Strategic expansion: Increased internet usage and demand for services show potential

Growth in many markets of the region, including Algeria’s immediate neighbours, points to the potential for expansions in Algeria’s IT sector. While spending remains low, the planned launch of 3G at the end of 2013 should lead to rapid growth in internet use and give the wider IT sector a boost. The country is also a regional pioneer in some niches and sector professionals say the quality of graduates is good thanks to a comparatively robust IT education system, which provides a strong potential foundation for sector growth.

BY THE NUMBERS: Spending on ICT relative to GDP is low by regional standards. The UNCTAD “Information Economy Report 2012” put total spending on computer software and services in 2011 at $372m (8.1%), or 0.2% of GDP, compared to 0.4% in Morocco and 0.6% in Tunisia. The World Economic Forum placed the country 131st out of 144 countries in its 2013 Network Readiness Index, with a score of 2.8 out of a maximum of 7. This put Algeria just ahead of Libya in 132nd place at 2.77 and four places ahead of fellow North African nation Mauritania but behind Morocco at 3.64 in 89th place. In the infrastructure and digital content category, the country ranked 119th, based on a score of 2.6. Algeria also ranked 131st out of 144 in the World Economic Forum (WEF) 2013 Network Readiness rankings in 2013 – down from 118th the previous year – based on a score of 2.78 out of a maximum of 7.

INTERNET: In addition to state telecommunications company Algeria Telecom (AT), the Post and Telecommunications Regulatory Authority lists 17 private internet service providers (ISPs). However, private ISPs are currently only able to provide services to private sector firms, with households and government clients obligated to use AT. Private ISPs are also required to use AT’s extant infrastructure (they are forbidden, for example, from laying their own fibre) and to purchase capacity from it. The government in May 2013 estimated the number of Algerians using the internet to be 11m, up from 10m a year before. The International Telecommunication Union (ITU) put the proportion of individuals using the internet at 15.23% in 2012 (suggesting fewer users than government figures), up from 14% in 2011. The figure was low by regional standards; internet penetration in 2011 stood at 39.1% in Tunisia and 51% in Morocco. The number of household internet subscriptions stood at 1.1m in 2012, according to the ITU.

There is a waiting list of customers seeking fixed broadband connections, which has contributed to slower growth, as well as limited competition. “Infrastructure is currently poor and doesn’t respond to market demand,” said Mohamed Fadi Gouasmia, the general manager of local ICT firm AnwarNet. The authorities are planning AD115bn (€1.06bn) worth of investments in rolling out fibre, and the launch of a 3G network will likely have an encouraging impact on internet usage.

Internet access costs are also high; some measures put them around four times higher than in Morocco and 20 times higher than in some Western countries. However, plans to launch 3G in late 2013 should lead to rapid growth in internet penetration, as it should be much easier for customers to get access via smartphone or dongle than via fixed lines, and demand is likely to be strong. “The high mobile phone penetration rate shows that Algerians embrace new technology,” Abdel-hamid Benyoucef, CEO of local smartcard manufacturer and e-solution provider HB Technologies, told OBG.

Connection speeds may also be faster. “Internet speeds available in homes currently remain slow at around 1-2 Mbps,” said Ali Kahlane, the president of local ISP Satlinker. “3G by contrast could run at up to 100 Mbps. Internet access prices will also fall as a result.” Industry figures also say that despite major infrastructural investment plans on the part of AT, mobile broadband services will be much easier to deploy across the country than fixed-line services.

WEB & SOCIAL MEDIA: In line with global statistics, the most popular websites amongst Algerian internet users are Facebook, YouTube and Google search pages, according to Alexa.com. The most heavily visited local site is the website of Arabic-language newspaper Echourouk, which also has the largest print run of any Algerian newspaper and which is the eighth most popular website in the country. Local web content production is relatively modest; according to local press reports there are around 4000 websites based in the country, of which only around 900 are active.

Social media usage is highly popular amongst internet users. According to PageViral, there were around 4.8m Facebook users in Algeria as of July 2013, two-thirds of whom are male. Penetration of the overall population is low by regional standards at just under 14%, compared to 17% in Morocco and 36% in Tunisia; however, usage is continuing to grow rapidly, with local media reporting that the number of Algerian users grew by 600,000 in the six months to March 2013. The internet is partly regulated by the country’s 2009 law on cybercrime, which obliges ISPs to block access to sites that contravene the law and “public order or decency”. According to a 2012 US State Department report, internet access remains generally “unimpeded”.

ICT MARKET: Industry players say that the development of the wider IT market is constrained by a lack of awareness amongst many Algerian companies. “Algerian firms often don’t understand how investment in IT can help them realise their strategic objectives. They perceive ITC and related services as being a cost centre,” said Abdelkrim Tegguiche, the CEO of local IT firm and ISP Webcom. However, the situation is improving as other segments are beginning to show promising growth.

