United Arab Emirates Information Technology Report Q2 2008

Market Overview The UAE's IT market experienced strong double-digit growth last year and is expected by BMI to enjoy another strong year in 2008. Total spending on IT products and services is set to increase from around US$2.5bn in 2007 to more than US$4bn in 2012. The UAE is unusual in the region in that 80% of its GDP is derived from the non-oil sector, and there should be opportunities for IT vendors in sectors such as construction, real estate, banking and tourism.

Services are becoming an increasingly important component of many deployment contracts, as evidenced by recent projects by leading UAE corporations such as Emirates Airlines and Etisalat. Spending should be strongest in the government, financial, real estate, and oil and gas verticals. Banking is likely to be the single largest industry vertical in terms of IT investments over the forecast period. This is set to continue, with the National Bank of Dubai and Emirates Bank International among the major spenders currently.

Despite an anticipated slight slow down in the growth of this non-oil economy in 2008, a number of major local and federal government initiatives, together with a strong and diversifying economy, should ensure continued growth over the forecast period. The federal government is stepping up the pace on egovernment, announcing in 2007 that its target of getting 90% of businesses online by the end of the year was likely to be met. Meanwhile, Dubai and Abu Dhabi continue to lead the way on their own ambitious projects.

Industry Developments Local government continues to account for around 20% of total IT services spending, with Dubai leading the way. Dubai's government revealed in February 2008 that it is to sign agreements with several government departments and organisations to introduce electronic services and simplify and automate key processes. Among the projects is an e-permits scheme, which involves co-operation with Dubai Municipality, Dubai Customs and Dubai Police as well as the Ministry for Governmental Sector Development and Ministry of Finance.

Meanwhile the UAE federal government's UAE Strategic Plan calls for a strengthening of e-government programmes. The focus of the programme is to support implementation of programmes at federal government level. The federal government ministries have often lagged behind progress by the leading local governments, particularly Dubai, which will lend expertise to the project.

Competitive Landscape The continuing growth in PC sales in 2007 in the UAE did not significantly alter the competitive landscape of a market which accounts for around 40% of regional PC sales. The market remains dominated by international players such as Acer, HP and Dell, with the top five brands accounting for more than 50% of the market. Meanwhile, the share held by local assemblers continues to dwindle, due in part to their relatively weakness in the growth area of notebooks.

As IT services are set to be the fastest growing area of the market over the next few years, this is prompting some consolidation. The top few vendors, which include local companies Emirates Computers and Injazat, generally account for less than one third of the market. The most notable deal in 2007 came with HP's purchase of Atos Origin Middle East, formerly the largest systems integrator in the region. Meanwhile, Dubai-based IT services company Injazat Data Systems has established a strong position in the local market since being established in February 2005.

Hardware The UAE's hardware market is one of the largest in the region, estimated at about US$1.4bn in 2007, up 12% from US$1.2bn in 2006. Much of the growth is being driven by small and medium enterprise spending, particular on mobile computers, which are expected to account for around 60% of sales over the forecast period. Notebooks are also proving popular with the consumer segment, particularly with the introduction of features such as wireless internet PC cards and entertainment features such as HD DVD.

Sales of PC notebooks and accessories are expected to reach more than US$1.2bn in 2008, while the compound annual growth rate (CAGR) for the 2007 - 2012 period as a whole is expected to be in the region of 9%. Investment in education and e-government, fuelled by new oil revenues, will lead to desktop rollouts in schools, colleges and government offices across the Emirates.

Software BMI estimates that the UAE's software spending will reach aroundUS$477mn in 2008, representing around 17% of the IT spend. CAGR for spending on packaged software is put at 12% over the 2007-2012 period, with the UAE being of the region's fastest-growing ERP markets, as more businesses realise the benefits of efficient management of resources within their internal processes. The UAE also has one of the region's lowest software piracy rates at just 35%, according to the Business Software Association (BSA), which in 2008 has launched a new anti-piracy media campaign in co-operation with the Ministry of the Economy. BMI predicts plenty of room for growth in the forecast period as numerous untapped sub-sectors still exist. Key verticals include process manufacturing (mainly oil and gas), followed by the finance sector. Other key segments are telecoms and the public sector. During the next five years, in addition to CRM and enterprise resource planning (ERP), high-growth categories are set to include business intelligence, storage and security products.

IT Services BMI expects that the IT services market will reach a value of nearly US$1.2bn by 2012, with outsourcing accounting for an increasingly large portion of up to one quarter. IT services revenues compound annual growth rate (CAGR) over the 2007-2012 period is expected to be 13%, encouraging vendors to shift their focus away from simply shifting boxes. Services are becoming an increasingly important component of many deployment contracts, as evidenced by recent projects by leading UAE corporations such as Emirates Airlines and Etisalat. Outsourcing is also predicted to be a growing trend, with recent landmark outsourcing deals awarded by entities such as the Abu Dhabi Water and Electricity Authority and civil service departments. Global vendors such as IBM Global Services are competing for this business with local companies such as Injazat Data Systems, which with its good government connections has grown to be a major force in the market, reporting BPO deals with 13 leading private and public organisations.

E-Readiness Overall internet penetration in the UAE was estimated at 43% by the end of 2007, far above the Middle East and North Africa (MENA) average, reflecting the Emirates' status as one of the most advanced IT countries in the region. Broadband penetration is around 10.5% and is expected to rise to 17.5% over the forecast period. The Emirates benefits from a good regulatory environment, and clear government leadership in leveraging IT and promoting its use. In terms of e-government development, several new projects are to be launched this year (see Industry Developments).