IoT, mobile, smart cities: The forces driving Middle East IT spend beyond oil
Mobile will constitute the lion's share of the Middle East and Africa's IT expenditure.
This year, governments across the Middle East and North Africa, or MENA, region are expected to spend $11.5bn on IT. The projection from analyst firm Gartner includes anticipated activity across telecoms, software, datacenter systems, and devices, as well as wider IT services.
The $11.5bn expenditure figure represents an increase of 2.04 percent over 2015.
"Overall spend is on the increase. Most of the investment is focused on industries beyond the oil industry," Gartner principal research analyst Moutusi Dey Sau tells ZDNet.
While the region's high-profile oil industry has historically been the major beneficiary of IT investment in the region, budgets are now being directed at a wider set of strategic priorities.
For MENA governments, this shift increasingly means investing in new initiatives such as smart cities, and the adoption of the Internet of Things is also driving most investments, according to Sau.
Government IT expenditure is disbursed across a range of state, local, and national levels. But by far the largest vertical for IT expenditure is telecoms. Investment in this area, which includes both fixed and mobile services, is expected to be about $4.7bn in 2016.
In a region with high mobile penetration and a desire by most governments to expand these markets, it's perhaps not surprising that mobile will constitute the lion's share of the region's telecoms expenditure.
According to Gartner, $3.1bn has been earmarked for mobile network services by MENA governments this year.
Interestingly, Sau reveals that "most of the focus of the spend in telecoms is [being] led by regions we define as [the] rest of Middle East and North Africa".
More specifically, "The regions in North Africa are mainly driving the spend in telecoms in mobile phones, close to $3bn in 2016", she says.
Companies in North Africa have seen very impressive growth over the past years. "Changing consumer behavior, fast adoption of technology, spread of digital transformation are all reasons for North Africa leading the IT spending in this region," she says.
In contrast, Turkey, which is in the midst of considerable political and economic turmoil, is identified by Gartner as MENA's lowest IT spender.
Outside the collective North African market, Saudi Arabia is the region's largest single investor in IT. "Saudi Arabia is a fast-growing market and is projected to be a $1bn [mobile] market by 2020," Sau says.
For countries like Saudi Arabia and other MENA nations dependent on petro-chemical revenues, variances in oil prices can have a significant impact on IT expenditure.
"For example, Saudi Arabia's income from oil fell by 23 percent last year, highly significant in an economy where around 73 percent of total revenues comes from the industry," Sau says.
As a result, "The country announced a budget deficit nearing $100bn". That shortfall inevitably has an impact on some of the Kingdom's ambitions.
Looking ahead, Sau comments how "the Saudi Arabia government has planned to reduce the growth of public sector salaries and limit the dependence on oil".
"High dependence on the oil industry is one of the biggest challenges for this region. These regions are in a very early stage of technology adoption," she says, with fluctuations in the flow of petro-chemical dollars even potentially capable of hitting government IT spending in the region quarterly, let alone annually.
Looking forward, Sau suggests "the focus of the growth in investments will shift to software".
Covering applications, infrastructure and vertical-specific software, Gartner sees high growth through 2020 in MENA for all three categories.
"Software spending will grow 9.8 percent over 2015 spending, to reach $1.2bn in 2016," she says.
This segment includes a wide variety of IT tools and platforms, including ERP, supply-chain management, and customer relationship management tools. Alongside these areas, other important IT products include enterprise application software, infrastructure software, and vertical-specific software.
It's this last category that is arguably the one to watch. "Vertical-specific software will grow 11.4 percent in 2016 to reach $505m," Sau says, and will end up accounting for nearly half of all software spending in the region.
"In government, vertical-specific software includes software that focus on agency-specific processes and domain areas, such as revenue and tax, and case management," she says.
As government agencies across the region seek to further their e-ambitions and adopt smart-city concepts, it's these types of enterprise solutions that MENA governments will increasingly rely on.
"Software spending in governments is going to be very impressive in the coming years for MENA," Sau says.
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