- Spending is expected to have shrunk by 4.6% in 2020 but a marginal growth of 1.9% is seen this year to $209.5b.
- Telecom services spending, which constitutes over 60% of the total ICT spending, will grow by 1.3% this year while IT spending will grow by 2.8% to surpass $77b.
- IT spending in 2020 is expected to see a decline of 4.9% in 2020.
- Enterprise IT spending is expected to recover this year with a growth of 4.8% to $33.7b compared to a negative growth of four per cent from $32.2b in 2020.
Information and communications technology (ICT) spending in the Middle East, Turkey and Africa (META) is expected to have shrunk by 4.6 per cent in 2020 due to Covid-19 and lockdowns.
The pandemic has led to deep misery for the global economy. About 90 per cent of the world has expected to have experienced a shrinking of economic output in 2020.
The economic slump due to Covid-19 is worse than the 2009 economic recession. While in 2009, the global GDP shrunk by about 0.1 per cent but in 2020, it is expected to have shrunk by about four per cent.
The misery continues into 2021. New waves of the pandemic and new strains of the virus have brought lockdowns and closure of borders in many countries.
The economic recovery is expected to begin only in the second half of the year but significant recovery will not happen until 2022.
“Oil prices, which have a significant impact on the economies in the Middle East, Turkey and Africa, will unlikely see a significant recovery in 2021 and currency fluctuations could continue as the economic situation remains volatile,” Jyoti Lalchandani, Group Vice-President and Regional Managing Director of International Data Corporation (IDC) Middle East, Turkey and Africa, said.
In Saudi Arabia, he said that low oil prices will continue to have an impact on government revenues. However, he said the deficit budget announced for 2021 and the intentions of the Public Investment Fund to pump significantly into the local economy will all go well.
In the UAE, he said the economy is expected to be relatively weak until mid-2021 due to falling in oil prices impacting public sector incomes, fall in white-collar jobs, cuts in wages of the private sector and recession.
“The UAE economy is expected to have a gradual recovery from mid-2021 onwards and a stronger return to growth in 2022,” he said.
However, Lalchandani said that ICT spending is expected to have a modest recovery of 1.9 per cent this year to $209.5 billion and continue the growth of two per cent in 2022.
Telecom services spending, which constitutes over 60 per cent of the total ICT spending, will grow by 1.3 per cent this year while IT spending will grow by 2.8 per cent.
“Spending will not return to the 2019 level before 2023,” he said.
Lalchandani chalks out key paradigm shifts that will change the next normal and key technologies that will shape 2021 and beyond.
Telecom services
The META telecom services market is expected to have shrunk by about 4.4 per cent last year. However, the market was not impacted as much as expected in the early stages of the pandemic.
“We saw increased usage of telecom services to connect with friends and families, increased home entertainment and increased collaboration for remote work and distance learning. Data revenues have shown only a marginal 0.9 per cent decline in 2020. The data services spending are expected to see a boost this year as hybrid or blend work and learning practices continue even after a return to normalcy in several countries,” he said.
Mobile data services will emerge even stronger and experience faster growth as coverage of fixed broadband networks continue to be weak in several countries across the region.
Voice services spending, both fixed and mobile, has been declining for quite some time, in line with the global trend, is expected to see a sharp decline in 2020 due to the increasing availability of reliable broadband speeds and a significant amount of voice traffic is routed through over the top (OTT) collaboration tools such as Microsoft Teams, Zoom and Cisco WebEx and is putting further pressure on telecom voice revenues.
Eventually, he said that mobile data spending will overtake mobile voice by 2023.
IT spending
Spending has been much more resilient in 2020 than expected at the beginning of the year. Spending in 2020 is expected to see a decline of 4.9 per cent but will see moderate growth of 2.8 per cent this year to surpass $77 billion and continue to 2.4 per cent in 2022.
“We have lost $3.9 billion of spending due to five per cent contraction in 2020. To recover from this loss, it will take time and we don’t expect to see 2019 spending until 2022,” he said.
