Emphasis is being placed on enhancing value-added services

With a large domestic market and a strong export-oriented sector, Egypt’s ICT industry is one of the economy’s leading magnets for investment. Internet use is growing rapidly but still has substantial scope to expand, while public and private sector bodies are increasingly using ICT to enhance their operations.

Egypt is also one of the world’s leading outsourcing and offshoring destinations, leveraging a skilled workforce, low costs, geographical location and strong government support. The Ministry of Communication and Information Technology (MCIT) is at present rolling out a new development strategy that builds on the sector’s existing strengths and looks to enhance value added and increasingly offer ICT services in fast-growing emerging markets.

While there are still challenges, including limited fixed-line broadband networks and modest household demand, greater liberalisation of infrastructure ownership along with a concerted push by the government will help boost activity in the coming years.

As a result, while the Egyptian household ICT sector is still in an early stage of development compared to OECD markets, the latent potential of the market has attracted a range of companies from Microsoft and Intel to small local start-ups.

Longer-Term Targets

The MCIT aims to boost the ICT industry’s contribution to GDP from 4.14% in the 2013/14 fiscal year to 6.02% in 2017/18, with sector GDP almost doubling in just four years from LE66bn ($9.4bn) to LE120.37bn ($17.1bn). Of this, the ministry projects sector exports could rise from LE11bn ($1.6bn) to LE18bn ($2.6bn).

In the same period, the MCIT aims to increase job opportunities in the sector from 10,000 to 100,000, with indirect jobs created rising from 40,000 to 400,000 – an ambitious target indeed.

In the course of this development, the MCIT wishes to double the sector’s growth rate from 10% to 20%, a figure that some emerging-market ICT sectors such as Bulgaria are achieving already, and which is well within reach for Egypt, particularly given the potential for acceleration now there is greater stability.

In a January 2014 report, the MCIT estimated that there were upwards of 5700 companies operating in the ICT sector, and that IT companies accounted for 20.8% of overall sector revenue.

Key Indicators

Egypt had 38.75m internet users at the end of 2013, translating to an overall internet penetration rate of 45.93%, according to the MCIT in its “ICT Indicators Report 2009-13”, published in June 2014. While these figures show that internet use in Egypt lags well behind most developed countries and some emerging markets, including countries in the Gulf region and Malaysia, growth is rapid. Penetration more than doubled over the five years to 2013, having stood at 22% with 16.88m users in 2009.

In 2013 alone, the number of internet users rose 18.8% from 32.62m, driving penetration up six and a half percentage points from 39.41%.

The most common means of accessing the internet is mobile – through a handset or a USB modem (dongle) – with 47.48% of internet users primarily going online through mobile devices. ADSL connections are the second most common means, accounting for 36.94% of users. As is true elsewhere in the world, ISDN and dial-up connections are currently in decline, with just 7.93% of users primarily using them, while 7.65% of users access the internet through leased lines. This picture has shifted considerably over the past few years, with mobile access growing strongly, having accounted for just 30.84% of users in 2009. ADSL usage has risen from 33.1%, while IDSN and dialup, and leased line, have declined considerably, from 18.46% and 17.57%, respectively.

Egyptian Households

The proportion of households with a computer rose to 43.1% in 2013, up from 37.8% in 2012. However, the number of households using a computer was higher, at 53.2%, up from 49.1% in 2012, as many people use friends’ or family members’ computers, or communally owned devices.

The proportion of households going online is still quite low, but is growing at a healthy pace. In 2013, 39.7% of households used the internet, an increase from 36% in 2012. ADSL dominates household connectivity, with 94.5% of households going online through with this technology, followed by 10.3% using dial-up or IDSN, 9.9% using mobile internet and 5.5% using wireless connections. The numbers reaching over 100% indicates that some households use more than one means for accessing the internet.

The overall penetration rate for computer use remains relatively low. With almost half the population not regularly using a computer, the scope for future hardware and software sales is substantial. With prices of equipment continuing to fall, more and more Egyptians will own computers in the coming years – already smartphone usage is seeing a significant uptake, with Nielsen estimating that 54% of the population own an internet-enabled device.

Social Media

Social media usage has surged in recent years, particularly among the young. The revolution of 2011 was a catalyst for a jump in subscriptions to sites like Facebook and Twitter, which were used by protestors to communicate between themselves and with the wider world.

Such was the impact of the internet in general, and social media in particular, for the anti-Mubarak movement that the government shut down access entirely for a few days during the height of the revolution. Egypt had 16m Facebook users by mid-2013, more than any other Arab country, and accounting for 18.84% of the country’s population and 48.11% of those with internet access, according to eMarketing Egypt, a consultancy. Egypt thus had 1.4% of the world’s Facebook users, ranking 17th in the world in terms of audience size for the social media network. Social media usage is still growing quickly – by 41% in the year to July 2014 – though this pace is likely to slow as the market reaches saturation.

