Sana'a Superstars

Yemen remains an up and coming market in the wider Middle East context. Channel Middle East meets the local players.

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By  Andy Tillett Published  May 1, 2006

Channel structure |~|street.gif|~|Computer shops in Sana'a |~|The IT market in Yemen can be a very confusing prospect to the outsider. There are precious few visible lines of product flow and the market is composed of a large number of small traders, operating across a number of different areas within IT. Smuggling of both grey and fake products are problems that continue to plague the Yemeni market, flowing not just by road from Saudi Arabia and Dubai but from the Far East and Europe. Despite this, Yemen shows promise. Recent government investments, alongside growing opportunities from the modernisation of vertical sectors such as banking are providing opportunities for local players to differentiate and capitalise. In many ways, the typical channel to market for goods in Yemen is very straightforward: resellers will make a trip up to Jebel Ali in Dubai or Saudi Arabia and buy the stock they need — typically a relatively small number of units by Gulf standards — bring it back to their offices in Yemen and sell it on. Some choose to check the goods in at customs and pay tax on them, others don’t. There are relatively few appointed channel partners in Yemen with direct buying relationships to A-brand vendors, and the erratic product flows can cause significant problems. “You are not protected when you distribute because of the smuggling. As a company that works officially, it causes problems. The smaller dealers buy from Saudi Arabia or Dubai and then smuggle goods illegally. There is no real margin in components and if you are being undercut by smuggled products you lose out,” says Nabil Al Germozi, chairman at Computer Engineering World (CEW). Germozi says CEW is the biggest IT company in Yemen with a staff of around 100, which he says is three times bigger than its closest competitor. CEW claims turnover of nearly US$9m a year and is the exclusive distributor of vendors Dell and APC in Yemen and also offers Epson, Bluecoat and Oracle products, alongside other vendors. Other prominent distributors include YCC, Natco, Office Systems, Alslam, NET Technology, PC Sana’a, Tehama and ComputeMe.||**||Mogadishu Street|~|cewoffices200.gif|~|CEW's offices in Sana'a|~|Anyone who has visited Yemen cannot miss its infamous computer district, Mogadishu Street, populated by over 60 computer companies. Their general opinion is one of frustration with the fact there is no established channel to speak of. The free-for-all nature this leads to means a number of less reputable resellers offer an unorthodox mix of products from vendors. “Some companies are just bringing in everything, they are not concentrating on a brand and they have no defined product offering. You’ll get resellers offering printers, peripherals, networking kit, PCs, everything from whatever vendors they can get cheap,” says Adel Barrayeh at Advance Technology, a well-established dealer and former assembler on the Yemeni IT circuit. “We do not have distribution because first of all there is no such thing as credit establishment. You cannot sell to smaller companies and wait for them to pay you, as the situation is not clear; systems such as cheques are not widely used in Yemen and credit is very difficult to ascertain or manage,” says Assad A. Gaber, sales manager at Natco, one of the largest IT suppliers in Yemen working with the private sector and on government tenders. Building a channel takes a number of different elements. First and foremost it requires investment from vendors into channels in the country — something that is practically non-existent in Yemen at present. Distributors say that pricing policies need to be sorted out so that they can buy product at a lower price than the resellers placing very small orders elsewhere. Education is another major factor in channel establishment, again requiring vendors to work directly with their local partners to build a channel and show the resellers the benefits of buying from legitimate channels. The willingness and co-operation of in-country resellers is also integral to channel development, and this is something that has to be organised at a local level.||**||A-brand investment |~|showroom200.gif|~|Inside a Yemeni computer showroom |~|“Vendors come here two or three times a year and do two or three seminars and that is it. We are open to education and want to take action against the grey market, but the vendors are not investing and they are not listening,” says Arif H Alkhwlani, executive manager at Office Systems Yemen. To say there is no A-brand involvement in Yemen is a little harsh. Some A-brands have links with the country. Intel holds an annual channel conference in Yemen and has an employee who looks after the country as part of his territory, flying to Yemen once or twice a quarter to update Intel’s partners on the company’s plans and roadmap. “Yemen is a largely populated market, but its adoption of IT doesn’t match that of Saudi Arabia, for example. At least we have a foothold in Yemen, and recently we are driving investment at the end user level. We held a technology day at a university, which had 400 attendees. We also have new products from our platformisation centre, which we could potentially fit into this market,” says Nass Nauthoa, reseller channel manager, Gulf countries and Saudi Arabia at Intel Middle East. It is easy to call for more investment, but it is also important to acknowledge that the economic status and development of Yemen is lower than the GCC and most states in the Middle East, with a GDP per capita of US$800 meaning low purchasing power. Despite this, the market is seeing healthy growth, according to Abdulrakib Al Badani, general manager at Net Technology.