PCs, laptops and tablets saw a surge in demand in 2020 due to remote work and distance learning initiatives. Owing to the surge in 2020, 2021 is expected to see a decline of 1.3 per cent.
Mobile phone shipments will see a rise of 2.5 per cent after a decline of 8.7 per cent in 2020. Shipments saw a pent up demand in the second half of last year.
Infrastructure spending, IT services and software spending will see a significant increase this year.
On-premises software spending declined but cloud software as a service, platform as a service spending showed strong growth in 2020 on the strong Capex to Opex drive and strong hyperscaler push.
Among the countries, South Africa, Saudi Arabia and the UAE are expected to see spending growth this year.
Enterprise IT spending is expected to recover this year with a growth of 4.8 per cent to $33.7 billion compared to a negative growth of four per cent from $32.2 billion in 2020.
“We forecast spending across the enterprise infrastructure, which includes infrastructure as a service, software as a service, platform as a service and IT services market. Despite losing $1.5 billion in value in 2020, we expect to see this year’s spending to reach 2019 levels,” he said.
Among verticals, healthcare is expected to see the biggest growth of 7.6 per cent in 2021, followed by education with 6.5 per cent, finance and retail with 5.2 per cent and professional services with 4.9 per cent.
Transportation and tourism took the biggest hit in 2020 with a decline of close to 20 per cent, followed by retail with seven per cent and construction with 6.4 per cent.
Emergence of four key paradigms
Covid crisis has led to the emergence of four key paradigms that will shape the digital economy this year and beyond and will impact technology spending. The four paradigms are the rise of the contactless economy, re-imagination of work, resilient supply chains and operations, re-invention of business models.
Contactless economy: Contactless services have become necessary during Covid and organisations across the public and private sectors have to rapidly shift as many of their physical services to mobile or Web platforms. But those services that couldn’t be shifted need to be made contactless in the physical environment.
The rapid growth in e-commerce, expansion of digital government services, rise of digital payments, reshaping of physical retail stores, service centres, bank branches and so on to enable low human touch are all examples of this phenomenon.
Even after Covid is contained, several elements of the contactless environment will persist. As this contactless economy deepens, leveraging technology to drive key elements will become essential such as the scaling of experiences using digital platforms, developing customer journeys, improving customer insights by leveraging analytics, AI and machine learning, digitally re-inventing physical experiences and spaces and the personalisation of experiences by leveraging AI and machine learning.
Re-imagination of work: In the immediate aftermath of the Covid crisis, organisations were forced to work from home for the majority of their employees. They have to be provided with PCs, connectivity and secure access to applications and data.
Now in many countries and industries, workers are returning to offices but the remote work experiment has allowed organisations to consider the blended or hybrid model. The ability to get work done from a distributed workforce means that new security policies need to be adopted to secure access to applications and data.
The workspace is not limited to the office but anywhere where the work is done. These workspaces will become embedded with more intelligent automation with technologies such as RPA, AI and digital assistance.
Workflow management and collaboration applications that reduce friction, enable empowerment and speed will need to be enhanced.
Digital workspaces that augment worker experience with trust at its core will become a priority and as a mean to attract talent.
Offices will require a redesign and digital enhancement as blended work becomes the norm.
Talent itself will be more easily accessed from remote locations and the gig economy. These trends will lead to a fundamental re-imagination of work.
Emergence of resilient supply chains and operations: The global trade value chain went through one of the most disruptive times in 2020. On one hand, the pandemic created tremendous volatility in demand making, planning and forecasting challenging.
On the other hand, it disrupted the movement of goods to an unprecedented extent, placing tremendous pressure on the global supply chain.
Various players in the supply chain – suppliers, manufacturers, distributors and retailers – were forced to respond quickly by increasing efficiency, embracing digital business models, creating new partnerships, developing new revenue streams and containing costs.
Residency has become the keyword while optimisation and visibility are the key overarching focus points. This is resulting in specific digital initiatives in various parts of the supply chain such as developing smart factories that entail automating the factory flow in improving asset management, smart product management, smart warehouse, inventory optimisation and delivery optimisation.
