A Deeper Look into the Booming ICT Sector
Egypt’s Information and Communications Technology (ICT) sector is one of few that has remained remarkably resistant in the face of the macro-economic instability over the past seven years. Mohamed el Nawawy, a technology consultant, notes that "ICT indicators are showing a noticeable increase in exports in the past years, which resulted in a high contribution to the Gross DOmestic Product (GDP). He further adds that while the government plans to increase this contribution by 2020-2022, “the main challenge facing the ICT sector remains to be the current economic situation.”
To achieve its goal, the government has mapped out an ICT development strategy with a number of key pillars, which include: improving the quality and penetration of mobile, internet, and the government’s digital services; utilizing ICT infrastructure to improve the efficiency of state bodies; and facilitating the creation of a large and diverse export-focused industry.
Investment Reforms
In 2015 Egypt’s Ministry of Investment and International Cooperation started drafting new investment legislation before even launching the ongoing economic reform. In June 2017, the president approved the long-awaited Investment Law No. 72, which replaced former Law No. 8 for 1997, previously amended in March 2015. The new law reflects the efforts made by the Egyptian government and legislative authorities to avoid any misreading of local and foreign investors’ needs.
Moreover, last April saw the approval of Law No. 23 for 2018 on the provision of incentives to science, technology and innovation. It applies to all higher education institutions and scientific research bodies. The law will not affect any other benefits, tax exemptions, or incentives granted to higher education institutions and scientific research bodies, according to the State Information Service.
Article 1E of the legislation deals with science and technology valleys. It aims to promote innovation, technology development, transfer and marketing, in order to support the transforming into a knowledge-based economy and getting access to locally produced products.
Economic Performance
Over the last couple of years, the Egyptian ICT sector showed steady growth and promising performance, with leaps in the industry. The sector reported a growth of 12.5 percent in the Fiscal Year (FY) 2016/2017, which is the highest growth rate compared to other sectors, according to the Ministry of Planning, Follow-up, and Administrative Reform’s Annual Economic and Social Performance Report.
The sector’s contribution to GDP reached 3.56 percent in FY 2016/2017, in comparison to a 3.3 percent growth rate in the previous year. Those interviewed believe that Egypt has a significant information technology and business-processes outsourcing (BPO) industry in place, serving international customers. For instance, multinational companies like IBM, Vodafone, Orange, and Microsoft are developing services and products in Egypt for export to the global marketplace.
As a result, Egypt’s outsourcing industry of ICT services increased to a value of $1.87 billion in the same period. Moreover, the sector received EGP 24 billion, an increase of 11.9 percent and representing around 5 percent of the total inbound investment in FY 2016/2017.
“The economic performance of Egypt’s ICT sector is better than many other sectors in Egypt, even in the current economic climate [...] Its annual exports are around $2 billion and expected to reach $5 billion during the coming two years. The sector enjoyed an annual growth rate of 11 percent during the years 2015-2017,” says Mohamed Azzam, the executive director for the Digital Economy and Technology General Division Federation of Egyptian Chambers of Commerce.
Sector Characteristics
In terms of talent supply, this sector has been able to continuously secure a growing number of graduates every year. According to the Ministry of Investment and International Cooperation’s figures, an average of 10 percent of university graduates have obtained a degree in information technology. While the figures do not necessarily reflect skill level, Azzam stresses that “Egypt has the largest market in the region and the highest number of qualified personnel compared to the other nations in the region.”
Furthermore, the country’s strategic location helps it in becoming a significant regional transit hub for submarine cables. Egypt is connected to 10 out of a total of 18 cables passing by the country, which provide Egypt with a capacity that exceeds 60 terabytes per second, according to Oxford Business Group’s report entitled “Egypt's ICT industry expected to drive economic growth.”
Another element determining Egypt’s ICT sector characteristics is its existing infrastructure. Experts believe that it attracts extra investments, as it greatly eases start-up costs, and enhances day-to-day productivity.
Competitive labor wages also strengthen Egypt’s ICT industry. It improves profitability year after year, through establishing cost-effective product developments and call centers, according to the Ministry of Investment and International Cooperation.
Barriers and Solutions
Experts have long argued that Egypt’s government should take further steps towards transforming the economy into a digital one that could lead growth. These steps should address current challenges facing foreign investors. For Azzam, the main challenges facing investors in the sector include bureaucracy; lack of unified vision across the government regarding the role of ICT sector in the newly digital transformation era and mega projects led by the government nowadays; shortage of qualified human resources; limited research and development centers; and a shortage of innovative firms and startups that could attract investors.
However, Azzam lauds the government’s digital transformation initiatives, which address ICT infrastructure, electronics manufacturing, e-government programs, digital citizenship, smart cities like the new administrative capital, and modernization of the trade system. “Yet, without having an agile ecosystem, the realization of these opportunities could be difficult,” Azzam notes.
As for his recommendations to attract extra investments to the sector in the future, Azzam says that an agile ecosystem should be in place. This system should include improving the overall macroeconomic environment, higher education and training system, ease of doing business practices, innovation climate, and technological readiness of the country. Furthermore, a flexible legal framework should be established. Egypt should establish a solid legal framework that understands the impact of technology on economic and social levels.
“Egypt possesses a unique position, and there is a multitude of opportunities that could attract remarkable FDI; but without an agile ecosystem, investors might reconsider their investment decision in the country and redirect their funds to one of the growing economies in the region, such as Morocco and Kenya,” he adds.
From his side, el Nawawy explains that the country still needs a well-developed educational system and IT infrastructure in order to create a more attractive ICT investment climate. “These two factors must be supported by a solid economic regime,” he says.
He further notes that “the Egyptian Ministry of Communications and Information Technology has [already] adopted several initiatives for training ICT graduates on cutting edge technologies such as big data, data science, cloud computing, cyber security, etc. to qualify engineers to penetrate the ICT market.” On the technical level, he highlights that Egypt’s internet penetration rate has been growing rapidly in the past years.
Promising Future
Egypt’s 2020 strategy aims to support the country’s push to become a key regional player in the ICT industry. The strategy’s framework is based on seven main pillars: digital contact, basic infrastructure, electronics design and manufacturing, ICT industry programs and initiatives, and legislative and policy frameworks, according to Oxford Business Group’s report.
On a parallel path, Egypt’s 2030 vision includes plans to increase households’ fixed Broadband coverage to 90 percent by 2021. The plan targets a similar level of penetration in mobile coverage through 4G by utilizing a new satellite system that will accelerate the deployment of broadband, according to an official statement by the Ministry of Investment and International Cooperation.
Tackling the potential challenges that might face the strategy, Noura Hassan, Managing Director Trend Micro North Africa and Levant, explained to Zawya during an interview that ICT plays a fundamental role in Egypt’s initiative to transform its economy, aiming to position the country as a regional innovation hub by 2020. However, she adds that government bodies, local organizations and corporate entities should pay closer attention to growing security risks that inevitably come with a thriving sector.
Egypt continues to face a growing threat from cyber attacks, with malware detections in the first quarter of 2018 reaching 253,995 incidents, accounting for 0.23 percent of 3.97 million global ransomware threats, and recording the second highest figure in the North African region, a 2018 report by Trend Micro Incorporated stated. “A modern and integrated security system should be incorporated when mapping Egypt’s transformation into a digital economy,” Hassan says.
Managing the transformational process of Egypt’s knowledge-based economy in order to realize a fully ICT-literate society requires cooperation and partnerships between different stakeholders. Furthermore, in order to generate economic development and growth, ICT needs to also offer services, bolster content that creates new markets, reduce costs and increase productivity. As el Nawawy puts it, “Supporting innovative young entrepreneurs through investing in startups and small companies working in ICT field will restructure [the industry] in a positive and healthy way.”