In tandem with the increasing diversification of the economy of Abu Dhabi, the information and communications technology (ICT) industry has come to take on a much more prominent role. Abu Dhabi is already home to a much broader range of businesses than was the case even five years ago, which is leading to a broader range of opportunities in ICT. This is resulting in private expenditure accounting for a growing proportion of total ICT spending. At the same time, the trend towards outsourcing in both the private sector and among government entities is gathering pace. Telecoms firms in the UAE continue to invest in the country’s physical infrastructure, which ranks among the world’s most advanced, while the public continues to show a growing appetite for data services, which are driving the telecoms market as margins on voice services tumble.
RANKINGS & NUMBERS: According to a 2008 study by the World Economic Forum (WEF), the UAE was ranked first in the Middle East and 29th in the world in terms of ICT development, while the WEF’s 2012 Network Readiness Index placed the UAE in 30th place globally. In the Middle East, only Bahrain and Qatar ranked higher in 2012. This, in turn, is testament to the quality of the UAE’s telecoms infrastructure, and the degree to which this contributes to its competitiveness. The country has one of the highest mobile penetration rates in the world – 199% in 2011 according to the Telecoms Regulatory Authority (TRA), the federal entity charged with oversight of the sector. The TRA’s remit specifically charges it with maintaining an environment into which the UAE’s ICT industry can emerge as a global leader.
INDUSTRY BODIES: The Abu Dhabi Systems and Information Centre (ADSIC) is an independent government department which acts as a platform from which other government departments can provide their services electronically to the public. In addition, it is responsible for drawing up guidelines for the implementation of e-government policies.
The ICT Development Fund, a federal body, was set up in 2005. The organisation receives funds from a 1% levy on telecoms licence holders in order to finance projects aimed at fostering research and development, and facilitating education and capacity building within the ICT industry.
CONNECTIVITY: In April 2011 Abu Dhabi became the first capital city in the world to be completely linked by fibre-to-the-home connections, whereby every individual building has its own fibre-optic cable, an unusually dense level of connectivity. In the same month, the quality of Abu Dhabi’s physical infrastructure was boosted further with the launch of its own communications satellite. Al Yah Satellite Communications Company (Yahsat), a subsidiary of the government-owned investment company Mubadala, launched its first satellite, Y1A, in 2011, using Europe’s Ariane launcher, followed by its second satellite, Y1B, launched from Kazakhstan using a Russian-American Proton Breez M launcher in April 2012.
The satellites were built in Europe in partnership with a consortium consisting of EADS Astrium and Thales Alenia. Though some communications bands on the satellites are reserved for the use of the UAE government, both feature a commercial component servicing the Middle East, Africa and Asia.
DIRECT-TO-HOME HOTSPOT: Yahsat’s C-band is a telecommunications-grade band that is capable of carrying IP backhauling and GSM backhauling, while the company’s Ku-band is run as a joint venture with SES Astra, a Luxembourg-based satellite solutions provider. The Ku-band transponders have enabled Yahsat to launch the first direct-to-home (DTH) hotspot in the region that is dedicated to high-definition content delivery. Already, Yahsat carries a number of broadcasters in high-definition quality. Yahsat’s Yahclick product, which delivers broadband internet to home and enterprise customers, uses a narrow satellite beam in Ka-Band, which makes for a more focused, better defined signal. This in turn requires smaller, lighter receivers, which are lower in cost and easier to install. Multi-spot beam technology also allows for frequency re-use, resulting in 10 times more capacity at the same price as previous generations of satellites and allowing for DSL-like prices to end consumers. The firm believes there is plenty of untapped demand to roll out broadband services at affordable prices, especially among small and medium-sized enterprises (SMEs) and consumers in markets across the Middle East, Africa and Asia.
DEMAND DRIVERS: According to a 2011 report by Markaz, the Kuwait Financial Centre, ICT spending in the GCC in 2011-15 is expected to total $318bn, or some $64bn a year. Of this, Saudi Arabia is expected to account for around half, with the UAE in second place, followed by Qatar. According to Markaz, ICT spending in the UAE grew at a compound annual growth rate of almost 19% in 2003-10. The company expected the rate of growth to moderate, in line with declining average revenue per user levels across the region and the growing maturity of the market, although the volume of investment is forecast to remain high and to increase in absolute terms.
