Pita Ict Study

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The Palestine Information and Communications of Companies (PITA) www.pita.ps
The Palestinian ICT Sector A Three-Year OutlookBased on Economic Indicators

May 2009
This report is made possible by the support of the American People through the United States Agency for International 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 of USAID or the United States Government.
Report by: Rami Wihaidi
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 at the future. Moreover, I would also like to acknowledge with thanks the great contributions of Mr. Laith Kassis, the Executive Director of PICTI and Mr. Ihab Jabari, the Executive Director of PITA for their great comments on an earlier version of the paper. I have greatly benefitted from their insightful comments. Rami Wihaidi Impact Consulting Inc. May 2009
TABLE OF CONTENTS
ABBREVIATIONS AND ACRONYMS ............................................................................................. 4 EXECUTIVE SUMMARY....................................................................................................................... 6 BACKGROUND .................................................................................................................................... 8
The ICT Sector Major Players:...................................................................................................................................8 1. Palestine Telecommunication Company: ............................................................................ 8 2. Wataniya Telecom, the 2nd Mobile Operator ..................................................................... 9 3. Other ICT Private Sector Companies and PITA ................................................................ 9 4. Palestine Information and Communication Technology Incubator (PICTI) ....................... 9 5. The Palestine Chapter of the global Internet Society (ISOC-PS) ..................................... 10 SWOT Analysis ........................................................................................................................................................... 10 The Regulatory Framework: .................................................................................................................................... 11 1. Contribution to GDP ........................................................................................................ 12 2. Employment ....................................................................................................................... 13 3. Employees Performance in the ICT Sector Compared to other Service Sub-Sector and the Industrial Sector .................................................................................................................. 14 4. Impact of Investment in ICT at Other Sectors ................................................................. 15 5. ICT Market Indicators ....................................................................................................... 16 6. Computer and Internet Penetration Statistics .................................................................. 16 7. ICT Diffusion in Private Sector ......................................................................................... 17
ICT Economic Indicators ....................................................................................................................12
ICT SECTOR COMPETITIVE ADVANTAGE ...............................................................................18 PALESTINIAN ICT FIRMS: EXPORT PROFILE.............................................................................21 OTHE COUNTRIES EXPERIENCE: THE CASE OF JORDAN .................................................24 CHALLENGES TOWARDS THE DEVELOPMENT OF THE ICT SECTOR ..........................25
Business Outsourcing ................................................................................................................................................ 25 Externalities ................................................................................................................................................................. 25 Marketing Channels.................................................................................................................................................... 26 Finance .......................................................................................................................................................................... 26 Capacity Building and Training ................................................................................................................................ 26 2. Employment ............................................................................................................................................................. 27 3. Business Outsourcing............................................................................................................................................ 28 Business Outsourcing ................................................................................................................................................ 29 Telecom Policies ......................................................................................................................................................... 29 Marketing Channels.................................................................................................................................................... 29 Finance .......................................................................................................................................................................... 29 Capacity Building and Training ................................................................................................................................ 30
FUTURE OUTLOOK OF THE ICT SECTOR ...............................................................................27 RECOMMENDATIONS .....................................................................................................................29
LIST OF TABLES
Table 1: Number of operating telephone lines in the West Bank and Gaza For the years 1996 2005 Table 2: SWOT Analysis For The Palestinian ICT Sector Table (3) ICT Sector Value Added and Percent Contribution to GDP Table 4: Gross Domestic Product by Economic Activity, 2008 US$ million Table 5: Value Added and Compensation per Paid Employee in the Service Sub-Sectors Compared to the Industrial Sector in the Remaining WBG, 2007 Table 6: Selected ICT Indicators 2004, 2006Table 7: Selected ICT Indicators for the Palestinian Private Sector 2007 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 Gender 2007-2008
Table 11: Distribution of Graduating Students by Type of Academic Institution, Geographic Location and Gender, 2007-2008 Table 12: Jordan ICT Indicators Summary 2007 (USD)
LIST OF FIGURES
Figure 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 2009-2011 Scenario I Figure 8: ICT Value Added 1999-2008 and Forecast 2009-2011 Scenario II
The Palestinian ICT Sector A three-year outlook Based on economic indicators (May 2009)
ABBREVIATIONS AND ACRONYMS

ADSL BPO FDI GDP ICT ISOC-PS MIS MoE&HE MTIT NGO PA PalTel PalTrade PCBS PICTI PITA PSCC WBG WEF Asymmetric Digital Subscriber Line Business Process Outsourcing Foreign Direct Investments Gross Domestic Product Information and Communication Technology The Palestine Chapter of the global Internet Society Management Information Systems Ministry of Education and Higher Education Ministry of Telecom and Information Technology Non Governmental Organization Palestinian Authority Palestinian Telecommunication Company Palestine Trade Center Palestinian Central Bureau of Statistics Palestine Information and Communication Technology Incubator Palestinian Information Technology Association of Companies Private Sector Coordination Council West Bank and Gaza World Economic Forum
SECTION ONE
EXECUTIVE SUMMARY
This study is an attempt to understand the potentials of the Palestinian information and communications technology (ICT) sector and its ability to grow and increase its contribution to the national economy as a whole. The analysis presented in the study references previous studies done in the ICT sector that explored various aspects of its indicators including workforce, competitive advantage, outsourcing capabilities and market access liberalization characteristics. Furthermore, this study also showcase and benchmark the Jordanian experience as a neighboring country in its efforts to develop this sector to become 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 of subscribers 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 ICT products and services supported by experienced human resource and advanced and accessible telecom infrastructure and value added services. Furthermore, the sector has much potential to leverage the available skilled workforce in other niche areas that still needs to be explored such as the untapped Business Process Outsourcing (BPO) capabilities, tapping into the growing digital Arabic industry and coordinate with donor involvement in the sector that may help jumpstart it. Despite these encouraging characteristics, the ICT sector faces serious challenges that need to be addressed such as: international perceptions of the Palestinian technology industry, market access and business opportunities, travel impediments, scalability of labor pool, access to equity based finance and investment, relatively high telecom cost to do business and inadequate legal and regulatory framework in support 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 in the sector and a growing ICT brain drain. Despite these challenges, the sector has been able to adapt and show impeccable resilience to many of these challenges. Its value added - ICT share of Gross Domestic Product (GDP) - has been significantly growing for the past 10 years. The average annual ICT value added has been around (8%) with some years showing a growth of over (50%). Moreover, its contribution to GDP has been growing from about (3%) in 1999 to reach (5%) in 2008. This growing performance of the sector has been achieved under very sever political 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 employment opportunity 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 the value added and out put per paid employee in the ICT sector ranks second within the service sub-sectors with 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 has been growing steadily for the past 10 years. Estimates of the ICT market was at a value of about US$120 million in 2000, then it dropped to US$87 million in 2003 only to rebound in 2007 to US$ 250 million. As a comparison, the current value of the Palestinian ICT market is similar to that of Jordan six years ago in 2003. Despite the many similarities between the two sectors in terms of composition, the main difference is 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$ 900 million in 2007.
The Palestinian ICT sector may benefit from the experience of Jordan by adopting a development strategy that focuses on the Palestinian Authority (PA) signaling areas of importance in engaging the privates sector and entrepreneurs to cover for these needs, market access and expansion regionally, industry certification and workforce geared for exporting technology and knowledge based products and services. The adoption of such a strategy coupled with commitment from all stakeholders including the donor and the development 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 growth of exporting technology and knowledge based products and services namely: policies, outsourcing / offshoring, technical assistance, marketing channels, finance and industry certification.
SECTION TWO
BACKGROUND
It is widely believed that ICT is a powerful enabler of economic development. ICT can be even more supportive if initiatives are designed to target specific measurable goals. In their recent Global Information Technology 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, thanks to its revolutionary power as a critical enabler of growth, development, and modernization. The report showcased Egypt successes in becoming a major outsourcing destination. The report argues that Egypt has the 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 macroeconomic environment, strategic geographical location, strong government focus, good telecommunications infrastructure, and improving business environment. They highlight, as a main take away from Egypts experience, the importance of investing in relevant human resources, ensuring an overall infrastructure supply with world-class connectivity levels and creating a well-funded investment agency with an adequate regulatory authority working on a public-private partnership basis. The ICT sector started in Palestine during the early 1980s with few hardware re-sellers working as subdealers to the Israeli agents. By Mid 1980s, some software development emerged providing accounting and word processing solutions to end users in the local market. The beginning of the 1990s brought further growth for the ICT sector as new businesses emerged and started to develop and provide additional software products, Internet services and customized solutions in order to meet the demand coming from the local private sector, universities and local government agencies and municipalities. By late 1993 and 1994 when the Oslo accord was signed and the PA was established, additional demand for ICT solutions and hardware by the central government continued to contribute to the growth of the ICT market. The spread of ICT use in public offices led to educating employees on the use of technology and therefore created additional demand at the household level. By end of 1995, the ICT sector started to show significant growth responding 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 established in 1990s with few firms offering Internet connectivity. Indeed, in 1997, the telecommunication sector was privatized and the Palestinian Telecommunication Company (PalTel). PalTel was established with a 10 year exclusive license that allowed it to invest and develop a Palestinian telecommunication infrastructure and offer new landline telephone and other communication value added services. It is worth noting that prior to Paltel establishment; it was an impossible mission to obtain a telephone line in the Palestinian household due to Israeli occupation measure. Table (1) below provides some data on the number of operating telephone lines in the West Bank (WB) and Gaza since 1996 to reflect on the development of the telecom sector since then.
Table 1: Number of operating telephone lines in the West Bank and Gaza For the years 1996 2005 1 YEAR 1996 1998 2000 2002 2004 2005
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WEST BANK 59,383 114,419 188,024 164,770 180,759 225,088
GAZA 24,238 52,852 84,187 77,124 90,699 111,937
TOTAL 83,621 167,271 272,211 241,894 271,458 337,025
Information and Communications Technology Statistics in the Palestinian Territory, PCBS, March 2007
By 2008, the number of fixed line subscribers reached and kind of saturated 357,000. However, the introduction of the value added ADSL services; it was a major source of increased fixed line subscribers between 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 started to offer mobile services in the year 2000 by establishing the Palestine Cellular Communications Company, Ltd, known as JAWWAL.
Figure 2: ADSL Subscribers 2005-2008
2008 2007 2006 2005
72518 55684 27172
7483 By 2005, JAWWAL subscribers reached 570,000 and in 2008 theyve reached 1.4 million 0 20000 60000 80000 40000 subscribers.3 Recent newspaper advertisement during the month of April, 2009Recent newspaper advertisement during the month of April, 2009 indicated that the number of JAWWAL subscribers has now reached 1.5 million; thus, supporting an international 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 increasing the 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 Wataniya operations continuously delay the operational start. It is expected that Wataniya will direct more attention to broadband services, especially wireless services, based on 3G technology and WiMax pending Israeli 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 PITA

There are around 300 enterprises working in the ICT sector4 which is considered the fastest growing sector in the economy. The ICT private sector firm have organized in 1999 and established the Palestinian Information Technology Association of Companies (PITA). As of today, PITA has 89 members representing more than (80%) of the ICT private sector firms. PITA members offered products and services include software development (29%), hardware sale (28%), internet provision and website design and hosting (11%), consulting and training (10%), telecom services (7%), IT services including outsourcing and system integration (5%), advertising and marketing services (5%) manufacturing (3%) and electronic equipment 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 PITA and the technology Community. PICTI and its partner organizations, including PITA, and the Palestine Trade Center (PalTrade), have as their mission the revitalization and the sustainable growth of the ICT sector in Palestine. PICTI focuses on providing professional business development services to entrepreneurs who have mature concepts for unique and innovative products assessed to have strong market potential.6
PalTel Group Annual Report, 2008 PalTel Group Annual Report, 2008 4 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, 2006 6 PICT website http://www.picti.ps
2 3
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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 the advancement of the Internet and technology sector in Palestine. It has been active in the area of advocacy and public policy for internet users rights.
SWOT Analysis
The Strengths, Weaknesses, Opportunities and Threats analysis facing the ICT industry in the WBG are summarized in the Table (2), below. The table combines the results of two ICT sector studies attempting at analyzing the sector in Palestine. 7 It also provides an in-depth analysis of the strength and opportunities 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 resource but often local and therefore limited ability to sell beyond the region Advanced and accessible basic telecom infrastructure including ADSL, ISDN and leased lines ICT has officially been recognized in strategic government economic planning as future economic pillar
International perceptions on development and security Marketing / Business development International exposure/experience Travel impediments outward 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 are increasingly becoming generic and standardized Less seriousness to legislate and enforce IPR protection Government and non-commercial service e providers competing in the same market with private sector Highly price sensitive local market ICT brain drain Major IT Companies not operational to any great extent
The 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 the Oslo agreement signed between the Palestinians and Israeli addressed the issue of the Palestinian telecom operator. The agreement gave the Palestinians the right to build and operate their own telecom 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 telecom sector regulator and the Ministry of Telecom and Information Technology (MTIT) assumed the role of the regulator. In this same year, the PA granted the Palestinian Telecommunication company an exclusive license to build and operate the telecom network in the WBG for a period of 10 years with additional 10 years non-exclusive license. The license was granted in absence of a Telecom Law and a regulatory authority that can regulate the telecom market. A new draft Telecom Law was drafted by the MTIT in 2005 establishing the telecom regulator. However, the inability of the new legislative council that came as a result of the 2006 elections delayed the establishment of the regulator and is keeping the law setting at the president office unsigned.
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SECTION THREE
ICT Economic Indicators

ICT has been widely considered an important driver for economic growth in both developing and developed countries. It is both a productive sector on its own and an enabler of other sectors. Although it is not the only driver, however it is one that posses much impact potential on national and global economies. 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 of ICT in all aspects of business related transactions has made it an integral part of everyday business transactions. 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 encouraging investment in this sector through supportive government policies and setting up proper infrastructures. In Jordan, King Abdullah and the Jordanian Government have made investment in the ICT sector a priority area and focused much effort towards advancing this sector. As a result, the ICT sector has been the fastest growing 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 has encouraged 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 that Jordan 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 in 20069. The Palestinian Central Bureau of Statistics (PCBS) reports the value of the ICT contribution within the indicator that measures the contribution of the Transport, Storage and Communication sectors. A simple calculation of the reported Gross Domestic Product (GDP) contribution for 2006 reveals that ICT makes up about 56% of the value reported for the whole Transport, Storage and Communication indicator. Assuming that this ratio has been the same in various years, one can calculate the contribution of the ICT sector in any given year. Table (3) below provides data on the contribution of the ICT sector from 1999-2008. Data indicate that the ICT sector has grown in value from 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 2008.10 Comparing this performance with other service sector puts it at a comparable level with the biggest sectors in Table (4) namely Agriculture, Construction and Financial Intermediation. This is considered a good contribution when compared to other countries but it also shows that the sector has not yet reached 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 becomes clear 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 between the ICT sector and other sectors suggest that growth in these sectors would positively contribute to the 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 ESCWA Region, 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 Communication contribution to GDP since 2004 and the relative contribution as well.
Table (3) ICT Sector Value Added and Percent Contribution to GDP
1999 Transport, Storage and Communication Contribution to GDP-US$ million of which ICT Change in ICT Value Added (%) Percent Contribution to GDP 231.0 129.36 2000 221 123.76 2001 209 117.04 2002 183.9 102.98 2003 229.9 128.74 2004 348.7 195.27 2005 347.3 194.49 2006 390.0 218.40 2007 430.5 241.08 2008 412.8 231.168
-4.33
-5.43
12.01
25.01
51.68
-0.40
12.29
10.38
-4.11%
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, 2008 US$ million Economic Activity Agriculture and Fishing Mining and Manufacturing Construction Whole Sale and Retail Trade Transport, Storage and Communication Financial Intermediation Other Services Public Administration and Defense Households with Employed Persons TOTAL GDP 212.5 632.4 226.2 501.8 412.8 249.8 1171.4 645.8 4.0 4,639.7 Percent Contribution 4.6 13.6 4.9 10.8 8.9 5.4 25.2 13.9 0.1
Figure 2: ICT Contribution to GDP 1999-2008

300 250 200 150 100 50 0 4.00% 2.00% 0.00% 10.00% 8.00% 6.00%
1999 2000
2001
2002 2003
2004 2005
2006
2007 2008
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 the public 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 the economy.
3. Employees Performance in the ICT Sector Compared to other Service Sub-Sector and the Industrial Sector
Table (5) below provides a comparison among the service sub-sectors and the industrial sector regarding the performance of employees. The analysis in this section will examine various performance indicators in order to better understand the position of the computer and related activities sub-sectors among other 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 Value Added Output per per Paid Compensation Paid Employee Employee per Paid in ($) In ($) Employee in ($) 15577.7 34992.8 18923.5 31770.7 8339.3 12666.7 9011.7 11855.9 7158.3 11145.7 9557.3 11052.9 29,704.65 26865.9 42059.0 25933.3 40379.8 19323.3 18060.9 10990.1 16605.5 9668.2 17196.2 15724.9 15,776.5 65,134.56 4162.1 6039.0 2668.1 7192.7 10012.6 5903.9 6103.4 5598.7 5223.0 2884.8 2384.0 5264.8 5,588.38 Value Added Compensation per Paid per Paid Employee / Employee/ Output per Value Added Paid per Paid Employee (%) Employee 57.98 26.72 83.20 17.26 72.97 78.68 43.16 70.13 82.00 71.40 74.04 64.81 60.78 70.06 45.61 14.10 22.64 120.07 46.61 67.73 47.22 72.96 25.88 24.94 47.63 18.81
Economic Activity
Hotels & restaurants Real estate activities Renting of machinery without operator Computer & related activities13 Research & development Other business activities Education Health & social work Activities of membership organizations Recreational, culture & sporting act. Other service activities Total Service Sector Industrial Sector
a- Value added per paid employee The computer and related activities value added per paid employee ranks second in the services subsectors after the real estate activities at US$ 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 per paid employee in the software and computers services sub-sector is estimated at about US$ 17,57014.
Presentation 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
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Including Telecom United Kingdome Department for Innovation, Universities and Skills http://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 ranks second in terms of output per paid employee at US$ 40,380 which is more than triple the service sector average. Again, this ICT sector proves to be yet more efficient and productive than the remaining sub-sectors. This does not in any way suggest that other sectors are less important, it simply 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. This ratio has a direct/positive correlation to the value added and therefore the higher the ratio the greater the impact on the national GDP. Also, the higher the ratio indicates a higher efficiency and attractiveness of the industry. The computer and related activities ranks third at (78.68%) after real estate 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 clearly shows the attractiveness of the IT industry in Palestine that has a high value added ratio in the final service product. d- Compensation per paid employee compared to value added per employee This ratio provides a better understanding to the cost of the ICT service products compared to other service 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 the owner of the firm has a lower labor cost compared to the final product value and therefore would have a higher profitability. The computer and related activities has a ratio of (22.64%). Other service sub-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 from the final product value. Education sub-sector has a ratio of (67.73%) which means the employee in this sub-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 service sub-sectors rather with other economic sectors like the industrial and agricultural sectors. This was done to be able to compare among similar business activities that are highly dependant on the human factor. In general, it is clear that the computer and related services sector is one of the most efficient and profitable service sectors. Moreover, the high skill level of the employee makes them also of the highest 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 in other sectors of the economy as a spillover affect due to reduced time in doing business transactions and increased labor productivity but did not succeed in providing a systematic process of estimating nor to find 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 growth for 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 Economy towards 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 significant information based economy. 2. As direct investment, ICT inherently is sticky, with less reversal risk and more sustainable than investment in other sectors.
15
Rabayah, Khalid S. , Awad, Sami and Naser Abdel Kareem: Palestinian ICT Market Liberalization Economic Analysis and Future Roadmap, January 2008
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3. ICT investment has technological and managerial spillovers; horizontal spillovers to domestic firms in other 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 security that 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 Market The size of the Palestinian ICT market has been growing rapidly since 1994; the Palestinian ICT Cluster Assessment report17 estimated the Palestinian ICT market in 2005 at US$ 300 million. The same report estimated the size of the local market at US$ 120 million in 2000 dropping to US$ 87 million in 2003 and reaching US$ 250 million in 2007.18 2. ICT Exports The ICT sector is one of the sectors that have shown great resilience to Israeli closure measures due to 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 firms actually attempted to export and succeeded. Although the PCBS reports on the value of Palestinian imports and exports, it does not report separately on the ICT sector. The ICT Cluster Assessment report estimated exports for 2001 at US$ 3million, increased to US$ 10 million in 2005. PITA estimates based on DATA from their member companies that export in 2008 have reached at least US$ 15 million.19
6. Computer and Internet Penetration Statistics

In a survey conducted in 2007 for the computer and internet usage in the WBG during 2006, a year after the introduction of ADSL in the local market, it was reported that (32.8%) of Palestinian Families own a computer and (15.9%) of families 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 the internet. Table (6) below provides additional information on some selected ICT statistics for the years 2004 and 2006 to show progression.
Table 6: Selected ICT Indicators 2004, 2006 Indictor Households that own computer Households that have access to the Internet at home Households that have satellite dish Households that have telephone lines Households that have mobile line Households with one of its members has a personal website Persons (10 years and over) who use the computer Persons (10 years and over) who use the internet 2004 26.4 9.2 74.4 40.8 72.8 5.1 35.7 11.9 2006 32.8 15.9 80.4 50.8 81.0 5.3 50.9 18.4
Rabayah, Khalid S. , Awad, Sami and Naser Abdel Kareem: Palestinian ICT Market Liberalization Economic Analysis and Future Roadmap, January 2008 17 The Palestinian ICT Cluster Report, Palestinian Enterprise Development Project-A USAID Project, 2006 18 Presentation 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.
16
17
7. ICT Diffusion in Private Sector

In survey conducted by PCBS in 2007 on the use of ICT in the private sector, it was found that (21.3%) of businesses use computers and (12.7%) have access to the internet. Table (7) below provides additional information on ICT diffusion in the Palestinian Private Sector.
Table 7: Selected ICT Indicators for the Palestinian Private Sector 2007 Indictor Enterprises Using Computers Enterprises Using Internet Enterprises Using Electronic Transactions Enterprises Using Electronic Transactions Via the Internet Enterprises Having Website Number of Computer per 100 Employees Total Expenditure on ICT services 2007 21.3% 12.7% 2.3% 2.0% 2.6% 24 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 Manufacturing Construction Whole Sale and Retail Trade Transportation & Communication Financial Intermediation Services Use of Computer 20.3 59.0 15.1 31.9 59.1 88.3 Of which use Internet 67.3 68.1 67.2 66.1 82.9 83.6
18
SECTION FOUR
ICT SECTOR COMPETITIVE ADVANTAGE

ICT is considered a key pillar for economic development and competitiveness. The Palestinian ICT sector has been growing rapidly since 1994 in parallel to the growth in other economic sectors and increased demand for their services. The spillover effect of the ICT sector to other industries has lead to the creation of technological and information management solutions needed to improve these industries resulting 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 offerings of Palestinian IT companies. These include the use of advanced technology, remote communication capabilities, and bilingual applications. Moreover, the study reported on the successes of some ICT companies in reaching the export market especially with software products. They have established business partnerships in 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 serving customers in the United States and Europe as their back end operations. Despite these successes in the export market, the ICT COMPETITIVE POSITION local market remains the major consumer of these products and services. The key strengths of the Palestinian ICT products and Uniqueness of product and services services are in the areas of financial and accounting solutions, especially attractive to the Arab market education and information management solutions, and management information systems (MIS). Competition in the local market for customized solutions remains mainly among Palestinian ICT firms with very little presence of international companies. However in the export market especially that in the Arab region, Egypt, Jordan and Lebanon are strong competitors. One of the competitive advantages the ICT sector compared to other sectors is its ability to work under the current system of Israeli closures and geographic separation and the current political division in the West Bank and Gaza. Most of the ICT companies were able to retain their employees even under the tough closure measures imposed on the Gaza Strip. Only companies that are hardware specialized were hardly affected while those that provide software solutions or a combination of hardware and software solutions 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 enrolled students, 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 provides additional 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 Traditional Universities University Colleges Community Colleges Open Educations West Bank Grand Total Total 1838 98 185 573 2694 Female 831 60 39 391 1321 ` Gaza Traditional Universities University Colleges Community Colleges Open Educations Gaza Grand Total Total 279 192 409 292 1172 Female 99 27 80 49 255
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
20
19
Currently enrolled students in the different academic institutions as reported by the MoE&HE are 180,956 including 10,572 in the ICT field. Table (10) provides additional information on the currently enrolled students by type of institution.
Table 10: Currently Enrolled Students by Type of Academic Institution, Geographic Location and Gender 2007-2008
WB (Acc. Institution Type) Traditional Universities University Colleges Community Colleges Open Educations* Total 4494 480 568 Female 1735 376 115 Gaza (Acc. Institution Type) Traditional Universities University Colleges Community Colleges Open Educations* Total 3238 419 1373 Female 968 82 252
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 Students by Program type in the West Bank, 2007-2008
Diploma 17% Master 3%
Figure 4: Distribution of Currently Enrolled Students by Program type in the Gaza Strip, 2007-2008
Master 1% Diploma 37%
Bachelor 80%
Bachelor 62%
Finally, graduating students from Palestinian colleges and universities are 25,275 including 2,185 in the ICT field. 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) Traditional Universities University Colleges Community Colleges Open Educations West Bank Grand Total 1238 448 Total 967 84 187 Female 323 61 64 Gaza (Acc. Institution Type) Traditional Universities University Colleges Community Colleges Open Educations* Gaza Grand Total 947 397 Total 408 89 450 Female 166 29 202
2- Highly Trained Labor Force

The trained ICT workforce is reflected in the high value added per employee compared to other sectors of the economy. In the previous analysis of the economic impact of the sector, employees in the ICT sector ranked second only after the real estate activities at US$ 31,770 which is almost triple the service sector average.
3- Diversity of ICT Specializations

The below graph is from an assessment of Palestinian ICT professionals in a sample of PITA firms. 21 The graph 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
20
local and international markets.

Figure 5: Palestinian ICT Professionals by Technical Skill, 2008
4- Low Labor Cost

The ratio of compensation per employee in the ICT sector to their value added is among the lowest in the service sector. The ICT sector ranks third with a ratio of (22.65%) which in other words means that ICT professionals are only compensated one fifth of their value added compared to the service sector average of (47.66%). The average employee pay per month in Palestine is about US $ 650 compared to US$1200 in Lebanon, US$ 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 recognized in the private sector and is represented on the Private Sector Coordination Council. PITA has been active in 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 the best organized private sectors in Palestine. PITA is well recognized in the private sector and is represented on the Private Sector Coordination Council (PSCC). PITA has been active in advocating for the interests of Palestinian ICT firms over the past 10 years
Figure 6: Distribution of PITA Member Companies by Specialization
21
SECTION FIVE
PALESTINIAN ICT FIRMS: EXPORT PROFILE

1. Jaffa.Net
Talking to Mr. Yahya Al-Salqan, CEO, he advised that Jaffa.Net Computer Systems was established in 1997 and has 25 employees. Jaffa.Net main expertise is in telecommunications, software development, training, networking, IT Consultancy, Internet and eCommerce. The flagship for Jaffa.Net for exporting software is automating all Jordanian Courts throughout the country. The success came through marketing channels developed 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 of Commerce Alpha Omega Engineering, Israel/ USA The success of NTS is through previously conducted networking and business development carried out by the company through participation at Gitex.
3. PhoenixBird Information Technology & Systems Ltd.

Mr. Yaser Al-Shantaf, General Manager, advised that PhoenixBird Was established in 1994 an international application software development and outsourcing company with focus on providing high-quality and reliable software development & testing, and system maintenance solution & services. He also added that PhoenixBird has gained expertise in offering customized solutions designed to address specific customer needs and has earned a reputation as provider of high-quality solutions. Major International Projects include
4. Al-Andalus Software Development & Technology (ASD)

Mr. Mohammed Beitawi from ASD explained that ASD is a Software company established in 1998 specializing in the fields of Information systems, Management Information System and software solutions. The company staff have considerable hands-on experience developing and implementing high-tech projects in Palestine. ASD has three sisters (branches) companies in Dubai, Jordan and Saudi Arabia under the name of Grand Software Solutions Co. (GSWSoluation.com) The business model that ASD operate under provides customers with different choices and schemes to purchase and adopt their solutions. ASD work with customers side by side in implementing; customizing and developing solutions. The flagship for ASD is eVoucher and e-POS solutions. Major International clients are in UAE

Issue Tracking & Task Management, installed at Universco, Canada. (A Broadband wireless ISP in Vancouver) and Alpha Beta Development, Canada. (A high profile construction company with multi million real estate projects across Canada.) Content Management, installed at Berner GmbH, Germany Airport Solutions, installed at Seeb International Airport (Oman)
The main success for the company is having copartners living in Canada where the provide market channels and business development as well as technical assistance in the development and deployment of these solutions and services.
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 an offshore company in the region facilitated for doing business in the UAE.
5. AlTARIQ ALTARIQ Systems & Project

Talking to Tareq Isleem, he advised that his company, ALTARIQ, is exporting the ePOS / Financial software installed at many supermarkets, pharmacies and hug companies in Saudi Arabia, Libya and Egypt. The secret of this success is through having resellers and business development people working in these markets acting on behalf of the company.
6. Babil Soft
Babil Soft has established offices in Jordan where it also conducts market development. Babil Soft sells its Financial Application in Yemen through a unique business model: Babil has trained local Yemini team for conducting support, installations and sales. Every time a new client is sold the software, the activation key is sent from Ramallah to control the business. Frequent trips are also conducted to Yemen.
22
7. ASAL Technologies
ASAL has been in the Palestinian market since 2000 and is the First ISO9001:2000 Certified in Software Development in Palestine. ASAL is a major outsourcing services company that has recently become a Registered Partner and solution provider for CISCO Systems
8. Global Software Services Inc. (GSSI)

GSSI is dedicated to easing the increasing burden of complex data management and interpretation. GSSI has recently become a Registered Partner and solution provider for CISCO Systems and has been doing 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 of January 2003, ICT became a separate startup. Exalt is a research and development center specialized in the field of data/telecomm products, in particular SONET/SDH, ATM and Ethernet technologies. Experience includes high-speed board design, FPGA, embedded software, VHDL, layer 3 network protocols, and management software developments. 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 two main categories:22 1 Packaged 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. 2 Services such as outsourcing services that are exported to technology multinationals including CISCO 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 market size in Palestine. Any chances of growth have to come from marketing and selling regionally. Luckily, the ICT 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 or more experiences in selling abroad. The market penetration for the Palestinian IT products and services are geographically mixed and do not have a certain target market concentration. This is attributed to the fact that Palestinian companies are eager to sell to early markets where efforts of business development have materialized either based on personal or professional network of people. Accordingly, it is difficult to claim that there is a trend of established markets that all exporting IT companies sell in. Unfortunately, it is not the case to claim that the GCC is the dominant geographic market, or whether it is Jordan, or whether it is Egypt, Libya, Sudan or Yemen. Neither can the ICT sector claim that the Western Hemisphere in Europe, Canada and the USA are the main markets. Even in the Far East, GSSI is doing outsourcing to South Korea. ASD has also developed 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 and grow. Three of the companies show cased above (Exhalt, Asal and GSSI) have secured a joint R&D project with CISCO worth of US$ 1 million and were able to add 40 new job opportunities to their workforce. Exporting ICT services should be the way forward for the Palestinian ICT sector. Additional investment and positioning of this sector would be needed to generate more export opportunities in the sector. The case of Jordan (profiled in the next section) is one example of how investment and promotion of this industry 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
23
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 limited resources available to companies and that the business model of complimenting a Palestine based operation with an offshore one is resource demanding 3. 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
24
SECTION SIX
OTHE COUNTRIES EXPERIENCE: THE CASE OF JORDAN

