Egypt: Connections for the future

In what comes as no surprise for a country that used Facebook, Twitter and mobile phones to help overturn a political regime, a recent report by the UN Conference on Trade and Development (UNCTAD) stated that Egypt “is poised to emerge as a major player in the information economy”.

UNCTAD, which carried out its assessment of Egypt’s information and communications technology (ICT) sector at the request of the government, published its first-ever ICT Policy Review for the country on October 26. Speaking at an event in Geneva to mark the launch of the report, Egypt’s then-interim minister of communications and information technology, Mohamed Salem, said that 2011 heralded “the dawn of a new era for ICT in Egypt, with even more Egyptians joining and embracing the information society as we continue to work to forge a knowledge economy”.

The report examines a range of ICT development indicators, including infrastructure, skills development, technology use in education, export-oriented business in the industry and the use of e-content in Arabic. It highlights the country’s already strong ICT backbone and suggests a number of ways in which the sector could grow and better achieve its potential.

Egypt’s recognition by UNCTAD comes on the back of several years’ worth of increasing activity in the ICT sector, both in terms of retail user penetration, as well as in infrastructure development, innovation and service provision. In recent years Egypt has done well in the field of business process outsourcing (BPO), capitalising on competitive advantages that include an educated, multi-lingual workforce; relatively low labour and overhead costs; a location that allows it to service Europe as well as much of Asia and Africa; a group of outward-looking ICT entrepreneurs; and the development of integrated ICT facilities in clusters near major cities.

Each year, Egypt produces more graduates than any other Arabic-speaking country – there were more than 330,000 in 2009 – many of who seek jobs in the BPO sector. With a large pool of native Arabic speakers, Egypt is well positioned to service much of the rest of the Middle East and North Africa (MENA) region, and several European languages are also widely spoken. The government has played an increasingly active role in supporting the ICT sector through official training courses.

Egypt ranked fourth in the world on the 2011 Global Services Location Index (GSLI), a ranking of offshoring destinations published by international consultancy AT Kearney, having risen from 12th position since 2007.

Indeed, a number of major international firms have established outsourcing centres in the country in recent years. These include an IBM finance and accounting BPO centre; Vodafone’s knowledge process outsourcing and contact centre serving the UK, Germany and New Zealand; and two US-based BPO firms, Stream Global Services and Sutherland Global Services, that have set up contact centres.

However, to further develop the sector, Egypt should target several areas, the UNCTAD report notes. These include “building a more inclusive information economy” – an acknowledgement that the country still has a deep digital divide. The development of ICT training, as well as the growing use of technology in schools, means that this gap is increasingly between age groups rather than economic ones.

The country is already growing in one particular niche area. “One of the biggest growth areas that have accelerated after the revolution has been document archiving services,” said Steve Clay, the general manager of Xerox Egypt. “Many physical document storage areas were burned during the revolution. Egypt could be another hub for archiving services in the MENA region.”

The country could also benefit from developing ICT infrastructure in underserved areas, according to the UN organisation. Egypt has had great success with the Smart Village, a technology park located in the outskirts of Cairo and home to many of the major ICT and BPO enterprises, and the model is being replicated elsewhere, most notably in Alexandria.

However, UNCTAD suggests that similar firms outside well-supported clusters do not have similar access, which can present a challenge. Purpose-built office buildings with the networks and structure required by ICT companies are hard to come by, although this shortage is being addressed to a certain extent by the development of commercial buildings in the capital’s suburbs.

Other areas for improvement are familiar to Egyptian businesspeople in most sectors: a need to harness the potential of small and medium-sized enterprises; better development and use of human resources, including through expanded use of technology in the education system; and the medium- to long-term goal of developing value-added services in the sector. All of these require both support and investment from the government and the active participation of the private sector.

While Egypt has successfully built up its outsourcing industry, and the expectation is that the sector will continue to grow, there is a widespread consensus that the country should increase the level of innovation in its ICT sector and provide more high-value export-oriented services.

Given that Egypt faces international competition from the likes of India and the Philippines for general outsourcing work, industry leaders are keen to develop niches in which Egypt has particular competitive advantages and to offer more sophisticated services with the aim of improving margins. Arabic-language services and products are one area in which the country has a great deal of potential, and information technology outsourcing is seen as another.

“ICT will continue to be a massive job creator,” Amr S Talaat, the general manager of IBM Egypt, told OBG. “However, in the future the Egypt ICT sector will have to become more creative in terms of adding value to our services, to move higher in the value space. This is especially relevant now as competition is fierce with countries such as India, Vietnam and South Africa.”