MEA IT Risk/Reward Ratings, Q412


There is just one change in the ranking of countries in our Q412 IT Risk/Reward Ratings (RRR) table for Middle East and Africa (MEA), despite changes in the aggregate scores of most countries in this quarter's update. The average overall score fell by 0.2pts to 51.1, driven by declines in the industry rewards, market risks and country risks categories. The average score in the country rewards category remained unchanged at 72.3, although there were changes in some countries' individual scores.

BMI estimates the total value of the IT markets in our coverage was US$35.2bn in 2011. We forecast it to grow to US$37bn in 2012 to just over US$56.5bn by 2016. Notable growth drivers for IT services in the MEA include governments' economy diversification efforts and the increasing integration of IT services with other industry verticals. In the consumer segment, rising income levels and improvement in literacy rates are also potential growth drivers. The key risks to outlook are mainly political and economic as they have a significant impact on the disposition of individuals and businesses to purchase high-value IT products and services. Our ratings reflect our assessment of key growth drivers and risks to outlook in the IT markets of the 11 countries in our regional coverage.

Israel remains at the top of our RRR table although its aggregate score falls slightly from 66.5 in the previous quarter to 66.3 this quarter. Israel's country rewards and country risks scores decreased this quarter due to a slowdown in the economy because of concerns in the eurozone and the US, but this was offset by an upgrade to its industry risks rating to reflect an improvement in its IP protection policies. Israel has one of the most developed IT markets in the region, reflected by household computer penetration of more than 75% and significant government and military expenditure on IT projects. Israel's well-educated population, strong policies for IP protection, stable political environment and developed telecoms infrastructure also make it an attractive location for global IT players to site key R&D and production facilities.

South Africa In The Lead
IT Market Values (US$bn), 2011

The UAE reclaims second position from Qatar following an increase in its aggregate score and a decrease in Qatar's. This was the only change to our RRR table this quarter. The UAE's score was boosted by an upgrade to its country risks score, which increased from 67 in the previous quarter to 68.3 this quarter. The UAE's country risks rating is the highest in the region and reflects our positive outlook for economic growth, supported by strong performances in non-oil sectors such as tourism and trade industries. By contrast, we downgraded Qatar's country risks score this quarter to reflect the gradual increase in Qatar's risk profile as a result of its increasing regional clout and considerable influence on the changing political dynamic in the region. That aside, Qatar remains a regional outperformer in terms of economic growth and political stability - two key factors that make it an attractive destination for IT investments in the region.

Kuwait, along with Qatar, is the only other country with a rating of 100 in the country rewards category, a situation that demonstrates relatively high GDP per capita, high public sector wages and, consequently, strong private consumption and lower unemployment rates. The Kuwaiti government and major businesses are huge buyers of IT services. In February 2012, US-based technology firm Booz Allen Hamilton entered Kuwait to provide specialist services to government and commercial clients. However, Kuwait's small population means there is limited growth opportunities in the consumer segment.

Saudi Arabia and Turkey, in fifth and sixth positions respectively, saw increases to their aggregate score this quarter but this did not affect their rakings on our table this quarter. Saudi Arabia's score increased 0.7pts to 52.2 following an upgrade to its country rewards rating, while Turkey's overall score benefited from an upgrade to its country risks rating. Saudi Arabia's country structure is benefiting from increased government spending and rising oil revenues. For its part, Turkey is highly vulnerable to economic woes in Europe and the political crisis in the Middle East. However, a strong economic base has resulted in the upward revision of its GDP growth forecast for 2012 from 1.8% to 3%.

Bahrain and Oman have the two lowest industry rewards scores in the region, which reflect the size of their domestic markets. We forecast robust growth in Bahrain and Oman's IT markets over the next five years as a result of significant investments in next generation telecoms infrastructure, but small population sizes and less aggressive government IT policies will make them less attractive IT investment destinations compared to other GCC states.

South Africa and Egypt have the largest populations among the 11 countries in our MEA IT coverage but are underperformers, sitting in ninth and 11th (last) positions respectively on our RRR table. Both countries are held back by relatively low GDP per capita values, making them score considerably below average in the country rewards category. South Africa is further held back by a low industry risks score, which reflects its weak IP protection policies and lack of a clear ICT policy. Egypt also scores below average in the industry risks category for similar reasons, although the country's volatile political environment and precarious economic outlook present the biggest downside risk to growth.

Lebanon remains in 10th position but risks moving back into last position if the political and economic environments in Egypt improve over the next few months. Lebanon has the lowest score in the region in both the country risks and industry risks categories, two factors that significantly reduce its attractiveness to investors despite its advantages in the form of a youthful and relatively educated population as well as attractive geographical location that could make it a regional hub.

Middle East And Africa IT Risk/Reward Ratings Table, Q412
Country Industry Rewards Country Rewards Rewards Industry Risks Country Risks Risks IT Risk/Reward Rating Regional Ranking Previous Ranking
Scores are weighted as follows: 'Rewards': 70%, of which Industry Rewards 65% and Country Rewards 35%; 'Risks': 30%, of which Industry Risks 40% and Country Risks 60%. The 'Rewards' rating evaluates the size and growth potential of a telecoms market in any given state, and country's broader economic/socio-demographic characteristics that impact the industry's development; the 'Risks' rating evaluates industry specific dangers and those emanating from the state's political/economic profile, based on BMI's proprietary Country Risk Ratings that could affect the realisation of anticipated returns. Source: BMI
Israel 51.0 95.0 66.4 65.0 67.0 66.2 66.3 1 1
UAE 40.7 90.0 57.9 60.0 68.3 65.0 60.1 2 3
Qatar 38.1 100.0 59.8 50.0 65.7 59.4 59.7 3 2
Kuwait 33.1 100.0 56.5 40.0 66.0 55.6 56.3 4 4
Saudi Arabia 35.6 75.0 49.4 45.0 67.7 58.6 52.2 5 5
Turkey 49.5 55.0 51.4 45.0 46.4 45.9 49.8 6 6
Bahrain 26.3 75.0 43.3 57.5 61.8 60.1 48.3 7 7
Oman 27.5 70.0 42.4 50.0 60.5 56.3 46.6 8 8
South Africa 44.9 45.0 44.9 35.0 58.7 49.2 46.2 9 9
Lebanon 30.7 65.0 42.7 20.0 41.5 32.9 39.8 10 10
Egypt 37.5 25.0 33.1 40.0 50.6 46.4 37.1 11 11
Average 37.7 72.3 49.8 46.1 59.5 54.1 51.1