Rise in telecoms demand and new regulations shift Egypt's digital economy

The development of Egypt’s ICT sector is supported by concerted efforts to diversify the economy and develop knowledge-based industries. In FY 2019/20 and FY 2020/21 the sector’s growth significantly outpaced that of the broader economy. This trend is set to continue, with the government working to bolster internet access in rural areas, improve service delivery, and develop infrastructure that will support data centres and technologies such as artificial intelligence (AI). The acceleration of ICT development has been driven in part by the Covid-19 pandemic, which underscored the urgency of digitalisation efforts as many businesses and social interactions shifted online.

Oversight

The Ministry of Communications and Information Technology (MCIT) oversees the ICT sector. Created in 1999, the MCIT aims to boost the digital economy; ensure that the sector is a key driver of growth; and create an ecosystem that supports transparency, competition and inclusivity. The ministry’s longterm framework for digital transformation is the Digital Egypt Strategy, which includes targeted investments, digital government reforms, training programmes and infrastructure development initiatives. It also focuses on value-added segments such as electronics design and manufacturing, technology parks and data centres in order to maximise the sector’s contribution to GDP.

The MCIT has also worked to leverage international meetings such as the COP27 UN Conference on Climate Change, which Egypt will host in November 2022, as opportunities to develop ICT infrastructure further. In February of that year the ministry released plans to install smart systems for visitors and participants at the event, as well as leverage AI and other tech tools.

The National Telecommunications Regulatory Authority (NTRA), for its part, works to ensure that the telecoms market is transparent, competitive and respects user rights. Established in 2003, the authority prioritises cybersecurity, national security and service quality. It works to bolster access throughout the country by offering incentives via the Universal Service Fund, created in 2005, among other initiatives. The authority also allocates radio frequency spectrum, organises interconnection agreements and certifies telecoms equipment in line with international standards.

Established in 2004, the Information Technology Industry Development Agency (ITIDA) works to support the development of Egyptian ICT companies by advising policymakers, strengthening local capacity, and attracting both local and foreign investment. The agency aims to support Egyptian companies throughout their lifecycle, offering incubation, accelerator and mentorship programmes for start-ups and new entrants; skills development for more established entities; and other supportive infrastructure such as technology parks and innovation clusters, as well as services related to e-tenders and intellectual property rights.

Performance & Size

In recent years the authorities have prioritised the development of a digital economy backed by innovation and research and development capacities. This is reflected in Egypt’s steady rise in international indices measuring innovation. For example, in the 2021 Global Innovation Index released by the UN World Intellectual Property Organisation, Egypt ranked 94th out of 132 countries, up from 96th in 2020. It scored highest in knowledge and technology outputs, infrastructure, and human capital and research, and ranked 13th among 34 lower-middle-income economies. Its score on the GSMA Mobile Money Regulatory Index improved from 64 out of 100 in 2019 to 80 in 2021. It also ranked among the top-10 most improved markets in Roland Berger’s Digital Inclusion Index, with its score rising from 52 out of 100 in 2017 to 60 in 2020. Egypt ranked 77th out of 130 countries in the Network Readiness Index 2021, up from 84th place in 2020.

ICT accounted for 5% of GDP in FY 2020/21, up from 4.4% in FY 2019/20 and 4% in FY 2018/19. Its value contribution to GDP has also risen, from LE80.2bn ($5.1bn) in FY 2017/18 to LE93.6bn ($5.9bn) in FY 2018/19 and LE107.7bn ($6.8bn) in FY 2019/20. This upward trend continued in FY 2020/21, with the sector expanding by 16.1% to LE125.2bn ($8bn). Investment in ICT has similarly grown, reaching $3.5bn in FY 2019/20 – representing an increase of 35% compared to the previous fiscal year. There were more than 285,000 people employed in the sector in FY 2020/21, according to the MCIT. “Due to the availability of qualified labour at a competitive cost, we are seeing increasing levels of investment in not only traditionally strong segments such as business process outsourcing, but also emerging areas such as embedded systems, electronic design and other highend services,” Amr Mahfouz, CEO of ITIDA, told OBG.

