GCC looks to ICT parks for economic diversification

As GCC countries seek ways to diversify their economies, information and communications technology parks (ICT parks) must continue to play a central role in helping to nurture the fledgling technology industries by building pools of local talent, says a report.

The report that was released by Booz & Company said the GCC countries are full of economic potential, but need more mature technology industries to thrive. Right now most technology projects go to foreign contractors – who are not typically committed to the long-term growth of the grassroots technology industry.

To change this and to grow organically and enhance technological skills and knowledge, the GCC is turning to ICT parks. They allow a leap into the digital age by creating a dynamic environment to incubate, cultivate and share talent. Next-generation ICT parks will thus serve as prime drivers in economic diversification efforts and transition towards a knowledge-based society.

However, the existing GCC ICT parks focus on either achieving commercial success or fostering development of local talent, but not both together.

Karim Sabbagh, partner, Booz & Company, told Emirates Business: "So far, the GCC's ICT parks have focused on either driving ICT sales or incubating ICT development – but, usually, not both. To develop a grassroots ICT industry and to change the inefficient pattern of relying on transient foreign talent, the GCC will need to create self-sustaining ICT parks – parks that combine the characteristics of both commercial [those concentrated primarily around ICT sales] and incubator ICT parks [those concentrated around research and development]. These next-generation ICT parks will create value through research and incubation of ICT projects and will also capture value by commercialising ICT products and services. They will have lifestyle facilities – such as housing, schools and retail and entertainment complexes – that will help them attract and retain the companies and the talent whose early-stage development they are helping, and ensure the development of a local ICT sector.

"By providing all these benefits, next-generation ICT parks will create self-sustaining ICT ecosystems, supported through strong collaboration between government, industry players and educational institutions.

"Furthermore, the development of next- generation ICT parks is dependent on success factors that differ from the ones set out till date. Next-generation parks have a clear focus, with ICT clusters dedicated to a particular industry and niche [such as e-healthcare, e-education and e-energy], rather than being everything to everyone. Moreover, these parks are committed to the development of an indigenous ICT sector, rather than short-term profitability and purely financial return on investment.

"Finally, next-generation parks are developed in prime locations; this is vital to give workers what they need in their personal as well as professional lives. A convenient location can also be important in letting the ICT park's tenants connect with their suppliers and customers, and thus help keep labour and material costs under control. Also ICT parks have a "campus-like" feel to them consisting of "ground scrapers" (low-rise buildings) as such architecture fosters communication and collaboration essential for innovation. Smart-city technologies are also integrated in the overall urban planning of next-generation ICT parks to ensure that ICT plays an enabling and facilitating role in the business conducted by the parks' tenants."

GCC oil revenues over the past five years have allowed the development of a number of large projects – spurring growth in non-oil sectors to diversify economies and lessen dependence on hydrocarbons.

Non-oil sector growth creates increasing demand for expertise in the GCC and as GCC countries move towards economic diversification and become knowledge economies, investment in local talent is a key factor and the ICT sector needs to be a primary focus.

ICT spending in the GCC grew to $33 billion (Dh121.11bn) in 2007 – over twice the average of Organisation for Economic Co-operation and Development (OECD countries and 50 per cent higher than the global average, with spending expected to continue growing. This is driven by increased demand for ICT in telecommunications, oil and gas, construction, healthcare and public institutions.

Ramez Shehadi, Partner, Booz & Company said: "The UAE has been at the forefront of development of ICT parks in the GCC. Dubai Internet City (DIC) – launched in 2000 – paved the way for specialised ICT clusters in the UAE, such as Dubai Techno Park (DTP), Dubai Silicon Oasis (DSO) and CERT, in Abu Dhabi. The UAE has facilitated the development of these parks by allowing them to be set up as specialised economic zones with dedicated and specific regulations and incentives. The tenants of DIC, for example, enjoy zero corporate and personal taxes for 50 years. As much as 100 per cent foreign ownership is also permitted within the park, with 100 per cent repatriation of profits.

"Furthermore, these parks have been able to offer streamlined business set-up services to tenants through dedicated government one-stop shops. Employment sponsorships and visas are thus facilitated through the parks' authorities with a fast-track immigration process to ensure swift access to talent and resources.

"Finally, land subsidies have also been a vehicle for promoting the development of ICT parks in the UAE. This allows parks to provide rent subsidies to attract and retain tenants. DSO, for example, is a new park providing state-of-the-art offices and infrastructure at 30 per cent lower cost than other free zones."

However, regional ICT efforts, mostly led by international companies, bring challenges of inconsistent quality of service and a lack of responsiveness in the region's most important development projects. This is exacerbated by the immaturity of national ICT agendas to develop capabilities, limiting the positive role educational institutions might play. The region also generally lacks copyright protection and transparent policies and regulations on intellectual property (IP) and a mature venture capital infrastructure. These make the environment for startups sub-optimal.

To promote the development of ICT, GCC countries are directing investments toward state-of-the-art ICT Research and Development and are forging partnerships with world-class technology universities.

They set up Special Economic Zones (SEZs) to create favourable economic and regulatory climates for ICT companies and also aim to improve availability of ICT services and capabilities.

