Editor’s note: A version of this piece by Stephany Zoo originally appeared on the World Economic Forum Agenda website. All opinions expressed are those of the author.

Discussing China’s engagement with the Middle East and North Africa is difficult thanks to regional factors such as oil, conflict and strategic trade routes. While there are many opportunities for private sector and technology investment—and the latter has been the most vibrant area thus far—expanding collaboration between China and the Gulf Cooperation Council will not be easy.

Because of the presence of oil and the intricacies of trade related to it, the relationship between China and GCC suffers from Dutch Disease. The Middle East is not well-represented in terms of oil exports to China, but China imports more than a third of its oil and liquid gas from GCC and is the region’s second-largest export market. In fact, oil ties extend beyond a mere export-import relationship, as China’s national oil companies also have an extensive presence in the region.

Those countries without oil, such as Egypt, Jordan and Syria, need to rely on other resources to attract Chinese investors. This may lead to less competition for Chinese investors and allow them to collaborate in other areas such as technology, for example.

MENA tends to struggle ideologically against Western influence, particularly when it comes from the US, so China’s policy of non-interference while still providing funding for development projects seems more attractive than ever. Added to this, many countries within the region do have domestic resources and can leverage China’s funding to create compounding effects.

A growing number of countries have set up bilateral investment funds with China to finance Belt and Road Initiative-related projects. The UAE has established a $10 billion joint strategic investment fund between Abu Dhabi investment group Mubadala, China Development Bank and the Chinese State Administration of Foreign Exchange. The newly established Asia Infrastructure and Investment Bank is intended to accelerate the volume of bilateral trade and increase non-financial investment stock.

Growing internet penetration and government focus

With total internet penetration surpassing 60% in the Middle East, representing more than 150 million users, Chinese venture capitalists and angel investors are starting to take notice of the region. Unlike some other major BRI regions, such as sub-Saharan Africa, the MENA region has relatively stable digital and physical infrastructure. The Southeast Asia market is starting to become saturated, so now a number of Chinese VCs are turning their attention to the Middle East.

They have already targeted Israel, investing over $325 million in 2018. With those successes, Chinese investors are now spreading across the GCC, and more tentatively, North Africa. They are interested in e-commerce, entertainment, leisure, technology, logistics and fintech.

At the same time, Chinese companies might find an accommodating home in hubs across the region, given government initiatives such as Smart Dubai 2021Saudi Arabia’s National Transformation Program 2030, Morocco’s Mohamed VI Tangier Tech City and the China-Egypt Suez Economic and Trade Cooperation Zone. Internet of things and blockchain are central tenets of Smart Dubai 2021, both areas in which Chinese technologists are currently leading. Furthermore, given conditions at home, Chinese companies are more comfortable than their Western counterparts in expanding into regions with government-led, rather than private sector-led, growth.

Even before Amazon’s landmark purchase of Souq, the largest e-commerce site in the Arabic world, Chinese e-commerce giants had already began to take note of the region. Alibaba has pledged to build a “Tech Town” with Dubai Developer Meraas Holding, which will house over 3,000 high-tech companies, near Dubai’s free port Jebel Ali.

The Middle Eastern e-commerce market is forecast to be worth $49 billion by 2021. In North Africa, Huawei just announced that it will set up a cloud data center in Egypt. Chinese e-commerce company JollyChic has managed to become one of the largest e-commerce sites in the region, focusing on cross-border trade only.

While it is unlikely that other Chinese companies will be able to establish their own operations, this still shows the huge potential for imported products from China as well as partnership opportunities for cross-border innovation and technology. For example, unlike China, cash on arrival still accounts for 76% of e-commerce orders in the MENA region, which makes the payments sector ripe for disruption.

Considering the growth in the numbers of Chinese tourists visiting the MENA region, it is unsurprising that tourism and associated industries are also ripe for Chinese-MENA collaboration. Even within Africa, it is North African countries that have the most Chinese tourists, such as Morocco and Egypt.

In addition to the growth of traditional industries such as retail and hospitality, increased traveler numbers open the door for fintech and online bookings. Alipay and WeChat Pay have made great strides in shopping hubs across the region for Chinese tourists. Israel was the first country in the region to accept Alipay for Chinese tourists, businesses and visitors, when Israeli Credit Card signed a partnership. Since then, Dubai-based lender Masreq and other financial institutions have jumped at the chance to collaborate.

Varied interest across the region

However, with the exception of online retailer Noon entering China to connect brand owners in China with Middle Eastern customers, digital economy cooperation between GCC and North Africa has mostly benefited China. While there are growing numbers of venture capitalists in GCC, the deal size in China is likely too big for them. Even Israeli investors struggle to invest in China, given the maturity and scale of local companies.

As expected, private sector collaboration between the two regions will depend as much on the focus of government investment as it will on the organic growth of tech hubs in the region. Historically, China’s Middle East trade has focused on the Gulf, with Saudi Arabia and UAE taking the lead. Both Iran and Israel are quickly rising, and Egypt is not far behind.

While EU countries tend to dominate trade with North Africa, China is taking a growing interest in countries like Morocco. A prominent factor in China’s interest in North Africa is the pursuit of hydrocarbons from Algeria, Sudan and Libya; as well as Mauritanian iron ore and Moroccan copper, zinc and lead. However, while such traditional trade always comes first, such investment may have spillover effects for technology communities in the area. Most technology collaboration has started in GCC countries and Israel, but has high potential to grow across the region, as North Africa has shown.

All opinions expressed are those of the author. The World Economic Forum Blog is an independent and neutral platform dedicated to generating debate around the key topics that shape global, regional and...

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