Organisational overhaul in Saudi Arabia aims to jump-start technological innovation

Saudi Arabia introduced key changes in recent years related to ICT, including the creation of new oversight authorities and regulatory frameworks. These reforms are expected to help further develop and support growth in the sector as the country shifts towards a knowledge-based economy. As a sign of the importance that the Kingdom places on technology, and in recognition of the country’s role in the adoption and promotion of innovation to enhance socio-economic development throughout the region, in December 2019 the Council of Arab Ministers of Communications and Information Technology named Riyadh the Arab world’s first digital capital for 2020.

Cybersecurity Body

In October 2017 the National Cybersecurity Authority (NCA) was established to consolidate the cybersecurity portfolio, which had previously been the remit of a number of bodies. The authority seeks to expedite technological innovation by building national and professional capabilities in the fields of cybersecurity and programming. As a sign of its importance, the NCA is supervised directly by the king and members of the board include representatives of state security, intelligence, the Ministry of Interior and the Ministry of Defence. In February 2020 the NCA launched an anti-cyberbullying initiative, as well as one aimed at empowering women.

New Technology Authority

More recently, efforts to increase the use of artificial intelligence (AI) came to a head with the launch of the Saudi Data and AI Authority (SDAIA) in 2019. SDAIA will have oversight over the National Centre for AI and the National Data Management Office, both of which will bring renewed focus to and coordination on the field of AI.

Saudi Arabia has demonstrated its commitment to the development of AI in recent years. While government entities have served as early consumers of the technology, businesses are also increasingly investing in and utilising AI. The technology mimics human thinking and creates systems that can be improved through experience and data. It can be used to advance development in a wide range of sectors such as robotics, education, precision medicine, autonomous vehicles and data mining. A September 2018 report by the McKenzie Global Institute estimated that AI will add $13trn to the global economy between 2018 and 2030, while a report released the same year by PwC estimated that AI could deliver $320bn to the Middle East in 2030, with Saudi Arabia accounting for $135.2bn of these gains. This would represent 12.4% of GDP by 2030.

The Kingdom is positioning itself to become a leader in the field and is focused on education to achieve this. Through the Misk Academy, over 9000 schoolchildren were trained in digital programming and AI. Looking into the future, Riyadh is due to host the Global AI Summit in September 2020. The summit is the leading international forum on the topic, bringing together stakeholders from around the world.

Regulatory Frameworks

Several ICT frameworks were revamped in 2019 to align policy more closely with the changing needs of the sector. That year the telecoms regulator, the Communication and Information Technology Commission (CITC), proposed a new Cybersecurity Regulatory Framework primarily targeted at telecommunications companies. The CITC’s programme for cloud services was revised in March 2019 to enhance the statutory protection afforded to cloud service providers while reducing the compliance burden placed on them. The aim was to create an environment more conducive for digital innovation and attract investment from international companies in the sector. Meanwhile, a National Internet of Things (IoT) Strategy was implemented to enable the development of IoT applications on a large scale and help position Saudi Arabia as a leader in the field.

E-Commerce Law

Following Cabinet approval for the formation of a new e-commerce body in 2018, the E-Commerce Council was established in January 2019. Following this move, the country adopted a new E-Commerce Law. Published in July 2019 and effective in October of that year, the law oversees transactions conducted online and works to increase transparency, ensure consumer protection and enhance trust in online transactions. This is especially important after the outbreak of Covid-19 in early 2020 caused many individuals to turn to online shopping to meet their basic needs. In January 2020 the Ministry of Commerce and Investment issued implementing regulations, expanding upon the general guidelines set out in the law. The regulations apply to both consumers and service providers. It also places limits on data retention by e-service providers and regulates e-advertising.

Innovating Regulation

It is not only ministries that are working to adapt to changing times. In November 2019 the Saudi Arabian Monetary Authority (SAMA) – the central bank – launched the Regulatory Sandbox Framework, enabling companies to test new digital financial solutions in controlled conditions. The sandbox assesses the impact of new technologies and serves to boost financial technology (fintech) firms and the wider financial sector by creating more opportunities for alternative finance businesses. The move follows similar regulatory trials in the UK and elsewhere.

Fintech companies, including those focused on mobile solutions and lending, can apply for special permission to operate under new business models within the Kingdom’s sandbox. This is particularly noteworthy given that the financial sector is heavily regulated. While existing regulations offer important protections, they can stifle innovation, making new developments difficult for fintech firms. The sandbox is a way to create a safe environment for companies to innovate, try new things, and play with different rules and regulations to test their product, under monitored conditions. It typically takes between six months to a year for companies to graduate from the sandbox. Over 20 fintech start-ups were incubated in the sandbox in 2019. Examples include those that provide digital wallets, lending solutions and payment aggregators.

Fintech Licences

Another area of digital regulation the Kingdom is assessing is electronic money institution licences that waive the need for fintech companies to be tied to banks. Such licences give fintech firms more flexibility and SAMA the ability to regulate without having to involve a bank. Such an agreement is common practice in Europe, but has yet to catch on in the Middle East. In March 2020 SAMA announced it had issued four licences to STC Pay, Geidea, Halalah and BayanPay.

As Saudi Arabia advances its ICT regulatory ecosystem and creates new bodies to encourage expansion, a major focus will be keeping pace with evolving developments and increasing demand for services. Indeed, as of mid-2019 e-payments accounted for 36.2% of all payments, above the 28% target set by Vision 2030. The recent changes will facilitate the central role ICT plays in wider efforts to diversify the economy away from hydrocarbons and create growth in non-oil sectors.