Sabbagh, partner, Booz & Company, said: "The UAE has been promoting the development of the ICT sector heavily over the past few years through a multi-faceted approach [not just a financial one] to further enable the sector's socio-economic contribution to the country. Government, in particular, is playing a major role in spurring the ICT sector through large government modernisation programmes in Dubai and Abu Dhabi that have e-government strategies at their core, as well as its recent federal IT strategy. The budgets of these projects run in the hundreds of millions of dirhams over many years.

"Furthermore, a number of funding vehicles have also been established to spur the development of the ICT industry. The UAE ICT Fund, for example, is setting up ICT research and education institutions throughout the country with the objective of promoting a culture of entrepreneurship in the UAE's ICT sector and improving linkage between industry and academia. The Telecommunications Regulatory Authority's ICT development fund – the first of its kind in the Middle East – aims to incubate ICT businesses, sponsor R&D projects and institutions and provide educational sponsorships and strengthen the availability of ICT institutions throughout the UAE.

"Educational institutions are also supporting the growth of the sector by initiating the development of a local grassroots talent pool. The Higher Colleges of Technology (HCT), for example, offer a range of IT-related learning opportunities and foster industry placements for university students through a dedicated career centre.

"These efforts have all supported the double-digit growth in ICT spending across the UAE. Between 2003 and 2007, ICT spend by consumers, business and government increased from $5.4bn to $9.7bn, according to a World Information Technology and Services Alliance (Witsa) report. This momentum should be further fostered to ensure continued support and development of the ICT sector in the country. Next-generation ICT parks can thus represent another development vehicle for the ICT sector."

To create self-sustaining ICT parks, countries must put in place a hierarchy of value propositions. It starts with a set of value propositions that are relatively basic and that give park tenants the "right to compete". It then graduates to value propositions that are critical for transition to a knowledge-based society, followed by value propositions that give ICT parks sustainable ecosystems for long-term viability.

Also, incubation services and business accelerators are important catalysts of innovation, providing business advice and mentorship to companies that need them.

Funding for startups is also a key enabler of innovation. Dubai TechnoPark (DTP) set up a $300-million venture capital fund to attract early-stage tenants with viable commercial projects.

Next-generation ICT parks should provide access to government ICT initiatives, help drive the enhancement of the ICT curriculum in universities and serve as a liaison between industry and education. In some developing countries, government-led policy reform is such a core part of the ICT park agenda that government agencies set up satellite offices inside. In Oman, the government IT authority is an anchor tenant of Knowledge Oasis Muscat.

Next-generation ICT parks must focus on long-term partnerships that attract and retain strategic tenants. The factors that help with this include the availability of capital and the promotion of innovation.

"Other factors include an unwavering respect for intellectual property and copyright protection laws, and proven processes to attract quality ICT companies and workforces needed to staff them," said Sabbagh.

The ICT park operator should accurately gauge future demand – how quickly the ICT park is likely to grow and the infrastructure and services that will be required. A phased growth plan offers the best chance to avoid overcrowding or empty spaces.


Making ICT parks more competitive

- Cost advantage: ICT parks can attract companies by offering financial incentives such as tax benefits, full foreign ownership and repatriation. Many have moved beyond being tax havens and offer advanced incentives on real estate costs, employee salaries and business support services. 

- World-class business infrastructure: Most ICT parks offer infrastructure making it easy for tenants to set up, including customisable office spaces, conference facilities, high-speed telecommunications and IT networks and convenient access to transportation hubs. 

- Holistic business support: Modern ICT parks support their world-class infrastructure by providing value-added services. These essential services are especially important for startups and smaller enterprises that lack the scale to run a full-fledged support division. The fact that the services are available through a single point of contact is a major benefit.

- Market insights and opportunities: ICT parks play an important role in identifying business opportunities for tenants by providing insights on and entry into local and regional markets. These again are especially important for startups and smaller enterprises.


How to move towards knowledge societies

- Clear direction for individual ICT parks: Next-generation ICT parks should have dedicated clusters incentivising industry, government and other institutions to interact in new ways, and selected to meet market demand. ICT parks must integrate their mission with those of their host countries, as economic benefits of zone development are reduced when zones function in isolation from larger national objectives. Benefits are multiplied when ICT parks conform to national economic policies and help increase the competitiveness of domestic enterprises. 

- Focus on long-term commitment rather than short-term profitability: Creating an indigenous ICT industry requires long-term commitment. Decision makers should complement current short-term financial measures of success with longer-term measures, such as the number of new tenants joining the ICT park, the number of local startups, the number of patents awarded and the number of local ICT university graduates.

Financial support should be secured early on and support from senior government officials is critical. Long-term success will also be determined by the strength of the ICT park's management team. 

- Selection of prime location and layout: A convenient location can be important in letting ICT park tenants connect with their suppliers and customers and thus keep labour and materials costs under control. The ICT park's building should be entrusted to a world-class master planner, knowledgeable about smart-city technologies and urban-planning, to ensure a state-of-the-art development. The ICT park layout should be campus-like, focusing on "groundscrapers" – low- or medium-rise buildings.

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