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UAE’s IT market poised for exponential growth

Fundamental drivers for this market include local and federal government initiatives and development of the non-oil sectors, which include real estate and tourism.

Government spending and investment will provide support to the IT market.

Positive growth due to these drivers should prevent stagnation of the UAE IT market due to the downturn.

UAE IT market growth

Therefore, the total size of the UAE IT market is expected to grow from $3.2bn in 2009 to approaching $4.7bn in 2013.

UAE internet penetration

The UAE internet penetration was estimated to be at 54.3% by the end of 2008, which is far above the average for the Middle East and North Africa (MENA) region.

This highlights UAE’s position as one of the most advanced IT countries in the region.

Dubai has traditionally been a re-export centre for consumer electronic items, with traders now assembling their own PCs.

However the size of the domestic market is also increasing, driven by growing SME spending. For domestic products, mobile computers and note books are becoming increasingly popular. Notebooks have become popular partly due to promotions and features such as wireless internet PC cards.

The UAE computer market remains dominated by international players with the top 5 brands dominating at least 50% of the market.

Market developments

The IT market in the UAE has been buoyant due to a series of reforms.

The most important of these developments is the establishment of Dubai Internet City and an extension project costing $1.3bn.

The government has also been encouraging the development of ‘smart cities’ and is also driving online government services provision to over 90% of services provided.

The increasing popularity of e-commerce and e-government has increased awareness regarding the value of internet use. This should help boost the home PC market.

Increased use of IT has also been embraced by local governments in the UAE, who are promoting IT with a new law making IT a compulsory subject in schools.

The government is also encouraging Research and Development (R&D) and hardware production. It is expected that foreign ownership rules for the hi-tech, R&D and knowledge based industries, among other sectors, could be liberalized. Investment in knowledge based industries could increase with the liberalization of foreign ownership rules.

UAE e-governement initiatives

The federal UAE strategic plan calls for strengthening of e-government services. This plan provides the framework for implementation of federal e-government programmes.

For example, in a recent initiative, the UAE’s Ministry of Justice has recently introduced new computer software to streamline judicial processes.

In April 2009, the UAE Ministry of Education announced an allocation of Dhs79m for 2009, for an initiative to provide computers and internet to state schools. Another important area for federal IT spending will be healthcare.

The Wareed healthcare IT initiative aims to establish a fully integrated electronic platform which links 13 state run hospitals and 67 affiliated clinics across the country.

UAE local governments are also playing an important role and account for 20% of all IT services spending.

‘Green IT’, which refers to environmentally friendly IT solutions, is also becoming important with vendors using their green credentials as a competitive differentiator.

Their environmentally friendly solutions for offices and homes feature lower power use and less toxicity. There is increased awareness regarding environmentally friendly solutions, which will likely result in Green IT taking a larger share of corporate IT budgets.

HE Eng Hamad Buamim, Director General, Dubai Chamber of Commerce and Industry, maintained that the Chamber is one of the leading organisations in providing most of its important services electronically including the registration and modification of membership data, registration of the certificate of origin, endorsing signatures, and providing legal advice and answers to businesses about the Chamber’s services as well as the bookings for reservation of its auditorium and facilities for conferences, seminars and meetings, and payment of participation to the various events which directly serves the business community of Dubai.

Buamim, said:”Encouraged by the response to our electronic services, the Chamber is continually striving to develop its services in accordance with latest innovations in the technological field. The total number of electronic transactions by our members on the Chamber’s website in 2008 touched 720,000, while the figures at the end of September 2009 was more than 500,000 as in June 2009 the figures exceeded 60,000 which shows a distinct rise in the services enjoyed by traders and businessmen.”

Market outlook

UAE IT hardware spending is forecasted to be valued at about $1,797m in 2009 and is forecasted to grow to $2,502m in 2013.

Notebooks are becoming an important part of these hardware sales with IT services spending is expected to rise from about $826m in 2009 to about $1,330m in 2013.

UAE IT software spending is expected to grow from $530m in 2009 to about $818m in 2013.

UAE is one of the most advanced states in the region with the percentage of the population using the internet expected to rise to 70.5% by 2013.

The number of internet and broadband users growing at a gradual but steady pace from 2009 to 2013.

The total number of internet users in the UAE is expected to reach about 3.77 million and the number of broadband subscribers is expected to cross 1.1 million by 2013.

Opportunities

The UAE, as a regional hub, has excellent telecommunication and IT infrastructure and can serve a potential market of almost 2 billion people in surrounding regions including Asia and the Middle East.

With the development of Dubai Outsourcing Zone, outsourcing is likely to create greater opportunities for IT companies in the UAE. Dubai’s proximity to India has made the UAE a popular location for Indian IT service companies looking to locate disaster recovery centers nearby.

There are also growth opportunities in the e-learning market, as well as the tourism and travel sector.

At a macro-economic level, the opportunity to develop the UAE as a regional IT hub allows for diversification of the economy.

The increasing number of overseas companies in Dubai Media City means that broadband usage by corporate customers is also likely to increase.

Also the use of IT within public sector organizations is likely to increases as these organizations target savings through IT investments.

Challenges

The cost of internet access is still relatively high and this remains a challenge for the UAE IT market. Many of the key global players are active here and it is therefore an intensely competitive market.

There is also competition from other emerging countries in the region for example Egypt. The economic downturn is also a challenge.

For example, the challenge for software vendors is that enterprises are tempted to focus more on the bottom line, with cuts in IT budgets.

Projects in the IT services market could also be scaled back. However, this is likely to be a short term phenomena and it is expected that there is plenty of room for future growth due to several untapped sectors, which could include process manufacturing and Islamic banking.

The IT market will also benefit from growing demand for industry specific solutions.

Conclusion

With the help of government initiatives, especially in Dubai, the UAE IT market has grown and is now ready for the next phase of development.

This could see the UAE become a regional IT hub. UAE’s strategic location, growth in the UAE economy and demand from the government is likely to maintain high growth in this market.

To further increase growth, the government should focus more on e-government development to create more awareness about IT amongst the population. Catering to the needs of IT companies in the region could help develop the UAE as a regional IT hub.

Encouraging environmentally friendly IT solutions by local companies will help differentiate UAE companies and improve their competitive advantage over local and foreign rivals.

These measures will help grow this important market and also make the UAE economy more diversified.