Handelsblatt
By Luisa Bomke, Larissa Holzki
7th of May, 2024
Almost unnoticed by the global public, a
geopolitical competition has emerged over the Emirates. The background to this
is the AI revolution.
The ambassador has coffee served in small glasses in his office. Then Ahmed Alattar gets straight to the subject of this meeting: Artificial intelligence. A week before the meeting, the most important AI company in the Emirates, G42, had announced a billion-dollar investment from Microsoft. The US company plans to invest 1.5 billion dollars in Abu Dhabi. "We have reached a milestone in our AI journey," he says, leaning back and relaxing on the edge of the sofa.
Alattar, in his late 30s, with a three-day
beard and red patterned tie, was sent to Berlin two years ago by the United
Arab Emirates. During his time at university, he had once studied the substance
for which his country is traditionally known: oil. Now he represents how the
Emirates want to be perceived in the world today: young, smart, digital-savvy.
The United Arab Emirates (UAE) wants to
transform itself from an oil state into an AI power. After all, fossil fuels
will only last for a few more decades. The sheikhs need a strategy for the
future to preserve their wealth - and they are relying on AI.
The government appointed an AI minister, Omar
Al Olama, back in 2017. By 2031, 40 percent of the gross domestic product is to
be generated with AI. A new state venture capital fund is to pump billions into
young tech companies. These ambitions have long since attracted the attention
of the USA and China.
The Microsoft deal with G42 is said to have
been negotiated for months. Not only the US government was involved, but also
the US intelligence services. The conclusion of the deal was a geostrategic
coup for the Americans.
Almost unnoticed by the public, an
international competition for technology partnerships with the UAE has emerged
in recent years. The question is which global and technological power can
secure influence in the country often described as the most advanced state in
the Gulf - China or the USA.
Three factors show why the region and its AI
ambitions are so important.
1 The economic situation
"We are the gateway to the rest of the
world," says Ambassador Alattar confidently. A statement that is also
increasingly justified for German observers on the ground. According to Nicola
Lohrey, Managing Partner at the consultancy Rödl und Partner, more and more
companies are using the Arabian Peninsula to gain access to Africa and Central
Asia.
Oliver Oehms from the German Chamber of Commerce
Abroad in Abu Dhabi records the most new registrations from small and
medium-sized digital entrepreneurs. These have included Alexander Fridhi in
recent years. In order to do business in the region, companies need a presence
in one of the Gulf states, he says. "The best way to enter the region is
via the Emirates." Fridhi and his company DDG offer AI solutions for local
family businesses.
"Low barriers to market entry, low
taxes," says Ambassador Alattar, summarizing the formula for success with which
the UAE attracts companies and has developed into a business hub. All
administrative procedures are digital. There is a kind of express gate for
entrepreneurs who are active in future-oriented industries.
Sam Altman, head of ChatGPT developer OpenAI,
said in February that the UAE could serve as a "regulatory sandbox"
for testing AI - a playground where more is possible than elsewhere.
"People act faster here because there are no checks and balances,"
says a diplomat who lives in the Emirates.
These are the economic advantages of an
absolutist system. Free trade agreements yes, freedoms no, that's what
international companies have to accept.
Many do: In the UAE, gross domestic product
grew by around 7.4 percent in 2022, in Saudi Arabia by as much as 8.7 percent.
Across Europe, the figure was just 3.6 percent. And while the International
Monetary Fund expects growth of just 0.7 percent for Germany in the EU and 2.1
percent for North America in 2024, the figure for the UAE is still 3.5 percent.
2. The geographical location
The geographical location also helps: In terms
of the massive power consumption of AI applications, the region even beats all
other locations worldwide due to the virtually infinite availability of solar
energy, says Alexander Fridhi: "Everything that consumes energy is cheaper
on site than in the rest of the world."
Despite the advantages, Microsoft and Co are
only now really building up their infrastructure. Microsoft had already created
computing capacity in the country in 2019, and the Microsoft Cloud has been
available in Abu Dhabi and Dubai ever since. However, the presence in the Gulf
also makes it possible to sell cloud and AI solutions throughout the region, as
the Horn of Africa and Central Asia are geographically close by.
