i
The Palestine Information and Communications of
Companies (PITA)
www.pita.ps
The Palestinian ICT
Sector …
A Three-Year
Outlook…Based 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
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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 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
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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
ICT Economic Indicators ....................................................................................................................12
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 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
FUTURE OUTLOOK OF THE ICT SECTOR ...............................................................................27
2. Employment ............................................................................................................................................................. 27
3. Business Outsourcing............................................................................................................................................ 28
RECOMMENDATIONS .....................................................................................................................29
Business Outsourcing ................................................................................................................................................ 29
Telecom Policies ......................................................................................................................................................... 29
Marketing Channels.................................................................................................................................................... 29
Finance .......................................................................................................................................................................... 29
Capacity Building and Training ................................................................................................................................ 30
4
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)
5
ABBREVIATIONS AND ACRONYMS
ADSL
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
6
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 … A three-year outlook Based on economic indicators (May 2009)
7
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.
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
8
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 Egypt’s
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 1980’s with few hardware re-sellers working as subdealers to the Israeli agents. By Mid 1980’s, some software development emerged providing accounting and
word processing solutions to end users in the local market. The beginning of the 1990’s 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 (NGO’s).
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
1
YEAR
WEST BANK
GAZA
TOTAL
1996
1998
2000
2002
2004
2005
59,383
114,419
188,024
164,770
180,759
225,088
24,238
52,852
84,187
77,124
90,699
111,937
83,621
167,271
272,211
241,894
271,458
337,025
Information and Communications Technology Statistics in the Palestinian Territory, PCBS, March 2007
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
9
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
72518
2007
2006
55684
27172
2005
7483
By 2005, JAWWAL subscribers reached 570,000
and in 2008 they’ve 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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
10
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








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
Weaknesses










Opportunities








7
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
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
Threats







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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
11
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.
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
12
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
13
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
2.87%
2000
2001
2002
2003
2004
2005
2006
2007
2008
221
209
183.9
229.9
348.7
347.3
390.0
430.5
412.8
123.76
117.04
102.98
128.74
195.27
194.49
218.40
-4.33
-5.43
12.01
25.01
51.68
-0.40
12.29
10.38
-4.11%
3.00%
3.11%
3.16%
3.43%
4.65%
4.27%
5.05%
5.32%
4.98%
241.08
231.168
Table 4: Gross Domestic Product by Economic Activity, 2008 – US$ million
Economic Activity
GDP
Percent Contribution
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
212.5
632.4
226.2
501.8
412.8
249.8
1171.4
645.8
4.0
4,639.7
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
10.00%
250
8.00%
200
6.00%
150
4.00%
100
2.00%
50
0
0.00%
1999 2000
2001
2002 2003
ICT Contribution to GDP
2004 2005
2006
2007 2008
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
14
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
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
Value Added
Output per
per Paid
Compensation
Paid Employee
Employee
per Paid
in ($)
In ($)
Employee in ($)
Value Added Compensation
per Paid
per Paid
Employee /
Employee/
Output per
Value Added
Paid
per Paid
Employee (%)
Employee
57.98
26.72
83.20
17.26
15577.7
34992.8
26865.9
42059.0
4162.1
6039.0
18923.5
25933.3
2668.1
72.97
14.10
31770.7
40379.8
7192.7
78.68
22.64
8339.3
12666.7
9011.7
11855.9
19323.3
18060.9
10990.1
16605.5
10012.6
5903.9
6103.4
5598.7
43.16
70.13
82.00
71.40
120.07
46.61
67.73
47.22
7158.3
9668.2
5223.0
74.04
72.96
11145.7
17196.2
2884.8
64.81
25.88
9557.3
11052.9
29,704.65
15724.9
15,776.5
65,134.56
2384.0
5264.8
5,588.38
60.78
70.06
45.61
24.94
47.63
18.81
a- Value added per paid employee
The computer and related activities value added per paid employee ranks second in the services subsectors after the real estate activities at US$ 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
12
13
14
Including Telecom
United Kingdome Department for Innovation, Universities and Skills http://www.innovation.gov.uk/value_added/default.asp?page=76
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
15
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
16
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
2006
32.8
9.2
15.9
74.4
40.8
72.8
80.4
50.8
81.0
5.1
5.3
35.7
50.9
11.9
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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
Total
Female
1838
831
University Colleges
98
Community Colleges
Open Educations
Traditional Universities
West Bank Grand Total
Total
Female
Traditional Universities
279
99
60
University Colleges
192
27
185
39
Community Colleges
409
80
573
391
Open Educations
292
49
1172
255
2694
1321
Gaza
`
Gaza Grand Total
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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)
Total
Female
Gaza (Acc. Institution Type)
Total
Female
Traditional Universities
4494
1735
Traditional Universities
3238
968
University Colleges
480
376
University Colleges
419
82
Community Colleges
568
115
Community Colleges
1373
252
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 Students
by Program type in the West Bank, 2007-2008
Diploma
Master
17%
3%
Figure 4: Distribution of Currently Enrolled Students
by Program type in the Gaza Strip, 2007-2008
Master
1%
Diploma
37%
Bachelor
Bachelor
80%
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)
Total
Female
Traditional Universities
967
323
University Colleges
84
Community Colleges
187
Total
Female
Traditional Universities
408
166
61
University Colleges
89
29
64
Community Colleges
450
202
947
397
Open Educations
West Bank Grand Total
Gaza (Acc. Institution Type)
Open Educations*
1238
448
Gaza Grand Total
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
21
SECTION FIVE
PALESTINIAN ICT FIRMS: EXPORT PROFILE
1. Jaffa.Net
2. Next Level Technology Systems (NTS)
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.
Talking to Mr. Majed Ayyad, he advised that NTS was
established in 2001 as a software house.
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
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.
4. Al-Andalus Software Development &
Technology (ASD)
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.
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)
Major International Projects include
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.



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.

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 an
offshore company in the region facilitated for doing
business in the UAE.
5. AlTARIQ ALTARIQ Systems & Project
6. Babil Soft
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.
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.
The secret of this success is through having resellers
and business development people working in these
markets acting on behalf of the company.
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
22
7. ASAL Technologies
8. Global Software Services Inc. (GSSI)
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
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,
SME’s 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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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 sector’s revenues to reach US$ 3 billion, and ICT sector’s 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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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 Industry”24 outlined
several challenges that include the following:
 International perceptions – Global news media portrays an image of Palestine that is not conducive
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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
Externalities
26
 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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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 it’s 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 8: ICT Value Added 1999-2008 and forcast 2009-2011 - Scenario II
Figure 7: ICT Value Added 1999-2008 and forcast 2009-2011 - Scenario I
350
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100
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
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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.
The Palestinian ICT Sector … A three-year outlook Based on economic indicators (May 2009)
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
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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)