The Current and Historical Economic Growth in the Middle East Countries - Dissertation Example

? How ICT Has Changed the International Trade of Middle Eastern Developing Countries By Submitted in partial fulfillment of the requirements for the Degree of ___________________ in the University of ____________ Department of ____________ University of ________________ 2011 Word Count: 3,927 CHAPTER 1 - INTRODUCTION 1.1: Identification of the Topic The current and historical economic growth in the Middle East (ME) countries has provided a lot of business incentives to foreign players entering the market and setting up limited or full operations. One of the best growing business in the region is ICT (including personal computer, Internet, telephone and mobile phone) and not only is it making money for the vendors, it is also changing the face of international trade and commerce in the middle eastern developing countries. This is what this paper’s topic will all be about. This paper will explore the changes ICT has brought about thorough presentation of peer-reviewed literature that contained previous studies of researchers also about the same topics. It will also explore the digital divide existing in developing countries and how ICT has helped resolve this problem. It will also be discussing the status of ICT in three countries in the MENA region, namely, Saudi Arabia, United Arab Emirates and Dubai. This paper will show how ICT developed in these region and how it helped socially, politically and most importantly, economically. 2.2: Research Questions The research questions in this study are used as a guide to analyze the attractiveness of the Middle East countries as a market for international entry. The industry used in this dissertation is of the high tech information and communication technology. The digital divide and the importance of the distribution channel to the ICT industry are also studied. The emerging and high growth nature of the Middle Eastern region has attracted small to very large ICT vendors from the world over. This paper will be guided by the following research questions: 2.4.1: What makes the Middle East an attractive destination for ICT vendors to set up sales and marketing ventures? 2.4.2: What is digital divide and how does it figure in the Middle Eastern region, particularly the developed and developing countries. 2.4.3: How ICT has changed the international trade of Middle Eastern developing countries. 2:3 Background of the Problem The fast development of ICTs served only to highlight other technological disparity complexities associated with it. This can happen to both developed and developing nations. It came to the attention of those concerned that such disparity may occur in a developed nation more than between developed and developing nations. Moreover, this disparity does not only pertain to internet and computer use but also other ICT forms such as mobile phones, landlines and even pagers. The awareness of this disparity led to yet another terminology that as of today is not widely used, i.e., “digital divide”. Digital divide has a broader meaning than simple “information gap”. This digital divide present in developed or developing countries, particularly those in the Middle East (ME) is going to be the focus of this paper. How ICT either solved or worsen this disparity problem in the ME region will be included in this paper. Likewise, the advantages and changes brought about by ICT to the nations experiencing digital divide in the ME will also be explored. The literature of 3 ME countries that enjoyed the development of ICT in their midst will also be given focus. CHAPTER 2 - LITERATURE REVIEW 2.1: Introduction This paper will make use of academic and peer viewed literature that corresponds to the main themes of digital divide and the ICT industry as applied to the Middle Eastern countries with focus on three of them, namely Saudi Arabia, Dubai and UAE. The study is based on a qualitative research approach that strives to collect relevant information and data from different available secondary resources. The literature included in this chapter will also serve as basis for the conclusion that answers the research questions presented in the preceding chapter. This chapter tends to present a deep understanding of all the issues related to the topic of the research. 2.2: Digital Divide The ICT revolution came late to developing countries. Emulating the adoption of ICT in these countries from developed and industrialized countries will expose them to highly beneficial technological potentials. In the 2001ILO World Employment Report (ILO Report 2001), it was observed that despite the fast development of ICT in the industrialized and developing countries, there are still a huge portion of the world that has not been touched by it and are still “technologically disconnected” from the advantages brought about by the wonders of the digital era. The report further found that 90% of the users of internet come from industrialized countries like the United States and Canada. The two countries alone account for 57%. On the other hand, internet users from the MENA (Middle East and North Africa) regions account for just a mere 1% of all users around the globe (Rao 2001). If the said developing countries in the MENA regions will successfully exploit the potentials of ICT, the economic gap between developed and developing countries will be more tolerable. In a study by EIU (2004), an important point for gaining positive effect for ICT application in developing nations has been highlighted. This global technology gap between poor and wealthy countries is currently very big but it does not end there. The gaps are also present between those who are advantaged and disadvantaged regions within the same nation (Norris et al 2001). Digital divide is said to be a concept that would not only be the problem of end users buy also be considered to affect the development of community (Lentz 2000). Research show that digital divide’s policy problem should be addressed using multiple dimensions (Baker 2001 and Warschauer 2003). The seeming lack of consensus comes from the society’s