||**||Driving development |~|abdulrakib200.gif|~|Abdulrakib Al Badani, general manager at Net Technology|~|“The SMB sector is doubling in size year-on-year. Our business this quarter is double the business we were doing this time last year. The growth is driven by newfound stability in Yemen and people have more confidence to invest. The government is also putting a lot more money in,” says Al Badani. The government is the key driver in the development of the Yemeni IT market. It is both the policy maker and the largest customer in the country. Recent reform of customs charges has seen customs duty eliminated in favour of a lower tax system on imports. Total charges are 9% on goods’ value, compared to the earlier 16%. The government has previously worked on a scheme to get PCs into homes, akin to projects in Saudi Arabia and Egypt. This made computers available to government employees through the Ministry of Communication, working with distributor Natco. The computers were sold on a loan repayment basis, over three years, making them available to people who would never previously be able to afford a PC. “The average salary of a government employee in Yemen is around US$1000 a year. There are not a lot of people who can pay up front for a new US$800 computer. We are generating a lot of interest through our scheme; so far we have probably sold between 15,000 to 20,000 computers on an instalment basis, at US$20 to US$25 a month for three years, financed in conjunction with our bank,” says Gaber at Natco. Though this scheme is now defunct through the government, Natco has decided to go it alone and bought 5,000 PCs, which it is offering on a finance basis, not just to government employees, but to any Yemeni, on the same three-year payback terms. The government PC scheme was met with mixed reactions. Germozi at CEW criticises the fact that only one company was been allowed to participate: “I think the government took a step back from it because a lot of companies felt that it was taking business away from them,” he says. Other, smaller companies take a positive view, arguing that any investment in IT is good for the economy.||**||Affording a PC |~|yemenpic200.gif|~|Local assembly in Yemen|~|“The PC scheme is a great idea, it has affected our business, but overall we are happy because it opens up an opportunity for people who would never normally be able to afford a PC to get hold of one. More PCs in houses means more opportunity for us. We can look at repairs and maintenance and we concentrate on becoming a service and solutions provider,” says Barrayeh at Advance Technology. How much the government’s intervention to get PCs to ordinary people has affected local assembly is a difficult issue to tackle. There are a number of factors that have influenced the market development, including bad quality cheap parts from China and the lowering cost of A-brand PCs. “We decided to review the cost effectiveness of our local assembly operation in the year 2000 and in 2002 we decided to decrease the number of PCs we were producing until eventually we stopped and decided to concentrate more on A-brand sales,” says Barrayeh. Net Technology has seen the opposite, saying that its IBB brand PC assembly operation has grown over the last year, selling 900 PCs since July 2005, signifying good brand acceptance in the Yemeni market. Higher PC sales are driven in part by increased internet penetration. Statistics from research house Madar says that at the end of 2004, only 210,000 members of the 20 million strong Yemeni population had internet access — a penetration level of 1%, the lowest internet penetration out of 18 Arab and Arabic speaking north African states covered by Madar. Internet usage is on the up however, and Madar projected internet use for the end of 2005 was 378,000 , an annual average growth rate of 58%. The research house predicts that by 2008 there will be nearly 1.5 million internet users in Yemen. “When the government posted high school exam results online last year they received over one million hits to the site. That doesn’t mean there are one million computers in homes but there are a lot of internet cafés in Yemen that are very popular and cheap. You can use an internet café in Yemen for an hour for less than a dollar,” says Gaber at Natco. ||**||The road to modernisation|~|adel200.gif|~|Adel Barrayeh, Advance Technology|~|Yemen is modernising and though this is taking some time important steps are being made. In 2005 banks started to adopt ATM machines with over 200 installed to date. Investments such as this and in other vertical areas are driving a solutions market in the country, attracting major attention from companies such as CEW and Office Systems. These companies are now trying to position their businesses to become more software and solutions focused. Arif at Office Systems says that the company developed a strategy over a six-month period to enter into the solutions market. “As the market develops more companies will concentrate on one area. Year to year we are working towards a more defined portfolio, we are now working with less brands than we were a couple of years ago. Maybe in the future we will specialise in distribution or we will become two separate companies,” says Al Badani at Net Technology. The vertical that most players in the IT sector say needs the most investment is education. Yemen is presently having trouble building enough schools to keep up with the number of students it has, and the provision of IT within schools remains poor. “IT in schools is very limited - some investment from the A-brands would be very welcome here. The government is poor and it cannot afford to invest. If we could get special pricing for the education sector, or help with the infrastructure in schools and colleges, it would be appreciated” says Germozi at CEW. With all the emerging market programmes that are being developed by A-brands, there is surely a place for Yemen to receive some aid and investment in education. Intel is considering applying its new platforms in the country, but still the issue of Yemen’s disorganised channel will be a problem. The Yemeni IT market may seem a rough diamond, but the opportunity it presents is unique to the region. Many of the largest A-brands are still concentrating on building their business up in other areas of the Middle East and Yemen gets neglected. The Yemeni IT players will greet the distributors or vendors that do rise to the challenge with enthusiasm and there is a strong realisation in the market that working together towards mutual growth is the key to success. All it needs now is a little more commitment and direct investment. ||**||

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