After the skyscrapers and in an attempt to diversify its economy away from oil, the UAE is investing heavily in the future of technology and innovation. Global Insight reports.

Towards the end of 2016, the United Arab Emirates cabinet approved a five-year $67.5bn budget that included a new special fund to finance innovation. Named after Sheikh Mohammed bin Rashid Al Maktoum, the UAE’s Vice President and Emir of Dubai, the technology research fund offers capital for innovators, start-ups and incubators in an attempt to propel the Arab Gulf nation into the world of innovation, as the country seeks to diversify its economy away from oil and upgrade its global stature.

The UAE will pump at least $540m in additional new funding over the coming five years into expanding its footprint in the increasingly competitive world of innovation. The step is the latest in a series of high-profile measures, collectively known as the UAE National Innovation Strategy, designed to overhaul the country’s ecosystem, including laws and regulations, into an innovator- and entrepreneur-friendly environment.

Realising that business cannot take off without funds, Sheikh Mohammed issued an appeal for national banks in the seven desert sheikdoms that make up the UAE to find creative ways to inject cash into entrepreneurship immediately. Government agencies were also asked to cut spending by one per cent and divert the money towards innovation. The ruler’s own vehicle of investment, Dubai Holding, will independently contribute $272m to the drive over five years.

Three weeks after approving the budget,
Sheikh Mohammed, who is also the Prime Minister of the UAE, took further steps towards turning his innovation vision into a reality. He approved the action plan for achieving the goals of the National Innovation Strategy and inaugurated what the UAE media blitz celebrated as the first government-backed innovation accelerators, while not forgetting to attend part of an intense 36-hour hackathon organised with Microsoft.

From their headquarters in the 1,163ft Emirates Office Tower, the Dubai Future Accelerators aim to attract high-profile entrepreneurs and start-up companies from across the globe. The first task that applicants seeking funding will be charged with is to help seven branches of the government solve everyday challenges and adopt ‘advanced standards’ by 2021. The year is significant as it will mark the Golden Jubilee of the 1971 birth of the union whereby the UAE was formed. The long-term goal is no less ambitious than to put the small, but oil-rich, desert country on a par with innovation hubs in London, New York and the San Francisco Silicon valley.

‘We’ll offer start-ups the funding they need as long as they execute their plans inside the UAE,’ said Younis Haji Al-Khouri, Deputy Finance Minister. ‘There will be expedited funding for existing projects that need scaling up. And the second type will be money to kick-start projects.’

Fatima Al-Naqbi, who heads the innovation department at the Finance Ministry, said part of the money will be in the form of loans on easy terms.

Sheikh Mohammed has repeatedly said that the UAE needs to charge ahead with diversifying its economy as oil consumers plan to move away from the commodity. Several members of the families that share the rule of the seven sheikdoms that make up the union expressed similar views. Innovation is often cited as a panacea. ‘A flexible and creative economy based on a national culture of innovation is the fastest and most sustainable way to reinforce the UAE’s competitiveness on a global level,’ Sheikh Mohammed was quoted as saying in November by the official Emirates News Agency (WAM).

The country appears ready to make headway. Unlike their neighboring powerhouse, Saudi Arabia, which is ruled by older members of the Abdel Aziz ibn Saud family, the UAE is ruled mostly by a somewhat younger generation of men with mostly Western educations and influences.

At an average per capita income of $43,000 per year and a population of only nine million, the country is well positioned to spend on innovation, entrepreneurship and technology. The country ranks 26 in ease of doing business on the World Bank’s index of 191 countries. The small nation, which declared independence in 1971, has already succeeded in establishing itself as a global hub for finance, real estate, airlines and sports tourism.

A sandy country, with a sizable Bedouin population, that didn’t have a fully-fledged central bank before 1980 and initially resisted giving up nomadic life, the government of the oil-rich Arab nation says it now invests $3.8bn in innovation, $1.9bn of which is allocated for Research and Development (R&D). The Mohammed Bin Rashid Innovation Fund alone means a 25 per cent increase, not counting private funds.

Motivational legislation

After making sure the strategy will have a lifeline of sufficient funds, officials are considering ideas to create ‘a stimulating environment for innovation in the form of supportive institutions and laws.’

UAE officials have largely remained silent about the legal details, but a pre-prepared statement from the Ministry of Finance sent in reply to questions from Global Insight says the next step is to set up ‘a motivational legislation and regulatory environment that promotes innovation’ and that will allow the rapid enactment of relevant legislation.

