< Back

Artificial Intelligence: Emirates and Microsoft – "A milestone in our AI journey"





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.