EGYPT - Noozz.comnoozz.com/wp-content/uploads/2015/02/874457.pdf · For decades, Telecom Egypt...

EGYPT:Telecommunications & IT February 2015

Map of Egypt .......................................................................................................... 4

Executive Summary ............................................................................................. 5

Industry Structure ................................................................................................ 6

Market Overview ................................................................................................... 7

Figure: Sectoral Contributions to GDP ................................................................................................................................. 7

Figure: Subscribers by Operator ............................................................................................................................................. 8

Figure: Egypt Investment Goods ............................................................................................................................................. 9

Fixed Line Telephony ............................................................................................................................................................. 10

Figure: Mobile Subscription Projections .......................................................................................................................... 10

Figure: Internet Structure ..................................................................................................................................................... 11

Mobile Telephony ................................................................................................................................................................. 11

Figure: Mobile Structure ..................................................................................................................................................... 12

Figure: 3G Share of Global market ................................................................................................................................... 13

Internet Service Providers ................................................................................................................................................. 13

Figure: Fixed Line Structure ................................................................................................................................................. 14

Information Technology and Outsourcing ....................................................................................................................... 14

Figure: International Telecommunications Revenues ................................................................................................... 15

Figure: International Spending Growth by Component ............................................................................................... 16

Key Players .............................................................................................................17

Cisco Systems ........................................................................................................................................................................ 13

Egyptian Company for Mobile Services (ECMS) ......................................................................................................... 17

Etisalat Misr ............................................................................................................................................................................. 17

ITWorx ........................................................................................................................................................................................ 18

Orascom Telecom Holding (OTH) ..................................................................................................................................... 18

Raya Holding ......................................................................................................................................................................... 18

Telecom Egypt (TE) ............................................................................................................................................................. 19

Vodafone Egypt ..................................................................................................................................................................... 19

Economic Overview .......................................................................................... 20

Figure: Economic Forecast ................................................................................................................................................... 20

Figure: Egypt GDP Based on Purchasing Power Parity (PPP) ........................................................................................ 21

Figure: Current Account Balance ........................................................................................................................................ 22

Figure: Government Budget Balance .................................................................................................................................. 22

Figure: Inflation ....................................................................................................................................................................... 23

TABLE OF CONTENTS

Egypt: Telecommunications & IT

2

Challenges to Industry ......................................................................................25

SWOT Chart ...........................................................................................................26

Projections .............................................................................................................27

Figure: Economic Projections ............................................................................................................................................. 27

Figure: Industry Projections ................................................................................................................................................ 27

Needs Assessment ..............................................................................................28

MENA-Wide Overview ......................................................................................29

Figure: Internet Market in the MENA Region ................................................................................................................. 29

Figure: Social and Governance Indicators ................................................................................................................... 30

Figure: MENA Labour Force Growth ............................................................................................................................. 31


3


4

Source : PRS Group

Page 2 Map

Political Risk Services Egypt Country ForecastReproduction without written permission of The PRS Group is strictly prohibited.

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Sudan

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MAP OF EGYPT

EXECUTIVE SUMMARY

Egypt has the largest fixed-line market in Africa and the Arab region, and the telecommunications and IT sector is one of the leading sectors in the economy, generating annual revenues of approximately EGP 66 billion and com-prising more than 3% of GDP in 2014, and is projected to contribute EGP 195 billion by 2020. Growth rates are antic-ipated to reach 18%. In 2012/2013 the sector posted an annual growth rate of 13.2%, up from 11.5% in 2011/2012. In 2013, the sector received EGP 46.4 billion investments, up from 45.8 in 2012, and is targeting growth in excess of 14% for the current fiscal year. Egypt’s telecommunications and information technology sector is diverse and growing, comprised of a number of multi-national and domestic companies covering a wide spectrum of service segments, including call centres, software developers, telecoms, internet and infrastructure.

During the last decades, the Egyptian economy has made great strides, managing to capitalize on the country’s nat-ural wealth, appeal as a tourist destination and young, educated population to generate economic growth, industry and investment in key economic sectors. Although Egypt’s legacy of state socialism and political authoritarianism has hindered the country’s ability to build an equal opportunity economy, the Egyptian government has, in recent years, shown a willingness to cooperate with local and international investors to facilitate economic expansion, and to engage in public-private partnerships to push forward infrastructure and other development projects. Egypt’s economic progress has stagnated, but despite on going political instability, the conditions that made the country’s recent economic success possible persist.

The greatest hindrance to the growth of Egypt’s telecommunications and IT sector is a lack of infrastructure devel-opment, primarily stemming from the absence of adequate public private partnerships. Egypt’s fibre-optic cables network is concentrated in the hands of state-owned Telecom Egypt, which significantly hampers the expansion of the country’s Internet bandwidth and reduces market competition and diversity. In order to improve IT develop-ment and infrastructure in Egypt, the government will need to continue to deregulate the industry, attract more foreign investors and increase its support for PPPs. In conjunction with these partnerships, the Egyptian govern-ment will also have to undertake further reforms specifically to protect foreign investors as such reforms have been largely neglected for the past three years, despite overall improvements to the country’s regulatory environment.

The telecommunications and IT sector is one of the fastest growing non-oil sectors in the Middle East and North Africa (MENA) region and is expected to reach US$ 70 billion in annual revenues by 2015. Despite this, the MENA region still remains far behind the global average in terms of new technology development and sector competi-tiveness. Indeed, with the exception of Tunisia, all states in the MENA region remain net importers of technology. However, with an average consumer age of 23, the region is also home to the globe’s youngest population a de-mographic that represents a potential boon for innovative technology and communications companies. MENA’s burgeoning youth demographic will support a new era of innovation and connectivity.