More specifically, to accommodate new technology and pilot projects the country will have to build ‘effective patent registration procedures, while raising awareness of the importance of intellectual property rights’ and the best methods to protect those rights.

There seems to be a consensus among legal experts briefed on the strategy that it will not fully pick up in real terms without a solid legal foundation that wins international credibility.

‘The development of the innovation infrastructure and the transformation taking place inside the UAE presents both legal challenges and opportunities,’ says Ahmad Saleh, Head of Patents & Designs (R&D and Innovations), Intellectual Property within the Dubai-based Al Tamimi & Co. ‘The government departments need legal support on the legislative and regulatory sides for securing a legal and regulatory ecosystem which supports the transformation.’

 Alexandra Neri, Senior Vice-Chair of the IBA’s Intellectual Property and Entertainment Law Committee, says the fast pace of the UAE’s drive towards innovation requires more than just laws, it requires a balanced legal infrastructure. ‘Law firms and professionals specialised in patents and intellectual rights can be really helpful for the UAE’s fast-paced innovation development,’ says Neri. ‘Local innovations must be adequately protected by the law to protect investments, but if the protection is too strong, information-sharing will be slowed down and this could hinder innovation. The UAE must, therefore, strive for this delicate balance, and legal professionals can definitely help achieve this balance.’

The UAE has stated, for example, that its aim has been to increase the number of patent applications five-fold in the first three months of 2017 with a final goal ‘to improve the UAE’s stature as a regional and international hub for intellectual property.’

Already, figures from the Ministry of Economy’s International Center for Patents Registration (ICPR) show it has granted 185 patents out of 1,368 registered applications in the eight months from January to October 2016 – an encouraging sign for foreign companies. ‘A solid intellectual property protection would incite more foreign companies to invest, share and disclose information and innovative technologies with companies from the UAE,’ Neri suggests.

Chris Holder, Vice-Chair of the IBA’s Technology Law Committee, says countries looking to enter the innovation fray need to look deeply into how cutting-edge developments intersect with laws and with peoples’ lives, as well as the need for robust intellectual property laws. ‘There’s a whole matrix of laws and standards and ways of working that would need to be put in place if they are not there, which would allow these types of companies to grow,’ says Holder.

He believes future legislation in the UAE will have to take into account major global pressing questions such as data protection, artificial intelligence (AI), standardisation, guarding against over-regulation of certain technologies – such as robotics – as well as considering contract, agency or distribution laws. Holder says there needs to be work towards regulating workers’ rights and considering cases of negligence if something goes wrong. ‘It’s looking at the current space of legislation and deciding what elements of that legislation need to change to take account of the new technologies coming through.’

In addition to patents and intellectual property rights regulations, the UAE is already assessing financial laws. The blueprints for the National Innovation Strategy includes revisiting financial regulations to help the country do better at securing funding and come up with creative investment ideas.

At the time of writing, a collaboration between the Ministry of Economy, the Securities and Commodities Authority (SCA) and the Information, Communication and Technology Development Fund was in the pipeline with a view to issuing a legal statute on risk capital early in 2017. The aim being to ease the work of innovators, attract risk-based capital and contribute to the overall goal of boosting the UAE’s place in the global innovation ranking.

Saleh says innovations should be aligned with regulation in order to ensure that innovation developments can be implemented from a regulatory standpoint when they come to life. ‘The private sector would need legal support around the development, protection, deployment and commercialisation of their innovations inside the UAE,’ he tells Global Insight.

Saleh also thinks the new strategy offers new opportunities. ‘There is an opportunity for venture capital firms that specialise in innovation to provide investment funds and for technology transfer offices or firms to support in bridging the gap between innovation developers and the market.’

Under the innovation accelerators programme, UAE officials are encouraging tech companies who work for government agencies to develop not only initiatives and services, but contribute to drawing up laws and policies. This, they say, will result in better national indexes and programmes as well as finding practical ways to make both laws and prototypes usable on the ground.

Future proof?

The response to the strategy both locally and internationally has been encouraging. In its early phase, the Dubai Future Accelerators – the country’s highest profile push towards experimental projects – sought proposals for improving government performance. The winners were promised access to at least $2m a month and three months of business development expense.