The sector’s performance was reflected in the financial statements of Egypt’s telecoms players. State-owned Telecom Egypt (TE) reported operating revenue of LE31.9bn ($2bn) in 2020, up from LE25.8bn ($1.6bn) the previous year. The largest share of revenue came from home and personal communications, which accounted for LE14.4bn ($925m) of the total in 2020, followed by domestic wholesale (LE4.7bn, $298.6m), international cables and networks (LE4.5bn, $285.9m), international carriers (LE4.4bn, $279.6m) and enterprises (LE3.9bn, $247.8m). Vodafone Egypt’s revenue, meanwhile, rose from LE22.4bn ($1.4bn) in FY 2018/19 to LE26.4bn ($1.7bn) in FY 2019/20. Etisalat Misr saw similar growth, with revenue reaching LE18bn ($1.1bn) in 2020, up from LE15.7bn ($997.6m) in 2019. In 2020 Etisalat Misr’s earnings before interest, taxes, depreciation and amoritisation equalled 41% of revenue, at LE7.4bn ($470.2m), with LE6.2bn ($393.9m) in capital expenditure. Orange Egypt has not released a financial statement since it delisted from the Egyptian stock exchange in September 2018.

Market Structure

TE is the sole fixed-line provider, although in recent years there have been efforts to liberalise the space. In 2016 Vodafone Egypt and Etisalat Misr were granted licences to provide fixed-line services using TE’s infrastructure, and in December 2017 Orange Egypt announced it would also begin offering fixed services. However, as of mid-April 2022 the companies had yet to finalise their fixed-line rollouts.

In November 2021 there were 11.3m fixed-line subscriptions, up 10.6% year-on-year. The fixed-line penetration rate rose from 7.8% to 10.9% over the same period. Residential customers accounted for 89% of subscriptions, while commercial and government entities accounted for 9% and 2%, respectively.

TE holds a 45% share in Vodafone Egypt, while Vodafone Group holds the remaining 55%. Vodafone Egypt is the country’s largest mobile network provider, holding 39% of market share in terms of revenue and covering a customer base comprising 40.2m.

Mobile

Egypt is one of the largest mobile markets in Africa, with 93.4m subscriptions and a penetration rate of 89.9% in January 2022, according to the most recent “ICT Indicators in Brief” report by the MCIT. This was down 9.7% from 103.5m subscribers the previous month and 4.5% from the 97.9m registered in January 2020, when the penetration rate measured 95.9%. Mobile internet use, meanwhile, showed moderate growth, increasing by around 0.8% from 63.4m subscriptions in December 2021 to 64.9m in January 2022.

While the number of new smartphones in MENA as a whole fell after the onset of the pandemic, the Egyptian market bucked this trend, according to a 2021 report from intelligence firm International Data Corporation (IDC). In 2020 the number of smartphones sent to Egypt grew by 10.6% to 11.9m units, with 59.5% of Egyptians owning a smartphone in FY 2020/21. Samsung was the market leader, accounting for 25.2% of all phones on the market, followed by Oppo (21%), Xiaomi (15%) and Realme (13.2%). “Consumers had tighter budgets but there was strong demand for smartphones to meet the new remote-working and education requirements brought about by the Covid-19 pandemic,” Taher Abdel Hameed, senior research analyst at IDC, noted in the report. “This demand spurred the majority of vendors to offer new affordable, but feature-rich, models.” Egypt’s smartphone market growth was forecast to slow to 2.5% in 2021, due to component shortages related to global supply chain disruptions, and to 1% in 2022.

The majority of mobile users have a mobile internet connection, with 85.1% of Egyptians reporting a 3G, 4G or 5G connection as of February 2022. According to a January 2022 report from Hootsuite and We Are Social, Egypt had a median mobile internet download speed of 17.28 Mbps. However, mobile internet use has been slowed by lack of sufficient spectrum. To address this, in September 2020 the NTRA opened 60 MHz of frequency on the 2600-MHz band. It was awarded in November 2021, after an additional 20 MHz was made available to Vodafone Egypt, Etisalat Misr and TE for $1.2bn. In February 2022 Orange Egypt was allocated 30 MHz on the 2600-MHz band for $440m.

Internet

Fixed and mobile internet penetration has increased in recent years, from 41.3% in FY 2015/16 to 71.9% in FY 2020/21, according to the MCIT. The share of internet users in urban areas outweighed those in rural areas, at 68.8m compared to 47.8m, respectively.

The government is working to bridge this divide: in September 2021 the MCIT announced plans to provide more than 60m people in rural areas with high-speed internet. In line with wider efforts to develop the digital economy and create jobs, the $360m plan will bring fibre-to-the-home internet to underserved populations in 4500 villages, as well as upgrade more than 900 post offices and improve connectivity through the construction of 1000 cellular base stations.

This is an aspect of the Decent Life initiative, a multi-pronged programme launched in 2019 that aims to enhance the provision of services, especially to vulnerable groups such as seniors, persons with disabilities and low-income families. It has seven pillars: decent housing, infrastructure, medical services, education, economic empowerment, social service interventions and human development, and the environment. It also contains provisions for technology and the digital economy.

The average Egyptian spends a little over eight hours on the internet a day, above the global average of seven hours, according to Hootsuite. Around half of Egyptians are active social media users, spending a daily average of three hours and 13 minutes on such platforms.

As of February 2022 the median fixed-internet download speed in Egypt was 35.67 Mbps. The government has been working to improve performance in recent years: according to the MCIT, the government has invested more than $2bn to boost average internet speeds in urban areas, from 6.5 Mbps in 2019 to 42.5 Mbps in 2021 – a seven-fold increase.

Cables

Subsea cables are a central aspect of ICT infrastructure, and in this regard Egypt has a favourable geographic position. The country is connected to more than 60 countries through 17 submarine fibre-optic cables, which are responsible for more than 90% of data traffic in Asia and Europe, according to the MCIT. The cable networks have made the country competitive in terms of both internet speed and cost. In Ookla’s March 2022 Speedtest Global Index, Egypt ranked 91st out of 142 countries in terms of median fixed-line broadband internet speed. It also compares favourably on cost to its North African neighbours. In addition to faster connectivity, Egypt benefits from the cables through traffic fees. According to company figures, TE made over LE2.9bn ($184.3m) in revenue from such transit fees in 2019, up 17.4% from the previous year.

Connectivity is anticipated to improve further in light of the March 2021 announcement that TE will construct the Hybrid African Ring Path (HARP) subsea cable system encircling the continent. It will connect both coastal and landlocked countries to Italy, France and Portugal using its existing terrestrial and subsea networks. HARP is scheduled to come on-line by 2023, with Sharm El Sheikh serving as a landing point.

Despite being home to 4000 sq km of subsea and terrestrial cables, Egypt’s ICT potential is constrained by a lack of infrastructure that can allow it to leverage the added capacity. The shortfall is partially attributed to the fact that copper fibres are still used in parts of Egypt’s network rather than fibre optics. To address this, TE invested LE17bn ($1.1bn) in 2019 and 2020 to convert domestic cables from copper to fibre optics. This helped the company maintain internet performance during the lockdown periods in early 202, when demand spiked as business activity and education moved online. Even so, according to the Federation of Egyptian Industries, an estimated LE120bn ($7.6bn) in investment is needed to expand the use of fibre optics and boost internet speeds.

Export-IT

ITIDA allocated over LE61m ($3.9m) in export subsidies to 106 ICT companies between midApril and July 2020 through its Export-IT initiative, first launched in 2010 to help local ICT players secure resources and gain access to markets while reducing export overheads. Depending on their size, companies receive direct cash incentives of up to LE2.5m ($159,000), or up to LE3m ($191,000) for those operating in one of Egypt’s technology parks. Between its creation and January 2021 the programme disbursed around LE400m ($25.4m) in export subsidies to over 200 local ICT firms, contributing to IT export revenue of more than LE7.8bn ($495.6m). In the ninth edition of the programme, which launched in 2019, the most popular exports were software, mobile app development and technical support services, accounting for 40% of total Egyptian exports, followed by outsourcing and call centre services (31%), and digital marketing (7%).

