The year 2014 saw the launch of the Dubai Smart City (DSC) initiative – in many ways the culmination of more than a decade of ICT development in the emirate. Dubai has been able to successfully make this latest move thanks to its firm foundation of welldeveloped infrastructure. The emirate has also been diligently working to encourage IT start-ups, in addition to an education and training initiative that aims to maximise awareness of ICT opportunities amongst the emirate’s already highly tech-savvy and globally connected population (see analysis).
The challenges now lie in moving forward to create innovative content and upgrade to the latest hardware. Tying together all the parts of the DSC will also be a major test for the emirate’s commitment to the next level of IT development. To date, Dubai has a reputation for adopting new trends and, increasingly, leading the charge.
Sector Players
The IT sector in the UAE, like its telecoms counterpart, is regulated by the country’s Telecommunications Regulatory Authority (TRA). A federal government body established by the 2003 UAE Telecoms Law, the TRA is responsible for every aspect of the IT sector, ranging from managing access to the internet and issuing licences, to implementing and enforcing the laws. The Ministry of Communications also acts at the federal level.
Beyond the foundational 2003 UAE Telecom Law, the TRA also follows the UAE National Telecommunications Policy and the executive orders of the 2003 law. In addition, the authority is charged with the task of establishing the UAE as a regional ICT hub, as well as promoting ICT within the UAE itself and developing the human resources to go with it.
Under the TRA’s director-general are three deputy directors-general, one of which has responsibility for the information and e-government sector. The other two directors-general focus on the support service sector and telecoms sector, respectively. There is also an ICT Fund under the umbrella of the TRA, which is managed by a board of trustees. Until June 2013 a special body – Dubai eGovernment (DEG) – was responsible for the implementation of e-government initiatives in the emirate. DEG was later re-established as the Department of Dubai Smart Government (DSG).
Free Zones
In 2000 the Dubai Internet City (DIC), a part of Dubai Holding subsidiary TECOM Investments, opened. The DIC is administered by the Dubai Technology and Media Free Zone Authority ( DTMFZA), which was also established in 2000.
The DTMFZA is the sole regulator for a range of similar parks in the emirate, including Dubai Media City and the free zones for education and science. In 2004, the DIC formed the Dubai Outsource Zone (DOZ), which together with the DIC now makes up TECOM’s ICT cluster – the largest in the MENA region.
Another such free zone is the Dubai Silicon Oasis (DSO), which is run by the DSO Authority (DSOA). Established in 2005 on a 7.2m-sq-metre site, the DSO is a 100% government-owned free zone that brings together the industrial technology side of ICT with residential and commercial areas, and research and development (R&D) centres.
All of these ICT free zones offer a range of incentives for firms to set up shop within them, including a 100% exemption from personal income tax and corporate taxes for 50 years, as well as the possibility of 100% foreign ownership, complete repatriation of profits, digital voice and high-speed data networks offered at competitive prices, and a one-stop-shop service dealing with the administrative and regulatory side of doing business. There are also the traditional benefits of an industry cluster – namely, being able to work in close proximity to similar smaller companies and entrepreneurial ventures.
A whole host of multinational corporations (MNCs) and local outfits have established operations within the DIC, including Microsoft, Oracle, Intel, Samsung, AT&T, Dell, Facebook, LinkedIn, HP, MasterCard, Siemens, Logica CMG and Yahoo. The DIC and the DOZ welcomed some 181 new companies in 2013 alone, according to the DIC, which also told local press in late 2014 that after setting up with just 100 companies, it now had some 1400. The launch of the DIC’s in-house incubator – In5 – in May 2013 has also helped to attract companies to the city, with more than 50 start-ups since making the DIC their home.
Networks
Two telecommunications companies – the Emirates Telecommunications Corporation ( Etisalat) and the Emirates Integrated Telecommunications Company (du) – run the emirate’s broadband networks. Etisalat is the older and larger of the two, though du has made inroads in recent years after entering the market in 2006 (see Telecoms overview).
Etisalat has a string of overseas operations, with a particularly strong presence in Egypt, Africa and South Asia. The company also enjoys strong links with the UAE and Abu Dhabi governments, while du is more connected to the newer districts of Dubai, as the company tends to target newly arrived expats in particular. Etisalat and du both operate across the country, with their fixed-line and mobile networks, providing broadband and 4G long-term evolution (LTE) services, with the two competing for market share (see Telecoms overview).
The year ahead is likely to see a shake-up in the fixed broadband segment as regulations requiring infrastructure sharing are widely expected to be implemented. While both Etisalat and du can, in theory, provide fixed broadband to any customer, there is a de facto geographical separation between the two, as Etisalat owns most of the fixed-line infrastructure in older areas, and du has most of the newer infrastructure within the emirate. Until now, this has effectively produced a monopoly on broadband services for each provider within certain areas.
Well Connected
According to the most recent figures from the TRA on internet usage in the UAE – no data specifically for Dubai is collated by the authority – there were some 1.1m internet subscriptions in the country as of September 2014, a nearly 7% increase over the 1.03m subscriptions seen in September 2013. Of these, some 668 were active dial-up subscribers, while the remainder were broadband, equivalent to 13.1 broadband subscribers per 100 inhabitants – up from 12.4 the year before.
