UAE Information Technology Report Q3 2007: Industry Research Report

UAE Information Technology Report Q3 2007

Published Date: October 2007

Published By: Business Monitor International

Page Count: 37

Order Code: R302-1345

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Market Overview

The UAE market is a strong growth prospect for IT vendors over the next few years as one of the world’s most technologically advanced societies helps to drive sales in a region enjoying an economic boom. Revenues from sustained high oil prices are being channelled into economic diversification and infrastructure projects generating increased spending on IT products and services. While similar patterns have been seen before and proved to be short-lived, there are signs that this current investment cycle is more likely to have a long lasting effect on the economy. The total size of the UAE IT market is expected by BMI to increase from around US$1.5bn in 2006 to around US$2.4bn in 2011, representing more than 30% of the Gulf Co-operation Council (GCC) market.

With the PC penetration rate only around 25% there remains considerable potential in the market and with the combination of a strong economy and government initiatives many vendors are anticipating good results in 2007. Spending will be supported by projects in both public and private sectors. Spending should be strongest in the government, financial, and oil and gas verticals, with a trend towards larger projects, such as the recent project by Dubai’s new International Financial Exchange. Key non-oil sectors driving the economy include real estate, which has experienced a massive investment boom in the past five years, and banking, which is likely to be the single largest industry vertical in terms of IT investments over the forecast period.

E-government initiatives are being rolled out as the Emirates implements its strategy of creating a leading information based knowledge economy. New spending in areas such as education will also provide opportunities for PC vendors. Consumer hardware and software purchases are showing signs of picking up, led by the increasing demand for notebooks with features such as high-definition (HD) digital video disc (DVD), global positioning system (GPS), and wireless connectivity. Another important development is the growing of many deployment contracts, as evidenced by recent projects by leading UAE corporations such as Emirates Airlines and Etisalat.

Industry Developments

The UAE federal government’s recently announced UAE Strategic Plan calls for a strengthening of egovernment programmes. The focus of the programme is to support implementation of programmes at federal government level. The federal government ministries have often lagged behind progress by the leading local governments, particularly Dubai. The new effort will be coordinated by the Ministry of Government Development and will see implementations in several UAE Federal Ministries.

One department likely to generate spending in the next period is the Dubai Customs whose strategic plan for 2007-2015 includes an important role for IT. The government hopes that the application of IT will in this case boost revenues by making it more difficult for importers to under-declare. Meanwhile, Abu Dhabi is also accelerating its efforts to be at the cutting edge and has recently launched Abu Dhabi Spatial Initiative (AD-SDI). This is designed to coordinate data sharing activities related to development of geoinformation systems.

Competitive Landscape

As the Banking sector becomes an important source of spending growth across the region, Satyam Computer Services has emerged as the main winner from a landmark multi million IT deal. The contract change management has been awarded by Emirates NBD, the new UAE based finance house which resulted from the July merger of Emirates Bank International and National Bank of Dubai. The deal has been reported as the largest ever for Satyam in the Middle East where, as reported previously by BMI, the Indian IT Services companies have been building their presence and making major advances in the last two years.

Meanwhile, Dubai is investing to train and attract high quality talent and other faculties in place to lure investors from around the region. Dubai Outsourcing Zone (DOZ) is aiming to be one focus point with companies having established outsourcing centres there in recent months. These include Fujitsu and Emirates, which will invest US$545mn in a call centre in DOZ. Other companies including ABN Amro bank have also announced call centre plans.

Hardware

The UAE hardware market is one of the largest in the region, estimated at about US$836mn in 2006, up 12% from US$746mn in 2005. Much of the growth is being driven by small and medium enterprise spending, particular on mobile computers, which are expected to account for around 60% of sales over the forecast period. Notebooks are also proving popular with the consumer segment, particularly with the introduction of features such as wireless internet PC cards and entertainment features such as HD DVD. Sales of PC notebooks and accessories are expected to reach more than US$750mn in 2007, while the compound annual growth rate (CAGR) for the 2006-2011 period as a whole is expected to be in the region of 9%. However, desktops are still important, particularly for the SMB segment, which remains a significant under-penetrated group in the market. Investment in education and e-government, fuelled by new oil revenues, will lead to desktop rollouts in schools, colleges and government offices across the Emirates.

Software

The Business Software Association (BSA) has praised the UAE government and Ministry of Economy for its efforts in promoting anti-piracy initiatives. The government has combated illegal software in a number of ways, both through anti-piracy legislation and enforcement measures. BMI estimates that the UAE's software spending will pass US$300mn in 2007, representing around 18% of the IT spend. CAGR for spending on packaged software is put at 10% over the 2006-2011 period, with the UAE being of the region’s fastest-growing ERP markets, as more businesses realise the benefits of efficient management of resources within their internal processes.

Customer relationship management (CRM) will be one of the growth areas with fewer than 2% of smallto medium-sized enterprises (SMEs) in the Middle East region having a specialised CRM application in place. BMI predicts plenty of room for growth in the forecast period as numerous untapped sub-sectors still exist. Key verticals include process manufacturing (mainly oil and gas), followed by the finance sector. Other key segments are telecoms and the public sector. During the next five years, in addition to CRM and enterprise resource planning (ERP), high-growth categories are set to include business intelligence, storage and security products.

IT Services

Dubai’s proximity to India is making the Emirates a good location for Indian based IT Service companies to locate disaster recovery centres, a growing trend at the moment. India has around 80% of the world’s offshoring industry and vendors there see Dubai as a good contingency location in the event of a disaster. In recent times there has been an increasing amount of investment in facilities. The growing Emirates outsourcing market is also an attraction with BMI predicting that the IT Services market will reach a value of more than US$750mn by 2010, with outsourcing accounting for an increasingly large portion of up to one quarter.

IT services revenues CAGR over the 2006-2011 period is expected to be 14%, encouraging vendors to shift their focus away from simply shifting boxes. Services are becoming an increasingly important component of many deployment contracts, as evidenced by recent projects by leading UAE corporations such as Emirates Airlines and Etisalat. Outsourcing is also predicted to be a growing trend, with recent landmark outsourcing deals awarded by entities such as the Abu Dhabi Water and Electricity Authority and civil service departments. Global vendors such as IBM Global Services are competing for this business with local companies such as Injazat Data Systems, which with its good government connections has grown to be a major force in the market, reporting BPO deals with 13 leading private and public organisations.

E-Readiness

The recent Global Information Technology report sponsored by Cisco noted the UAE’s success in creating a good ICT environment by placing it top of the rankings for 122 countries. The survey, which looks at the propensity of countries to leverage the opportunities offer by ICT for development and increased competitiveness, praised the Emirates’ good regulatory environment, and clear government leadership in leverage IT and promoting its use. According to the report, ICT has revolutionised the business and economic landscape and empowered individuals while fostering social networks and companies.

Overall internet penetration in the UAE was estimated at close to 40% by the end of 2006, far above the Middle East and North Africa (MENA) average, reflecting the Emirates’ status as one of the most advanced IT countries in the region. Broadband penetration is around 10% and is expected to rise 60% over the forecast period. In terms of e-government development, phases to be introduced in the project last year (see Industry Developments) include e-portal, e-project, the HR Management System (HRMS) and the Financial Management Integration System (FMIS) projects. The e-government High Committee has expressed satisfaction with the progress made on implementation of the e-government initiative to date.

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