Kuwait Information Technology Report Q2 2008

Market Overview The factors that have made Kuwait one of the faster growing IT markets over the past few years look set to continue to drive spending on IT products and services despite an uncertain international climate. The total size of the domestic IT market is expected by BMI to increase from US$539mn in 2008 to around US$833mn in 2012. Having received a windfall from record high oil prices, the country is continuing with a programme of modernising its oil sector, while the booming property and newly liberalised telecommunications sectors are also providing plenty of opportunities for vendors of IT products and service.

Kuwait is the (distant) third largest computer market in the high-growth Gulf region, due partly to its relatively small but tech literate and wealthy population, which allows it to adapt faster to trends. High oil prices, strong consumer confidence, and general political stability provide a favourable context for consumer spending and infrastructure investment in 2008. Oil and gas companies are looking to optimise cost structures, while in the financial sector banks are implementing solutions to increase business flexibility and introduce new services, including Islamic banking.

BMI expects oil prices to remain relatively high. Government spending will remain a key driver of IT spending growth (see below), with new waves of new e-government initiatives set to be launched in 2008, and an increasing number of state institutions offering online services. However, there is a concern that Kuwait's economy remains quite heavily dependent on oil, despite buoyant growth in the non-oil economy. Moreover, we do see overall GDP expansion slowing gradually over the coming years, as oil prices moderate, with our 2011 forecast being 3.0%.

Industry Developments Kuwait is ramping up its e-government efforts with plans to launch 'numerous' services for citizens in 2008. Revealing the government's plans, the director of the Central Agency for Information Technology (CAIT), Ali Al-Sharida, said that the centrepiece of the 2008 initiative would be a new gateway for government services. The portal, to be launched this year, will make all services accessible from a single website location.

Recent months have seen an acceleration of e-government projects from various state organisations. The Defence Ministry and Finance Ministry have been recognised as particularly advanced. Meanwhile, Kuwait Airways announced in December that it would launch a new website and series of e-services in January 2008. Despite such progress, big challenges remain particularly in excessive bureaucracy and lagging education systems.

Company News The continuing growth in PC sales in 2007 in Kuwait did not significantly alter the competitive landscape of a market which accounts for only around 8% of regional PC sales, despite being the third largest market in the Gulf. The Kuwaiti market remains dominated by international players such as Acer, HP and Dell, with international players holding most of the top ten spots in the PC rankings last year. With growth expected to continue, vendors are positioning themselves to defend and expand market share.

Part of the challenge for vendors in the region is to establish the right distribution strategy, and in particular achieve the right relationship with channel partners. As the market develops, infrastructure support and maintenance services are also becoming a more critical component of meeting customers' needs. HP last year announced an agreement to form a new joint venture in Kuwait with National Computer Services Company WLL (NCS), under which it will acquire the IT services business of NCS.

Computer Sales In 2007 the Kuwaiti computer market, driven by demand for high-end brand notebooks, grew to a value of around US$185mn. Overall hardware sales were US$237mn, up from US$215mn the previous year, making Kuwait the third largest market in the region after Saudi Arabia and the UAE. Demand for notebooks in particular should be buoyant for several years, with the availability of wireless access technologies driving popularity among small and medium businesses in particular. Notebooks are already the dominant form factor, and should account for around 60% of PC sales over the next period. The public sector and e-government projects will continue to be a significant demand driver during this period as sizable budgets have been allocated. Privatisation is also encouraging spending, as are moves to make foreign ownership of businesses easier.

Software In 2007 total spending on software is estimated to have reached US$140mn, up from US$124mn the previous year. With high oil prices and growing regional competition continuing to fuel enterprise spending on software and systems, there should be many opportunities across many sectors. Facing change and seeking efficiencies, SMEs are likely to lead spending growth, with manufacturing and trading firms both seeking efficiencies by transitioning from manual environments to full automation of back-office systems.

Services The Kuwaiti IT services market is expected to be worth around US$162mn in 2008, with double-digit CAGR growth during the 2007-2012 forecast period. Market size should reach around US$258mn by 2012. Telecoms, banking and retail sectors are all providing strong demand for project implementation, managed services and outsourcing. There has been a recent trend towards larger deals, particularly from government. Meanwhile, a more volatile environment for the oil industry is encouraging companies to look for solutions that will increase operational efficiency and boost overall business agility.

E-Readiness Kuwait is one of the most advanced technological markets in the Gulf, with most homes now covered by DSL or wireless internet access. According to BMI figures, the number of internet subscribers is projected to increase to close to 800,000 by 2012. The planned award of a third mobile licence should help spur telecoms development.

The government is also helping to drive IT development with its new broadband access initiative. Alcatel was chosen by Kuwait's State Ministry of Communications (MOC) to supply a gigabit passive optical network (GPON) solution that will serve about 60% of access areas involved in the ministry's present rollout. MOC's access network is gradually being upgraded by replacing the existing copper access with a passive optical fibre infrastructure. There should be around 623,000 broadband subscribers by 2012.