Most Gulf companies stuck in 'pilot purgatory' when using AI

Private sector must move quickly to develop large-scale systems that deliver value, McKinsey report finds

Industry leaders during a panel discussion at the Tech Diplomacy in the Mena Region conference in Abu Dhabi on Thursday. The National

Despite a surge in artificial intelligence adoption across Gulf economies, most organisations are stuck in early-stage experimentation, with few translating their ambitions into large-scale value creation, according to a new McKinsey & Company report.

“While nearly all organisations are using AI, more than two-thirds haven’t moved beyond pilots,” said the study, titled The State of AI in GCC Countries: In Pursuit of Scale and Value.

“Many people still equate AI with models such as ChatGPT. Knowledge of other AI tools and their potential is shallow. So I wouldn’t really say there is adoption at scale. It’s limited,” said one Gulf company executive surveyed in the report.

This and talent are among the main limiting factors to the adoption of effective AI, says Karan Soni, co-author of the report and a core leader of McKinsey's dedicated AI and advanced-analytics arm, QuantumBlack.

"Pilot purgatory is a real phenomenon and it's not a new one," he told The National on Thursday. Pilots are easy and cheap to implement, but they provide no real change in management to the organisation – scaling is very difficult yet transformative, he added.

If you spend $1 on technology, you have to spend $4 to $5 on change management, McKinsey says.

"To extend it to the entire company means you need to get your 20, 30 or 40 recruiters to be able to use that tool effectively in their workflow," said Mr Soni. This can take from weeks to years to see real, transformative change.

"You can affect change management anywhere [in] three to six months. If you're talking about a broader kind of transformation of the entire company, that is a multiyear journey," said the associate who helps lead at-scale digital and AI transformations for businesses across the Middle East and Asia.

This can take from one to four years, depending on the size of the organisation, he added.

Growing adoption

Banking and retail sectors have been at the forefront of adopting use cases of AI among Gulf countries, said Mr Soni. Now AI use is gaining cross sector adoption with industries such as manufacturing and others seeking to become early adopters.

The report finds that 84 per cent of surveyed organisations in the six Gulf countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – have adopted AI in at least one business function.

This is an increase from 62 per cent in 2023. Yet only 31 per cent have expanded or fully deployed AI across their operations. Only 11 per cent are generating measurable financial returns from their investments.

To conduct the report, McKinsey and the GCC Board Directors Institute carried out an online survey of 139 senior executives and boards of directors in the six GCC countries.

In their findings, “high AI usage is out of sync with maturity or value,” the report concludes, warning that the gap between AI leaders and the companies lagging behind is widening.

According to the report, nearly 90 per cent of Gulf executives plan to increase AI budgets next year. But most have yet to align their AI road maps with clear performance metrics. Successful “value realisers” are the top 11 per cent of organisations.

McKinsey also highlights the region’s rapid embrace of agentic AI, which is designed to autonomously make decisions and act with minimal human supervision compared to the more commonly used generative AI.

With global competition accelerating, the consultancy warns that “Many GCC organisations may need to pick up the pace to stay ahead," the report concluded.

Gulf-US ties anchored in defence

Implementing AI that creates value is only possible with proper infrastructure, resulting from global partnerships and foreign direct investment, McKinsey reports.

This is reflective in the money being spent, as capital is moving to the industries of the future.

Greenfield FDI is increasing in industries supporting AI such as data centres, advanced manufacturing, metals and minerals, and also the energy to power it. Together, these make up a 75 per cent share of announced FDI globally.

To win worldwide, multinationals are hedging on bigger bets, with megadeals exceeding $1 billion comprising 47 per cent of deals from 2022 to May this year. This increased from 30 per cent between 2015 and 2019, McKinsey says.

Last week, Microsoft said it is planning to bring its total investment in the UAE to $15 billion by 2029, after the Trump administration's approval to export Nvidia chips for data centres in the country. Before that, in May Saudi Arabia's Humain and Amazon Web Services announced a $5 billion investment to accelerate AI adoption in the kingdom and beyond.

Meanwhile, the relationship between the Gulf and the US has become increasingly anchored in defence, as those regions team up to confront rising threats stemming from the latest technology, industry experts have said.

"As much as emerging technologies and AI have become the driver of the relationship, the anchor remains security and defence because without security none of this is possible," said Bilal Saab, senior managing director of research firm Trends US at the Tech Diplomacy in the Mena Region conference in Abu Dhabi on Thursday.

And with "oil [having] been replaced with AI", security once heavily focused on the energy sector has shifted to new-age infrastructure, most notably data centres, he said.

Talal Al Kaissi, chief global affairs officer of Abu Dhabi AI major G42, said AI and security go hand-in-hand, given the technology is key to several critical sectors that govern society.

"The UAE has experience of deploying consequential technologies, military technologies and peaceful nuclear energy that leadership had the foresight [to adopt several years ago], and that came at a time when AI wasn't even in the line of sight and hydrocarbons were plentiful," he said.

"But the mindset of diversification, not just of the economy away from hydrocarbons, positioned us in a way that created what we have today that capitalises on the UAE's competitive advantages."