Information technology (IT) players refer to the major changes the industry’s had on the way people think and act as inflection points. One inflection point was in the late 1980s and early 1990s when the internet started to become more widely adopted by organizations. It took time to gain momentum, to move from the office into the home and reach the two billion internet users on the planet today. We are now in the middle of a second IT inflection point: mobility, with the internet wirelessly accessible through laptops, smart phones and tablet devices in what some are calling the “post-PC” world.
In the Middle East and North Africa (MENA), the past two years have arguably been an inflection point of a related yet somewhat different nature. According to statistics released by search engine Google, internet usage in the Middle East grew by a staggering 39 percent in 2010 to 86 million users, up from 64 million in 2009, with overall penetration reaching 29 percent. Such growth is just over double the increase in internet usage on a global basis, estimated at 14 percent by Internet World Stats in 2010.
The momentous rise in Internet penetration and adoption of mobile devices in MENA has had ramifications that no one would have imagined, including the role IT played in the uprisings this year via the use of social media and mobile technologies in coordinating protests demanding political freedoms.
When the wave of mobile communications spread across the region a little over 10 years ago the first big commercial surprise was the fact that mobile phone operations proved highly attractive and viable in less affluent nations and could serve as business enablers in unexpected ways. For private sector enterprise, the new big question after the eruption of the region’s social and political restructuring is if Internet and mobile networks will be the next big thing for regional business.
The trend for online media usage is increased spending on digital marketing, currently accounting for 22 percent of MENA companies annual marketing budgets, while 58 percent have increased digital budget spending this year, according to a 2011 EConsultancy study, whether on social media, mobile marketing or video advertising.
Ecommerce is equally booming, with 32 percent of MENA Internet users buying online in 2010, according to Spot On, a Dubai-based communications company, and retailers selling some $90 billion in goods and services last year, up 37 percent on 2009, according to Startup Arabia, an Arab technology startups and services website. The top purchased items are airline tickets, books, computer services, clothing and hotel reservations.
Ecommerce and online advertising, the drivers of the dotcom era, are still the top potentials for business on the web but it remains to be seen if they can fulfill the expectations for what had been called New Economy in the Internet’s early days. Barriers against the rise of these economic activities cannot be discounted.
“There are definitely social aspects to Internet adoption, with access to the super information highway meaning more freedom of information,” said Samer Taha, chief executive officer and Founder of Jordan’s Waseela, a telecom system integrator and managed services provider. “Countries are trying to balance developing IT with censorship, while others are delaying roll out due to the amount of information available (on the web). So even if the private sector is willing to invest, governments are often more reluctant.”
Although growth in IT and adoption of social media in the region is indicative of economic potentials, Internet penetration rates vary wildly from country to country, with the United Arab Emirates the highest at 65 percent, Bahrain at 50 percent, Jordan at around 30 percent, Lebanon 25 percent and Syria 18 percent in 2010, according to Internet World Stats.
“Overall the Middle East and the Gulf are not so different from the third world, there is a digital divide comparable to the first and second worlds,” said Taha. “Yet with the Gulf countries reaching first world levels by introducing 4G [fourth generation mobile telecoms], the non-Gulf countries are three to five years behind.”
As the adoption rates of social networking site Facebook and video site Youtube in Arab countries show, the MENA region is catching up with international rates of web usage but the numbers differ widely between countries. Facebook, for example, had attracted 19 million new users in the MENA this year up to June 30. The site claims a total of 56 million users in the MENA at midyear, a 51 percent increase from a year earlier.
Yet while Facebook reported 100 percent increases in users in Algeria, Egypt, Palestine and Yemen over the past year, and 317.5 percent growth in Iraq, user numbers dropped by 61.8 percent in Libya and by 200,000 in Qatar due to government censorship.
