In-depth: Tap into Middle East tech boom

At a time when European markets have reached saturation and organisations in the developed economies are cutting back on IT expenditure, the Middle East offers sellers and resellers a rapidly expanding market.

At a time when European markets have reached saturation and organisations in the developed economies are cutting back on IT expenditure, the Middle East offers sellers and resellers a rapidly expanding market.

Speaking from Abu Dhabi in the United Arab Emirates (UAE), Samir Al Schamma, general manager at Intel Middle East, told MicroScope: “The Gulf is one of the few markets in the world where there is a huge potential for growth. In three or four years, the market for PCs will have doubled.”

Intel advises UK computer sellers and resellers to establish a presence in the Middle East market to take full advantage of the coming market growth. “To do business in the Middle East, it is essential to have a physical presence here,” says Al Schamma. “Companies must therefore make an investment to come to the region. They will find it is worth it. This is a virgin market and what you achieve really only depends on what you put into it.”

The latest research coming from the region appears to support Intel’s bullish view of the Middle Eastern IT market. According to research firm Gartner, the Gulf consumer PC market grew by 15% in the second quarter of this year, with the sector overall growing just 5%.

Gartner analyst Ranjit Atwal says: “The PC market in countries such as the UAE, Saudi Arabia and Kuwait is showing an upward trend. The global financial crisis has had less effect on the consumer PC market in the Middle East than elsewhere.”

Intel’s Al Schamma also reports that growth in the Middle Eastern PC market is being driven by consumer demand for mobile computing, with notebooks and netbooks tapping into new markets by becoming increasingly personalised devices. According to the chipmaker’s recent sales research, the family PC is now being augmented by individually owned portables.

“Four out of five PCs shipping into the Gulf are notebooks and netbooks,” says Al Schamma. “We have been testing the market for netbooks with resellers and have discovered that consumers are buying them as a secondary device or for their kids.”

Computer manufacturers are starting to see increased regional demand. HP’s second-quarter shipments are reported to have risen to 766,029, from 700,529 in the second quarter of 2008, with Acer’s reportedly rising from 347,440 to 522,627 in the same period.

Growing market

There are sound reasons why mobile computing is proving increasingly attractive to some Middle Eastern markets. As is the case with many emerging economies across the globe, mobile computing offers a fast entry into markets where PC penetration has traditionally been low and fixed broadband coverage is poor. Mobile electronics also tend to have a great appeal to younger consumers. And, in much of the Middle East, the population is far younger than in more developed markets such as the UK and the US.

For example, around 30% of the population of the Kingdom of Saudi Arabia, the Gulf’s biggest IT market, is aged between 14 and 25. The annual birth rate is 29.56 births per 1,000 people, whereas the death rate is only 2.62 per 1,000 people. In the UAE, the birth rate is roughly 18.78 per 1,000 and the death rate 4.26. This contrasts strongly with Western Europe’s rapidly ageing population and falling birth rates. In 2008, estimated birth rates in the European Union were 10.8 per 1,000 and death rates 9.7 per 1,000.

Business Monitor International (BMI) predicts that the value of the Saudi Arabian IT market, which alone accounts for around 40% of IT spending in the Middle East region, is set to grow from a forecast value of US$3.6bn in 2009 to $4.9bn by 2013. BMI projects per-capita IT spending will reach $185 by 2013 and that PC penetration will rise to 30%.

BMI predicts that the UAE’s electronic devices market will rise to $3.9bn by 2013 from an estimated value of $2.9bn in 2008. BMI defines the domestic consumer electronics devices market as including computing devices, mobile handsets and video audio and gaming products, and predicts its growth will be driven by the popularity of new electronic devices such as netbooks.

BMI reports: “In early 2009, domestic demand for many consumer electronics products appeared to be resilient to the global economic slowdown, with connectivity and portability among the big trends driving consumer spending on state-of-the-art, well-designed products.”

Anyone doing business in the Middle East rapidly becomes aware that the region is not one homogeneous market, but a grouping of very different countries and cultures. Although predominantly Muslim in faith and Arabic speaking, the region has national differences which can be as great as those in Europe.

A city such as Dubai, for example, with its 21st century skyline of glass and steel towers rising from the desert, presents a total contrast to the old city of Cairo, with a teeming population of at least 22 million. Consumer demand across the region reflects these vast cultural differences. The Cairo computer market is relatively unsophisticated compared with the wealthier oil-producing region. Despite its growing global reputation for software development outsourcing, the city is grappling with third-world levels of poverty affecting much of the population.

