The Middle East’s digital economy is projected to grow from $180 billion in 2022 to $780 billion in 2030 or roughly 20 per cent growth per annum, according to the TechGPT report by Switzerland-headquartered bank and financial institution UBS AG. As a percentage of the region’s gross domestic product (GDP), the digital economy is expected to rise from 4.1 per cent in 2022 to 13.4 per cent in 2030, only slightly below the 15 per cent level seen in the US.
This makes the Middle East one of the fastest-growing digital economies globally, thanks to significant new investments during and after the Covid-19 pandemic. The report revealed that the region is currently where China was 10–15 years ago and India 5–10 years ago when the digital inflexion began.
Based on the estimates, the report has urged investors to consider taking part in the recent developments in the region over the decade in two ways. First, is to invest in the right industries, such as software, internet, and data centres.
The other way to benefit from the growth of the digital economy in the Middle East for global players is through investing in equity/venture capital firms.
According to the report, software is the best way to participate in the region’s ongoing digital transformation; as many traditional enterprises will need to upgrade their IT infrastructure to align with the ongoing digitisation of the region. Therefore, software spending in the Middle East is expected to grow 15 per cent per annum, followed by internet-based industries with a 23.5 per cent CAGR. The data centres are the third segment, with strong investments are highly expected in generative AI in the next few years.
Regarding the risks involved in investing in the Middle East’s digital economy, the report highlighted regulations as a global issue as the region is still in the early stages of managing antitrust, competition, labour and pricing-related regulations. Talent is another issue as the region needs to build a robust homegrown talent base including a solid developer ecosystem that matches other global talent pools in Silicon Valley, China, and India.
The path to profitability is another risk for investors considering investments in profitless startups in the Middle East as there will be an ongoing tug-of-war between focus on growth and profitability as we see many tradeoffs.
Additionally, geopolitical tensions between the US and China highlight the need for the region to be self-sufficient as it mainly relies on the West for critical technologies like semiconductors and software. Among all the risks, data privacy is a pressing one given the region’s high vulnerability to cybersecurity breaches. According to data from IBM Security and Ponemon Institute, the cost of a data breach in the Middle East was $8.07 million in 2023, up 8.2 per cent from $7.46 million in 2022.