The intel inside

While still in its early stages, most agree post-sanctions Iraq is an emerging market without comparison. Channel ME investigates the potential of this IT savvy and highly educated market.

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By  Paul Barthram Published  May 28, 2003

Emerging Market: Iraq|~||~||~|While still in its early stages, most agree post-sanctions Iraq is an emerging market without comparison. Channel ME investigates the potential of this IT savvy and highly educated market.

With the lifting of UN sanctions, the regional channel is starting to show signs of activity in Iraq, with local distributors Aptec and Tech Data geared up to move in and start working with the Iraqi channel for the future needs of the country.

Aptec announced its intention to work with the UN at the end of May in a statement that said it would ‘help build up a competent system’ to provide IT support for the new government and health services.

Dr Ali Baghdadi, president and CEO for Aptec said the company had already initiated talks with a number of vendors, and was finding a lot of interest from them. “We have received very positive feedback, with several multinational IT vendors expressing their willingness to co-operate with us in this endeavour,” he said.

Agreement with the vendors is going to be one of the key elements to going forward, according to Steve Lockie, managing director of Tech Data, in particular laying the ground rules for how they will operate.

“All the vendors will have to revise their terms and conditions, look at their export administration controls, and its not going to be carte blanche—‘Ok, Iraq is open guys, its duck hunting season, let’s go and just pour IT equipment in there’. There are still going to be controls. You can’t take this very sensitive technology and put it into this market without a license,” Lockie explained

So far the signs have been positive since the UN member states overwhelmingly backed the end to the sanctions. It is now up to the individual countries if they choose to allow exports to Iraq.
||**||History of Iraq market|~||~||~|
So with everything seemingly falling into place, what sort of market are these companies entering into? Though Iraq may have fallen behind the rest of the region as a result of thirteen years of sanctions, the country is anything but technologically deprived and has long held a large revenue stream for any Iraqi IT reseller willing to navigate the problems involved.

“It’s like Dubai in many ways,” commented Louay Alkhatib, managing partner of Orient Technology, a distributor in Iraq. “Pentium 4 entered Iraq the same time it entered Dubai. Intel is dominant in 90-95% of PCs, but you will also find VIA Cyrix, and we did sell AMD.”

Resellers paint an interesting picture of Iraq, with a surprising number of branded products getting through including servers with Compaq components. Canon, HP, and Epson printers have proved popular, and locally assembled PCs, which have accounted for the largest percentage of the retail market, have been built up with components from a host of familiar brand names.

“For PC brands, American companies have got a good reputation, like Compaq, IBM, and Dell, and Acer as well, but this business was confined to [corporate] contracts. Usually the man on the street would not buy a branded PC, he would buy an assembled PC,” said Dr Hussain Mumeer, a network specialist for Iraqi reseller Al-Arabi.

Business had started to pick up for the Iraqi resellers in the past five years, according to the resellers with big contracts awarded by the Iraqi ministries—easily the largest purchaser of equipment, with resellers quoting the business as between 75-90% of their revenues.

The main reason for this was a Memorandum of Understanding (MOU) that extended the UN Oil for Food Programme, allowing Iraq—forbidden to sell its oil openly on the worldwide market for currency—to exchange shipments of oil for necessary supplies. The scheme started with food, and humanitarian aid but expanded its criteria to allow other products such as IT, which were necessary to allow Iraq to conduct its day-to-day business.
Another source of products and revenues for Iraqi resellers over the years were the Syrian and Jordanian protocols. The two countries continued trading with Iraq, accepting barrels of oil as payment in exchange for certain products, defined by a set of protocols, therefore avoiding any currency transactions. While these deals were not endorsed by the United Nations, they were born of necessity.

“The MOU is legal under the United Nations, the protocols were not. But there needed to be some agreement otherwise [Iraq] couldn’t have worked,” said Dr Mumeer.

“The MOU started in ‘96, but it took another three years until contracts for the computers were released,” explained Mansour Ali Akbar Falamarz, manager of Al-Naba’a Computer Services, Baghdad. “Until then we had contracts with protocols through Jordan and Syria. Within the last year we imported more than 50,000 computers and IT products into our country including printers and UPS for the ministries, through the Syria and Jordan protocols.”

Without a normal distribution channel, supplying Iraq meant complications for resellers. Falmarz explained that the demand for IT equipment in Iraq would often lead to deals where components were smuggled in with covering goods in order to pass through customs. This meant multiple contracts being drawn up for a single shipment.

“With one University, we had a contract with them, for about $600,000 dollars through the Syrian protocol. We would sign two contracts, one with the University for the real [IT] equipment, and the University would then sign a contract with a Syrian company for a covering product such as chillers and air conditioners. The Syrian company could then export from Syria to Baghdad, but contained in that shipment would be boxes with IT equipment,” Falmarz said.

