UAE fast-tracking towards digital economy says BCG

Latest report from Boston Consulting Group (BCG) claims that today, every business, from financial services and healthcare to education and mobility, is embracing digital technology to attract target audiences, automate and optimize processes, cut costs, and grow revenue.

For government decision-makers, the digital economy’s expansion carries major strategic implications. Macroeconomic uncertainties might abound in the short-term, but advances expected from the use of automation, robotics, and a historic explosion of data and intelligence in the coming years, present significant opportunity for unprecedented disruption and wealth creation in the UAE.

The report, titled Charting Economic Opportunities in the New Digital Paradigm,” suggests that Digital technology is projected to have accounted for more than two-thirds of productivity growth over the last decade, and over the next decade, will account for 25-30% percent of global GDP. Positioning economies appropriately can help them remain competitive, overcome productivity lags, and maintain resilience against internal and exogenous shocks.

Recognizing the competitive impetus of the newfound digital age, the UAE is well positioned to carry out its aim to double the contribution of the digital economy to the GDP from 9.7 percent to 19.4 percent within the next 10 years. Under its digital future central pillar, ‘we the UAE 2031’ Vision will further ground the country’s fast-growing Digital Economy Strategy.

On top of that, Dubai’s recent D33 plan is supporting competitive interventions to scale up digital programs across 30 companies so they may become global unicorns in new economic sectors. To this end, D33 launched “Sandbox Dubai” to harness the testing and commercialization of new technologies and therefore gound Dubai ever more as a market-leading innovation hub.

Defining the Digital Economy
The digital world comprises economic activity created by producers and providers across three tiers: core (digital technology sector), narrow (digital utilities and businesses), and broad (digitalized economy).

  • Core: economic activity from producers of digital content, ICT goods and services (including IT and communications businesses that cover hardware, software, and services.)
  • Narrow: adds economic activity derived from firms that are reliant on digital inputs (such as digital services and platforms businesses) – those are generally defined as ‘digital only’ businesses.
  • Broad: economic activity from firms significantly enhanced by the use of digital inputs (including significantly digitalized businesses in e-commerce, industry 4.0, etc.

“Over the next 3 years, digital technology spending (including IT, telecom, and emerging tech such as AI, IoT, blockchain, robotics, etc) in the UAE is expected to reach ~$20Billion. At the same time as the transformation progresses through its core, the narrow tier of the digital economy could progress to make businesses dramatically different from their current shape. The emergence of decentralized and community-driven creation models powered by Web 3.0 is driving user ownership in a new parallel virtual economy and allowing businesses to manifest in other ways as well,” said co-author Thibualt Werle, Managing Director and Partner, BCG.

As metaverse-led investments diversify outside of augmented and virtual reality entertainment into identity, security, and productivity-centered workplace collaboration engines, the UAE metaverse market revenue is expected to surge.

In the broad tier of the digital economy, various sectors could face a ‘bionic future’ where a new logic of competition and economic-digital advantage portends success. In this scenario, businesses would compete on ‘pace of learning’ instead of economies of scale. Iterative improvements to AI models and algorithms, and augmented cognitive machine capabilities blended with flexibility, adaptability, and comprehensive human experience could lead to ‘superhuman enterprises’ that produce competitive advantage.

Response options for governments
Given the massive amount of growth expected middle-ground solutions that allow free data flows while promoting data security and sovereignty require vital consideration. It is also important to identify critical infrastructure sectors whose assets, systems, and networks, whether physical or virtual, are vital, and implement initiatives to manage their risks.

“The digital sector’s multi-trillion-dollar expansion leaves leaders and decision-makers with only two options: adapt to its accelerating pace or be left behind. Thus, by considering how systems can change at the same pace as technology, governments can recalibrate the regulatory framework for a digital-first world. This perspective can help guide thought around the right investments to make in infrastructure, specifically in emerging value pools, to spur innovation and economic opportunity,” added Faisal Hamady, Managing Director and Partner at BCG.

Macro trends that most enhance total factor productivity, i.e., where future addressable markets can allow the digital economy to contribute meaningfully to overall GDP, must be emphasized. This can be done through policies that encourage investments in digital infrastructure and R&D into frontier technologies, such as AI and robotics, and create an environment for innovation that trains or attracts highly skilled and specialized talent.

By collaborating with other public entities to align strategic priorities, governments can help address wide-ranging issues that are gaining prominence such as digital inclusion, social prosperity, and questions around digital ethics including how to eliminate social bias in AI (both from a structural data perspective, and from algorithm definition and training).

“For governments, the digital economy is not an elective. It marks a profound departure from the way that economies have historically been organized and regulated. Tackling this brave new world head-on will prove essential to remaining competitive and relevant on the global scene,” concluded Hamady.