The Case of Jordan
Jordan has launched its ICT strategy in 1999 championed by the Jordanian King Abdullah II with the goal to increase national ICT infrastructure and projects and transforming Jordan into knowledge based economy to become a leading ICT technology hub in the region. The strategy also aims at raising internet penetration to (50%), ICT sectors revenues to reach US$ 3 billion, and ICT sectors employment to reach 35.000 jobs by the year 2011.23 This strategy has been successful in creating job opportunities and positioning the services sector as a new hub for ICT outsourcing. Sector revenues have been growing continuously since 2003 reaching its peak growth rate in 2004 at (48.87%). Exports have also grown by more than (20%) except in 2004 when it grew by only (18%). The opening of the sector and the incentives provided 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, the latest figures reported by the Information Technology Association of Jordan (INT@J) indicate that 17,000 employee are now working in the IT sector. This does not include IT specialists in other sectors of the economy. 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 of economic development. The WEF report sites Jordan as making good steps and improving their ranking in the Networked Readiness Index published by the WEF itself. Jordan has improved its ranking by 3 decile ranks 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 ICT sector has been the fastest growing of the Jordanian economy. Total revenue has been increasing since 2003 at an accelerated rate. Table (12) below provides some data on the sector revenue, investment and employment.
Table 12: Jordan ICT Indicators Summary 2007 (USD)
Indicator Total Revenue Growth Rate of which Domestic revenue growth rate percent of total revenue export revenue growth rate percent of total revenue Foreign Direct Investment (FDI) Cumulative FDI Employment Growth Rate
2003 2004 2005 2006 2007 295,910,000 440,514,648 580,873,643 770,074,591 882,970,754 29.51 48.87 31.86 32.57 14.66
226,183,000 20.02 76.00 69,728,000 74.16 24.00 11,594,500 79,600,000 8,117 1.46% 361,103,905 59.65 82.00 79,410,743 13.89 18% 2,900,000 82,500,000 8,523 5.00% 418,254,125 15.80 72.00 162,619,518 105.00 28% 10,524,761 93,024,761 10,032 17.70% 578,554,212 686,063,063 38.33 18.58 75.00 77.70 191,520,379 196,907,691 17.80 2.81 25.00% 22.30% 13,569,656 3,070,791 106,594,417 109,665,208 10,712 11,034 6.78% 3.00%
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
23
25
SECTION SEVEN
CHALLENGES TOWARDS THE DEVELOPMENT OF THE ICT SECTOR

The Palestinian ICT is facing various challenges, some are internal to the companies themselves and other are 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 several challenges that prevent the growth of this industry and the Palestinian firms ability to secure outsourcing contracts. The Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry24 outlined several challenges that include the following:
International perceptions Global news media portrays an image of Palestine that is not conducive
for business. When dealing with this perception, Palestinian companies must surpass it to win business 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 are robust enough to ensure high levels of resilience and up time. The face to face communication challenges caused by the ongoing security restrictions between Palestine and Israel. Marketing/business development The ability of companies to express their unique value proposition to a defined customer profile is sorely lacking throughout Palestine. At present almost all of the organizations and individuals assessed do not have the knowledge or experience at present to implement a successful regional or global business development program. Travel impediments inward and outward The Palestinian people have significant challenges in traveling across cities, into Israel, and internationally. These delays in time and in getting supplies hurt the ability to do business efficiently. Additionally, the international perceptions of personal risk and lack of attractiveness for Western visitors decreases the ability for Palestinian companies to develop strong relationships with clients. Scalability of the labor pool From several estimates the total number of IT graduates that emerge annually from Palestinian universities is around 2000. This is in stark contrast with the well over 100,000 graduates from Indian universities. The lack of mass supply will limit the ability of Palestine to grow into a global IT outsourcing player. 25
26
Externalities
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 Palestinian
territory.
Restriction on the imports of ICT equipments to the Palestinians. International telecom rates Calling Palestine from the US costs approximately US$0.29/minute
versus US$0.18 in India for a standard land line call, a (61%) premium over the international leader in outsourcing.
David L. Ross, An Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry, Palestinian Enterprise Development Project, A USAID Project, May 2008 25 Ibid 26 ICT in Palestine: Creating a Development Dynamics, PITA,
24
26
Marketing Channels
Lack of trust to buy Palestinian products
o No proper sector branding o No 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
Finance evidence from the research and external sources indicates the access to finance in the area is challenging:
There is a concern about the local banks willingness to support growing businesses through cost
competitive 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
The Palestinian ICT Cluster Report, Palestinian Enterprise Development Project-A USAID Project, 2006 These 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
27 28
27
SECTION EIGHT
FUTURE OUTLOOK OF THE ICT SECTOR