Four key technologies are emerging as key enablers for these digital initiatives – AI, RPA, robotics, IoT, public cloud and cybersecurity technologies to build resilient IT systems.
Re-invention of business models: The covid crisis has forced many organisations to reinvent their business models. Declining revenues and profits for current products and services have persuaded many to pivot their business models and re-purpose their assets and resources for new products and services or, sometimes, in entirely new industries.
During the pandemic, it became very clear that organisations that had an industry ecosystem of partners in place were even more agile in their response and were able to re-configure quickly to address the next normal.
The future of industry ecosystems is open, dynamic and sharing, and evolving like a biological ecosystem that changes and response to pressure, competition or even disruption.
Data is the core asset that will drive the flow of business within organisations and across the ecosystem.
The future will be shaped by the digital ecosystem that leverages platforms that enable cross-industry innovation, collaboration, data sharing and monetisation.
These paradigm shifts are accelerating digital transformation as “we have never seen before.”
In the CIO survey conducted back in December, over 50 per cent of enterprise CIOs have brought forwards their digital journey by a year. This acceleration is leading to significant growth in spending on digital transformation and changing the mix of digital and non-digital IT spending.
“We expect that IT spending on digital transformation will accelerate further and grow as a share of total IT spend. This share was 25 per cent in 2020 and it is expected to grow to 34 per cent in 2024,” he said.
Majority of the spending will be on emerging technologies such as AI, IoT, blockchain, RPA, AR, VR, etc.
Five stages of recovery from Covid
IDC believes that organisations will go through five stages during the recovery from the Covid crisis. Technology will be a key enabler in each of these stages with a focus of tech investment will be different in each phase.
In the initial stages of the response to the crisis, organisations are mostly focused on business continuity, cost optimisation. As their business contracts enter recession, they tend to focus on being resilient and align their technology strategies to improve resilience, flatten the curve of the recessionary impact on their business.
As their business recovers and return to revenue and profit growth, they begin to make targeted investments in the longer-term digital innovation roadmaps that help them thrive the next normal.
In the next normal, organisations tend to look at themselves as digital enterprises where technology is really at the core of the business strategy.
“In the META region, we find that nearly 45 per cent of organisations are still in the business continuity and optimisation phase,” he said.
Industries such as banking and financial services, education and transport have a higher percentage in stage five.
Industries such as hospitality which has been devastated with over 80 per cent of the organisations in the first two stages as they struggle to return to business growth.
As they move toward becoming the future digital enterprise, organisations are prioritising key strategic IT capabilities to invest in the next 12 to 18 months.
Those investment priorities are:
Process automation excellence: Aim of reducing operational cost and also to improve agility by leveraging technologies such as RPA, AI and machine learning.
Security and resilience: It includes building greater digital trust, security controls and compliance.
Transforming infrastructure: To make it more scalable, software-defined and resilient, so that it can enable cloud and support business agility needs, followed by capabilities for rapidly modernising legacy applications and transforming them to be cloud-native and able to support new customers and operational use cases.
Data excellence: It includes data classification, integration and analysis to extract greater actionable insights. Organisations are looking to develop cloud skills, processes and adopt tools for better cloud management.
“As we have seen, process automation is the key priorities for tech leaders. The benefits of RPA have come to the fore during these difficult times. In the future, we expect automation to more rapidly move from silo task to end-to-end processes,” he said.
At the moment, he said that 80 per cent of the process automation is non-AI enabled.
“We will see greater AI injection into RPA going forward. The spending on RPA will continue to grow and it is expected to surpass $15 million this year and growing at an annual rate of over 22 per cent between 2019-2024,” he said.
Cloud computing
The demand for cloud is expected to surge due to the pandemic, driven by the need for cost reduction and digital acceleration. Hybrid multi-cloud will become the norm and the foundational model for most medium- and large-sized organisations.
A significant portion of the applications and data will continue to reside on on-premises and in the private cloud.
