Lebanon Information Technology Report 2008

Market Overview While many uncertainties continue to surround the Lebanon IT market situation, BMI estimated its value at around US$225mn in 2007. This suggests that there has already been some recovery since the negative growth year of 2006. The events of the past two years have inevitably had a major disruptive effect on the IT market as well as the wider economy. The market experienced a major contraction in 2006. Supply lines have been disrupted and retail outlets closed, many thousands of people have suffered serious economic losses. Further recovery fuelled by government and vendor IT related reconstruction initiatives and normalisation processes may be slow, but the market could surpass its 2005 market value of around US$250 by 2009. On a status-quo assumption about economic and political context therefore, BMI sees the market increasing to as much as US$300mn by 2011. This would mean the IT market growing at a nominal CAGR of around 7% over the forecast period, although this will depend on progress in normalisation and a continuation of economic recovery.

The development of IT and communications (ICT) infrastructure is indeed central to efforts to rebuild Lebanon's economy to enable it to catch up with the rest of a region enjoying an IT boom. International organisations, including the EU and US AID, are providing funds to support programmes to help drive ICT penetration. Many of Lebanon's intrinsic advantages remain including a cosmopolitan and multilingual labour force, and strategic position for the Levant markets, the same advantages that had seen many companies from Intel to Microsoft and CA locating offices there. The IT market has potential for huge growth should a functioning government be able to take the steps necessary to enable this.

Government Initiatives As reconstruction continues in the aftermath of the events of 2006, a number of international initiatives are focusing on IT as an engine of development. In 2007 the EU announced that it was offering another US$400mn to help Lebanon rebuild. This will bring total EU funding for Lebanon to US$500mn up to 2010. Among other donors is the US AID programme, which funds an initiative known as Access to Markets through IT (AIM IT), and there are also a number of private companies leading initiatives.

Perhaps the most significant development of 2007, however, was that DSL broadband was finally launched in Lebanon. The government hopes that broadband will be a catalyst for stronger economic growth in a country where the political situation is still unstable. Lebanon ranks behind much of the region in terms of deployment of broadband connectivity and changing that situation is seen as absolutely key to driving the country's development.

Company News Despite the hugely disruptive impact of the 2006 conflict, multinational IT vendors are expanding their investment in Lebanon to help in the reconstruction of the war-torn economy. This is not entirely for altruistic reasons. Prior to the recent political instability, Lebanon was emerging as an important regional hub and potentially attractive market for vendors such as Microsoft, Intel and IBM. Lebanon is seen therefore as a potential growth market of the future Unsurprisingly, the recent conflict has had a major disruptive impact on IT vendor distribution channels in the previously emerging market of Lebanon and even beyond. The disruption led to complete shutdown in some cases. Over the preceding one-two years, many vendors, such as CA, Microsoft and Hewlett Packard (HP), had invested significantly in distribution channels in the country, making Lebanon a hub for their operations in the Levant region. Now, however, patience is needed and vendors are biding their time while involving themselves in reconstruction efforts and waiting for the market to regain momentum.

Computer Sales According to BMI estimates, the overall Lebanon PC market (including notebooks and accessories) was worth US$88mn in 2007. While low incomes continue to be a restraint on the market, particularly following the conflict, this low level of computer penetration represents an opportunity for vendors in the forecast period. With national PC penetration estimated to be around the 10% level, the market is far from mature. Many public and private initiatives have been launched to encourage wider home and school use of PCs, often offering some form of financing support. In addition, it is expected that the government's delayed introduction of DSL, finally rolled out in 2007, will provide some boost to local IT demand.

Software Due to the continuing problems with piracy, the domestic software market is expected to grow relatively slowly, despite the implementation of some government and private projects. BMI predicts a legal software market value of just US$46mn in 2008, but a 2007-2012 CAGR of 8%. The software industry has received a boost in recent years thanks to Lebanese software companies, which had previously been operating out of Europe and the US, moving substantial parts of their business back to Beirut. The domestic software industry is highly export focused, with 1/3 of firms, according to a recent survey, getting 75% of all receipts from regional and Western markets. Leading Lebanese software companies tend to have a focus on banking, retail, education and trade.

Services The Lebanese IT services market was estimated at being worth US$70mn in 2007. This includes services such as consultancy, training, implementation and support. According to BMI figures, the market should grow at a CAGR of 8% over the forecast period. Deployment and support services are between 40%-50% of spending, with SI and managed services as the next largest categories.

E-Readiness Lebanon ranks behind much of the region in terms of deployment of broadband connectivity and changing that situation is seen as absolutely key to driving the country's development. Broadband services have been made possible by the installation of new lines on monopoly operator Ogero's network.

In 2008 the operator hopes to connect another 60 offices, which would mean that 90% of all active phone lines would have access to ADSL services. Meanwhile, BMI is predicting a broadband penetration rate of 2.4% by the end of 2008. As Intel's Craig Barrett said during a visit to Lebanon in 2007, 'Broadband technology is absolutely key in developing Lebanon'.