Organisations in the Middle East and North Africa will spend $5.2bn on upgrading data centres in 2021, almost 6.8 per cent more than last year. Getty
Organisations in the Middle East and North Africa will spend $5.2bn on upgrading data centres in 2021, almost 6.8 per cent more than last year. Getty
Organisations in the Middle East and North Africa will spend $5.2bn on upgrading data centres in 2021, almost 6.8 per cent more than last year. Getty
Organisations in the Middle East and North Africa will spend $5.2bn on upgrading data centres in 2021, almost 6.8 per cent more than last year. Getty

Technology

Mena's IT spending to reach $171bn in 2021 as pandemic spurs digital adoption

CIOs set to increase spending on servers, applications and infrastructure software to support rapid digitalisation efforts

Alkesh Sharma
Alkesh Sharma

April 26, 2021

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The amount spent on information technology in the Middle East and North Africa is set to grow 4.5 per cent annually and reach $171.3 billion this year as businesses increasingly digitise amid the pandemic, said research firm Gartner.

Chief information officers in the region will increase their spending on servers, applications and infrastructure software to support digitalisation efforts and hybrid work models, it added.

The region will see IT spending return to pre-pandemic levels or even surpass it over the next two years.

“IT projects were either put on hold or cancelled because of Covid-19 … as the situation in the region improves and businesses understand the true value of a resilient digital ecosystem, IT spending will return to a pre-pandemic growth rate,” John Lovelock, research vice president at Gartner, said.

An increase in remote work will be one of the main factors driving the growth in IT investment, Gartner said. Companies are set to increase their spending on mobile devices and remote working technologies such as desktop-as-a-service software.

The communications services industry will see the largest IT outlay among five sectors highlighted, totalling $116.8bn, according to the report. The remaining $54.5bn-plus will go towards upgrading data centres, devices, enterprise software and IT services.

The enterprise software will experience the highest annual growth at 14.5 per cent year. Other sectors will register only single-digit growth, ranging between 2.5 per cent and 8.7 per cent.

“In the first quarter of 2021, projects such as ‘remote work visas’, ‘Smart Dubai 2021’ and other economic policy regulations were launched ... these are expected to boost technology investments in the region,” Mr Lovelock said.

“Different economies have reacted differently to the pandemic … while 2020 slowed the growth of IT in the region, the K-shaped recovery has begun faster in this region, compared to Asia and Latin America,” he added.

Last year, IT spending in the region grew 2.7 per cent on an annualised basis. Most of the segments experienced flat growth, except for communications services, which grew 7.2 per cent, said Gartner.

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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.”

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