How the MENA region could reap huge benefits by accelerating focus on Digital Transformation

The socioeconomic benefits of completely digitizing economies in the Middle East and North Africa would be enormous. GDP per capita may increase by more than 40%; manufacturing employment might increase by 7%; and tourist arrivals could increase by 70%, creating jobs in the hospitality industry. Furthermore, long-term unemployment rates might be reduced to insignificant levels, and female labor force participation could more than double.

The economies of the Gulf Cooperation Council (GCC) are experiencing major transitions in order to meet the demands of the fourth industrial revolution (4IR or 4.0). Strategies and initiatives are being developed to successfully execute digital transformation. However, managing projects to achieve the intended objectives is critical for long-term development.

According to a World Bank report, fully digitizing the economy may result in a 46% increase in GDP per capita over the next 30 years or a $1.6 trillion long-term gain in dollars. The report adds that the MENA region’s GDP per capita improvement in the first year would be about $300 billion. The rise would be more pronounced in lower-income MENA nations such as Egypt, Morocco, Tunisia, and Yemen (an increase of at least 71% since benefits are driven by decreasing the access gap to digital technology).

Digital transformation is fundamentally changing how organizations are run and, as a result, how consumers are served. Due to the numerous intricacies involved, digital transformation used to be a lengthy process that took months to complete for businesses. Nowadays, though, the transition may be achieved in a matter of weeks, if not days. This is the component of digital transformation that accelerates.

Need for digital acceleration

It is no longer enough to be just a digital consumer today. To maximize the numerous economic and social benefits of the digital frontier, governments must also create the necessary technology and human resources. Consumers in the Middle East have accepted digital technology; therefore, the challenge now is how to incorporate digital into all aspects of Middle Eastern society, including business and government.

“The gains from shifting to a more digital economy are exponential and governments should do everything they can to remove barriers preventing such a transition. The sooner and faster the push, the bigger the gains,” says Ferid Belhaj, World Bank Vice President for the Middle East and North Africa in a report, ‘The Upside of Digital for the Middle East and North Africa: How Digital Technology Adoption Can Accelerate Growth and Create Jobs’. “A digital transformation would provide jobs in a region where unemployment is unacceptably high, particularly among the youth and women. With concerted effort, this narrative can change,” he added.

There exists a MENA-specific digital paradox that it needs to overcome. While the populations of MENA nations have embraced social media use – more than predicted given their GDP per capita levels – their utilization of the Internet and digital tools such as mobile money to pay for services is lower than expected given national income levels.

For example, as a comparison, over 66% of MENA inhabitants use the Internet, but only 61% of Latin America and the Caribbean (LAC) and 54% of East Asia and the Pacific (EAP) populations do. Digital payments are used by 32% of developing MENA nations (i.e., non-Gulf Cooperation Countries) compared to 43% of LAC. With the exception of Iran and the UAE, the majority of MENA nations have fewer mobile accounts than would be expected given their economic levels. For example, the GCC has a smaller percentage of the population having a mobile money account (21%) than Sub-Saharan Africa (24%).

Banks accelerating digital banking

The MENA region is a thriving area in fintech, particularly in financial technologies. In terms of untapped potential, the MENA region is well-positioned to become the next thriving center of digital banking innovation. As of now, the Middle East’s fintech sector has had a 30 percent compounded annual growth rate (CAGR), with capital financing expected to reach $2 billion USD by the end of 2022.

Governments around the Middle East have launched incentives to accelerate digital transformation, with the ultimate goal of increasing economic diversification, encouraging sustainability, and improving public contentment. Different governments, for example, have built national platforms, applications, and payment systems to exchange information and improve residents’ access to services.

Saudi Arabia – Saudi Telecom Bank (STC Bank) is Saudi Arabia’s first digital bank, a rebranded version of the old bank with a capital of 660 million USD. Following in the footsteps of STC Bank is real estate firm Abdulrahman Saad Al Rashid & Sons (ARTAR), which has been granted a license to operate a digital business development bank with a capital pool of $400 million USD. According to KPMG, the fintech market in the Kingdom of Saudi Arabia expanded 147% from 2018 to 2020 and is predicted to rise another 55% by 2033, highlighting the promise of digital banking in Saudi Arabia.

UAE (United Arab Emirates) – Because of the National Innovation Strategy, the UAE has become one of the fastest-growing economic and technical centers. Other efforts, such as the AI Strategy 2031 and the Emirates Blockchain Strategy 2021, have also spurred investments in technology breakthroughs, particularly in the banking and financial industry. Most crucially, the introduction of over 40 financial free zones across the seven Emirates has promoted digital banking innovation in the UAE. Foreigners can own neobanks in the UAE under English common law without the assistance of a Local Service Agent, according to the requirements of these new financial zones.

Qatar – According to IPSOS, more than 94 percent of Qatari bank clients have utilized at least one type of digital banking channel. To compete with its neighbors, the Qatar Central Bank (QCB) has strengthened its financial industry investments. And, with over 75% smartphone usage in Qatar, most banks are shifting to mobile banking services to meet client demands.

Bahrain – Bahrain has been working on the Economic Vision 2030 to focus on competitiveness and sustainability as part of the national commitment to transition away from its reliance on oil. In keeping with this aim, the Kingdom of Bahrain has created meem, the first Shariah-compliant digital bank under the Gulf International Bank’s digital arm (GIB). Bank ABC is another notable Bahrain-based digital bank, with a banking infrastructure that allows users to access numerous channels 24 hours a day, seven days a week.

According to UABdigital data, 78% of Arab state banks claim they are “well on their way” with digital. However, resource management remains a major concern.

Challenges facing the Middle East’s digital transformation

Collaboration across all areas of a corporation is required for the effective deployment of innovative and agile techniques. However, many businesses fail to consider this, resulting in a poor digital transformation endeavor. Current examples of digital transformation requirements include:

Cloud Security and Data Privacy — With the rise in cyberattacks in the area and internationally, cyber security remain a major concern that may stymie adoption and investment in digital platforms and cloud computing.

Bookkeeping — As a result of digital transformation, there is a higher emphasis on data analysis, process optimization, reconciliation preparation, and the use of auto-certification to minimize volume.

Modernizing Financial Planning and Analysis (FP&A) – FP&A is accomplished by a cost-conscious examination of business unit strategy, planning, investment allocation, and predictive data analysis.

Innovation – Create a link between efficiency and creativity. Consider cloud, data, AI, and machine learning as a flexible and scalable R&D foundation that allows for quick experimentation, insights, and iterations.

Technology — Due to location and population distribution, implementing a connection infrastructure might be difficult. Basic information and communications technology (ICT) infrastructure is not always readily available, making it difficult to provide digital services. Because automation and flexibility cannot be completely realized without the integration of a good ICT system, the nature and effect of technology are rapidly evolving, posing new issues. Backward compatibility of new technologies with legacy, as well as a lack of global integration platforms required for innovations to have a real impact, are examples of these hurdles.

The future of digital banking in the Middle East

In the Middle East, digital banking has a lot of potential. According to the Milken Institute, there are already over 465 fintech startups in the region (as of April 2022), up from only 30 in 2017. This rapid rise corresponds to looser rules and more investment in banking innovation.

Furthermore, the speed of innovation is dependent on the Middle East region’s 70% average internet penetration rate, which ranks fourth globally. As a result, an increasing number of individuals are opening digital banking accounts.

Most significantly, the sheer imperative of being effective global rivals will force GCC nations in the Middle East to invest more in fintech technologies and digital banks.