How is the GCC positioned for the global AI race?

While the US and China battle for AI supremacy, the GCC is quietly building momentum through ambitious strategies, abundant resources, and a balanced geopolitical stance. Could these strengths help the region leapfrog traditional barriers and accelerate its digital transformation?

As the US and China battle for leadership in all things related to Artificial Intelligence (AI), the question for other countries and regions is the degree to which AI innovation poses a threat or an opportunity to their economic model. Several advanced economies are seen to be beneficiaries, whereas many emerging economies are considered to be largely negatively exposed. In this scenario, where do the GCC countries stand?

A recent IMF¹ report examined the state of digital transformation in the GCC and found the region to lag far behind most advanced economies, while being clearly better placed than emerging peers. We believe this analysis understates structural macro and policy strengths, and that the gap with advanced economies is smaller than the report suggests In this article, we focus on strong public policy levers; a competitive advantage in energy; and favorable labor force profiles. Finally, the region’s balanced geopolitical position is an added bonus to consider.

Ambition and resources: The GCC’s strong public policy levers

In the AI race, speed is of the essence and ability to fund is the differentiator. In the US, much progress is driven by private sector forces, but the rest of the world relies on government backing and access to funding as core drivers. Here, the GCC has an advantage, thanks to national development strategies and deep public capital pools that regional governments are willing to deploy to advance strategic AI goals.

• Policy. First, policy clarity is key. Many developed nations are still caught in internal debates about the balance of fostering AI development versus mitigating the risks from AI disruption. This frequently leads to muddled policy objectives. Not so in the GCC, where national strategies like Saudi Arabia’s Vision 2030 and the UAE’s National Strategy for Artificial Intelligence 2031 outline how technology investment should tie directly to economic diversification goals. This is not a verdict on the merits of these policies, but rather the clarity enables all participants to push in the same direction.
• Regulation. Second, this is clearly evidenced in the regulatory approach, which is designed to facilitate those policy objectives. This empowers regional or national actors with regulatory tailwinds.
• Capital. The third, and notably greatest policy edge: the Gulf hosts deep pools of public capital that can be deployed in a coordinated manner toward the sector. So, policy and capital work hand in hand to build the supply side.
• Demand Base. And finally, the public sector also has enormous influence on final demand, so it can tailor use cases for regional AI development to ensure scaling efforts succeed. For example, large modernization programs of public services in the region can experiment with new AI models as well as deployment strategies. This creates a real-life complex marketplace to test and refine winners in the AI space. Other examples extend to the health care or financial sector, where regulatory appetite in the region is much greater, allowing for real-world experimentation. It also helps secure capital raising in the knowledge that there will be guaranteed demand to absorb AI capabilities, at least in the initial stages.

There are considerable efficiency/productivity gains likely to flow from broad digitization of government services. There are wide disparities among GCC countries on this front, with UAE and Bahrain outranking the US in the UN 2024 E-Government Development Index (Data Center), but others lagging considerably. The remote delivery of education and health care services can not only improve options for domestic customers, but potentially open new export markets in previously untapped service industries.

Energy advantage: (Cheap and abundant) power is really powerful

The energy advantage is also obvious. AI relies on advanced computing, which in turn is very power-intensive. Here, the region’s access to cheap energy is a major advantage (Figure 1), particularly as infrastructure constraints and political controversies in advanced economies hamper the pace of growth in data centers in the coming years.

The GCC not only has a very large cost advantage in fossil fuels, but the climate also means it will retain a smaller, albeit, sizable, cost advantage in the dominant renewable power sources as well (solar energy). These differentials are unlikely to shrink in the foreseeable future and could even widen, furthering this regional strength.

Upside opportunities on labor: Less about retraining, more about continued inclusion

In most countries, the rise of AI is associated with the risks of major disruption to the labor market. This is less of a concern for the GCC states, given their relatively low labor force participation rates and the fact that increased female entry into the workforce still has many years to play out. Figure 2 shows the large jumps in labor force participation since 2000.

Moreover, the two leaders in AI investments in the region—Saudi Arabia and the United Arab Emirates—currently have noticeably lower female labor force participation rates than the rest of the GCC countries, so this trend may still play out for coming years. While labor displacement is a prominent concern in many advanced economies, including the United States, this is shaping up as less of a problem in the GCC. The AI-assisted jobs of the future make them especially suitable for deepening labor force participation, especially female labor force participation. Future female graduates can be channeled into areas of job growth, which is easier than retraining existing workers. And to the extent that displacement occurs, it could be more impactful among foreign workers, and thus less politically salient.

Bonus: Fewer geopolitical constraints

Finally, the global AI competition also has a geopolitical dimension, which can present a constraint on regional AI development. Most of the GCC states maintain varying degrees of security alliance with the United States, presumably making it eligible for accessing key parts of the American AI supply chain. At the same time, regional relations with China remain intact, so there is less exposure to Chinese retaliatory policy against the US. In fact, links between sovereign wealth funds and co-investments with Chinese entities offer a geopolitical hedge so that regional AI development faces less disruption risk from geopolitics than other regions of the world.

Investment implications

None of the above ignores the fact that the GCC does not occupy a leadership role in the global AI race. But it should be clear that the region will not be a laggard either. In fact, the durability of policy support, ample capital, and structurally competitive energy prices mean that the gap between the GCC and innovation leaders could actually shrink over time. In this regard, we would expect investment in AI-related areas in the Gulf to remain high and believe regional players will be able to carve out a unique competitive position in the global market.This should help the region gain faster access to AI rollout and deployment, thus lifting productivity gains (in the non-energy sector) early among global adopters. Consequently, higher economic trend growth should deliver higher returns in local equity markets over time.