Programing potential: Rising penetration levels spur new focus on the sector

With a stable business climate, low operating costs and a highly skilled population, Jordan is emerging as a regional centre for information and communications technology (ICT). Driven by new technologies, rapidly rising domestic internet penetration is also boosting the industry, which is playing and increasingly important role in the economy, accounting for some 14% of GDP, according to the Information and Communications Technology Association of Jordan (Int@j), which represents 220 member companies in the sector.

PERFORMANCE: Total IT and IT-enabled services (ITES) sector revenue was $736m in Jordan in 2010, according to Int@j. The figure was down on the two previous years, having peaked at $962m in 2008. The contraction played a part in direct sector employment, dropping to 9858 people in 2010, down from 11,334 in 2009. One of the main factors behind this dip was reduced government spending on IT due to the economic downturn and tight fiscal situation. “In the last few years annual public spending on ICT has dropped from $150m-$200m to around $20m,” Abdelmajeed Shamlawi, the CEO of Int@j, told OBG. Nevertheless, the 2010 revenues were up more than tenfold from the $60m of 2000, illustrating the rapid growth the sector has experienced in recent years.

The wholesale of computers, computer peripheral equipment, software and software licences was the largest segment by revenue within the IT and ITES sector in 2010, accounting for $244m in sales, or 33% of total sector revenues, according to Int@j. This was followed by the installation of communications equipment, at 13%, and computer programming activities, worth 11%, or $81.6m. Computer consultancy and computer facilities management generated $77.5m, while software publishing revenues amounted to $15.5m.

The IT manufacturing industry is limited in size; Int@j figures put revenues for the manufacturing of electronic components and boards at just $706,215 in 2010, though the revenue from manufacturing data communications equipment was more significant at $15.5m.

On the customer side, the largest buyer of IT and ITES services by sector was the wholesale and retail industry, accounting for 20% of sales; followed by telecoms, with 14.4% of purchases; and finance and insurance, with 13.9%. Beyond major corporates, smaller local firms are placing an increasing emphasis on software solutions. “The business community in Jordan is changing, and we are seeing a whole new generation of globally connected entrepreneurs who are more inclined to purchase ICT solutions,” said Shadi Khoury, the general manager of telecoms solutions provider ARTELCO.

INTERNET: Internet penetration is growing rapidly, driven by new technology. According to the Telecommunications Regulatory Commission (TRC), the number of online users stood at 3.14m in the last quarter of 2011. This gave a penetration rate of 50.5%, up from 38% in 2010 and 20% in 2007. Internet subscription penetration is also growing, primarily due to uptake in mobile broadband; penetration grew from 6% in 2010 to 10%, or 616,983 subscriptions, at the end of 2011.

More than half (50.6%) of subscriptions were for 3G services at the end of the year, followed by ADSL with 31.8% and WiMAX with 15.7%. In contrast to the rapid growth of 3G, ADSL subscriptions remained steady throughout the year, while WiMAX subscriptions fell from 110,686 in the first quarter of 2011 to 96,723 at the end of the year. The remainder are mostly dial-up, with a small number of leased-line and cable-TV packages.

Jordan Telecom continues to control the copper network and hence the bulk of the domestic ADSL market, with other companies largely limited to acting as resellers, although the TRC is working on a local-loop unbundling project that should bring more competition to the segment (see Telecoms overview). Nevertheless, there is competition in the domestic broadband market given that there are five WiMAX network operators. The service is widely available with Umniah, the first company to launch the service in Jordan, claiming that its network covers 80% of the population. The firm says it intends to continue to invest in the segment despite its planned entry into the 3G market in 2012. “3G is aimed at individual use, whereas our WiMAX offering is targeted at households and small and medium-sized enterprises,” said Omar Omoush, the director of marketing at Umniah.

SOCIAL NETWORKING: Roughly a third of Jordanians use social networking sites, according to a 2011 survey by the Pew Research Centre’s Global Attitudes Project. This figure is likely to have increased significantly since, given the rapid rise in the country’s internet penetration rate. As of April 2012, some 2.24m Jordanians used Facebook, according to Socialbakers, a social network analytics firm. While major international sites account for most traffic, Jordanian firms also run a number of up-and-coming social media sites aimed at the local and regional market such as d1g.com, a content-sharing site that claims 1m subscribers and almost 5m unique visitors a month, and Jeeran, which focuses on user-generated restaurant and café reviews and recommendations. Regional companies are also increasingly using social media in marketing, which has generated opportunities when it comes to the Jordanian business process outsourcing (BPO) segment.

