The Middle East is on the verge of a massive digital disruption. In the past decade, the cross-border data flow connecting the Middle East to the rest of the world has increased more than 150-fold. Several countries—including Bahrain, Qatar, and the United Arab Emirates—are leading the digital consumer charge, with high smartphone-adoption rates and social-media use. However, digitization is uneven from country to country, and businesses and governments across the board have struggled to keep up. Building on a history of innovation, the region has the chance to transform itself into a leading digital economy—and to realize significant economic benefits—if it can bring stakeholders together to focus on developing the region’s governance, business, funding, and talent.
Citizens themselves are leading the Middle East’s digitization charge. As measured by digital consumer adoption, Bahrain, Qatar, and the United Arab Emirates are among the top countries in the world, with more than 100 percent smartphone penetration and more than 70 percent social-media adoption—even higher than in the United States.
However, while consumers are primed and ready to lead digitally enhanced lives, businesses and governments have not fully adapted to digital. The McKinsey Middle East Digitization Index is the first effort to assess the level and impact of digitization across nine Middle Eastern countries: Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. However, despite ambitious government aspirations to go digital, only 6 percent of the Middle Eastern public lives under a digitized smart government. And Middle Eastern countries lag far behind benchmark countries (Norway, Singapore, South Korea, Sweden, and the United Kingdom) in business digitization on indicators ranging from the amount of venture capital funding available to start-ups, to the share of the workforce working in digital careers and industries.
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Some Middle Eastern governments, including those of Bahrain and the United Arab Emirates, have begun implementation of core digitization initiatives. Indeed, the United Arab Emirates government leads the Middle East in digital adoption and matches the world’s digital vanguard on several metrics. Other countries also have big ambitions and have made considerable progress. However, in their efforts to promote innovation and push the public sector’s adoption of digital to the next level, they are facing implementation problems such as an inadequate governance structure.
The future is promising. Consumer enthusiasm for digital suggests strong growth potential in the near future, as consumers are clearly primed and ready to quickly embrace new digital offerings. It will be critical for the region to increase patent applications and enhance infrastructure to improve its information and communications technology supply and innovation performance.
The prize is significant. Our analysis reveals a strong correlation between a country’s GDP per capita and its score on the McKinsey Digitization Index: a higher GDP allows countries to spend more on digital adoption, which increases a country’s performance on the Digitization Index. And a high level of digitization contributes to economic growth, leading to higher GDP. Indeed, our analysis indicates that a unified digital market across the Middle East (160 million potential digital users by 2025) could contribute up to 3.8 percent annually in GDP—amounting to approximately $95 billion. Digital can also have a positive impact on inclusion and poverty reduction, increase access to and quality of healthcare and education, and reduce CO2 emissions.
Winning the rush for data services in the Middle East and Africa
To accelerate digitization in the Middle East, McKinsey offers ten tangible recommendations across four areas—governance, business, funding, and talent. These recommendations are comprehensive, forward-looking, and mutually reinforcing. They are also designed to complement and fuel initiatives already under way in several countries. The future of digital in the Middle East will require the participation of all stakeholders, from government leaders and individual agencies to the private sector and civil society. Given the accelerating pace of technology and its potential to continually shape lifestyles, business practices, and governing for many years to come, now is the time to act.
Download the full report on which this article is based, Digital Middle East: Transforming the region into a leading digital economy (PDF-10.7MB).
