China’s economic relationship with the MENA region has now expanded way beyond oil. From e-commerce to fintech, from IoT to AI: Chinese presence in the region is fostering the local technology sector, making the area its new hub for innovation
China’s presence in the Middle East and North Africa (MENA) is growing and their economic relationship has now expanded way beyond oil.
Although the MENA region as a whole constitutes the main source of energy supply for the Asian giant, in recent years Beijing’s economic relations with these countries have intensified, extending to many other industries.
The People’s Republic has become one of the main importers in the MENA region. Already in 2016, China-MENA exchange reached the value of $186 billion, exceeding the United States with $148 billion exchanged, and distancing main European countries. Given the potential of economic relations, the Dragon now aims to reach an exchange rate of $600 billion by 2025.
© Unsplash. Doha, Qatar. 52% of Chinese oil imports come from the MENA region, while Qatar alone supplies a third of China’s gas needs.
The MENA region is a wide emerging market and the potential for collaborative growth is thus exponential. Indeed, while the Middle Eastern e-commerce industry is expected to reach $48 billion in revenue by 2021, the competition among international players is also rising.
Among investors, Beijing holds the primacy in the area, followed by the United Arab Emirates (UAE), and the United States. Considering only the countries of the Gulf Cooperation Council, China is the fourth largest investor after the USA, the UAE, and Great Britain.
Since the launch of the Belt and Road Initiative (BRI), the infrastructure sector always represented one of the biggest opportunities for Chinese investments. However, although its involvement in infrastructure projects is seen as crucial in the development of the renewed Silk Road, there is also a strong interest in local technological development.
Today, more and more tech companies from China are choosing MENA countries to place their investments, building research and development centers and startups focused on big data, artificial intelligence (AI) and the Internet of things (IoT). This is particularly true in those countries without oil like Egypt, which thus need to rely on other resources to attract the Dragon’s investors.
While many Middle Eastern startups are based in Dubai, UAE’s major metropolis now represents a key location in the modern Silk Road hosting around 4,000 companies from China.
Moreover, many countries within the MENA region have enough domestic resources to be able to benefit of China’s funding at its fullest. A growing number of countries, in fact, have set up bilateral investment funds with Beijing to finance BRI-related projects.
In addition, smartphone penetration here is greater than 65% and more than two-thirds of the population uses the internet, with penetration in the UAE, Bahrain, and Qatar exceeding 90% and the proportion of mobile traffic increasing year by year. With a population of 400 million people, no wonder why the MENA region is such an appealing market for Chinese investors.
Chinese companies have already targeted Israel, investing over $325 million there in 2018. With those successes, they are now spreading across the Gulf and North Africa investing in sectors such as e-commerce, entertainment, leisure, hi-tech, logistics, and fintech.
© Unsplash. Dubai, United Arab Emirates. While many Middle Eastern startups are based in Dubai, the city also hosts around 4,000 Chinese companies.
For what concerns e-commerce, although Middle East countries have some of the highest levels of per capita income, if compared to other international markets, the MENA region is still an underpenetrated e-commerce area. However, the UAE and Saudi Arabia are the two countries within the region that are highlighting the most substantial growth in the digital commerce sector.
According to predictions, the Middle Eastern e-commerce market will be worth $49 billion by 2021. However, today, MENA is still in its early stages compared to the rest of the world. For this reason, it represents a big room for growth for Chinese e-commerce companies.
Here, China’s giants like Alibaba have a wide customer base, however, an increasing number of enterprises from the Celestial Empire is now entering the competition like JollyChic, which has managed to become one of the largest e-commerce sites in the region, focusing on cross-border trade only.
Nevertheless, the late development of online shopping is due to a complicated delivery process and the reliance on the cash on delivery as the main payment method, accounting for 76% of e-commerce orders. Therefore, logistics and fintech are two important sectors for Chinese investors, considering their growth potential.
In particular, for what concerns fintech, not only e-commerce but also tourism is playing a key role in developing the local digital scene.
The Middle East and North Africa have the most number of Chinese tourists, whose demands for digital payment is opening the potential for both digital payment and online booking.
Here, AliPay and WeChat Pay have managed to build shopping hubs across the region for Chinese tourists. Israel was the first country to accept AliPay when Israeli Credit Card signed a partnership. Since then, Dubai-based lender Mashreq and other financial institutions have jumped at the chance to collaborate.
However, it is the hi-tech sector that attracts the largest number of Chinese companies, whose presence in the area is driving the countries towards technological innovation. In the MENA region, enterprises from the PRC are spreading across the countries thanks to many accommodating government initiatives.
Some examples are the Smart Dubai 2021 project in UAE, Saudi Arabia’s National Transformation Program 2030, Mohamed VI Tangier Tech City in Morocco, and the China-Egypt Suez Economic and Trade Cooperation Zone. All these initiatives create a favorable environment for China-MENA collaboration to foster the region’s technological development. Moreover, some of these governmental plans include IoT and blockchain projects, both areas in which China is currently leading.
In Dubai, Alibaba is committed to building a “Tech Town” together with Dubai developer Meraas Holding, which will house over 3,000 high-tech companies, near the city’s free port Jebel Ali. In North Africa, instead, Huawei recently announced to set up a cloud data center in Egypt.
© Unsplash. Tel Aviv, Israel. In 2018, the first Chinese Enterprises Association in Israel was launched with the aim to favor bilateral relations, thanks to which China is now Israel’s first partner in Asia and the third in the world.
China’s second largest search engine Sogou is also going to bring artificial intelligence to the next level in the Middle East, just like it did in the PRC. The company that, together with Xinhua News Agency, launched the first Chinese-speaking android news anchorman is now ready to launch an Arab-speaking version even in the United Arab Emirates.
According to a press release, the company will develop an AI anchor to present news in Arabic and English on multiple channels of Abu Dhabi Media. “This marks the first time that Sogou’s AI News Anchor technology is being leveraged by an international media platform,” said Wang Yanfeng, general manager of Sogou’s Voice Interaction Technology Center.
The use of AI and advanced technology will not only improve the quality and efficiency of the media sector in both UAE and MENA countries but it is also “writing a new chapter in the Arabic media industry”, as Ali Bin Tamim – director general of Abu Dhabi Media – said. A chapter that will hold China’s signature.
The Middle East and North Africa have a lot to gain from the free-market area the “One Belt One Road” initiative is going to build. But the region is already leveraging its intense relationship with the Dragon.
If the relationship with Israel is one of the most dynamic examples, China’s interests in the region are destined to increase and extend to different developing sectors and, just like in Southeast Asia, Chinese companies will represent the driving force behind the technological development of the MENA region.
The Dragon’s know-how and funds are boosting the local scene helping MENA countries to be competitive in the worldwide market and, above all, to become suitable partners in the BRI project in order to share a common technological development soon.
MORE ON THIS TOPIC