LONDON, April 17 (Reuters Breakingviews): The United Arab Emirates likes to think of itself as a sort of Switzerland of the Gulf. Microsoft's $1.5 billion stake in Abu Dhabi artificial intelligence company G42, announced, opens new tab on Tuesday, shows the limits of remaining a neutral counterparty of the United States and China, especially when it comes to AI. While nominally a private sector deal, the main upshot is to shove the UAE firmly into the US camp.
As part of Tuesday's deal, Microsoft President Brad Smith will join the board of G42, and the $3 trillion group will get to sell a set proportion of cloud capacity to G42, a person familiar with the matter told Breakingviews. G42 in return can use its AI models on Microsoft's platforms. But there's an additional, political condition: G42 has to stop using Huawei telecom equipment, which the United States reckons the Chinese government employs for intelligence.
In some ways, China and the UAE have a close relationship - not least because the Middle Kingdom buys lots of Abu Dhabi oil. Trade between China and the Middle East and North Africa (MENA) region amounted, opens new tab to $505 billion in 2022 - up by three-quarters from a decade previously. The construction of a secret Chinese port facility, opens new tab near Abu Dhabi had also complicated UAE relations with Washington. But as the Gulf state invests heavily in building an AI hub as part of a wider plan to diversify away from oil, there have already been signs of a shift. Last year the US restricted exports of Nvidia-designed chips to the UAE, partly out of concern they might be shared with China.
Microsoft does get a lot out of its new deal. While it only entered the UAE in 2019, the Gulf has been a difficult region in which to sell its cloud wares, because of restrictions on particular types of data that can be stored. Tuesday's announcement gives it an edge over other cloud competition such as Amazon Web Services. Consultant McKinsey reckons, the oil and gas industries alone could generate EBITDA for the cloud storage sector of $82 billion by 2030. There's also a non-political reason for G42 to use Microsoft's technology: Huawei's cloud storage was not sufficiently developed to serve the UAE's needs, a person familiar with the situation told Breakingviews.
Still, US Commerce Secretary Gina Raimondo liaised with counterparts in Abu Dhabi regarding security arrangements for the Microsoft deal. That makes this look similar to Intel's recent Washington-endorsed involvement in a $25 billion Israeli chip deal.
The G42 transaction hands Microsoft the power to audit its use of the software giant's technology, while G42 will have to seek permission before it shares its technologies with other governments, according to the New York Times,. On AI at least, the UAE's Switzerland impression is less and less convincing.
© 2024 - All Rights with The Financial Express
