Five factors impacting the Saudi enterprise ICT market

01 October 2015

Saudi Arabia has the largest telecommunications market and the largest IT market within the Middle East. A significant component of this ICT market is the enterprise segment. Towards 2020, Pyramid Research has identified five overarching factors which can impact the growth of the enterprise ICT service market in the country.

 

 1. Public sector spend

The public sector constitutes a significant share of the overall ICT services market in Saudi Arabia. For example, a major programme still on-going is the national e-government project, under the banner of “Yesser”. So far over 100 public agencies and over 30 government agencies have been migrated and linked to the cloud-based Government Secure Network (GSN), while over a 100 government agencies are utilizing the cloud-based Government Service Bus (GSB), a government portal to deliver e-services. In April 2015, the head of the e-government programme announced that over 2000 e-services were now available on the national government portal.

However, government spending in the medium-term is expected to decline and go through a rationalization process in 2015 and 2016. This is due to declining oil revenues (which compose approximately 80% of fiscal revenues), and persistently high government expenditure over the past decade. This leads to a cautious outlook on the growth of the ICT sector in the medium term as the government tightens its control on expenditure throughout the public sector. In the near-term there will be an increased emphasis on ensuring budgets are used efficiently and all public entities actively work to reduce capital and operational costs. Over the longer term, however, significant IT projects and infrastructure investment will remain a key strategy to improve economic productivity.

 

2. Economic diversification

Significant emphasis has been placed on the need for economic diversification and private sector involvement due to fiscal budget concerns. The national government aims to safeguard sustainable economic growth, reduce unemployment amongst the large youth population and decrease dependence on the oil sector over the long-term. This will be partly supported by efforts in reducing restrictions on foreign ownership.

What does this mean for the enterprise ICT market? Key areas targeted for expansion include the industry/manufacturing sector, the healthcare sector and the banking sector. Businesses in such verticals require extensive ICT solutions from private connectivity services, managed network services, disaster recovery services, unified communication and collaboration services, and cloud-based infrastructure and application services. This increases the market opportunity for ICT service providers in the long-run.

 

3. Evolution of the competitive landscape

Historically, the ICT service provider competitive landscape in Saudi Arabia was characterised by large national corporations which were subsidized and supported by the government. In recent years, however, there has been a wave of increased local presence of international IT service providers, major technology vendors and professional services firms. The burgeoning consumer ICT market has also led to the increasing prevalence of local application and online-content developers, which aim to target the tech-savvy young population.

Over the next five years, we expect the market landscape to be characterized by the increased presence of local Independent Software Vendors (ISVs) and niche systems integrators. A key opportunity for ISVs and local systems integrators is the intention of enterprises in the country and the wider region to utilize mobile platforms to deliver services; this also includes the government’s aim to develop its own m-government service. Increased competition therefore drives an innovative environment in Saudi Arabia for the development of local ICT solutions. 

 

4. Smart city projects and infrastructure investments

As part of the aim to make Saudi Arabia a regional hub for trade and manufacturing, the government has outlined large investment plans to build four new smart cities, including the King Abdullah Economic City (KAEC). Such cities will be built with modern infrastructure, using state-of-the-art communication and collaboration services, smart network solutions, M2M/IoT services, cloud-based facilities management services, and comprehensive business continuity and disaster recovery solutions.

There is also increasing pressure to address the impact of rising urbanization in major cities. For example, in Jeddah rising traffic congestion will be addressed through smart traffic management solutions, providing better monitoring and more efficient traffic management capabilities.

Given the religious significance of the country, whereby millions of Muslims travel for annual pilgrimages to Mecca and Medina, there is also a need for state-of-the-art logistical solutions. M2M/IoT solutions can help monitor and analyse patterns in the movement of people and their activities, therefore ensuring optimal operational strategies are utilized.

 

5. Developing ICT skilled workforce 

Another key investment opportunity for the private sector highlighted by the Saudi government is investment in technical training centers. A number of IT service providers such as Cisco, Huawei, SAP, Oracle, Microsoft and IBM offer training and educational workshops in the country via educational institutions and through independent events. The pressing need is to make such content more widely available and accessible. Achievements have been made in the past two years with the development of numerous e-learning platforms. The intention is to build a skilled workforce for the ICT sector, and support the country in becoming a hub for app development and online content in the coming years.

Such initiatives provide a long-run optimistic outlook on the increased usage of ICT services. Lack of awareness and understanding of IT services is a major challenge for adoption in many markets in the region as this leads to reluctance to change current infrastructure and systems. Increased efforts by ICT service providers and governments to make the mechanisms, components and benefits of services clearer will help boost IT services adoption as enterprises realise the long-term benefits to their business operations.

 

Wrap-up

In summation, Saudi Arabia will remain the largest ICT market in the region, but recent government revenue concerns lead to a cautious outlook on the growth of the market over the next five years. Support in the long-run will arise from completion of major investments in infrastructure, in e-government initiatives and increased participation of the private sector. 

 - Hussein Ahmed – Analyst, Africa and the Middle East

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