The news of the end of sanctions against Iran earlier this year has sent stock markets in the Middle East into a tailspin. As the GCC braces itself for changes to its economic climate, how can enterprise leaders exploit changes to one of the region’s most important emerging industries – technology?
On 17th January, Dubai’s DFM General Index closed down 4.65pc to 2,684.9, while Saudi Arabia’s Tadawul All Share Index, the largest Arab market, collapsed by 7pc intraday, before recovering to end down 5.44pc at 5,520.41, its lowest level in almost five years. While the markets themselves may recover, the technology industry constitutes an increasingly significant portion of the Middle East economy, spelling overall change for the region. Only time will tell exactly what the lifting of Iranian sanctions will mean for GCC markets, but for now at least, the signs do not seem positive.
Though the future may be unclear when it comes to the long-term effects of the elimination of sanctions against Iran, the short term fallout is already being felt in every sector. It seems that most industries, at least in the short term, will not escape unscathed. “Markets have already reacted negatively to the downturn. These are challenging times for enterprises in this region,” says Biswajeet Mahapatra, Research Director, Gartner.
Megha Kumar, Senior Research Manager, Software, IDC MEA, agrees that the region’s industries will be affected negatively by the drop in the stock market, but envisions a slowdown rather than a halt. The change in industry purchases will underscore the coming change, leading with a change in priorities by the government sector. “We expect a prioritisation of projects but governments will continue their investment around certain core social aspects around infrastructure, education, healthcare and more importantly Smart City initiatives,” she explains. “The commitment to economic diversification will be fuelled by innovation and technology and will play a major role in driving this vision forward.”
The latter is one sector in particular that will lead changes in the Middle East. Technology is one sector in particular to watch, as every industry depends on its solutions to function. Mahpatra sees a cautious path for the technology industry in the Middle East. “Most vendors have reported a slowdown in their sales and have redrawn their plans for 2016,” he says. He compares other industries in regions other than the GCC to highlight the difference. “Other regions which are net importers of oil are actually seeing a boom, as the cost of manufacturing, logistics and operations go down. Hence, they are comparatively doing better than the GCC oil-exporting region.”
Though there are obviously hard times to be had, Kumar suggests that they may translate in to a drive to think outside the box that may benefit technology vendors in the long run. “In a way, challenging times push organisation to innovate on utilising IT to meet business goals,” she explains. “Organisations will seek solutions to optimise budgets and streamline operations.” This, she says, may drive sales in the IT industry. “There will major demand in utilising software and IT services to meet the demands of the business,” she explains. “Even infrastructure investment is leaning towards software-defined solutions or converged systems.”
Again, Mahpatra takes a more measured look at the fallout, noting expenses that some businesses will simply opt out of in favour of potential upfront cost savings. “Until and unless the technology vendor can show that their tools do not require a huge capital expenditure upfront and, in addition, help in reduction on operating expenses in the long run, I don’t see a boon for the tech industry.”
Kumar does see a potential upside, however, in terms of the opening up of Iran as a new market. “Iran has a lot of grey market shipments coming in from the UAE. Lifting of sanctions will severely impact ‘grey’ market sales for consumer hardware especially for the UAE which has one of the largest re-export markets in MEA,” she explains. Demand will clearly change, she notes, with a dependency on oil sales in the region. “However, the extent of this demand will largely depend on whether global oil prices will rebound in the coming years.”
Mahpatra cautions that the introduction of a fresh market such as Iran may not be entirely positive. “Lifted sanctions will inevitably generate economic impact which is mostly negative, as it will raise competition,” says Mahpatra. While competition may be positive from the point of view of buyers and investors, vendors may not see this as a benefit, as competition will surely drive down costs.
While the potential of a fresh new market is undeniable, there are some issues to address before venturing into Iran. “Vendors will need to build out new teams that can focus on the Iranian market,” Kumar says. “Depending on their country of origin, vendors will need to comply with legal operational requirements both from their country of origin and Iranian authorities.” For example, in spite of the sanction cessation, US companies still need permission to operate in Iran as compared to Asian firms. Regardless of national origin, the channel ecosystem needs to be built out to ensure partners are able to support projects in Iran. There also needs to be skills training within Iran, to provide customers with local support.
Mahpatra agrees that prior planning is the key to entering the Iranian market. “Iran will be a virgin market for many vendors. In that sense, they should plan a sales strategy that addresses the Iran market. Any dip in the GCC market should be seen to be offset in Iran.” In short, vendors need to go in with their customers’ unique demands in mind.
It is clear that the lifting of sanctions on Iran will have an effect on all industries in this region and globally. Some of these changes may be positive, and some may signal a rocky road ahead. It is a unique situation, with an all but untouched market opening up in this region. No matter the short-term results, in the long-term, planning and caution may ultimately make or break the GCC’s economy in dealing with the changes Iran will bring to the climate. “With Sage X3, we can invest our resources in growing the business, not in managing the software and maintaining an IT infrastructure,” said Grant Morehead, CEO and CFO, Southern Silicones. “In a growing business, we all wear many hats and are on-the-go at all times. I love that I can access Sage X3 from by desktop, my laptop, my tablet and my phone—all I need is an Internet connection and a browser. Download the full study and infographic at sagex3.com/forrester-tei, or calculate your own ROI by visiting SageX3.com.