However, when mobile broadband figures are added in, the numbers rise sharply. The TRA data for September 2014 shows that there were 17.13m mobile subscribers, for a 203.7% penetration rate. Data from Ipsos, a Paris-based market research firm, also demonstrates the importance of the mobile market in the UAE, with a 72% smartphone penetration rate in 2013 – one of the highest in the world – and 83% of smartphone users accessing mobile internet via these devices.
Population Matters
The demographics of the emirate are a positive sign for the sector, with a young and tech-savvy population and high expatriate turnover contributing to IT services uptake. The emirate’s dense population also facilitates rapid infrastructure rollout and high levels of coverage.
According to the Dubai Statistics Centre (DSC), the emirate had a population of 2.27m as of the second quarter of 2014, out of a total UAE population of around 9.4m. In Dubai, somewhere between 85% and 90% of inhabitants are expatriates, with many of these considered as transient and only working on short-term contracts. DSC figures for 2013 show that around two-thirds of the emirate’s population falls within the 20-39 age group, with those between the ages of 30 and 34 alone constituting 19.56% of the total. Residents aged 25-29 account for another 19.48%, while just 1.08% of the population is over 60. The emirate’s population is also highly concentrated, with a density of 408.18 people per sq km – eight times that of the UAE as a whole.
Market Breakdown
According to a recent TRA report looking in detail into ICT usage in the UAE in the second half of 2013, Etisalat had the largest share of the business market with regard to internet provision, with some 89%; du had a 7% share; while 4% of businesses had services from both companies. The survey also found that 95% of all businesses in the UAE had an internet connection, while 100% had fixed lines, suggesting there is little room for expansion on that front. Some 87% of the businesses with internet used fixed broadband, while 15% had mobile and 16% had dial-up – most often as a back up to fixed broadband systems – with some businesses using more than one option. More than half (52%) of all internet subscriptions were 8 Mbps or less, with 13% at 1 Mbps. At work, subscribers visited English-language websites 85% of the time, Arabic sites 14% and other languages 1% of the time, illustrating the wide use of English as a business language throughout the country, as well as among the UAE’s international population. Some 73% of all websites with an .ae domain name were English-only, with 24% in both English and Arabic and 3% in Arabic only. According to a report conducted in 2013 on social media in the MENA region by Ipsos, social networks in the UAE had a penetration rate of 87% in that year, up from 71% in 2012. Around 99% of those using social media had a Facebook account – a figure unchanged since 2012 – while about 43% used Twitter, up from 28% the year before.
The “Global IT Report 2014” from the World Economic Forum ranked the UAE 24th of 148 countries in its Network Readiness Index, an improvement from its 25th-place ranking in 2013. The country ranked in the top five for one or more indicator in seven of the 10 overarching criteria “pillars”.
Tech Savvy
Indeed, the UAE ranked first in the world in terms of mobile network coverage as a percentage of the population and in the importance of ICT to the government’s vision. The UAE also ranked number two in terms of the impact of ICT on basic services, ICT use and government efficiency, and government success in IT promotion. The country received a third-place spot in the world rankings in terms of government procurement of advanced technology, while a fourth-place ranking was also awarded to the UAE for its laws relating to ICT, firm-level technology absorption, and the impact of ICT on new services and products.
However, the country scored lower in the affordability class. It ranked 126th in terms of internet and telephony competition, while fixed broadband internet tariffs ranked 103rd. Although the quality of the country’s education system scored well – 15th overall – take-up was low; Dubai ranked 66th in gross enrolment rate in secondary education, and 87th in tertiary education, while literacy levels stood in 88th place. Another area of concern was on the regulatory side of things; while the laws relating to ICT may have garnered a coveted fourth-place position, it ranked 142nd with regard to the number of procedures to enforce a contract and 68th in terms of the number of days to enforce a contract.
Governing Rules
Regulation, meanwhile, appears strong in theory, but there is room for improvement when it comes to putting ICT laws into practice. This is partly to do with the newness of the industry and the consequent relative inexperience of its regulatory system – which is clearly in the process of maturing, but still requires more case history.
At the same time, many ICT companies based in Dubai also work in other GCC markets. This can be a regulatory challenge at times, as additional rules – or a lack thereof – have to be taken into account. Indeed, this has been a particular issue when it comes to hosting data. “Cross-border data storage is not currently widely accepted by regional public sector entities,” Andrew Horne, the general manager of Xerox Emirates, told OBG.
For MNCs in particular, much of their back end is outside the UAE, while ongoing developments in the cloud computing segment mean that improvements to data storage are an increasingly globalised phenomenon. As a result, financial institutions – particularly those in Dubai, which has a highly developed, globally linked financial sector – have pressed for regulations concerning data storage to be modernised at a much faster rate. “As security concerns regarding remote storage diminish, the stability of the UAE positions the country perfectly to act as a hub for the region,” Horne told OBG.
