Unlocking Potential: How Artificial Intelligence Could Revolutionize Arab Startup Dynamics

• Arab startups increasingly adopt AI despite concerns, reflecting optimism and apprehension, pushing them to develop models using advanced AI.
• AI could boost global productivity by 1.5% annually, potentially increasing GDP by 7%, totaling $7 trillion, and addressing income inequality, fostering innovation.
• AI offers economic growth in MENA but faces challenges like income disparity, cultural barriers, and lack of Arabic AI applications.

Entrepreneurs are increasingly integrating artificial intelligence into their startups despite concerns over potential disruptive impacts. While some are optimistic about the benefits and economic advantages, others worry about the consequences of this technology. Nevertheless, entrepreneurs are racing to build their business models and operational plans using advanced AI applications.

Artificial intelligence has now become an integral part of many fields. Arab entrepreneurs are also joining the global race by building applications and platforms that operate through innovative mechanisms and algorithms. They are also developing their startups and products to fit this new era.

By 2030, it is estimated that the Middle East and North Africa region will produce $320 billion in added value from AI.

According to a report by the International Monetary Fund (IMF) in the December issue of its “Finance & Development” magazine, artificial intelligence technology could increase productivity growth by 1.5% per year over the next ten years. As a result, global GDP could increase by 7%, equivalent to an additional output of $7 trillion. Some experts predict that global economic growth could reach 10%, with global output rising by more than 30% annually, thanks to the implementation of AI technology.

The IMF report highlights the concept of “productivity locomotion,” which refers to the idea that technological progress leads to increased productivity, higher net wages, and overall economic prosperity.

AI technology, in particular, can help reduce income inequality by enabling less experienced or knowledgeable workers to perform better in their jobs. This, in turn, frees up human workers from tedious routine tasks, allowing them to focus on creativity and innovation, which ultimately leads to increased productivity and a better work environment.

Moreover, implementing AI techniques encourages decentralized innovation, which can be more effective across many small companies than in large companies. This can lead to more innovators choosing to own small companies rather than being employed by larger companies.

As a result, the prolonged industrial concentration may begin to collapse as smaller companies close the technological gap with their larger counterparts or even surpass them to gain more market share.

As the use of artificial intelligence (AI) continues to grow, some entrepreneurs in the Arab world are taking advantage of new technologies to develop their products and services. They are creating applications that utilize the Arabic language in their work to cater to the region’s specific needs.

According to a report by Magnitt titled ‘The Potential Impact of Artificial Intelligence in the Middle East and North Africa Region,’ the opportunities for AI in the region are massive, as it shifts its focus from oil to investment in technological innovation for economic progress. The report predicts that the annual growth in the economic contribution of AI will be between 20% to 34% throughout the region, with the UAE and Saudi Arabia expected to have the highest rates.

Entrepreneurs like Amin Al Tajir, CEO of Bahrain-based InfiniteWare, have already started incorporating AI into their businesses. Al Tajir believes that AI will change entrepreneurship and the economic system in the Middle East, and his company is employing more talents who support the use of the Arabic language. They also expand into Saudi Arabia, where they plan to improve their Arabic-language AI applications.

Other companies are already using AI to improve their operations. For example, FIMA PR, a public relations company operating in Turkey, Saudi Arabia, and the UAE, uses AI to write content for events and social media platforms. According to Ezz Eldeen El-Masry, Director of Communications and Partnerships at FIMA PR, using AI accelerates the content writing process, reduces the burden on employees, and allows them to handle more projects simultaneously.

Mustafa El-Masry, founder of InPartners, also believes that AI saves time and labor, reduces capital and management costs, and helps businesses understand customer needs and guide strategies based on market data and trends. AI can handle tasks such as marketing, accounting, analysis, and customer communication, reducing human employees’ needs. Additionally, AI can facilitate business planning, organization, evaluation, and performance improvement.

Several countries in the Middle East and North Africa region, including the UAE, Egypt, and Saudi Arabia, have already published their own AI strategies. These strategies have led to specific government-led initiatives related to AI, and significant improvements have been observed due to the value of automation relying on AI, remote work, and changes in consumer habits.

Magnitt’s report also predicts that 45% of current businesses in the Middle East will be automated, reflecting increased efficiency and opening the door for companies to increase their profits. This is evidenced by the expected increase in GDP for the UAE by up to 14% in 2030, as a result of the expanded use of AI applications.

Artificial intelligence (AI) has numerous advantages for companies, investors, and consumers, but it can also be a “double-edged sword” with effects that can be dangerous. The International Monetary Fund has warned that automation of routine jobs using computers and other information technology may widen income inequality by polarizing the workforce into high- and low-income brackets.

While executive and gateway jobs are retained, AI has replaced some middle-class office jobs, and it is expected to lead to increased income inequality as technicians and managers design and implement AI to replace many types of human work. This will likely result in lower wages for many workers.

However, several challenges are hindering the utilization of AI in some markets in the Arab region, such as cultural challenges, the extent to which some consumers understand advanced products and how to use and interact with them, the scarcity of talents and skills in that specialization in the region, and the fact that AI does not extensively support the Arabic language.

The IMF also warns that developing AI models may become more costly than ever, and it is a massive initial cost that only large companies can bear. Furthermore, it requires training on large datasets already possessed by large institutions and not by small companies. For example, training a GPT-4 model costs over $100 million during its initial development and requires around $700,000 daily operation costs. The standard cost of developing a large AI model may likely reach billions of dollars.

Dealing with AI requires expertise because it executes commands literally, sometimes failing to accurately understand user intent. Additionally, there is a scarcity of Arabic-language AI applications that both work with and understand the language.

Challenges facing startups applying AI technologies in the region include a lack of diverse local data reflecting market realities and customer needs, and a shortage of qualified and trained human resources in AI, programming, and data analysis. Other difficulties can be in obtaining the necessary funding for developing and marketing innovative products and services, the absence of clear and uniform legislation and policies regulating the use and protection of AI technologies and associated data, and resistance from some market players to embracing change, innovation, and trust in new technologies.

However, AI represents a significant opportunity for startups to achieve high profits by developing products, reducing operational expenses, minimizing human errors, and decreasing production time, ultimately reducing the final cost of the product or service, positively impacting prices, and allowing for an increase in customer base. Therefore, regional countries and their economic institutions need to develop specialized programs to encourage Arab entrepreneurs to invest in this vital field according to the needs of each market and to encourage investors and venture capital firms to finance startups adopting AI in their operations. This should be accompanied by the establishment of regulatory frameworks to mitigate the negative effects of such advanced technologies on the job market and employment.