Market Overview
The UAE's spending on IT products and services is projected to reach nearly US$3.8bn in 2012 with slower growth compared with 2011. The PC market managed double-digit growth in 2011 but structural weaknesses still stand in the way of a more pronounced recovery, including weak credit conditions and Dubai's onerous debt repayment schedule.
In 2011, UAE electronics retailers reported a surge in demand for their products, although this was often fuelled by price cuts. Abu Dhabi has been making most of the running in the wake of the Dubai financial crisis, but growth potential also exists in the northern emirates where the government has launched a major infrastructure investment programme.
IT spending is projected to grow at a 2012-2016 CAGR of 9%. Cloud computing and business analytics are among enterprise IT investment priorities. Drivers of IT spending should include local and federal government initiatives, long-term infrastructure projects, significant population growth and the development of non-oil sectors.
Industry Developments
Cloud services are central to the emirate's e-government strategy for the next three years. The UAE's General Information Authority (GIA) is leading efforts to provide cloud services to federal government entities. In December 2010, the GIA delegations from various government bodies, including the Federal Council for National Affairs, the Ministry of Labour and the Ministry of Environment and Water, came together to plan a cloud strategy.
Federal spending will be an important driver of IT opportunities. The Ministry of Education is leading an initiative to supply computers and the internet to state schools after concerns that they were lagging behind private schools in IT and internet use. Another key area for federal IT spending will be healthcare. The government's 'Wareed' healthcare IT initiative aims to establish a completely integrated electronic platform linking 13 state-run hospitals and 67 affiliated clinics across the country.
Competitive Landscape
Business software giant SAP has yet to launch its 'on design' cloud computing portfolio in the Middle East region, believing that the market is not yet sufficiently mature. In 2011, SAP bet on business analytics solutions to drive local growth. According to the vendor, 44% of its regional revenues in Q111 were generated from business analytics solutions. Aside from the 'big two' enterprise software vendors, SAP and Oracle, there are 15-20 competitors with niches in the market.
In 2011, vendors have reported a pick-up in projects in key UAE verticals such as education, telecoms, health, energy and government. In February 2011, Indian IT vendor TCS signed a five-year contract with telecoms service provider du in the UAE to provide IT managed services. TCS will support the UAE company to achieve better customer satisfaction levels through improvements in service delivery.
Hardware
UAE computer hardware sales including PCs, notebooks and accessories are forecast at US$2.0bn in 2012, with slower growth than in 2011. The segment is forecast to grow at a CAGR of 7% between 2012 and 2016 in US dollar terms.
In 2011, electronics retailers reported double-digit annualised growth fuelled by price cuts. An influx of tourists has also boosted spending on consumer electronics goods, although, in the wake of the Dubai financial crisis, access to credit remains a constraint on domestic consumer demand. Migrations to the Windows 7 operating system and product innovation could help to trigger new cycles of hardware upgrades.
Software
BMI anticipates that the UAE's software spending will be US$681mn in 2012. The UAE is one of the region's fastest growing enterprise resource planning (ERP) markets, as more businesses realise the benefits of efficient resource management in their internal processes. Manufacturing and trading firms are seeking efficiencies by transitioning from manual environments to full automation of back-office systems. In 2012, small and medium-sized enterprises (SMEs) are expected to be a key focus for ERP vendors as the corporate market for solutions has become relatively saturated. There are many untapped sub-sectors and there is growing demand for industry-specific solutions. Customer resources management (CRM) is another growth area, with fewer than 2% of SMEs in the Middle East having a specialised CRM application in place. IT Services BMI predicts IT services growth will remain in positive territory during 2012-2016. Spending will rise from a forecast US$1.1bn in 2012 to US$1.7bn in 2016. IT services revenue CAGR over this period is forecast to be 11%. Services have become an increasingly important component of many deployment contracts, as evident in recent tenders from leading emirati corporations such as the Emirates airline and Etisalat.
One potential demand driver will be organisations looking for help to utilise efficiencies from cloud computing. Particular areas of opportunity for cloud computing include banking and retailing as organisations in those fields look to save money on hardware investments. The use of subcontracting has increased, including support, with several large contracts and outsourcing deals announced in recent years.
E-Readiness
The UAE benefits from a good regulatory environment and clear government leadership in IT. Although dial-up and broadband internet connections are forecast to continue growing over the next five years, broadband growth is expected to outpace the growth of dial-up connections and will likely cause the dialup sector to enter a period of gradual decline. Price cuts by Etisalat and du have helped drive growth by making broadband services more affordable, particularly for residential customers.
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