The Middle East public cloud: A multibillion-dollar prize waiting to be captured

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Companies and organizations around the world are fast migrating their business operations to the public cloud, aware of its potential to deliver IT cost efficiencies, boost revenues, and support new business models.1In search of cloud value: Can generative AI transform cloud ROI?,” McKinsey, November 15, 2023.

In the Middle East, the potential benefit is huge. McKinsey analysis of more than 700 use cases facilitated by the public cloud and applied across 600 companies and the public sector in the Middle East suggests it could generate value of as much as $183 billion by 2030—the equivalent of roughly 6 percent of the region’s current GDP (see sidebar, “Methodology”).2

Yet cloud adoption in the Middle East has been slower than elsewhere.3 Expensive and poor-quality international connectivity in some Middle Eastern countries as well as regulatory uncertainty, particularly regarding where different types of data can be stored, has curtailed demand. These issues, coupled with the fact that country populations in the region are relatively small and their economies concentrated, have limited the supply of cloud services by international companies.

The situation is fast changing, however. Governments’ ambitions to diversify and digitize their economies and their growing awareness of cloud’s benefits have accelerated the introduction of cybersecurity, data protection, and cloud-specific policies and regulations.4 And while some governments still require that certain data types (information on the encryption keys and mechanisms used for national infrastructure, for example) be stored within the country, many are bringing the legislative and regulatory landscapes in line with international standards to attract cloud investments.

The result is an increasing number of international cloud service providers (CSPs) in the region. In 2019, for example, AWS commissioned its first Middle Eastern cloud center in Bahrain, and Microsoft entered the United Arab Emirates. In 2022, AWS expanded to the United Arab Emirates, while Microsoft established data centers in Qatar. And no less than five major international CSPs are expected to be operating in Saudi Arabia by 2030, providing data center capacity of 1,300 megawatts in addition to what is available from local providers.5

Against this backdrop, many more Middle Eastern companies are considering migration to cloud. Here, we analyze where cloud’s value lies and suggest areas to which organizations might consider paying particular attention at the start of their migration journeys in order to capture that value quickly.

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Where value lies

The public cloud’s value lies in the enablement of advanced services few organizations can afford to develop themselves—software as a service (SaaS) solutions, advanced analytics, and machine learning, for example—coupled with the provision of unlimited, on-demand, and scalable infrastructure capacity, storage, and computational power.

There are hundreds of potential use cases that fall into one of three dimensions when it comes to generating value.6In search of cloud value: Can generative AI transform cloud ROI?,” McKinsey, November 15, 2023. In the first, Rejuvenate, cloud can be used to lower IT costs and increase resiliency. That might mean remediating existing applications to run on cloud to reduce software and hardware costs and improve development productivity, or using a consistent tech stack across environments to improve platform integrity. CSPs can also provide companies access to the latest technological and digitization solutions, helping to make core operations more productive. In finance departments, for example, intelligent document recognition can greatly reduce manual efforts by sorting documents and extracting information from them automatically.

In the second dimension, Innovate, cloud allows companies to experiment with new applications, such as generative AI customer support, as well as new business models at lower cost and greater speed. Cloud services could, for example, help e-commerce companies to respond rapidly to increased demand during Eid, or event organizers to meet high demand for tickets for international sporting fixtures. One bank based in Abu Dhabi used public cloud to become the region’s first cloud-based Islamic digital bank, building a customer base of 50,000 in just eight months.7

In the third dimension, Pioneer, value lies further out, in the business models that might emerge from newer technologies such as blockchain, quantum computing, and virtual reality. Given how new these technologies are, it is hard to quantify their potential impact over the next decade with any precision, so their value was not included in our analysis.

Instead, we examined the possible impact of the first two dimensions in the Middle East’s top 600 publicly listed and private companies by revenue, concluding they could create value of as much as $132 billion by 2030 (Exhibit 1). We also examined cloud’s impact in the public sector, which accounts for some 20 percent of the region’s GDP.8 Here, the use cases could drive value worth up to $51 billion by 2030. Exhibit 1 shows how these figures break down by source of value.

Cloud services could deliver value up to $183 billion in the Middle East by 2030.

In the Middle East as elsewhere, by far the largest source of cloud’s value-creation potential lies in its ability to accelerate product development and scale those products, accounting for about 73 percent of the total predicted value generated within companies by 2030 and about 71 percent of the value generated within the public sector.

Exhibit 2 shows how value is shared across industries. The oil and gas industry could generate potential value of as much as $82 billion, some 62 percent of the total estimated value for all companies in all sectors.

Cloud represents a substantial opportunity in every sector, but the oil and gas industry could benefit the most.

The telecom and banking industries are the next-largest beneficiaries, accounting for 6 percent of total value each. In every sector, in fact, cloud represents a substantial opportunity. Just eight pharmaceutical companies stand to gain as much as $3 billion, for example. Pharma, with the highest cloud impact relative to its revenue size, can benefit from better use of IoT in sales and demand forecasting, along with cost reductions across marketing and sales, product development, and supply chain and manufacturing. For example, virtual screening for drug discovery and molecular modeling reduces costs and improves drug design and features.

Generative AI can add 75 to 110 percentage points of incremental ROI to cloud programs through three key benefits: unlocking new business use cases; reducing the time and cost of application remediation and migration (early results suggest a more than 40 percent reduction in time and costs); and increasing the productivity of application development and infrastructure teams on cloud (Exhibit 3).9In search of cloud value: Can generative AI transform cloud ROI?,” McKinsey, November 15, 2023.

Generative AI tools can increase cloud ROI by 75 to 110 percentage points.