5

INDUSTRY STRUCTURE

The telecommunications and information technology (IT) industry encompasses the physical infrastructure net-works, and technology innovations that make the long-distance transmission of information possible. Telecommu-nications focuses on the transmission of data via radio, telephone, fibre optics, satellites, and the internet. Mobile communications and the internet, together with their respective physical infrastructure and associated technolo-gies, play a central role in driving research and investment priorities in the industry. Information technology incor-porates telecommunications with computing to facilitate the acquisition, processing, storage and distribution of information. Areas of particular importance include web technologies, bioinformatics, cloud computing and global information systems. Global competition is key to innovation in the telecommunications and IT industry and has helped drive down costs, promote rising levels of internet and mobile communications penetration, and jumpstart new technologies in recent years.

Egypt’s telecommunications and IT industry is centred on mobile communications and internet service provision. The bulk of technology and physical infrastructure required to run the country’s mobile and fixed telephone net-works and internet services are satisfied by the efforts of local companies in partnership with the Egyptian Ministry of Communication and Information Technology. While internet routers and landline telephone devices are pro-duced in-country, the majority of mobile handsets and 3G capable devices are imported from abroad, although basic low cost mobile phones imported from China are making mobile communications more accessible to a broad swath of the population. The increasing popularity of smart phones and tablet devices are driving rising demand for 3G network and wireless internet services. Fierce competition between Egypt’s three main mobile phone service providers have driven down consumer costs and enhanced services. Research and development (R & D) and pio-neering IT practices play a minimal role in the sector in-country, and new ideas and technology tend to be imported from other countries with large-scale R&D capabilities.


6

MARKET OVERVIEW

Egypt has the largest fixed-line market in Africa and the Arab region, and the telecommunications and IT sector is one of the leading sectors in the economy, generating annual revenues of approximately EGP 66 billion and comprising more than 3% of GDP in 2014, and is projected to contribute EGP 195 billion by 2020. Growth rates are anticipated to reach 18%. In 2012/2013 the sector posted an annual growth rate of 13.2%, up from 11.5% in 2011/2012. In 2013, the sector received EGP 46.4 billion investments, up from 45.8 in 2012, and is targeting growth in excess of 14% for the current fiscal year. Egypt’s telecommunications and information technology sector is di-verse and growing, comprised of a number of multi-national and domestic companies covering a wide spectrum of service segments, including call centres, software developers, telecoms, internet and infrastructure.

Of the 5,644 companies that make up the telecommunications and IT sector as of December 2013, 77.36% are IT companies, 15.5% are value added service companies, and only 7.49% are telecommunications companies. How-ever, it is this last category, the telecommunications sector, which continues to out-pace other industry players, generating EGP 46.76 billion in revenue in 2013, with an annual growth rate of 1.24%. The diversity of the sector has allowed it not only to meet domestic demand, but also to export products and knowledge abroad. In 2013, Egypt’s total exports from the CIT sector reached US$ 1.3 billion, and the Ministry of Communication and Informa-tion Technology (MCIT) is currently targeting US$ 2.5 billion in exports by 2017.

The Egyptian government has been actively involved in promoting growth in the country’s telecommunications and IT sector. Government efforts to promote expansion in the industry have helped to promote an 11.04% jump in the number of companies operating in the sector between 2012 and 2013. The government is has also undertaken major planning efforts to structure growth in the sector through 2017. In 2013 the Ministry of Communications and Information Technology announced a new National ICT Strategy that targets an increase in investments in the sector to EGP 55 billion. The Strategy also targets annual sector growth of 7-10% through 2017, an expansion of the sector’s share in GDP to 5% and a boost in revenues from outsourcing services to US$ 2.5 billion.


7

Sectoral Contribution to GDP

Source : Ministry of Planning


8

In order to accomplish the aims of the five-year plan, the government has announced plans to invest heavily in tele-communications and IT infrastructure. Internet access is a particular area of focus, with the MCIT targeting a house-hold Internet penetration rate of 75% at 2 mbps by 2015 and 90% at 25 mbps by 2021. Internet usage has grown at an annual rate of 10% from 2012 to 2013 to reach a penetration rate of almost 40%. It also aims to expand 3G services to 98% of users by 2015, and 4G services for 90% of the population by 2021. Stronger telecommunications and IT in-frastructure is expected to support an increase in the volume of e-commerce by 20% and e-banking by 30% by 2017.

Mobile communications remain less of a priority area, as penetration is high, having reached 115% in 2013. How-ever, mobile Internet remains an exciting growth area in the sector. As of December 2013, 14.5 million Egyptians used mobile broadband, with an additional 3.9 million people using USB modem devices to connect to the Inter-net. 52% of Egyptian Internet users use their mobile device to access the web. There is a clear demand for mobile broadband as the primary means of Internet connectivity. Data consumption per 3G subscriber doubled between 2011 and 2014, with over 20 million subscribers in 2014. In keeping with worldwide trends, the amount of data consumed per person is expected to increase as people spend more time online and use more online services.

The sector’s current success has its roots in reforms introduced in the 1990s. In 1997, the Egyptian government be-gan liberalising the telecommunications market, leading to an increase in market diversity and telecom providers. For decades, Telecom Egypt acted as the sole telecommunications provider in Egypt but by the end of 1998 two mobile operators, Mobinil and Vodafone Egypt, established significant market presence with several million mobile subscribers. In 2007, a third mobile company, Etisalat Misr, entered the Egyptian market and the total number of mobile users increased to 31 million by year-end.

Subscribers by Operator

Source : IE Market Research


9

In 1999, following the liberalization of the telecommunications industry, the government tasked the newly-es-tablished Ministry of Communications and Information Technology (MCIT) with supporting and empowering this emerging sector of the Egyptian economy. Since it’s founding, the MCIT has implemented three national strategic plans for the country’s information technology sector alongside numerous policy measures in order to improve connectivity and technology access across Egypt. The ministry is also responsible for making Egypt a more attrac-tive location for IT-related businesses by investing in both private and public institutions and generating engineers and technicians who can meet the demands of the private sector. Government support for development in the information technology field has led to Egypt being ranked among the top ten emerging economies for its IT skills.