The programme received some 2,200 applications from companies in 73 countries. Only 30 were selected and they were assigned to different Dubai government authorities. Several UAE agencies simply look to innovation as a way to tackle targets more efficiently. The city-state of Dubai, for example, aims to switch 25 per cent of all transportation to smart and driverless by 2030 by integrating innovative technologies.

To test the application of new ideas in public transportation, Dubai rolled out a 10-seater driverless prototype in April 2016. The experiment by Toulouse, France-based Easy Mile and its UAE branch Omnix whetted the appetite of UAE officials to turn Dubai into the ‘smartest city’ in the world. The government now plans more vehicles without a steering wheel or a pedal on its roads and more unmanned vehicles such as drones and trains.

In November 2016, the UAE signed a deal with US start-up Hyperloop One, whose supporters and visionaries include Elon Musk of electric car producer Tesla and private space exploration company SpaceX, to test and develop a new supersonic high-tech transportation system: a network of airless tubes that would connect UAE cities and other foreign destinations at speeds faster than aeroplanes.

A trip that would take more than two hours on the bus and an hour on high-speed rail will take just 12 minutes, according to a Hyperloop One video highlighting its current experiments in Dubai. The company was one of only three accepted under the transportation accelerators category in Dubai.

The Ministry of Interior needs help in meeting a target of reducing traffic accident fatalities on the country’s five most dangerous roads by 21 per cent between 15 December 2016 and 15 February 2017, compared to the same period last year. Agencies working on that goal that need help from innovators include the police, ambulances, the Ministry of Infrastructure Development, the Roads and Transport Authority, and the Emirates Traffic Safety Society.

To fight crime, the Dubai police force will work with DarkMatter, a Dubai-based cyber security company, by using big data analytics. DarkMatter says that under the innovation accelerators programme the company was given the challenge of innovating and testing ‘integrated behavioral, genetic and biological systems for identifying, tracking and sharing information on criminals that are ten times more accurate and ten times more efficient.’

Under the National Innovation Strategy, the country is scouting for further ideas in areas of global interest such as AI, semiconductors, nanotechnology, augmented reality and 3D printing. The government is populating a database of various national, regional and international innovative practices that can be shared across public sector entities within the UAE. Other sectors that are looking for smart ideas include water, space, energy and health.

UAE officials are far from reticent about letting outsiders know how proud they are that each and every government agency has a ‘chief innovation officer’.

Flurry of activity

And that’s not all. The strategy in the UAE, known for its record-breaking expenditure on high rise buildings, dazzling fireworks and luxury items, was initially rolled out late in 2014 but has only seen a spike in activities over the past few months. Public displays of innovation came with the usual fanfare and exuberant festivities that the UAE has come to be known for.

An ‘innovation week’ ran from 20 November to 26 November 2016. Innovative students, teachers, schools, universities, civil servants and government agencies collected awards. After receiving calls from international organisations and companies asking to attend more innovation events in the UAE, the ‘week’ is to be expanded to a full ‘month’ in 2017.

The Robotics and Electronics category proved to be the most popular, with 37 innovators showcasing their work.

The show was funded by the Abu Dhabi-based Takamul Fund, another innovation-supporting programme. As in previous years, the event ended with winners posing for pictures in traditional white garb as they brandished giant cardboard cheques for seed money.

The UAE is also applying its newly-found passion for innovation to training and education. In October, education authorities announced an agreement with Massachusetts Institute of Technology and with Parsons School of Design in New York to launch a new undergraduate institution focusing on innovation and design. The Dubai Institute of Design and Innovation (DIDI) will be housed in a new, 100,000-square-foot facility with the capacity to accommodate 550 students. The school is expected to open by September 2018 and will offer a Bachelor of Design degree.

Moreover, some 55 officials attended a one-year diploma programme in government innovation offered by the University of Cambridge, kick-started in 2015.

The Dubai Chamber of Commerce and Industry launched its own innovation index to measure how private companies embrace future innovation initiatives in the city compared to 28 top global innovation cities such as London, Madrid, Milan and New York. Moreover, the Chamber announced plans to invest $27.23m in innovation-related projects and initiatives over the next three years.

Bugs in the system

Despite the grandiose public relations surrounding the plan, the strategy to make the UAE a global innovation hub faces significant potential glitches. For one, sources close to the innovation programme say so-called ‘Emiratisation’, which gives priority to nationals over foreigners in the country, poses a challenge. They say this means individuals and companies will have to find a way to register as local or find a domestic link before they can benefit from the innovation strategy. The Takamul Fund is now limited to helping UAE citizens and universities or UAE-based businesses.