“Companies in the region are increasingly realising the power of social media,” Ramez Kalis, the CEO of BPO firm CrysTelCall, told OBG. “Chat and social media are the key growth segments for the BPO sector.”

REGULATION: The Ministry of ICT (MoICT) is responsible for policy-making for the sector and the implementation of a number of major national ICT projects, such as the National Broadband Network (NBN) and e-government initiatives. The MoICT launched a bid to develop a new, five-year strategy for the ICT sector in April 2012 in partnership with the private sector. “We expect to have it ready by the third quarter of 2012,” said Nidal Qanadilo, the director of ICT investment at the MoICT. The 2007-2011 strategy had three main targets: to raise internet penetration to 50%, employment to 35,000 and revenues to $2bn by the end of 2011. The first was achieved but the others were not met with such great success given the global economic downturn that hit the year after the strategy began.

To encourage growth in the sector the authorities have created two ICT-focused business parks: King Hussein Business Park in Amman and Irbid Development Area in the northern city of Irbid. There are four universities in the town and the site is adjacent to the Jordan University for Science and Technology. Incentives for companies operating in the zones include an exemption from sales tax and a simplified registration process.

There are currently no major plans for changes to the regulatory framework for the sector itself. However, a public-private partnership (PPP) law now under discussion in parliament has the potential to drive significant growth in domestic revenues for the industry. “We are waiting in particular on the PPP law,” said Raed Hajarat, MEA and Jordan managing director at Oracle. “It will cover PPP projects in general, but the ICT sector is likely to benefit the most from it,” he told OBG.

The authorities hope that PPP will allow the government to undertake more IT initiatives despite fiscal constraints. “By allowing the government to undertake e-services through a revenue-share model, the law will increase potential for ICT spending,” said Qanadilo. Speaking to OBG in March, he said that the ministry is hoping the law will be passed before the end of the year. One major government ICT project for which this model is currently being considered is the national broadband network initiative, begun in 2003 but halted in 2008 due to the global economic downturn. In January 2012 the government announced its intention to resume work on the project, which the minister of ICT, Bassem Roussan, said would be completed within three years. The initiative involves laying fibre to link up state entities, including schools, hospitals and government ministries, to provide them with broadband internet. The project is currently around 35% complete, with about 1500 km of fibre laid.

E-COMMERCE: A key challenge for the growth of the IT sector is the development and spread of e-commerce and e-payment solutions, though this also represents an opportunity for some firms. “E-payment uptake has been slow among financial institutions in Jordan and in the region,” said Ramzi Zeine, the executive chairman of IT and e-payment solutions provider STS. “To succeed there needs to be an entire e-payment ecosystem in place, which is hard to develop given that online businesses need a large number of transactions to succeed and Jordan is a small market with a young population and low credit card penetration.” ICT firms also complain of difficulties and high costs associated with connecting to popular international ecommerce sites. “You can’t connect to Google Checkout in Jordan, which you need to do to be able to enter the Android market, so we had to register a company in the British Virgin Islands,” said Zaidoun Karadsheh, the managing director of web content and app developer Media Plus. However, a number of Jordanian firms are working on developing the segment and believe e-payment is set to become more popular. For example, start-up Madfoo3at.com is building a business-to-business e-payment network that will connect banks with billers for payments such as utility bills and school fees.

SOFTWARE, APPS & CONTENT: Software development is one of the most promising segments, with many entrepreneurs and start-ups active. The MoICT is working on promoting investment in the content development sub-sector in particular, having previously focused on the BPO market. “IT outsourcing and content and software development are the most promising niches currently,” Qanadilo told OBG. “We’re working in partnership with the private sector on building the ecosystem for the content industry in Jordan.” Games development is a key niche in the software and apps field. “Jordan is the centre for gaming development in the region,” said Ziad Al Masri, the chief marketing officer and partner at Maysalward, which develops games for mobile and web/social media. “We got going before other countries and have a significant head start,” he said, estimating that around 250 people work in the segment locally. The relative ease of marketing apps through apps stores enables firms to access the global marketplace, bypassing local trends. “Since we are now developing for the international market, we are not affected by the local downturn,” said Al Masri.

