Pita Ict Study

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The Palestine Information and Communications ofCompanies (PITA)

www.pita.ps

The Palestinian ICTSector A Three-Year

OutlookBased onEconomic IndicatorsMay 2009

Report by: Rami Wihaidi

This report is made possible by the support of the American People through the United States Agency forInternational Development (USAID) under the EDIP project implemented by CARANA.

The contents of this report are the sole responsibility of PITA and do not necessarily reflect the views ofUSAID or the United States Government.
http://www.pita.ps/http://www.pita.ps/


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ACKNOWLEDGMENTS

First I would like to thank the Palestinian Information Technology Association of Companies(PITA) for given me this chance to present the state of the Palestinian ICT sector with a look atthe future.

Moreover, I would also like to acknowledge with thanks the great contributions of Mr. LaithKassis, the Executive Director of PICTI and Mr. Ihab Jabari, the Executive Director of PITA fortheir great comments on an earlier version of the paper. I have greatly benefitted from theirinsightful comments.

Rami WihaidiImpact ConsultingInc.

May 2009


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TABLE OF CONTENTS

ABBREVIATIONS AND ACRONYMS ............................................................................................. 4

EXECUTIVE SUMMARY ....................................................................................................................... 6BACKGROUND .................................................................................................................................... 8The ICT Sector Major Players:................................................................................................................................... 8

1. Palestine Telecommunication Company: ............................................................................ 82. Wataniya Telecom, the 2nd Mobile Operator ..................................................................... 93. Other ICT Private Sector Companies and PITA ................................................................ 94. Palestine Information and Communication Technology Incubator (PICTI) ....................... 95. The Palestine Chapter of the global Internet Society (ISOC-PS) ..................................... 10

SWOT Analysis ........................................................................................................................................................... 10The Regulatory Framework: .................................................................................................................................... 11

ICT Economic Indicators .................................................................................................................... 12

1. Contribution to GDP ........................................................................................................ 122. Employment ....................................................................................................................... 133. Employees Performance in the ICT Sector Compared to other Service Sub-Sector andthe Industrial Sector .................................................................................................................. 144. Impact of Investment in ICT at Other Sectors ................................................................. 155. ICT Market Indicators ....................................................................................................... 166. Computer and Internet Penetration Statistics .................................................................. 167. ICT Diffusion in Private Sector ......................................................................................... 17

ICT SECTOR COMPETITIVE ADVANTAGE ............................................................................... 18PALESTINIAN ICT FIRMS: EXPORT PROFILE ............................................................................. 21

OTHE COUNTRIES EXPERIENCE: THE CASE OF JORDAN ................................................. 24CHALLENGES TOWARDS THE DEVELOPMENT OF THE ICT SECTOR .......................... 25Business Outsourcing ................................................................................................................................................ 25Externalities ................................................................................................................................................................. 25Marketing Channels .................................................................................................................................................... 26Finance .......................................................................................................................................................................... 26Capacity Building and Training ................................................................................................................................ 26

FUTURE OUTLOOK OF THE ICT SECTOR ............................................................................... 272. Employment ............................................................................................................................................................. 273. Business Outsourcing ............................................................................................................................................ 28

RECOMMENDATIONS ..................................................................................................................... 29Business Outsourcing ................................................................................................................................................ 29Telecom Policies ......................................................................................................................................................... 29Marketing Channels .................................................................................................................................................... 29Finance .......................................................................................................................................................................... 29Capacity Building and Training ................................................................................................................................ 30


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The Palestinian ICT Sector A three-year outlook Based on economic indicators (May 2009)

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LIST OF TABLES

Table 1: Number of operating telephone lines in the West Bank and Gaza

For the years 19962005

Table 2:SWOT Analysis For The Palestinian ICT Sector Table (3) ICT Sector Value Added andPercent Contribution to GDP

Table 4: Gross Domestic Product by Economic Activity, 2008US$ million

Table 5:Value Added and Compensation per Paid Employee in the Service Sub-SectorsCompared to the Industrial Sector in the Remaining WBG, 2007

Table 6:Selected ICT Indicators2004, 2006Table 7:Selected ICT Indicators for thePalestinian Private Sector2007

Table 8:ICT Diffusion Statistics

Table 9:New Enrolled Students by Type of Academic Institution, Geographic Location and Gender,2007-2008

Table 10: Currently Enrolled Students by Type of Academic Institution, Geographic Location and Gender2007-2008

Table 11: Distribution of Graduating Students by Type of Academic Institution, GeographicLocation and Gender, 2007-2008Table 12:Jordan ICT Indicators Summary2007 (USD)

LIST OF FIGURESFigure 1: ADSL Subscribers 2005-2008

Figure 2: ICT Contribution to GDP, 1999-2008

Figure 3: Distribution of Currently Enrolled Students by Program type in the West Bank,

2007-2008

Figure 4: Distribution of Currently Enrolled Students by Program type in the Gaza Strip,

2007-2008

Figure 5: Palestinian ICT Professionals by Technical Skill, 2008

Figure 6: Distribution of PITA Member Companies by Specialization

Figure 7: ICT Value Added 1999-2008 and Forecast 2009-2011Scenario IFigure 8: ICT Value Added 1999-2008 and Forecast 2009-2011Scenario II


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ABBREVIATIONS AND ACRONYMSADSL Asymmetric Digital Subscriber Line

BPO Business Process Outsourcing

FDI Foreign Direct Investments

GDP Gross Domestic Product

ICT Information and Communication Technology

ISOC-PS The Palestine Chapter of the global Internet Society

MIS Management Information Systems

MoE&HE Ministry of Education and Higher Education

MTIT Ministry of Telecom and Information Technology

NGO Non Governmental Organization

PA Palestinian Authority

PalTel Palestinian Telecommunication Company

PalTrade Palestine Trade Center

PCBS Palestinian Central Bureau of Statistics

PICTI Palestine Information and Communication Technology Incubator

PITA Palestinian Information Technology Association of Companies

PSCC Private Sector Coordination Council

WBG West Bank and Gaza

WEF World Economic Forum


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SECTION ONE

EXECUTIVE SUMMARYThis study is an attempt to understand the potentials of the Palestinian information and communicationstechnology (ICT) sector and its ability to grow and increase its contribution to the national economy as awhole. The analysis presented in the study references previous studies done in the ICT sector thatexplored various aspects of its indicators including workforce, competitive advantage, outsourcingcapabilities and market access liberalization characteristics. Furthermore, this study also showcase andbenchmark the Jordanian experience as a neighboring country in its efforts to develop this sector tobecome the driver for economic development.

Palestinian private sector as well as consumers quickly respond to technological offering. For example,since the introduction of the Asymmetric Digital Subscriber Line (ADSL) in 2005, the number ofsubscribers has increased from 7,483 in 2005 to 72,518 in three years time an average increase of about(300%) annually.

The SWOT analysis presented in section two, indicates that the ICT sector has strengths in the

competitive labor cost, positive sector growth rate despite the political situation, a pool of proven ICTproducts and services supported by experienced human resource and advanced and accessible telecominfrastructure and value added services. Furthermore, the sector has much potential to leverage theavailable skilled workforce in other niche areas that still needs to be explored such as the untappedBusiness Process Outsourcing (BPO) capabilities, tapping into the growing digital Arabic industry andcoordinate with donor involvement in the sector that may help jumpstart it.

Despite these encouraging characteristics, the ICT sector faces serious challenges that need to beaddressed such as: international perceptions of the Palestinian technology industry, market access andbusiness opportunities, travel impediments, scalability of labor pool, access to equity based finance andinvestment, relatively high telecom cost to do business and inadequate legal and regulatory framework insupport of technology industry. Moreover, there are few threats that cannot be overlooked including the

ongoing political conflict, commoditization of IT products, lack of policies and government investment inthe sector and a growing ICT brain drain.

