Saudi Arabia is positioned to be one of AI’s global leaders given its combination of capital, natural resources and governance according to Google’s former chairman and chief executive.
“Saudi in particular can become one of the winners, one of the big winners here (in AI) if the country puts the money that's in place now wisely and quickly,” said Eric Schmidt on Wednesday.
“There are discussions within the government here about how to do that,” said the former Google head who shared his views with attendees at the eighth edition of the Future Investment Initiative summit in Riyadh.
He added that he was familiar with the discussions and “they look roughly right to me”.
He spoke hours before Google Cloud announced a major partnership with Saudi Arabia’s sovereign wealth fund, the PIF, to establish state-of-the-art infrastructure in the country’s eastern province of Dammam.
It is hoped the AI hub will generate thousands of jobs that would add an estimated $71 billion to the kingdom’s gross domestic product over the next eight years.
This is an expansion of Google Cloud’s November 2023 launch in Dammam, and expansion of data sovereignty and security services in August of this year.
Mr Schmidt said the simplest way the kingdom could achieve AI leadership is by using its abundant resources and creating facilities that “no one else can build”.
Large pools of capital and energy are needed to build data centres – the foundation of advanced AI – which he said “Saudi Arabia is capable of doing” compared to its global competitors.
“There is a huge shortage of electricity in the developed world. One estimate is that the US will run out of electricity for this kind of stuff by 2028,” he said.
Military AI
Mr Schmidt said that Saudi Arabia and other Gulf countries can use their future leadership in AI to protect areas of high security amid geopolitical conflicts.
The use of drones guided by artificial general intelligence (AGI) is redefining defence and the system of warfare in general. They are much more cost effective and more impactful than traditional military tools.
“The world has an awful lot of tanks. Those tanks are largely useless in that a $5,000 drone can destroy a $5 million tank” with ease as they are guided with increasingly more sophisticated AI, he said.
Traditional readiness systems, which the US air force developed 70 years ago in the Second World War to counter incoming threats, are being updated with drones that are able to automatically and instantly react, Mr Schmidt said.
The rate of AI advancement is happening in real time and on both sides of conflicts, he said, citing the Russia-Ukraine war.
“In Ukraine, any idea on one side is adopted by the other side within three to six weeks, because they’re both watching each other,” he said.
The day before, Tesla CEO Elon Musk virtually joined the FII summit and said that while AI developments will be beneficial, there were also chances of adverse outcomes.
There’s a “10 to 20 per cent chance, that it goes bad”, depending on who gets a hold of it, Mr Musk said.
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UAE currency: the story behind the money in your pockets
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
'Outclassed in Kuwait'
Taleb Alrefai,
HBKU Press
