Egypt looks to Suez for ICT expansion

EgyptICT

Economic News

28 Dec 2015
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With the $8bn expansion of the Suez Canal now complete, Egypt is looking to stimulate activity in the surrounding area, with the ICT sector one of the main focal points.

Some LE12bn-15bn ($1.5bn-1.9bn) will be channelled into mega-projects in the area surrounding the Suez Canal, according to the Ministry of Communications and IT, LE9bn-12bn ($1.1bn-1.5bn) of which will be invested in fibre-optic infrastructure, application development and cloud computing, with another LE3bn ($383.1m) earmarked for the construction of technology parks in nearby Ismailia.

Speaking in late 2014, Atef Helmy, the former minister of communications and IT, likened the plan to transforming Egypt into a cyber Suez Canal. “We have a very aggressive plan to upgrade our infrastructure and at the same time enhance and upgrade the quality of services through different technologies,” he told regional press.

Lifting the sector

Funding for the projects is to be provided by public (12%) and private (88%) actors, according to the General Authority for the Suez Canal Economic Zone (SCZone), with a wide variety of public-private partnership structures being considered, including build-operate-transfer concessions, privatisation and joint ownership.

The government’s broader plans for sector development, which include LE120bn ($15.3bn) worth of investments through to 2020, aim to boost ICT’s contribution to GDP to 8% or higher, up from the current 4.1%.

According to official estimates, the improvements are expected to more than triple ICT revenues from LE58.3bn ($7.4bn) in FY 2013/14 to LE195bn ($24.9bn) by FY 2020/21.

Income alternatives

Once operational, the new ICT zone is forecast to generate some 1m jobs – 250,000 direct and 750,000 indirect – and provide a welcome supplementary income stream at a time when Suez Canal revenues are falling.

Although initial forecasts suggested that the expansion project would double canal revenues once completed in August, the canal has posted year-on-year (y-o-y) declines over the past nine months, with little prospect for recovery in the medium term.

The Baltic Dry Index, which tracks shipping prices for industrial commodities, reached a 30-year low in late November. Revenues from the canal appear to be tracking the global drop in trade, falling from $4.58bn in October 2014 to $4.34bn in October 2015.

Laying the groundwork

Egypt will be looking to position itself as a natural ICT centre by leveraging its existing infrastructure and workforce.

The country currently hosts 18 submarine cables, according to SCZone, the second highest in the world. Combined, they offer eight TB per second of international capacity and 100 GB per second of internet backbone capacity, connecting to Europe, Asia and the Middle East.

Egypt already has a strong ICT outsourcing and offshoring (O&O) industry, with 40% of sector activity focused on O&O and 60% centred on traditional IT services, according to SCZone figures. In addition to the 45,000 offshore employees already working in the country, Egypt produces close to 350,000 university graduates per year, as per government estimates, who could be trained to work in ICT-related fields.

Technology park planning

According to SCZone, there are preliminary plans to construct three ICT parks in strategic locations across the country. The 470-ha ICT and software park to be built in Qantara, located between Port Said and Ismailia, is set to benefit from proximity to the New Suez Canal University in Ismailia, as well as the Ismailia Technology Valley, which is currently being developed.

Two smaller ICT parks are also planned for Port Said, on the North Coast, and Ain Soukhna, on the Red Sea. The latter is also expected to include an ICT manufacturing park due to its proximity to heavy manufacturing industries in the region.

The government is aiming to attract international companies looking to outsource and offshore ICT services and cloud computing to the new technology parks. The number of IT companies with a presence in the country has expanded significantly in the last five years, from 2600 to 4600, according to SCZone.

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