Egypt: Expanding technology infrastructure

The government is reaffirming Egypt’s commitment to the planned expansion of its broadband infrastructure, in the hopes of spurring new development in technology-based industries. ICT has grown rapidly in Egypt over the past decade, both in terms of take-up by Egyptian consumers and outsourcing and offshoring activity.

In March 2013 Atef Helmy, the minister of communications and information technology, announced that the first phase of Egypt’s broadband strategy, initially unveiled a year and a half ago, would be completed as expected within the coming two years. The strategy, known as eMisr, focuses not only on infrastructure, with an emphasis on developing high-capacity connections at public venues such as schools and health care facilities, but also increased data storage and access for government agencies.

eMisr was launched in November 2011 with a range of ambitious goals to be met by 2015 and 2021. Formal implementation began in July 2012 when various task forces set about planning exactly what needed to be done to meet those goals. Around $2.4bn of public and private investment was envisaged in the first four years of the plan. The eMisr roll-out is expected to generate 11,000 jobs per year and support broad-based economic and social development.

Particularly as Egypt is struggling to re-gain economic momentum, these sorts of enabling investments can have a broad range of positive externalities. Research by the World Bank has suggested that a 10% increase in broadband penetration can yield an extra 1.38 percentage points of economic growth in emerging markets.

Meanwhile, a report by telecoms firm Ericsson and Sweden’s Chalmers University of Technology, published in September 2012, suggested that doubling Egypt’s broadband speed would lead to a 0.3% rise in GDP worth almost $688.59m, while quadrupling internet speeds would add around $1.38bn.

It has not, of course, been all smooth sailing. As a result of the broader political uncertainty, pending reforms in the telecoms sector, and the cost and technical challenges of upgrading infrastructure, some goals set for 2015 have been pushed back by at least one year. Initially eMisr estimated 75% of households having access to 2-Mbps broadband and about 98% of the population to have coverage by mobile 3G networks by 2015.

Ensuring physical connections has been one of the primary hurdles to increasing internet penetration. Helmy’s predecessor, Hany Mahmoud, said in October 2012 that infrastructure was the biggest challenge to broadband development. In this regard, Telecom Egypt (TE), the legacy fixed-line operator, was in the process of converting its copper cables to fibre-optics. Plans have also been in place to encourage greater fixed-line competition between TE and the three Egyptian mobile operators, which hitherto has been a monopoly by the 80% state-owned TE.

As well as supporting broader GDP growth, expanding broadband capacity should help Egypt’s export-oriented ICT service sector, particularly the outsourcing and offshoring segments. In recent years, Egypt has become a favoured destination for international companies establishing business and knowledge-process outsourcing centres. Consultancy AT Kearney ranked Egypt fourth in the world on its global services index in 2011.

New investments, however, have been sluggish since the revolution, but with greater political and economic certainty, Egypt’s competitive advantages should re-assert themselves. They include location, a sizable pool of well-educated and multilingual graduates, strengthening international cable connectivity, relatively low overheads, and government support. In March 2013, Helmy announced plans to establish two technology parks in Upper Egypt to support the development of ICT – and specifically outsourcing – in the region.

Karim El Fateh, the country manager at Intel Egypt, told OBG that he sees three challenges for the industry. “Firstly, increasing broadband connectivity, including looking at ways of reducing cost and making the service more affordable, through either monthly or data subscriptions,” he said. “Secondly, increasing local content and applications, and creating the necessary infrastructure to foster innovation of local content, specifically in education, entertainment and services, as innovation can enhance competitiveness, diversify industries, and realise all the benefits of the rapidly expanding market. And lastly, developing financing mechanisms that will allow for commercialisation of our research, innovation and development through the use of private or public technology incubators and investment funds.”

Achieving these goals will require a degree of political certainty and private sector will to invest, both of which have been in short supply in Egypt recently. However, the government and the private sector are both clear about the need to strengthen ICT infrastructure to support domestic demand and economic growth, and to help the export-oriented sector regain its competitive position.