REGIONAL CENTRE: While domestic sales currently account for the bulk of sector revenues, the export potential for the software development segment points to wider opportunities beyond Jordan’s borders, and also offers a way out of the current downturn in the sector. “One of the main challenges at this time is the lack of government spending in ICT, which puts more pressure on companies to explore penetrating regional and international markets with large growth opportunities, such as Saudi Arabia” said Qanadilo. Exports accounted for 28% of sector revenues in 2010, with Saudi Arabia the most important export market for Jordanian IT services, with 33.8% of total sales abroad, followed by Iraq (13.5%) and the UAE (13.4%).

The country is well positioned to increase its exports to the region, and language skills are also a key factor. “The standard of English is quite high here and Jordanian firms can create sites in Arabic and English, which is very important in places such as Dubai,” said Karadsheh. Yahoo’s purchase of Jordan-based web portal Maktoob in 2009 raised the profile of Jordanian web companies in the region. “Jordan may never be able to compete with Mumbai, but it can compete with Middle Eastern countries. It is becoming a regional centre for software development,” OASIS 500’s vice-president of finance and chief coach, Monther Jubran, told OBG.

FOREIGN INTEREST: In addition to exports by homegrown firms, the kingdom is also attracting foreign companies, largely due to the availability of skilled labour. “Our decision to locate in Jordan was driven by a number of factors, including the country’s excellent and relatively inexpensive human resources,” said Alaa Ensheiwat, the CEO of SSS Process, a consulting and technology firm that started out in Saudi Arabia in 2003 but is now based in Amman. “Overall, the education system in Jordan seems responsive to the demands of the ICT labour market, and the country has a number of technology-focused universities.” Jordan’s regulatory regime and infrastructure are also supporting factors.

Encouraging companies to set up in Jordan is important, given that one of the main challenges facing the sector is brain drain, with employees often leaving after firms have invested significant sums in training them. “In terms of HR, the greatest challenge is not the quality of local workers, but the fact that they often leave for higher-paying jobs overseas,” Haitham Fanek, the managing director of Jordan Data Systems, told OBG. Companies are trying to find creative ways around the problem. “Part of our mitigation strategy has been to expand overseas and send people who want to leave Jordan to our offices there,” said Zeine. While local and foreign firms are increasingly developing content in Jordan, it is common for companies to base sales and marketing activities elsewhere, partly due to regulatory issues. “Many IT companies set up sales offices in other countries because of clearer laws on international sales, the greater ease of registering companies, and the fact that laws and taxes keep changing here,” said Al Masri. “A key challenge will be to improve the business environment so that companies keep the marketing and sales side of the business in Jordan; if not, the country risks losing some of the value chain.”

START-UPS: As is the case in other sectors, financing can be a challenge for Jordanian ICT firms and exporters in particular. “Central bank regulations forbid banks from financing projects abroad,” said Zeine. “That’s a big problem as IT firms generally aren’t highly capitalised and they need project financing, and there are no real alternatives to bank financing for the industry.”

However, financing is becoming less of an issue for ICT start-ups, thanks to the emergence of OASIS 500, an Amman-based early-stage and seed investment company focused on ICT and mobile and digital media in MENA that aims to invest in 500 start-ups within five years. The firm has a highly structured process to identify investment opportunities. Each month it takes applications from would-be ICT entrepreneurs for weeklong “boot camps”, at which around 60 successful applicants receive training in business and entrepreneurial skills before pitching their ideas. The company subsequently selects between five and eight projects in which to invest. Chosen projects receive JD10,000 ($14,050) from OASIS 500, which also provides them with a further JD12,000 ($16,860) in in-kind services from OASIS 500’s management and training arm as well as mentoring, in return for which OASIS 500 takes a 20% equity stake. The company also runs angel investor events 10 times a year to showcase the projects it has backed. Start-ups the firm has invested in include Madfoo3at, online sporting goods retailer Run-2-Sport, online cookery instruction videos producer Zaytoona, and Shawweet, a football-focused social media site.

OUTLOOK: Planned regulatory changes are set to boost the domestic market as the kingdom cements its reputation as a regional centre for content and software development. Factors such as the availability of financing for start-ups and the high calibre of human resources helped propel Amman into a list of the top 10 best cities to launch a tech start-up published in January 2012 by the founder of venture capital firm Finaventures, Rachid Sefraoui, auguring rapid development and spurring comparisons with global start-up centres. “With sufficient investment support, Jordan can become a type of Silicon Valley for the region,” Karadsheh told OBG.