The Middle East's digital economy boom will stretch far beyond the Gulf

Even though some countries lag behind, an online regional marketplace is on the horizon

Saudi Minister of Communications and Information Technology Abdullah Al Swaha addresses a tech conference in Riyadh. Saudi Arabia and the UAE are expected to invest a combined $55bn in digital economic transformation this year. Photo: Saudi Ministry of Communications and Information Technology
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In 2006, when the British mathematician Clive Humby declared that “data is the new oil”, his words might have been met with bemusement in the Middle East. At the time, the region produced about a fifth of the world’s oil but – owing to low internet penetration and few smartphones – only a tiny fraction of its data.

It is not so today. While the region has expanded its share of the world’s oil market (now up to a third), the future of its economy is firmly centred on a burgeoning digital economy, where data and wealth generation can grow in tandem.

The growth of the Middle East’s digital economy is advancing with breath-taking speed, according to new research by the Swiss bank UBS. By 2030, it will have grown to $780 billion – a four-fold increase from last year’s figure of $180bn, suggesting a growth rate of about double that of the rest of the world. Analysts at the bank say the Middle East is currently at a digital inflection point comparable to where China was 10 to 15 years ago – a remarkable milestone, considering the scale of digitalisation of Chinese consumer life over the past decade.

Despite the dizzying growth figures, however, there remain extraordinary challenges in realising the vision of a digital Middle East. While the Gulf countries and in particular the UAE embraced digitisation and set a robust infrastructure years ago, many of the region’s countries remain weak, unstable and underdeveloped. For many living in Iraq or Lebanon, where electricity access – let alone internet access – is patchy at best, talk of digitalisation can seem rather fanciful. This is even truer in Yemen, where nearly a decade of conflict has brought infrastructure to its knees.

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The Middle East is currently at a digital inflection point comparable to where China was 10 to 15 years ago

Nonetheless, there are many reasons to be hopeful. Even when one excludes the advancements of Gulf countries, islands of connectivity where internet penetration and usage rates are some of the highest in the world, structural factors in the region make it ripe for a digital boom. The large numbers of internet-hungry young people even in places where internet penetration is low suggest the growth upside is huge.

Perhaps the best example of this potential lies in Egypt, where 31 million of the country’s 107 million people lack internet access. But Egyptians’ level of digital adoption – a measure of how many consumers interact with major industries like banking or grocery retailers through digital means – rivals developed markets in Europe and North America, according to McKinsey, a consulting firm.

Egyptians are also leapfrogging the more “traditional” areas of the digital economy, such as company websites or consumer apps, with a quarter of them preferring instead to make purchases and do business over social media channels. As more places in the Middle East come online, they could become prime markets for “everything apps” – social media-based platforms that branch out into retail and the provision of services . Such platforms are already common in China and thought to be a model for Elon Musk’s plans to transition Twitter into X.

In the more established digital markets in the Gulf, government foresight and strong public policy have attracted investment and boosted consumer confidence in technology. The UAE and Saudi Arabia, the Arab world’s largest economies, have undertaken several initiatives in recent years to promote the use of technology in daily life. According to the International Data Corporation, a US research firm, the two countries are likely to spend nearly $35bn and $20bn, respectively, on digital economic transformation this year.

Indeed, if there is anywhere in the world that Mr Humby’s words ring true today, it is probably the Gulf. But it is unlikely that the Gulf countries’ embrace digital economy will turn out to be a regional exception. If anything, it is an example of the region’s potential being tapped and, in all probability, a sign of things to come.

Published: August 31, 2023, 3:00 AM
Updated: September 02, 2023, 1:12 PM