BMI's Executive Summary

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The Sector At A Glance

Key Insights On The Information Technology sector Of Lebanon

Market Overview

In the wake of the recent conflict, which has had a major disruptive effect on the IT sector as well as the wider economy, BMI expects at least a 40% contraction of the market in 2006. Supply lines have been disrupted and retail outlets closed, many thousands of people have suffered serious economic losses, and a breakdown of law and order in some areas has fuelled a resurgence of software piracy and grey market activity.

While many uncertainties continue to surround the market situation, BMI has revised its forecasts and now sees the market falling to around US$156mn in 2006, down from around US$259mn in 2005. A significant recovery should start in 2007, fuelled by government and vendor IT related reconstruction initiatives and normalisation processes, but the 2005 market value will not be surpassed until 2009. BMI sees the market increasing from US$259mn in 2005 to around US$336mn in 2010. The IT market, which in 2005 accounted for only around 1.3% of GDP, will therefore grow at a CAGR of 21% over the 2006- 2011 period, whereas CAGR is only 5% if measured from 2005.

Before recent tragic events underlined the enduring instability of the region, Lebanon’s IT sector had been a great example of the emerging entrepreneurial dynamic in the country, and the government seemed to be going some way towards addressing traditional barriers to IT sector growth in the country, notably telecoms market underdevelopment. However, the IT sector still faced a number of serious obstacles including low internet penetration, a lack of international bandwidth, and accusations that the government was not doing enough to address either of these problems, despite the launch of DSL services in 2006.

Government Initiatives

As post-war reconstruction continues, a number of initiatives are focusing on IT as an engine of development and opportunity for the economically deprived to improve their prospects. In a new initiative from the Professional Computer Association of Lebanon (PCA), training and technology centres are to be established in seven towns to provide local communities with exposure to and training in IT. Following the launch of two such centres in Nabatieh and Baalbek, the 3rd centre was opened recently in Bint Jbeil, and the centres are being supported by Intel, Microsoft, Cisco, CA, and other IT vendors.

Prior to the outbreak of the recent conflict, the Lebanese government had announced the establishment of a new institute for the development of the technology sector, grouping representatives from several ministries as well as the private sector and civil society.

Another result of the recent conflict has been to provide a renewed boost to software piracy in the country. According to recent statement from the Lebanon High Tech and Intellectual Property Crime Bureau, the organisation charged with combating hi-tech crime, piracy currently accounts for at least 75% of business software alone. The bureau was established in March 2006 and claimed, before the recent conflict, to have made significant inroads into reducing the country’s piracy, reportedly substantiated by increasing vendor monthly revenues.

Company News

Unsurprisingly, the recent conflict has had a major disruptive impact on IT vendor distribution channels in the previously emerging market of Lebanon and even beyond. Details are now emerging of the extent of the disruption, which has apparently led to complete shutdown in some cases. Throughout the South and East of Lebanon, which suffered most from the Israeli bombardments, many retail outlets are still closed. A similar situation prevails in southern Beirut and the surrounding areas. Trucks are still reported to be having difficulty reaching their destinations in some cases, due to ongoing military activity, and sales are generally very low. Moreover, the situation has had a knock-on effect in neighbouring markets such as Syria.

Despite this, multinational IT vendors are expanding their investment in Lebanon to help in the reconstruction of the war-torn economy. Prior to the recent political instability, Lebanon was emerging as an important regional hub and potentially attractive market for vendors such as Microsoft, Intel, and IBM. Intel CEO Craig Barrett recently announced up to US$15mn of investment for Lebanon, which he said was intended to help create new business and job opportunities. Some of the money will also go towards programs for rural development of the internet, especially in the areas of education, healthcare, economic development and e-governance.

Computer Sales

According to BMI estimates, the overall Lebanon PC market (including notebooks and accessories) was worth US$145mn in 2005. While low incomes continue to be a restraint on the market, particularly following the conflict, this low level of computer penetration represents an opportunity for vendors in the forecast period. With national PC penetration estimated to be around the 10% level, the market is far from mature. Many public and private initiatives have been launched to encourage wider home and school use of PCs, often offering some form of financing support. In addition, it is expected that the government’s delayed introduction of DSL, expected in 2006, will provide a big boost to local IT demand. Falling prices due to enhanced competition will be yet another driver.

Software

Due to the continuing problems with piracy, the domestic software market is expected to grow relatively slowly, despite the implementation of large government and private projects. BMI predicts a legal software market value of just US$20mn in 2006, and a 2005-2010 CAGR of 9%. The software industry has received a boost in recent years thanks to Lebanese software companies, which had previously been operating out of Europe and the US, moving substantial parts of their business back to Beirut. The domestic software industry is highly export focused, with 1/3 of firms, according to a recent survey, getting 75% of all receipts from regional and Western markets. Leading Lebanese software companies tend to have a focus on banking, retail, education and trade.

Services

The Lebanese IT services market was estimated at being worth around US$57mn in 2005. This includes services such as consultancy, training, implementation and support. According to BMI figures, the market should grow at a CAGR of 23% over the forecast period. In 2005, deployment and support services were put at US$20mn, with SI and managed services as the next largest categories.

E-Readiness

The telecoms ministry has been promising to increase bandwidth since signing an agreement with ISPs to bring DSL to Lebanon in November 2005. However, prior to the outbreak of the recent conflict, no widespread service had been launched. Lebanon’s lack of high speed internet connections, high connection fees and lack of political will to develop a national ICT strategy or tackle high levels of piracy have become frequently voiced topics of concern for IT vendors. It is hoped that the promised launch of DSL, and launch of VoIP services in 2006 may still provide a solution to the problem of one of the most expensive and unreliable internet infrastructure in the world.

Contents

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Chapter 1 - Executive Summary

Market Overview

Government Initiatives

Computer Sales

Software

Services

E-Readiness

Company News

Chapter 2 - SWOT Analysis

Lebanon IT Industry SWOT

Chapter 3 - Middle East Regional IT Markets Overview

IT Penetration

Market Growth & Drivers

Sectors & Verticals

Chapter 4 - Market Overview

History and Market Structure

Hardware

Software

Services

End-User Analysis

Industry Developments

Chapter 5 - Industry Forecast Scenario

Table: Lebanon IT Sector Historical Data and Forecasts

Chapter 6 - Economic Forecast

LEBANON: MACROECONOMIC DATA & FORECASTS

Chapter 7 - Competitive Landscape

Company Monitor

IBM

HP

Computer Business Machines (CBM)

Oracle

Microsoft

Chapter 8 - BMI Forecast Modelling

How We Generate Our Industry Forecasts

IT Industry

Competitive Landscape for Middle East & Africa Information Technology: Sample of  
Companies Ranked

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Company profiles, including SWOT (strengths, weaknesses, opportunities and threats) analyses, business activity, leading products and services. BMI forecasts for all headline macroeconomic indicators, including real GDP growth, inflation, fiscal balance, trade balance, current account and external debt. Company profiles and SWOT analyses covering competitive positioning; leading products, services and brands; annual sales and share of domestic hardware, software and components markets; headline financials and M&A; pan-regional expansion strategies and strategic partners. Companies covered include:

Network of Information Technology Sources

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BMI's Middle Eastern and African IT Reports are based on an extensive network of multilateral organisations, government departments, IT industry associations, chambers of commerce and company reports. Information sources include: