Opportunities In The MENA Enterprise Solutions Market
BMI estimates the value of the IT services market in nine key markets in the Middle East and North Africa (MENA), including the six GCC st ates, at a little more than US$5.7bn in 2012. This mainly comprises enterprise solutions, ranging from system integration, maintenance and service to consulting, managed services, outsourcing and virtualisation. We expect enterprise solutions to drive growth in the IT services market over the next five years, which is forecast to account for around a third of the nearly US$30bn IT market in nine countries in our MENA IT coverage by 2017 . In this article, we analyse the growth prospects, key players, risks and recent market developments in the market.
The nine countries currently in BMI 's MENA IT market coverage are Bahrain, Egypt, Israel, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and t he UAE. We estimate the total value of the addressable IT market in these countries was around US$18.687bn in 2012. The IT services market accounted for US$5.7bn, or 30%, of the total value of the IT market. The huge contribution of IT services to the total value of the IT market is mainly due to the underdevelopment of the consumer market in the region. Another factor is the emergence of key macroeconomic and industry-specific growth drivers over the last few years. These ar e analysed in detail in the next section below.
|e/f = BMI estimate/forecast. Source: BMI|
|IT Services Market||5,143||5,731||6,207||6,808||7,493||8,337||9,000|
|Total IT Market||16,978||18,687||19,926||21,577||23,380||25,656||27,659|
BMI 's current forecast envisages the value of the IT services market to reach US$9bn in 2017, equivalent of a third of the expected total value of the IT market. Israel is expected to have the largest IT services market over the next five years, reaching US$2.968bn by 2017. The UAE is expected to have the second largest market, forecast to reach US$2.144bn by 2017. Saudi Arabia and Egypt are the other two countries forecast to have IT services markets worth more than US$1bn by 2017. Bahrain, Oman and Lebanon will be the smallest markets at the end of our current five-year forecast. However, there are significant upside risks to our outlook and some of these are discussed in the following section .
Opportunities And Growth Drivers
Growth in MENA's enterprise solutions market is largely driven by a combination of industry-specific and macroeconomic fac tors over the past three to five years. BMI notes that the sustainability of these factors in the future is crucial to the medium - to long - term performance of the region's IT services and, consequently, overall IT market . Some of the key growth factors are as follows:
Economic Growth - The Arab Spring dented the short - term economic growth outlook for the MENA region. However, the continued high prices of hydrocarbons in international markets and expansionary budgets have helped most countries across the region weather the economic storm and sustain positive growth. BMI estimates that the average GDP growth in the entire region, including countries not included in our IT coverage, rose to 6.9% in 2012, up significantly from just 0.2% in 2011. We are forecasting growth to come in at an average of 4.2% over the decade to 2022. Qatar is expected to record the strongest growth in the early part of our forecast period. However, Egypt is forecast to be a regional outperformer in the latter stages of our forecast, provided it is able to resolve the political challenges it currently faces.
Governments' Diversification Strategy - Governments across the region are open about their plans to diversify their hydrocarbon-based economies and develop other industry verticals. This strategy has both direct and indirect effect s on the entire IT market and, specifically, the enterprise solutions market. The direct effect is related to state or private sector-led investments in the IT sector. The development of information technology parks, such as the Dubai Internet City and the Qatar Science & Techno logy Park (QSTP), demonstrate the direct effect of governments' economic diversification strategy on the growth of the region's IT services market. Similarly, the development of other industry verticals, particularly those with technology - intensive operations such as financial services, has turned out to be a major growth driver for enterprise solutions in the region.
Public Spending And Private Investments - The Gulf states and, to a lesser extent, North African countries affected by the Arab Spring are at the forefront of implementing expansionary budgets. Saudi Arabia's recently approved 2013 budget is planning for expenditure of SAR820bn (US$218.7bn), 18.8% higher than the amount outlined in the 2012 budget. A similar trend has been observed in other markets across the region as governments attempt to douse anti-government sentiments stoked by poverty and inequality, even to the point of increasing the budget deficit to unhealthy levels as is the case in Egypt. While BMI's Country Risk team cautions that such levels of public expenditure are not sustainable, we believe the short- to medium-term impact on the overall ICT industry is significant. Furthermore, governments' capital expenditure in some key sectors of the economy, such as transportation and health, often generates a knock-on effect on the IT market, especially the enterprise solutions segment.
Smart Cities - Many governments in MENA have included the development of smart cities in their economic diversification and growth strategies. BMI notes that advanced enterprise solutions are crucial to the operation of those cities. Leading IT services vendors are developing various smart city solutions with the hope of winning major contracts in the region. Saudi Arabia is developing at least four new smart cities, including the US$86bn King Abdullah Economic City, the King AbdulAziz bin Mousaed City and the Knowledge Economic City Madinah. The UAE is also developing the futuristic Masdar smart city, while Bahrain and Qatar also have their own smart city projects. In April 2012, Qatari incumbent operator Qtel signed a memorandum of understanding (MoU) with Cisco Systems to develop smart connected communities across Qatar. The MoU enables corporate customers to work with Qtel and Cisco to deploy a range of converged services and solutions, including virtual networks and datacentre services tailored to their specific requirements.
|Broadband Drives Growth|
|Broadband Penetration In Selected Countries (%)|
Efficiency Improvement - Most surveys of leading chief information officers (CIOs) in MENA show that cost reduction is a key factor in their technology investment decisions. This is the main driver for efficiency improvement solutions, including virtualisation and various managed services solutions. Furthermore, there is strong demand for solutions to improve customer satisfaction at various levels and optimise operations amid intense market competition.
Deployment Of NGNs - Telecoms markets in MENA have seen the deployment of next generation fixed and wireless access broadband networks in recent years. This is complemented by investment in submarine cable systems and internet exchange points (IXPs). Israel, Saudi Arabia, Qatar and the UAE are leading the rest of the region in the deployment of terrestrial fibre-optic networks. BMI believes investment in these infrastructures is perhaps the most important industry-related growth factor for enterprise solution services in the region. In October 2012, Mobile Doctors partnered with Cisco on a project to use the latter's videoconferencing software, TelePresence, to provide healthcare services, leveraging off the rapid expansion of high-speed broadband networks in the region. BMI notes that the improved transmission speeds, reliability and wider reach of broadband networks are major growth factors for virtualisation services, such as cloud computing, and the complementary internet and network security solutions.