The Banking Executive Magazine - July 2024 Issue

The Future of Banking in the AI Era THE ECONOMIC AND PRODUCTIVITY GAINS OF AI Generative AI's adoption is antici- pated to drive significant productivity gains and robust economic growth. By 2030, AI is expected to contribute a staggering $16 trillion to the global economy, according to PwC. These gains, however, will largely benefit the owners of capital rather than the labor force. The technological ad- vancements underpinning AI, such as large language models (LLMs), re- quire enormous capital investments, creating a concentrated group of winners, primarily among Big Tech firms with monopolistic market posi- tions. In 2023, the top US technology com- panies, collectively known as the Magnificent Seven, allocated $370 billion to research and development. This investment matches the Euro- pean Union’s total R&D budget, un- derscoring the scale of resources required to maintain a competitive edge in AI development. The costs associated with training and operat- ing LLMs, predominantly from high- end graphics processing units (GPUs) and data center operations, are sub- stantial. Sam Mugel, CTO of Multi- verse, estimates that training the next generation of LLMs will soon cost at least $1 billion. LABOR MARKET TRANSFORMATIONS The impact of AI on the labor market remains uncertain. Estimates vary widely, with Goldman Sachs predict- ing that AI could automate the equiv- alent of 300 million full-time jobs, while the World Economic Forum anticipates a much lower net loss due to job creation in green sectors and climate-change adaptation. De- spite these divergent projections, there is a growing concern that AI will lead to long-term structural un- employment, affecting both skilled and unskilled workers. The repercussions of job losses will vary across different sectors. While chip manufacturers and AI infrastruc- ture developers are experiencing sig- nificant job growth, the broader economic impact remains unclear. Early studies suggest promising effi- ciency and productivity gains for re- maining workers. A 2023 study by Erik Brynjolfsson, Danielle Li, and Lindsey R. Raymond found that AI tools boosted worker productivity by 14% on average, and by 34% for new and low-skilled workers. ISSUE 187 JULY 2024 the BANKING EXECUTIVE 21 • AI'S $16 TRILLION IMPACT BY 2030. • AI'S EFFECTS ON JOBS: GAINS AND CHALLENGES. • STRATEGIES FOR ARAB BANKS TO LEVERAGE AI. The dawn of the AI super cycle heralds a transformative era for global economies, with generative AI poised to redefine productivity and economic growth. As AI innovations accelerate at an unprecedented pace, it becomes crucial for economists, bankers, and financial executives in the Arab world to understand and adapt to the emerging landscape. This article explores the implications of AI on capital, labor, and productivity, and offers strategic recommendations for Arab banks and financial institutions.