For the better part of the past decade, the telecom market has dominated the Egyptian telecommunications & IT sector. The four major players in this field – state-owned Telecom Egypt, private operators Mobinil, Vodafone Egypt and Etisalat Misr – have gradually expanded into IT services through buyouts of the country’s most established Internet service providers and infrastructure companies. In September 2014, Telecom Egypt was awarded a long-awaited license to offer mobile services. Telecom Egypt agreed to pay US $350 million for the license, in order to get a piece of the mobile phone market, which has been largely dominated by Mobinil, Vodafone and Etisalat. However, recent initiatives, such as the extension of broadband infrastructure and services and the development of smart villages and IT outsourcing centres, has added new diversity to the sector, which promises to attract further foreign investment and increase Egypt’s attractiveness as a business hub in the MENA region.

The telecommunications and IT sector seemed poised for continued growth in 2014, although there are several challenges facing the industry. The outbreak of political unrest in Egypt in 2011 cut into sector growth and greatly reduced foreign investment in the sector. In May 2014, Atef Helmy, Minister of Communications and IT, announced that more than EGP 130 billion would be needed to develop the country’s telecom and IT sector by 2020. He noted that the government investment would not exceed 15%, and the project would mainly rely on private company investments. Despite these setbacks, however, the sector began to look up several months after the initial upheaval of January and February 2011, with foreign investment trickling back into the country. Recent developments, such as Hewlett-Packard’s decision to open up new offices in Egypt’s Smart Village technology business hub, and Cisco Systems’ announcement of a US$ 10 million investment in the country’s IT sector, together with strong consumer spending trends, offer encouraging indications of economic recovery.

Egypt Investment Goods

Source : Oxford Economics


10

The government’s most recent National ICT Strategy, published in early 2013, laid out a promising vision for ex-pansion in the sector. While the Ministry of Communication and Information Technology can expect to continue promoting growth in the sector, the transition of power that took place in July 2013 could impact the course that this plan takes in the short term. Overall, however, the power transition appears to be having a positive impact on the Egyptian economy, with the economist-lead transitional government focused on restoring economic stability, resuming growth, and creating positive conditions for investment in the country’s business sectors. As established telecommunications and IT companies pursue new revenue sources and a transitional Egypt reopens its doors to international businesses and investors, the sector is poised for significant growth.

Fixed Line Telephony

Following regional trends, the fixed line telephony industry in Egypt has declined in importance since the advent of mobile telephony, particularly as advances in mobile infrastructure and services out-paces advances in the fixed line segment. As a result of high-level growth in mobile subscriber usage, landline growth has receded significantly since 2008. In March 2014, Egypt’s fixed line subscribers declined 21.3% compared to the same period in 2013. However, despite this negative growth Egypt’s state-owned fixed line company Telecom Egypt (TE) remains one of the MENA region’s largest providers of fixed line services with 8.6 million subscribers in 2012 and a capacity of 14.6 million lines. Total landline subscriptions stood at 6.7 million in 2014, down from 8.6 million in 2013, demonstrating the pace of decline in the segment.

Mobile Subscription Projections

Source : Informa TM

CAGR

Arab Region

YemenKuwait

LebanonBahrain

EgyptSaudi Arabia

TunisiaUAE

Arab RegionpenetrationOman

QatarPalestineMorocco

SudanSyriaJordan


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It is expected that the existing fixed line infrastructure will allow TE to capitalise on the growing broadband Internet market through its subsidiary, TE Data. In addition to capitalising on the Internet and data segments, TE has also relied on local and international wholesale capacities to cushion its falling rate of fixed line subscriptions. TE will soon face competition for the first time from a network that will also have the right to offer WiMAX services.

In 2009, as part of the Egyptian government’s attempt at liberalising and deregulating the fixed line segment of the telecommunications industry, it planned an auction for a second fixed line licence. However, the bidding for the licence has now been delayed twice over the course of two years. With no new time line set, bidding has been delayed indefinitely, suggesting that the fixed line segment in Egypt will remain under the control of TE for the foreseeable future.

Mobile Telephony

Mobile phone users in Egypt has grown exponentially over the past decade, from 7 million subscribers in 2004 to 100 million in 2014, to reach a penetration rate of over 120%. Smartphone penetration in Egypt reached 54% in 2014. It is generally believed that the Egyptian market for mobile providers is reaching its saturation point and as new user uptake decelerates, telecommunications operators are expected to focus on consolidating existing mar-ket positions rather than customer acquisition. As such, Egyptian mobile operators have begun to shift their market strategies away from a focus on subscriber numbers towards new means of generating revenues.

Price competition between the three main mobile operators, Mobinil, Vodafone Egypt, and Etisalat Misr, has re-mained fierce in the wake of all three companies’ interrupted service in early January and February 2011. In the face of stiff competition, the three mobile operators have seen declining ARPU rates. According to one estimate, aver-age ARPU rates of operators fall between US$ 3.80 and US$ 4.45. In addition, weak consumer confidence coupled with high inflation rates and rising unemployment has led to growing price incentives in order to sustain usage levels and customer retention. Promotional efforts have paid off though and all three mobile operators have seen a three-year growth in total subscription rates, with total customer bases expected to grow through 2015.

Internet Structure

Internet Users (‘000) LHSBroadband Internet Sub-scribers (‘000) RHS

Source : Strategy Analytics

9,00018,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

2013

2012

2011

2010

2009

2008

2007

2006

0


12

New mobile services represent a growth industry for the major telecom companies. In 2007, Egypt became one of the first countries in Africa to launch third generation mobile services (3G). Consumer adoption was remarkably quick and increased by 72% over the course of three years with government estimates putting the number of mobile Internet subscribers around 8.2 million in July 2010. Within a year, this figure increased by 16.43% and the number of mobile Internet users stood at 9.55 million in 2011. As of 2014, 14.5 million Egyptians were using mobile broadband. The growth of the mobile telephony market in Egypt is likely to rely on increased data revenues and increased development of mobile content in the coming years. Indeed, to make up for falling ARPU rates from voice sales, mobile operators are offering competition data plans to capture this growing lucrative market.

