Over the past five years, IT spending has more than doubled in most Middle Eastern nations and its growth will stand solidly in double digits for the foreseeable future, according to an independent research firm.
Against the backdrop of a massive US and Europe slow down, IT investment in the Middle East and North African (Mena) region is now slated to reach $40.5 billion (Dh149bn) this year, a 13 per cent jump from 2007, with GCC investment amounting to $9.1bn, according to figures from International Data Corporation (IDC).
IDC said nearly 40 per cent of the multi-billion dollar investment will be in support of new initiatives, in sharp contrast to markets like Europe and the United States, where most investment is going towards replacing and updating existing technology infrastructure.
“Our forecast for 2008 is that the total IT market for Mena will reach nearly $40.5bn, an all-time high for this region,” said Frank Gens, senior vice-president and chief analyst at IDC. Set against the relatively flat growth of the US market, and the much lower growth levels of Europe, the Middle East will be a bright spot in the world market.
He said the Middle East and African region will be one of the world’s leading “hotspots” for technology investment in 2008, alongside China and India.
Saudi Arabia, set to increase its 2008 IT spending to Dh14.4bn up from last year’s Dh12bn, tops the list of investors. The UAE is placed second in regional IT spending with Dh13bn shelled out for hardware, software and IT services investment, up from Dh10.27bn last year.
Kuwait comes third with Dh3bn, followed by Qatar with Dh1.5bn. Bahrain and Oman will be investing Dh1.3bn and Dh1.1bn in 2008, respectively.
Overall, the GCC’s 2008 IT investment is set to hit Dh34bn, up from last year’s Dh29bn, a 20 per cent increase across the whole GCC states, says IDC.
This kind of IT bonanza runs in a stark contrast to its industry counterpart in the United States and Europe where a drastic cut in IT spending is largely forecast.
Recently, US-headquartered Cisco Systems reported weak sales, supporting analysts’ predictions that global spending on IT goods and services is expected to grow to just $1.69bn in 2008, a six per cent increase from last year.
Gens painted an uncertain picture for the future.
He said in contrast to last year’s healthy 6.9 per cent growth in global IT spending, 2008 will see 5.5 to six per cent growth – or lower. “Driving the significant drop in worldwide growth is certainly, in part, downside risk that’s building from the worsening US economic forecast,” said Gens.
US IT spending could fall from six to three per cent, IDC predicts, with hardware set to fall first, while software takes a hit over the next two quarters, and services see a more gradual downward impact.
IDC attributes the slowdown to disruptive forces that had for years been baying at the fringes of IT – everything-as-a-service, Web 2.0 applications and open development communities – and which burst into the mainstream during 2007.
Through a market adjustment in 2008, big tech companies will get serious about how to incorporate these changes into their business models, he said.
“These technologies have been creeping into everything from enterprise software and hardware to consumer gadgets and telecom services, forcing vendors to rethink their offerings,” said the IDC chief analyst.
In the Middle East, however, the mood is very positive, says Jyoti Lalchandani, vice-president and regional managing director for IDC Middle East and Africa.
“We see continued growth in this region,” Lalchandani said. “Everybody in the world has been afraid of the slowing down of the US market. The good news in the region is that for the first time in many years, the growth is driven by domestic demand consumption.”
The ongoing development of key industry sectors, including energy, the public sector, aviation, real estate and retail, is one of the factors driving the growth of the IT sector.
IDC’s forecast for 2007-2011 suggests that Egypt, Saudi Arabia, Kuwait and the UAE will emerge as the markets with the highest compound annual growth rate. Egypt is set to realise 14.1 per cent over the five year period, Saudi Arabia is set to realise 12.8 per cent, Kuwait is set for 11.9 per cent and the UAE 11.3 per cent compound annual growth rate (CAGR).
Such significant sector growth – more than double the predicted GDP growth rates – indicates the long-term potential of the Middle East technology market.
By way of contrast, only fast-growing markets such as India (17 per cent estimated CAGR) and China (8.6 per cent) are likely to match the development levels of the Middle East market.
Established markets like Western Europe (5.7 per cent), United States (5.1 per cent) and Japan (1.7 per cent) will record much lower rates.
This high investment forecast has created global interest in the potential of the Middle East market, it said.
However, if the investments are to result in genuine productivity benefits for companies – and concurrent social and economic benefits – then strong technology leadership is required across enterprises and organisations, IDC said.
The position of Chief Information Officer (CIO) is relatively new and technology is changing so fast that management traditions have not yet been established, the research firm said.
This makes addressing key business issues such as contributing to the bottom line and keeping pace with rapid development much more challenging.
To support the decision-making processes of CIOs operating within the Middle East, IDC has organised the first CIO Summit in the Middle East.
Injazat Data System’s CIO Kenny Wilson said: “Consolidated IT Systems, managing costs, staffing and pace of technology trends are key challenges facing CIOs and outsourcing is becoming a strategic enabler to overcome these challenges.
“The outsourcing industry is estimated to have achieved Dh355bn globally and will pass Dh434bn by 2011.”
Injazat Data Systems posted a solid year-on-year growth of 68 per cent in 2006. The company attributes its success to regional demand for IT services and a robust economic growth which has positioned outsourcing as a competitive strategy for leading firms.
“Today’s CIOs face challenges while having to ensure that IT is aligned with business objectives.
Outsourcing non-core functions can ensure CIOs focus on more critical business activities while controlling costs,” said Wilson.
Etisalat (Emirates Telecommunications Corporation) concurred, adding that the emergence of managed services as a flexible form of outsourcing will help companies focus on their core business needs and reduce cost of IT ownership.
Abdulla Hashim, vice-president, marketing, enterprise solutions, etisalat said IT in outsourcing business has tripled from $27.58m in revenues in 2004 to $81.27m in revenues in 2006. IT services in the UAE has increased from eight per cent to 16 per cent in the same period.
“The increased adoption of outsourcing services points to more strategic IT decision making within the region and is a clear sign of a maturing IT services sector,” Abdulla said.
GCC IT Market in 2008: $9.1 billion
GCC IT Market Growth Forecast for 2008: 15.3%
GCC IT spending Growth Forecast 2007-2011: CAGR of 11.8%
GCC IT spending per capita has doubled from 2002 to 2007
Middle East and Africa IT Spending Growth Forecast, 2008: $40.49 billion
Middle East and Africa IT Spending Growth Forecast, 2008: 13.1%
Middle East and Africa IT Spending Growth Forecast, 2007-2011: CAGR of 11.4%
Mena IT industry to reach $40.5bn