The race among Gulf Arab states to become tech-driven, knowledge economies involves large bets on advanced technological platforms and digital applications. Artificial intelligence, blockchain, and financial technology, or fintech, are now viewed as promising pathways toward alleviating cost and budget pressures and supporting economic diversification. State-owned entities like Dubai’s AI Lab, Abu Dhabi’s Hub 71, and Bahrain Fintech Bay are at the forefront of this push. The implementation of these advanced technologies within government and private-sector processes requires enhancing digital infrastructure and advancing digital transformation agendas.

The digital path ahead is bound to be bumpy. The choice of telecom equipment providers and nature of data management processes can shape the parameters of international relations, as U.S. Secretary of State Mike Pompeo warned in Berlin while addressing the Chinese firm Huawei’s growing influence in Europe. Huawei is collaborating with local telecom firms on 5G development projects in every Gulf Arab country except Oman, and Huawei accounts for more than 25 percent of the Gulf smart phone market – second only to Samsung. Government officials in the Gulf states view Chinese firms as part of a global commercial network that includes U.S. and European partners. Thus far, this balanced stance has not provoked the ire of the administration of President Donald J. Trump.

Beyond foreign affairs considerations, digital transformations underway in Gulf Arab states also impact domestic and regional politics. These political consequences are increasingly visible in three spheres: data access and availability, data sovereignty, and labor markets. Gulf Arab governments must strike a balance between moving too swiftly and not progressing quickly enough on digital transformation agendas. The former risks substantial disruption to prevailing socioeconomic structures, while the latter risks stifling growth in the region’s nascent digital economies.

On the one hand, top-down mandates from officials have encouraged Gulf Arab governments to aggressively pursue digital initiatives. A government AI readiness index published by Oxford Insights ranks the United Arab Emirates ahead of China and within the top 20 countries globally, suggesting that the country’s digital efforts are paying dividends. Dubai aims to completely digitize government processes before the opening of Expo 2020 in October 2020. Some government employees and businesspeople fear that Dubai’s fast-approaching digital deadline will sow chaos among an expected 11 million foreign visitors, many of whom will be arriving from countries that still rely on hard copies of formal documents.

On the other hand, moving too slowly in certain areas of digital transformation agendas can jeopardize efforts to position Gulf cities as technology hubs. Fostering AI innovation in the UAE, robotics in Saudi Arabia, or fintech in Bahrain requires access to raw data. Tech startups and entrepreneurs utilize wide-ranging data sets to transform government agencies, social services, and business processes. Yet Gulf Arab governments and specific ministries have historically safeguarded data and limited access to information. While government statistics portals have much improved over the past several years, even basic economic indicators related to demographics, labor markets, and growth can be difficult to locate.

The region’s historical approach to the availability of and access to data is slowly changing. The Dubai Data Strategy aims to better utilize the emirate’s data resources and make them accessible to both governmental and nongovernmental actors. A collective view that “data must be shared and available” to be effective is gaining traction across the region. Meanwhile, Bahrain’s government announced a Cloud First Policy to modernize government information and communication technologies by using cloud computing services – an initial step toward the better organization and management of government data.

The increasing availability of data and its employment as a commodity force regional policymakers to grapple with data sovereignty issues. Qatar adopted the region’s first Data Protection Law in 2016, but executive regulations are still forthcoming. Bahrain’s Personal Data Protection Law – described by the Bahrain Economic Development Board as a key enabler of the country’s digital economy – was introduced in 2018. Yet the remaining Gulf Arab countries lack specific data protection laws applying to individuals. This is not for lack of trying: Oman’s Information Technology Authority has attempted to promulgate a data protection law for years without any result. These states have, however, adopted data-related laws concerning cybersecurity and e-commerce.

Data sovereignty questions also factor into broader economic initiatives and regional dynamics. Bahrain aspires to become a regional data-hosting hub, and the opening of an Amazon Web Services office in Manama affords commercial credibility to this initiative. In 2018, the Bahraini government passed a law concerning the provision of cloud computing services to foreign parties to establish a legal framework for hosting external content in Bahraini data centers. Additionally, Kuwait signed an agreement with Iraq to develop a regional telecommunications corridor of international maritime cables. In both cases, the nature of data to be stored or transported and the ability to safeguard it will influence regional and global demand for these prospective digital services.

Digital transformations in Gulf Arab states threaten to exacerbate existing labor market challenges: Saudi Arabia’s total unemployment rate is 12.5 percent and women’s unemployment reached 31.7 percent in the first quarter of 2019. Policymakers across the Gulf hope that advanced digital technologies can help in job creation and deliver the economic reforms laid out in country visions and transformation plans. Yet citizens fear that optimizing and streamlining government and private-sector processes are euphemisms for job displacement. Indeed, studies have found that nearly half of all jobs in the United States and other OECD countries could be done by machines in the next two decades. Comparable findings exist for jobs susceptible to automation in Gulf Arab economies: ranging from 41 percent in Kuwait to 52 percent in Qatar. Although other studies suggest that digital jobs are less vulnerable to automation, which bodes well for the individuals driving digital transformation agendas, this does not imply that the generation of digital jobs will offset job losses in other major occupational groups.

Demand for the technical skills and human capital needed for digital transformations also exceeds what is currently available in domestic workforces. New immigration reforms to attract skilled expatriates can increase the supply of digital experts and technical specialists: The “Golden Card” visa in the UAE and the “Privileged Iqama” visa in Saudi Arabia are examples of government initiatives to make the countries more appealing to tech startups and other entrepreneurs. However, these foreign residency systems conflict with calls to nationalize labor forces by reducing the number of expatriates across the region. As Gulf Arab states’ digital economies expand, officials must balance local concerns against attracting expatriate talent.

The digital transformations underway in Gulf Arab states confront a complex array of international, regional, and domestic obstacles. How each state navigates these obstacles will shape the degree to which digital agendas contribute to broader political and economic objectives in the years to come.