Digital decoupling calls for another Middle East balancing act
https://arab.news/zf4ne
In his book “Digital Darwinism,” Tom Goodwin stresses the need to integrate the digital era into businesses’ DNA. He claims it is only a matter of time before digital technology becomes “like electricity” and a seamless part of our daily lives. In other words, it is about adapting to a digitally transforming world and being willing to make fundamental changes. Digital Darwinism, in this context, refers to the survival of those most capable of adapting within a rapidly evolving technological ecosystem.
On a bigger scale, what applies to a business environment is also true for countries. Goodwin’s observation notwithstanding, the Middle East is in the crosshairs of another challenge in which it is expected to strike a balance between competing global powers. The global trend in question is digital decoupling, especially between the US and China, wherein the Middle East is caught in the vortex. Here is the good news: the region has already adopted a delicate balancing act, aiming to harness technological advancements from both Western and Chinese sources while protecting its strategic interests.
The ongoing debate has also propped up the term “Digital Iron Curtain,” which describes the growing divide in the global digital sphere. It evokes memories of the Iron Curtain of the Cold War era, representing a barrier to communication and collaboration between the East and the West. In the ongoing struggle to stay afloat and relevant, certain countries or regions establish isolated or controlled digital spaces, often motivated by political or ideological reasons. This separation hinders the unrestricted exchange of information, technology and digital services across borders. Indeed, we live in a slightly different yet similarly incendiary world compared to the Cold War.
Several key metrics and statistics illustrate digital decoupling. According to one estimate, US foreign direct investment in Chinese technology firms decreased by more than 50 percent between 2018 and 2021, from $9 billion to $4 billion, while China’s outbound tech investments in the US also fell sharply, from $46 billion in 2016 to just $4.8 billion in 2020. In the 5G network deployment sphere, the share of Huawei, the Chinese multinational digital communications technology conglomerate, in the global telecom equipment market declined from 28 percent in 2019 to 20 percent in 2022 due to restrictions and bans by the US and its allies.
The world of semiconductors is witnessing similar trends, with more pronounced efforts to become self-reliant. Under the CHIPS Act, the US is expected to invest $52 billion to boost domestic semiconductor manufacturing, reducing reliance on imports, particularly from China. Efforts at both ends of the spectrum are on to reduce dependence and boost domestic reliance. What happens in the Middle East as a result can be described as a ripple effect with earth-shattering consequences.
The US-China trade war led to the imposition of tariffs on approximately $550 billion of Chinese goods and $185 billion of US goods by 2021. China’s share of global electronics exports decreased from 42 percent in 2018 to 37 percent in 2022 as countries diversified their supply chains. A study by Peking University’s Guanghua School of Management says the impact of US-China technology decoupling on firm innovation and performance for both countries is ambiguous.
The Middle East has responded to this global phenomenon with a mix of strategic diversification, regional partnerships and investment in local technological ecosystems. Several Middle Eastern countries have formed alliances with Western and Eastern tech powers to avoid overreliance on a single source. They are also investing heavily in developing their digital infrastructure. Saudi Arabia’s Vision 2030 and the UAE’s National Innovation Strategy emphasize domestic capabilities in artificial intelligence, cybersecurity and 5G technology.
The region has also become an attractive destination for global tech companies looking to establish a presence here. Middle Eastern nations are strengthening their cybersecurity efforts to safeguard vital digital infrastructure from emerging threats. The region is also tightening digital regulations and enforcing data localization requirements, driven by a growing determination to exert greater control over digital assets and keep local data securely within national borders.
The race for digital technology leadership transcends traditional borders and intellectual property protections.
Ehtesham Shahid
As technology wars become the new trade wars, these circumstances reflect the tangible impact of digital decoupling, showcasing how geopolitical tensions and strategic considerations are reshaping global trade and technology landscapes. Since global technological leadership is highly valued due to a winner-takes-most dynamic driven by economies of scale and scope, the race for digital technology leadership transcends traditional borders and intellectual property protections.
Daniel Garcia-Macia and Rishi Goyal of the International Monetary Fund argue that the current landscape of mistrust and competition has sparked calls for a “Bretton Woods moment for the digital age.” Just as Bretton Woods established a new monetary order after the devastation of two world wars and the Great Depression, they suggest that global cooperation on digital issues could lead to broad principles and institutions supporting an open international trade framework. Yet, if history is any guide, the trend of digital decoupling seems to be taking us further from that vision.
- Ehtesham Shahid is an editor and researcher based in the UAE. X: @e2sham