This also raises the issue of intellectual property (IP) rights. According to the World IP Organisation (WIPO), two laws from 1992 – one of which was amended in 2000 and again in 2002 – form the main legal framework for IP rights in the UAE, with a number of executive and legislative laws likewise issued up until 2010. The most recent implementing regulations were established for the telecoms sector in 2004. The UAE is also a signatory to many international IP conventions and treaties, the most recent of which is the Nagoya protocol on access to genetic resources, from September 2014.
Dubai Smart City
Dubai has long been aware of the importance of IT and has taken steps to facilitate its expansion within the emirate. The ability of the public sector to act as a driver for IT take-up and innovation was recognised more than a decade ago by Sheikh Mohammed bin Rashid Al Maktoum, ruler of Dubai and prime minister of the UAE, in 2000, when he launched the e-government umbrella initiative. This has since evolved into the latest phase of the focus on IT – the DSC (see analysis).
For the emirate’s IT companies, the DSC represents a potentially huge growth opportunity, as well as an avenue for other efficiencies. “Although the roll-out of LTE and supporting mobile technologies over the past five years has moved Dubai into the top-20 most competitive markets globally, the government’s DSC initiative is going to require an entirely new level of network infrastructure build-out, which can be achieved through strategic public and private sector partnerships,” Cisco’s managing director in Dubai, Rabih Dabboussi, told OBG.
The DSC is a highly ambitious project that aims to connect different sectors of the emirate’s economy – for example, linking transport information with traffic reports from the police and even weather conditions – while also integrating data from both the public and private sectors. In many ways, Dubai will be at the forefront of new global technologies and organisational theories as it focuses on implementing the DSC initiative.
Quality-Centric
While there are many local and international IT companies in Dubai, capacity issues nonetheless persist. MNCs in particular tend to port their back-end infrastructure from other countries – usually those where they are headquartered – when they wish to expand their footprint into Dubai and other countries in the GCC.
As a result of this, MNC expansion does not necessarily translate into additional business for the local IT industry. With a population of around 2.27m, Dubai is still a relatively small market, so volume cannot be the mainstay for software and hardware companies in the emirate. Instead, innovation and quality must be their focus.
The General Electric Innovation Barometer 2014 also offered some good tidings in this respect. According to the survey, the UAE ranked sixth out of the 26 leading countries investigated in terms of its “pillars of innovation”. Within this category, the highest scores were earned for the government regulatory environment, the ease of access to loans and venture capital, strong infrastructure, and high-quality education in mathematics and science. Company-level technology absorption and technology transfer were also ranked highly. All of these prove advantageous in the creation of an innovative environment for IT businesses.
While the financial crisis undoubtedly had a negative knock-on effect on certain segments of the IT services industry in Dubai, the emirate’s renewed economic growth has seemingly reinvigorated the local software industry. “Many medium-sized software providers stepped out of the Dubai market during the crisis, temporarily increasing market share amongst the more established firms,” Wissam Khoury, the managing director for the Middle East and Africa at SunGard, told OBG. “However, the market has witnessed a significant number of new players in the past two years since the rebound.”
Innovation
In October 2014 Sheikh Mohammed announced the launch of the country’s National Innovation Strategy (NIS), whose aim is to make the UAE one of the world’s most innovative nations within seven years. Dovetailing with the overarching development plan for the country – known as UAE Vision 2021 – the NIS has a four-track approach.
The first track involves developing the legal and institutional framework, while the second track focuses on getting all of the government departments to reallocate at least 1% of their budgets to R&D in order to boost adoption of high-tech systems. The third track of the NIS targets the private sector by introducing incentives and stimuli for private sector outfits to invest more in R&D, while the fourth and final track aims to boost the level of education in maths, science, technology and engineering through new programmes and materials at the school, college and university level.
According to data reported by the national news agency, WAM, annual investment in innovation in the UAE stood at Dh14bn ($3.8bn) at the time of the launch of the NIS, with Dh7bn ($1.9bn) allocated directly for R&D. This figure was expected to increase significantly as the NIS rolled out, with some 30 separate initiatives earmarked for the first phase of the initiative. This three-year phase will concentrate on seven sectors: renewable energy, transport, education, health, technology, water and space.
Outlook
The IT sector’s development is characterised by two seemingly contradictory trends: localisation and globalisation. Indeed, the importance of face-to-face contact, local office presence, and personnel who understand local markets and cultures is also becoming increasingly apparent, while at the same time, many companies are outsourcing more of their back-end processes.
Dubai’s financial markets make it a natural centre for IT financing, with its strong banking and venture capital environment, supported by government stimulus packages and free zones. The DSC and NIS also look set to drive demand in the emirate and the wider UAE for an array of IT services – particularly in light of the ramp-up to Dubai Expo 2020.
Continuing economic recovery should likewise fuel IT growth as consumers become more confident and step up their purchasing, which is increasingly being carried out online. Indeed, the e-commerce trend bodes well for IT demand (see analysis).
Meanwhile, the ability of Dubai’s IT sector to both adapt to and pursue innovation will also be tested – in particular, the emirate’s ability to act as a source of innovation itself. To that end, ongoing investment in R&D, in addition to education and training, will be a major factor driving future growth in the sector.
