Microsoft to Invest $1.5 Billion in a UAE-Based AI Company

• Microsoft is investing $1.5 billion in G42, a UAE-based AI company.
• Microsoft President Brad Smith is expected to join the board of directors of G42.
• However, US officials are worried about G42's connections with China. Hence, a security agreement has been arranged to oversee the partnership.

Microsoft has decided to invest $1.5 billion in an AI firm called G42 based in the United Arab Emirates. Although Microsoft previously had ties with this company, this is the first time it's getting a minor stake in it.

It's also the first time Microsoft is making a significant effort to expand its services to the Middle East.

Under this new partnership, Microsoft President Brad Smith will join G42's board of directors.

The partnership comes at a crucial time considering there's a power struggle between Washington and Beijing over who gets to have more technical control, especially in the Persian Gulf region.

Apparently, there's also a second phase of this partnership that's yet to be discussed and is expected to be more controversial because Microsoft might transfer some of its AI powers to G42.

Read more: Microsoft decides to invest $2.9 billion in Japan to develop AI and Cloud industry

Criticism: G42's Ties with China

While on the surface this seems like a great deal. G42's ties with China bring in a lot of criticism.

G42 is led by Peng Xiao, a Chinese businessman who is also the former CEO of Pegasus. Not just that but G42 is also well-connected with other Chinese firms and a lot of its employees come from government-connected companies.

So, US officials are worried that G42 might share American technology and other confidential information with China. This concern was addressed by Xiao himself in January where he labeled these speculations as misinformation".

However, the problems are far from over. This year a congressional committee including House Rep. Mike Gallagher, R-Wi., chairman of the U.S. Select Committee on the Chinese Communist Party wrote a letter to the Commerce Department asking it to look into G42 and putting it under trade restrictions for its connections to China.

Certain allegations were also made that said G42 maintains links with blacklisted companies like Huawei and works with the Chinese military and intelligence.

In the field of advanced technologies, we have pursued a commercial strategy since 2022 to fully align with our U.S. partners and not engage with Chinese companies.G42Steps Taken to Minimize China's Influence on This Partnership

Commerce Secretary, Gina Raimondo, has made it very clear that when it comes to advancing technology, no one can work with both the US and China at the same time. You have to pick a side.

Both G42 and Microsoft said that they will be committing to comply with US and international trade rules.

In addition, after negotiating with the US and UAE governments, a security agreement - the Intergovernmental Assurance Agreement - has been put in place to govern the partnership.

• It requires G42 to remove all Chinese gear and equipment from the company and to cut ties with all Chinese entities.
• To comply with the rules, the company has also agreed to give up its stake in ByteDance - the Chinese parent company of TikTok.
• The agreement also prohibits the transfer of AI models and GPUs and assures that whatever new technology they work on will be safely developed, protected, and deployed.
• If G42 needs to transfer some data to another government or military, it needs to seek permission first.
• Last but not least, G42 is barred from using the technology for surveillance and Microsoft will have the right to audit how its technology is used.

Why Is This Partnership Important?

This partnership is very important for the companies as well as the nations.

Microsoft

For Microsoft, it's a way to tap into a new market. Fostering relationships with multiple international AI companies has been its key strategy in the last couple of years to position itself as a global AI leader. It's for the same reason that it's also collaborating with OpenAI (US-based) and Mistral (France-based).

G42

G42 will benefit as it will gainaccess to AI computing power in Microsoft's data center in the Emirates. Since this is sensitive technology that cannot be sold in the country without an export license, it will give G42 an upper hand over its competitors.

UAE

Microsoft will give UAE the much-needed AI boost that it has been striving for. UAE has been trying to emerge as an AI leader in the Middle East, so Microsoft and G42 have decided to support this dream by setting up a $1 billion dollar fund for UAE developers to nurture the AI skills of workers in the region.

The US

The United States, on the other hand, will be able to fight against China's growing dominance in the tech industry. Once the deal goes through and G42 severs all ties with China, it might serve as a model for other US AI companies to leverage their technical prowess and separate other countries from China.

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