While the IT sector is underdeveloped in many ways, Algeria is nevertheless a regional pioneer in some segments. HB Technologies, for example, makes mobile phone SIM cards and smart cards for credit and debit cards; it is certified by both VISA and MasterCard for the latter. “We are the only firm in Africa outside of South Africa to manufacture SIM cards and aim to be GSMA-certified by the end of 2013,” Benyoucef told OBG. In addition, HB Technologies and local firm Webcom, respectively, operate Android app and general software units, among other activities.

Other niches with strong potential for growth include cloud computing and storage. “More attention should be given to the virtualisation of data, services and content through cloud computing and information systems. Algeria has strong assets to boost the sector, with both energy and hosting costs relatively low, although bandwidth remains a state monopoly and is still quite expensive,” said Gouasmia. IT security, both physical and digital, is also among the more promising segments. While most demand is from the private sector, state companies are starting to realise its value.

SECTOR REGULATION & OVERSIGHT: Local IT firms say the pending reform of the regulatory framework would be beneficial. “The sector is constrained by regulations that are not well adapted to it; the main law regulating the industry dates from the year 2000 and doesn’t even mention the internet. Most European countries by contrast revise their ICT laws every five years or so,” Gouasmia told OBG. A new draft post and ICT law is now in the process of being developed, though its passage through parliament appears to be stalled.

Potential impacts on the sector as a result of the law include an effective boost in available internet capacity through a stipulation that would allow large firms with fibre networks of their own to commercialise their spare capacity. While the legislation may offer a boost to the sector, regulatory issues that are not specific to the sector can also be problematic, such as bureaucratic delays. In addition to changing how the sector is regulated, industry players say there are other ways the authorities could boost growth, such as making more use of IT in government services.

E-GOVERNMENT: International surveys appear to support claims that government could do more to promote the sector and take advantage of IT in its own operations, with the WEF’s “2013 Global IT Report” ranking Algeria 137th out of 144 countries in its government success in ICT promotion category and last in its ICT use and government efficiency category. “Updating the regulatory framework of the industry is key to providing companies and even the public a certain level of confidence in the use of ICT technologies and in turn pushing enterprises – whether public or private – towards the dematerialisation of their information and communication systems,” Tegguiche told OBG.

Efforts to develop e-government have had mixed results. In 2008 the state launched an initiative called e-Algerie, subsequently renamed e-Algerie 2013. However, the programme is yet to reach full execution. “Most of the action points in e-Algerie have not been implemented,” Gouasmia told OBG. Indeed, according to the Algerian Association of Internet Service Providers, only around 15% of the measures envisaged under e-Algerie have been taken. Nevertheless some projects in the domain have been completed; for example an e-government portal called El Mouwatin (The Citizen) aimed at both individuals and business that is part of the project was launched in August 2011 and reportedly receives around 62,000 visitors per month.

HR ISSUES: Local firms say the calibre of university education in the sector is good, but that availability of skilled workers can be a problem. “Algerian IT graduates are extremely well trained,” said Benyoucef, citing a number of good higher education institutions such as the University of Boumerdes. “However, many go abroad, which can make it difficult for local IT companies to recruit.” Consequently it can be expensive to hire high-calibre staff. “There are not enough IT graduates to keep up with demand; as a result, good employees can cost the same as in Europe,” Ali Azzouz, the CEO of local ICT firm CBS, told OBG.

There is also a shortage of young people choosing to study IT. “Algeria has amazing human resources,” Kahlane told OBG, pointing to the number of university graduates every year. “If a significant proportion of these go into IT, then the future of the sector is bright; however at the moment this is not really happening.”

PIRACY: Software piracy remains widespread and high even by regional standards; according to the 2011 BSA Global Software Piracy Study, around 84% of installed software units in the country are unlicensed (a figure more or less unchanged since 2007), compared to a Middle East and African average of 58%. The report put the commercial value of software being used in the country at around $86m. However, Azzouz told OBG this was less of an issue now. “There is no major problem with piracy; in both the government and companies, more or less everyone buys licences,” said Azzouz. “This is partly a result of the law being applied, but also due to the fact that it is increasingly difficult to use software without having the proper licence.”

OUTLOOK: Local industry players believe the prospects for the industry are good. However, as with the telecoms sector, the outlook will depend in part on factors such as when 3G services are launched and international capacity is increased, as well as the passage of sector-relevant legislation such as the new ICT law. “The ICT market could grow at double-digit rates in coming years, though that will be dependent on the right political decisions being made and various impediments to growth being removed,” Benyoucef told OBG.

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The Report: Algeria 2013

Telecoms & IT chapter from The Report: Algeria 2013

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