While commonly bundled together as one market – EMEA – apart from geographic proximity and historic investment, does the European region have similar requirements for IT which would give it an advantage when selling into the Middle East.
While its economies have been largely tied to the price of oil, the region has grown faster than the global average; a study by IDATE Digiworld puts its growth rate in 2015 at over 8%, though its overall size is under €200bn – a quarter of Europe's. And it is showing signs of increasing maturity - the researcher finds that its growth was less in infrastructure and basic services and more about access and applications.
The attraction of the region for European IT companies has been acknowledged as have the issues and need for local commitment. Several large expansion-minded distributors have said they are looking to grow into the Middle East, including Rigby Private Equity with its Wick Hill and Zycko divisions, and Exclusive Networks.
The key sectors where IT investment can be expected to be higher than average are healthcare, security, mobile devices and services, plus a government spending on IT which is tied to oil prices.
The diverse nature of the Middle East IT market could be an advantage to European IT firms used to working in single small markets – for example, in telecoms there are big national players such as Saudi Arabia's STC, UAE's Etisalat as well as a raft of smaller firms; consolidation is forecasts as a continuing feature of this market. With much of the world seeing a slowing or decline in telecoms services, the region represents one of the few growth areas for this sector, with mobile driving both device sales and connections. Partly this is driven by the age-profile – some 70% of the population is thought to be aged under 35.
As evidence for this, mobile use in particular is driving local short form TV and video consumption. The ongoing rise of smartphone penetration has led to the Middle East region becoming the first in the world to consume the majority of the format on mobile devices. This is shown in one survey, which shows a majority (59%) of YouTube traffic in the Middle East & Africa region was via mobile, one of the highest rates in the world. For instance, in Saudi Arabia, half of short-form YouTube content is accessed via a mobile device. Similarly, in the UAE, 40% is consumed on mobile devices.
The existing need for high quality infrastructure to support video will also boost Internet of Things (IoT) where Deloitte predicts the region will have faster IoT spending than the rest of the world – up at about a 20%-30% rate for the next few years. This will have an impact in turn on the infrastructure requirements and investment.
To put this into context, the Middle East and Africa reportedly generated over 30 Exabytes (30 billion Gigabytes) of cloud data traffic in 2013. With the rising usage of IoT, this is reportedly expected to increase by as much as eight times to over 260 Exabytes (260 billion Gigabytes) in 2018, generating the highest cloud data traffic growth in the world. With IoT fuelling such high growth in data creation and cloud traffic, it is undoubtedly seen as potentially the biggest revenue driver for telecoms companies in the future. Regional telecoms operators have recognized this. For example, Etisalat has been very proactive in this space, leading regional developments (e.g. international M2M R&D partnerships, establishment of an M2M Control Centre providing IoT services such as device management). Over the past couple of years, operators across the region have also taken important steps to enter and take advantage of the IoT opportunity.
In UAE, Etisalat partnered with Huawei to commercially launch new IoT connected services in the region, focused on government and enterprise markets. Similarly, Etisalat have also partnered with Telefonica to collaborate on strategic areas such as technological standardization, new global technology initiatives, R&D, and new IoT products and services. In Qatar, Vodafone Qatar partnered with IoT device vendor NetComm Wireless to bolster the country’s IoT infrastructure. The strategic partnership also enables Vodafone Qatar to access a wider portfolio of IoT devices and provide complete end-to-end solutions to its customers. Ooredoo has also partnered with Ericsson to launch a cloud-based IoT platform in Qatar, Algeria and Tunisia. In Saudi Arabia, STC and Cisco have expanded their long-term strategic partnership to create a joint go-to-market strategy, addressing the country’s IoT market, with a focus on key verticals including energy, oil & gas, smart & connected city deployments.
With mobile apparently to key to this market, the local suppliers and telcos should be in a strong position, but low local investment means an opportunity for apps-driven business and services. Europe's with its experience of local customisation and adherence to various standards on a country-by country basis should be in a strong position to expand into this adjacent market.