Are Middle East IT markets on the up?

Distributors paint a picture of cautious optimism, but ongoing political issues and persistent problems with trading create uncertainty for the second half of 2011.

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Are Middle East IT markets on the up? The market showed a reasonable recovery in 2010, but 2011 has brought renewed uncertainty.
By  Mark Sutton Published  June 9, 2011

This month Channel Middle East reveals its 2011 Power List, our annual ranking of the top distributors in the region, based on revenue. In putting the list together, I spoke to a lot of different people within the distribution sector, and came away with the impression that the market still seems to be in limbo to an extent.

The revenue figures for 2010 told a promising tale, with our Power List distributors (not all appear on the final list)  making up a $5.7 billion business, up 17% on 2009. Most of the distributors saw modest growth, some considerable growth, but overall the mood does not seem to be that the markets have fully recovered yet.

While some distributors see areas to be positive, the ongoing instability around the Middle East - in Egypt, Yemen, Bahrain, Iraq, Libya and Tunisia - is causing concerns. While some distributors are bullish about growth prospects, many are still keeping a close watch on market conditions, and keeping to a cautious approach to business.

Of course, the figures we have been collecting are from 2010, and we are already six months into a new year, which has brought some very significant changes to the regional outlook. Expansion plans for North Africa have generally been shelved, and business closer to home in Bahrain has tailed off considerably. Even though government handouts gave the retail segment in certain countries a brief shot in the arm, that money is now spent.

At the same time, while distributors are promoting better credit management and more careful practices, it would seem that the message does not always reach down the chain, with news of another apparent runaway.

The trader in question has reportedly fled Dubai, with debts of anywhere between $3m and $15m.

Channel understands that the trader has assured that he will return to Dubai, but that his company's showroom has now closed. Suspicions were raised among some distributors as far back as April, leading some of them to withdraw credit, while others were covered by insurance.

While one trader with cash flow problems, skipping the country to avoid the UAE's punitive banking laws doesn't necessarily indicate an unhealthy market, in a market which is so closely interlinked, one runaway can create a knock-on effect throughout the channel. If the runaway was selling off stock below cost price, then it brings down prices for the rest of the market. Cheaply sold products may surface elsewhere as grey market. Credit insurers become more reluctant to offer cover, and premiums may increase.

It would be nice to think that each time these situations arise in the market, it brings the market a little closer to maturity, just by virtue of making everyone focus that bit more on good practices, but it does seem that these issues come up again and again, despite the efforts of the industry to monitor and regulate itself.

The recession has definitely instilled a more refined approach to financing and risk in the channel, but as distributors target new, possibly more volatile markets, and problems like runaways persist even in markets like Dubai, it seems that the element of risk and the uncertain picture of the true state of the market is going to persist for some while yet.

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