Despite the rapid growth of the telecommunications industry, investment in infrastructure and equipment has remained relatively low. Overall, investment in telecommunications equipment within Egypt has levelled out over the course of the past decade with a negative growth rate of -10.0% over the last five years. One main concern is a shortage of capacity that could seriously impact the rate of broadband growth. Analysts indicate that from as early as 2019, given the current amount of spectrum in the 900 MHz, 1800 MHz and 2100 MHz currently issued to operators, there could be problems in availability. However, with increased government support, however, this sector is expected to turn around, reaching an annual growth rate of 1.5% in the coming five years. In addition to infrastructure development, which would allow for increased market penetration of 3G services, the Egyptian government has also targeted mobile-based services and social media applications as an investment priority in the MCIT’s five-year strategic plan.

Mobile Structure



2013

2012

2011

2010

2009

2008

2007

2006

8060.000

50.000

40.000

30.000

20.000

10.000

0

70

60

50

40

30

20

10

0


13

In September 2014, with the introduction of unified telecommunications licenses, Telecom Egypt was awarded the right to offer mobile services for US $360 million. However, Telecom does not currently hold the rights to any mobile spectrum, nor has the company invested in its own mobile infrastructure. As such, its operations will require roaming on other mobile operators’ networks for the time being. The TE network will use existing infrastructure to provide mobile services to existing fixed line customers. TE plans to use its mobile platform to boost revenues from fixed lines by integrating service and offering higher quality. TE plans to be the first provider to offer 4G service in the Egyptian market and will consider purchasing a separate mobile license, taking into consideration its 40% stake in Vodafone Egypt and possibilities for infrastructure sharing.

Internet Service Providers

Internet use in Egypt has been growing exponentially in the past few years. As of August 2014, usage grew at a rate of 3.9%, to reach a total of 46.2 million users. Internet penetration increased nearly 2% that same month, to reach a total of 54.1% of Egyptians. 55.6% of families have access to the Internet. More than 30.9 million Egyptians regularly use the Internet. An increasing number of people have been accessing Internet via mobile phones, with a 7.2% growth rate reported solely between July and August 2014. Currently, the number of mobile Internet users stands at 20.2 million. 4.02 million users own USB modems and 2.9 million subscribe to ADSL. While Internet us-age is soaring in the country, infrastructure remains relatively weak and speeds are slow. In order to improve this situation, four major urban centers are testing WiMAX high-speed wireless broadband networks have been set up in Cairo, Giza, Luxor and Aswan on a non-commercial basis to assess the suitability of these technologies in the Egyptian market.

3G Share of Global Market

Subscriptions

Revenues

2013

2012

2011

2010

2009

2008

2007

2006

2005

70%

60%

50%

40%

30%

20%

10%

0%



14

The Egyptian public first gained access to the Internet in 1995 with 0.58% of Egyptians using Internet service regu-larly by 1999. This number jumped to 30.05% a decade later with 23.5 million regular users in Egypt by January 2011. Internet access on a national scale, however, remains relatively limited with only 47% of all localities in Egypt having Internet access as of December 2010, although in 2013 the Ministry of Communication and Information Technology claimed that access had been extended throughout the country. With a market penetration consider-ably lower than that of mobile telephones, the Internet service provider market remains a major growth opportu-nity within Egypt for both small and medium enterprises as well as the major telecom firms. Mobile is also a strong growth area, with more and more users accessing the web via smartphones and tablets.

Major telecommunications companies have capitalised on the infrastructure market with controlling shares of all four major network infrastructure companies: TE Data (Telecom Egypt), NileOnline and EGYNet (Etisalat Misr), and LINKdotNET (Mobinil). The majority of Egypt’s Internet bandwidth, approximately 70%, still remains in the control of state-owned Telecom Egypt, which sells its bandwidth to smaller retail Internet service providers. Slow infra-structure improvements will continue to limit the advancement of broadband Internet access in the country. Min-ister Atef Helmy said in October 2014 that Egypt would need investments of US $4 to 5 billion to build broadband Internet across the nation.

Broadband access remains limited though, even in high-density population areas, with business hubs such as Sixth of October’s Smart Village and the Maadi Call Centre Business Park in Cairo the primary beneficiaries of high-speed broadband Internet. In June 2013, however, Egypt approved a plan to let companies obtain operating licenses to provide satellite Internet services across the country, targeting places were current infrastructure does not reach.

Information Technology and Outsourcing

Egypt’s IT infrastructure is solid and growing. Currently the country is connected to the world via submarine fib-er-optic cables and Internet is accessible via broadband and wireless networks and through dialup on landlines. Egypt’s state providers and private companies are working to expand this infrastructure, with WiMAX and 4G net-works planned for the near future. The government and its private sector partners are also aiming to enhance services and training in the IT sector through the Ministry of Communication and Information Technology’s “Tech-nology House” initiative. Launched in September 2011, the project aims to offer integrated services such as training courses, e-government services and small and medium-sized enterprise services. There are currently 95 technology houses in operation in Egypt, including nine in Sinai governorate.

