Innovation at the Crossroads: The Middle East's Bold Journey into AI Dominance

Navigating the AI Surge

In this edition of our weekly newsletter, we explore the dynamic and rapidly evolving landscape of artificial intelligence (AI) in the Middle East. As this region positions itself as a major player on the global AI stage, we delve into the opportunities, investments, and strategic initiatives that are shaping its trajectory.

In 2023, the Middle East experienced a record-breaking year for venture capital investments in generative AI startups. With 39 funding rounds totaling $415.1 million, the region demonstrated a robust commitment to advancing AI technologies. Despite a slight dip in funding in the early months of 2024, the value of deals has consistently exceeded historical norms, underscoring a resilient and growing interest in AI development.

Israel, with its mature venture capital ecosystem, remains a leader in the region, with significant investments in AI startups such as AI21 Labs, which raised $208 million in a Series C funding round. This highlights the country's strategic focus on developing advanced AI capabilities.

Widening Regional Focus

Beyond Israel, other Middle Eastern countries are increasingly investing in AI, driven by a surge in adoption across various sectors. A report from Boston Consulting Group reveals that 93% of Middle Eastern executives plan to increase their AI investments in 2024, signaling a strong commitment to integrating AI into their business models. This is a higher rate than both Europe and North America, pointing to the Middle East's ambitious AI agenda.

Government Initiatives and Policy Support

Governments in the Middle East are keenly aware of the importance of AI in economic diversification strategies, particularly as they seek to reduce dependence on oil. Notably, Saudi Arabia has considered establishing a $40 billion AI fund and founding its own AI companies to foster innovation. Similarly, the United Arab Emirates (UAE) has been proactive, establishing the @Artificial Intelligence and Advanced Technology Council (AIATC) to oversee AI development and policy making. The UAE's national AI strategy aims to position the country as a global AI hub by 2031, with initiatives spanning healthcare, transportation, and education sectors.

Moreover, the UAE has launched ambitious projects like the AI71 initiative, which provides AI developers access to private data from local industries, and Falcon, an Arabic-based open-source AI model. These efforts are designed to boost the UAE's capabilities in foundational AI technologies.

Corporate Engagement

Corporate interest in the region's AI capabilities is also on the rise. Microsoft 's recent $1.5 billion investment in UAE-based G42 is a testament to this trend. This collaboration includes the creation of a $1 billion fund to support the expansion of the region’s AI workforce and development ecosystem, emphasizing the strategic importance of AI in the Middle East's future.

Challenges and Strategic Needs

Despite these advancements, the region faces significant challenges, particularly in the area of high-performance computing and chip design. The Middle East finds itself in a delicate position amidst the global AI arms race, notably affected by U.S. restrictions on high-performance chip exports. These chips are essential for developing advanced AI applications, as demonstrated by the UAE's Falcon model, which leverages NVIDIA ’s A100 chips.

The restrictions have highlighted the vulnerability of the Middle East’s AI ambitions to international politics and supply chain disruptions. To mitigate these risks and ensure the sustainable development of AI technologies, Saudi Arabia and the UAE are advised to invest in developing local AI chip design capabilities. This strategic shift would not only secure access to essential technology but also enhance the region's autonomy in AI development. Companies such as Pearl Semiconductor and Averroes.ai are looking to benefit from this shift with deep expertise in both AI and semiconductor business.

Talent Recruitment and Development

Another critical area is talent development. The region currently lacks the deep pool of homegrown AI talent necessary for sustained innovation and must attract global AI experts to maintain its developmental momentum. Efforts to make the region more attractive to international talent, such as the UAE’s golden visas and Saudi Arabia’s social reforms, are part of this broader strategy.

Shorooq Insights and Looking Ahead

We remain committed to exploring investment opportunities in AI and supporting ventures that are at the forefront of AI innovation. The Middle East's AI journey is not without its challenges, but with strategic investments, supportive policies, and a focus on talent development, the region has the potential to overcome these hurdles and emerge as a leader in AI technology.

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About Shorooq Partners

Founded in 2017, Shorooq Partners is the leading alternative investment manager across the Middle East and North Africa regions. The firm’s venture capital and private credit funds invest in the most innovative seed stage and early stage startups. The firm has built deep sectoral expertise in Fintech, Platforms, Software, Gaming and Web3.0. Shorooq Partners has backed market leading disruptors including Pure Harvest Smart Farms, Nymcard, Tamara, Sarwa, Lean Technologies, TruKKer, Mozn and Lendo. Since its inception, Shorooq Partners was built on the principle of being founders’ partners, company builders and value investors.

Shorooq Partners is a pan regional firm with direct and indirect presence across Abu Dhabi, Dubai, Riyadh, Egypt and Korea.

Shorooq Partners refers to a group of companies that are affiliates of each other and which operate under this business name, of which Shorooq Partners Ltd (regulated by the ADGM Financial Services Regulatory Authority FSRA Registration) is a member