Saudi Arabia Information Technology Report Q2 2008

Overview Saudi Arabia's IT market is set to continue on an upwards path, driven by spending growth in major verticals such as oil and gas, financial and telecoms, as well as retail and real estate. The value of the Saudi Arabian IT market is estimated to have been close to US$3bn in 2007. The market is expected to rise to nearly US$5bn by 2012, growing at a CAGR of 12%, with IT sector growth stronger than overall expected GDP growth and above the regional average. The Kingdom will continue to be a lucrative market for technology products and services over the forecast period, with projected strong growth in the non-oil sector fuelling investment.

With annual per-capita expenditures on IT reaching US$330, Saudi Arabia accounts for around 40% of IT spending in the Middle East region. Youthful population demographics, a regional economic boom fuelled by high oil prices, and specific factors such as the growing popularity of e-banking will all drive retail growth. Saudi Arabia also looks set to reap the benefits of WTO entry in terms of global trade and investment. However, the Kingdom's economic prosperity remains highly dependent on world oil prices.

In 2007 substantial budgets were allocated for e-government infrastructure development, as well as information society development, economic diversification and job creation. Meanwhile, in the enterprise segment, high liquidity is promoting investment, while improvements in the business environment are attracting new inflows of foreign direct investment (FDI). There is growing demand for security solutions, as well as services such as facilities management and disaster recovery.

Industry Developments The Saudi Arabian State Budget 2008 will place 'special emphasis on e-government and projects related to technology research and development'. The 2008 budget, according to a royal decree in December 2007, will also provide for capital expenditures that will create more job opportunities and enhance economic activity. In 2007 a sum of US$800mn was assigned by the Saudi government for the roll-out of e-government infrastructure for remaining government organisations. In December the government launched five new projects in areas such as social insurance.

Meanwhile, the Saudi Council of Ministers is implementing a new national plan, announced last year to guide the Kingdom's continued transformation into a knowledge-based society. One of the major goals is the further development of domestic telecoms and IT sectors as part of the government's economic diversification strategy. Among the components which have already started to be implemented is the project of Saudi Arabia's first Knowledge Economy City (KEC) which is to be constructed in Madinah at a reported cost of more than US$6bn.

Competitive Landscape Following strong market growth in 2007, vendors are looking to strengthen their channel business models in the Kingdom. Leading notebooks player Acer recently announced that it has signed an agreement with Samir 2, one of Saudi Arabia's leading IT distributors. This follows the announcement at the end of last year that Acer has also formed a partnership agreement with Metra Computer, another leading Saudi Arabian IT distributor. Saudi Arabia is Acer's strongest performing market in the region.

Meanwhile, competition is intensifying in the software segment. SAP recently scored a high-profile win when Saudi Arabian Airlines announced that it has selected SAP ERP as the business platform to underpin its privatisation strategy. Al Othaim Holding, the largest grocery retailer in Saudi Arabia, selected Oracle as the strategic IT vendor to support its ambitious expansion plans.

Computer Sales Sales of computers, including PCs, notebooks and accessories, are expected to top US$1.4bn in 2008, with the segment forecast to grow at a CAGR of 11% in 2007-2012. The number of personal computer users in Saudi Arabia should continue to rise steadily over the forecast, with penetration approaching 30%, led by programmes such as the 'Home Computing Initiative', which permits the purchase of computers at low prices and in easy instalment payment schemes. Telecoms liberalisation, with new licences in 2007, and a big push towards broadband penetration are also expected drivers of demand. Egovernment development and the rollout of WiMAX and wi-fi networks should also provide a boost to demand for computers.

Software BMI predicts a software market value of US$502mn in 2008, up from US$437mn in 2007. The sector should continue to grow at a CAGR of 13% over the forecast period. With the evolution of the regional economy, more innovative plans for expansion and development are being seen from many Saudi Arabian companies, driving more spending on software as companies adapt to a more e-enabled society. Saudi Arabia remains the largest market for software solutions in the region, ahead of the UAE. Oil and gas remains the largest software vertical purchasing sector, followed by telecoms, but large contracts are being seen in the non-oil manufacturing sector in areas such as chemicals and automotive.

IT Services The Saudi Arabian IT services market was worth around US$858mn in 2007, and is expected to grow at a CAGR of 12% over the 2007-2012 forecast period. In the past year demand for IT services, including outsourcing, has shown a strong growth trend in a number of sectors. However, support and maintenance account for around one third of spending on IT services. Sustained high oil prices have been driving spending on IT projects by government as well as in industries such as oil and gas, transport and utilities.

In particular, the government's US$800mn budget allocation for e-government development should create opportunities for services vendors.