Fixed Line Structure


2013

2012

2011

2010

2009

2008

2007

2006

4.200

4.150

4.100

4.050

4.000

3.950

3.900

3.850

20

181614

12

108

6420



15

Egypt has a significant IT and business-processes outsourcing industry in place, serving international customers, and has built a growing reputation over the past 15 years as a centre for export-oriented ICT services. Accord-ing to the Ministry of Communications and Information Technology, revenues in business and knowledge process outsourcing exceeded US $1.1bn in 2011. Major multinational corporations including Intel and France Telecom’s Orange are developing products in Egypt for export to the global marketplace. Egypt has consistently been ranked as one of the top 10 global destinations for international call centres and information technology outsourcing. The benefits of a multi-lingual workforce, geographic proximity to Europe and the relatively low cost of call centre operations have made Egypt a popular destination for offshore IT management. In 2011, Egypt reached forth place in A.T. Kearney’s Global Services Location Index up from 12th place in 2007. In 2010, Egypt was named “Offshoring Destination of the Year” by the European Outsourcing Association.

Egypt’s attractiveness as an outsourcing destination has declined considerably since 2011, and particularly in 2012 due to political and economic unrest. Indeed, Egypt’s elevated risk profile has dropped its ranking. A 2013 ”Top 100 Outsourcing Destinations” report by Tholons placed Cairo 58, while Alexandria fell four spots to rank 77. However, the July 2013 transition of power should help to restore economic balance and draw investors back into the sector. Despite present setbacks to Egypt’s IT outsourcing industry, the government recently estimated that Cairo’s Maadi Call Centre Business Park would employ upwards of 140,000 by 2015. Indeed, Egypt’s information technology out-sourcing industry has already produced impressive results.

The significant growth of Egypt’s information technology outsourcing is due in large part to the work of the coun-try’s Information Technology Industry Development Agency (ITIDA) and the Information Technology Institute (ITI). The ITIDA has worked to enhance Egypt’s competitiveness in the information technology outsourcing sector through various public private partnerships while the ITI builds up Egypt’s talent surplus through educational initia-tives. The government has also made infrastructure investment a priority in order to accommodate the burgeoning outsourcing sector. Prior to the outbreak of Egypt’s political unrest in January 2011, the Egyptian government had pledged approximately US$1 billion to establish over 30 more smart buildings for local and international compa-nies. While it is unclear to what extent the new government will be able to honour previous investment commit-ments, it is clear that high demand remains for smart buildings and advanced IT infrastructure in order to keep pace with business outsourcing.

International Telecommunications Revenues

Source : TIA

1,000

2013

3.7993.526

3.2683.0332.8832.972

2.7272.727

2.4252.1522.727

2012201120102009200820072006200520042003

2,000

3,000

4,000

5,000

0

US$bn


16

International Spending Growth by Component

Source : TIA

2013201220112010200920082007

8.98.98.66.0

4.46.8 6.9

3.4

9.2

14.115.315.1

10.6 9.8 10.6

8.7

-8.3

12.1

8.6

6.4

200620052004-10

-5

0

5

10

15

20

Equipment, Spport Services

Voice, Data, Video Services

KEY PLAYERS


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Cisco Systems

Cisco Systems is a global Internet networking company specializing in Internet Protocol (IP)-based networking technologies. Cisco is active in the Middle East region, with operations and subsidiaries in Bahrain, Israel, Jordan, Lebanon, Morocco, Qatar, Saudi Arabia and the United Arab Emirates in addition to Egypt. Cisco has 333 Cisco Net-working Academies in Egypt that have trained over 45,000 students since their establishment. Cisco has partnered with Egypt’s premier call centre, Xceed, to enhance the quality and functionality of the centre’s communications networks. In June 2011, Cisco announced it would invest US$ 10 million to fund development of a sustainable model of job creation and economic development in Egypt, with an emphasis on developing ICT skills and service providers in the country to bolster economic growth.

Egyptian Company for Mobile Services (ECMS)

Egyptian Company for Mobile Services, which operates under the brand name Mobinil is an Egypt-based mobile telecommunications provider founded in 1998. As of November 2014, ECMS had around 30 million subscribers. The company is engaged in the execution, management, operation, development and maintenance of a digital cellular mobile telecommunications system, global system for mobile communication (GSM), the sale and distribu-tion of mobile lines, recharge cards, mobile devices and its supplies and accessories, and the provision of mainte-nance services. The company, along with its subsidiaries, is organized into two business segments: Mobile Network Operation and Internet Services. The Mobile Network Operation segment includes the sale of mobile recharge cards, monthly subscriptions packages, devices, special offers and roaming services; the Internet services segment includes Internet operation services. The Company’s subsidiaries include Mobinil Services, Mobinil for Importing, LinkdotNet, Link Egypt for Trade and Services and Link One for Telecommunication Services. In April 2012 France Telecom, the French-listed telecommunications giant, raised its 71% stake in Mobinil to 93.9% after buying the majority of shares owned by Naguib Sawiris through a tender offer worth EUR 1.5 billion in April 2012. Mobinil recently selected Ericsson to help enhance its network in order to provide better data services to subscribers over a five-year period.

Etisalat Misr

A relative latecomer to the Egyptian mobile market, Etisalat Misr, a subsidiary of Abu Dhabi-based Etisalat that owns a 66% share in the Egyptian company, launched its operations in 2007. Within 30 months of its launch, Etisalat Misr already extended coverage to 98% of the country with a market penetration rate of 76%. In the second quarter of 2014, Etisalat Misr posted a revenue of US $327 million, an increase of 5% over the previous year. Etisalat Misr provides 2G and 3G mobile telecommunication services in Egypt. It offers video calling, mobile TV, mobile broad-band Internet, data, multiplayer gaming, voice and messaging, MMS, mobile number portability, international call-ing, roaming, virtual private network, and dial-up services. Etisalat Misr has a strategic partnership with Huawei. Etisalat Misr operates as a subsidiary of Emirates Telecommunications Corporation. In 2008, Etisalat Misr acquired two Egyptian ISPs, Egyptian Company for Internet (NileOnline) and Digital Infrastructure and Egyptian Company for Networks (EGYNet). The company recently postponed its Initial Public Offering of 15-25% of its shares due to low trading volumes on Egypt’s stock exchange following the country’s post-revolution political developments. In January 2013 Etisalat Misr contracted Ericsson to carry out updates to its network targeted at improving the quality and speed of its mobile broadband service. As of August 2014, the company is in talks with banks about an initial public offering (IPO). The IPO is planned for Cairo and may raise about US $500 million. Though no official decision has been made yet regarding the IPO, the Egyptian government has stated it is keen to see Etisalat list on the local stock exchange.


