UAE IT spending is forecast to contract in 2009. UAE spending on IT products and services is now projected to reach US$2.8bn in 2009, down 8% from last year, with the steepest decline expected in hardware sales. Government spending and investment should help to support the market, with further opportunities in sectors such as education, heathcare, utilities banking and telecoms. The UAE IT market has received a double hit from the current economic uncertainty, which has impacted on both domestic and export demand. UAE economic growth is projected to suffer a reverse in 2009 before picking up in 2010, and in H109 there were vendor reports of IT managers looking to cut costs, and delaying hardware updates. A number of other factors contributed to the slowdown, including the impact of a falling population on consumer spending, as numbers of expats returned home. Despite the global economic slowdown, the total size of the UAE's IT market is expected to grow at a compound annual growth rate (CAGR) of 10% to around US$4.1bn in 2013. A number of fundamental drivers, including local and federal government initiatives, significant population growth and development of non-oil sectors such as real estate and tourism, should help to prevent market stagnation.

Industry Developments

In September the Jordan-headquartered Arab Bank announced that it had relocated its Gulf and Yemen back-office operations to the Dubai Outsourcing Zone, with the operation estimated to employ 300 staff.The Dubai Outsourcing Zone initiative was expected to attract more outsourcing business to the UAE, with attractions including 100% exemption from taxes. In April 2009 the UAE Ministry of Education announced an AED79mn allocation for 2009 for an initiative to supply computers and internet to state schools. Concerns had been growing that state schools were lagging behind private schools in terms of utilisation of IT and internet. The government will collaborate in this initiative with Netgear. Another key area for federal IT spending will be healthcare. The Federal government's Wareed healthcare IT initiative aims to establish a completely integrated electronic platform linking 13 state run hospitals and their 67 affiliated clinics across the country. Starting from July 2009, two new hospitals are expected to be added to the system on a quarterly basis.

Competitive Landscape

Many leading PC vendors were optimistic about the prospects for notebook sales in H109. Despite the challenging trading conditions, HP said that it expected a slight increase in year-on-year (y-o-y) shipments in 2009 and planned to boost sales in H209 with new releases of notebooks at sub-US$1,000 price points. Acer has also refreshed its product portfolio with thinner, and lighter, models as it anticipated improved market conditions in the post back-to-school season. The growing popularity of netbooks saw Acer receive a boost in early 2009 when leading UAE telecoms company Etisalat launched an Acer netbook bundle to subscribers in the UAE. Meanwhile, Samsung recently claimed that its netbook range, launched last December, was enjoying great success in the Emirates. Samsung currently works with a number of major IT distributors in the UAE. Software vendors are focused on opportunities in the fast-expanding retail segment. In September 2009, SAP signed a deal to supply major retail group EMKE Group with its BusinessObjects solution. The software will allow EMKE to collate products data from its chain stores. Meanwhile, Microsoft won a contract from Aswaaq, the UAE's largest chain of supermarkets, to implement Microsoft's Dynamics Navision enterprise resource planning (ERP) solution.

Hardware

The UAE computer hardware market has been among the hardest hit in the region by the global recession. In 2009, the UAE computer hardware market is projected to have a value of US$1.5bn, representing a 12% contraction from 2008. As a major electronics re-export hub, the global financial crisis and economic slowdown have had an impact on the UAE's exports, while a decline in tourism has affected the carry trade. In H209, businesses are expected to maintain a cautious attitude to IT investments, but conditions should gradually improve later in the year. Stronger demand in the notebook sector is the main retail segment growth driver, and notebok shipments have been boosted by netbook sales, which could account for around 30% of category sales this year. In the challenging economic climate of 2009, desktops sales have been the main casualty of cutbacks in corporate spending.

Software

It is forecast that the UAE's software spending will be around US$507mn in 2009, with spending holding up relatively well compared with hardware, even if little growth is projected from 2008 levels. Software represents around 18% of the IT spend. CAGR for spending on software is put at 11% over the 2009-2013 period. The UAE is one of the region's fastest-growing ERP markets as more businesses realise the benefits of efficient management of resources. In the short term, the economic slowdown represents a challenge to software vendors, as enterprises are tempted to focus more on the bottom line. Oil and gas is one sector that has been hit particularly hard by the precipitous fall in oil prices since mid-2008, but BMI predicts plenty of room for growth in the forecast period as numerous untapped sub-sectors still exist, and there is growing demand for industryspecific solutions.

IT Services

It is predicted that IT services spending growth will be flat in 2009 but remain in positive territory during the 2009-2013 period. Spending will rise from an estimated US$816mn in 2009 to around US$1.3bn in 2013. IT services revenues' CAGR over the 2009-2013 period is projected at 12%. The economic situation, and credit tightening, has had an impact on demand in some key IT spending verticals such as oil and gas, construction and real estate. In early 2009 there were reports of IT managers in various sectors looking to cut costs. However, in some cases the emphasis was often more on scaling back projects by 10-20% rather than cancellation. In the government sector, budgets have often already been commissioned, and so the effects were more likely to be felt in the second half of 2009 and in 2010. Much will depend on the speed of global economic recovery and the future trend of oil prices.

E-Readiness

The Emirates benefits from a good regulatory environment and clear government leadership in IT and promoting its use. Although both dial-up and broadband internet connections are expected to continue growing over the next five years, broadband growth is expected to outpace the growth of dial-up connections and will likely cause the dial-up sector to enter a period of gradual decline. Price cuts by both Etisalat and du have helped to drive growth forward by making broadband services more affordable - particularly for residential customers. In January 2008, Etisalat announced that it had completed the first phase of deployment of its fibre-to-the-home (FTTH) network. Looking ahead, local telecoms companies du and Etisalat both plan to launch WiMAX wireless services, and we expect this to give the market another major boost.