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Government IT spending softens in 2016

Economic conditions slow government IT sector, 2017 likely to see slight growth, says IDC

Government IT spending softens in 2016
Government organisations have faced pressure on spending in 2016, that will improve slightly next year, says Rajan.

Uncertain economic conditions have led to a softening of government IT spending in the Middle East, Turkey and Africa region in 2016, according to IDC, with only slight growth predicted for the region, and the GCC, in 2017.

Speaking at the IDC Predictions 2017 event in Dubai, Jyoti Lalchandani, IDC's group vice president and regional managing director for META said that lower oil and commodity prices, currency fluctuations and political instability were all effecting the region.

"We are seeing a region that is going through a transition, a transformation, not just from a technology side, but from an economic point of view as well," Lalchandani said.

IT spending grew by only 1.6% in META region in 2016, while the market is expected to show slight improvement to 3.6% year-on-year growth for 2017.

Ranjit Rajan, Associate VP, Research, IDC Middle East, Africa & Turkey, said that government spending patterns would have an impact on the wider ecosystem: "Public sector has been one of the major drivers for IT spending, especially in the Gulf region, but we see a softening of government spending. That is going to affect many of the downstream industries as well which depend on the public sector."

Rajan said that in the GCC, spending in the UAE remained relatively flat, but other countries had suffered more disruption in 2016.

"2016 was a really disruptive year for most vendors in Saudi, because of announcement of Vision 2030 and the National Transformation Plan 2020 which kind of threw a spanner in the works," he said. "Many projects were stalled and and there were cancellations of projects in many industries, there was a lack of decision making and no decisions going through.

"The uncertainty still continues to an extent, but I think in 2017 we will see a lot more activity in Saudi, particularly things like cloud for example, we are seeing a lot more appetite for cloud in Saudi now than ever before. We will have to wait and watch and see how the NTP program rolls out.

"The other GCC countries, Bahrain, Kuwait, Oman and Qatar, have been significantly impacted because of the weak oil prices, we have seen tremendous cuts in spending in those markets. For 2016 forecast, we expect most of these markets to contract, but 2017 we expect them to pick up a little bit and show some growth."

Pressure on budget is creating more focus on optimisation of current IT assets and cost reduction, Rajan said, with more adoption of outsourcing, but the market is also experiencing increased innovation and a shift in technologies. Nearly 40% of Government CIOs report their organisation is current undergoing digital transformation (DX), according to the IDC META CIO Summit Survey 2016, with a further 20% saying they are about to start DX.

In terms of technology, the third platform of cloud computing, analytics, mobility and cloud are now mainstream, while IDC sees ‘Innovation Accelerators' including 3D printing, cognitive systems, AR & VR robotics, and IoT all gaining attention, with evolving use cases and some initial deployments in the region.

Smart city projects are showing increased maturity, although with greater focus on projects that can deliver quick wins, rather than wide-scale strategies, Rajan said. Public-private partnerships are also becoming a focus for government in the region, although the current scope for these may be limited, particularly if the private sector do not see a clear return on investment.

"As the government spending gets constrained, they are looking to partnerships with private sector organisations, with vendors, service providers to execute these [transformation] projects. they are trying to form these value networks, these micro-ecosystems that can deliver on these transformation projects," he explained.

"We are seeing a lot of interest and activity in this space, especially in Saudi Arabia, where a large part of the National Transformation Plan is focused on getting the private sector involved. From a vendor or service provider perspective, there is some apprehension, as to where is the ROI from this, there is going to be some push back as well from the vendor community, but you are going to see a lot more from governments to engage the private sector in these partnerships for these projects.

"The government [in Saudi Arabia] seem to be trying to withdraw from many of the activities and allow the private sector to come in, but the private sector itself is not strong enough, it doesn't have the capabilities. Over the next 12 months we will probably see how that plays out in Saudi."

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