The Digital Economy in the Middle East: The road ahead

The challenges and opportunities of growth

 

 

The Middle East is a heterogeneous region with different cultures, social norms, languages and dialects, political dynamics, and most of all economies. Although one could easily define two groups of countries in the region: the oil exporters and the oil importers, the distinctions among countries within one group remain significant. Yet, the countries in the region all share a range of characteristics and indicators that have a direct impact on their economic growth and long-term development.

 

Statistics show that the median age in the Middle East is between 22 and 25, very low compared to other regions. The youth of the region are its biggest assets. They constitute the vast majority of the Internet population today and are the entrepreneurs and business leaders of the future. How do we invest in them to take us into the new digital world?

 

The Middle East is one of the fastest growing regions in terms of Internet usage with a growth rate of almost 400% over the past decade. Recent market reports show that people in the Middle East are rapidly embracing social media and online e-commerce platforms, and that smartphone penetration has leapt significantly over the past four years and exceeded 60% in many countries in the region. To date, growth seems to be primarily on the consumer side of the industry, but it will most likely have significant impact on the production side, stimulating more businesses to go online, thus generating more services and creating more jobs. According to Boston Consulting Group (BCG) the digital economy, which contributed $2.3 trillion to GDP in the G-20 in 2010 and is expected to contribute more than $4 trillion to their GDP in 2016, is growing at 10% a year—significantly faster than the global economy as a whole. The growth in the digital economy is even higher in developing markets: 15% to 25% per year. 

 

The opportunity is there. Today, the region’s presence online is relatively limited. For Arabic speaking communities, the lack of quality online content in Arabic is common across the region. Regardless of the exact percentage of the Arabic content whether it is 1% or 3% of the overall online content, the sheer fact is that the Arabic language online is far under-represented. To date, 35-40% of the Arabic population is online, and 60% of this online population prefers to surf the Internet using Arabic language yet are unable to do so. Why? Simple, the Internet does not cater for 60% of the Arabic speaking population that use it today. This needs to change.

 

Online presence of Small and Medium Enterprises (SMEs) is far lower than in other regions, even in countries with high Internet penetration rates. According to a survey by Google, only 7% of SMEs in Egypt have some sort of online presence through a website or social media. While the percentage is higher in Saudi Arabia (15%) and UAE (18%), it is still small compared to the US (40%) and France (60%). Several studies carried out by BCG show that revenues of SMEs can increase tremendously as a result of the adoption of online tools, and that such growth plays a significant role in the nation’s ability to move towards digital economy.

 

Looking at the public online services, and with the exception of few GCC countries that leapfrogged in the past decade, e-government services are yet to reach mainstream level in the rest of the region. Web hosting services are also lagging behind in the Middle East. Statistics show that the total number of websites hosted in the Middle East amounts for less than 0.2% of the global total. This is despite that the Internet population in the region amounts for 3.7% of the global population.

 

All these challenges are reflected in the number of Internet domain names registered in the region. A domain name is a prerequisite for building a website.  When it comes to Arabic domain names the challenge is compounded due to the lack of Arabic online content. As the domain name industry is poised for a major expansion with the launch of more than 1000 new top-level domains, with over 650 currently delegated strings, it remains to be seen if businesses and communities of the Middle East will be able to tap into the opportunities they can offer.

 

To develop the domain name industry in the Middle East is one of the strategic areas the Internet Corporation for Assigned Names and Numbers (ICANN) has been focusing on. Building capacity is critical for this development, and so last year ICANN signed an agreement with Egypt’s National Telecommunication Regulatory Authority (NTRA) to establish a Domain Name System (DNS) Entrepreneurship Center for developing the domain name industry in Africa and the Middle East. The Center aims to develop local capacities and engage interested parties from across the region in the global domain name industry ecosystem. A three-year project, it kicked off three months ago with a series of training programs on various business, policy and technical best practices in this field.

 

In 2014, ICANN commissioned BCG to conduct a study on frictions in the Internet economy, or in short, e-friction. BCG examined 65 different economies that cover more than 80% of the world's population and more than 90% of the world's economic activity. The study identified 55 e-friction indicators in four categories: infrastructure, industry, individuals, and information. It indicated that elements related to infrastructure, access to online services, and ability to conduct business online, together with the necessary supportive regulatory frameworks are crucial to creating vibrant Internet economies. It sounds like a recipe for Middle East countries, doesn’t it?

 

ICANN is cognizant that addressing the gaps in the domain name industry requires serious reform in other parts of the Internet ecosystem. Expanding the Middle East online space through more e-government services, e-payment tools, getting SMEs online, and generating more local content, is essential to transition the region towards the era of digital economy.

 

This transition will not happen overnight. It is a long cooperative journey that requires a paradigm shift at different levels. The heterogeneity of the region means not all countries will move at the same speed. Yet, some already have come a long way and are leading the way in making progress adopting the tools of the 21st century’s economy and perhaps becoming success stories to follow.  

 

About Baher Esmat

Baher Esmat is Vice President of Stakeholder Engagement at ICANN Middle East. In his role, he is part of the advance guard of Internet proponents for a free, open and affordable Internet within the Arab world.

He joined ICANN in 2006 after a four-year tenure at the Egyptian Ministry of Communications and Information Technology. Baher is a former member of the WSIS Working Group on Internet Governance, and served as Chair of the Egyptian IPv6 Task Force. He is currently serving on the Internet Governance Forum’s Multistakeholder Advisory Committee, and the Working Group on Enhanced Cooperation of the Commission on Science and Technology for Development.

 

He has a Bachelor’s degree in Electronics and Communications Engineering and a Master’s degree in Computer Science.

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