The turbulence Egypt has experienced since early 2011 have made attracting investments more difficult in several sectors, but thanks to strong domestic demand, ICT has been something of an exception and has weathered the volatility better than most.
Stable & Growing
The outsourcing sector is perhaps the best indicator of this. With broader headline growth strengthening through 2014, the government is introducing a new strategy and associated fiscal reforms to spur an increase in outsourcing activity as well as growth in newer segments, including software development, cloud computing and local content.
Ehab Mostafa, vice president for developing the IT market and attracting foreign direct investment (FDI) at the official Information Technology Industry Development Agency (ITIDA), told OBG that most outsourcing businesses in Egypt have remained stable since 2011, though some, largely at the low-value end of the market, downsized as services were moved elsewhere.
“The call centre industry is one of the few sectors that has seen growth in the last year – a result of the strong IT infrastructure, close proximity to Europe and the MENA [Middle East and North Africa] region, and a high calibre of talent,” Giorgio Modesti, CEO of Teleperformance, an outsourcing company, told OBG. “In spite of the instability, the quality and competitive costs of Egypt’s outsourcing services have not been impacted.”
Competitive Advantage
Egypt has established its reputation as one of the most popular business process outsourcing (BPO) and offshoring destinations. It capitalises on competitive advantages including a technically skilled and multilingual but low-cost talent pool; a geographical location between Europe, Asia and Africa (and in a similar time zone to many important markets, developed and emerging); good international connectivity and strong government support.
“The government support of the BPO sector began in the 2000s and has been very helpful, especially in terms of specialised training and educational programmes,” Hassan El Shawarby, general manager of Etisal, an outsourcing firm, told OBG. According to ITIDA, the fully loaded operating cost per employee of a BPO centre in Egypt is comparable to that in India and the Philippines, two of the world’s most prominent emerging-market outsourcing destinations.
“The Egyptian BPO sector is still one of the most competitive worldwide. The fundamentals have remained unchanged since the 2011 revolution,” El Shawarby told OBG. “Although inflation has been impacting the cost of human resources, the talent pool available in Egypt is still a major advantage. The diversity of foreign language skills is superior to other competitor countries like India.” International companies active in the sector include Vodafone, Sutherland, Raya and Xceed, each employing upwards of 1000 people.
In a bid to stimulate activity in ICT segments outside of the BPO sector, ITIDA and the Ministry of Communications and Information Technology (MCIT) are rolling out a new strategy to encourage a broader array of ICT products, covering back-end networks and infrastructure, as well as services, including apps and analytics.
Mostafa told OBG that the organisation’s new strategy has a number of pillars, building on established accomplishments and priorities while introducing new goals to push the industry onto the next level. The pillars are aligned with the MCIT’s new strategy.
Pillars For Success
The first pillar is continuing to invest heavily in talent development, while ensuring that training keeps ahead of industry trends. This entails ongoing analysis of demand for ICT services and matching education to that. “We know that that ICT moves very, very quickly,” said Mostafa. “Two years ago, it was cloud computing and mobile apps, and now it’s big data and analytics.” The second pillar is supporting the development of Egyptian ICT companies. This includes strengthening the training available to managers in marketing, human resources, finance and sales. ITIDA already has a project with training consultancy Franklin Covey to develop skills. ITIDA hopes to improve local companies’ internal processes, including asset and risk management, and ability to meet key performance indicators: job creation, export potential and value. It aims that 85% of firms will be showing improvement on at least one key performance indicator within a year.
One of the main goals will be ensuring that firms mature and professionalise to make them more attractive targets for venture capital. Some 80% of the funding for training on this second pillar will come from the government, and 20% from the companies in question.
The third pillar consists of an overhaul of the FDI strategy, which has been “reverse engineered”. ITIDA seeks to replace the previous modus operandi, which was mainly focused on cost, and failed to monitor return on investment closely enough. ITIDA has re-examined what factors draw investment and concluded that companies are increasingly looking not just for low cost, but quality and knowledge to deliver better services, even if the cost is somewhat higher. The fourth pillar consists of boosting exports. This will include improving incentives for export, including incremental tax exemptions. These will be targeted at small businesses in the sector. Companies that are not exporting will be encouraged to strengthen to the extent that they can do so while those already exporting should “push upwards” to increase sales abroad and value added, Mostafa said.
The fifth pillar is what Mostafa describes as a “very, very aggressive plan for rebranding Egypt’s ICT sector in target markets”. One of the aims will be to demonstrate to potential investors and clients that Egypt is a safe and secure investment destination, cutting through the media narrative of the past few years. The aim is to position Egypt as a hub for ICT in Africa and the Middle East. ITIDA has launched a campaign called “Africa Together” which aims to take representatives of Egyptian ICT companies around the continent to discover what sort of services African clients are seeking.
Opportunities
If the strategy is successfully executed, then the potential for increasing investment is vast. Firstly, there is the outsourcing and offshoring sector, with a focus on Europe and the growing consumer markets of the Middle East and Africa. GCC markets offer a particular appeal, given that Mostafa estimates that Egyptian companies can operate at around 40% of GCC costs. Ashraf El Arman, managing director of Xerox, told OBG, “Among the outsourcing opportunities in Egypt are things like digital archiving, especially from government organisation like the Ministry of Justice.”
Secondly, there is the development of applications and software, particularly more sophisticated programmes that can generate more value. A potential model for success is Fawry, which launched an electronic bill-payment service in 2010. The service links mostly unbanked customers with the companies to which they owe money, particularly telecom operators and utilities firms, as well as airlines, banks and other firms. Fawry operates point-of-sale machines in thousands of retail outlets and post offices countrywide, making payment easy. Another success story is Nilecode, which develops internet solutions and applications for clients. It has developed apps for uses such as video streaming as well as a social media app called Speakol.
Given the large domestic market, there is plenty of room to boost hardware manufacturing. Currently, most hardware is imported, although a plant producing computer monitors for South Korean giant Samsung at Bani Sweif may point the way for increased investment in manufacturing. According to Mostafa, domestic demand for simple, affordable products such as tablets is also substantial, even among the older generation. Similar consumer trends in West Africa have seen Ghana establish its own domestic hardware manufacturer.
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