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How Middle Eastern companies can drive rapid energy transformation

Dec 23, 2020
5 min read
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Co-authored by: Shelly Trench Managing Director and Partner & Georges El Hitti, Principal, Boston Consulting Group

Today, the Middle East has evolved to become an active innovation center, characterized by leading players large and small. With the region’s leading economies making sustained progress as part of their respective agendas to diversify away from oil and gas dependency, and as the energy industry adapts to global market shifts, the importance of innovation will only increase in the years and decades ahead.

For the most committed innovators, those that prioritize innovation and invest heavily, the coming period represents another opportunity to drive rapid and radical energy transformation. As per the 2020 Most Innovative Companies report, almost 60 percent of committed innovators worldwide insist they generate a rising proportion of their sales from products, services, or business models launched within the past three years, far exceeding industry peers.

This is particularly relevant to the Middle East, where some of the world’s most devoted innovators reside. The region ranks second behind China in its level of commitment – 63 percent of executives consider innovation a Top 3 priority and 57 percent of companies aim to invest more in innovation activities. Moreover, leading economies are securing their energy future in line with innovative long-term strategies.

The Mohammed bin Rashid Solar Park, the largest of its kind worldwide, and Masdar City, a carbon-neutral, self-sustainable city, are located in the UAE and emphasize the extent of national energy transformation activities. Both will continue to pilot new technologies into the future and these projects align with the Dubai Clean Energy Strategy 2050, which aims to ensure clean energy is responsible for 75 percent of the emirate’s power output in 30 years. On the other hand, in KSA, the National Renewable Energy Program (NREP), a strategic initiative under Vision 2030, is underway. The program sets out an organized and specific blueprint to diversity local energy sources, drive national energy sector transformation, and help regional players such as ACWA Power transform into innovation champions at the international level.  

Given the abundance of hydrocarbon assets in the region, national leaders and companies have set highly ambitious objectives to significantly reduce emissions stemming from oil usage, particularly in terms of transport. Through long-term efforts focused on technology and innovation, efforts are being driven to reimagine the internal combustion engine of tomorrow by spearheading mobile carbon capture, a technology that can capture up to 25 percent of CO2 emitted in a vehicle’s exhaust. The aim is to increase this capacity up to 50 percent, and the technology has been successfully demonstrated in prototypes such as pickup trucks and midsize passenger vehicles.

It's important to note that innovation transcends sectors, and there are transformative project examples away from the energy landscape. For instance, Nala, the company behind the world’s first Arabic AI health platform, has enabled more than 50,000 users to obtain precision medical diagnoses through its mobile app. And then there’s Souq, the largest e-commerce company in the Middle East, which circumvented the regional delivery issue stemming from absent postal codes through a smart geo-location system.

Looking ahead, though, the challenges for Middle Eastern companies will be to ensure their innovation operations continue to run smoothly, certify that related activities transform into profitable business, and make sure that products fund the innovation of tomorrow and make it self-sustainable. Already dynamic in nature, operations need to be redesigned and regularly reworked to deliver the desired level of profitable organic growth - and there are three simple steps that can elevate innovative practices:

Drive innovation through collaboration 

Regional innovators have significant collaboration opportunities they can leverage to facilitate energy sector transformation. These include large national and industry transformation programs that encompass multiple sectors, including UAE Vision 2021 and Saudi Vision 2030, and many companies are subsequently pursuing new technologies outside of their traditional specialties, such as solar power. The Middle East is emerging as a hub for multinational corporations and leading global academic institutions, and firms can establish new partnerships to enhance their innovation agendas. 

Adopt advanced technologies and new ways of working

New ways of working and advanced technologies can drive energy transformation, and the region’s large youth population can further facilitate adoption of the two. Digital acceleration research emphasizes that regional companies are well-positioned in this regard, with high shares of bionic companies that effectively combine human and technological capabilities. Digital maturity drives performance by bringing together large data sets with AI; something companies should continue pursuing to accelerate innovation, product development, testing, and reduce time to market. 

Promote cleaner uses of hydrocarbons

Given the abundance of low-cost hydrocarbon assets across the region, companies should further encourage cleaner uses of hydrocarbons. There are different solutions and products that can be pursued in this direction via technology innovation, and inspirational examples include crude oil-to-chemicals which dispel several energy-intensive processes, create high-value products streams, and generate fewer emissions.

Middle Eastern companies have made tremendous progress in their innovation journeys. To continue doing so, they should act now to overcome awaiting challenges, maintain their ambitions, focus their strategies on unique advantage areas, and create ecosystems whereby local and international talent come together with investors to shape innovative business models. Success stories are there from which to take inspiration. The onus is now on companies to ensure they continue reaping the rewards of innovation in the future.