The region’s digital economy is set to double over the next three years, passing the US$30 billion mark by 2018 after registering nearly 30 per cent growth this year, according to Deloitte’s Middle East Technology, Media & Telecommunications (TMT) predictions 2015.
Deloitte categorises the digital economy as online consumer spending on lifestyle products and services. While the digital economy has still to become entrenched in the psyche of the Middle East and North Africa (Mena) region, as shown by the paucity of online spending, the hardware to facilitate it, such as laptops, tablets and smartphones, have now become a necessity rather than a luxury in many places.
The GCC is also making strides in its development of smart cities, with Deloitte predicting that new smart-city greenfield developments in the region will double within the next two to three years with specific state-endorsed mobile apps created.
“M-government is actually a subset or extension of e-government to mobile platforms, where mobile is a channel, another means of improving government activities, processes, service delivery, and its ability to connect with its stakeholders,” said Santino Saguto, a consulting partner and TMT leader for Deloitte in the Middle East.
“The Middle East region alone represents 24 per cent of the global m-gov services base, with the GCC countries, at over 85 per cent of the region’s m-gov services, driving regional m-gov developments.”
The digital economy’s benefit to global GDP from traffic and trade flows was estimated by the management consulting firm McKinsey to be about $450bn a year. The firm also forecast the value of trade flow through digital channels to be $85 trillion by 2025 – three times the value in 2012. The expanding nature of the internet’s reach is becoming more obvious across the Mena region.
“I only opened up my platform six weeks ago, but 600 businesses have joined Jado Pado marketplace,” said Omar Kassim, the founder of Jado Pado, an online retailer based in Dubai. “That is because, although we are spoiled in the UAE for the amount of retail options, that is not true for most of the region and the demand is there for many products.
“The rising rents in the malls and the expense of opening a business means that the digital sphere creates a compelling case to be explored.”
Deloitte’s predictions do not focus solely on trade and commerce but also on the application of digital processes that are changing the way this country interacts with the wider Middle East. It anticipates huge growth potential in the nascent 3D printing sector, for example.
“We have seen the demand for 3D printing grow in the UAE,” said Ashish Panjabi, the chief operating officer of Jacky’s Business Solutions. “Initially our main penetration into education was universities, but in the last year we moved into the secondary school segment.
“The dental sector has been another promising segment for us, where we have seen the advantages 3D printers possess over traditional milling machines that dental labs used,” he added.
“Apart from this, we’ve seen the printers move into government, manufacturing enterprises as well as the oil and gas sector.”
ascott@thenational.ae
Mohammed bin Zayed Majlis
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