Another potential drawback is that, despite the government’s largesse, funds allocated to innovation are small compared to other regions that host technology and innovation giants, such as the San Francisco Silicon Valley. The Mohammed bin Rashid Fund is only $540m over five years and it’s not clear if that will increase given the comparatively low oil prices. Less oil revenues have caused less government deposits in the banking system and, in turn, limited liquidity. This raises questions over how far lending to innovation and technology can go if the UAE wants to leave a global mark.

But observers said that they still saw a major commitment from the UAE government even when compared to Silicon Valley. ‘Silicon Valley is home to the world’s tech giants, and the funds and investments from this hub are impressive indeed,’ Neri says. ‘But smaller countries can absolutely develop a strong innovation strategy without investing billions. Austria, which has about the same population as the UAE, has a €400m Innovation Fund, and Sweden, which also has nine million inhabitants, is consistently ranked among the most innovative countries in the world.’

Holder, who is also a partner at London-based Bristows, said it will all depend on how money is used in the UAE. He notes that many tech giants started small. ‘The great thing about technology actually [is that] the start-up cost is relatively low if you think about it. Writing code means you need a computer and you need some software and you can actually write some code that can change the way the world operates frankly,’ he says.

While he says tech development doesn’t necessarily require big money to start, he warns that taking a longer-term view on profitability is advisable. ‘So $500m being lent to companies where you expect to have profit in six months is not going to work,’ Holder adds.

The UAE’s notorious dependency on fluctuating oil prices can actually be a plus for the project and not a challenge. The country produces about three million barrels of crude oil per day. Price swings can be a good motive for diversification towards innovation, while revenues –when prices are high –can serve as a cushion in hard times to absorb expenditure that comes with experimentation and the constant pivoting in innovative environments. ‘As for oil dependency, it can provide a reassuring financial stability, while funding the innovations that will precisely diversify the country’s economy,’ Neri suggests.

Other unanswered questions also hang over the strategy. It is not yet clear whether there’s a big enough market in a country of nine million people, who are mostly expats, for new products and whether the UAE government will be undertaking marketing overseas.

Nevertheless, as with other innovation hubs, rule of law is essential, something that has been questioned in the UAE. Late in November and almost as the UAE was unveiling its new innovation fund, Amnesty International issued a statement rebuking the country for grave human rights abuses and inability to respect the law. As Abu Dhabi hosted the finale of the Formula One season, the statement read: ‘Do spectators know that behind the glamorous façade, people are being arrested and tortured for voicing criticism of the government? Or that enforced disappearances go unchecked, with families often going months without knowledge of their loved ones’ whereabouts? Or that over 60 political prisoners remain behind bars following unfair trials?’

Amnesty urged the UAE authorities to release prisoners of conscience and repeal harsh laws that criminalise peaceful freedom of expression: ‘With their crackdown on peaceful activism the UAE authorities have displayed contempt for due process and the rule of law, and the international community has turned a blind eye for too long,’ the statement continued.

Hans Corell, Co-Chair of the IBA’s Human Rights Institute described the UAE’s ratification record of human rights treaties as ‘very poor’. ‘The UAE has not ratified the International Covenant of Civil and Political Rights or the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families,’ Corell tells Global Insight. ‘In addition, they have not accepted one single individual complaints procedure. Unfortunately, with respect to the latter, they are in the company of the USA!’

This too, though, may turn out to be only a small hurdle for those driving forward the UAE economy’s diversification and focus on innovation. ‘While it is true that countries with a stellar human rights record will be more attractive than those without,’ Neri says ‘the UAE has already shown that it can attract talent from western democracies, as we can see from the many foreign high-skilled workers who go and work in Dubai.’

Legal experts of international technology law say the UAE faces no hurdle that cannot be overcome. ‘There’s no reason, absolutely no reason, why a country like the UAE should not be able to set up a top technology hub and foster a technology industry,’ says Holder, who worked in Russia as it attempted to move away from natural resources to a tech-based economy.

‘Different countries coming in to the area with their skills and their take on life can only add to the mix. It’s an exciting time for the technology industry, I would suggest,’ he says. ‘Everyone is at it – the more the merrier.’

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Emad Mekay is a freelance journalist. He can be contacted at emekay@stanford.edu