Private Sector

Usage rates in the corporate sector indicate the vast range of user profiles, from large back-end networks servicing regional headquarters to market stalls using money transfer programmes. The majority of private sector companies have a computer – 72.8%, according to the MCIT, though this figure may be exaggerated by not taking into account all the country’s many enterprises operating in the informal economy. Just over half, or 52.6%, of firms, use the internet, while only 26.8% have a website (a number that surely does discount many informal enterprises). Those businesses that are online use the internet primarily to get information about goods and services (74.4%) and to access email (74.1%). Some 47.5% go online to find out about government services, but only 14.6% use e-government services – a proportion that would surely rise if Egypt rolled out more e-government programmes for businesses, which are still in a somewhat embryonic state.

Around 25% of firms going online use e-banking, suggesting that online banking services probably do not reach much more than 10% of the country’s private enterprises. Again, this may demonstrate the distance the country has to go in order to catch up with digital activity in OECD countries. However, these numbers also indicate the potential for growth in offering services, both to financial institutions and to ICT companies with the needed technology.

Public Sector

Accounting for a substantial chunk of economic activity and employing millions of people, the Egyptian public sector has always been a major market for the ICT industry, for everything from hardware to software to e-service development. Parts of the public sector have quite high levels of ICT adoption, whereas others are lagging.

Some 85.5% of public sector agencies have internet access, suggesting that there are still a significant number of organisations and employees who are not able to benefit from the huge range of tools and information that web connectivity allows.

Benefits Of Internet Presence

Currently, only 58% of public sector entities have a website, a low proportion for a country in which successive governments have long put ICT as a top priority.

This is an indicator of the disconnect between the pro-ICT political leadership and parts of the public administration that strongly advocate technology (for example, the MCIT), and parts of the bureaucracy that are still resistant to even having some sort of online interface. In addition, the 58% figure fails to take into account the number of public sector entities with poor websites – those displaying outdated or extremely limited information, as well as those that are very difficult to navigate through.

Increasing the number of public sector entities that have websites – and good websites – would bring a range of benefits, particularly in enhancing access to information about the government bodies’ activities and interactivity with the citizen. With the revolution of 2011 having led to amplified calls for greater transparency and accountability, improving the government’s online presence would be welcomed by many Egyptians of all backgrounds.

Internet Use

According to the MCIT, some 91.7% of public sector entities with internet access use it to access emails, a proportion that actually seems low given the ease and popularity of email, and could be pushed towards 100%. Meanwhile, 78.6% use the internet for research and development, and 74.3% for exchanging files and folders, potentially helping reduce the paper burden on the sector. Some 54.6% publish press releases online – again a number that could be improved to enhance public access to information and enhance communications between the government and the media and therefore the citizenry. Just under half, 49.7%, use the internet for downloading applications and software. Tellingly, just 41.1% of online public sector entities use e-government services. The use of the internet to publicise technical offers is even lower, at 20.6%, whereas some other countries run almost all public tenders online, again streamlining procedures, reducing paperwork, broadening access to the information, and lowering the risk of human error and manipulation.

One of the challenges of pushing ICT take-up in the public sector is the generational culture gap, particularly among the older generation of bureaucrats and civil servants. However, as the government looks to reduce current spending and slim down the top-heavy state bureaucracy, greater ICT use and e-government development looks set to increase.

New Efforts

In order to try and stimulate greater uptake of digital services in the public sector, in November 2011, Egypt launched its National Broadband Plan, known as eMisr, outlining a range of ambitious goals for connectivity to be met by 2015 and 2021, with $2.4bn of public and private investment envisaged for the first four years alone. One of eMisr’s key focuses is on greater use of technology in the public administration, including better connectivity and improved storage of and access to data.

As the MCIT acknowledges, ICT roll-out in the public sector goes beyond upgrading technology used by the administration. Greater adoption of ICT and internet connectivity in particular can be used to upgrade specific public services, particularly health and education. Only 37.4% of Egyptian schoolchildren use the internet at school – despite 84.6% using computers in class – and 49.7% of students use the internet at university (98.1% use a computer).

“Government should invest more in ICT. It should look at technology as a stimulus to the economy and not a burden. It needs to invest more in education, research and development, entrepreneurship and infrastructure,” Karim El Fateh, country head at Intel Egypt, told OBG. “Government should provide the stepping-stone by acting as a clear example of its commitment to technology. It must implement new systems, connect all government entities to each other using cloud computing, and set an example for others to follow. Many of the government entities are still stuck in the paper era, and are thus restricted.”

Government Strategy

In January 2014 the MCIT published a document outlining the government’s strategy for ICT development entitled “Digital SocioEconomic Development: The Way Forward to Prosperity, Freedom, Social Equity”. It took stock of the position of the ICT sector and the extent of its development, and outlined plans for boosting the sector’s contribution to the economy and society more broadly. The strategy highlights several short-term priorities, including greater consolidation of bodies in the government ICT sector and better coordination between them, as well as encouraging creativity and innovation, fostering transparency, and ensuring full government support for all stakeholders.

The ministry noted that recent government support for the ICT sector included LE44.1m ($6.3m) extended to 26 companies to help resolve financial issues, as well as the promotion of Egyptian ICT companies at international exhibitions and conferences including the GSM Association’s Mobile World Congress; CeBit, the world’s largest computer expo; Cairo ICT, which focuses on the Middle East and Africa; and the Gulf Information Technology Exhibition.

A further LE450m ($63.9m) of funding was made available through the state-owned National Bank of Egypt, United Bank and the government’s Social Fund for Development, with 182 firms having submitted applications at the time of the report’s publication.

International Bandwidth

One of the pillars of the MCIT’s ICT development strategy is developing Egypt’s international connectivity to carry increasing volumes of traffic. As well as supporting higher data traffic due to growing domestic demand, greater bandwidth will help the export-oriented ICT sector continue to expand, and, the MCIT hopes, stimulate the creation of an international “digital hub”.

Seven major international telecommunications cables already run through Egypt, including TE-North, owned by Telecom Egypt, and EIG, which links Europe and India. Egypt’s international bandwidth has grown very rapidly in recent years as investments have continued in anticipation of continued rises in demand. International bandwidth totalled 253.45 GB per second or 3004.41 bps per capita as of end-2013, up 18.2% and 16%, respectively, on 2012, according to the MCIT. Overall bandwidth grew at a striking average 73.94% annually from 2009 to 2013, while bandwidth per person grew 70.18% on average.

The government’s plans to make Egypt a digital hub leverage the country’s geographical position and skilled ICT workforce. A June 2014 report by KPMG quoted Atef Helmy, minister of communications and information technology, as saying that the initial investment would be LE13bn ($1.8bn).

In June 2014, Hesham El Alaily, CEO of the National Telecommunication Regulatory Authority, told local press that Egypt could establish data centres that foreign and domestic companies could use for data storage instead of the US, Europe or Australia, to provide services to Asia and Africa in particular.

He said that Egypt should leverage its position between Asia, Europe and Africa, particularly in the light of a report by global technology company Cisco that the Middle East and Africa will see compound annual growth of 38% in internet traffic and 70% in cellular data traffic, to 2018. El Alaily added that, in order to capitalise on this potential, Egypt would both have to invest in physical telecoms infrastructure and make changes to the legislative framework.

Broadband

Part of this includes the eMisr programme, which in addition to boosting public sector e-activity sets targets for rolling broadband out across the country. Progress on implementing the plan has been slower than hoped, due to the broader turbulence, but with stability seemingly improved, momentum may resume; the economic logic for investment in broadband to boost long-term growth is strong. For example, boosting mobile broadband could add $43bn to Egypt’s GDP and create an additional 1.2m jobs, the GSM Association, a global mobile telecoms industry body, said in an October 2014 report on the sector. The organisation emphasised that this would require investment in infrastructure, a stable regulatory environment and the issuing of more spectrum.

In the ICT sector strategy published in 2014, the MCIT laid out plans for LE17bn ($2.4bn) of investment in broadband through 2017, with 20% of that coming from the government, and a further LE28bn ($4bn) in investment by 2020, with the state chipping in 10%.

For some years, it has been clear that the private sector will take the lead in broadband roll out, particularly through the development of 3G as well as, from around 2016, 4G. Private companies have an incentive to invest as they pursue higher data volumes and international traffic, while also looking to improve service in a very competitive environment.

But exactly how the broadband plan will be rolled out remains uncertain. Tarek Aboualam, CEO of telecoms service company Mobiserve, told OBG that the broadband plan should aim for a universal basic 2-MB-per-second connection. He says that 2 MB is sufficient speed for most homes who want to be able to download reasonably fast or watch video content via sites like YouTube. Services like internet protocol television, video conferencing and HD video streaming require a 4-MB connection, but household demand for these remains relatively low.

Aboualam added that the government could divide the country into areas for broadband development and sell them to private companies on the premise that some less profitable areas would be “bundled” with the sort of densely populated, affluent urban areas that will provide more generous margins. Thus, for example, the contractor would take on development of the broadband infrastructure in one of Cairo’s business districts with that in a rural area of Upper Egypt as part of the same package.

Outlook

ICT usage has grown rapidly in Egypt in recent years, but there is still a great deal of scope for expansion across all segments, particularly in terms of retail, small- and medium-sized enterprises, and informal businesses, as hardware becomes more easily available. With a growing market of around 87m people, over 50% of them below the age of 25, Egypt offers a sizeable consumer market for ICT goods and services. The MCIT’s strategy, if executed properly, should also see the country improve the sector’s attractiveness, particularly for areas where the market already benefits from a comparative advantage – such as in business process outsourcing.

With an increase in digital activity by the public sector and dropping prices in terms of infrastructure access thanks to the broadband rollout and gateway liberalisation, the scope for increasing start-up activity and local content is significant (see analysis).