How Saudi Arabia plans to become the Silicon Valley of the Middle East

Full steam ahead

In September, Saudi Arabia issued a royal decree mandating the establishment of the Authority for Data and Artificial Intelligence. This also ordered the creation of the National Centre for Artificial Intelligence and the National Data Management Office. Saudi officials were given just 90 days to make the necessary preparations.

The kingdom is also beginning to test the markets. Zain, a regional telecommunications firm, deployed 5G commercial operations across some 20 Saudi cities in early October, following a roll-out of similar services in Kuwait.

According to Wes Schwalje, COO at Dubai-based research firm Tahseen Consulting, the continued development of the country’s digital economy is the main thrust behind the kingdom’s National Transformation Programme strategy.

“Technology is really the keystone of Vision 2030,” said Schwalje. “The kingdom views technology as an enabler that can improve public service delivery, improve education, generate employment opportunities for youth, and grow the economy in emerging sectors that can support economic diversification.” 

However, Schwalje said these high aspirations will require exceptional execution at a time where there are multiple competing priorities. “The biggest challenge will be in execution,”  he added.

Saudi Arabia has already achieved near universal internet and mobile penetration rates. Its surging smart phone use also bodes well for the digital economy.

“E-government initiatives and a progressive, cooperative approach to building the regulatory foundations of the digital economy in cooperation with the private sector will also be key to digital transformation,” added Schwalje.

Boosting tech entrepreneurship

The Saudi Arabian government aims to raise the contribution of small to medium-sized enterprises (SMEs) to the GDP from 20% to 35% by 2030, and has implemented a range of schemes to achieve this ambition.

Monsha’at (Saudi's General Authority for Small and Medium Enterprises) was established just three years ago, but has already had a positive impact on the nation’s ecosystem – supporting the launch of coworking spaces and hubs, raising the skills of Saudi founders, and building a culture of entrepreneurship.

The kingdom also launched the Saudi Venture Capital Company (SVC) in 2018, with funding worth $1.33bn. These endeavours follow the kingdom’s highly publicised billion-dollar investments in tech companies, such as Uber and Magic Leap, through its state-backed Public Investment Fund (PIF).

According to Jyoti Lalchandani, group vice-president at IDC, Saudi Arabia must continue to invest heavily in its infrastructure and tech support programmes to both retain and entice talented human capital to the region.

“Saudi Arabia’s leadership has made noises about becoming the Middle East’s Silicon Valley, but to do this they need to provide a lot of funding and access to opportunities to gain access to the right level of skills,” said Lalchandani.

He added that the kingdom is rapidly trying to put in place a number of incentives to develop an ecosystem of tech startups. He notes that the kingdom is already “making strides in the right direction” by beefing up its national academic and research and development (R&D) support programmes.

“To develop its tech skills pool, the kingdom will require a mix of local entrepreneurs and specialist skills from the outside – Saudi Arabia has traditionally relied on skills from outside,” said Lalchandani.

Lessons from Silicon Valley

Schwalje said Saudi Arabia has a “very strong” chance of becoming the Silicon Valley of the Middle East.

“Human capital is one aspect of Silicon Valley’s secret sauce, and the other is creating and attracting world-class, high-skill technology companies. Vision 2030 and its significant investments in upgrading human capital has provided a catalyst,” he added.

However, he said a longer-term digital agenda to create a self-sustaining ecosystem on par with Silicon Valley will require a high degree of interdependence among the actors in the technology ecosystem.

“Right now, the kingdom is losing a significant portion of its top-tier tech talent to Silicon Valley and other tech ecosystems around the world,” Schwalje said.

“So its challenge is twofold: building leadership in emerging fourth industrial revolution tech fields, like artificial intelligence, for example, to attract Saudi tech talent home; and developing homegrown tech talent to feed the investments in emerging tech sectors.”

According to Schwalje, an effective near-term strategy would be to incentivise global tech companies to open headquarters in the kingdom to promote repatriation of Saudi tech talent, as well as provide a convincing career track for Saudi youth to consider in investing in acquiring technology skills.

He suggested Saudi Arabia could even make use of low upfront cost technology skills development institutions which use income share agreements to rapidly build workforce tech skills.

“A Saudi coding school which leverages an income share agreement model could be a very shrewd policy approach to shifting the significant costs of upskilling a technology workforce partially onto the emerging tech ecosystem,” he said.

Schwalje noted that Saudi Arabia has traditionally trailed neighbouring United Arab Emirates (UAE) in the technology stakes, but this could be about to change. “The kingdom’s steady, deliberate approach to developing its technology and entrepreneurship ecosystems could close this gap fast,” he said.

“In closing this gap, the sheer size of the task requires an unprecedented level of joined-up execution that is happening as a backdrop to one of the most significant socio-cultural shifts ever seen.”