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Challenges, opportunities of developing the National ICT sector

Developing knowledge-based industries has been a key tenet of the UAE’s long-term strategy, as outlined in the UAE Vision 2021 and further underscored in the Dubai Strategic Plan 2015. In addition to contributing to economic growth, ICT industries can generate a significant number of well-paid jobs — a key priority for the government.

The UAE has emerged as an IT hub over the past few years, particularly since the establishment of Dubai Internet City in 2000 and other economic zones since. Numerous global IT firms have established themselves here and many oversee Middle East and Africa operations from the country.

According to IDC, however, the indigenous IT industry has remained relatively underdeveloped. Locally owned IT firms are mostly resellers, distributors, and integrators of international hardware and software products. Very few home-grown IT companies have a significant presence in the value-added services market — a space that is increasingly being occupied by global services players that are able to leverage low-cost offshore delivery capabilities and skills pools. The distribution and systems integration marketplace is now becoming highly competitive and, as a result, local companies are now facing intense competition and declining profits.

The real weakness is the lack of local IT firms that are focused on sustainable, innovative, and intellectual property-based ICT products or services. IT research and development remains relatively nascent, and not too many concepts and ideas have emerged that have been able to garner significant support. The government realizes the need to encourage IT innovation and has launched numerous initiatives to support IT entrepreneurship. The UAE ICT Fund, which operates under the Telecommunications Regulatory Authority (TRA), has been actively looking out for such ideas, and has been offering incubation and funding. The Khalifa Fund, Dubai SME, and other such institutions are involved in proactively supporting and providing financial assistance to local SMEs and Emirati entrepreneurs across a wide range of verticals, not just the knowledge industries.

Attracting foreign IT firms to invest in large delivery centers or IT manufacturing plants — in addition to sales and marketing offices — is a key challenge, while the lack of a substantial local IT skills pool is also a major barrier. The cost of available skills is high relative to several Asian nations, and even a few Middle East countries, such as Egypt or Jordan. Therefore, the focus is on industries that are less labor intensive or less sensitive to labor costs. While this appears to be a step in the right direction, it presents a different kind of skills challenge — the need for high-end or specialized skills that can contribute to niche, hi-tech manufacturing and innovative IT software or services industries. While some specialist skills required for such industries can be sourced from other countries, a significant number will eventually need to be plucked from the local workforce.

The government is striving to invest in IT skills development through awareness programs and scholarships. For example, the UAE ICT Fund, through its Be’tha program has so far supported overseas education for hundreds of Emirati students, and aims to support 1,000 students over the coming years. However, despite such efforts, the gap continues to be significant. Much of the current demand is being addressed by expatriate workers, and while much of the lower-end, price-sensitive skills may never actually be taken over by the local workforce, the transition to local employees needs to be substantially more pronounced for those jobs that require more developed skills. The World Economic Forum’s Global Report highlighted that in the area of tertiary education enrolment, the UAE ranks 86th in the world. This needs to improve significantly, particularly in the direction of IT education, if the development of a sizeable local ICT workforce is to materialize.

The domestic demand for IT is growing rapidly on the back of key investments by the public sector, including several visionary initiatives around mGovernment, Smart Cities, and other mega projects. IDC expects IT spending in the UAE to surpass $8 billion by 2017, growing at a CAGR of 7.6% over the next four years. Dubai’s successful bid for Expo 2020 will also generate additional demand closer to the event, and the private sector is expected to benefit from downstream opportunities from these projects.

Significant investment is also expected in IT infrastructure build-out initiatives, as well as in agility- and efficiency-enabling technologies such as cloud, Big Data analytics, social media, and mobility. This growing demand presents substantial opportunities for the development of the local IT industry. However, without the development of local skills, innovation, and entrepreneurship, much of this may need to be delivered by global companies and workforces.

The columnist is Group vice president and regional MD for the Middle East, Turkey & Africa at global ICT market intelligence and advisory firm, IDC.