The Banking Executive Magazine - July 2024 Issue

HISTORICAL CONTEXT AND FUTURE DIFFUSION Technological advancements have historically driven global connectiv- ity, expanded access to public goods, spurred innovation, and improved living standards. AI is expected to fol- low this trajectory, albeit at a faster pace than previous technologies. Unlike earlier general-purpose tech- nologies that required extensive in- frastructure investments, AI can be deployed rapidly through existing digital platforms and devices. The steam engine, electrification, and personal computers took decades to achieve widespread adoption. In contrast, AI’s deploy- ment is set to outpace these tech- nologies, potentially achieving significant productivity and effi- ciency gains sooner rather than later. This rapid diffusion will likely en- hance economic growth, with sub- stantial benefits for capital owners. Implications for Capital and Taxation As AI drives economic gains, the dis- tribution of these benefits will skew towards capital owners. This shift ne- cessitates a reevaluation of business models and government policies. Companies may increasingly adopt less labor-intensive growth strategies, amplifying the capital-to-employ- ment ratio. Consequently, govern- ments will need to reassess tax policies to capture the excess profits generated by automation. A higher corporate tax rate may be necessary to address the economic imbalance. Additionally, the poten- tial rise in structural unemployment could revive discussions on universal basic income, offering a safety net for those displaced by AI-driven au- tomation. ADDRESSING INEQUALITY AND GEOPOLITICAL TENSIONS The AI super cycle also raises con- cerns about widening economic dis- parities both within and among countries. The gap between technol- ogy leaders, such as the US and China, and the rest of the world, par- ticularly the poorest economies, could exacerbate geopolitical ten- sions. Policymakers must consider AI's impact on inequality and strive for inclusive growth that benefits a broader spectrum of society. STRATEGIC RECOMMENDATIONS FOR ARAB BANKS Given these transformative changes, Arab banks and financial institutions must adopt proactive strategies to navigate the AI-driven landscape. Here are key recommendations: 1. Investment in AI Capabilities: Banks should invest in AI tech- nologies to enhance operational efficiency, customer service, and risk management. Leveraging AI can provide a competitive edge and drive innovation in financial services. 2. Workforce Reskilling: To mitigate the impact of job displacement, banks should prioritize reskilling and upskilling their workforce. Training programs focused on AI literacy and digital skills will pre- pare employees for new roles in an AI-enhanced environment. 3. Policy Advocacy: Engage with policymakers to advocate for bal- anced regulations that promote AI innovation while addressing eth- ical and economic concerns. Col- laboration with government entities can help shape policies that support sustainable growth. 4. Ethical AI Adoption: Ensure that AI implementations adhere to ethical standards, protecting cus- tomer data and maintaining trans- parency. Ethical AI practices will build trust and safeguard the bank’s reputation. 5. Strategic Alliances: Form partner- ships with technology firms and research institutions to stay at the forefront of AI advancements. Collaborative efforts can acceler- ate AI adoption and drive sector- wide progress. In conclusion, the AI super cycle presents both opportunities and chal- lenges for the banking sector. By em- bracing AI and implementing strategic measures, Arab banks can harness the potential of this transfor- mative technology to drive growth, innovation, and economic prosperity in the region. the BANKING EXECUTIVE 22 ISSUE 187 JULY 2024