Boom or bust

Whichever link in the channel chain that you talk to, from vendors to resellers, they all sing the same tune when it comes to the UAE IT market: business is good. UAE-based IT companies are even making waves on the global stage, reflecting the country's strength - much like Singapore to the east - as a regional hub. But is the growth sustainable or are there cracks under the surface?

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By  Julian Pletts Published  January 17, 2008

Everyone points to continued investment in the UAE as the number one reason for the proliferation of the IT sector and it's not difficult to see why. The ongoing growth of the economy and influx of foreign investment has provided the ideal conditions for the country's IT channel to prosper.

"The UAE is by nature a feeder market, a hub to the Middle East and to some extent the Africa region," said Madhav Narayan, general manager at electronics vendor Samsung's IT division. "The market is growing rapidly. It is strengthening and a lot of it is to do with the oil dollars that are flowing in.

We are in a region that unlike Europe and the US is personal touch- orientated. If you want to do business in the GCC, in the UAE and in Dubai, you have to have personal relationships

According to a recent report from research house IDC, IT services spending alone in the UAE expanded by more than 15% year-on-year in 2007, after a boost of almost 23% in 2006 to nearly US$508m. Contracts spearheaded by the UAE government continue to play a dominant role, while the banking and telecommunications sectors also retain a strong influence over levels of IT expenditure. The overall IT sector in the UAE, meanwhile, is estimated to be valued at close to US$2.5 billion - around 35% of the entire Gulf market.

In line with IDC's figures, Vipin Sharma, VP of EEMEA sales at Tripp Lite, lays a lot of the success in the IT sector at the feet of the UAE government. "The utilities are so progressive here. There are huge investments, new power stations are being built, and they are trying to bring in new foreign investment and financial centres. These are the engines of growth for the country which, if I am not exaggerating, is among the top 10 growth markets," he said.

It was recently announced by the International Monetary Fund that the UAE economy expanded 16% over 2007 and this assessment was coupled with news that a projected US$22 billion is to be pumped back into the country's economy every year over the next decade. This is to include US$35 billion into the oil and gas sector, which will undoubtedly increase investment in IT systems such as workstations, data storage and sophisticated software solutions.

However, with this assessment of the UAE from the IMF came a cautionary footnote. It warned that the continued and rapid growth of the UAE's economy has been expensive, with inflation soaring to record levels.

Natesh Mani, director of office business at Xerox MEA, holds a view that is seemingly typical of all IT players in the UAE market, particularly at vendor level. "People are always saying that the bubble will burst and they have been saying it for the last 10 years, but nothing seems to have stopped the region from going from strength to strength," said Mani. "The UAE has always been a trend setter and you find that other countries emulate what has happened in the UAE," he added.

The UAE is a fascinating market to investigate because within the seven emirates that make up the country there are many different trends in the IT sector, from Dubai as the undoubted regional hub, to the localised reseller channels in the smaller markets of Fujairah and Umm al-Quwain.

Attention must also be given to the UAE's role as a thriving re-export market, which is unmatched by any of its Gulf neighbours. Dubai remains the primary source of products for traders in Africa, the CIS and, just as significantly, restricted markets such as Iran and Syria. Analyst estimates suggest that more than US$750m worth of IT products purchased in the UAE are destined for external markets.

It is true that the growth of the IT industry in the UAE looks unstoppable, but there are side effects to such a relentless march forward. Shahood Khan, director of sales and marketing at Empa, says the UAE is a growth market, but also thinks it should heed the lessons from other world markets that have felt the burden of their own success. "I would say all the people who work in the IT sector are fortunate to work in Dubai and the UAE - they are in a growth region. But I have colleagues and ex-colleagues working in Singapore and some European countries and they are facing market saturation," he said.

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