Youtube, in another way, also serves as an example for the factors that make online business an interesting but complex proposition in the region. In October, repercussions of using the service were highlighted a case where three young Saudis were arrested after uploading a clip on poverty in the kingdom on Youtube. But this appears not to have reduced the popularity of the social media tool. Saudi Arabia is considered number one worldwide for Youtube uploads per capita, according to Khaled el-Amrawi, regional director of Enterprise Solutions Middle East of Intel Corporation Egypt.
Internet penetration has been boosted by the rapid uptake of smart phones, which allows people to bypass the relatively high cost of purchasing a personal laptop to get wired, at the same time providing the latest “must-have” gadget that doubles as a conventional mobile phone. According to a survey released this year by Effective Measure, 45 percent of MENA Internet users surveyed use mobile phones to access the internet.
In countries with already high penetration like the UAE, the adoption of second and third devices — smart phones and tablets — is pushing penetration even further, said El Amrawi. Recent data backs this up, with an Arab Advisors Group survey revealing that smart phones constitute 43.7 percent of total cellular handsets in the UAE, 54.6 percent of total handsets in Saudi Arabia and 41.6 percent in Jordan.
The adoption of these devices among the region’s burgeoning youth is already having an impact on how people use email. “This new generation, the mobile generation, often has no specific email address as they use Facebook instead,” said Michael Bayer, president of Europe, Middle East and Africa at Avaya, a computer networking and telecommunications company.
Furthermore, portable devices are surpassing PCs and laptops as the primary business tool. “I don’t use my laptop unless I’m opening a big attachment. Around 90 percent of my work is via my smart phone; contacts, email, everything,” said Bashar Bashaireh, regional director of Fortinet, a network security company.
The regional race
The region is experiencing an inflection point in how governments and businesses are using online technology. This year, IT spending by Middle Eastern and African governments is forecast to increase by 10.7 percent from 2010, reaching $6 billion, according to research firm IDC, while total MENA IT spending is estimated to reach $45 billion, up 50 percent from 2010. The numbers are estimates, and Dubai IT exhibitor GITEX estimates total Middle East IT spending substantially lower, at $14 billion. Nonetheless, it is big business. “The Middle East is an area where an IT company can grow by 30 percent year on year,” said Bayer.
With e-commerce sales forecast to reach $1.4 trillion worldwide by 2015, the MENA is expected to enjoy a significant slice of the e-pie as e-commerce becomes more widespread. “E-commerce in the MENA is following in the footsteps of Europe and the United States, so I think there is a future and huge potential,” said Hassan Hamadani, marketing and business development manager at Brocade, a networking solutions company.
In public and private sector IT investment the UAE, Bahrain, Qatar and Saudi Arabia are leading the pack. But other countries are trying to catch up and be viable IT hubs, most notably Egypt and Jordan.
“There was a plan for Egypt and Jordan to be software and IT hubs,” said Taha. “Egypt has succeeded to a degree but the momentum did not continue, while in Jordan it didn’t take off as hoped. Dubai has high operational costs but is seen as the right hub due to infrastructure, logistics and other advantages not there in Jordan or Egypt.”
But while the UAE is what one IT manager called a “high-tech sales office”, as it lacks research and development in software, Egypt is making headway as an “attractive offshore destination for R&D,” said Yasser el-Kady, CEO of the Information Technology Industry Development Agency (ITIDA), formed by the Egyptian government in 2005. While the political unrest earlier in the year negatively affected the sector, ITIDA has worked to retain the multinationals like Intel and Microsoft in the country while investing $500,000 to promote the IT sector. El Kady said a multinational outsourcer would be creating some 20,000 jobs when it starts operations later this year.
The $1.3 billion sector currently employees 60,000 people at some 11,000 IT and telecoms companies. With a strategic focus on the MENA, Kady said revenues will reach $7 billion by 2016. “Our goal is to treble software exports every five years,” he added.
As inflection points go, IT is the next big thing for the MENA in terms of job creation, foreign companies seeking to expand global market share, governments expanding electronic services and, potentially, greater political freedoms through hyperconnectivity.