18

ITWorx

ITWorx is an IT professional software services firm based Egypt. Headquartered in Cairo, with development centers in Cairo and Alexandria, ITWorx has other offices in the Gulf region, including the United Arab Emirates, Saudi Arabia, and Qatar, and is represented in Europe. Today, it has around 700 employees operating in global locations. ITWorx offers portals, business intelligence, enterprise application integration, and application development outsourcing services. ITWorx serves governments, financial services firms, educational institutions, telecommunication opera-tors, and media companies in North America, Europe, and the Middle East. ITWorx specializes in security, usability, productivity, and enterprise manageability. ITWorx’s business model is based on forging long-term strategic part-nership relationships with its customers, which include Fortune 500 companies such as United Technologies, Micro-soft, Vodafone, and Mellon Bank. In 2008, ITWorx became privately held, with financial backing from the EuroMena Fund, Venture Capital Bank and Proparco. As of November 2014, the company is to sign an agreement in the next few months with the Ministry of Education to develop public schools using technology solutions provided by ITWorx. The project’s goal is to increase technologically developed schools across the country to 1,760 by the end of 2015.

Orascom Telecom Holding (OTH)

Orascom Telecom Holding is an international telecommunications company based in Egypt, which operates mo-bile communications networks across several continents. The company operates in Algeria, Pakistan, Egypt, Bang-ladesh, North Korea, and Canada, in addition to its subsidiary operations in Zimbabwe, Burundi and the Central African Republic and a management contract of Lebanese mobile operator Alfa. OTH owns several subsidiaries, in-cluding OTVentures, an Egyptian mobile and online content development company serving markets in the Middle East, North Africa, and Europe. In the fall of 2010, WIND Telecom, OTH’s parent company, announced its intention to merge with Russian company VimpelCom Ltd., creating the world’s sixth largest telecommunications company. The deal was completed in February 2012. In June 2013, OTH announced that it would drop its bid to acquire con-trol of WindMobile Canada, a mobile provider that OTH provided much of the financial backing for during its initial entrance into the Canadian market, due to restrictions regarding foreign ownership of Canadian mobile operators. OTH has stated that it remains interested in consolidating its position in WindMobile Canada. In December 2014, OTH announced the sale of US $19.6 million worth of assets to Accelero Capital group. The assets involve mobile value added services, online advertising, management content and development.

Raya Holding

Established in 1999 following the merger of seven leading Egyptian IT companies, Raya Holding is one of the lead-ing companies in Egypt’s IT sector. The company operates in four main lines of business: information technology, call centers, smart buildings and consumer electronics retail, distribution and maintenance. By 2003 the company had gone international, establishing Raya Gulf, Raya Saudi, Raya USA and Raya Algeria in addition to its headquar-ters in Egypt. As one of the only companies in Egypt offering both smart building development and information technology outsourcing within Egypt, Raya Holding is uniquely positioned to capture market share in both fields. The company has predicted that the smart building industry in Egypt will grow by 67% over the coming seven years. Raya Holding also recently expanded its reach beyond the IT sector with the inauguration of its plastic recy-cling and re-manufacturing business, BariQ, and a land transport company, Ostool. Raya Holding’s financial state-ments for the 2012 fiscal year showed a 40.2% year on year increase in net profit from EGP 34 million to EGP 48 million. In June 2014, Raya Holding announced that Raya Data Center would be the first service provider in Egypt to join the vCloud Service Provider.


19

Telecom Egypt (TE)

Telecom Egypt is an 80% government-owned telecommunications company holding a monopoly on the land communications market in Egypt. The company owns TE Data, the largest Egyptian Internet service provider, which also enjoys a 62% share of the country’s developing broadband market. TE has pursued expansion in the Internet and data segments of its business in order to offset a decline in revenues from landline usage. Noting its loss of revenues to the three major mobile operators, TE acquired a 44.95% shareholding stake in Vodafone Egypt through aggressive share purchases made between 2002 and 2008. The company followed these purchases with a three-year service agreement with Vodafone Egypt to carry its domestic and international gateway traffic signed in 2009. In 2009, TE furthered expansion into overseas markets through its build up of TE North, a private submarine cable system linking Egypt to France and licensed to its French subsidiary, TE France. The project went operational in the summer of 2011, significantly enhancing the company’s Internet connectivity services. TE nu-merous subsidiaries, including Xceed, a multi-national call center that leverages Egypt’s strategic location and the language skills of its citizens to provide communications services to leading global companies. TE launched mobile communications services in 2014 through a virtual license deal in which TE will use the existing infrastructure of competitors in the mobile segment to provide mobile services in return for giving those competitors access to its landline network. In the first nine months of 2014, TE’s profits declined 25.3%. Profits declined despite an increase in the company’s revenues, which were recorded at EGP 9.1 billion compared to EGP 8.3 billion in 2013.

Vodafone Egypt

Vodafone Egypt, a subsidiary of Vodafone Group, is one of Egypt’s three mobile communications providers. The company has seen a significant expansion of its data and fixed line services, with these two services achieving a 64% revenue growth rate in 2010. In June 2010, Vodafone Egypt, in partnership with the Egyptian government’s Information Technology Industry Development Agency, launched the “Mobile Apps Academy” as part of the com-pany’s effort to enhance development of mobile applications for the growing smartphone market in the MENA region. Vodafone Egypt currently holds 45% of the Egyptian mobile market and is expected to remain the industry leader for the near future. Telecom Egypt holds a 45% stake in Vodafone Egypt. Telecom has recently stated that it may not sell its 45% stake in the company.


