Middle East AI dream depends on luring brainpower

Brookfield Infrastructure Partners LP

22/03/2024 06:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Karen Kwok
       LONDON, March 22 (Reuters Breakingviews) - Yasir
Al-Rumayyan is dreaming about artificial intelligence. The
governor of Saudi Arabia’s $700 billion Public Investment Fund
says the country is “fairly well positioned” to be an AI hub.
Unlike some of the more outlandish ideas embraced by senior
Saudis there’s a way to turn these visions into reality – but
that depends on attracting the necessary brainpower, and the
support of AI bigwigs like OpenAI’s Sam Altman and SoftBank
Group’s  9984.T  Masayoshi Son.
    Imagine Al-Rumayyan wanted to create an AI hub from scratch.
He would need semiconductors, implying an ability to produce
chips. He would also need data centres to store and process the
huge amounts of information that go into AI large language
models. Then there’s the intellectual property for the design of
advanced chips, and the know-how that underpins the actual
models themselves.
    Gulf states may not have to do all these things themselves,
though. Take the data centres required to train and run AI
models. Energy represents 60% of their operating costs, and the
UAE and Saudi Arabia not only have copious supplies of low-cost
energy from fossil fuels, but also plentiful scope to expand
solar power. Yet there isn’t currently a lack of investment in
this area – in fact, Western asset managers like
Blackstone  BX.N  and Brookfield are desperate to pile in. Hence
Gulf states could probably find others willing to invest in
their infrastructure, as Amazon did on March 4 in committing $5
billion to Saudi data centres.
    Similarly, there’s no need for these countries to develop
the capacity to physically manufacture semiconductors. True,
chip plants consume lots of energy. But they also require a
plentiful supply of water, which the Gulf region lacks: annual
water demand in Saudi, for example, is nine times higher than
its water supply, according to World Bank data. More
importantly, the production of chips globally is dominated by
Taiwan Semiconductor Manufacturing Co  2330.TW  (TSMC), which
has a near 60% share of the global market. There’s little point
in building domestic foundries when Saudi Arabia could just
outsource production, like most other burgeoning AI markets do.
    Where Saudi Arabia and the UAE do have a problem, though, is
chip design. The Gulf is caught in the middle of an AI arms race
between China and the United States. In August the U.S.
restricted the shipping to the Middle East of thousands of
high-performance chips that TSMC makes in Taiwan for $2.2
trillion AI star Nvidia  NVDA.O . Officials in Washington
want to stop Chinese firms from using Middle Eastern countries
as a backdoor to access the newest chip technology.
    These sorts of curbs threaten the Gulf states’ ambitions.
The best chips are crucial for building AI software at speed.
They helped a UAE research institute create Falcon, an
Arabic-based open-source AI model which trained using 384
Nvidia A100 chips over two months last year. Falcon performed
tasks better than Meta’s  META.O  Llama 2 and on a par with
Google’s PaLM 2. To stand a chance of maintaining this lead and
to compete with the likes of France’s Mistral and OpenAI, the
region needs continuous access to the most advanced chips.
    As such, the best use for the $200 billion that Saudi Arabia
and the UAE have committed to spend on AI-related development is
to create homegrown AI chip design capabilities. If the
intellectual property originates in the Gulf, Riyadh and Abu
Dhabi would be able to send designs to TSMC without restrictions
from the United States.
    The catch here is that designing chips requires deep
knowledge of the industry to avoid missteps, like violating
existing intellectual property. But the Gulf lacks homegrown
talent. Instead, Riyadh and Abu Dhabi will have to persuade the
global AI elite to move from desirable areas like Japan and
California to the Middle East. Even with golden visas and
generous tax rebates in the UAE – and Saudi Arabia recently
easing rules on alcohol consumption – that’s a big ask.
    That’s where the likes of Son and Altman come in. The
SoftBank boss knows all about chip design given his investments
in $130 billion UK player Arm  ARM.O . He is helping 50
SoftBank-backed startups set up offices in Saudi Arabia. The
Japanese entrepreneur wants to raise $70 billion from Middle
East sources to invest in AI chip-design ventures, Bloomberg
revealed citing people familiar with the matter. Meanwhile,
Altman envisages as much as $7 trillion from investors including
the UAE government, the Wall Street Journal reported without
disclosing their sources. Saudi is also discussing a partnership
with venture capital firm Andreessen Horowitz to invest $40
billion in AI, three people briefed on the plans told the New
York Times. Crucially, the bigwigs want the same thing as
Al-Rumayyan and the UAE: the scope to develop high-tech chip
designs that don’t require them to be reliant on Nvidia.
    Maybe Altman and Son will just pocket Saudi and UAE cash and
build their own advanced chip facilities elsewhere on the globe.
That wouldn’t create Al-Rumayyan’s dream of a domestic hub. It
would also revive unfortunate memories of SoftBank’s
ill-fated $100 billion Vision Fund, backed by Saudi’s Public
Investment Fund and the UAE’s Mubadala, which has delivered
an internal rate of return of 4% after roughly seven years.
Son’s AI investment record is also far from spotless:
SoftBank sold its 5% stake in Nvidia for $3.6 billion in 2019.
Those shares are now worth $113 billion.
    Yet imagine if Altman and Son anointed the Gulf as the home
for an Nvidia rival. At the right price, their endorsement could
conceivably entice AI brainboxes from their Silicon Valley
lairs. Given the constantly shifting nature of artificial
intelligence, it wouldn’t guarantee success. But it would at
least give Al-Rumayyan’s vision of an AI hub some hope of
becoming reality.
    Follow @karenkkwok on X
    
    CONTEXT NEWS
    Saudi Arabia plans to create a fund of about $40 billion to
invest in artificial intelligence, with a potential partnership
with Andreessen Horowitz, the New York Times reported on March
19 citing people briefed on the plans. Saudi representatives
have mentioned to potential partners that the country is looking
to back an array of tech startups tied to artificial
intelligence, including chip makers and the data centres that
are increasingly necessary to power the next generation of
computing, four people with knowledge of those efforts told the
NYT.
    The United Arab Emirates on March 11 announced the creation
of a technology investment firm, MGX, which is targeting deals
in artificial intelligence and semiconductors and could surpass
$100 billion in assets. The company will invest in three main
areas: AI infrastructure such as data centres; semiconductors
including logic and memory chip design and manufacturing; and AI
models, software, data, life sciences and robotics. The company
will build on Abu Dhabi’s existing investments in these areas
and deploy capital alongside leading international technology
and investment companies.
    Alat, a newly formed entity owned by Saudi Arabia’s Public
Investment Fund (PIF), aims to invest $100 billion in the
kingdom by 2030, according to a statement by the group on Feb.
20. Its ambitions include contributing $9.3 billion to the
non-oil economy, creating 39,000 skilled jobs by 2030 and
eventually aiming to export its hardware.
    Alat partners with Dahua Technology, one of China’s biggest
surveillance equipment makers, to manufacture surveillance
hardware in Saudi Arabia, and it announced a $150 million
partnership with Japan’s SoftBank Group to manufacture advanced
robotics in the kingdom. It will also work with U.S. firm
Carrier and Saudi’s Tahakom.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Graphic: Middle East investors have yet to go on an AI spending
spree    https://reut.rs/3VuvCRW
Graphic: AI roles in Europe and the United States have grown
sharply    https://reut.rs/4am2MXP
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by George Hay and Oliver Taslic)
 ((For previous columns by the author, Reuters customers can
click on  KWOK/ 
karen.kwok@thomsonreuters.com; Reuters Messaging:
karen.kwok.thomsonreuters.com@reuters.net))