, who called the skills shortage a “massive problem.”

The UAE and Saudi Arabia have tried to attract American and European start-ups with promises of computing resources and tax breaks, but only a handful have taken them up on the offers.

So far, none of these challenges has deterred Equinix.

The company’s newest Gulf facility is kept at moderate temperatures year-round, with servers loudly exhaling gusts of hot air. While temperatures outside frequently climb past 110°F (43°C) in the summer, during a visit in milder February, DX3 was fairly empty, with just a handful of server lockers in the cavernous hall. Equinix expects that will change. It’s already leased the land next door.

Updated: April 11, 2024, 9:43 AM