The IT services market in the United Arab Emirates (UAE) has been growing substantially faster than expected, as demand shifts from infrastructural investment to more strategic projects, according to a recent IDC study.

IT services spending in UAE increased 41 percent year on year in 2007 to nearly US $791 million. In coming years, IDC expects spending to continue to expand rapidly, fueled by a strong economy, a maturing IT market, skilled-labour shortages, increased foreign investment, and the increasing complexity of IT and its impact on operational management across all economic sectors. This is supported by the fact that IT services providers in the region have been investing heavily to expand both their services teams and offerings.

"Organisations in the UAE are facing a myriad of challenges that are heavily impacting their investments in IT services," said Margaret Adam, research manager, IT Services, IDC MEA. "The desire to accelerate revenue growth and rapidly take advantage of the opportunities in the region, as well as compliance and regulatory pressures and a drive for cost effectiveness, all fuel growth in the UAE IT services industry."

While 2006 saw infrastructure-related services, such as hardware and software installation and support, making up the largest portion of the IT services market, the situation changed in 2007 when systems integration services took the lead, constituting 19 percent of the market. It was followed by hardware support and installation (15.7 percent) and software support and installation (12.8 percent). The combined outsourcing category comprised 18.1 percent of the IT services market in UAE last year.

"The more sophisticated service areas such as systems integration, application customisation, and outsourcing were the fastest growing in 2007," said Adam. "Year-on-year growth of around 50 percent in these categories testifies to a maturing IT services market and a shift towards more strategic IT decision making."

The top 3 players in the UAE IT services market in 2006 — MDS, Emirates Computers, and Injazat Data Systems — were also the leaders in 2007. Combined, they accounted for more than a quarter of total revenues.

On the demand side, the combined government sector, with 26.7 percent of total services spending, was the largest customer for IT services, followed by the financial sector with 16.7 percent. The third-largest sector, with an 8.6 percent market share, was the combined agriculture, construction, and mining vertical.

IDC predicts that spending on IT services in UAE will continue to grow by an annual average of 23.9 percent over the next five years to reach $2.3 billion in 2012.