Preparing for a cloud transition that captures value

Many companies have discovered that capturing cloud’s full value is full of challenges. Inefficiencies in orchestrating the migration can add unexpected cost and delays. In a survey of some 450 CIOs and IT decision makers globally, 75 percent said the cost of migration to the public cloud had run over budget, and 38 percent said it had run over the anticipated time.10Cloud-migration opportunity: Business value grows, but missteps abound,” McKinsey, October 12, 2021.

Our experience has clearly shown that reversing these issues and creating value relies on prioritizing high-value use cases, moving to an agile product operating model so teams can take advantage of cloud’s benefits, and building a scalable cloud platform that can securely support a company’s ambitions.11In search of cloud value: Can generative AI transform cloud ROI?,” McKinsey, November 15, 2023.

In this context, we highlight three important steps Middle East companies could take to capture maximum cloud value quickly.

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1. Build a cloud migration strategy that targets value

Many companies make the mistake of focusing on costs rather than value. As a result, they can be tempted to slow the pace of cloud migration to get more from the on-premises hardware they already own, or they prioritize migrating applications that can reduce IT maintenance and infrastructure costs. But this approach ignores the cost of managing on-premises hardware and the value that lies in using advanced cloud services.

A sound cloud migration strategy should both reduce costs and generate value. That means prioritizing applications that will deliver cost efficiencies (including sunsetting older applications or hardware), as well as those that will improve critical business initiatives and so increase revenues and productivity. Companies should be in close communication with CSPs to understand when new services will be deployed, as this will affect when they retire obsolete applications.

Refactoring applications is crucial to capturing cloud’s value.12Five learnings from CTOs and tech leaders on their cloud strategies,” McKinsey, October 6, 2022. The reason? Most legacy applications are not designed with cloud architecture in mind. Although migrating them can reduce the use of data centers and the need for hardware maintenance, it will not enable the use of innovative cloud products and services, such as dynamic scaling, Kubernetes containers,13Getting the most from cloud services and containers,” McKinsey, July 19, 2022. automated scalability, and DevSecOps14Agile, reliable, secure, compliant IT: Fulfilling the promise of DevSecOps,” McKinsey, May 21, 2020. tooling. Indeed, the so-called “lift and shift” migration of existing on-premises applications can sometimes increase costs, as they use the same amount of storage and compute regardless of the level of demand.

2. Develop and upskill local talent

Companies around the world are struggling to attract and retain tech talent, and companies in the Middle East are no exception.

While securing offshore services can help, organizations are wary of relying on external parties to perform critical functions for long. It is key, therefore, to recruit and develop more talent locally. Academics interviewed for recent McKinsey research in the Gulf Cooperation Council (GCC) countries suggested companies were missing an opportunity to attract graduates from local institutions, whose sights are often set on joining big, international tech companies.15The state of AI in GCC countries—and how to overcome adoption challenges,” McKinsey, May 30, 2023. Developing better relationships with these institutions by funding research or collaborating on certain projects could encourage more students to join Middle Eastern companies. There is also scope to encourage more women into the field given their often high levels of education but low level of participation in the workforce.16Women at work in the Middle East,” McKinsey, March 8, 2020.

In addition, Middle Eastern organizations will likely have to set up training programs to fill the cloud talent gap, with a focus on those with the most transferable skills.17Six practical actions for building the cloud talent you need,” McKinsey, January 19, 2022. Those with the skills to develop business applications in the traditional IT framework, for example, are good candidates for upskilling to learn, among other things, how to deploy their own infrastructure and select the necessary operating system and databases. Engineers will need to learn new coding techniques, engineering approaches, and design patterns as well as how to manage risk, security, and costs (see the next section). Recognizing the need for training, Saudi Arabia’s Ministry of Communications and Information Technology signed an agreement with IBM in 2022 to upskill and train more than 100,000 Saudi nationals on various technologies, including cloud.18

3. Manage costs differently

The flexibility that public cloud gives companies to consume services and products whenever they need them has resulted in unexpectedly high costs for many organizations, as every additional unit of consumption adds to the monthly bill.

There are many ways cloud technology can reduce costs, such as building CSP-specific foundational services, identifying the best approach for application migration (as discussed earlier), or implementing security-as-code protocols,19Security as code: The best (and maybe only) path to securing cloud applications and systems,” McKinsey, July 22, 2021. to name but a few. But fundamental to capturing cloud’s potential value will be a culture that promotes a P&L mindset, even among developers.

Companies can do this by introducing FinOps management practices—that is, practices that engage cross-functional, agile teams in a collaborative effort to control cloud costs.20The FinOps way: How to avoid the pitfalls to realizing cloud’s value,” McKinsey, January 18, 2023. They help companies create transparency around every service or product so that teams, CIOs, and CFOs understand why one product consumes much more cloud infrastructure than others, how consumption can be lowered, and whether the business case justifies the costs. Rigorous FinOps management also helps companies forecast when cloud resources will be needed and when not. More storage and compute might be needed during Eid, for example, while on weekends, unused development servers could be shut down.

Worth noting, too, is that in the Middle East, the cost of cloud services could fluctuate greatly with currency movements. Keeping contracts with CSPs in local currency rates or regularly realigning prices might help.

Middle Eastern governments are fast introducing regulations and policies that will encourage CSPs to move into the region and so increase the supply of innovative services capable of reducing organizations’ costs, boosting their revenues, and supporting new business models. Our analysis indicates the magnitude of the value at stake in the Middle East—value that will be easier and quicker to capture if organizations build a migration strategy that prioritizes it, develops the necessary cloud skills in the workforce, and starts building FinOps capabilities.

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