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Saudi Arabia Information Technology Report Q1 2011
Business Monitor International, Feb 2011, Pages: 56
The Saudi Arabia Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Saudi Arabia's information technology industry.
Saudi Arabia has the biggest IT market in the Gulf region, with a forecast value of US$3.6bn in 2011 expected to rise to US$4.9bn by 2014. The country will continue to be a lucrative market for technology products and services over the forecast period as it invests to upgrade its IT and communications infrastructure.
In 2011, Saudi IT spending is forecast to record high single-digit growth compared with 2010. Government-driven investments in transportation, property constructions and water and power plants, will drive opportunities for IT vendors. The government’s five-year development plan focuses mainly on infrastructure and aims to boost the role of the non-hydrocarbon private sector.
Saudi Arabia’s IT market has a number of positive drivers, including a growing population and government projects. BMI predicts that per capita IT spend will reach US$186 by 2015, as PC penetration rises to more than 30%. Youthful demographics and a growing population will support a positive market trajectory.
The government continues to regard development of the country’s information communications technologies (ICT) industries as a national priority. Saudi Arabia’s governing Shoura Council has a strategic objective for the IT industry to raise its contribution to GDP to 20% by 2020. Another key goal is to raise broadband penetration to 31% by 2013.
Despite the economic downturn, Saudi Arabian government bodies pressed ahead with ambitious e-government and IT projects. Among major projects, the Medical Services Division (MSD) of the Ministry of Defence and Aviation (MODA) was implementing a nationwide unified medical system. The system aimed to link all 26 MSD hospital and 68 medical centres and clinics across six of the county’s regions.
The Saudi government is implementing a US$3.1bn plan to improve the education system. The focus of the plan, approved by the Saudi cabinet in 2009, is to equip schools to keep pace with scientific and technological activities. The King Abdullah Project has allocated around half the funds (SAR4.2bn) to improve the education environment and another SAR3.58bn for extracurricular activities.
There were signs in H110 that the flow of enterprise projects had picked up after a slowdown due to business uncertainty. In January 2010, SAP announced that Chemanol, a leading Saudi producer of methanol-based chemicals, had fully upgraded its SAP software system. In September 2009 SAP had won a contract from Saudi’s Arabia’s first private power plant, NOMAC, to implement an enterprise resource planning (ERP) solution.
In H110 IT vendors were positioning themselves to take advantage of an expected new wave of investment by the energy sector. In May 2010, Elecsys, a provider of data acquisition, telemetry and analysis systems for critical industries, announced that it had appointed Saudi company Gulf Energy Solutions Corporation (GESCORP) as a distributor partner. Meanwhile, in January 2010, Sahara Petrochemicals Company adopted HP systems to improve its data centre infrastructure. The consumer goods sector was another where demand for e-business solutions offered vendors opportunities in 2010. In November 2010, Alfia Foods, part of leading Saudi industrial group the Savola Group, announced the implementation of the Oracle E-Business suite to support long-term growth strategies and integrate and streamlining manufacturing processes.
Saudi computer hardware sales including PCs, notebooks and accessories are forecast to reach US$1.9bn in 2011. PC penetration is currently about 24% and should increase to more than 30% by 2015. In contrast to other states in the region, such as the UAE, which have recently been hit by an exodus of expatriate workers, Saudi Arabia’s growing population will be a positive market driver.
Stronger demand in the notebook sector is the main growth area, as consumer sales feel the benefits of aggressive channel promotions. Small and medium-sized enterprises (SMEs) are exhibiting a stronger tendency to favour mobility, accounting for a growing proportion of notebook shipments. One of the government policies that vendors are capitalising on is the well-known United Instalment Scheme (USI) finance option, which makes high-quality notebooks available to small and medium businesses.
BMI forecasts a software market value of US$675mn in 2011, up from US$611mn in 2010. The software segment is projected to grow at a CAGR of 9% over the forecast period. Oil and gas is the largest software vertical purchasing sector, followed by government and telecoms, but there is a growing interest in vertical solutions in industries like retail, construction and engineering. The BMI’s five-year forecast period, software-as-a-service (SaaS) business models are expected to provide a growing opportunity for vendors, with increasing demand for industry-specific applications.
The Saudi Arabian IT services market is estimated at around US$1.1bn in 2011 and is expected to grow at a CAGR of 9% over the 2011-2015 forecast period. The economic slowdown inevitably had an effect on demand in some of the key IT spending verticals. The next period promises to see more opportunities in sectors such as oil and gas, financial services, healthcare, education and communications. Support and maintenance account for around one-third of spending on IT services, but the market for more complex services such as outsourcing has grown.
Increased public awareness of the internet, the growth of broadband services, the decreasing cost of internet access and computers (both PCs and laptops) and a wider range of internet services have all been cited as reasons for the strong internet usage growth.
The widespread deployment of wireless broadband networks by the three new national fixed-line consortia will help to drive increased broadband take-up. Although ADSL connections will play a crucial role in the development of the market, we predict much of the new growth over the next few years will come from wireless services such as WiMAX.
Investment in broadband and government initiatives has seen an improvement in e-services development and utilisation, which was reflected in the UN’s most recent e-government rankings, in which Saudi Arabia rose 10 places.
Meanwhile, a report released in July 2009 by consulting firm Arab Advisors Group ranked Saudi Arabia first among Arab countries for e-commerce growth. The report valued e-commerce transactions in Saudi Arabia at SAR12bn with 14.26% of the population engaging in such transactions. The report identified government support and growing internet penetration as key factors behind the growth.
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