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Wed 22 Oct 2008 04:00 AM

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Egypt looks to capitalise on booming ICT market

Egypt’s Information Technology Industry Development Agency (ITIDA) is looking to reinforce the country’s growing reputation as an ICT hotbed at GITEX Technology Week. ITIDA CEO Dr. Hazem Abdel Azeim reveals the organisation's plans to further develop Egypt's IT export market and edge ahead of India and Eastern Europe.

Egypt’s Information Technology Industry Development Agency (ITIDA) is looking to reinforce the country’s growing reputation as an ICT hotbed at GITEX Technology Week. ITIDA CEO Dr. Hazem Abdel Azeim reveals the organisation's plans to further develop Egypt's IT export market and edge ahead of India and Eastern Europe.

Tell us about ITIDA. Why was it formed and what is its mission?

ITIDA is a governmental entity spearheading the development of the Egyptian IT sector. ITIDA is the arm of the Ministry of Communications and Information Technology tasked with developing the IT industry through identifying the needs of the local industry and addressing them with tailored programmes. ITIDA is a one-stop-shop for foreign investors and a strategic advisor to multinational companies investing in the Egyptian IT sector. It is also a self-sustainable agency that plays a leading role in enhancing the Egyptian cyber-security and data protection framework towards a more secure e-business and business process outsourcing services positioning. The global outsourcing market is a competitive arena. What makes Egypt a viable outsourcing destination?

In recent years, Egypt has undergone record development in the ICT sector and is now one of the most attractive, dynamic and fast-growing locations for outsourcing communications and technology in the world. Linking the East to the West in terms of language, culture, geography and infrastructure, Egypt is an asset for any investor who wishes to tap into the business benefits of the region. India and Eastern Europe occupy strong positions on the global outsourcing stage. Are you confident that you can compete with established locations as these?

Egypt is able to offer cost-effective business process outsourcing services due to its robust infrastructure, low telecom costs with VoIP services and some of the lowest internet rates in the world — undercutting India and Bulgaria. Egypt’s government hopes to increase bandwidth, internet penetration, fixed line and mobile phone use, WiFi, WiMax and broadband services while providing free internet access and government programmes in schools, universities and IT clubs. Egypt’s highly motivated and multilingual labour pool reinforces the country’s ability to deliver top-class business process outsourcing solutions, creating an investment zone with government telecoms incentives, training and competitive pricing in support of intelligent investments. Is Egypt’s geographical location an advantage when it comes to promoting its outsourcing capabilities?

Egypt is on the border between north-east Africa and south-west Asia with its northern border in the Mediterranean so its geographical position — near Europe and accessible from both the East and West — makes it ideal for outsourcing operations. There is an average four-hour flight time to most European capitals and a similar time zone so the proximity to Europe supports advantageous business partnerships. In addition, Egypt is geographically closer to North America than India and the Philippines, and near the Gulf, Asia and Africa. As an intercontinental business destination, it has access to a number of world markets on the strength of its location alone.

What are you doing to attract foreign investment?

In order to attract direct foreign investment various packages of incentives and subsidies are offered, for which Egypt and its outsourcing partners enjoy key advantages. To increase Egypt’s attractiveness in the commercial environment, the government has introduced anti-trust and unified tax laws, tariffs on ICT imports and addressed many of the legislative, trade and non-trade barriers to building a strong ICT industry. Egypt’s government also offers tax exemption to companies investing in its infrastructure. These steps are coupled with financial sector reforms, which are being brought in line with international standards. In order to aid IT businesses at ground level, the minimum capital requirement to start a business has been cut from $9,000 to $200. Last year, 27 Egyptian companies had capability maturity model (CMM) or capability maturity model integration (CMMi) certification, with several achieving level five — the highest level of certification ensuring quality output. How much talent do you need to support your outsourcing vision? Are there graduates coming through the universities and institutions at the moment?

In the interest of enhancing the capacities of Egypt’s graduates, the Ministry of Communications and Information Technology set up a programme with the Information Technology Institute in Cairo, which trains up to 1,000 graduates every year. It is responsible for the execution of the ‘EduEgypt’ initiative which involves training university graduates on the soft, technical and language skills required for the business process outsourcing and call centre industries. The initiative produced 3,000 graduates in its first year and aims to supply the market with 40,000 graduates a year by 2011. The ‘Smart Village’ trade zone in Cairo appears to have been successful in attracting many of the world’s top technology companies. How important is this hub to your ICT and outsourcing ambitions?

