The last of the big three public cloud-service providers has reached Qatar, bringing coverage to the entire Middle East region.
When Google Cloud announced the launch of a new data center in Doha last month, it became the last of the big three cloud-service providers to put down roots in the Middle East within a nine-month period. Microsoft Azure led the way last June, when its first data centers in the region went online in Abu Dhabi and Dubai. A month later, Amazon Web Services (AWS) said it was establishing operations in Bahrain.
Microsoft Azure’s initiative marked the first time the public cloud, run by third parties and accessible via the internet, became widely available in the region. Due to often-strict national data-sovereignty regulations, most companies and institutions in the Middle East had been limited to offering proprietary cloud platforms or legacy systems. Microsoft and AWS have spent the last several months solidifying their footholds in the region.
The United Arab Emirates approved Microsoft Azure for financial and public-sector work projects in January of this year. “This could signal a step change in the digital transformation of UAE banks,” says Alberto Lobrano, CTO for the Middle East and Africa at Reaktor, a technology consultancy. “It allows them to be more agile, cost-effective, competitive and, ultimately, more relevant in the services and online experiences they offer. The highly regulated world of financial services has been slow to adopt public cloud services.”
AWS is setting up two new Cloud Innovation Centers, at the University of Bahrain and Bahrain Polytechnic, to “focus on accelerating the digital transformation of the public sector in Bahrain,” starting with the Ministry of Agriculture, according to a December company statement.
Thanks in part to these moves, public cloud services revenue in the Middle East and North Africa will total nearly $3 billion in 2020, a robust rise of 21% over 2019, according to Gartner, which credits government initiatives such as Smart Dubai, Smart Abu Dhabi, Israel’s Cloud Strategy and Bahrain’s Cloud-First Policy for contributing to the shift.
Getting Past Data-Sovereignty Concerns
As recently as 2016, only 12% to 17% of businesses in Saudi Arabia used “some form of cloud services,” according to an analysis by Deloitte, compared to an average of 30% across all of the (mostly developed) countries the report looked at. Most Mideast countries are in the same boat. “Cloud spending in the region is among the lowest in the world when measured as a percentage of total IT spending,” Gartner reported in 2018.
Data-sovereignty concerns are often blamed for the slow start, as central bank regulations in countries such as the UAE restrict cross-border data movement. “One of the key concerns in the region is where the clients’ data is stored,” says Hannes Helenius, board chairman of FA Solutions, a cloud-based portfolio management solutions firm. “Keeping the data stored locally is very important because of regulation and security concerns. Sometimes the regulation is not very clear, and as an asset management company, you do not want to end up losing your license because of a data-security breach.”
The new regional platforms should help companies and institutions access the public cloud while complying with local regulations. Until now, the only alternatives to inefficient legacy systems were proprietary cloud platforms. “This setup is difficult to implement and maintain and significantly more resource-intensive than running your operations from the cloud,” says Helenius. “On-premises wealth management solutions draw financial and labor resources away from the core business, making the investment management company less efficient and competitive in the modern, high-tech world.”
You pay for what you use on the cloud, says Reaktor’s Lobrano. “Rather than using a dedicated server that you own, maintain and pay for, regardless of demand, you share server infrastructure with other organizations,” he notes. “This means you’re not paying for idle infrastructure, which results in lower operating costs. There are also zero upfront costs. Running your own servers requires upfront capital costs, but in a cloud-based model, financing that capital investment is someone else’s problem.”
By encouraging the public cloud, regional policymakers hope to make local firms more competitive and promote more foreign investment, both direct and portfolio. That dovetails with governments’ desire to increase economic diversification, as they try to wean themselves off fossil fuels and focus on sectors with better long-term growth prospects and job opportunities for their youthful populations.
“If we look at the region and what they have been trying to achieve in the past few years, I think there is a definite structural push toward diversification of the economy,” says Helga Turku, data-protection and privacy consultant at HewardMills, a data-protection consultancy firm. “In a global economy, technology is the most likely way forward,” including more extensive use of big data, which is increasingly cloud based.
Leveraging the greater efficiency and lower costs afforded by the cloud also promises to make Mideast businesses more competitive.
“The cloud streamlines business operations,” says Turku. Jettisoning proprietary clouds and legacy systems in favor of the public cloud can “help [local champions] grow their operations, both in the region and abroad. I want to assume that the long-term goal is to be a global player and be able to do business in Europe and the United States.”
Cloud migration should also help attract foreign capital since prospective investors will want access to the same tools they normally use elsewhere. And Turku adds that having major multinational cloud services can put local businesses on an equal footing with the rest of the world.
When Google Cloud announced its entry into Qatar, the company statement included a quote from John Lee, CEO of Bespin Global, a South Korean cloud-management services startup. “We work with some of the largest Korean enterprises, helping to drive their digital transformation initiatives,” he said. “One of the key requirements we have is that we need to deliver the same quality of service to all of our customers around the globe. Google Cloud’s continuous investments in expanding their own infrastructure to areas like the Middle East make it possible for us to meet our customers where they are.”
The cloud is also expected to help governments and businesses in the Mideast meet international norms for transparency and data protection, such as the EU’s General Data Protection Regulation and its Markets in Financial Instruments Directive. “Many countries and regions will introduce their own similar rules and policies,” says Helenius. “Global financial hubs, such as [the Dubai International Financial Centre], need to follow these very closely, as they are serving European clients, and many of those companies have legal entities inside the EU.” n