Kuwait calling

With the second highest GDP per capita (after Qatar) of the GCC, and oil prices jumping from US$15 to US$60 a barrel, the Kuwaiti government is awash with money to spend, and IT features highly on its development agenda.

Kuwait has overhauled its telecommunications infrastructure and set about joining the Gulf boom in recent years, becoming one of the region’s new ultra-modern metropolises. Most vendors acknowledge Kuwait as a more developed and faster growing IT market than Qatar — its closest comparison in the region. One of the reasons for this is its small population of 2.4 million people, making Kuwait’s market more responsive to changes.

“Many Kuwaiti companies previously invested a lot outside of the country, but over the last two years, more people have brought money back to the country and the government is helping to drive IT development,” says Bader H. Al Mubarak, general manager special projects at solutions provider Enhanced Engineering and Multi-Technologies Company (EEMC), a local solutions provider.

Kuwait is a high-end market. Over half of its population are Kuwaiti nationals, with high disposable income. Regional distributor Aptec estimates the total addressable market (TAM) for IT products at US$300m in Kuwait. A-brand vendors dominate the IT space, but Kuwait has a small local assembly scene, in a ‘computer street’ district called Hawali. Local HP and components distributor Professional Computer Company (PCC) views the custom desktop market as a growth area, and is selling a substantial amount of dual core processors and high-powered graphics cards.

When it comes to PCs, laptops are where the Kuwait market is focused, and top selling brand Toshiba says it moves around 50 high end notebooks a month, at an average selling price of US$3,500 each. PCC confirms that it sees the market leaning towards the mobile sector, estimating that 60% of PC sales it makes are notebooks, with a massive nine out of 10 of those sold with features such as Bluetooth and WiFi functionality.

This high-end kit is backed up by Kuwait’s new telecommunications infrastructure, making broadband access easily available. The government has also opened up the telecommunications sector, and there are two main GSM mobile network providers: MTC and Wataniya. Official figures from research houses claim that 25% of the population has access to the internet, but those in-country estimate this figure to be much higher.
||**||Everybody’s on the internet |~|mahmoud200.gif|~|Mahmoud Al Sayed Ibrahim, general manger at PCC|~|
“Everybody in Kuwait is connected to the internet, even housemaids. The Kuwait government is very rich and can’t be compared with less affluent governments across the Arab world. Every person in Kuwait will have a PC, not just every home, and most homes are now covered by DSL and wireless networking,” says Mahmoud Al Sayed Ibrahim, general manger at PCC.

With Kuwait’s appetite for the latest and most expensive equipment, the opportunity to make a quick buck attracts parallel imports, re-exported from Dubai. Kuwaiti consumers are not so easily taken in by the promise of saving a few Dinars though.

“The market has money, the Kuwaitis like to buy the latest technologies, and price is not too much of a factor. Kuwait is also a captive market unlike the UAE; what is sold in Kuwait stays in the country,” says Santosh Varghese, sales and marketing manager Middle East, computer systems division at Toshiba.

Kuwait is mainly served through the larger pan-regional distributors, such as Redington and Tech Data, who claim that they can keep tighter control of product flow than small local distributors. Aptec is the only distributor with a local sales and marketing office, established in 2002, which it expects to expand this year, adding to its current two person team.

“The main reason that we have local staff is to improve customer satisfaction and we can easily get to the market and discuss issues face-to-face. Kuwait accounts for almost 10% of our total revenue, and that is why we are adding to the team. Goods shipped to the country usually stay there, but there is some business going through Kuwait and into Iraq, supplying American armed forces. The rest of the IT kit for Iraq is going into the country through Jordan,” says Mario Veljovic sales and marketing manager at Aptec.
||**||Small IT Community |~|satya200.gif|~|Satya Rangadham, Acer sales manager, Kuwait.
|~|The IT community in Kuwait is very small, with a few local distributors in the market, such as Arabian Business Machines, PCC and Zak Computers. Acer and Aptec estimate that they work with around 50 active resellers each and Toshiba claims 25 to 30 resellers. In-country distributor PCC estimates that in the whole country there are approximately 400 resellers.

One of the reasons that the reseller community is so small is because, in direct contrast to many other countries in the region, the retail market accounts for more business than the SMB market, according to Acer, USR, Toshiba and Aptec.

“We sell more through retail than through dealers, the demand in the retail space over the last two or three years has been fantastic. We are starting to push our new digital products too — PDAs, cameras, wireless notebooks and LCD televisions. The Kuwaiti market is one where we are confident we can drive these products successfully. The market is very much moving towards digital convergence,” says Satya Rangadham, Acer sales manager, Kuwait.