As in many other Gulf ICT markets, spending by the government or government-affiliated companies such as state oil firm Abu Dhabi National Oil Company continues to dominate the sector, although the telecoms and financial services industries are also big spenders. While in the short term this is unlikely to change markedly, ICT use by the non-oil and private sectors has been growing rapidly in recent years.
Given ICT’s relatively greater exposure to contracting and the generally rapid pace of change in the industry worldwide, the sector is poised to make the transition to being driven by private expenditure earlier than many other sectors of the economy. In terms of segmentation, the level of demand for security solutions continues to be high, among both government and private sector clients. Meanwhile, state expenditure on implementing e-government programmes is continuing and more ICT is being introduced into the emirate’s school system, with the Abu Dhabi Education Council announcing in June 2012 a Dh330m ($89.8m) project to network some 268 public schools across the emirate (see analysis).
OUTSOURCING: Given the relative maturity of the market, outsourcing remains comparatively underdeveloped, but it is slowly being embraced by the industry. This is partly due to an unfamiliarity with the nature of the business, with many managers wary that outsourcing will lead to job losses among nationals. Nevertheless, the development of a local outsourcing industry in the form of players like Injazat, a joint venture between Mubadala and Hewlett-Packard, is starting to change attitudes.
While government clients may have other considerations, such as promoting Emiratisation, private clients tend to be interested in outsourcing as a way of achieving greater cost-control. Among other sectors, financial services has started to show great interest in cloud-based solutions over the past couple of years, and this area has seen strong growth.
DATA CENTRE: Injazat was founded in 2005 and operates the only Tier 4 data centre in the Middle East. Data centres house the essential computer systems for a business, as well as backup power and climate control systems. Injazat hosts more than 9000 servers, and has various managed services, including enterprise, storage and backup, security and network services. The centre itself benefits from an integrated building management system to monitor the various climatic, power and access systems.
While the public sector still accounts for a significant proportion of Injazat’s business, the company has slowly been attracting clients from across the Gulf region, in part by developing tailored solutions for industrial clients and for the financial services industry. Although linked with Hewlett-Packard, Injazat has the freedom to partner with a variety of clients to provide solutions, which is another factor that is giving the company a commercial edge.
E-GOVERNMENT: Although a great deal of progress has been made in recent years, there is still plenty of room to streamline procedures when it comes to delivering public services. As such, Abu Dhabi is continuing to invest in its e-government programme, which has been running since 2008, to reduce the cost of delivering services, to do so more efficiently and to increase transparency (see analysis). ADSIC acts as a platform onto which other government departments can load their own systems, and in addition it operates an e-portal for accessing public services, as well as a contact centre for those who prefer to deal with the authorities over the phone.
In an attempt to bridge the digital divide between older, less tech-savvy citizens, and younger, more aware ones, ADSIC also runs introductory courses across the emirate for people unfamiliar with computers, showing them how to operate and get the most out of them. Rashed Al Mansoori, the director-general of ADSIC, told OBG, “It is crucial to work in collaboration with the private sector while implementing government IT services. Public-private partnerships help enhance efficiencies and grow the capabilities of both sectors simultaneously.”
COMPETITION: The ICT market in the UAE continues to be dominated by a few large companies, with relatively few small players involved, and not many purely local firms. One exception to this is SecureTech, an Abu Dhabi security solutions company founded in 2001. The company has more than 200 staff, its own data centre, and serves clients in the public sector, banks and telecommunications providers.
One positive feature of this market structure is that no one platform or system predominates, and work is generally spread around fairly evenly, which leads to greater competition and reduced costs. As well as Hewlett-Packard and Injazat, other big software providers in the UAE include Oracle, Cisco and Juniper. “The government is very progressive when it comes to IT implementation and this is reflected in its budgets and policy,” Abdulla Al Neaimi, the CEO of SecureTech, told OBG. “There is very high awareness and a desire to embrace cutting edge technology.”
According to a 2011 survey by the TRA, 55% of businesses surveyed were running an internet connection with a speed of less than 2 MB per second. Some 73% of those surveyed expressed satisfaction with the speed of local connections but only 44% were satisfied with the price. However, 93% of businesses had an internet connection of some sort, and 93% said it was important to their business.
START-UPS: In the UAE, and indeed the Gulf region as a whole, SMEs remain relatively underdeveloped and often suffer from a lack of funding and expertise or advice. Currently there is very little purely local software production and no local hardware production. Although Arabic-speakers account for around 5% of the world population, less than 1% of the internet is in Arabic and there is relatively little local content produced, especially in Arabic.
