Russia's comeback to the Middle East
Much has been said about China’s rising trade and investment in the Middle East, particularly in the tech space, but another superpower is now eyeing up the region’s lucrative markets.
Last month, Russia opened its first Russian Centre for Digital Innovators and Information and Communication Technologies in Dubai’s Internet City (DIC), marking its first official foray into the Middle East’s technology sector. The Centre aims to provide Russian businesses with the opportunity to explore the Middle East and North Africa (Mena) and provides support to Russian entrepreneurs, startups and technology companies to better understand and market their products to the region.
“This Centre is a joint [UAE and Russia] government initiative. In 2018 it was agreed between both governments to establish a centre by the joint committee to have this innovation hub,” says Muhammad Shiha, chief executive officer (CEO) of the Russian Centre of Digital Innovation & ICT. “An increasing number of Russian tech entrepreneurs and investors are pursuing new avenues of growth for their organisations.”
Traditionally, Russia’s presence in the region has been politically and militarily motivated, but it seems the country is now hoping to expand its scope and mandate.
“Dubai is technically more than prepared for meaningful and robust cooperation with Russia. It is economically ready and eager to buy and import Russian technology,” says Mikhail Mamonov, deputy minister for digital development, communication and mass media at the Russian Federation.
The two countries have also established a joint fund, part of which will be committed to investing in technology, including in startups.
“Startups are an interesting breed, they don’t have a nationality. Loads of startups go to Silicon Valley, where they can find investors,” says Mamonov. “But I think since we now have a joint fund that will commit part of its resources to technology, we can put in a number of Russian venture capitalists into Dubai and bring Emirati business angels to Russia to see what potential we have.”
Russia is a chief exporter of crude oil and natural gas but given the fall in oil prices and its deteriorating relationship with the rest of Europe, the country is striving to move away from its conventional export products and enter new avenues, particularly in the technology sector.
The country has invested heavily in IT education and has built up its own technological ecosystem. Besides space technologies, the country boasts developments in the fields of smart city and facial recognition technology, cybersecurity and government-citizen engagement – technologies that are in high demand with the governments of the Middle East.
“There were only a few Russian companies that were successful globally and looked outside, [cybersecurity firm] Kasperksy was one,” says Dimitry Doshaniy, country general manager at UAE-based NNTC, which provides IT solutions using Russian technology. “Most technology companies had enough market within Russia. Oil prices were quite high and there was not much motivation to compete on a global scale.”
But over the past few years, Russian tech firms have been venturing out and now, they are looking to sell their products to the Middle East, which is one of the biggest spenders on ICT. According to US-based research firm Gartner, Mena’s ICT spend is likely to reach $160 billion this year, with software accounting for the largest portion of that spend.
The problem however, is that “Russia doesn’t know how to sell its product”, according to Mamonov, a problem that he hopes the Centre will solve.
Besides poor marketing skills, “the maturity of [Russian] technology was not up to the global market”, according to Doshaniy. But the worsening economic conditions over the past few years has forced them to up their game and improve in order to compete.
One sector the country has focused on is artificial intelligence (AI) with the Russian Direct Investment Fund (RDIF) establishing a $2 billion fund with investment from partners in the Middle East and Asia to launch at least 10 AI startups in Russia every year.
“AI will become the key to world dominance in the near future,” said Russian President Vladimir Putin during a high-profile meeting. “The solutions based on AI may be more expensive than traditional ones in the start, but afterwards they provide for such a leap forward that all of the initial investment will be repaid.”
After screening 100 AI projects the RDIF shortlisted 20 of them. The projects under discussion for the first round include a startup which will help with oncology treatments as well as VisionLabs which is a facial recognition company.
“Facial recognition is one of the technologies we are betting on the most, the second is virtual reality. There are industrial use-cases for virtual reality and it has big potential for industrial training,” says Doshaniy.
China’s Sensetime, which specialises in facial recognition technology recently announced it would open its regional headquarters in Abu Dhabi. Given its rather robust use-case in security, it is one technology that many governments in the Middle East are interested in deploying, particularly the ones who are rolling out smart city initiatives. Coupled with AI, facial recognition technology can identify criminals in a matter of seconds and is a powerful tool used by police and security services.
“Dubai is interested in all kinds of smart city topics, it can be technical smartness like buses, cars, security, facial recognition or the social sphere like the interaction between government and citizens,” says Olga Kuznetsova, international projects director at Moscow-based Altarix. “We came here for Gitex last year, we met a lot of different people from the IT and government sphere and we understood it can be interesting and of value to come here.”
Beyond the Wars
In one sense, Russia is already “here”. When the US refused to be pulled into the war in Syria, it created a vacuum that Russia swiftly filled in 2015, backing Syrian President Bashar al-Assad. It sent a clear message to the world – Russia is prepared to put its boots and money on the ground in the Arab world. This enabled it to strengthen its ties with several other Arab countries and slowly began signing multiple, mutual investment deals ranging from weapons, infrastructure and technology.
“Russia has politically returned to the Middle East and all great powers should learn it’s not a game of chess,” says Mamonov. “Mid-ranking powers have a very important role to play – the Emirates, Turkey, Iran for that matter – we work in a totally different political environment now. There is a very natural interest from Russian investors and companies to come to Dubai, it is a good and safe place to keep your money.”
Bilateral trade between Russia and the UAE reached $3 billion in 2018, rising 21 per cent from the previous year, while the number of Russian tourists exceeded 820,000, a hike of almost 65 per cent from 2017.
Like the Chinese government, Russia views the UAE and primarily Dubai, as a hub and stepping stone into other markets in the region.
“Over the years, we have seen a host of organisations, ranging from global tech giants to exciting local startups set up their base within the community and achieve their fullest potential,” says Ammar Al Malik, managing direct at DIC and Dubai Outsource City.” We are keen to offer the same support and enabling infrastructure to Russian technology companies venturing into the region.”
In 2017, Saudi Arabia’s King Salman visited Moscow, the first ever state visit by a reigning Saudi monarch and signed several agreements which included $2 billion purchase of Russia’s S-400 air defence system, the construction of a Russian nuclear power plant and a joint fund worth $2 billion to invest in the technology sector.
Russia has also strengthened ties with Iraq, Qatar and Egypt, where it has pledged some $8 billion in projects, particularly in the oil and gas sector.
According to the Arab Youth Survey, published by ASDA’A Burson-Martseller, 41 per cent of the region’s youth consider the US as a “strong ally”, while 65 per cent consider the same of Russia. In the GCC specifically, 45 per cent see the US as a strong ally while 38 per cent feel the same of Russia. To Doshaniy, this was “strange”, given the GCC’s close ties to the US.
In the report, Hussein Ibish, senior resident scholar at the Arab Gulf States Institute in Washington writes:
“It remains fascinating that, despite Russia’s strong alliance with Iran and intervention in the Syrian civil war, that Washington is only seen as a stronger ally than Moscow by Gulf youth by a few percentage points. Arguably, Russia, which is barely present in the Gulf except as an alternative arms supplier, mainly represents an abstract idea for many Gulf youth, rather than a set of specific relations and policies. Russia’s continued strong showing suggests that its primary appeal could be as a supposed alternative global power to the US, despite Moscow’s relatively tiny Middle Eastern presence compared with Washington’s and a striking global mismatch in leverage and capabilities.”
Politics matters in this part of the world and can influence a whole host of decisions at the very top levels of government.
As Kuznetsova explains, Russian companies now “get a very good reception here. If the UAE is not very happy with US politics, then we receive the best things”.