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Kuwait Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: September 2007 Product Code: R302-1341 Description Market OverviewWith the government’s expansionary budget for FY06/07 having boosted both consumer spending and infrastructure investment, the signs are positive for Kuwait’s IT sector in H207. BMI has upwardly revised its IT growth forecast for 2007, and high oil revenues are continuing to drive investment by both private and public sectors. In absolute terms, Kuwait is the third largest computer market in the region, and the total size of the IT market is expected by BMI to increase from US$406mn in 2006 to around US$875mn in 2011.There are a number of large private and public sector projects in the pipeline, with an increase in activity over the same period last year. Given IT market compound annual growth rate (CAGR) forecast at 17% for 2006-2011, Kuwait is set to be one of the fastest-growing countries in the region. This is due partly to its relatively small but techliterate and wealthy population, which allows it to adapt faster to trends. However, the country is embarking on a major new programme of modernising its oil sector, and the booming property and newly liberalised telecommunications sectors are also providing plenty of opportunities for vendors of IT products and services. Given government investment in the growth and development of IT and communications, most of the elements should be in place for Kuwait to outperform many of its regional neighbours as one of the fastest growing IT markets in the Middle East region over the next few years. All sectors of the Kuwait IT market have growth potential over the forecast period. Plans are in place to deploy fibre networks in 36 areas, a third mobile licence is to be awarded, while the ever-increasing popularity of notebooks, particularly wireless-enabled, is leading spending by consumers and enterprises in Kuwait’s booming commercial centres. Oil and Gas companies are looking to optimise cost structures, while in the financial sector banks are implementing solutions to increase business flexibility and introduce new services, including Islamic Banking. The government is also getting in on the act, with a wave of new e-government initiatives launched, and an increasing number of state institutions offering online services. Industry Developments Opportunities in the Banking sector have been highlighted by the announcement by Boubyan Bank of a major retail system implementation. Boubyan is itself a new entrant in Kuwait’s banking sector which is becoming a major source of IT spending growth as both established banks and newcomers invest to compete more effectively in the new market environment. In the new more competitive Kuwait market environment banks are looking to enhance their online services to customers with solutions that provide flexibility and scalability. While BMI reports have highlighted Kuwait’s progress in the e-government area, big challenges remain particularly in excessive bureaucracy and lagging education systems both of which stifle technological innovation. To some extent the challenge is regional, with the UAE also dropping in the rankings. Arguably the very cash richness and oil money which has fuelled recent investment is also dampening economic diversification, while public sector spending may be crowding out private sector investment in R&D. Following the recent establishment of the Central Agency for Information Technology to drive awareness of IT issues, Kuwait was disappointed to drop eight places in the World Economic Forum’s annual report on network readiness. Kuwait ranked last of the four Gulf countries included in the index; disappointing given its ambitious plans for digital integration and high penetration of consumer technology. However, the results showed the importance of the CAIT which was founded to encourage IT development and coordinate government action. Recently CAIT has been working with Singapore to modernise e- government infrastructure. Company News Microsoft is expending its agreement with Dubai based distributor Mindware to cover the Kuwait market. The new agreement also covers Qatar and Bahrain and will particularly target SMEs and Education Institutions with licence solutions from Microsoft. The deal is good news for Mindware which in 2006 reported sales of US$190mn driven largely by Microsoft agreements in the UAE, KSA, Lebanon and Egypt. In Kuwait, Mindware will offer volume licence solutions from Microsoft including open licence, open value and schools agreements, as well as full packaged products. The announcement comes at a time when there has been significant upheaval in IT distribution in the region this year. Many vendors are reviewing distribution strategy across the Middle East to take account of a more competitive and integrated regional market. Microsoft has conducted such as review this year which resulted not only in the Mindware expansion, but the decision to switch its OEM division from using four regional distributors to just one. For their part, distributors are now often looking more coldly at profits rather than volume sales associated with distributing particular brands. While worldwide demand for oil is increasing at double digit pace, a number of geo-political uncertainties complicate matters, creating a need to the oil and gas industry to invest in IT systems. Oil companies are investing in IT to enhance operational efficiency, optimise cost structures and boost overall business agility. Recently the Kuwait Gulf Oil Company and Aramco Gulf Operations Company’s joint venture awarded a major project to Atos Origin Middle East. The US$5.27mn project was to design and deploy a state of the art logistics solution, and upgrade their IT environment to the latest SAP ERP software version. Computer Sales In 2006 the Kuwait computer market, driven by demand for high-end brand notebooks, grew to a value of around US$143mn. Overall hardware sales were US$183mn, up from US$152mn the previous year, making Kuwait the third largest market in the region after Saudi Arabia and the UAE. Forecasts are for a CAGR of 15% over the 2006-2011 forecast period. Demand for notebooks in particular should be buoyant for several years, with the availability of wireless access technologies driving popularity among small and medium businesses in particular. Notebooks are already the dominant form factor, and should account for around 60% of PC sales over the next period. The public sector and e-government projects will continue to be a significant demand driver during this period as sizable budgets have been allocated. Privatisation is also encouraging spending, as are moves to make foreign ownership of businesses easier. Software In 2006 total spending on software is estimated to have reached US$118mn, up 20% from US$98mn the previous year. With high oil prices and growing regional competition continuing to fuel enterprise spending on software and systems, there should be many opportunities across many sectors. Facing change and seeking efficiencies, SMEs are likely to lead spending growth, with manufacturing and trading firms both seeking efficiencies by transitioning from manual environments to full automation of back-office systems. Services The IT retail sector is now seeing a greater importance for services. Universe Computers, the major IT vendor, recently revealed that around 20-25% of its revenues come from services which are provided both directly to customers and also in varying degrees of support to resellers. This ratio would appear to be quite typical for vendors across the region. Many vendors are reporting an evolution in demand for services, with a shift towards greater interest in managed services, value added services, facilities management, hosting and disaster recovery. However, according to Galaxy in Kuwait, consulting, implementation and maintenance are still the services most in demand. The Kuwait IT services market is expected to be worth around US$143mn in 2007, with strong growth expected in the years to come. Market CAGR is forecast at 18% for 2006 -2011, with market size reaching around US$271mn by 2011. Telecoms, banking, and retail sectors are all providing strong demand for project implementation, managed services and outsourcing. There has been a recent trend towards larger deals, particularly from government. Meanwhile, a more volatile environment for the oil industry is encouraging companies to look for solutions that will increase operational efficiency and boost overall business agility. E-Readiness The Government’s Establishing Committee for the Third Mobile Telecoms Company in Kuwait has published its TFI (Request for Interest) and details of the public auction process for companies interested in investing in the mobile operator. A 26% share is available with the provision that the investor is not a Kuwait listed company or foreign telecom operator. While some people have questioned how much room there is for expansion in a market which already has mobile penetration in excess of 100%, the prospect of a new entrant is likely to spur more spending on software, applications and IT systems by both incumbents and the new player. The deadline for response to the RFI is July 31st. Kuwait is one of the most advanced technological markets in the Gulf, with most homes now covered by DSL or wireless internet access. According to BMI figures, the number of internet subscribers is projected to increase to 450,000 by 2011. The planned award of a third mobile licence should help spur telecoms development. The government is also helping to drive IT development with its new broadband access initiative. Alcatel was chosen by Kuwait’s State Ministry of Communications (MOC) to supply a gigabit passive optical network (GPON) solution that will serve about 60% of access areas involved in the ministry’s present rollout. MOC's access network is gradually being upgraded by replacing the existing copper access with a passive optical fibre infrastructure. Table of Contents
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