Investment Monitor

Weekly Newsletter

11 August 2023

Weekly Newsletter

Saudi Arabia signs agreements with Turkey to localise drone production

Saudi Arabia will localise the manufacturing of drones and their component systems after signing agreements with Turkey.

Saudi Arabia and Turkey have signed a series of agreements to localise the manufacturing of drones and their component systems within the Middle Eastern kingdom, according to a report by the state-owned Saudi Press Agency.

Saudi Arabian Military Industries (SAMI), a defence company owned by the Public Investment Fund, the kingdom’s sovereign wealth fund, signed the localisation deal with Turkish defence company Baykar on 6 August.

The agreement will focus on the manufacturing of electronic systems, mechanical components and drone structures using composite materials, as well as encompassing manufacturing, final aviation testing and the provision of training and support services.

SAMI’s agreement with Baykar is an extension of two acquisition contracts signed by Saudi Arabia’s Defence Ministry with Baykar during Turkish President’s Recep Tayyip Erdoğan's visit to the kingdom in July.

Separately, the Saudi National Company for Mechanical Systems signed memoranda of understanding with Roketsan and Aselsan, two Turkish defence companies, to localise the production of ammunition and optical sensors for drones in the kingdom.

Under Saudi Vision 2030, Crown Prince Mohammed bin Salman’s post-oil economy plan, Saudi Arabia hopes to localise more than 50% of military equipment spending by 2030.

These agreements also reflect the improvement in Saudi-Turkey diplomatic relations. Turkey's outreach to Saudi Arabia began in 2021, resulting in high-level visits as well as important financial aid including $5bn from Saudi in March 2023.

For years, Riyadh had tense relations with Ankara over issues including the killing of Jamal Khashoggi at the Saudi consulate in Istanbul in 2018, as well as Turkey's support for Qatar during the Saudi-led embargo from 2017 to 2021.

Generative AI expected to drive significant disruption across the financial services industry

Per latest GlobalData estimates, the AI market was valued at $81 billion in 2022, and is expected to achieve a CAGR of more than 35% between 2022 and 2030. Artificial intelligence is reported by executives across all industries (and all FS sub-segments), as likely to drive “significant disruption” next 12-24 months out, and that “significant disruption” has already occurred (within the past 12-24 months). Gen AI, a specific sub-set of AI, is expected to drive even greater disruption. Gen AI is being experimented with by many leading incumbent banks, new entrants and technology vendors but concerns around data privacy and hallucinations drive caution. More human-like chat bots, and synthetic data for fraud and cyber resilience, are leading possible use cases. However, currently Gen AI is virtually non-existent in terms of “live” customer facing propositions. Chatbots, perhaps the most compelling near-term use case, remain completely untouched by even the pioneers in the field. While the benefits are clear long-term, short-term the risks are even clearer, whether that’s inaccurate guidance or advice in a heavily regulated arena, data leakage, fraud and cyber vulnerabilities, and so on. As such, risk management features prominently in the calculations. However, the fear of missing out is palpable. Incumbents need clear policies to help identify those most promising, early Gen AI use cases, then rapidly deploy them across the enterprise.