The future of Saudi Arabia is technological. At the heart of the Vision 2030 strategy to transform the economy away from oil dependency is a commitment to digital technology as a key enabler of the changes envisaged in the strategy.
At the center of the Kingdom’s investment program is a determination to ally with digital high-tech partners throughout the world, both to reap financial gain and to transfer technological skill back to the Kingdom, via the multibillion-dollar Public Investment Fund (PIF).
Saudi Arabia is not alone in the Arabian Gulf region in seeing technology as the key to economic change. The UAE, with its emphasis on “smart” governance, is also hoping to ride the crest of the wave of enormous technological changes taking place today, in what some have called the Fourth Industrial Revolution.
So it is an appropriate time to assess the state of the technology economy, and to ask whether the investment boom that the sector has witnessed over the past decade or more is sustainable in the long term.
There are some grounds for concern. Some market analysts have begun to question the high values being placed on technology stocks and assets. Others have pointed to the reliance of global markets on the “FAANG” stocks — Facebook, Amazon, Apple, Netflix and Google — for growth.
Between them, those five have been responsible for 40 percent of the gains of the S&P 500 index this year, Goldman Sachs said recently.
Last week, there was a sudden selloff of technology stocks on Wall Street, as some investors feared that the long-running boom was finally running out of steam. For strategists in the Arabian Gulf, the question is whether they have jumped on the technology bandwagon at the wrong time, just as everybody else is piling out.
Because technology was the future once before. Back in the late 1990s, the investment world was gripped by what was called back then “dot-com fever,” as greying investment bankers scoured the trendy hangouts of the world’s tech capitals — London, New York, Tokyo, Bangalore — for youngsters with new ideas for exploiting the opportunities the new-fangled Internet offered. They threw money at any idea that had the .com suffix.
Until the summer of 2000, that is, when the dot-com crash wiped out all those gains in a few months as the same bankers realized that earnings from their investments had not the slightest chance of ever recouping their outlay. The effect spread outside the tech sector to become the first global financial crisis of the new millennium.
If the region is to achieve its goal of getting away from dependency on oil, technology is surely the right way to go.
There are persuasive reasons why the same outcome should not recur this time.
“The key difference between today and the early 2000s is that the recent strength appears justified by improved earnings, both actual and projected,” said Oliver Jones of the London consultancy Capital Economics.
The point is that the FAANGs are now huge, profitable corporations, throwing off billions of dollars in earnings and with real, tangible operations, rather than two grads in a garage with a smart idea.
Some industry experts believe that is just the beginning of the curve, rather than the top. A recent paper from analysts at Bank of America Merrill Lynch argued that the world is being transformed by what it called the “Uberization” of the global economy, in which digital technology takes us to the next stage in consumer-oriented business.
It calls this the “sharing economy” — an umbrella term for a wide range of activities, all of which are being transformed by digital innovation. In transport (hence “Uberization”), accommodation (Airbnb) and retailing (Amazon), among other sectors, “tech-focused models are unlocking the value of unused and underused assets, driving a shift from asset-heavy to asset-light businesses and enabling access over ownership.”
Put simply, the new generation of consumers is not bothered about owning things, so long as they have access to them via economic rental.
The Bank of America Merrill Lynch selects 50-odd stocks that together encapsulate the “sharing economy,” and there are some familiar names, like the companies mentioned above as well as other disrupters like Tesla, Ocado and Expedia.
Most are from the US, many are from China and Western Europe. There are no names from the Middle East, though were it listed you would think that Careem, the region’s very own version of Uber, would be worth a mention.
Saudi Arabia and the UAE are already in this space, via the Vision Fund set up by Japan’s SoftBank in which PIF and Abu Dhabi’s Mubadala are big investors. Separately, PIF is a $3.5 billion investor in Uber itself.
If the region is to achieve its goal of getting away from dependency on oil, technology is surely the right way to go. There will be ups (like the current boom) and downs (like the dot-com bust) along the way, but the power of technology to disrupt and transform economies and financial markets in the long term appears unstoppable.
• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai