All in place: Quality infrastructure and an accommodating business environment support sector growth amidst broader market changes

Many of Dubai’s aspirations to develop further as a knowledge-based economy hinge on building core infrastructure to support businesses and the growing economy. Information and communications technology (ICT) is central to this strategy, particularly as the emirate is focused on leveraging its tourism, finance, media, and transport and logistics industries.

The value of investments into ICT is clear as the UAE is consistently ranked as the best GCC country for businesses in the International Finance Corporation’s “Doing Business” reports, and strong physical infrastructure is an essential component of this.

In addition to enabling the success of other industries, ICT is also itself a significant component of overall GDP. Telecoms alone contributed 4.9% of the UAE’s GDP in 2011, according to the Telecommunications Regulatory Authority (TRA), the sector regulator.

ROAD TO SUCCESS: The government has played a vital role in the success of the ICT sector, creating a competitive business environment to attract multinational firms and directly financing critical components of the physical infrastructure, including the ongoing deployment of high-speed fibre and mobile broadband networks. The country’s free zones are central to this strategy and already serve as a regional base for a number of global players, including Microsoft, Google, Dell and Facebook. Smaller local firms are also thriving and will continue to benefit from government initiatives for small and medium-sized enterprises (SMEs).

As with many GCC countries, however, the number of qualified ICT professionals has not been able to keep pace with demand. Education initiatives to support development in the sector could help bridge this gap.

A REGIONAL HUB: Dubai has established itself as a hub for the ICT industry in MENA, with global ICT companies, including Microsoft, Facebook, Oracle, HP, IBM and Dell, having established regional offices in Dubai. In addition to investing in the country, these firms play an important role in transferring technology and knowledge. Microsoft Technology Centres, for example, host workshops to train local firms and develop custom ICT solutions. The World Economic Forum (WEF) has confirmed the size of these knowledge flows, ranking the UAE as 10th in the world for foreign direct investment and technology transfer in its 2011-12 “Global Competitiveness Report”.

Dubai is the second-biggest emirate in terms of contribution to the UAE’s GDP and plays an important role in the broader UAE IT market. The WEF ranks the UAE among the top 25 countries for the availability of the latest technology and notes that it leads the Arab world in leveraging IT to support growth. The same report highlights the impact of these investments on the economy, ranking the UAE 33rd on the economic and social impact of ICT investments. The country is unsurpassed globally in mobile network coverage and ranked third out of all the Arab states in the 2012 Networked Readiness Index study.

FINANCING: IT spending in the UAE totalled Dh21.6bn ($5.88bn) in 2011, according to the International Data Corporation (IDC). This represented almost 10% growth over the previous year and reflects broader regional trends in the sector. Global technology research company Gartner estimates that enterprise IT spending across the Middle East and Africa will be in the range of $88bn in 2012, up by over 6% from $83bn in 2011. The home sector in the UAE recorded the biggest share of this, accounting for 33% of IT expenditure. Consumer spending on computers and smartphones was one of the major drivers behind this trend. Smartphone penetration is growing rapidly, exceeding 47% of the population, according to Informa Telecoms & Media. The provider of events, training and research in the media and telecoms sectors forecasts that this market will continue to grow, predicting a penetration rate of over 70% by the end of 2016.

Banks are another major spender on IT in the UAE. According to local news reports, they are investing an estimated Dh4.4bn ($1.2bn) annually on ICT and other financial technologies and services. Electronic banking services, including online and mobile facilities, are increasingly popular in the country. Only 15 out of 40 banks offered online services in 2007, according to ITP, a leading technology website in the Middle East. Now virtually every bank in the country has a strong presence online.

Finally, government spending on infrastructure, including transport and communications, has been a major driver for investments throughout the sector. The UAE’s two telecoms companies, for example, have invested heavily in building a modern fibre-to-the-home network and have rolled out a 4G long-term evolution (LTE) network that will help revolutionise mobile broadband in the country. IDC forecasts that IT expenditure will continue to grow rapidly, estimating that the sector will maintain a compound annual growth rate of over 11% until 2016. Digital storage solutions, computing hardware and IT services will likely underpin this growth going forward.

DRIVING INNOVATION: Dubai’s free zones are at the core of the government’s strategy to drive innovation and attract investment into the emirate. Dubai Internet City (DIC) Free Zone, for example, was established in 2000 to serve as a regional hub for business and technology. It has since grown into one of the largest IT free zones in the Gulf, hosting a number of global and regional firms and over 25,000 workers. DIC’s proximity to other related free zones such as Dubai Media City enables companies to collaborate across sectors. Like the emirate’s other free zones, DIC offers businesses the opportunity to invest in Dubai with 100% ownership and no income tax. DIC is an important player in developing the local economy because it has helped create a permanent base for technology firms that have a vested interest in the UAE’s growth. This is particularly important because the UAE relies heavily on imported labour and typically companies award contracts for projects to foreign firms that may not invest profits back into the local economy.

Dubai Silicon Oasis Authority (DSOA) is another free zone that is focused on becoming a leading centre of advanced electronic innovation, design and development. The DSOA is a Dh14bn ($3.81bn) project with the vision of “developing and training of the local talent within the domain of advanced technology manufacturing”. It is one of the few business parks in the region that is self-contained, providing business as well residential space for its clients.

PROMOTING ENTREPRENEURSHIP: While DIC’s model is focused on helping firms achieve commercial success by providing core logistical support, the free zone is gradually also engaging in initiatives to encourage entrepreneurship and start-ups. In 2011 it launched the Majid bin Mohammed Innovation Centre in5, which will serve as a start-up incubator that aims to foster entrepreneurships and drive innovation. The centre will be headed by Etisalat’s CEO and will provide seed funding, coaching, mentorship, training, networking opportunities and logistical support.

The ICT Fund is another new government-backed venture dedicated to advancing the sector. The fund will seek to support research and development (R&D) projects within the UAE, and support education and training in the sector. The government announced it would spend Dh80m ($21.78m) in 2012 on education and start-up funding for the local ICT sector.

The fund has five core areas that it seeks to invest in: incubators, to help develop new ideas and provide early stage support; R&D projects, to help teams conduct basic and applied research; R&D institutions, to assist in the creation of high-quality research organisations in the UAE; scholarships, to support the education of motivated and capable individuals in ICT; and educational institutions, to improve the quality of training facilities to develop future talent.

DSOA also runs an incubator centre to help develop businesses in the field through support resources and services. Another arm of the business park – DSO Technology & Investment – has a team that serves as the strategic investment arm for DSOA with the goal of investing in business opportunities.

COMPETITION: DIC faces competition from similar business parks in both the UAE and the wider GCC region. Qatar Science and Technology Park (QSTP), for example, is a business park located in Doha that works closely with neighbouring Education City, bringing industry and academics together in an innovative environment. Members at QSTP include Microsoft, which also has a presence in Dubai. In addition to closer links with education centres that can support R&D, QSTP offers firms funding and support for ICT development. DIC, on the other hand, is located in a more established city with a strong education sector and support for families seeking to work in the region.

SMES: A recent study released by du estimated that 98.5% of the UAE’s businesses are SMEs. The study found that SMEs contribute a significant proportion of GDP and are one of the main employers in the local and global economy. SMEs depend heavily on the ICT sector to drive down the cost of doing business. Du report estimated that companies in the UAE spend almost Dh10bn ($2.72bn) on ICT needs. SMEs account for roughly 50% of this figure.

In March 2012 John Lincoln, the vice-president of marketing at du, told delegates at an ICT seminar in Dubai, “Investments in ICT are of paramount importance to increase an SME’s productivity. A minimal 10% increase in an SME’s productivity can sometimes determine whether the business remains competitive and sustainable.” Lincoln added that choosing the right solution or provider can have significant consequences for an SME, particularly given their limited financial and human resources. “As most SMEs do not have the necessary in-house ICT expertise to undertake related projects on their own, it is imperative that an SME selects an ICT partner that is reliable, knowledgeable and offers the best value for money.”

GROWTH PROSPECTS: The UAE’s investments in infrastructure and in developing a highly competitive business environment have helped position the country to leverage emerging trends in the ICT sector. Industry leaders point to several key developments that will define growth in the UAE’s ICT market.

According to Bhairav Trivedi, CEO of payment solutions provider Network International, mobile technology is the next medium-term development in the area of payment solutions. Trivedi pointed to, in particular, the introduction and utilisation of “hand-held credit card swiping units, which have done very well in other markets. However, companies must be cautious in their approach and diversify their investments instead of just betting on one horse.”

Samer Abu-Ltaif, Microsoft’s regional general manager for the Gulf, identified the proliferation of internet-enabled devices, cloud computing and data management services as the key drivers for growth going forward. The UAE now has one of the highest mobile penetration rates in the world, and smartphones and tablet computers are also growing in popularity. Despite the proliferation of hardware, however, there is still a lack of content that is tailored to the local market and to these devices. Media agencies, for example, use websites simply as a digital copy of their paper products and do not always have a dedicated web-strategy. Abu-Ltaif described this as “the consumerisation of information technology” and said it would be a key trend in 2013. “The proliferation of devices in the hands of consumers and the increased interest of businesses across all sectors of more integration of these devices will not only create demand for the devices themselves, but also increase demand for content that can be consumed through these devices.”