The analysis of the future outlook for the ICT sector will focus on the overall economic performance in general 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 Jordanian ICT 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 to new 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 significantly with over 25% growth in 2003 and over 50% in 2004. During the year 2005, ICT value added declined mainly due to the decline in overall economic activities. In the following 2 years, ICT value added increased by more than 10% and declined slightly in 2008 compared to previous growth rates. The increase in these two years could be due to the introduction of the ADSL services in mid 2005. Despite the 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 by 3.1% if the current situation of economic embargo and restrictions continue to be imposed on the Gaza Strip during 2009. However, if the restrictions and embargo is lifted combined with the reconstruction of 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 outward looking strategy for the global market. A strategy that focuses on the export market could lead to a growth in the sector similar to that in 2006 and 2007 of 10% growth rate. A 10% growth rate would lead to 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 with involvement from key stakeholders including the donor community, could lead to growth rates similar or exceed those of Jordan which averaged 40% annually. The ICT sector in Palestine has previously achieved a growth rate exceeding 50% in 2004. A 15% growth rate would lead to an average increase in the 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
Figure 8: ICT Value Added 1999-2008 and forcast 2009-2011 - Scenario II
350 300 250 200 150 100 50 0
400 350 300 250 200 150 100 50 0
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2. Employment
Employment in the ICT sector and ICT jobs in other branches of the economy are estimated at about 15,267 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. The Jordanian ICT sector employment has been growing over the past 5 years at a rate that averaged about 7% annually. Furthermore, it has been shown that a US$ 1 million export opportunity generated 40 new
20
20
11
28
job opportunities in Palestine. Taking these two factors into consideration, it would be reasonable to assume that the Palestinian ICT sector employment could grow in the range of 3-4 percent annually which translates to 150-200 new jobs opportunities in the ICT sector annually. These will also generate 400-500 new jobs in the economy as a whole. The ability of the ICT sector and other economic sectors to absorb new ICT graduates depends largely on economic growth. Further, as most of the ICT business requires 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 is essential to develop programs that would target new graduates to be attractive for private sector employment.
3. Business Outsourcing
The Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry study found that Palestinian ICT firms may have an opportunity to develop BPO activities which include data entry and indexing at the lower end, clams processing in the mid-range of complexity, and taking on the full responsibility of HR of Finance in the most complex cases. For these activities to succeed, a set of recommendations were made in order to be able to compete in a very competitive global market for BPO. These recommendations are outlined in the recommendations section below.
29
SECTION NINE
RECOMMENDATIONS
The recommendations outlines below are organized in the same manner the challenges section has been organized in order for the ICT sector to rise to those challenges.
Business Outsourcing
29
1. 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 management hiring, training, managing capacity and utilization of workers\ Tools Hardware and software platforms for conducting BPO Process Workflow, time and motion studies 2. Training of Global Standards The Palestinian outsourcing industry needs to build capabilities to conduct and maintain global outsourcing standards. Palestinian companies have not largely adopted these standards due to their lack of awareness and the cost associated with being assessed. There are presently no certified assessors of global outsourcing standards in Palestine and to conduct an assessment for only one company is prohibitively expensive. A certification program is therefore needed to certify assessors that can help Palestinian ICT firm become acquire needed certification. 3. Government Tax Incentives In 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 in outsourcing 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 a competitive edge. These include:
The Establishment of a Telecom Regulator that would ensure fair competition in the market and work
towards illuminating illegal competition from Israeli mobile operators. Provide competitive International telecom rates to lower the cost of international calls to Palestine to a rate 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. A branding 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 and penetrate global markets more efficiently through specialized marketing and promotion programs to each of these geographic cluster of countries.
Finance
30
Provide liquidity to ICT companies through soft loans from local banks backed with guarantees from
international agencies.
These recommendation were made by David L. Ross, Assessment of the Outsourcing Capabilities of the Palestinian ICT Industry, Palestinian Enterprise Development Project-A USAID Project, 2006 30 These 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
29
The Palestinian ICT Sector A three-year outlook Based on economic indicators (April 2009)
30
As part of the branding strategy, Palestine needs to be positioned as a secure place to invest through
venture capital
Capacity Building and Training

Specialized Apprenticeship programs targeting ICT graduates to be trained for the delivery of needed
services 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
The Palestinian ICT Sector A three-year outlook Based on economic indicators (April 2009)

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The Palestine Information and Communications of Companies (PITA) www.pita.ps

The Palestinian ICT Sector A Three-Year OutlookBased on Economic Indicators

Report by: Rami Wihaidi

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

FUTURE OUTLOOK OF THE ICT SECTOR ...............................................................................27 RECOMMENDATIONS .....................................................................................................................29

ABBREVIATIONS AND ACRONYMS

The ICT Sector Major Players:

WEST BANK 59,383 114,419 188,024 164,770 180,759 225,088

GAZA 24,238 52,852 84,187 77,124 90,699 111,937

TOTAL 83,621 167,271 272,211 241,894 271,458 337,025

72518 55684 27172

2. Wataniya Telecom, the 2nd Mobile Operator

3. Other ICT Private Sector Companies and PITA

4. Palestine Information and Communication Technology Incubator (PICTI)

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

The Regulatory Framework:

ICT Economic Indicators

The Economic Indicators:

Figure 2: ICT Contribution to GDP 1999-2008

ICT Contribution to GDP

Percent Contribution to GDP

4. Impact of Investment in ICT at Other Sectors

5. ICT Market Indicators

6. Computer and Internet Penetration Statistics

7. ICT Diffusion in Private Sector

ICT SECTOR COMPETITIVE ADVANTAGE

1- Abundance of ICT Graduates20

2- Highly Trained Labor Force

3- Diversity of ICT Specializations

local and international markets.

4- Low Labor Cost

5- Well Organized ICT Sector

6- Wide Range of ICT Companies Specialization

PALESTINIAN ICT FIRMS: EXPORT PROFILE

2. Next Level Technology Systems (NTS)

3. PhoenixBird Information Technology & Systems Ltd.

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

5. AlTARIQ ALTARIQ Systems & Project

8. Global Software Services Inc. (GSSI)

Export Experience Lessons Learnt

OTHE COUNTRIES EXPERIENCE: THE CASE OF JORDAN

CHALLENGES TOWARDS THE DEVELOPMENT OF THE ICT SECTOR

competitive loans and overdrafts.

critical to the development of new companies and services.

Capacity Building and Training

FUTURE OUTLOOK OF THE ICT SECTOR

350 300 250 200 150 100 50 0

400 350 300 250 200 150 100 50 0

Capacity Building and Training

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