The AI Gold Rush: How Sovereign Wealth Funds (SWFs) are powering Middle East's AI Revolution

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In this edition, we will talk about the Sovereign Wealth Funds and their AI investments.

The Oil-rich Middle Eastern countries, primarily UAE, Saudi Arabia, and Qatar, are shifting away from their dependence on oil-based economies for several reasons. Primarily, they seek economic stability by reducing vulnerability to fluctuating oil prices and ensuring long-term sustainability as oil reserves diminish. Diversification also aims to create new job opportunities, align with global environmental efforts, promote social development, and foster innovation and technology. This transition necessitates significant investments and policy reforms to build diverse, resilient economies beyond the oil industry.

As part of this strategy, these countries are heavily investing in the latest technology, Artificial Intelligence, and trying to establish themselves as “AI epicentres” of the world. They aspire to both influence global AI policy and increase the economic contribution of AI and its related technology sectors, such as cloud infrastructure and services.

To make the Gulf region the AI powerhouse, the investments are being made by the “Sovereign Wealth Funds.”

What are Sovereign Wealth Funds (SWFs)?

Sovereign wealth funds (SWFs) are state-owned investment funds, typically created by governments to manage and invest their countries' financial reserves. These funds invest in various asset classes such as stocks, bonds, real estate, infrastructure projects, and alternative investments both domestically and internationally.

Abu Dhabi Investment Authority (ADIA) ($943 billion), Kuwait Investment Authority ($803 billion), Saudi Arabia’s Public Investment Fund ($700 billion) and Qatar Investment Authority ($450 billion) are among the Top 10 global SWFs. According to the Sovereign Wealth Fund Institute, the region’s ten largest sovereign wealth funds combined manage nearly $4 trillion.

SWFs have changed their invesment strategy ?

There has been a massive shift in the role of gulf SWFs. They have now veered from traditional practices of safeguarding wealth to more experimental and high-risk strategies to diversify national economies from oil dependency, while also promising high returns.

Sovereign Wealth Funds are government-controlled Funds with deep pockets

SWFs have become go-to-investors in everything from AI technology to chips and infrastructure.

Some notable AI investments made by the Gulf governments:

1.????? Abu Dhabi formed Artificial Intelligence and Advanced Technology Council (AIATC), which announced a new global tech investment company, MGX, focusing on AI infrastructure, semiconductor, and AI core technology. G42?and?Mubadala?have been named as foundational partners in the new company, which according to?Bloomberg, aims to achieve a target of $100 billion of assets under management.

2.????? Saudi Arabia’s Public Investment fund is partnering with US-based celebrated Venture capital firm Andreessen Horowitz (a16z) to create a $40Bn AI fund.

3.????? Qatar’s Qatar Investment Fund pledged to invest $10.9Bn in French startups and tech-funds focusing AI, semiconductor, Healthcare etc.

4.????? Aramco Digital is investing $7.5Bn on the digital transformation of the Middle East, working with Groq, the US-based chip and AI-solutions company.

5.????? Saudi Arabia puts $1Bn behind its Gen-AI startup accelerator programme and developing the ecosystem around it, in collaboration with Saudi Data and AI authority (SDAIA).

6.????? Saudi Aramco launched a 250Bn parameter LLM model called METABRAIN, world’s largest LLM trained on 7Tn tokens. It also promised to deliver 1Tn parameter model by the end of 2024. ?

7.????? UAE signed digital infrastructure MoU with Azerbaijan, Egypt, India, Indonesia, Kazakhstan, Kenya, Malaysia, Philippines, and Uzbekistan, investing a mammoth $51Bn to build data centres with total capacity of 6GigaWatt.

8.????? At Leap 2024, a global tech summit held in Riyadh, a massive $13Bn were injected into deep and emerging tech, cloud computing and data centres.

By pivoting from global investment strategy focused primarily on financial returns to an AI-focused investment strategy, the region seems to fulfil the following objectives:

·? Diversify from a primarily oil-dependent economy, as the oil reserves will diminish at some point in the future.

· Build a tech ecosystem that attarcts business, talent, R&D, and Intellectual property to the region.

·?? Create stable homegrown tech-leaders in the region.

·??? Provide Infrastructure-as-a-service to tech firms in the region.

And the Sovereign Wealth Funds of these countries are at the forefront in driving this change.

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