Taking IT equipment into Iraq hidden as part of other shipments was one way that products entered the country. Other ways included supplies being shipped directly from the UAE, often on passenger ferries, with people just loading stock for resellers into their cars, and entering the country as normal visitors.
Payments for these deals would usually come through resellers based in Iraq with family connections in Dubai, who would pay the suppliers. However, getting the equipment and paying for it was one thing, getting it to work was another. The Iraqi channel often had to work hard in order to keep things running.

“Technical support would depend on our engineers,” said Falmarz. “If there was any defect in the equipment, we couldn’t send it outside. Sometimes our engineer would open up a hard disk and repair it, which should be done with special equipment, but because we didn’t have any warranties to send it back to the supplier, the engineers felt they had to try. Some of them had good experience in servicing these products.”

So what does the future hold for the Iraqi reseller? Most are sure they will eventually see dramatic growth in their market. “In terms of resources I believe Iraq is one of the richest countries all over the world. It is the richest. It will be a huge market,” said Hani Abdullah Hayatt, executive manager for Iraqi distributor Seenen Information Technologies.

Dr Mumeer believes the market will see transition in terms of what products are sold. “Definitely it’s going to change, for many reasons—the embargo, the limited resources, the inability of citizens to buy computers—all these things have driven the market to the lower end of products. Now, I don’t believe this is going to be the case.”

So what about those companies hoping to move into Iraq? Lockie said the potential growth for business is undeniably already there. “Tech Data measure markets in terms of PC Total Available Market, and we see a market in Iraq of around 500,000 PCs.”
||**||The Future|~||~||~|
While Tech Data and Aptec look at moving into Iraq, the local channel players are not too concerned. “For an overseas company to come into Iraq, they’ll need at least two years [to settle]. On one side we actually support it, we’d like people to come and invest, but from our side, I don’t think there is a fear of competition, because of our company and our database, our structure is going to be very strong inside Iraq,” commented Alkhatib.

“Most of the big distributors are thinking about it,” said Hayatt. “The point is do these people want to make their business through an Iraqi company or do they want to be there themselves? Mostly I think they want to be there themselves. In the beginning they don’t have the logistics, they don’t have the contacts, but you know they can take their chances.”

Lockie dismisses the idea of moving in too fast. “We’re not looking to go and do any direct business in Iraq. I think in the early stages we’ll see a small number of buyers, and they’ll be traders. We’ll work with the trading partners going in and taking the goods into Iraq. These are people that can offer security.”

Aramex, the carrier Tech Data plans to contract to deliver most of its supplies, previously worked in Iraq as courier to the UN MOU programme. It believes a number of changes are needed in the region before business can start shipping goods easily, as Osama Fattaleh, VP for Aramex Jordan explained. “The main issue is the security and the communications. I think though with time, things are going to improve.

“The infrastructure exists—there is a basic road infrastructure, but it definitely needs to be improved. On the ocean freight side, Um Qasr [Iraq’s only deep water port] is a big issue and there will be an investment in it, but it has to be upgraded, because it has to carry much more capacity. Baghdad airport has also not been heavily used since the sanctions, so I’m sure there will need to be investment there before things really start to get moving,” he added.

Regardless of the need for infrastructure growth, Lockie is confident that Tech Data can create growth in Iraq, although the exact nature of the business is not clear just yet. “We’ve got a pretty good idea of the way it’s going to work but we wouldn’t be naive enough to say we’ve got all the answers for sure. We are looking at how the market will transition. Certainly there is not a sustainable Iraqi-reseller-buys-from-Dubai-reseller-who-buys-from-Dubai-based-distributor model. That’s not a sustainable model now. How quickly will that move, and what will the new channel look like? You can say you know the Iraqi channel today and the way it works but it’s irrelevant, because its not going to continue to work the same way.”
||**||Baghdad Cafes|~||~||~|
Compared to other parts of the Middle East, access to the Internet in Iraq often fell short in terms of service and quality—in part due to the country’s poor communication infrastructure. Iraqi resellers place the entry date of the Internet in the country around the end of 1999.

“It started first of all as a service only available to the government,” said Mansour Ali Akbar Falmarz of Al-Naba’a Computer Services. “Originally they gave the Ministry of Education one line, but at that time only two people were allowed to access it. Even if the other ministries needed information they would have to go through these two people.”

After a rather unpromising start, with a connection speed of only 2K the service improved and spread in the ministries.

“One year from when they first started using it they released it to private business, but the visa for this was very expensive, it was about $5,000. Then eight months ago they released it for public access through the telephone lines and the visa for this had come down to $2,500,” said Falmarz.

Dr Hussain Mumeer a network specialist for Al-Arabi IT resellers, Baghdad, said even with public access, getting online required hard work. “You could only connect from midnight to 6am, and it was very slow, and very difficult to connect. The people running the Internet Company didn’t really have a marketing mentality.

“The number of subscribers was really low compared to the population, but there were public Internet cafes where you could pay by the hour,” he added.

There were around twelve such cafes in Baghdad, and two in Mosul. The Iraqi customer—usually merchants—would spend around a couple of hours Internet time there, at the cost of $1. Cheap by most people’s standards, although for the average Iraqi citizen, $1 is the equivalent of ten-days salary.

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