Saudi Arabia capitalises on technology for long-term gains

Heba Hashem

Wednesday 8 February 2017

It’s no secret Saudi Arabia wants to be a technology hub. After relying on petroleum for decades to generate as much as 87 per cent of its budget revenue, the country is now expanding its focus to become a market leader in other strategic sectors.

The last 12 months saw the government’s Public Investment Fund (PIF) make enormous investments in technology firms, including $3.5 billion in ride-sharing app Uber and $500 million in Noon, an online shopping marketplace that plans to compete with Amazon.

At the same time, Saudi Telecom Company (STC), which is 70 per cent owned by PIF, together with Japanese internet firm Rakuten, pumped $350 million into Careem, Uber’s main rival.

The deal gives the sovereign wealth fund indirect control over 10 per cent of Careem, and came just months after STC joined UAE investors in backing financial website compareit4me with $2.4 million.

Over the next five years, PIF could invest up to $45 billion in SoftBank Vision Fund, which is set to become the biggest investor in the technology sector, according to Softbank CEO Masayoshi Son.

Underlying goal

While commercially driven, many of these large-scale investments also seek to transfer expertise, and in some cases technology rights, to the Middle East’s largest economy.

Taqnia for example, PIF’s technology arm, was specifically created to support innovation in strategic technologies.

One of its latest joint ventures was formed with DigitalGlobe – a provider of high-resolution earth imagery and geospatial solutions – in partnership with King Abdulaziz City for Science and Technology (KACST).

Under the deal, KACST will construct and launch small satellites and will own 50 per cent of their imaging capacity inside of Saudi Arabia and the surrounding region. The satellites are expected to be launched in late 2018 or early 2019.

“Partnering with the premier commercial satellite imaging firm will help propel Saudi Arabia to become a leader in remote sensing and satellite technology,” Dr Turki Saud, chairman of Taqnia and president of KACST, said in a statement.

Taqnia is also behind the country’s first venture capital fund, which was launched in late 2015 in collaboration with local investment bank Riyad Capital.

Directed at small and medium companies in ICT, energy and material science, the $133 million fund will invest globally but will focus more on its two office locations –  Riyadh and Silicon Valley in California.

Fertile ground

Saudi Arabia might not be traditionally known as a tech hub, but the country’s young population and digital habits make it an ideal launch pad for new innovations.

With about 30 million residents, the country is home to the Gulf region’s biggest population – more than half of which are under the age of 25.

Moreover, Saudi Arabia has the largest penetration of Twitter users in the world and the highest per-capita consumption of YouTube, according to Global Media Insight.

This high data usage could be used more productively however, as today it is mostly consumed in entertainment, Khaled Biyari, chief executive of STC, told Financial Times. Nevertheless, it implies that society is ready, he said.

According to the International Data Corporation (IDC), Saudi Arabia will lead the way in Middle East IT spending in 2017, investing around $7.5 billion in transformative technologies such as cloud, big data, social and mobility.

The increasing traction of innovation accelerators, such as the Internet of Things (IoT), robotics, virtual reality, next-gen security, and 3D printing are all expected to boost this spending, IDC said.

Cloud migration

The Saudi public cloud market is especially advancing at a remarkable rate, having grown an impressive 44.5 per cent year on year in 2016 to reach $63 million, according to the research firm.

The growth is attributed to more end-user organisations migrating non-core workloads such as sales and marketing and human capital management to the cloud.

More than a third of Saudi organisations have already invested in cloud services, IDC said.

Hamza Naqshbandi, current principal analyst at IDC, said that the improved availability of commercial data centre space – led mainly by telecom operators – has encouraged the consumption of cloud services in the kingdom.

“As the largest IT market in the region, and still relatively unsaturated when it comes to cloud services, Saudi Arabia represents a considerable revenue opportunity for local, regional, and global service providers,” Naqshbandi said.