Mobile products such as netbooks have tended to do best in countries where there are high disposable incomes, whereas in countries such as Egypt desktop sales remain strong. According to Intel, 60% of PCs sold in Egypt are desktops, while 40% are notebooks or netbooks, representing a strong contrast with countries such as the UAE or Saudi Arabia.

Enterprise potential

There is little doubt that the region’s growth is being powered by an increasingly sophisticated consumer market with massive future growth potential. But it would be unwise to ignore the enterprise sector. Although not immune from the global downturn, the Middle Eastern enterprise sector, underpinned by big government contracts, is proving to be remarkably robust.
“In general, the Middle Eastern enterprise market is driven by government contracts. Apart from a few exceptions, tenders are not being cancelled. Although some banks have understandably slowed down, enterprise in general is holding up well,” says Al Schamma.

Although not as dramatic as consumer demand for mobile computing, new technologies are also underpinning the enterprise market. According to research firm Frost & Sullivan, the emerging storage technologies markets of the Middle East and South Asia remain relatively insulated from the economic slowdown. Demand for disaster recovery systems, regulatory compliance and better data management have resulted in a growth in network storage.

The robustness of the Middle East IT market is proving a surprise for many analysts, given much of the news coming out of the region over the past 12 months. At the start of 2008, some areas in the region unwisely claimed that they would prove immune to the financial crisis sweeping the rest of the world. Their reasoning, in some cases naïve, was that as they did not have a secondary mortgage and did not generally dabble in the overly complex financial products that had so seduced Wall Street, they could remain above it all, buoyed up by high oil prices. But the worsening global economy not only hit oil prices hard, it also damaged confidence on an international scale.

This meant, for example, that Dubai was to suffer the worst property crash in history. A city that virtually rose out of the desert on the belief that property prices can only go up, Dubai was said to host a third of the world’s construction cranes. However, when the world’s investors shied away from real estate, Dubai was quick to feel the effects. And, as property values are all about sentiment, Dubai soon found itself falling into a dangerous spiral.

Newspapers across the world were quick to report that thousands of cars were being unceremoniously dumped at the city’s gleaming new international airport as expatriates fled the country one step ahead of the debt collectors. But the stories of Dubai’s death were exaggerated and the UAE is weathering the financial crisis well.

There are reasons why this is particularly true in the IT sector. The Gulf represents a vast untapped market with only a small proportion of people owning a computer or being connected to the internet. The reason for this pent-up demand was a lack of infrastructure capable of supporting modern communications. Fixed line communications and mobile networks were initially slow to offer broadband communications. As a result, there was a marked lack of local content.

According to Al Schamma, the two big hurdles to widespread PC adoption in the Middle East – a lack of broadband connectivity and of local content – have now been resolved.

“Broadband connectivity is now becoming widely available through mobile and fixed line networks, while Web 2.0 and social networking are providing a great deal of local Arabic content,” says Al Schamma.

Mobile readiness

Companies such as Intel began preparing the Middle Eastern market for mobile computing even before the launch of netbooks last year. Netbooks use Intel’s Atom chips, microchips designed for low energy use to power low-cost ultra-portable computers. To appeal to Middle Eastern consumers, the netbooks require access to high-speed mobile networks. The global launch of netbooks powered by the Atom chips in the summer of 2008 followed Intel signing a number of deals across the GCC aimed at developing fast wireless Wimax networks in conjunction with local telecoms operators.

Intel has also signed an agreement with Saudi Arabian telecoms operator STC and Knowledge Economic City to set up a fully working Wimax network by 2011. Intel views Wimax as a cost-effective way to deliver broadband internet access over large metropolitan areas or rugged terrain. In Oseem Village on the outskirts of Cairo, Intel has created a Wimax network. Intel Capital, the venture capital investment arm of Intel, has signed a joint venture with Orascom Telecom of Egypt, aimed at delivering support for Wimax networks.

These relatively recent innovations are part of a long-term strategy by Intel to exploit the full potential of the Middle Eastern markets. Over the past decade, Intel has expanded its Middle Eastern operations to include operations in Cairo, Riyadh, Beirut, Dubai and Casablanca. The chipmaker has also trained 600,000 teachers across the Middle East to teach 21st century communications and IT skills to their pupils.

The combination of an increasingly tech-savvy population, mushrooming Arabic social networking content, low-cost netbooks and widespread mobile broadband access are combining to create a booming IT market across the Middle East. The question is to what extent sellers and resellers from outside the region will seize the opportunity.

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