The shift towards cloud computing is another global trend in the ICT industry that would benefit from the UAE’s high-speed fibre and mobile networks. Related to this is the need for businesses to store and manage tremendous amounts of data. The rise of smartphones combined with the level of engagement on social networks is resulting in millions of users creating photos and videos and sharing this content digitally. Enterprises are also increasingly adapting to mobile employee structures, and are implementing cloud solutions to manage software and data. According to IDC’s annual “Digital Universe” study, the amount of data created and stored worldwide will increase exponentially over the next decade, growing from 1.8 zettabytes of data in 2011 to an estimated 90 zettabytes in 2020. (1 zettabyte is equivalent to 1bn terabytes or 10 21 bytes.) HUMAN RESOURCES: In contrast, EMC, a leading provider of hardware storage solutions, estimates that the number of IT staff needed to manage the proliferation of this data will grow by less than 1.5 times. This problem is accentuated in Dubai, which depends on attracting an expatriate labour force. Dubai International Academic City, Dubai Knowledge Village and related free zones, including the Dubai Silicone Oasis are working towards filling these gaps. DSOA, for example, partnered with the Rochester Institute of Technology to set up a campus in Dubai to ensure the ICT community has an adequate talent pool.

HARDWARE: Dubai plays a vital role in the regional computer and computer accessories industry, accounting for 54% of consumer electronics spending in 2010, according to Dubai Chamber. In addition to feeding the domestic market, the emirate is increasingly serving as a major conduit for re-exports into the Middle East, Asia and Africa, with Dubai Chamber highlighting Central Asia and Africa in particular as the major destination for re-exports. Dubai’s business-friendly environment is a major driver behind this trend. Computers can be up to 15% cheaper in Dubai due to low import duties and no value-added tax.

The computer market is a key segment of trade in the UAE. Computer and computer hardware sales alone topped $4bn, according to data from Dubai Chamber. This is projected to grow to almost $5.4bn in 2015. The hardware retail business has changed considerably over the past decade. Not too long ago small retail shops sold everything from routers to monitors. Major retail players are now starting to dominate sales. This shift will inevitably lead to consolidation among the smaller players. There is also a market for specialised equipment that retailers cannot supply.

Dubai Chamber set up the Dubai Computer Group (DCG) in 2007 to represent the interests of the computer industry. This has the goal of “bridging the gap between hardware and software manufacturers and dealers, uniting them, helping forge new trade alliances forming an invaluable network in the industry”. DCG currently has more than 200 member companies.

PUBLIC SERVICES: The government of Dubai has ambitious plans to leverage ICT across a variety of public services, including health, education, security and logistics. The UAE, as part of an initiative led by Dubai’s Department of eGovernment, provides a range of e-services through its online portal for individuals, businesses and visitors, including some especially robust e-services for roads and transport. The WEF ranked the country as one of the top five in terms of using ICT to improve efficiency. The rankings also highlighted the importance of ICT to the state’s vision and the priority the national strategy places on the sector.

The Dubai Health Authority, for example, is leading efforts to improve the use of ICT in health care. The authority’s e-health initiative will aid the standardisation of health data collected by hospitals, clinics and physicians, and will help drive the strategy of adopting digital records in the long run. A longer-term plan involves developing a comprehensive health information network that will enable hospitals, clinics, insurance companies and others to provide patients with a seamless delivery of health care services.

Education is another sector poised to engage more with ICT. The UAE has plans to develop an e-learning platform. The initiative, called the e-learning gateway, launched in 2010 with an aim to transform learning into an interactive internet-based process. ICT is also playing a key role in Dubai’s security and transport sectors. The emirate recently launched a Dh500m ($136.1m) programme to install advanced security cameras to help control crime and monitor traffic.

OUTLOOK: Dubai is very well placed to capitalise on the emerging trends in the ICT sector to drive economic growth. The UAE has already established its credentials in the sector and proven able to leverage IT for economic growth. Dubai’s investments across the board have helped make it one of the most business-friendly cities in the world. The entire spectrum of services, from its airport to its free zones and immigration policies, forms a value proposition that affords Dubai a truly competitive advantage.

The future success of the UAE’s ICT sector will likely depend primarily on its ability to navigate broader international trends in the market. Leveraging its high-capacity ICT infrastructure by developing content for consumers, as well as catering to the shift towards new areas like cloud computing and data management will be critical elements of this growth strategy.