20

ECONOMIC OVERVIEW

During the last decades, the Egyptian economy has made great strides, managing to capitalize on the country’s natural wealth, appeal as a tourist destination and young, educated population to generate eco-nomic growth, industry and investment in key economic sectors. Although Egypt’s legacy of state so-cialism and political authoritarianism has hindered the country’s ability to build an equal opportunity economy, the Egyptian government has, in recent years, shown a willingness to cooperate with local and inter-national investors to facilitate economic expansion, and to engage in public-private partnerships to push for-ward infrastructure and other development projects. Since the January 2011 uprisings, Egypt’s economic pro-gress has stagnated, but despite on going political instability, the conditions that made the country’s recent economic success possible persist. In recent months, however, the Egyptian economy has begun to stabilize.

In the past few years, Egypt’s economic performance has been uneven. Following a long period of slow growth, the Egyptian economy began to accelerate in 2004 with the re-launch of a government privatisation programme begun in the 1990s, as well as implementation of numerous business-friendly reforms. These initiatives triggered a recovery in business confidence and gave a strong boost to local and foreign investment in the country. These reforms also supported a significant increase in GDP growth, which reached 7% annually in the period from 2005 to 2008, up from an average of 4% in the three previous years. On the heels of this strong economic growth, the government hoped to sustain an annual growth rate of between 6% and 7%, but this was not realized due to the effects of the global recession, which saw growth fall to 4.7% in 2008-2009. Although GDP growth picked up again in 2009-2010, closing the year at 5.1%, a sustained recovery was not realized as a result of the upheaval and uncer-tainty that resulted from the Egyptian uprising in January 2011.


Economic Forecast

2010 2011 2012 2013 2014 20155.1 1.8 3.0 5.5 5.8 5.5

CPI in�ation (%)Real GDP growth (%year)

11.3 9.9 9.0 7.7 6.3 5.5Exports of goods ($ bn) 24.6 27.9 29.9 35.4 40.9 46.3Exports of services ($ bn) 23.6 21.6 26.3 31.1 34.5 37.1Imports of goods ($ bn) 45.7 45.9 52.3 60.6 67.3 73.7Imports of services ($ bn) 14.2 14.0 15.9 18.4 20.9 22.6Exports of goods (% year) 6.4 13.6 7.1 18.4 15.4 13.3Imports of goods (% year) 14.5 0.4 14.1 15.8 11.0 9.6Current account ($ bn) -4.6 -3.2 -4.0 -3.3 -2.7 -2.6Current account balance (% of GDP) -2.1 -1.4 -1.6 -1.2 -0.9 -0.8Exchange rate per USD (year average) 5.62 5.95 6.20 6.45 6.67 6.86External debt total ($bn) 34.8 36.6 39.3 41.7 43.6 45.6Government balance (% of GDP) -8.1 -9.7 -9.8 -8.7 -7.5 -7.2Population (millions) 81.1 82.5 84.0 85.4 86.8 88.2Nominal GDP ($bn) 214.6 0.2 244.4 267.0 290.1 314.1GDP per capita ($ current prices) 2,646 2,749 2,912 3,127 3,343 3,562


21

As a result of the uprisings that forced former President Hosni Mubarak from power and prompted major political changes, including Egypt’s first democratic presidential election in June 2012, Egypt’s economy struggled to regain its footing. Continuous political upheaval since 2011 has resulted in a series of devastating setbacks economic set-backs for Egypt. Former president Mohamed Morsi’s economic decisions since his June 2012 election were more politically than economically expedient. Privatisation, a major growth strategy employed by the previous govern-ment, is no longer possible due to political conditions; Morsi stated publicly in May 2013 that privatization was not an option and that public sector workers would remain in their positions. Morsi also rejected a US$ 4.8 billion International Monetary Fund (IMF) financing package due to his government’s unwillingness to implement tax increases and subsidy reductions in line with IMF conditions. Morsi’s government has so far managed to survive on aid provided by the United States and friendly Gulf countries such as Qatar, which has provided nearly US$ 8 billion in aid during the past three years, with US$ 5 million of that recently released to Egypt in May 2013.

In July 2013, Morsi was ousted from power through a combination of mass popular demonstrations and military intervention. His government was temporarily replaced with an interim council headed by the former head of Egypt’s constitutional court, Adly Mansour. Economist Hazem El Beblawi, a former deputy prime minister and fi-nance minister, was appointed interim prime minister. On June 8, 2014, Abdel Fattah El-Sisi, former head of the Egyptian Armed Forces and First Deputy Prime Minister and Minister of Defence under Mubarak’s government, was sworn in as president. President El-Sisi received nearly 97% of the Egyptian vote.

President El-Sisi has inaugurated a number of sweeping economic reforms, introducing new taxes, increasing se-lected taxes and reducing energy subsidies, increasing fuel prices by 78%. The implementation of such reforms has begun to have a positive effect on the economy, according to the World Bank. Economic growth in 2014 is at 2.5%, and is expected to increase to 3.3% in 2015. Currently, Egypt’s budget deficit stands at 12%, and while this is higher than the government’s target of 9.1%, the deficit is expected to shrink to 10% in 2015.

After several years of a being caught in a vicious cycle of debt and stagnating economic growth, it appears that Egypt’s economy is recovering and stabilizing. In the fourth quarter of 2014, Egypt’s GDP growth rate rose to 3.7%, up from 2.5% in the previous year, and 2.1% in 2012. However, the full-year growth rate has barely changed, which is a reflection of the first half of the year’s weak expansion as the security and political situation in Egypt deterio-rated. Egypt’s GDP for the full 2013-14 fiscal year was recorded at 2.2%, which is an increase from the 2012-13 rate of 2.1%. Economists have predicted that Egypt’s current fiscal year, which runs through June 2015, will have further positive developments, and have forecasted a 3.3% GDP growth rate.