The Smart Village offers a state-of-the-art modern infrastructure with facilities for more than 35,000 people over 600 acres. Additional Smart Village offices are being planned for Alexandria and Damietta to accommodate Egypt’s expanding ICT industry. The Maadi Contact Centre Park, which will be Egypt’s first dedicated call centre park, is also being built in Cairo and will offer a further 60,000 seats when it is operational in 2012. The two parks will work together to create a dynamic platform for local and international communities to outsource world-class ICT technology services. How much potential is there in the call centre outsourcing market?

As a worldwide industry, call centres accrue about US$10 billion and provide opportunities to compete in target markets in Europe and the USA. Egypt currently has 11 contact centers — five local and six multinational — that offer inbound and outbound services. Egyptian IT outsourcing, which is showing great potential for SMEs on a regional level owing to the country’s location and excellent infrastructure, has rivalled the skills of world-leading countries like India in recent years. ITIDA has devised an IT ‘industry national strategy’. What does this strategy entail and how much progress have you made so far?

One of the Egyptian government’s major goals is to create employment opportunities for its growing population and, at the same time, liberalise its markets, especially within the ICT sector. The 2010 ICT strategy consolidates and builds on progress made to date by the government’s partnership with the private sector and civil society, resulting in new policies that have been designed to address pertinent issues, such as literacy and employment. Egypt’s strategic planning process has identified several areas where existing growth opportunities will help the country achieve some of its developmental goals. The main priorities include continuing to build an advanced ICT infrastructure that provides an industry-enabling environment for both government and businesses throughout the country, and linking it globally, as well as building an export-oriented ICT industry that encourages the development of skills required by the industry. What benchmarks have been set in terms of government collaboration with the private sector?

A number of strategic benchmarks have been set such as increasing IT exports from $150m to $1.1 billion by 2010, diversifying exports among different IT business lines and providing world class IT-enabled services globally over the next five years by utilising Egypt’s unique combination of European language capabilities, technical proficiency and low wages. The aim is to create more than 35,000 new ICT job opportunities by 2010, increase the foreign direct investment targeting of IT to 10% per year and increase the contribution of IT to GDP from 0.9% to 2%. A number of long-term priorities have also been developed with the assistance of the private sector to cultivate industry growth. These are based around developing infrastructure, literacy, ICT education, investment and employment.

Apart from tax and customs reforms, what other initiatives are being implemented to encourage foreign investment in the IT sector?

Tax and customs changes to date have included the reduction of capital required to start a business by 98%. Alongside this, personal tax rates have been cut by 12% and corporate tax rates have been reduced from 42% to 20% making Egypt a very attractive proposition for foreign investors. Going forward, Egypt has devised a 2010 strategy, which will see the restructuring of the ICT sector in order to maximise the benefits of ICT development and it is hoped that this will nurture innovation and support industry development. It is also intended to create local, regional and global partnerships. What is the current value of the Egyptian IT applications and services export market?

Egypt’s export of IT enabled services was measured at US$350m in 2007, while the Egyptian IT market overall was valued at US$889m the year before. Hopefully the market will grow to reach US$1.3 billion by 2011. ITIDA’s primary goals when it was established were to attract foreign direct investments to the IT industry and maximise exports of IT services and applications. Our aim is to position Egypt as the main hub for the region’s information society and we have established a programme that will utilise international management consultants to create large market entrants and assist Egypt in gaining a higher position in the international markets. In addition to this, we aim to improve links with Egyptian expatriates, which will help promote exports. What factors do you believe will drive the growth of the Egyptian IT market over the next five years?

There are numerous government initiatives such as the ‘computer for every home’ scheme that was followed by the ‘nation online’ initiative. These show the Egyptian government’s commitment to educating people and also to providing them with additional skills. Other initiatives have been planned in e-government, IT training and new IT parks and these will all drive growth as there are more available resources at lower incomes and lower set-up costs than Egypt’s competitors. There is also the growing popularity of mobile data applications, which is expected to boost the PC market. What are the main barriers to growth at present?

The main threat at present is the global economic downturn. A slowing European economy and rising inflation will have an impact of Egyptian exports, particularly as 40% of export are destined for Europe. Also, should the Egyptian pound strengthen against the Euro, Egyptian exports would again become more expensive. While Egypt boasts a highly skilled, talented workforce, which is set to increase year-on-year, there is, at present, not enough opportunity to satisfy the level of workers and Egypt is seeing an export of labour. This is a potential threat to the growing IT sector, particularly as almost a third of graduates are specialising in subjects that would see them well-suited to the growing outsourcing industry. Despite this, foreign direct investment is expected to remain strong.

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