The tech boom in the Gulf Cooperation Council (GCC), and indeed throughout the broader Middle East, is well-documented, with the region’s technology sector growing at a rate far outpacing the rest of the world.
That rapid growth has included a variety of new entrants into the market, as well as increased investment from international companies into the GCC, particularly from Asia. However, with that growth and increased investment comes increased risks and, inevitably, the possibility of disputes.
Rapid growth
The technology sector in the Middle East has seen rapid growth in recent years, with that trajectory only expected to continue as the region looks to diversify away from its traditional reliance on fossil fuels. For example, Mordor Intelligence reports that the ICT market in the MENA region is estimated at US$183 billion in 2024, and is expected to reach US$250 billion by 2029. Meanwhile, UBS Group AG’s TechGPT Compendium report projects that the digital economy in the MENA region could increase from $180 billion in 2022 to $780 billion in 2030—a whopping 20% annual growth. In addition, the digital economy’s contribution to the region’s gross domestic product could rise from 4.1% in 2022 to 13.4% in 2030.
The region is embracing digital technologies to efficiently manage data, optimise supply chains and enhance global competitiveness through product and service modifications. This technological development is impacting all industries, from finance and healthcare, manufacturing and transportation, tourism, construction and the energy transition. It has led to players in the industry choosing strategic alliances as well as mergers and acquisitions in order to meet the growing need for converting current businesses and keeping a competitive edge over rivals.
Broad support—from governments to industry participants
There is broad government support for these developments, with regional governments eager to see the technology industry grow. Although this trend is true throughout the GCC (and the broader MENA region), the UAE and Saudi Arabia are leading the way in terms of investments in the tech sector. To that end, regional governments are implementing policies to foster innovation and entrepreneurship, for example including offering tax breaks, streamlined business registration processes, and access to funding.
It is not just regional governments, however; private enterprises are also playing their part, with broad acceptance of disruptive technologies, such as the Internet of Things (IoT) and artificial intelligence (AI). In addition, ICT operators are focused on developments to be able to monetise 5G network investments, which is expected to boost telecom service revenue in the region.
Some of the key technology trends in the telecommunication and media space include 5G, fiber network expansion, software-defined networks, and IoT network investments, whereas cloud computing and data centers, AI, cybersecurity, and conversational platforms are the important trends in the IT ecosystem.
Finally, the Middle East is also witnessing advancements in emerging technologies, including augmented reality (AR), virtual reality (VR), and metaverse. This trend stimulates innovation and fosters collaboration in the digital transformation sector, contributing to overall market growth.
Increasing co-operation with Asia
The moves to decarbonise and reduce the use of fossil fuels have major oil-producing nations like Saudi Arabia and the UAE focused on future-proofing their economies. This includes converting some of their oil wealth into stakes in successful tech companies and developing a thriving tech scene within their own countries.
However, geopolitics has also played a part.
As GCC governments have embraced adopting digital technologies as a strategic move to promote economic diversification, sustainability, and the development of a thriving digital economy, Asia’s digital cooperation with various GCC countries is increasing, with the region becoming a significant recipient of Chinese technology and digital infrastructure investments. Within this landscape, China in particular has become a prominent player engaging in joint research, technology transfers, and knowledge sharing.
Risks and challenges
This growth does, however, come with risks and challenges.
Data privacy in particular is a prominent concern given escalating cybersecurity violations—IBM has reported that the cost of data breaches in the MENA region surged to $8.07 million in 2023, which is an 8.2% increase from $7.46 million in 2022. This has, in part, resulted in the region’s efforts to invest in robust security measures alongside the implementation of data protection laws. Nevertheless, the heightened risk of cyber fraud is a real dilemma for the region’s companies as they seek to accelerate their digitisation.
Another challenge is the requirement for strong and contemporary infrastructure in order to overcome a shortage of high-speed internet. In addition, the growth of the sector and the pace of change in the region is also leading to potentially unrealistic expectations between the various participants. This in turn is a recipe for contractual disputes between parties, when those expectations are not met—whether in terms of product provided or the timing in which it was delivered.
As companies are seeking to speed up their participation in the digital revolution, inevitably, the region is seeing an increase in disputes activity around technology outsourcing, joint ventures and other technology-related tie-ups. “Buying in” technology becomes an attractive shortcut but with any form of disruption comes legal risks and sometimes reality fails to meet expectations.
This is where the Middle East/APAC dispute resolution dynamic comes into play, as the number of technology-related transactions between Middle East and APAC companies continues to grow because the Middle East is heavily reliant on supply from APAC to foster in digitisation. Naturally, this is facilitating further growth in arbitration in this area, with its inherent suitability for cross-border disputes and confidentiality. This bodes very well for the established regional arbitration centres such as HKIAC, SIAC, and CIETAC, but also developing centres such as SCCA in Saudi Arabia, DIAC in Dubai, and arbitrateAD in Abu Dhabi—particularly as GCC countries themselves develop as technological hubs.
By Randall Walker, an international arbitration partner based in Hogan Lovells’ Dubai and Riyadh offices, and Byron Phillips, a disputes partner based in Hogan Lovells’ Hong Kong office.