All sectors of the Kuwaiti market are growing, but foreign investment is not on the same level as other GCC countries. No A-brand vendors have dedicated offices, although HP and Acer do have service centres in-country. This can be linked to the local sponsor scheme, which prevents anyone who is not a Kuwaiti national owning more than 49% of a business in the country. There is no free zone in Kuwait, so the amount of investment that a company can make is restricted, and this has impacted the SMB sector.

“The largest challenge the SMB sector has today is the way that the economy is driven. Kuwaiti investment is not geared to develop the SMB segment. It is very strict and companies still need to have a local sponsor to trade in Kuwait. It is not easy to set up like it is in Dubai,” says Veljovic.

Despite the restrictions for foreign companies, the Kuwaiti government has been investing heavily in its domestic economy, issuing many tenders and projects in order to bring the country’s infrastructure in line with the latest technologies.

“Tenders from the government are common, and drive the IT sector in the region. The average budget for a tender is over US$10m for a two-year systems design and integration project. This is profitable, good business, but our target as a solutions provider is to get to the point where we are doing 50% of our business in the private sector,” says Mubarak at EEMC.||**||Government driving investment|~|mubarak200.gif|~|Bader H. Al Mubarak, general manager special projects at EEMC|~|The government is the main technology investor in the region, and has put a lot of money into the country’s general infrastructure. This includes Kuwait’s primary industries of oil and gas, but also as the country develops, opportunities arise in other verticals such as real estate, banking, healthcare, education and media.

“For two or three years the market was slow, so we went into the SMB market heavily. Now there has been a massive boost in infrastructure. The banks are giving heavy support and investment to encourage the region. There are around 27 to 30 new hotels being built too — smart buildings which require a lot of IT, with technology such as VoIP networks and fingerprint reading technology,” says Raed Omari, operations manager at KDCC, one of the largest Kuwaiti solutions providers, working with Cisco, Microsoft, Oracle and HP.

The extent of the boom in the Kuwaiti integration and solutions market is reflected in the success of the second annual Infobiz trade show last December. Infobiz focuses on solution providers and features exhibitors from the IT and telecommunications sectors as well as e-Government representatives from Kuwait and its surrounding countries. The event was hailed a massive success with 13,000 attendees, more than double the previous year’s figure. 46 private sector companies and 17 government ministries were displaying at the show.

“The attendance may not appear huge compared to some shows in the region, but considering that this is a specialised event, and all of the visitors were decision makers leading their sectors and ministries, it is fantastic. Infobiz offered investors the chance to explore the latest developments in the local market and see how they can benefit from investing in Kuwait and the Gulf region in general.” says Ahmed Al Mansoor, CEO at Global Connections, the company that organised Infobiz. ||**||Infobiz breakthrough |~|Etec–USR-in-Kuwait200.gif|~|Faisal Yaqoob (l), eTech and Sumit Kumar (r), USR at Infobiz 2005 |~|Infobiz was a breakthrough event for vendor US Robotics (USR), joining forces with its only Platinum partner in Kuwait, eTech. “This is a very big market for us. Trying to get our wireless products into Kuwait meant slow growth but here, at this event, we see a great demand for USR products, especially at the high end — it has been a big leap. I’d say it was still in the growth sector, but Kuwait is a market of great opportunity,” says Sumit Kumar, regional sales manager, Middle East and North Africa (MENA) at USR.

The eTech stand was awarded the best in the exhibition, and Faisal Yaqoob, marketing manager at eTech solutions, distributors of Asus, Trend Micro and GenX as well as USR, was overwhelmed by the show’s turnout.

“We are getting a lot of enquiries from resellers right now, everybody wants USR products and they are the fastest moving of our stock right now. Both the 9108 and Max G routers have been approved by the Ministry of Communication as suitable for the home. This is a very positive step, as the ministry does not endorse many products,” says Yaqoob.

The Kuwaiti market ended last year on a high and the IT market is proving its potential in terms of opportunity and scope, but it needs development and more freedom, especially at the SMB level. The IT sector is very A-brand driven for solutions and hardware, but it is restricted at the SMB level by business laws and the lack of a free zone. In a market of Kuwait’s size, encouraging direct in-country investment from large vendors will be difficult, especially with a regional hub like Dubai so close. The government is paying a lot of attention to the enterprise sector, but need to also consider development in the SMB sector more closely. The Kuwaiti government is looking after the interests of its own people by keeping a local focus, but if it doesn’t open up its markets, it misses out on the benefits of free market competition, and therefore in the long run, risks falling behind in terms of technology and efficiency to other, market driven, economies in the region. ||**||