Bahrain Information Technology Report 2008

Market Overview The prospects remain good for the IT sector with the total size of the IT market expected by BMI to increase from US$27mn in 2005 to around US$400mn by 2012 as the country continues its economic diversification drive. With an IT market CAGR of around 8% over the forecast period, the Kingdom will therefore continue to be a lucrative market for technology products and services.

The market will also benefit from trade liberalisation, strong demand from the financial sector, and egovernment and broadband initiatives. BMI is taking a positive view of market performance over the 2007-2012 forecast period, in line with our GDP and oil price projections. Among reasons for our confidence, Bahrain's non-oil sector, already relatively significant by regional standards, will continue to expand, generating more revenues for government to spend. Meanwhile, with oil revenues still high, the better economic growth scenario should impact directly on sales of computer equipment to home users, as well as encouraging spending by government and administrative bodies.

Among some of the factors making Bahrain one of the region's more advanced markets are a robust and developing capital market underpinning financial hub status, and regional e-government leader status.

Aside from government, and the oil and gas industry, the banking sector will account for a significant and growing portion of investment in IT.

Industry Developments The Economic Development Board (IDB) has outlined a plan to double per-capita GDP by 2015 with a number of measures to create an environment that will raise productivity and investment. ICT development is key to a program of economic diversification, labour reform and structural reform. If implemented, at least in part, the reforms should significantly fuel demand for IT products and services in the Kingdom.

One key development for IT vendors is the continuing advance of Bahrain as a regional financial centre.

With its robust and developing capital market, Bahrain is the financial hub of the Gulf, meaning that it is a lucrative market for technology products and services. During the forecast period, spending should grow as banks develop online services and face the necessity for compliance with Basel II and other international regulations.

Competitive Landscape The PC market remains dominated by international players including Acer, HP and Dell, with the strongest challenge to these regional leaders coming from other multinationals such as Toshiba. Acer is a strong performer in Bahrain, with a series of recent contract wins to supply government ministries. State institutions and administrative bodies can be expected to remain major spenders on computer equipment and services, driven and supported by various e-government programs.

The software and services segment has seen some recent competitive manoeuvring as vendors love to take advantage of growing opportunities. The market is dominated by Microsoft, which in 2002 moved its MEA office to Bahrain, placing Bahrain at the heart of its IT strategy for the region. Oracle benefits from a strong pre-installed with some significant 2007 wins, while demand in verticals like banking is creating opportunities for specialists.

Previously, few of the global IT services vendors had a direct presence in Bahrain, instead serving from regional offices and through partners. However, this is starting to change, as Bahrain becomes a more significant market.

Computer Sales Computer sales were estimated at US$113mn for 2007, up from US$105mn in 2006. The computer market has grown by 22% since 2004, according to BMI figures, boosted by telecoms liberalisation, the banking sector and e-government initiatives. Going forward, notebooks will drive the market over the next few years, with increased demand for mobility and functions, and greater vendor and channel sales flexibility. Small and medium enterprises (SMEs), which account for up to 35% of IT spending in the region, remain a market of potential, but mainly lacking the skills or infrastructure to fully leverage their IT investments. Reform and trade liberalisation will fuel spending by both public sector organisations and enterprises to bring their IT levels up to international standards. Laptop sales are increasing several times faster than computers, overall.

Software The domestic software market is expected to grow steadily as Bahrain companies look to meet growing overseas competition in an environment of greater trade freedoms. BMI predicts a value of US$84mn in 2012, up from US$54mn in 2007. CAGR for the segment is forecast at 9% for the period 2007-2012. The market for ERP applications is currently far from saturated and a stronger focus on software spending is now being seen. There is also growing demand for additional applications such as CRM, and from within specific verticals such as real estate and banking. As foreign direct investment increases in the region, this is providing another source of demand for solutions.

Services Bahrain IT services spending should have reached around US$80mn in 2007. Of that total, around 40% is likely to be support and maintenance, with SI the second largest category. CAGR for the 2007-2012 period is forecast at 9%. Outsourcing should be around 20% of spending. With around two-thirds of SMBs in the region found by a recent survey to lack an IT manager, vendors are waking up to the need to compete through more direct investment in support and service infrastructures, rather than relying solely on partners. Multinational company subsidiaries remain a major market sector, while an economic environment of liberalisation and privatisations will generate more opportunities.

E-Readiness Fees for internet access have been falling in the past 1-2 years, providing a boost to information society development in the Kingdom. Surveys have suggested that Bahrain has among the highest penetration levels for internet and telephony of all Arab countries, along with Qatar. Batelco's three-to-five year BHD21mn 'Broadband Bahrain' programme, providing national high-speed access to individuals and corporate users, may result in an increased uptake of broadband services. However, the effects of the programme are most likely to be felt post 2008. For overall internet adoption, it is likely that steady upward growth will continue in the near term, with penetration reaching 30% by 2011.

Bahrain also rates highly in regional rankings for e-government development. With the resulting increase in the number of citizens using e-government services to interact with government departments, Bahrain's Central Informatics Organisation is currently implementing a training program to improve the e-literacy of civil servants in the country. Bahrain also claims to be the first government in the Middle East to adopt open standards for its e-government initiatives.

2005 saw the introduction of a number of other important government initiatives for the IT sector. Prime Minister Shaikh Khalifa bin Salman Al Khalifa issued edict No. 25 (2005), forming a high committee for IT and communications. The new committee is charged with developing and driving forward a comprehensive plan to promote IT adoption in the Kingdom, and in particular, supervising the implementation of e-government across all ministries and governmental bodies.