A majority of organisations will also have workloads placed in multiple clouds – private and public. However, interoperability between the clouds will not be easily achieved. Management of such a distributed hybrid environment will become a significant challenge.
Cloud skills availability, deciding on the right cloud option and the migration path for the workload and ensuring security and compliance across hybrid and multi-cloud environments, will be challenging.
Cloud performance monitoring, reporting, cloud cost management and optimisation will become key priorities for IT managers.
Infrastructure modernisation to enable hybrid multi-clouds will become essential to facilitate workload mobility, scalability and performance.
Investments in areas such as networks for improved cloud performance and on security for cloud will grow.
Spending on public cloud services will grow at 26.7% to surpass $3.7 billion this year while SaaS, PaaS and IaaS will grow at 24.5 per cent, 30.6 per cent and 30.7 per cent respectively.
Cloud professional services will grow rapidly to surpass $1.6 billion this year.
“As part of the infrastructure modernisation initiative, we expect to see greater investments in various elements of infrastructure, including the addition of more software-defined infrastructure, hyper-converged systems and automation platforms for network management in the next 12 to 18 months,” he said.
As they move to become a future digital enterprise, organisations will look to upgrade to cloud-centric digital infrastructure that business solutions can be built upon. Digitally driven enterprises will take a holistic approach to deployment across the digital infrastructure ecosystem. This ecosystem delivers timely access to innovate infrastructure resources, both shared and dedicated that support adaptive, resilient, secure and compliant digital business models.
The most critical goal for a transition to a cloud-centric digital infrastructure is delivering timely access to innovative technologies anywhere. Many organisations will realise that legacy applications are too monolithic and slow to keep pace with rapidly changing customer and operational needs. During the Covid crisis, achieving technology priority became essential, that is all workers have secure access to the applications and data resources required to do the job, no matter what devices or location.
Line of business functions is also increasingly demanding new applications, especially new task-level apps that can be developed in-house rapidly.
“As CIOs increasingly become innovation leaders and try to rapidly adopt emerging tech such as RPA, AI, machine learning, predictive analytics, blockchain and IoT and so on, we are looking to move from legacy overly customised applications to more nimble applications. They want to move to a more modern SaaS and cloud-enabled applications with real-time data and intelligence coupled with microservices and application programme interfaces, anywhere and anytime access,” he said.
Intelligence
Data and AI are at the centre of the future of intelligence. Volume and variety of data available to organisations have grown even faster during the pandemic.
However, many organisations are struggling to attract value from the data. Over 40 per cent are not able to distribute the data effectively. They don’t have visibility to all the data that is available to use and face challenges with fragmented and siloed data.
Data-driven decision making, pervasive analytics, AI-based automation and business outcomes will be key. The appetite for AI continues to grow but skills shortages, cultural hurdles and concerns about biased algorithms are often cited as challenges.
Use cases such as automated customer service agents and digital assistance for prevention, security threat prevention, intelligent process automation, to name a few, will attract more spending this year.
Progressive governments in this region such as Saudi Arabia and the UAE are developing national strategies to harness AI in the public and private sectors to enable better and more efficient services and processes.
The spending on AI will grow at 23 per cent to surpass $540 million this year.
Security
Security is one of the key areas where organisations are planning to invest in over the next 12 to 18 months.
The top strategic goals among organisations in the region are centred around strengthening the digital trust among customers and employees as a key to scale up digital transformation. Constantly securing access and availability of data and applications for a distributed workforce and ensuring the safety of personal data of customers is essential if digital initiatives need to be scaled up.
The pandemic has heightened the criticality of supply chain agility as enterprises extend their digital footprint to other partners in the supply chain, ensuring security for the applications and infrastructure that stretches across the chain is becoming increasingly important.
As organisations create unique workflows, adopting cloud-based apps integrating OTT and extending their applications from the core to the edge, security will become extremely important.
Spending on security hardware, software and services will grow at 7.1 per cent to surpass $3.3 billion this year.