Middle East AI dream depends on luring brainpower

Middle ground. Yasir Al-Rumayyan is dreaming about artificial intelligence. The governor of Saudi Arabia’s $925 billion Public Investment Fund says the country is “fairly well positioned” to be an AI hub. Unlike some of the more outlandish ideas embraced by senior Saudis there’s a way to turn these visions into reality – but that depends on attracting the necessary brainpower, and the support of AI bigwigs like OpenAI’s Sam Altman and SoftBank Group’s Masayoshi Son.

Imagine Al-Rumayyan wanted to create an AI hub from scratch. He would need semiconductors, implying an ability to produce chips. He would also need data centres to store and process the huge amounts of information that go into AI large language models. Then there’s the intellectual property for the design of advanced chips, and the know-how that underpins the actual models themselves.

Gulf states may not have to do all these things themselves, though. Take the data centres required to train and run AI models. Energy represents 60% of their operating costs, and the UAE and Saudi Arabia not only have copious supplies of low-cost energy from fossil fuels, but also plentiful scope to expand solar power. Yet there isn’t currently a lack of investment in this area – in fact, Western asset managers like Blackstone and Brookfield are desperate to pile in. Hence Gulf states could probably find others willing to invest in their infrastructure, as Amazon did on March 4 in committing $5 billion to Saudi data centres.

Similarly, there’s no need for these countries to develop the capacity to physically manufacture semiconductors. True, chip plants consume lots of energy. But they also require a plentiful supply of water, which the Gulf region lacks: annual water demand in Saudi, for example, is nine times higher than its water supply, according to World Bank data. More importantly, the production of chips globally is dominated by Taiwan Semiconductor Manufacturing Co (TSMC), which has a near 60% share of the global market. There’s little point in building domestic foundries when Saudi Arabia could just outsource production, like most other burgeoning AI markets do.

Where Saudi Arabia and the UAE do have a problem, though, is chip design. The Gulf is caught in the middle of an AI arms race between China and the United States. In August the U.S. restricted the shipping to the Middle East of thousands of high-performance chips that TSMC makes in Taiwan for $2.2 trillion AI star Nvidia. Officials in Washington want to stop Chinese firms from using Middle Eastern countries as a backdoor to access the newest chip technology.

These sorts of curbs threaten the Gulf states’ ambitions. The best chips are crucial for building AI software at speed. They helped a UAE research institute create Falcon, an Arabic-based open-source AI model which trained using 384 Nvidia A100 chips over two months last year. Falcon performed tasks better than Meta’s Llama 2 and on a par with Google’s PaLM 2. To stand a chance of maintaining this lead and to compete with the likes of France’s Mistral and OpenAI, the region needs continuous access to the most advanced chips.

As such, the best use for the $200 billion that Saudi Arabia and the UAE have committed to spend on AI-related development is to create homegrown AI chip design capabilities. If the intellectual property originates in the Gulf, Riyadh and Abu Dhabi would be able to send designs to TSMC without restrictions from the United States.

The catch here is that designing chips requires deep knowledge of the industry to avoid missteps, like violating existing intellectual property. But the Gulf lacks homegrown talent. Instead, Riyadh and Abu Dhabi will have to persuade the global AI elite to move from desirable areas like Japan and California to the Middle East. Even with golden visas and generous tax rebates in the UAE – and Saudi Arabia recently easing rules on alcohol consumption – that’s a big ask.

That’s where the likes of Son and Altman come in. The SoftBank boss knows all about chip design given his investments in $130 billion UK player Arm. He is helping 50 SoftBank-backed startups set up offices in Saudi Arabia. The Japanese entrepreneur wants to raise $70 billion from Middle East sources to invest in AI chip-design ventures, Bloomberg revealed citing people familiar with the matter. Meanwhile, Altman envisages as much as $7 trillion from investors including the UAE government, the Wall Street Journal reported without disclosing its sources. Saudi is also discussing a partnership with venture capital firm Andreessen Horowitz to invest $40 billion in AI, three people briefed on the plans told the New York Times. Crucially, the bigwigs want the same thing as Al-Rumayyan and the UAE: the scope to develop high-tech chip designs that don’t require them to be reliant on Nvidia.

Maybe Altman and Son will just pocket Saudi and UAE cash and build their own advanced chip facilities elsewhere on the globe. That wouldn’t create Al-Rumayyan’s dream of a domestic hub. It would also revive unfortunate memories of SoftBank’s ill-fated $100 billion Vision Fund, backed by Saudi’s Public Investment Fund and the UAE’s Mubadala, which has delivered an internal rate of return of 4% after roughly seven years. Son’s AI investment record is also far from spotless: SoftBank sold its 5% stake in Nvidia for $3.6 billion in 2019. Those shares are now worth $113 billion.

Yet imagine if Altman and Son anointed the Gulf as the home for an Nvidia rival. At the right price, their endorsement could conceivably entice AI brainboxes from their Silicon Valley lairs. Given the constantly shifting nature of artificial intelligence, it wouldn’t guarantee success. But it would at least give Al-Rumayyan’s vision of an AI hub some hope of becoming reality.