Despite these challenges, the sector has been able to adapt and show impeccable resilience to many ofthese challenges. Its value added - ICT share of Gross Domestic Product (GDP) - has been significantlygrowing for the past 10 years. The average annual ICT value added has been around (8%) with some yearsshowing a growth of over (50%). Moreover, its contribution to GDP has been growing from about (3%) in1999 to reach (5%) in 2008. This growing performance of the sector has been achieved under very severpolitical and economic conditions.

Employment is one of the most critical factors in the development of the ICT sector. Estimates indicate

that there exist about 15,267 employed persons in the Palestinian economy performing ICT related jobs.

Of these about 5,200 are directly employed in the ICT sector. In other words, for every employmentopportunity in the ICT sector, three employment opportunities exist in the rest of the economy.Employees in the ICT sector have also demonstrated a high degree of efficiency. Statistics show that thevalue added and out put per paid employee in the ICT sector ranks second within the service sub-sectorswith value triple that of the service sector average.

The size of the Palestinian ICT market is a modest one compared to neighboring countries, however it hasbeen growing steadily for the past 10 years. Estimates of the ICT market was at a value of about US$120million in 2000, then it dropped to US$87 million in 2003 only to rebound in 2007 to US$ 250 million. Asa comparison, the current value of the Palestinian ICT market is similar to that of Jordan six years ago in2003. Despite the many similarities between the two sectors in terms of composition, the main differenceis that: i) Jordan has adopted an ICT strategy in 1999 that was personally championed by King Abdallah II

and ii) the Jordanian government has helped the sector grow to reach to a market value of about US$ 900million in 2007.


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The Palestinian ICT sector may benefit from the experience of Jordan by adopting a development strategythat focuses on the Palestinian Authority (PA) signaling areas of importance in engaging the privates sectorand entrepreneurs to cover for these needs, market access and expansion regionally, industry certificationand workforce geared for exporting technology and knowledge based products and services. The adoptionof such a strategy coupled with commitment from all stakeholders including the donor and thedevelopment community is forecasted to lead in the next three years to an increased contribution to GDP

at a (10%) in the worst case scenario and (15%) in the best case scenario.The study concludes by a set of recommendations that focus on major pillars that can lead to high growthof exporting technology and knowledge based products and services namely: policies, outsourcing / off-shoring, technical assistance, marketing channels, finance and industry certification.


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SECTION TWO

BACKGROUNDIt is widely believed that ICT is a powerful enabler of economic development. ICT can be even moresupportive if initiatives are designed to target specific measurable goals. In their recent Global InformationTechnology Report 2008-2009-Mobility in a Networked World, the World Economic Forum (WEF) states

that ICT is increasingly moving to the core of national competitiveness strategies around the world, thanksto its revolutionary power as a critical enabler of growth, development, and modernization. The reportshowcased Egypt successes in becoming a major outsourcing destination. The report argues that Egypt hasthe potential to be one of the top five business process outsourcing destinations within the next 10 years,thanks to competitive advantages such as its low costs, competitive labor pool, stable macroeconomicenvironment, strategic geographical location, strong government focus, good telecommunicationsinfrastructure, and improving business environment. They highlight, as a main take away from Egyptsexperience, the importance of investing in relevant human resources, ensuring an overall infrastructure supplywith world-class connectivity levels and creating a well-funded investment agency with an adequate regulatoryauthority working on a public-private partnership basis.

The ICT sector started in Palestine during the early 1980s with few hardware re-sellers working as sub-

dealers to the Israeli agents. By Mid 1980s, some software development emerged providing accounting andword processing solutions to end users in the local market. The beginning ofthe 1990s brought furthergrowth for the ICT sector as new businesses emerged and started to develop and provide additionalsoftware products, Internet services and customized solutions in order to meet the demand coming from thelocal private sector, universities and local government agencies and municipalities. By late 1993 and 1994when the Oslo accord was signed and the PA was established, additional demand for ICT solutions andhardware by the central government continued to contribute to the growth of the ICT market. The spreadof ICT use in public offices led to educating employees on the use of technology and therefore createdadditional demand at the household level. By end of 1995, the ICT sector started to show significant growthresponding to the increased demand coming from the central and local government, universities and colleges,private sector and Non Governmental Organizations (NGOs).

The ICT Sector Major Players:1. Palestine Telecommunication Company:

Despite the Israeli control over the telecommunication spectrum and infrastructure, Paltel was establishedin 1990s with few firms offering Internet connectivity. Indeed, in 1997, the telecommunication sector wasprivatized and the Palestinian Telecommunication Company (PalTel). PalTel was established with a 10 yearexclusive license that allowed it to invest and develop a Palestinian telecommunication infrastructure andoffer new landline telephone and other communication value added services. It is worth noting that prior toPaltel establishment; it was an impossible mission to obtain a telephone line in the Palestinian household dueto Israeli occupation measure. Table (1) below provides some data on the number of operating telephonelines in the West Bank (WB) and Gaza since 1996 to reflect on the development of the telecom sectorsince then.

Table 1: Number of operating telephone lines in the West Bank and Gaza

For the years 199620051

YEAR WEST BANK GAZA TOTAL

1996 59,383 24,238 83,621

1998 114,419 52,852 167,271

2000 188,024 84,187 272,211

2002 164,770 77,124 241,894

2004 180,759 90,699 271,458

2005 225,088 111,937 337,025

1 Information and Communications Technology Statistics in the Palestinian Territory, PCBS, March 2007


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By 2008, the number of fixed line subscribers reached and kind of saturated 357,000. However, theintroduction of the value added ADSL services; it was a major source of increased fixed line subscribersbetween 2005 and 2008 with a growing penetration rate reaching (10%). In the same year, the total

number of ADSL subscribers reached 72,518 subscribers2 compared to 7,483 subscribers in 2005. Figure(1) below illustrates ADSL subscribers between the years 2005-2008.

In addition to the fixed line services, PalTel startedo offer mobile services in the year 2000 byestablishing the Palestine CellularCommunications Company, Ltd, known asAWWAL.

By 2005, JAWWAL subscribers reached 570,000and in 2008 theyve reached 1.4 millionubscribers.3 Recent newspaper advertisement

Figure 2: ADSL Subscribers 2005-2008

during the month of April, 2009Recent newspaper advertisement during the month of April, 2009indicated that the number of JAWWAL subscribers has now reached 1.5 million; thus, supporting aninternational trend of growing mobile phone lines in lieu of fixed lines.

2.Wataniya Telecom, the 2nd Mobile Operator

Wataniya won a license bid for launching a second mobile services operator in Palestine for a price of US$354 million, in September 2006, for combined 2G and 3G cellular technology; thus, considerably increasingthe value of the Palestinian cellular market. Wataniya Telecom was supposed to start operations in 2008,however the delay of the Israeli authorities to grant the required frequencies to start the Wataniyaoperations continuously delay the operational start. It is expected that Wataniya will direct moreattention to broadband services, especially wireless services, based on 3G technology and WiMax pendingIsraeli authorities granting the company with the permission to use the required allocation of frequencies.This remains to be a critical factor in, not just getting the company operational, but as equally important,what type of technology will be deployed in the Palestinian market.

3.Other ICT Private Sector Companies and PITAThere are around 300 enterprises working in the ICT sector4 which is considered the fastest growingsector in the economy. The ICT private sector firm have organized in 1999 and established thePalestinian Information Technology Association of Companies (PITA). As of today, PITA has 89 membersrepresenting more than (80%) of the ICT private sector firms. PITA members offered products andservices include software development (29%), hardware sale (28%), internet provision and website designand hosting (11%), consulting and training (10%), telecom services (7%), IT services including outsourcingand system integration (5%), advertising and marketing services (5%) manufacturing (3%) and electronicequipment design and manufacturing (2%).5

4.Palestine Information and Communication Technology Incubator (PICTI)

PICTI is an independent organization that has been created through the initiative and support of the PITAand the technology Community. PICTI and its partner organizations, including PITA, and the PalestineTrade Center (PalTrade), have as their mission the revitalization and the sustainable growth of the ICTsector in Palestine. PICTI focuses on providing professional business development services toentrepreneurs who have mature concepts for unique and innovative products assessed to have strongmarket potential.6

2 PalTel Group Annual Report, 20083 PalTel Group Annual Report, 20084 PITA estimated the number to be 260 in 2006, taking into consideration many developments in the ICT market such as the

introduction of ADSL and licensing of Value Added Services by MTIT, the author estimates the number of firms to be around 300.5 The Palestinian ICT Cluster Report, Palestinian Enterprise Development Project-A USAID Project, 20066 PICT websitehttp://www.picti.ps

7483

27172

55684

72518

0 20000 40000 60000 80000

2008

2005

2006

2007
http://www.picti.ps/http://www.picti.ps/http://www.picti.ps/http://www.picti.ps/


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5.The Palestine Chapter of the global Internet Society (ISOC-PS)

ISOC-PS is a non-profit organization that aims at advancing Internet development and use in Palestine.ISOC-PS utilizes the expertise of Palestinian Internet professionals, and the Palestinian Diaspora for theadvancement of the Internet and technology sector in Palestine. It has been active in the area ofadvocacy and public policy for internet users rights.

SWOTAnalysisThe Strengths, Weaknesses, Opportunities and Threats analysis facing the ICT industry in the WBGare summarized in the Table (2), below. The table combines the results of two ICT sector studiesattempting at analyzing the sector in Palestine.7 It also provides an in-depth analysis of the strength andopportunities for the ICT sector in Palestine while acknowledging existing weaknesses and threats.They were drafted by the ICT community themselves through various workshops.

Table 2:SWOT Analysis For The Palestinian ICT Sector

Strengths Weaknesses

Development assistance from US and EU with

real interest in change Internet pervasiveness not that high Competitive labor arbitrage Strong desire for improvement motivation Positive growth rate despite the political situation Pool of proven ICT products and services

supported by experienced human resourcebutoften local and therefore limited ability to sellbeyond the region

Advanced and accessible basic telecominfrastructure including ADSL, ISDN and leasedlines

ICT has officially been recognized in strategicgovernment economic planning as futureeconomic pillar

International perceptions on development and

security Marketing / Business development International exposure/experience Travel impedimentsoutward and inward Scalability of labor pool International telecom rates Lack of alternative network provider to provide

back-up support Lack of investment in ICT, especially in venture

capital and access to financing Lack of competition in telecommunications

leading to high cost Lack of comprehensive and harmonized legal and

regulatory framework and in specific to ICT

Opportunities Threats

International Diaspora Untapped BPO and outsourcing capabilities Availability of skilled and trained workforce Growing Arabic industry with limited outsourcing

players Potential for benefiting from national initiatives

like eGov, PEI, NERN projects and the

liberalization of the telecom market Significant donor projects can help jumpstart

industry if proper policy is there Close to Israel that may benefit some software

outsourcing operations International support to build commercial success

in the region

Political conflict Commoditization as the Palestinian firms are

competing for the same services which areincreasingly becoming generic and standardized

Less seriousness to legislate and enforce IPRprotection

Government and non-commercial service e

providers competing in the same market withprivate sector Highly price sensitive local market ICT brain drain Major IT Companies not operational to any great

extent

7The Palestinian ICT Cluster Report and the Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry,Palestinian Enterprise Development Project - A USAID Project, 2006


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The Regulatory Framework:

Basically there are two regulatory references to the telecom market in Palestine. The first being theOslo agreement signed between the Palestinians and Israeli addressed the issue of the Palestiniantelecom operator. The agreement gave the Palestinians the right to build and operate their owntelecom network. The second is the 1996 law which was signed by President Arafat but has not been

passed by the Palestinian Legislative Council (PLC). The law did not address the issue of the telecomsector regulator and the Ministry of Telecom and Information Technology (MTIT) assumed the role ofthe regulator. In this same year, the PA granted the Palestinian Telecommunication company anexclusive license to build and operate the telecom network in the WBG for a period of 10 years withadditional 10 years non-exclusive license. The license was granted in absence of a Telecom Law and aregulatory authority that can regulate the telecom market. A new draft Telecom Law was drafted bythe MTIT in 2005 establishing the telecom regulator. However, the inability of the new legislativecouncil that came as a result of the 2006 elections delayed the establishment of the regulator and iskeeping the law setting at the president office unsigned.


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SECTION THREE

ICT Economic IndicatorsICT has been widely considered an important driver for economic growth in both developing anddeveloped countries. It is both a productive sector on its own and an enabler of other sectors. Althoughit is not the only driver, however it is one that posses much impact potential on national and globaleconomies. The impact of ICT in developed economies has been greater due to its wider adoption.However, it is still considered an integral part of economic growth in all economies. The integration ofICT in all aspects of business related transactions has made it an integral part of everyday businesstransactions. It has increased the efficiency of doing business while reducing cost.

Many countries in the region have realized the strategic importance OF ICT and have been encouraginginvestment in this sector through supportive government policies and setting up proper infrastructures. InJordan, King Abdullah and the Jordanian Government have made investment in the ICT sector a priorityarea and focused much effort towards advancing this sector. As a result, the ICT sector has been the fastestgrowing of the Jordanian economy (50% growth rate), with a 10% contribution to GDP (end 2005). More than

16000 people have been employed in the sector, either directly in the ICT firms or in ICT divisions within firms (end

2005). The Jordanian government has removed many of the bureaucratic obstacles to sector investment and hasencouraged ICT applications. Laws have been enacted/amended provisions in the Labor, Telecom, Intellectual

Property, and Private Shareholding laws. The telecom sector was fully liberalized in 2004 (end of duopoly, and

ending fixed line monopoly). Many leading companies operate or manufacture products in Jordan, knowing thatJordan offers a supportive and profitable base of operations.8

The Economic Indicators:

1.Contribution to GDP

The value added of the ICT sector has grown from about $ 33 million in 1997 to about $ 221 million in20069. The Palestinian Central Bureau of Statistics (PCBS) reports the value of the ICT contributionwithin the indicator that measures the contribution of the Transport, Storage and Communicationsectors. A simple calculation of the reported Gross Domestic Product (GDP) contribution for 2006reveals that ICT makes up about 56% of the value reported for the whole Transport, Storage andCommunication indicator. Assuming that this ratio has been the same in various years, one cancalculate the contribution of the ICT sector in any given year. Table (3) below provides data on thecontribution of the ICT sector from 1999-2008. Data indicate that the ICT sector has grown in valuefrom about US$ 130 million in 1999 to US$ 231 million in 2008 constituting an average growth on 8%per year. Its contribution to GDP has increased from about 2.87% in 1999 to about 5% in 2008.10Comparing this performance with other service sector puts it at a comparable level with the biggestsectors in Table (4) namely Agriculture, Construction and Financial Intermediation. This is considereda good contribution when compared to other countries but it also shows that the sector has not yetreached its full potential. The ICT sector contribution to GDP in Jordan reached about 10% in 2005,

while it reached about 15% in India and Estonia.11

Comparing the above figures with the reported contribution of other sectors to GDP, it becomesclear that the ICT sector is at a comparable level in terms of economic importance to the agricultural,construction and financial intermediation sectors. Moreover, the causal relation that exists betweenthe ICT sector and other sectors suggest that growth in these sectors would positively contribute tothe growth of the ICT sector.

8 Report on the Assessment of the Priority Areas in the Palestinian Information and Communications Technology (ICT) Strategy,Workshop held on the 27th and 28th of August, 2008.9 ICT in Palestine: Creating Development Dynamics, presentation made by PITA

10 In a presentation by Laith Kassis, PITA Advisor, to ESCWA Expert Group Meeting on Developing the ICT Sector in the ESCWARegion, Beirut, 11-12/3/2009 estimated ICT contribution to GDP to be (5%).11 The Palestinian ICT Cluster Report, Palestinian Enterprise Development Project-A USAID Project, 2006


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Table (3) below provides some historical data on the value of the Transport, Storage and Communicationcontribution to GDP since 2004 and the relative contribution as well.

Table (3) ICT Sector Value Added and Percent Contribution to GDP1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Transport, Storageand Communication

Contribution toGDP-US$ million

231.0 221 209 183.9 229.9 348.7 347.3 390.0 430.5 412.8

of which ICT 129.36 123.76 117.04 102.98 128.74 195.27 194.49 218.40 241.08 231.168

Change in ICTValue Added (%) -4.33 -5.43 12.01 25.01 51.68 -0.40 12.29 10.38 -4.11%

PercentContribution toGDP 2.87% 3.00% 3.11% 3.16% 3.43% 4.65% 4.27% 5.05% 5.32% 4.98%

Table 4: Gross Domestic Product by Economic Activity, 2008US$ million

Economic Activity GDP Percent Contribution

Agriculture and Fishing 212.5 4.6Mining and Manufacturing 632.4 13.6

Construction 226.2 4.9

Whole Sale and Retail Trade 501.8 10.8

Transport, Storage and Communication 412.8 8.9

Financial Intermediation 249.8 5.4

Other Services 1171.4 25.2

Public Administration and Defense 645.8 13.9

Households with Employed Persons 4.0 0.1

TOTAL 4,639.7

Figure 2: ICT Contribution to GDP 1999-2008

0

50

100

150

200

250

300

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

ICT Contribution to GDP Percent Contribution to GDP

2.Employment

In a recent survey conducted by the Palestinian Central Bureau of Statistics (PCBS) on the use

of ICT in business, they estimated the percentage of ICT employees from total private sector

employment to be 3.5%. PCBS reports that at the end of 2008, the total number of full time

employees in both the public and private sector are 588,400 of which 429,400 are employed in

the private sector. Therefore, the total ICT jobs in the private sector are 12,882. As for thepublic sector ICT employment, there is no separate assessment of those performing ICT related


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work. However, assuming only a 1.5% ICT employment in the public sector would make the

number of people performing ICT related work in the public sector 2,385. This leads to the

conclusions that full time employment related to ICT is Palestine is estimated at 15,267 in

2008. This number constitutes those employed in the various branches of the economy

performing ICT related jobs as well as those employed directly in the ICT sector. Estimates

have shown that direct employment in the sector is about 5,200.12 In other words, for every

employment opportunity in the ICT sector, 3 employment opportunities exist in the rest of theeconomy.

3. Employees Performance in the ICT Sector Compared to other Service Sub-Sector andthe Industrial Sector

Table (5) below provides a comparison among the service sub-sectors and the industrial sector regardingthe performance of employees. The analysis in this section will examine various performance indicatorsin order to better understand the position of the computer and related activities sub-sectors amongother service sub-sectors and also in comparison with the industrial sector in general.

Table 5:Value Added and Compensation per Paid Employee in the Service Sub-Sectors Compared to the

Industrial Sector in the Remaining WBG, 2007

Economic Activity

Value Added

per PaidEmployee

In ($)

Output perPaid Employee

in ($)

Compensationper Paid

Employee in ($)

Value Addedper Paid

Employee /Output per

PaidEmployee (%)

Compensationper Paid

Employee/Value Added

per PaidEmployee

Hotels & restaurants 15577.7 26865.9 4162.1 57.98 26.72

Real estate activities 34992.8 42059.0 6039.0 83.20 17.26

Renting of machinerywithout operator

18923.5 25933.3 2668.1 72.97 14.10

Computer & relatedactivities13

31770.7 40379.8 7192.7 78.68 22.64

Research & development 8339.3 19323.3 10012.6 43.16 120.07

Other business activities 12666.7 18060.9 5903.9 70.13 46.61

Education 9011.7 10990.1 6103.4 82.00 67.73

Health & social work 11855.9 16605.5 5598.7 71.40 47.22

Activities of membershiporganizations

7158.3 9668.2 5223.0 74.04 72.96

Recreational, culture &sporting act.

11145.7 17196.2 2884.8 64.81 25.88

Other service activities 9557.3 15724.9 2384.0 60.78 24.94

Total Service Sector 11052.9 15,776.5 5264.8 70.06 47.63Industrial Sector 29,704.65 65,134.56 5,588.38 45.61 18.81a- Value added per paid employee

The computer and related activities value added per paid employee ranks second in the services sub-sectors after the real estate activities at US$ 31,770 which is almost triple the service sector average.This is considered high by comparison to other countries such as the UK where the value added perpaid employee in the software and computers services sub-sector is estimated at about US$ 17,57014.

12Presentation by Dr. Khaled Rabayah , ICT as an enabling tool to ease tension, relief hardship, and resolve conflict:

Palestinian Context, ICT4D Research and Study Center, Arab American University- Jenin, West Bank13 Including Telecom14 United Kingdome Department for Innovation, Universities and Skillshttp://www.innovation.gov.uk/value_added/default.asp?page=76
http://www.innovation.gov.uk/value_added/default.asp?page=76http://www.innovation.gov.uk/value_added/default.asp?page=76http://www.innovation.gov.uk/value_added/default.asp?page=76http://www.innovation.gov.uk/value_added/default.asp?page=76


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b- Output per paid employee

Output measures the value of the final product or service. The computer and related activities rankssecond in terms of output per paid employee at US$ 40,380 which is more than triple the servicesector average. Again, this ICT sector proves to be yet more efficient and productive than theremaining sub-sectors. This does not in any way suggest that other sectors are less important, itsimply states that this is a high value added industry with a greater return on investment, thus

contributing to higher living standards for Palestinians.

c- Value added per employee compared to output per employee

This ratio measures the percentage of value added of products and services in the final product. Thisratio has a direct/positive correlation to the value added and therefore the higher the ratio the greaterthe impact on the national GDP. Also, the higher the ratio indicates a higher efficiency andattractiveness of the industry. The computer and related activities ranks third at (78.68%) after realestate and education. Moreover, it surpasses the service sector average of (70.06%). Furthermore,the ratio is much higher in services that in the industrial sector of (45.61%). This indicator clearlyshows the attractiveness of the IT industry in Palestine that has a high value added ratio in the finalservice product.

d- Compensation per paid employee compared to value added per employeeThis ratio provides a better understanding to the cost of the ICT service products compared to otherservice products and also in comparison to the service sector and industrial sector average. Table (6)below, clearly shows that the lowest compensated employees are those in the renting of machinery,followed by real estate activities and computer and related activities. The lower ratio indicates that theowner of the firm has a lower labor cost compared to the final product value and therefore wouldhave a higher profitability. The computer and related activities has a ratio of (22.64%). Other servicesub-sectors have a much higher ratio as in the case of research and development with a ratio of 120%.This means that the employee not only is paid his/her total value added but is also taking a share fromthe final product value. Education sub-sector has a ratio of (67.73%) which means the employee in thissub-sector is taking more than two-third of his/her value added.

An important note to make here is that the comparisons above mainly concentrated among the servicesub-sectors rather with other economic sectors like the industrial and agricultural sectors. This wasdone to be able to compare among similar business activities that are highly dependant on the humanfactor. In general, it is clear that the computer and related services sector is one of the most efficientand profitable service sectors. Moreover, the high skill level of the employee makes them also of thehighest paid but most efficient compared to other service sub-sector.

4. Impact of Investment in ICT at Other Sectors

Many studies in different countries attempted to estimate the impact of investment in ICT on growth inother sectors of the economy as a spillover affect due to reduced time in doing business transactions andincreased labor productivity but did not succeed in providing a systematic process of estimating nor tofind a proxy for such impact. In a study on the economic impact of liberalizing the Palestinian telecom

market, it was estimated that the Palestinian ICT sector will contribute at least (1%) of the GDP growthfor the coming years.15 The spillover effect of ICT to other sectors will come from the following factors:

1. Investment in this sector helps to begin to transform [or at least diversify] the Palestinian Economytowards technology and knowledge based economy and thus increase the focus on high value-added

products. In fact, these are key conditions for enhancing the competitiveness of the WBG Economy,

establishing a base on which Palestine can develop a long term economic strategy to develop a significantinformation based economy.

2. As direct investment, ICT inherently is sticky, with less reversal risk and more sustainable thaninvestment in other sectors.

15 Rabayah, Khalid S. , Awad, Sami and Naser Abdel Kareem: Palestinian ICT Market Liberalization Economic Analysis and FutureRoadmap, January 2008


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3. ICT investment has technological and managerial spillovers; horizontal spillovers to domestic firms inother industries and vertical spillovers to upstream and downstream firms within the industry.

4. Encourage the use of wireless access techniques like (WiMAX) as it is a component of national securitythat makes the transformation to an information based economy (Digital Economy) easier, especially in

remote and rural areas.

5. WiMAX will furnish good grounds for information justice and equal job opportunities for all.6. (Wataniya) plans to give local Palestinian contractors a priority to build the networks and software

solutions, which will boost private businesses to some extent.16

5. ICT Market Indicators

1. Local ICT MarketThe size of the Palestinian ICT market has been growing rapidly since 1994; the Palestinian ICT ClusterAssessment report17 estimated the Palestinian ICT market in 2005 at US$ 300 million. The samereport estimated the size of the local market at US$ 120 million in 2000 dropping to US$ 87 million in2003 and reaching US$ 250 million in 2007.18

2. ICT ExportsThe ICT sector is one of the sectors that have shown great resilience to Israeli closure measures dueto its ability to over come physical borders through reaching the client in the export market virtually.However, lack of knowledge of the export market has limited access by Palestinian firms. Few firmsactually attempted to export and succeeded. Although the PCBS reports on the value of Palestinianimports and exports, it does not report separately on the ICT sector. The ICT Cluster Assessmentreport estimated exports for 2001 at US$ 3million, increased to US$ 10 million in 2005. PITAestimates based on DATA from their member companies that export in 2008 have reached at leastUS$ 15 million.19

6. Computer and Internet Penetration Statistics

In a survey conducted in 2007 for thecomputer and internet usage in the WBGduring 2006, a year after the introductionof ADSL in the local market, it wasreported that (32.8%) of PalestinianFamilies own a computer and (15.9%) offamilies have internet connection at home.Moreover, the survey reported that(50.9%) of Palestinians, 10 year and older,use the computer and (18.4%) use theinternet. Table (6) below providesadditional information on some selected

ICT statistics for the years 2004 and 2006to show progression.

Table 6:Selected ICT Indicators2004, 2006Indictor 2004 2006

Households that own computer 26.4 32.8Households that have access to theInternet at home

9.2 15.9

Households that have satellite dish 74.4 80.4Households that have telephone lines 40.8 50.8Households that have mobile line 72.8 81.0Households with one of its membershas a personal website

5.1 5.3

Persons (10 years and over) who usethe computer

35.7 50.9

Persons (10 years and over) who usethe internet

11.9 18.4

16Rabayah, Khalid S. , Awad, Sami and Naser Abdel Kareem: Palestinian ICT Market Liberalization Economic Analysis and FutureRoadmap, January 200817 The Palestinian ICT Cluster Report, Palestinian Enterprise Development Project-A USAID Project, 2006

18Presentation by Dr. Khaled Rabayah , ICT as an enabling tool to ease tension, relief hardship, and resolve conflict:Palestinian Context, ICT4D Research and Study Center, Arab American University- Jenin, West Bank.

19 A presentation by Khaled Rabayah estimate Palestinian High Tec export at US$ 20 in 2007.


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7. ICT Diffusion in Private Sector

In survey conducted by PCBS in 2007 onthe use of ICT in the private sector, it wasfound that (21.3%) of businesses usecomputers and (12.7%) have access to the

internet. Table (7) below providesadditional information on ICT diffusion inthe Palestinian Private Sector.

Table 7:Selected ICT Indicators for the Palestinian PrivateSector2007

Indictor 2007

Enterprises Using Computers 21.3%

Enterprises Using Internet 12.7%

Enterprises Using Electronic Transactions 2.3%

Enterprises Using Electronic TransactionsVia the Internet

2.0%

Enterprises Having Website 2.6%

Number of Computer per 100 Employees 24

Total Expenditure on ICT services US$ 175, 282.9

The survey also provided some valuable data on the ICT diffusion by economic activity as it appears in Table(8) below. This information can be the foundation for any future ICT Diffusion Program

Table 8:ICT Diffusion Statistics

Economic Activity Use of Computer Of which use Internet

Manufacturing 20.3 67.3Construction 59.0 68.1Whole Sale and Retail Trade 15.1 67.2Transportation & Communication 31.9 66.1Financial Intermediation 59.1 82.9Services 88.3 83.6


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SECTION FOUR

ICT SECTOR COMPETITIVE ADVANTAGEICT is considered a key pillar for economic development and competitiveness. The Palestinian ICT sectorhas been growing rapidly since 1994 in parallel to the growth in other economic sectors and increaseddemand for their services. The spillover effect of the ICT sector to other industries has lead to thecreation of technological and information management solutions needed to improve these industriesresulting in increased value added and therefore increased contribution to GDP.

The ICT Cluster Assessment report has identified several key strengths in the products and service offeringsof Palestinian IT companies. These include the use of advanced technology, remote communicationcapabilities, and bilingual applications. Moreover, the study reported on the successes of some ICT companiesin reaching the export market especially with software products. They have established business partnershipsin the regional markets, including United Arab Emirates, Saudi Arabia, Yemen, Iraq and Jordan. Moreover,the study reported on some other companies that are engaged in the development of niche products servingcustomers in the United States and Europe as their back endoperations. Despite these successes in the export market, thelocal market remains the major consumer of these products and

services. The key strengths of the Palestinian ICT products andservices are in the areas of financial and accounting solutions,education and information management solutions, andmanagement information systems (MIS).

Competition in the local market for customized solutions remains mainly among Palestinian ICT firms withvery little presence of international companies. However in the export market especially that in the Arabregion, Egypt, Jordan and Lebanon are strong competitors.

One of the competitive advantages the ICT sector compared to other sectors is its ability to work underthe current system of Israeli closures and geographic separation and the current political division in theWest Bank and Gaza. Most of the ICT companies were able to retain their employees even under thetough closure measures imposed on the Gaza Strip. Only companies that are hardware specialized werehardly affected while those that provide software solutions or a combination of hardware and softwaresolutions were able to adjust.

The main competitive advantages of the Palestinian ICT sector can be summarized as follows:

1- Abundance of ICT Graduates20

Recent statistics released by the Palestinian Ministry of Education and Higher Education (MoE&HE)indicate that there is a great interest in the ICT field among students. Of the 46,979 newly enrolledstudents, 3,866 were in the ICT related fields.

The newly enrolled students were 2,694 in the West Bank and 1,172 in Gaza. Table (9) below providesadditional data on the distribution of new enrolled students among different higher education institutions

and by gender type in the WBG

Table 9:New Enrolled Students by Type of Academic Institution, Geographic Location and Gender, 2007-2008

WB Total Female Gaza Total Female

Traditional Universities 1838 831 Traditional Universities 279 99

University Colleges 98 60 University Colleges 192 27

Community Colleges 185 39 Community Colleges 409 80

Open Educations 573 391 Open Educations 292 49

West Bank Grand Total 2694 1321 ` Gaza Grand Total 1172 255

20 Data presented in this section were provided by Ministry of Education and Higher Education Annual Statistical Guide,2007/2008 for Palestinian Higher Education Institutions, Ramallah, Palestine

ICT COMPETITIVE POSITION

Uniqueness of product and servicesespecially attractive to the Arab market


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Currently enrolled students in the different academic institutions as reported by the MoE&HE are180,956 including 10,572 in the ICT field. Table (10) provides additional information on the currentlyenrolled students by type of institution.

Table 10: Currently Enrolled Students by Type of Academic Institution, Geographic Location and Gender2007-2008

WB (Acc. Institution Type) Total Female Gaza (Acc. Institution Type) Total Female




Open Educations* Open Educations*

West Bank Grand Total 5542 2226 Gaza Grand Total 5030 1302

* Data classification according to location for Al-Quds Open University is not available. Only aggregate value (T:3564 , F: 1582)

Figure 3: Distribution of Currently Enrolled Studentsby Program type in the West Bank, 2007-2008 Figure 4: Distribution of Currently Enrolled Studentsby Program type in the Gaza Strip, 2007-2008

Diploma

17%

Bachelor

80%

Master

3%

Bachelor

62%

Diploma

37%

Master

1%

Finally, graduating students from Palestinian colleges and universities are 25,275 including 2,185 in the ICTfield. Table (12) below provides the distribution of those students by institution type.

Table 11: Distribution of Graduating Students by Type of Academic Institution, Geographic Location and Gender,2007-2008

WB (Acc. Institution Type) Total Female Gaza (Acc. Institution Type) Total Female




Open Educations Open Educations*

West Bank Grand Total 1238 448 Gaza Grand Total 947 397

2- Highly Trained Labor ForceThe trained ICT workforce is reflected in the high value added per employee compared to other sectorsof the economy. In the previous analysis of the economic impact of the sector, employees in the ICTsector ranked second only after the real estate activities at US$ 31,770 which is almost triple the servicesector average.

3- Diversity of ICT SpecializationsThe below graph is from an assessment of Palestinian ICT professionals in a sample of PITA firms. 21 Thegraph shows the degree if diversity of Palestinian professional experience to meet the various demands of

21 Assessment of the Palestinian ICT Workforce, Palestinian Enterprise Development Project-A USAID Project, 2008


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local and international markets.

Figure 5: Palestinian ICT Professionals by Technical Skill, 2008

4- Low Labor CostThe ratio of compensation per employee in the ICT sector to their value added is among the lowest in theservice sector. The ICT sector ranks third with a ratio of (22.65%) which in other words means that ICTprofessionals are only compensated one fifth of their value added compared to the service sector averageof (47.66%). The average employee pay per month in Palestine is about US $ 650 compared to US$1200 inLebanon, US$ 800 in Jordan, US$ 500 in Egypt, US$ 700 in India, $ 800 in Estonia and US$ 3,000 in Israel.

5- Well Organized ICT Sector

The Palestinian ICT sector is one of the best organized private sectors in Palestine. PITA is well recognizedin the private sector and is represented on the Private Sector Coordination Council. PITA has been activein advocating for the interests of Palestinian ICT firms over the past ten years.

6- Wide Range of ICT Companies Specialization

The Palestinian ICT sector is one of thebest organized private sectors in Palestine.PITA is well recognized in the privatesector and is represented on the PrivateSector Coordination Council (PSCC).PITA has been active in advocating for theinterests of Palestinian ICT firms over thepast 10 years

Figure 6: Distribution of PITA Member Companies bySpecialization


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SECTION FIVE

PALESTINIAN ICT FIRMS: EXPORT PROFILE

1.Jaffa.NetTalking to Mr. Yahya Al-Salqan, CEO, he advised that

Jaffa.Net Computer Systems was established in 1997 andhas 25 employees. Jaffa.Net main expertise is intelecommunications, software development, training,networking, IT Consultancy, Internet and e-Commerce.

The flagship for Jaffa.Net for exporting software isautomating all Jordanian Courts throughout thecountry. The success came through marketing channelsdeveloped through USAID

2.Next Level Technology Systems (NTS)

Talking to Mr. Majed Ayyad, he advised that NTS was

established in 2001 as a software house.

Major International Projects include:TDB for VOLVO, Sweden. IT Dept.

eHelpDesk System, for: Abu Dhabi Chamber ofCommerce

Alpha Omega Engineering, Israel/ USAThe success of NTS is through previously conductednetworking and business development carried out bythe company through participation at Gitex.

3.PhoenixBird Information Technology& Systems Ltd.

Mr. Yaser Al-Shantaf, General Manager, advised thatPhoenixBird Was established in 1994 an internationalapplication software development and outsourcingcompany with focus on providing high-quality andreliable software development & testing, and systemmaintenance solution & services. He also added thatPhoenixBird has gained expertise in offeringcustomized solutions designed to address specificcustomer needs and has earned a reputation asprovider of high-quality solutions.

Major International Projects include

Issue Tracking & Task Management, installed atUniversco, Canada. (A Broadband wireless ISP inVancouver) and Alpha Beta Development, Canada.(A high profile construction company with multimillion real estate projects across Canada.)

Content Management, installed at Berner GmbH,Germany

Airport Solutions, installed at Seeb InternationalAirport (Oman)

The main success for the company is having co-partners living in Canada where the provide marketchannels and business development as well as technical

assistance in the development and deployment of thesesolutions and services.

4.Al-Andalus Software Development &Technology (ASD)

Mr. Mohammed Beitawi from ASD explained thatASD is a Software company established in 1998specializing in the fields of Information systems,Management Information System and softwaresolutions. The company staff have considerablehands-on experience developing and implementinghigh-tech projects in Palestine. ASD has three sisters(branches) companies in Dubai, Jordan and SaudiArabia under the name of Grand Software SolutionsCo. (GSWSoluation.com)

The business model that ASD operate under provides

customers with different choices and schemes topurchase and adopt their solutions. ASD work withcustomers side by side in implementing; customizingand developing solutions. The flagship for ASD is e-Voucher and e-POS solutions.

Major International clients are in UAE

Grand Stores - Dubai, Safe Mix Ready Concrete L.L.C., EURO Telecom - Dubai, SOL General Trading

L.L.C. (SOL Mobiles) - Dubai, Sharjah City for Humanitarian Services

Mr. Beitawi advised that the registration of anoffshore company in the region facilitated for doingbusiness in the UAE.

5.AlTARIQ ALTARIQ Systems & ProjectTalking to Tareq Isleem, he advised that his company,ALTARIQ, is exporting the ePOS / Financial softwareinstalled at many supermarkets, pharmacies and hugcompanies in Saudi Arabia, Libya and Egypt.

The secret of this success is through having resellersand business development people working in these

markets acting on behalf of the company.

6.Babil SoftBabil Soft has established offices in Jordan where italso conducts market development. Babil Soft sells itsFinancial Application in Yemen through a uniquebusiness model: Babil has trained local Yemini teamfor conducting support, installations and sales. Everytime a new client is sold the software, the activationkey is sent from Ramallah to control the business.Frequent trips are also conducted to Yemen.


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7.ASAL TechnologiesASAL has been in the Palestinian market since 2000and is the First ISO9001:2000 Certified in SoftwareDevelopment in Palestine. ASAL is a major outsourcingservices company that has recently become aRegistered Partner and solution provider for CISCO

Systems

8.Global Software Services Inc. (GSSI)GSSI is dedicated to easing the increasing burden ofcomplex data management and interpretation. GSSIhas recently become a Registered Partner andsolution provider for CISCO Systems and has beendoing outsourcing to the Silicon Valley through

marketing channels developed through USAID

9.Exalt Technologies

Formerly SIEMENS-ICT, was created in 1998 as a joint venture between Siemens AG and Hi-Tech engineering. As ofJanuary 2003, ICT became a separate startup. Exalt is a research and development center specialized in the field ofdata/telecomm products, in particular SONET/SDH, ATM and Ethernet technologies. Experience includes high-speedboard design, FPGA, embedded software, VHDL, layer 3 network protocols, and management softwaredevelopments.

Exalt Technologies has recently become a Registered Partner and solution provider for CISCO Systems.

From the above example one can conclude that information technology exports can be broken into twomain categories:22

1Packaged Products that are exported to clients characterized as being government agencies,SMEs or large businesses that have a compelling reason to buy the Palestinian product.

2Services such as outsourcing services that are exported to technology multinationals includingCISCO and Intel or used by these multinationals such as the case in the GSSI

Most Palestinian software development houses are engaged in export initiatives due to the limited marketsize in Palestine. Any chances of growth have to come from marketing and selling regionally. Luckily, theICT sector has demonstrated that it is more resilient to Israeli blockage and restrictive practices on

imports and exports of goods. Therefore, the vast majority of the software houses have at least one ormore experiences in selling abroad.

The market penetration for the Palestinian IT products and services are geographically mixed and do nothave a certain target market concentration. This is attributed to the fact that Palestinian companies areeager to sell to early markets where efforts of business development have materialized either based onpersonal or professional network of people. Accordingly, it is difficult to claim that there is a trend ofestablished markets that all exporting IT companies sell in. Unfortunately, it is not the case to claim thatthe GCC is the dominant geographic market, or whether it is Jordan, or whether it is Egypt, Libya, Sudanor Yemen. Neither can the ICT sector claim that the Western Hemisphere in Europe, Canada and theUSA are the main markets. Even in the Far East, GSSI is doing outsourcing to South Korea. ASD has alsodeveloped a joint venture in Nigeria, Africa, where the signing ceremony took place at the London

Investment Conference.

The few success stories presented above are a clear example of the ability of the sector to expand andgrow. Three of the companies show cased above (Exhalt, Asal and GSSI) have secured a joint R&Dproject with CISCO worth of US$ 1 million and were able to add 40 new job opportunities to theirworkforce.

Exporting ICT services should be the way forward for the Palestinian ICT sector. Additional investmentand positioning of this sector would be needed to generate more export opportunities in the sector. Thecase of Jordan (profiled in the next section) is one example of how investment and promotion of thisindustry is able to generate hundreds of jobs and increase contribution to GDP.

22 The discussion in this section has been contributed by Mr. Laith Kassis, PICTI Executive Manager


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Export Experience Lessons Learnt

1. Selling technology is based on people relationship and networking as assurances of product viability

2. Sustaining the interest of existing clients abroad compete with growth strategies due to the limitedresources available to companies and that the business model of complimenting a Palestine based

operation with an offshore one is resource demanding3. More sector branding is needed to support the marketing effort of the companies

4. More industry certification is required to develop trust with the clients

5. More technical assistance in developing market channels and business leads

6. Innovative financial instruments based on equity e.g. venture capital


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SECTION SIX

OTHE COUNTRIES EXPERIENCE: THE CASEOF JORDAN

The Case of Jordan

Jordan has launched its ICT strategy in 1999 championed by the Jordanian King Abdullah II with the goal toincrease national ICT infrastructure and projects and transforming Jordan into knowledge based economyto become a leading ICT technology hub in the region. The strategy also aims at raising internetpenetration to (50%), ICT sectors revenues to reach US$ 3 billion, and ICT sectors employment to reach35.000 jobs by the year 2011.23 This strategy has been successful in creating job opportunities andpositioning the services sector as a new hub for ICT outsourcing. Sector revenues have been growingcontinuously since 2003 reaching its peak growth rate in 2004 at (48.87%). Exports have also grown bymore than (20%) except in 2004 when it grew by only (18%). The opening of the sector and the incentivesprovided by the government have attracted new Foreign Direct Investments (FDI) reaching about US$ 110

million cumulative invest for the period 2003-2008. The sector employment have also been increasing, thelatest figures reported by the Information Technology Association of Jordan (INT@J) indicate that 17,000employee are now working in the IT sector. This does not include IT specialists in other sectors of theeconomy. INT@J also reports that the total ICT contribution to GDP has reach around (12%) in 2008.

Jordan has also taken few goof steps towards the development of its ICT sector to be a primary driver ofeconomic development. The WEF report sites Jordan as making good steps and improving their ranking inthe Networked Readiness Index published by the WEF itself. Jordan has improved its ranking by 3 decileranks this year thanks to a visionary leadership and a supportive government.

In this section we will show case Jordan a success story in the development of the ICT sector. The ICTsector has been the fastest growing of the Jordanian economy. Total revenue has been increasing since2003 at an accelerated rate. Table (12) below provides some data on the sector revenue, investment andemployment.

Table 12:Jordan ICT Indicators Summary2007 (USD)

Indicator 2003 2004 2005 2006 2007

Total Revenue 295,910,000 440,514,648 580,873,643 770,074,591 882,970,754

Growth Rate 29.51 48.87 31.86 32.57 14.66

of whichDomestic revenue 226,183,000 361,103,905 418,254,125 578,554,212 686,063,063growth rate 20.02 59.65 15.80 38.33 18.58percent of total revenue 76.00 82.00 72.00 75.00 77.70

export revenue 69,728,000 79,410,743 162,619,518 191,520,379 196,907,691growth rate 74.16 13.89 105.00 17.80 2.81percent of total revenue 24.00 18% 28% 25.00% 22.30%

Foreign Direct Investment (FDI) 11,594,500 2,900,000 10,524,761 13,569,656 3,070,791

Cumulative FDI 79,600,000 82,500,000 93,024,761 106,594,417 109,665,208

Employment 8,117 8,523 10,032 10,712 11,034

Growth Rate 1.46% 5.00% 17.70% 6.78% 3.00%

23 From a speech of H.E. Eng. Bassem Al Rousan, Jordanian Minister of Information and Communications Technology,http://www.intaj.net/index.php?option=com_content&task=view&id=1159&Itemid=10
http://www.intaj.net/index.php?option=com_content&task=view&id=1159&Itemid=10http://www.intaj.net/index.php?option=com_content&task=view&id=1159&Itemid=10http://www.intaj.net/index.php?option=com_content&task=view&id=1159&Itemid=10


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SECTION SEVEN

CHALLENGES TOWARDS THE DEVELOPMENTOF THE ICT SECTOR

The Palestinian ICT is facing various challenges, some are internal to the companies themselves and otherare external as they relate to government policies and Israeli restrictive measures. In following sections,challenges will be discussed under three main areas namely business outsourcing, Marketing Channels,Capacity Building and Training

Business Outsourcing

Despite the successes of some ICT companies in the outsourcing business, there remain severalchallenges that prevent the growth of this industry and the Palestinian firms ability to secure outsourcingcontracts. The Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry24 outlinedseveral challenges that include the following:

International perceptionsGlobal news media portrays an image of Palestine that is not conducivefor business. When dealing with this perception, Palestinian companies must surpass it to winbusiness outside of the country.

Security of data and concerns about having important information physically located in the area.

Security of supply, relating to ensuring the people are able to get to work and that the networks arerobust enough to ensure high levels of resilience and up time.

The face to face communication challenges caused by the ongoing security restrictions betweenPalestine and Israel.

Marketing/business developmentThe ability of companies to express their unique value propositionto a defined customer profile is sorely lacking throughout Palestine. At present almost all of theorganizations and individuals assessed do not have the knowledge or experience at present to

implement a successful regional or global business development program. Travel impedimentsinward and outwardThe Palestinian people have significant challenges in

traveling across cities, into Israel, and internationally. These delays in time and in getting supplieshurt the ability to do business efficiently. Additionally, the international perceptions of personal riskand lack of attractiveness for Western visitors decreases the ability for Palestinian companies todevelop strong relationships with clients.

Scalability of the labor poolFrom several estimates the total number of IT graduates that emergeannually from Palestinian universities is around 2000. This is in stark contrast with the well over100,000 graduates from Indian universities. The lack of mass supply will limit the ability of Palestineto grow into a global IT outsourcing player. 25

Externalities26

Control and sever restrictions on the frequencies allocated to the Palestinians.

Restriction on the construction of service towers in C areas.

Illegal and unfair competition between JAWWAL and the 4 Israeli operators in the Palestinianterritory.

Restriction on the imports of ICT equipments to the Palestinians.

International telecom ratesCalling Palestine from the US costs approximately US$0.29/minuteversus US$0.18 in India for a standard land line call, a (61%) premium over the international leader inoutsourcing.

24David L. Ross, An Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry, Palestinian Enterprise

Development Project, A USAID Project, May 200825 Ibid26 ICT in Palestine: Creating a Development Dynamics, PITA,


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Marketing Channels

Lack of trust to buy Palestinian products

oNo proper sector brandingoNo industry certification exist for the back office development and support operations

Palestine is not well positioned in the global market

There is no clear understanding of marketing and sales concepts

The disconnect that exists between the ICT suppliers and prospective beneficiaries and customers.27

Finance 28

Financeevidence from the research and external sources indicates the access to finance in the area ischallenging:

There is a concern about the local banks willingness to support growing businesses through costcompetitive loans and overdrafts.

The availability of Venture Capital is limited, with no specific funds available in the area. This will be

critical to the development of new companies and services.

Capacity Building and Training

Lack of capacity and knowledge in areas such as operational and financial management

Local universities and colleges curriculum do not respond to the market needs

27 The Palestinian ICT Cluster Report, Palestinian Enterprise Development Project-A USAID Project, 200628These challenges have been identified by Nick White, Investing in Peace Intellect/Consulting & Interim Management SolutionsLtd, ICT Business Development Project of Mercy Corps, January 2009


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SECTION EIGHT

FUTURE OUTLOOK OF THE ICT SECTORThe analysis of the future outlook for the ICT sector will focus on the overall economic performance ingeneral and its impact on growth in the sector. Furthermore, it will assess the ability of the sector to grow

and expand in the global market. The analysis will also take into consideration the growth of the JordanianICT sector in an economy that resembles that of Palestine.

1. Contribution to GDP

In a previous section on economic indicators, it was shown how ICT has a positive growth in response tonew investments in the sector and the increased internet penetration. In the early years of the Intifada,the ICT Value Added growth rate was negative. However, in the 2 years after, it increased significantlywith over 25% growth in 2003 and over 50% in 2004. During the year 2005, ICT value added declinedmainly due to the decline in overall economic activities. In the following 2 years, ICT value addedincreased by more than 10% and declined slightly in 2008 compared to previous growth rates. Theincrease in these two years could be due to the introduction of the ADSL services in mid 2005. Despitethe decline in 2008 that could be attributed to the closure imposed on the Gaza Strip which led to

overall economic decline combined with the prohibition of import.

In its future outlook report, the PCBS projected a decline in the overall economic activities and GDP by3.1% if the current situation of economic embargo and restrictions continue to be imposed on the GazaStrip during 2009. However, if the restrictions and embargo is lifted combined with the reconstructionof Gaza and increased number of workers employed in Israel, there will be a GDP growth of about 3.2%.In the first scenario of economic decline, the ICT sector could mitigate for this through an outwardlooking strategy for the global market. A strategy that focuses on the export market could lead to agrowth in the sector similar to that in 2006 and 2007 of 10% growth rate. A 10% growth rate would leadto an average increase in the ICT value added by $ 25 million annually to reach in 2011 $ 307 m.

On the other hand, the adoption of an ICT development strategy similar to that of Jordan withinvolvement from key stakeholders including the donor community, could lead to growth rates similar orexceed those of Jordan which averaged 40% annually. The ICT sector in Palestine has previouslyachieved a growth rate exceeding 50% in 2004. A 15% growth rate would lead to an average increase inthe ICT value added by $ 40 million annually to reach in 2011 $ 351 m.

Figure 7: ICT Value Added 1999-2008 and forcast 2009-2011 - Scenario I

0

50

100

150

200

250

300

350

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Figure 8: ICT Value Added 1999-2008 and forcast 2009-2011 - Scenario II

0

50

100

150

200

250

300

350

400

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2. Employment

Employment in the ICT sector and ICT jobs in other branches of the economy are estimated at about15,267 of which about 5,200 jobs are direct ICT sector employment. It has been shown above that each

job opportunity created in the ICT sector is matched by 3 jobs in other branches of the economy. TheJordanian ICT sector employment has been growing over the past 5 years at a rate that averaged about7% annually. Furthermore, it has been shown that a US$ 1 million export opportunity generated 40 new


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job opportunities in Palestine. Taking these two factors into consideration, it would be reasonable toassume that the Palestinian ICT sector employment could grow in the range of 3-4 percent annuallywhich translates to 150-200 new jobs opportunities in the ICT sector annually. These will also generate400-500 new jobs in the economy as a whole. The ability of the ICT sector and other economic sectorsto absorb new ICT graduates depends largely on economic growth. Further, as most of the ICT businessrequires high degree of training, it is not expected that most of these graduates will have a chance to be

absorbed by the ICT sector unless they receive the proper training and placement assistance. It isessential to develop programs that would target new graduates to be attractive for private sectoremployment.

3. Business Outsourcing

The Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry study found thatPalestinian ICT firms may have an opportunity to develop BPO activities which include data entry andindexing at the lower end, clams processing in the mid-range of complexity, and taking on the fullresponsibility of HR of Finance in the most complex cases. For these activities to succeed, a set ofrecommendations were made in order to be able to compete in a very competitive global market forBPO. These recommendations are outlined in the recommendations section below.


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The Palestinian ICT Sector A three-year outlook Based on economic indicators (April 2009)

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SECTION NINE

RECOMMENDATIONSThe recommendations outlines below are organized in the same manner the challenges section has beenorganized in order for the ICT sector to rise to those challenges.

Business Outsourcing291. Develop Business Process Outsourcing Capabilities: To develop these capabilities, the

industry will need:To understand what BPO is, how its different from IT outsourcing and how to design efficient

processes

Workforce managementhiring, training, managing capacity and utilization of workers\

ToolsHardware and software platforms for conducting BPO

ProcessWorkflow, time and motion studies

2.Training of Global StandardsThe Palestinian outsourcing industry needs to build capabilities to conduct and maintain global

outsourcing standards. Palestinian companies have not largely adopted these standards due to theirlack of awareness and the cost associated with being assessed. There are presently no certifiedassessors of global outsourcing standards in Palestine and to conduct an assessment for only onecompany is prohibitively expensive. A certification program is therefore needed to certify assessorsthat can help Palestinian ICT firm become acquire needed certification.

3.Government Tax IncentivesIn order to be able to compete with countries already established in this business such as India,

Philippines and Costa Rica, the government need to provide tax incentives for companies engaged inoutsourcing activities.

Telecom Policies

Despite the fact that most of the technical and logistical challenges are to some extend external factors,however there are few internal factors that could be solved in order to give Palestinian businesses acompetitive edge. These include:

The Establishment of a Telecom Regulator that would ensure fair competition in the market and worktowards illuminating illegal competition from Israeli mobile operators.

Provide competitive International telecom rates to lower the cost of international calls to Palestine to arate competitive with that in other competing countries such as India.

Marketing Channels

Branding Palestine is essential to overcome the fears and concerns of business outsourcing clients.

Palestine needs to be branded as an efficient, low-cost and safe place to do outsourcing business. Abranding strategy needs to be developed in cooperation between the public and private sectors.

Geographic clustering of outsourcing business would enable Palestinian firms to leverage resources andpenetrate global markets more efficiently through specialized marketing and promotion programs toeach of these geographic cluster of countries.

Finance 30

Provide liquidity to ICT companies through soft loans from local banks backed with guarantees frominternational agencies.

29These recommendation were made by David L. Ross, Assessment of the Outsourcing Capabilities of the Palestinian ICTIndustry, Palestinian Enterprise Development Project-A USAID Project, 200630These challenges have been identified by Nick White, Investing in Peace Intellect/Consulting & Interim Management Solutions Ltd, ICT Business Development Project of Mercy Corps, January 2009


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As part of the branding strategy, Palestine needs to be positioned as a secure place to invest throughventure capital

Capacity Building and Training

Specialized Apprenticeship programs targeting ICT graduates to be trained for the delivery of neededservices for Palestinian ICT firms.

Provide facilities for the training on global standards targeting professional and managerial staff

Marketing training on branding and market segmentation and clustering

Technology entrepreneurship

Software development e.g. CMM

IT Support e.g. ITIL

Animation and Multimedia e.g. scripting

Documents

Pita Ict Study