Where’s hot and where’s not?

With 2004 drawing to a close, vendors, distributors and resellers are beavering away putting the finishing touches to their plan of action for the year ahead. But where exactly should the channel invest its resources? Is Libya going to be 2005’s land of opportunity or is investment in Iran a smarter option?

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By  Stuart Wilson Published  December 14, 2004

With 2004 drawing to a close, vendors, distributors and resellers are beavering away putting the finishing touches to their plan of action for the year ahead. But where exactly should the channel invest its resources? Is Libya going to be 2005’s land of opportunity or is investment in Iran a smarter option?

There are no hard and fast answers to the questions posed above. Much depends on the vendor’s product portfolio, the distributor’s appetite for risk or the reseller’s long-term business strategy. While each channel player will have a slightly different plan, all are confident that the Middle East and Africa (MEA) market will sustain its strong growth rate in 2005.

Even the most conservative future-gazers in the channel predict low double-digit Middle East IT sales growth in 2005 with their optimistic peers bandying around figures north of 25%. The numbercrunchers down at the local analyst houses will mention figures in the region of 15%.

All said, it is a fairly healthy scenario being contemplated, but there are a few provisos attached. First off, we need to understand how much of the IT kit sold in MEA is actually destined for this region, and how much finds its way into the global grey channel. This still counts as IT sales for the region, but it is an unpredictable revenue stream for all concerned and susceptible to the influence of currency fluctuations and the effectiveness of vendor policing policies.

Then there are the margins attached to this increased IT spending. On the hardware side, price points continue their relentless downward spiral meaning that vendors, distributors and resellers hoping for a 15% rise in sales may need to achieve a 30% volume increase. Increased sales do not necessarily mean increased profits as margin pressure increases.

Finally, there is the fact that the overall 15% growth rate will not be consistent on a country-by-country basis. Socio-economic factors can cripple an IT market while a period of sustained stability and inward investment can quickly turn an individual country into an IT spending hotspot. Each market exists in a constant state of flux with myriad changing factors determining the overall IT spending climate.

The GCC market continues to look a solid prospect for IT spending growth during 2005. Infrastructure investment in countries such as Bahrain, Qatar and Kuwait is pushing ahead with the UAE ticking along nicely as well. E-government and public sector projects continue to draw the attention of multinational vendors operating in the region.

For many channel players, the GCC represents the strategic hub of their regional sales but it is markets outside of this core area that still offer massive potential. Saudi Arabia continues to witness strong IT demand with the channel pushing hard to develop the SMB and retail markets in the Kingdom.

Iran remains poised to become the region’s largest market with PC sales rising in excess of 1.2 million units a year, strong demand for cutting-edge technologies and a sophisticated retail channel. Trade restrictions continue to hamper the supply of goods to Iran in certain sectors although many Dubai-based channel players have shown a natural affinity for developing innovative value-added channels that circumnavigate the red tape involved.

Iraq continues to represent a real challenge for the IT channel, epitomising the risk-reward dynamic that characterises the whole process of developing routes-to-market against an uncertain backdrop. Demand is there and distributors with local knowledge such as Almasa and Orient Technology are positioning themselves early for the expected growth in years to come.

To date, there is no real run rate business into Iraq with sales still volatile from month-to-month and largely dependent on the security situation. Giving credit to resellers in Iraq remains difficult and there is no shortage of people trying to pull a fast one as shown by the recent government tender scam that fooled a few companies. Nevertheless, it is a market to watch closely during 2005.

Credit remains an issue across the MEA region. Like Iraq, vendors and distributors are held back in East Africa by a lack of financial transparency and an inability to finance the channel effectively. There is market growth in countries such as Kenya and Tanzania, but the overall market size does not yet justify large-scale investment or local presence for most vendors and distributors. As a result, the flow of product into these markets is often chaotic with goods moving in from Dubai, South Africa, Europe and even the US. Post-sales service is difficult to provide and the in-country channels remain unstructured.

Many consider Egypt to be an attractive market for 2005. Tax and duty issues have been largely resolved, the government appears to have finally achieved some sort of control over the currency and there is strong growth in demand. Throw in a buoyant local assembly business and it would be no surprise to see channel investment in Egypt skyrocket next year. Egypt can also be used as a strategic base from which to address the rest of the North African market. With Libya finally coming in from the cold of trade restrictions, it too is an attractive proposition for the year ahead.

And let’s not forget the opportunities in the Levant region; Jordan’s potential — both as a market in its own right and also as a gateway into Iraq; Turkey's solid foundations for further growth, and the rising demand in the CIS states.

The MEA region will undoubtedly grow significantly in 2005; but the market needs to be addressed on a country-by-country basis because each national market has its own unique characteristics, its own particular challenges and its own ways of doing business.

When finalising business plan for 2005, identifying the opportunities is the easy part for the MEA channel. It is working out the ones to focus on first that is the real challenge.

Which market will you concentrate your business development resources on during 2005? E-mail us your thoughts on the region's growth hotspots for the year ahead.

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