complexity and how technology may be connected to it. In contrast to other studies, ICT diffusion is not associated with adult literacy or FDI (Pick and Azari 2008). ICT can instead provide better economic growth and added income in developing countries. This can however be hampered by a country’s poor trade policies and social development and slow governmental decisions. As a result, these nations becomes trapped to the digital divide’s poor (Baliamoune-Lutz, 2003). One of the main challenges that developing countries may face may prove to be a big investment and may easily compete with the provision for the poor in a nation (Ochieng, 2000). It is quite an expensive affair to invest in ICT and its infrastructure especially for developing countries. Doing this may pose as a burden of debt to the nation involved (Y. Chen, Farinelli, & Johansson, 2004). However, money is not a problem for the huge digital divide present in the nations which are subject of this study. ICT arrived in these Middle East nations at a later time compared to other countries which are as wealthy because of other reasons, e.g., religion and beliefs. However, the region can boast of the fact that ICT has already penetrated their domain and is doing well to make use of the potential for growth brought about by the technological advances. The succeeding literature review will focus on the status of ICT in the Middle East region with focus made on three particular countries in the region, i.e., Dubai, UAE and Saudi Arabia. 2.3: ICT Industry in the Middle Eastern Region The ICT industry covers a wide range of services including telecommunication, internet, software, hardware, IT services, video conferencing, mobile telephones, optical fibers and so on. In different countries of the Middle East, the development patterns of the ICT industry are different. The Middle East region is basically divided in two four main groups. The first group comprises of the countries including Iraq, Palestine and the Sudan. These are the countries facing difficult circumstances. The second group is least developed countries that include Yemen, and Djibouti etc. The third group contains the middle-income countries like Morocco, Egypt, Jordan and Syria. The fourth group is the gulf countries including like the UAE, Kuwait, Oman and Saudi Arabia. These countries have attained sustainable level of economic growth and the economies of these countries show the development of different oil as well as non-oil sectors. (Ayish, 2004, p381). The economies of the UAE and the MENA regions possess some very diverse as well as complex set of cultures and economies. It is not an easy task to monitor the developments occurring in the information and communication technology industries of these countries because it is a time consuming task and at the same time, it required to thoroughly study different aspects of the market segmentation. All of the countries of the Middle East region are supposed to be oil based economies; however, many of the countries of the region have realized the importance of diversification of the economy towards the non-oil sector. The importance of information and communication technology is also realized by most of these countries, and as a result, there is a great level of awareness regarding the need of the embracing technology in the region. Especially, Dubai is leading the region with the status of the regional hub. Now, the region openly uses different tools of the ICT in different sectors for different purposes - from services to the manufacturing concerns. Procurement is said to be the business’ core activity (Turban et al 2008) and this is quite evident in the Middle East now more than even with the business booming. ICT is proving to be good business in the region and its procurement should then be carefully considered. The region now tends to take a full advantage of the advancements occurring in the ICT industry, and as a result, the ICT is taken as a cross cutting tool that help countries in attaining sustainable level of economic and human development. The establishment of the economic zones in the UAE and in the Middle East region is an important development towards the promotion of the ICT sector - international vendors also found new opportunities through these zones. These economic zones allow the companies to get the exemption of taxes and laws. The governments of MENA region countries took this initiative basically to promote the ICT sector and to diversify their economies. These zones not only facilitate the vendors but at the same time also work for strengthening the ICT infrastructure in the country. At present, the countries of MENA region have succeeded in acquiring a relative liberalize model for the management and development of ICT. However, despite all of these initiatives and developments there are certain barriers that strongly influence the working of the international vendors in the region. There are certain challenges encountered by the international vendors in form of authorization barriers to the construction of networks, management of networks, and service provision. Despite all the liberalization efforts, the economies of MENA region still put several barriers upon the international vendors and limit their circle of operations. The providers of the facilities and services related with the ICT industry are required to get the permissions, licenses and registrations from the authorities. The concept of full liberalization has not yet emerged in the region and many countries have implemented restrictive regulatory practices and policies that affect the authorizing market entry. For example, the fixed network licenses are allowed to the international vendors in very few countries (Fiske et al, 2008, p6) The United Arab Emirates possesses an open economy that is marked with high per capita income and considerable surplus of annual trade. The government policies and strategies implemented after 1973, have transformed the country from a small desert principalities to a modern state, where people enjoy high standard of living and the economy flourished with the support of different sectors’ development. The country basically has an oil based economy however the efforts of the government to diversify the economy towards non oil sectors have resulted in the development of many other sectors like construction, telecommunication, IT, real estate etc. As a result of government efforts, the development of the ICT sector has reached to a sustainable level in the region. Especially, Dubai and Abu Dhabi have become the dominant emirate states to offer wide range of advanced information and telecommunication services to the customers. The United Nation Economic and Social Commission for Western Asia (ESCWA) studied the IT usage condition of the UAE in 2003 and reported that the union of seven sovereign sheikhdoms the UAE is moving towards securing efficient performance in the non oil sector and there is considerable progress of the country in the informational technology sector (Ayish, 2004, p381). ETISALAT introduced internet in Dubai in August 1995 and in 1999 ETISALAT lunched the value-added Internet roaming service in the country that allowed the Internet dial-up customers to perform various online activities at the rate of local call including accessing their ISPs from anywhere in the world when the UAE became the member of Global Roaming Internet Centre (GRIC) - a worldwide alliance of ISPs (UAE Gov. Website). Since then, Dubai is on its way to adopt and implement Internet in different sectors of economy and life. In 2006, the internet users of the UAE for e-commerce products and services spent more than $1.15 billion. In order to encourage and further support the international vendors of the ICT industry, the Dubai Internet city – DIC also announced to give awards to the leading international vendors of the UAE and the MENA regions – the ICT industry. The Sun Microsystems was awarded as the best enterprise vendor of the region. ESWA (2003) disclosed that with the assistance of computer based technology. The UAE has now secured a sound position in the region and the states of the UAE especially Dubai has come up as an advanced and technologically updated state of UAE. At present, the UAE has achieved a sound position in adopting the information technology. Table 1 shows the World Bank report (2005) on the information technology infrastructure of the United Arab Emirates. Table 1 - World Bank Report on IT infrastructure of UAE (2005) Mobile Phones per 1,000 People, 2004 852.6 Computers per 1,000 People, 2004 115.7 International Internet Bandwidth (bits per person), 2004 351.2 Internet Users per 1,000 People, 2004 320.6 Price Basket for Internet (US$ per month), 2003 13.1 ICT Expenditure as % of GDP, 2005" 3.58 The number of internet subscribers is rising in the country. According to the CIA World Facts Book (2007), there were 1.709000 users of internet in the United Arab Emirates by the year 2006 and the number of internet users is continuously rising. Table 2 shows the rise in the internet users in the UAE: Source: Internet World Stats (2005) Table 2: Internet Usage in UAE (2000-2005) The hardware market of the UAE has now become the largest hardware market of the region that shows 12 percent rise in the growth in 2006. Mobile computers and notebooks contribute around 60 percent of the sales of the hardware. The introduction of the wireless internet has also boosted the sales of notebooks and their accessories in the country like the internet PC cards, HD DVD. In the same way, the software spending is also increasing in the country and it is estimated that the spending on software contributed almost 18 percent of the total spending in the ICT industry. The ESCWA (2003) revealed in the report on the situation of IT society in the UAE that the country possesses high quality internet service featuring “dial-up, ADSL, ISDN, Frame relay, ATM, leased line, and satellite options”. The repost also informed that there has been increase in the total available bandwidth in the country that rises from 1024 Mbps in 2003 to 2,680 Mbps in 2005. The government is making investments in the IT sector to promote the use of computers in businesses and in the year 2003 there were Dh997 million (US$271.66 million) spend on the maintenance and improvement of the IT infrastructure. The information technology report on the UAE (2005) stated that the government is taking reforming steps to encourage the use of IT in the businesses and as a result of the steps to promote the IT market, it is expected that present size of the IT market in UAE of US$1.3bn in 2005 will become over US$2.6bn by the year 2010. The report also indicated that there is great possibility and expectations that the use of computers and IT will increase in the business sector of the UAE and it will significantly improve the performance of various sectors like financial, oil and gas as well as non-oil sectors. Dubai being the thriving business hub on the Arabian Gulf is increasingly repositioned as the IT centre of the Middle East. Many Information Technology firms as their Middle East regional headquarters have already chosen the city. Dubai is moving fast towards the emerging trends of internet usage in business activities (Tassabehji and Rola, 2000, p144). At government level there are remarkable efforts being done to promote internet usage in the business organizations of Dubai. Dubai has gained the status of the leading city in the ICT sector development at international level. The formation of Dubai e-government is considered a pioneer initiative that is intended to provide corporate and community life services to people via internet. The establishment of Dubai’s third free zone was also an important step that encourages the growth of internet and e-commerce in the city. The ICT and Telecoms market in the UAE is currently estimated at around $2 billion and is projected to grow at a rate of 10.2 per cent annually (UAE Ministry of Economy). As per the Ministry of Economics, this growth has been attributed to the excellent and Political and Economical environments within which foreign MNC’s are currently operating, guaranteeing them world class infrastructure, zero income and corporate tax and the free flow of information, capital