The Concept of Data Embassies
As nations focus on building domestic data facilities for artificial intelligence, Saudi Arabia has unveiled a novel plan: establishing data embassies distributed globally. A data embassy functions similarly to a traditional embassy, but for information. The data is housed in a foreign country, yet it remains protected by the laws of the nation that owns it. This innovative approach has only been previously adopted by two other countries.
Estonia was the pioneer of this concept, introducing it in 2017, followed by Monaco. Both of these nations store backup copies of critical government data in Luxembourg, a measure designed to safeguard against cyber threats and natural disasters.
With the escalating demands of artificial intelligence, this concept may gain broader traction. Countries experiencing power shortages, particularly in Europe, could potentially store their data in regions that offer abundant electricity and resources. Crucially, the data would continue to be governed by the regulations of its home country.
Saudi Arabia's Strategic Vision
Saudi Arabia perceives a significant opportunity in this evolving landscape. The kingdom aims to diversify its economy by exporting data storage services, moving beyond its traditional reliance on oil. The nation is planning substantial investments in solar power infrastructure. However, experts have raised concerns regarding a critical resource: water. Data centers require vast quantities of water for cooling systems, a factor that presents a significant challenge.
This initiative emerges amidst a broader trend of Middle Eastern nations vying to become prominent technology hubs. Global investors and major technology companies are increasingly directing their attention towards the region, attracted by its substantial financial resources and a growing pool of skilled talent. This influx of investment and expertise has the potential to reshape the global distribution of power within the technology sector.
Challenges in Establishing Data Embassies
The establishment of these data embassies is not without its hurdles. Viktor Mayer-Schönberger, a professor of internet governance at the University of Oxford, highlighted to CNBC that countries would need to forge international agreements concerning legal authority. Currently, no established framework exists to support such arrangements.
Both the host country and the owning country would require assurances that neither party would violate the terms of the agreement. Mayer-Schönberger noted that "This will ultimately depend on the trust of the parties involved."
Saudi Arabia aspires to be the first G20 nation to implement such a system. In April, officials released a draft law that outlines three distinct categories of data embassies. These range from scenarios where the guest country maintains complete control over the data to more collaborative arrangements where Saudi courts might assist foreign courts.
This strategic move underscores the changing dynamics between nations driven by the competition in artificial intelligence. Saudi Arabia has strengthened its ties with the United States, although no specific partnership concerning data embassies has been formally announced. The two countries have jointly established a "Strategic Artificial Intelligence Partnership" with the objective of "building and developing advanced AI infrastructure."
Nations worldwide have committed substantial funding to artificial intelligence projects. The European Union, for instance, has allocated $230 billion for such initiatives.
Could this concept offer a resolution to disputes like the situation involving TikTok, where American officials expressed concerns about China accessing user data and potentially influencing the 2024 election? Mayer-Schönberger expressed skepticism, stating, "It would require a complex bilateral treaty between China and the US that would take very long to negotiate." Given the existing mistrust between the two nations, he believes that Americans would likely not be confident in China's ability to secure the data.
Major technology corporations such as Google and Microsoft already provide their European clientele with local data storage solutions for sensitive information, accompanied by specific protocols designed to limit access by the U.S. government. Mayer-Schönberger commented that whether these arrangements genuinely provide adequate data protection "remains to be seen."
Regulatory Ambiguity and Practical Concerns
As globalization faces headwinds and countries increasingly prioritize national security and economic competition, data sovereignty has emerged as a critical issue. However, the regulatory landscape remains unclear.
Nathalie Barrera, who leads privacy and data regulations for Europe, the Middle East, and Africa at Palo Alto Networks, pointed out that the concept of sovereignty holds different meanings for various countries. She told CNBC, "Everyone’s talking about it, but no one has defined it."
Her company's clients have three primary requirements: control over their data and who can access it, assurance of reliable and uninterrupted service, and protection against foreign government access to their information.
Barrera drew a parallel between data embassies and existing European legislation. "This is not unsimilar than the extra territoriality effect of GDPR," she explained. Data located in America can still be subject to European regulations. Data embassies represent an additional mechanism for safeguarding sensitive government information, such as tax records, health data, and administrative files.
Saudi Arabia presents competitive pricing for these services. The cost of land, electricity, and investment capital is lower in the region. Its geographical location, situated between Europe, the Middle East, and Asia, offers a strategic advantage.
Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, commented, "It makes sense if Saudi Arabia can offer data centre services at a lower cost than countries that need them."
However, she cautioned about the environmental implications. "The rise of data centres introduces new ESG considerations which are now widely recognised, with carbon emissions and water intensity among the most pressing concerns."
Despite its abundant sunshine, Saudi Arabia continues to rely heavily on fossil fuels for its energy needs. According to figures from the International Energy Agency, oil accounted for 64% of the country's total energy consumption in 2023. This situation may force countries to make a choice between asserting control over their data and addressing environmental sustainability.
Mayer-Schönberger remains skeptical about the widespread adoption of data embassies, stating, "The nation state remains too powerful, and globalization is waning."