According to experts, however, it is likely to
take another two years to set up further data centers of their own. Elias Aad,
Partner at the Dubai office of management consultants Roland Berger, even says:
"It takes an average of 72 months to build and commission new data
centers."
Local providers therefore still have the
greatest market power on the local cloud market. These include Khazna, a
subsidiary of G42. Microsoft now wants to use its partner's infrastructure to
offer AI solutions from the Emirates in the Middle East, Central Asia and
Africa.
3. New firewalls against China
In order to become an AI state, the Emirates
not only want to be a hub for companies, but also have a stake in the most
important artificial intelligence companies. The sovereign wealth fund Mubadala
recently bought shares in the US company Anthropic, one of OpenAI's most
promising competitors, for 500 million dollars. In future, the investments are
set to reach completely new dimensions.
Mubadala wants to set up the new MGX fund with Microsoft
partner G42 in order to invest globally in artificial intelligence and
semiconductors. According to insiders, it could be worth up to 100 billion
dollars in just a few years.
The international ambitions of venture
capitalists from the Middle East are reflected in the level of investment:
Despite the ongoing crisis on the venture capital market, their international
AI investments had already approached the record level of 2020 again last year.
At that time, the total sum amounted to 246.5
million dollars, in 2023 it was 212 million dollars. In the current year,
eleven new deals have already been recorded, according to an exclusive analysis
by the data platform Pitchbook for Handelsblatt. Mubadala's investment in
Anthropic alone, which is not yet included here, will more than double the
total in the end.
"The UAE has one of the most thriving VC
ecosystems," says Elias Aad of Roland Berger. Many venture capital firms
have set up operations there and more will follow. This makes the destination
even more attractive for AI entrepreneurs.
Investment in AI start-ups has also increased
significantly in the Emirates itself. According to Pitchbook, AI companies
there were able to raise a total of seven million dollars in ten investment
rounds in 2020. Last year, Pitchbook recorded an increase to 96 million dollars
in 29 funding rounds. The trend at the end of April 2024: rising.
However, the growth of the local AI scene could
be hampered by American export restrictions. Today, the USA is able to
effectively control who can advance its AI development. The reason for this is
the domestic chip company Nvidia, whose semiconductors are best suited to the
development of artificial intelligence. This is why restrictions are a kind of
foreign policy tool for the company in times of the global AI revolution.
Since 2023, the Group has needed special
licenses if it wants to supply chips such as the coveted H100 to countries in
the Middle East. In doing so, the US is punishing Saudi Arabia, among others,
which decided to cooperate more closely with China in the field of artificial
intelligence last year, but is also sanctioning the UAE, which has promised
Russia help in circumventing sanctions. In fact, there are difficulties in
building up hardware capacities in the region as a result, says a professor who
lectures in the Emirates.
The Emirates have long tried to maintain
neutrality in international conflicts. However, this is no longer possible in
the hot race for artificial intelligence. The USA and China are competing too
fiercely for the lead in research, and the fear of falling victim to espionage
is too great. As a result, in the deal between Microsoft and G42, the USA has
insisted that the partners must remove Chinese hardware from their systems.
Handelsblatt wanted to know from Microsoft
whether the Emirati partner would be able to use the important graphics
processors in future as part of the joint collaboration and whether G42 would
have had access to these chips even without the involvement of the US company.
However, Microsoft was just as reluctant to comment on this as it was on its
own business in the Middle East.
A diplomat in Abu Dhabi has observed that the
USA is building firewalls against China through local partnerships. The
Microsoft commitments are now a clear signal as to whom the Emirates have
chosen as a partner: They have basically shown the Chinese the door in the
field of artificial intelligence.
"We would prefer to work with both, but if
we have to choose, we will choose America," says a local who is close to
the political decision-makers. The UAE could probably have gotten 1.5 billion
from China. "The point is: In the AI world, it comes down to networking
and the US is much better connected than China."
Some suspect that Microsoft's billion-euro deal
was just the first in a series of US investments. Lamya Kaddor, member of the
Bundestag for the Green Party, says: "This is an obvious paradigm
shift."
Read the original German version on the Handelsblatt website.