Middle East Pegged as the New Digital Powerhouse by UBS
UBS has identified the Middle East as the imminent major digital frontier in the global tech landscape. The tech sector in this region is already growing at a rate double that of its worldwide counterpart.
Historically grounded in energy wealth, the Middle East has shown a dramatic shift towards technology. The region's digital economy is projected to surge from $180 billion in 2022 to a staggering $780 billion in 2030, which is approximately 20% annually. Even with such growth, the region's digital economy penetration is forecasted to rise from 4.1% in 2022 to 13.4% in 2030, remaining below the penetration levels of developed economies such as the U.S.
Drawing comparisons to technological advancements in areas like Asia-Pacific, Western Europe, and North America, the Middle East holds immense potential. UBS has emphasized the promising prospects in software, internet, and data centers. The bank also sees immense opportunities in the venture capital/private equity arena, as well as in the realm of cybersecurity. Funding for the region's startups and unlisted companies reached $13.6 billion in 2022, as stated by UBS, using data from CB Insights.
However, the region wasn't insulated from the global impacts of rising interest rates, which have notably affected the venture capital and private markets. Despite this challenge, the Middle East's tech funding was nearly consistent with 2021 figures, a performance UBS deemed “very impressive” in light of the global tech funding slump of 35% that year.
UBS anticipates a challenging environment for global tech funding in 2023, but also notes promising developments, particularly in the AI sector and potential resurgence in internet-focused areas like e-commerce and digital advertising.
The bank anticipates a rejuvenated interest from various stakeholders, including local tech and telecom entities, sovereign wealth funds, and significant global VC/PE funds. Currently, the Middle East accounts for only 2-3% of global VC/PE tech funding. However, given the region's robust growth forecast, more investments are expected to flow in.
Despite the optimism, UBS does caution investors about potential risks. Key challenges encompass the management of antitrust, competition, labor, and pricing-related regulations, given the region's early stages of digital evolution. Talent acquisition and development remain concerns, as does the journey to profitability for startups focusing on growth. Moreover, geopolitical tensions and dependencies on the West for crucial technologies present challenges. One of the most pressing risks is cybersecurity. Citing IBM Security and Ponemon Institute data, UBS highlighted that the cost of a data breach in the Middle East is $8.07 million in 2023, an 8.2% increase from 2022. This statistic is well above the global average, emphasizing the urgency to address the cybersecurity issue. On a positive note, Middle Eastern tech firms have begun recognizing the importance of cybersecurity and are ramping up their investments in this area.
Latest News
Recommended news