The Middle East and Africa will be one of the world’s leading regions for technology investment in 2008 after China and India, according to the International Data Corporation (IDC), a US-based market intelligence and advisory firm.
Total regional ICT investment this year is estimated at more than 15% over 2007, reaching $40.5 billion while global growth is expected just over 5%, Jyoti Lalchandani, vice president and regional managing director of IDC MEA, told Executive, with the GCC receiving a quarter of the region’s total, or around $9.1 billion. New initiatives in technology and infrastructure will get 40% of investment funds. This contrasts sharply with mature markets in the US and Europe, where investment largely goes to upgrading and replacing existing technology.
This enthusiastic investment atmosphere is drawing greater international interest in the potential of the region. Frank Gens, senior vice president and chief analyst of IDC, explained, “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.”
Growth estimations from last year are helping the sector with 5.6% for Kuwait, 7.8% for Qatar, and 8.5% for the UAE.
Middle East Internet usage and population statistics
Middle East telecom services revenue
A racing market
IDC has forecasted that for 2007-2011 Egypt, Saudi Arabia, Kuwait, and the UAE will emerge with the highest compound annual growth rate in double digits. Egypt is set to see 14.1% over the five year period, Saudi Arabia 12.8%, Kuwait 11.9% and the UAE 11.3%. This is compared with India at 17%, China at 8.6%, Western Europe at 5.7%, the US at 5.1% and Japan at 1.7%.
The growth that we are witnessing in the region is also beginning to mature in the GCC. “What has been taking place in the last 12-18 months has been quite unprecedented. What we have seen is not just growth in the ICT market but the types of investments that are taking place,” explained Lalchandani. “If you look at spending over the last decade, it has been centered around building infrastructure such as buying PCs, networks, peripherals, as well as looking at storage, servers, etc.”
With this, the sector is turning its focus now to strategy and utilizing technology as opposed to simply gaining performance.
In the US and Europe, 70-80% of IT investment is spent on services and the rest on hardware. This means that most of the spending is on utilizing the infrastructure as opposed to building it. In the GCC, 60-65% is spent on hardware. In the Levant and Egypt, the average spending on hardware is around 70%, meaning that between the two sub-regions there is a 10% gap in the IT maturity index. In other words, the Levant and Egypt are still in the build-up phase and trying to catch up with the Gulf.
Fixed versus mobile spending
ICT penetration
IT spending as a share of GDP is currently 1-1.5% in the UAE and the GCC, compared with the worldwide average of 3-3.5%. However, Saudi Arabia is below the 1% mark. In Europe, businesses spend 2-4% of their budgets on IT while in our region it is less than 1%, though Lalchandani is optimistic, “We have a lot of catching up to do but I think that it will come.”
The Internet penetration rate can be used as a guide to ICT levels. The global average hovers around 20%. The Middle East currently has a rate of 17.4%, with the UAE at the top with 38.4%. Qatar has made strides in its efforts for greater ICT infrastructure seeing 866% growth in the last seven years yielding a current penetration rate of 32%.
According to studies by the OECD, investments in technology at a macro level are needed to boost GDP growth. And Fadi Moubarak, general manager for the Levant and Iraq at Cisco Systems, stated that: “We truly believe that ICT is the key enabler for businesses to compete and grow. There have been studies done on the micro level whether in advanced economies or emerging economies that has been no significant economic growth and GDP growth detected without total alliance and investment in ICT.
“Take the US, Europe, Eastern Europe, and Asia, where you had normal economies that were aggressive and increased their investments in ICT both the public domain and the private domain were growing at the same pace.”
However, according to a report by Booz Allen Hamilton, the Middle East is still far from realizing the full benefits of ICT, and the path to true advancement will continue to be tortuous unless the topic receives full attention. A number of challenges must be overcome to get ICT development on a sustainable path.
The report identified the lack of a holistic ICT development agenda at a national level in most Middle East markets as one of the greatest hurdles. It also stated that a definition of a development plan at a market level across the main facets of ICT is mostly non-existent throughout the region.
This position does not undermine the successful formulation and early implementations of sector specific ICT plans, such as e-government, e-education, and broader e-commerce activities in markets such as the UAE and Jordan. Nevertheless, it does underscore the prevailing state of fragmentation across the region at large.
The accumulation of these problematic initiatives is creating an inefficient allocation of resources and provoking substantive delays in delivering meaningful services to end users that can truly improve their lives, according to the report. Recent research in the Gulf reinforces this point of view, with nearly 60% of respondents agreeing that ICT development is important for the government, while 55% of the poll rated the related government efforts as, so far, being unsuccessful.
Further, ICT development continues to suffer from an over-emphasis on telecommunications development at the expense of most other elements in the ICT spectrum. The emerging view, however, from most Middle East markets is that policy makers and regulatory authorities should continue to strive in democratizing access to all telecommunications services and encourage further innovation in the sector.
This will require a shift over time from defining licensing regimes to stimulating accessibility and affordability of services. Past the priority of communication accessibility and affordability, policy makers should create an environment for the development of digital-services in a number of domains such as education, health, media, general government activities as well as other commercial transactions.
