Technology spending to soar in region

Technology expenditure will grow at up to four times the rate of the wider economy in individual Middle East countries, an IBM executive says.

In countries such as Saudi Arabia, which last year had an estimated GDP growth rate of 3.8 per cent, the increase in IT spending could be as high as 16 per cent a year, said Steve Mills, the senior vice president and group executive of IBM's software division.

"In western Europe or the United States, you see a larger amount of IT spend as a proportion of the economy," said Mr Mills. "The implication of that is that this region [Middle East] is going to see a lot of IT growth over the course of the next decade.

"If you've got a 4 per cent GDP growth you're going to have a 12 to 16 per cent growth in information technology purchases. We certainly see that in Saudi, we certainly see that in the Emirates. So that's the kind of pattern that we're experiencing.

"Typically, you're going to see in these kinds of economies … at least two [times] that growth rate in the tech industry, if not three or four [times] the growth rate."

Mr Mills said the projected growth rates applied to both IBM as a company and the region's wider IT industry.

"We're quite optimistic about the trajectory for growth here," he said. "Certainly some of our competitors are also getting good growth in the region. It's not that we're the only one that is growing."

Companies in the Middle East and Africa spent almost US$50 billion (Dh183.64bn) on IT last year, with the Gulf region accounting for about 25 per cent, the technology consultancy IDC says.

In the UAE, spending on IT is estimated at about $5bn. Jyoti Lalchandani, the vice president and regional managing director at IDC in the Middle East, Africa and Turkey, told The Nationallast month that he expects "an 8 per cent to 9 per cent increase in IT spending in the UAE for 2011".

IBM, which reported a 4 per cent increase in revenues last year to $99.9bn, does not split out the Middle East region in its financial reports. It reported revenues from Europe, the Middle East and Africa of $31.9bn last year, a decrease of 2 per cent on 2009.

But revenues from the company's "growth markets" organisation was up 16 per cent.

"We're trying to increase the amount of IBM revenue that comes from what we define as our growth markets unit," Mr Mills said. "Our growth markets unit surpassed 20 per cent of IBM's revenues in this past year, 2010. And that number will keep climbing."

Growth in IBM's business in the Middle East market is outpacing that in North America and Europe, he added.

"The Middle East as a region is quite substantial in terms of size and rate of growth. It's growing faster than what we see in Europe and the United States."

Mr Mills, who oversees the technology giant's software division, said a shortfall in skilled workers was "the biggest single inhibitor" of IT growth in this region.

"We try to put talent in the country," he said. "We do a lot of outreach to business partners … we do training for customers and we also create university programmes."

IBM's software division accounts for 44 per cent of IBM's profits, said Mr Mills. "Our model for the company out through 2015 is to get software up to 49 per cent.

"It's an area that we find it very attractive to do acquisitions, so we think we can make it a substantially larger piece of IBM, and generate more of IBM's profits out of it over the next five years."

bflanagan@thenational.ae