According to Tareq Abdul Raheem Al Hosani, the CEO of Yahsat, “Developing Arabic-language content is key to increasing internet penetration throughout the region. Internet consumption is higher in regions that use English as the primary language so this illustrates the importance of language-specific content.” The authorities in Abu Dhabi are keen to remedy this, and the emirate has set up a dedicated media zone, branded as twofour54, to help attract companies producing Arabic-language content across a variety of online and traditional media. It has an incubation unit that is dedicated to supporting entrepreneurship in the creative industries, and has funded Apps Arabia, which aims to set up an indigenous Arabic applications business.
BANKING BARRIER: One barrier to the development of a start-up ecosystem has been the generally conservative nature of the banking system in the UAE. While this can be credited with helping the country avoid a serious recession, one unfortunate side effect of the global credit crunch has been to keep lending to start-up businesses to a trickle. However, there has been a general shift away from balance sheet funding towards looking at cash flow, and this has been helpful to ICT firms whose funding model is generally based around the latter.
The local venture capital industry remains in its infancy, but there are a number of funds in the region, such as Abraaj Capital’s Riyada, a $650m fund to invest in SMEs; N2V, a subsidiary of Saudi Arabia’s National Technology Group, which focuses mainly on digital entrepreneurship and Arabic-language content; and the STC Fund, which is a partnership between Saudi Telecom Company and Iris Capital to support SMEs in the telecommunications and ICT sectors. In Abu Dhabi, there is also the Khalifa Fund, an initiative to assist young entrepreneurs. Moreover, the past few years have seen a small but significant number of young Saudi and Levantine entrepreneurs choosing the UAE as a place from which to grow start-ups, drawn by excellent infrastructure, connectivity and a liberal business environment.
HARDWARE: In 2007 Advanced Technology Investment Company (ATIC), a subsidiary of the government-owned investor Mubadala, bought a 65.8% stake in Global Foundries, a leading silicon chip manufacturer. It raised its stake to 86% in 2010 and Global Foundries embarked on a $5.4bn expansion in 2011. The firm was due to build a wafer fabrication plant in Abu Dhabi in 2012. However, in late 2011 it announced that the project had been postponed, citing uncertainty in the global economy. Despite this delay, the linkages between Global Foundries and other Mubadala entities offer the opportunity for significant knowledge transfer into the emirate.
INTELLECTUAL PROPERTY PROTECTION: A further challenge to the growth of the ICT industry in Abu Dhabi is the concern over intellectual property protection. While governments across the region have taken steps to crack down on infringements in recent years, particularly pirated music and DVDs, targeting pirated software has proved more challenging, with file sharing and torrent sites as popular in the UAE as they are in the developed world.
However, ADSIC now certifies all software that is used in government departments. Moreover, there is a higher level of public awareness of the dangers of malware and a lack of internet security generally, and this is slowly beginning to engender a greater level of suspicion towards pirate software among the public. In 2009 Injazat signed an agreement with the federal government to develop the UAE Computer Emergency Response Team, a national computer forensics and information security centre, while the federation has had legislation in place since 2006 to help prevent cyber-crime.
WORKFORCE SKILLS: As with many other fields, the shortfall in nationals equipped with adequate skills to work in the sector is an issue, and it will be some time before the reliance on expatriate labour can be reduced. Nonetheless, as per its economic diversification strategy, Economic Vision 2030, Abu Dhabi aims to position itself as a regional ICT centre, and to this end has been investing in ICT training and education for nationals at both the school and college levels. In 2010 ATIC and Abu Dhabi Education Council launched a semiconductor research and development strategy, which draws on the experience of knowledge economies such as Singapore and Ireland to develop a network of research institutes in the emirate linked to both the educational system and with the industry more broadly.
OUTLOOK: Given the continued uncertainty that exists in developed economies, most multinational ICT firms see their main source of growth over the next few years as lying in emerging markets, which have experienced much faster growth over the past five years. Abu Dhabi is no exception. As a place with good international connections, sound physical and communications infrastructure, and a large pool of financial and human capital, Abu Dhabi is increasingly seen as a good base for ICT firms looking to establish themselves in the region.
Moreover, with large development projects in transport, manufacturing and tourism rapidly diversifying the emirate’s economy, Abu Dhabi is a fastgrowing and increasingly significant ICT market in its own right. While government-affiliated entities look well positioned to continue to dominate the market over the short term, the rate of growth that is being seen in the non-oil sector means that private clients are likely to play an increasingly important role.
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