The world has witnessed a series of shocks causing widespread disruption to global supply chains. This has pushed governments to consider adding extra layers of resilience across their networks, in particular, in technology and digital, where competition is intensifying to establish national manufacturing ecosystems. In the Middle East, governments actively pursuing economic diversification and localization should carefully select which technology and digital sectors they wish to build and should attract as tenants those global tech companies that are seeking a regional foothold.
According to the latest report by Strategy& Middle East, part of the PwC network, entitled Localizing high tech industries to build resilience and economic growth, the regional manufacture of three major product areas—advanced materials, advanced components, and advanced products—could be worth around $125 billion in revenues by 2025. Middle East countries should seek to localize that value as much as possible, instead of importing it.
“The COVID-19 pandemic threw into sharp relief the susceptibility to supply chain disruptions and questioned the region's resilience. It was difficult or impossible for companies to secure all the essential components on which they now heavily depend,” said Alessandro Borgogna, partner with Strategy& Middle East. “Localizing tech and digital is therefore vital as it secures the supply of parts and products that are integral to economic and business activity,” he added.
“As competition intensifies to establish national tech manufacturing ecosystems and satisfy captive and global demand, Middle East governments should make the right choices as to which areas they can succeed in,” said Chady Smayra, partner with Strategy& Middle East.
These ecosystems include:
“Companies that invest significantly in R&D warrant special consideration; given the blistering pace of change in the tech industry, these companies are more apt to retain their leadership position and remain viable over the long term,” said Maha Raad, principal with Strategy& Middle East.
Already in the Middle East, NEOM Tech & Digital Company, founded in 2021 as the first subsidiary to be established out of NEOM, is building advanced digital infrastructure. Likewise, the industrialization and innovation strategy of the UAE led by Mubadala projects is focused on localization of high-tech products.
“To bolster the likelihood of success with its localization strategy, governments should target start-ups who are innovating with cutting-edge tech or tenants that hold leadership positions in their industries who, by virtue of their prominence, can attract other companies into their operating sphere,” concluded Raad.