The more recent allocations aimed to cushion Egypt’s ICT scene from the impact of the pandemic, with locally headquartered ICT companies and IT-supported services with more than 50% Egyptian ownership eligible for the programme. The subsidies targeted the proceeds of value-added exports during 2019 and 2020. In January 2021 ITIDA launched a new round, and announced in July that year that it had granted 131 companies a combined LE70m ($4.4m). The companies are based in areas such as Alexandria, Dakahlia and Ismailia, demonstrating the government’s progress in encouraging digital innovation outside the capital. This effort and others have helped boost ICT exports from $1.6bn in 2016 to $2.6bn in 2020.

Cloud & Data Centres

Africa’s public cloud market has expanded rapidly in recent years, a trend that is set to continue for the foreseeable future. More than $15bn worth of investment in data centres in Africa is anticipated between 2020 and 2025, much of which will be concentrated in Egypt, Morocco, Nigeria, Kenya and South Africa. These services helped Egypt and countries around the world transition to remote work at the beginning of the pandemic, allowing employees and customers to conduct transactions at home. They also offered companies greater flexibility in terms of outsourcing services or production, as they could more easily scale their operations to meet increasing demand.

Egypt’s data centre industry is set to receive a boost from the development of the New Administrative Capital (NAC), which will be underpinned by cloud technology. Once complete, the smart city will host government ministries and facilities, diplomatic missions, universities and residential compounds. Telecoms provider Orange Egypt is building a $135m data centre in the new capital that will enhance data capacity and host all smart city platforms. Trial operations on the facility are scheduled for early 2022. The company hosts one data centre in Cairo and is set to launch the first phase of another data centre in Alexandria in 2022. The two facilities will join the existing 18 located in the country, the majority of which are in and around Cairo.

In August 2021 the NTRA rolled out a new regulatory framework that aimed to encourage investment in the data centres segment, create hyper-scale data centres, attract cloud computing and electronic content service providers, and leverage the country’s position between Africa, Europe and the Middle East. It also aims to create jobs and improve service provision through faster internet service for content hosted in Egypt.

Online Economy

In mid-2020 the MCIT launched the Digital Egypt Strategy to build a digital society and encourage innovation. The plan’s pillars include innovation, digital transformation, and digital skills and jobs. To support innovation, the framework seeks to promote research and development in ICT; facilitate partnerships with stakeholders such as the government, academia, financial institutions, the private sector and entrepreneurs; and create supportive networks to turn ideas into value-added products and services.

To support digital transformation, the plan aims to adopt digital government services with a view to creating public value and improving access. To help prepare Egyptians for a digital future, the framework seeks to provide training on advanced technologies to improve digital literacy. Other objectives of the ministry’s roadmap include facilitating further sector growth and a shift to a knowledge-based economy. While the government had long prioritised the adoption of digital tools, the pandemic helped to accelerate this trend.

The government is also working to encourage digital payments to help boost financial inclusion. These efforts have focused on more traditional methods of payments – such as pre-paid, credit and debit cards – and more innovative solutions such as digital wallets.

In September 2020 the government passed a new law that allows the Central Bank of Egypt to issue banking licences to financial technology (fintech) firms. The following July the Financial Regulatory Authority (FRA) announced it would prioritise digital payments and fintech solutions to stimulate growth, and in January 2022 legislation drawn up by the FRA to regulate the fintech industry was approved by the House of Representatives. In 2020, 41.4m Egyptians made digitally enabled payment transactions, up 10.1% from the previous year. The total annual value of these transactions reached $8.6bn, with the average value of annual digital transactions per user reaching $209.

In a further bid to promote the digital economy, in May 2022 the government announced plans to allow for the establishment of e-companies without a physical headquarters in the country. The government also pledged to expand free tech investment zones and tax exemptions for start-ups. These measures are expected to help companies cut costs, ease obstacles to growth for start-ups and attract investment.

There are signs these efforts are paying off: in September 2021 Amazon launched services in Egypt, with a fulfilment centre established in 10th of Ramadan City and 15 delivery stations across the country.

Digital Government

With a large public workforce of around 5.6m people and government operations that are largely paper-based, a shift to digital government services will save time and effort, reduce paperwork and enhance the effectiveness of service delivery. To that end, the MCIT is working with other ministries and government agencies to digitalise all public services. The government is also mandating that selected transactions be made online, including payment for services, Customs duties and taxes – a move that has encouraged the private sector to accelerate its own transition.

