Tuesday 20, October 2015

Dubai – MENA Herald: A recent Dubai Chamber of Commerce and Industry analysis predicted that sales in the UAE IT market are expected to arrive at almost AED 22 billion by 2019 and per capita spending to reach above AED 2,000 by 2018 and the expected year on year market growth at 3.5% in 2015. The current IT market value in the UAE is estimated close to AED 17 billion, compared to just AED 12 billion in 2010.

According to the analysis based on (Business Monitor International), the software and IT services segment sales are set to continue registering positive and resilient growth, while hardware sales are expected to grow only marginally until at least 2019.

For all segments, 2015 will be the lowest growth year, with hardware sales even decreasing slightly, from AED 8.43 billion in 2014 to AED 8.37 billion in 2015 while in the medium term, hardware revenues would grow by 1% per year, to reach about AED 8.7 billion in 2019. Software sales would arrive at AED 4.7 billion in 2019, growing by 9% on average each year since 2015, while IT services spending would increase by 10% during the same period, reaching AED 8.4 billion in 2019.

The analysis further predicts that this growth will be highly supported by the government sector, through many IT projects it is involved in (i.e. e-government services, IT hardware for education, smart city initiative) directly, or indirectly through government backed enterprises.

The economic sectors that are expected to benefit the most from the various projects are healthcare, education transportation, construction, water and power plants. What is more, cloud computing and migration are also projected to grow and drive the IT industry in the near future.

The favourable economic developments in the UAE in recent years have positively impacted the IT market. The country’s average annual GDP growth rate during the 2010-2014 period was 4.5%, while the annual disposable income per capita reached $30,000 in 2014.

High incomes and standards of living, alongside a higher propensity to consume and increased consumer and business confidence are all factors that contribute to the continuous development of a dynamic, growing and profitable IT market.

The IT market in the UAE has experienced robust whilst slowing growth in recent years (see Figure 1).  It grew by 7% y/y in 2014 and it was growing even stronger, by 9.6% on average per year since 2010.

Companies still mainly use IT for basic applications, but the situation has started to change, especially as government and related organizations undertake several investments in internet technology and innovation such as the smart city initiative in Dubai, which is expected to lead to higher demand for advanced IT solutions and to further boost sales in the sector.

The rise of the IT sector in the UAE

The IT activity in the UAE includes sales of hardware, software and IT related services. The country has been established as a business hub also for IT companies, as it is usually the first to introduce new products and services in the region. An increasing number of regional and global vendors establish their footprint in the Middle East through the UAE. Moreover, the IT market makes slightly more than 1% of the country’s GDP with its share growing.

Trends and developments in the IT field

Looking at per capita figures, we observe similar patterns, namely that IT purchases per person have been increasing with the years. Spending on IT related products and services reached AED 1,785 per capita in 2014 (from AED 1,400 in 2010). Growth rates per capita are also similar but a little lower than those for total IT spending.

Moreover, the UAE ranks higher than other Middle East countries in the Networked Readiness Index (NRI) of the World Economic Forum (WEF), placed in the 23rd position out of 143 countries in 2015. It also ranks 2nd in the MENA region in total telecommunications sales ($9.4bn in 2014), after only Saudi Arabia with $21bn in 2014.

IT sales by segment

Information Technology in the UAE generates hardware, software and IT services sales. Hardware is currently the largest segment, but IT services are rapidly growing and could reach the same levels as hardware by 2020.

According to BMI estimates, hardware sales in the UAE increased by 3.3% in 2014, but they are estimated to decelerate slightly in 2015 (see Figure 2). This 0.7% fall is the first to be observed in recent years and it indicates a temporary sluggish market for computers, while sales of notebooks are expected to increase marginally.

Software sales reached AED 3.1 billion in 2014, compared to AED 2.9 billion in 2013. Growth of the segment has remained above 9% in recent years, expanding faster than hardware. The UAE is a fast growing Enterprise Resource Planning (ERP) market with continued modernisation initiatives and with the aim to increase international competitiveness. Looking forward, cyber security is expected to be an important growth driver.

IT Services registered revenues of AED 5.3 billion in 2014, increasing by AED 0.6 billion in one year (+12% y/y).  It is anticipated that managed services will be a leading growth area, with rising growth in cloud computing and real-time analytics. In particular cloud computing has notably emerged in recent years, from just above AED 100 million in 2011 to more than AED 500 million sales in 2014.

In conclusion

In summary, the IT market in the UAE is booming, with only a small slowdown to be observed in the hardware segment during 2015. All other years and other segments will continue registering positive growth. The private sector accounts for the majority of IT spending locally, but the government is expected to keep its share at about 40%.  The UAE comes second only after Saudi Arabia in the sales of telecommunications for MENA countries.

There are great opportunities for both local and international enterprises, especially in the area of cyber security and the most innovative areas of IT. Except for IT related companies, other sectors can be benefited, such as healthcare, education and transportation. Especially for Dubai, the “Smart City” strategy is expected to provide great opportunities for businesses. It includes 100 initiatives on transport, communications, infrastructure, electricity, economic services and urban planning, with 1,000 government services set to go smart by 2017.