and skilled people. The amount of investment made on part of the Government by the establishment of certain ICT specific free zones including the creation of the Dubai Internet City, Dubai Media City, Dubai Outsourcing City, into the ICT sector provides a lot of attraction to MNC’s to operate in the UAE (Ayish, 2004, p381). The wave of awareness to adopted ICT is not only felt in the UAE but the countries of Middle east and North Africa (MENA) also give away indications that these countries are also committed to foster the growth of telecommunication and information sectors in response to the changes occurring at the global scenario. The MENA region countries are on their way of liberalizing their ICT markets. The MENA region countries have decided to rule out monopolist approaches from the ICT industry and have granted licenses to several foreign and private sector companies to initiate their operations in information and telecommunication sector. These steps are taken with the intention to boost the growth of ICT sector as well as to take advantage of skills and technologies of private and foreign companies. As a result of the initiatives taken by the governments of the MENA region, there is a high level of competition between private, government and foreign companies which are operating in the ICT sector and at the same time the customers are getting access to modern devices and services related with the ICT industry. The countries of the MENA region are focusing upon service-based competition and for this; they are concentrating towards the development of the infrastructure that can support the growth of the ICT industry effectively. For this purpose, these countries are giving attention towards the network operators, buying minutes, capacity, or services and tailoring so that they can efficiently provide services to their own customers. There were many limitation faced by the investors and foreign companies that hinder the development of ICT countries but now the government of most of the countries of the MENA region are liberalizing their economies in order to attract investors towards the sector. Furthermore, the concept of service based competition is also getting momentum in these countries and the companies operating in the ICT sectors are now insist to focus upon “incremental and selective investments, greater penetration of services, and a positive multiplier effect on the economy”. Saudi Arabia, the wealthy country that it is, will not be left behind on the technological advances. In 2006, the KSA gover nment invested US$800 million on just the first phase of the e-government program the country implemented. This project will span 5 years for completion and entails the creation of applications, infrastructure and services that would allow government services to be done electronically. These moves are just a start. This is done to make the Saudi Government improve their quality of services and promote foreign investments. More projects will soon be underway to ensure the entrance of ICT in the country and for Saudi Arabia to enjoy all the benefits and advantages it can provide.   Big technology organizations such as Intel are involved in Saudi Arabia’s ICT initiatives. The company even commended the government for its moves and even informed the public that the government is bent on prioritizing ICT in the country. It is now expected that the ICT sector will flourish in the Middle Eastern region and international vendors will continue to find out new opportunities in the region at least till 2019 (Schwartz, 2008, p1). The liberalization efforts of the government of the UAE and the MENA regions have successfully caught the attention of the international companies operating in the fields and as a result now there are number of international vendors, both the western as well as the far eastern that are operating or are willing to operate in the region. These international players are also intended to expand their presence to take the advantage of the liberalized economies. CHAPTER 3 - CONCLUSIONS The above review of the literature provides a deep understanding of several issues related to digital divide and the ICT industry in the Middle East region. The importance of ICT clear from the literature review. It is also found that the ICT markets in the subject region, more particularly in the three countries in focus, i.e., Saudi Arabia, UAE and Dubai, are progressing and very well in the perspective of the ICT development. These industries are attracting the attention of the world community, and at present, there are many international vendors that are operating in the region. Going back to this paper’s research questions, it is quite apparent, with all the literature presented, that the Middle East region is an attractive destination for ICT vendors to set up sales and marketing ventures. This is mainly due to the region’s capacity to invest on a business venture that is virtually new in these nations. Given that the ICT industry is barely spread out in the ME region, the presence of digital divide is extensive and needs to be address in this countries. This is one great way to allow them to be in equal footing with other developed and industrialized counties in terms of technological advances. This answers the second research question. For the third question, i.e., “how ICT has changed the international trade of Middle Eastern developing countries”, it was clear from the literature presented in the preceding chapters that a ton of difference has been brought to the region by ICT. Advances, equal footing with other countries, being in fast contact with the world and economic, social and political growth are just few of what was mentioned in past researches and studies. This is why the region, as shown by the three countries focused on in this paper, is clearly investing a huge amount of capital to bring to them the technological advances they know will bring them good. References ILO’s World Employment Report 2001, “Despite Improved Employment Outlook, Digital Divide Looms Large”, ILO News, 28th Feb 2001, Geneva. 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