Saudi Arabia: Picking up the pace

Saudi Arabia is looking to further open up its IT sector as part of a broader strategy to develop a knowledge-based society and economy. However, the rapid inroads being made by new technologies may require the state to step up investment in digital infrastructure and hasten its regulatory processes.

In mid-January, Abdul Rahman Al Jaafari, governor of the Telecommunications and IT Commission (CITC) – Saudi Arabia’s IT and telecoms sector regulatory agency – unveiled plans for a major upgrade of broadband services across the Kingdom. If the government adopted the proposal being put forward by CITC and included it in the development programme for 2013-15, at least 95% of internet users would be able to access a broadband connection with a minimum speed of 1 MBps by the end of the period, Al Jaafari said on January 12.

The CITC is not only pushing for Saudi Arabia’s IT sector to move faster, it also wants to see higher levels of local content, with Al Jaafari saying that the agency was seeking ways to encourage domestic firms to take advantage of innovations in the digital economy.

“We are now in the process of conducting a study on developing the Kingdom’s telecom and IT sector. We plan to depend more on local products than imports,” he said.

Even without the efforts of the CITC and other state agencies, official figures suggest that Saudi Arabia’s IT sector is booming. According to the latest data issued by the Ministry of Communications and IT, broadband subscription levels rose from just under 65,000 in 2005 to more than 3.2m at the end of September 2010. Most of this growth has come in wireless broadband connections, which topped the 1.9m mark as of the close of the third quarter 2010. Digital links made up the remaining 43%.

This surge in broadband connections mirrors a wave of new internet subscriptions, with ministry figures showing a total of 11.2m users at the end of the third quarter, with this representing a compound annual growth rate of 33% from the 1m users recorded in 2001.

Though there has been phenomenal growth in IT take-up in Saudi Arabia, there is still room for expansion, with internet penetration at 41% of the population and broadband penetration at 12.2%. An estimated one-third of Saudi households have a broadband connection.

While this strengthening demand for broadband and internet connections is good news for service providers, it is also an opportunity for local and international technology firms. Spending on computers accounts for around 46% of all outlays on consumer electronics, with sales of hardware set to hit $1.9bn this year and continue to expand by around 5% annually, according to a recent report by Business Monitor International.

With mobile phone handsets, increasingly used for internet connectivity, representing a further 22% of total sales, and with penetrations rates tipped to break the 200% barrier before 2015, there is strong potential for growth in the domestic market.

“There has been a high demand for IT products and services predominantly by the young and tech-savvy Saudi population,” Mohammed Al Hussaini, the deputy manager of the Riyadh Exhibition Centre (REC), said in an interview with the Saudi Gazette on January 24.

“The commissioning of a number of major IT projects in both the public and private sectors and the unhampered growth in the national economy are factors contributing to the confidence in the Saudi IT market and investment opportunities,” he said.

Proof of this growing demand was seen in the increasing numbers of visitors to trade fairs such as GITEX Saudi Arabia, the annual IT and communications exhibition staged by Riyadh Exhibitions Company, said Al Hussaini. Last year’s event saw more than 100,000 people come through the doors over the course of the four-day expo.

Among the few possible speed bumps on Saudi Arabia’s IT highway is the potential for regulations or infrastructure provision to lag behind developments. This is particularly the case in a sector such as IT where standards and technologies can change at an especially rapid pace.

The consensus is that if recommendations by agencies such as the CITC or the Ministry Communications and IT are accepted, however, the demands of private consumers, business and the state should continue to be met, paving the way for continuing strong growth in the sector.