Chinese brands influencing smartphone boom in the Middle East and Africa

Chinese and local brands accounted for approximately 10 per cent of smartphone shipments in Mena last year. This figure is expected to double by the end of 2015. Pawan Singh / The National

Smartphones are booming. Everyone knows that. But what is really happening? More importantly, why is it happening and what is going to happen tomorrow?

There are several trends driving the growth of smartphones in the Middle East and Africa.

Growth of Chinese and local branded smartphones

In the region, Chinese and local brands accounted for approximately 10 per cent of smartphone shipments last year. This figure is expected to double by the end of 2015.

Chinese vendors such as Lenovo, Xtouch and Huawei are expected to grow further, especially in Africa. Additionally, vendors such as ZTE and Xiaomi – both of which experienced significant growth in other regions last year – have now set their sights on the Middle East. Shipments of ZTE smartphones in Africa were up 1,500 per cent in the first nine months of 2014 when compared with the whole of the previous year.

Meanwhile, Xiaomi has become the leading smartphone vendor in China and third biggest in the world.

IDC expects these vendors to aggressively enter the Middle East with the same force they have in other regions and bring about significant change in the market.

Various other Chinese manufacturers have very recently arrived, including brands such as Oppo and Obi. Together, all these brands are sure to take share from the existing players and contribute to the growing influence of Chinese smartphones.

Local brands will also gain momentum, especially in markets such as Turkey and Pakistan, where brands such as General Mobile and QMobile, respectively, already hold significant shares.

In Africa, it is local brands such as Techno – which now has 8 per cent share of the continent's smartphone market after posting year-on-year shipment growth of 269 per cent in the third quarter of 2014 – that will continue growing as other local brands begin to emerge.

Falling prices and new retail channels

A key factor in the rapid growth enjoyed by these vendors is the aggressive pricing strategies they employ. IDC data for last year’s third quarter shows that devices priced at less than US$150 now account for 40 per cent of the smartphone market, up from 20 per cent in the same period in 2013.

The average price for smartphones is expected to continue declining. IDC predicts the average selling price for all smartphones in the Middle East and Africa to drop by almost 10 per cent this year.

New vendors have been able to sustain falling prices by cutting costs, mainly through new sales strategies. Instead of using brick-and-mortar stores for distribution and retail, many of these brands such as ZTE and Xiaomi, are using the internet to sell directly to consumers. Savings are passed on through cheaper phone prices.

And as these vendors grow in the GCC region, they are sure to employ a similar strategy. IDC expects direct online sales in the GCC this year to grow 10 per cent over 2014.

Dominance of smartphones versus feature phones

The mobile phone market is shifting even faster to smartphone adoption than previously anticipated. The smartphone share of the Middle East’s overall mobile phone market will cross 60 per cent by the end of the year, while in Africa it will cross the 40 per cent mark. Some countries in the Middle East will even reach 80 per cent and 90 per cent for smartphone share by the end of 2015.

This is due to a combination of many factors, but the most important is the increased availability of cheaper smartphones.

This, combined with improved telecoms infrastructure offering better data coverage and the declining cost of data plans across many Middle East countries, has led to rapidly increasing smartphone penetration.

The biggest increase often comes about when operators in previously regulated markets start offering subsidised devices that can be paid over time through postpaid plans. As more Middle East countries switch to this model, there will be an even bigger uptake of smartphones.

The rate at which these factors start being implemented in African countries will determine how fast the smartphone share increases across that continent. Even with some increased variety of entry-level smartphones, with some selling for as little as $35, the cheapest feature phone still stands at $10 to $12.

Clearly it is the reduction of this gap that is driving the conversion of feature-phone users to smartphones. As long as the gap exists, or does not become negligible, demand for feature phones will exist.

Nabila Popal is the research manager for the Middle East and Africa at IDC

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