Significant progress has already been made to this end. The MCIT has worked to make government services available through several venues, including the Digital Egypt platform, mobile apps, call centres, post offices and citizen service centres. In 2021 the MCIT launched 65 new government services on its Digital Egypt platform. As of February 2022, more than 125 digital government services had been rolled out on the platform. By the end of 2021 Digital Egypt registered 4.2m subscribers and recorded 14m transactions.

Intelligent Solutions

In line with wider efforts to utilise technology to facilitate economic development and diversification, the government has worked to incorporate AI into its ICT framework. The country ranked 56th out of 172 countries in the 2020 Government AI Readiness Index, issued by the Oxford Insight Foundation and the International Development Research Centre. Egypt scored highest on vision, with a score of 100 out of 100, followed by data availability (59.5), and governance and ethics (56.5).

In November 2019 the National Council for AI was established to formalise and implement the country’s AI policies. After deliberation and collaboration with relevant government agencies and independent experts, the council released the National AI Strategy, which aims to exploit AI to help Egypt attain its sustainable development goals and become an international leader in AI. The strategy prioritises the use of AI in government operations to make them more efficient and transparent; encourages investment in AI research and innovation through public-private partnerships, and in collaboration with universities, research institutions and the private sector; promotes a human-centric AI approach that targeted marginalised groups; and builds long-term capacity in the segment.

The strategy will be rolled out in three phases, the first of which began in 2020 and is set to continue until the close of 2022. It will focus on implementing training programmes to help meet market needs, as well as pilot projects in several strategic sectors.

In line with the strategy, in July 2021 the MCIT launched the National AI Platform, which aims to bring together stakeholders to discuss issues such as the ethics of using AI and other opportunities. The ministry hopes the platform will help raise awareness about the country’s achievements in the field and promote Egypt on the international scene. The second phase will assess the inclusion of additional priority sectors and establish a supportive ecosystem for AI innovation, especially for start-ups. Specific targets for the programme’s third phase had yet to be released as of April 2022.

Smart Cities

In line with its drive to implement AI solutions across the economy, Egypt aims to establish 50 smart cities by 2050 (see Construction analysis). The country is on pace to meet this goal, with 37 cities either at the planning stage or under construction as of September 2021, including New Mansoura, New Alamein City, West Qena, West Aswan, New Obour and New Rafah. These new cities will have more environmentally friendly infrastructure and larger green spaces than older urban centres. They will also feature next-generation technologies that seek to address some of the challenges experienced by residents living in traditional Egyptian cities, such as traffic congestion, pollution and electrical outages.

The most important of these developments is the NAC, which will span 700 sq metres and be home to 6.5m residents. The government has designed the development to facilitate citizen-centric digital transformation. The new city, located around 35 km east of the current capital, will house government offices, foreign missions and Knowledge City – a 200-ha development. Knowledge City will feature schools such as Egypt University – the first specialised informatics university in Africa and the Middle East – a science park, and research and entrepreneurship facilities. It will also include Egypt’s first innovation and electronics centre, charged with stimulating industrial innovation. Dedicated spaces in Knowledge City will help drive innovation in applied research, technical training, software and application development, and data design. In December 2021 government offices began moving to the $60bn NAC, with the Cabinet holding its first meeting in the new capital later that month.

The NAC will feature smart technologies to manage security, traffic and resources, helping to reduce the consumption and cost of utilities. Every building is planned to be connected to fibre-optic technology, and a network of around 6000 wireless cameras will regulate traffic and monitor security.

Outlook

The pandemic saw a swift increase in demand for telecoms services as business and social interactions moved online. In a global context, this has allowed Egypt to position itself favourably to companies looking to strategically realign their operations. “In the current global situation where the supply chains of many industries are being disrupted and reshaped, IT offshoring is not an exception,” Mahfouz told OBG. “Many businesses are diversifying their operations and delivery location portfolio, and Egypt is well positioned to cater to this global demand and secure its fair share of the global market.” On a national level, the more widespread use of digital payments, online shopping and other e-services is expected to help sustain growth and investment in the sector in the coming years as companies adapt to meet new customer demands.