Dubai was selected as host city for the 2020 World Expo trade convention on November 27 2013, beating off rival bids from cities in Brazil, Russia and Turkey. This development is a boon for the UAE's ICT sector, which will play a central role in the delivery of key projects for the event. BMI already has a positive growth outlook for the country's ICT sector based on current market dynamics. However, the anticipated uptick in investments and visitors into the country in the run-up to 2020 poses a significant upside risk to our market volume and value growth forecast.
BMI's ICT analysis comprises the telecoms, information technology (IT) and consumer electronics (CE) sectors. The UAE is a regional outperformer in all three sectors owing to a combination of positive industry-specific factors, such as ICT free trade zones, and macroeconomic fundamentals, including relative political stability and economic growth. We expect this trend to continue in the period before and during the trade convention, creating significant long-term growth opportunities for key players along the entire value chain of the ICT sector. The Expo organisers expect the event to bring in around US$23bn, while the government is spending around US$6.5bn on infrastructure projects. Some of these opportunities and moves by some companies to take advantage of them are highlighted below.
|3G/4G Subscriptions Will Drive Growth|
|UAE Mobile Market Growth|
We expect the telecoms markets to experience strong growth, despite an already high penetration rate, owing to influx of visitors to the country. The telecoms market is a duopoly of Etisalat and du, both of which are set to benefit from new subscriptions and roaming charges. However, the surge in network usage would create considerable opportunities for various categories of network vendors. In May 2013, the TRA said that it will allocate the 700MHz and 800MHz frequency bands for the exclusive use of mobile broadband services. This will allow Etisalat and du to extend their network coverage beyond urban areas into the UAE's desert regions. We expect the operators to step up their capital expenditure by the operators over the next few years and deploy the new frequencies in order to prepare their networks to cope with higher demand for various communication services, especially data.
Equipment vendors are gearing up to take advantage of these opportunities. In October, Huawei Technologies announced the opening of a logistics facility in Dubai, which will enable it to cut delivery of ocean shipments to 30 days and quickly respond to urgent requests from regional customers. While Huawei has traditionally competed with other network solutions providers on price, throughout 2012 and 2013, it has secured a number of high profile contracts in the Middle East and emerged as Ericsson's major rival in the region.
|Significant Upside Risk|
|UAE IT Market Value (AEDmn)|
Information Technology (IT)
We expect government agencies and private companies to invest in IT solutions to improve their operations and services in preparation for the 2020 Expo. We therefore forecast an uptick in IT products and services procurement across different sectors in the country, notably public services, financial services, hospitality, telecoms, aviation and construction. Some vendors are already positioning their businesses to take advantage of these opportunities. Following the establishment of its supply chain hub in Dubai in October, Huawei Technologies announced a partnership with Enterprise Systems to pursue IT services opportunities in the hospitality and public sectors in the UAE in late November. India-based technology firm HCL Infosystems has set ambitious revenue growth targets in the UAE following the acquisition of a number of local companies during the last three years.
BMI expects cloud-based services and security solutions to be the main growth drivers in the IT sector. In September, McAfee opened a Cyber Defence Center (CDC) in Dubai focusing on data collection to prevent and respond to security threats. BMI expects to see strong growth in the cloud computing and managed services market over the next five years, with sales increasing from US$1.05bn in 2012 to US$2.14bn in 2017. Some of the major growth drivers for this sector are strong economic growth, government diversification away from hydrocarbon-based economies, development of smart cities, businesses' emphasis on efficiency improvement to lower costs and increase customer satisfaction, and investment in next generation networks.
|UAE Consumer Electronics Sales Growth|
Consumer Electronics (CE)
The 2020 Expo will drive demand for products in the three segments - PCs, audio-visual and handsets - of our CE sector analysis. The event organisers estimate that around 81,000 new hotels rooms are needed by 2020. The furnishing of these rooms and the refurbishment of existing hotels and other accommodation facilities will drive demand for TV sets. In September 2013, Samsung started production at its first Middle East and North Africa (MENA) factory in Egypt, one year after announcing plans to invest US$280mn in the project. The first phase of the facility will focus on building flat-screen TVs and computer monitors, two of Samsung's strongest-performing products in the region. BMI believes the company is well placed to win major procurement tenders in preparation for the Expo with its local presence.
The handset segment is more fragmented, with all leading vendors and some local brands competing in the market. BMI notes that some of these companies have expanded their distribution channels in the UAE in recent months, possibly in anticipation of the success of the Expo 2020 bid and growth opportunities it presents. In November, Huawei signed an agreement with local telecoms products distributor Axiom Telecom to retail and distribute its range of smartphones and other mobile devices. Axiom is a key partner to major global brands such as Nokia, BlackBerry, Samsung and LG. The firm manages hundreds of retail outlets across the UAE in prime shopping locations, including malls, forecourts and airports. In October, Nokia highlighted a renewed marketing strategy and push for the Windows smartphone operating system (OS), which all its smart devices use. According to the UAE's TRA, Nokia devices accounted for 56.4% of handsets registered on networks in Q213, a position the vendor will be keen to defend in the run-up to the trade convention.