Egypt GDP Based On Purchasing Power Parity (PPP)

Source : IMF, TradingEconomics.com

IMF Forecast

2001620092002199519881981

10000

80000

60000

40000

20000

0

10000

80000

60000

40000

20000

0

Units Current International Dollar


22

Current Account Balance


-10

% of GDP

-8

-6

-4

-2

0

2

4

6

8

1991 1994 1997 2000 2003 2006 2009 2012 2015-10

-8

-6

-4

-2

0

2

4

6

8

US$ bn

% of GDP(RHS)

US$ bn(LHS)

F'cast

Government Budget Balance


% of GDP

-28

-24

-20

-16

-12

-8

-4

0

1991 1994 1997 2000 2003 2006 2009 2012 2015-18

-15

-12

-9

-6

-3

0

US$ bn(LHS)

F'cast

% of GDP(RHS)

US$ bn


23

The aftermath of the 2011 saw the drying up of foreign direct investment (FDI) and a decrease in domestic invest-ment appetite, both of which severely reduced prospects for economic growth. Foreign Direct Investment fell 4.5% during the 2011-2012 fiscal year to US$ 2.1 billion, down from US$ 2.2 billion a year previously. The country also experienced a drastic decline in tourism revenues, resulting in declining foreign currency reserves and increasing pressure on the Egyptian pound (EGP). Tourism revenues in 2011-2012 fell to US$ 9.6 billion, down from US$ 10.6 billion a year prior. This was offset slightly by rising levels of remittances from abroad, up to US$ 17.8 million from US$ 12.4 million. Since the 2011 uprising the EGP has lost over 13% of its value against the US dollar, leading the government to impose strict limits on foreign currency exchange transactions.

The aftermath of the 2011 saw the drying up of foreign direct investment (FDI) and a decrease in domestic invest-ment appetite, both of which severely reduced prospects for economic growth. FDI fell 4.5% during the 2011-2012 fiscal year to US$ 2.1 billion, down from US$ 2.2 billion a year previously. However, a recent massive inflow of funds from the GCC has begun to reverse FDI in 2014 and 2015. In 2014, the UAE invested US $7bn in Egypt, while Saudi Arabia invested US $5bn and Kuwait invested US $4bn. This large-scale exceptional financing has been distributed through a mix of central bank deposits, cash grants, in-kind grants and project aid. Egypt’s FDI is likely to get a boost from the International Monetary Fund (IMF), which endorsed Egypt’s economic reforms at the conclusion of an Article IV mission in November 2014. The IMF praised the government’s energy subsidy bill and tax increases, but has also encouraged the government to allow for a more flexible exchange rate policy that would allow the currency to depreciate.

Since the 2011 uprising the EGP has lost over 13% of its value against the US dollar, leading the government to im-pose strict limits on foreign currency exchange transactions. Although the official exchange rate has not changed in Egypt since mid-summer 2014, the pound has slid against the USD on the black market. The gap between the two rates was most recently recorded at 8% in late November, according to Bloomberg. The EGP has fallen about 3.7% against the USD in the past year, and headline inflation rate was recorded at 11.8% in October 2014.

Inflation


0

3

6

9

12

15

18

21

1991 1994 1997 2000 2003 2006 2009 2012 2015

% year

Forecast

Middle East & North Africa

Egypt


24

As of June 2014, Egypt’s domestic debt reached US $251bn, of which 84.7% was government debt and 3.2% was public economic authorities’ debt. Eternal debt increased by 4.8% at the end of March 2014 to US $45.3bn, com-pared with US $43.2bn. According to the Central Bank of Egypt, the rise in debt is attributed to the increase in “net distributions of loans, facilities and deposits to US $1.6bn, and the increase of US $516.8mn worth in eternal debt because of the rise in most currencies of borrowing versus the US dollar.” In a positive development, however, Egypt recorded a US $2.2bn surplus in the balance of payments during the first six months of 2014, compared to US $2.1bn the previous year.

Another sign that the country’s economic situation is improving is the uptick in tourist arrivals, which have shot up nearly 70% in the third quarter of 2014, as compared to the same period in 2013. 884,000 tourists were recorded in September 2014, a 193% increase from 2013, when 301,000 tourists arrived. A large percentage of these tourists are from Gulf countries. The number of Saudi Arabian tourists increased by 64.9% in the first ten months of 2014 as compared to 2013, and the overall number of Emirati tourists grew 72.7%. Kuwaiti tourists increased by 44.8%. Although these numbers are still below peak pre-2011 postings, analysts are optimistic that tourism will continue to grow.

Although Egypt’s government faces significant challenges in overcoming the issues of stagnating growth, declin-ing revenues and mounting debt, the country’s underlying economic potential has allowed Egypt to continue pos-iting positive growth through one of the most difficult economic periods in recent memory. FDI has begun to re-cover, Egyptian companies have slowly begun to invest in expansions and new projects, and recovering consumer confidence is helping to bolster demand for consumer goods, real estate and domestic tourism. The 2011 uprising and its tumultuous aftermath has also seen more and more Egyptians turn to entrepreneurism; small businesses have flourished since 2011, with restaurants and retail outlets in Cairo’s upscale neighbourhoods and suburbs far-ing particularly well. Rising GDP per capita levels are contributing to the success of retail-based small businesses.

Despite the ability of Egypt’s affluent classes to support the success of new small businesses, Egypt’s poverty level remains high, with an estimated 25% of the population living on less than US$ 1 per day, demonstrating the extent of income disparity that still exists in the country. Increased taxes and subsidy fuel cuts have hurt Egypt’s most marginalized populations. One bright spot is the reduction of unemployment in the country, which has fallen to 12.3% from 18% in 2011.

As Egypt continues through this phase of political, social and economic transition, its strong and longstanding partnerships with key markets such as the United States, Europe and the Gulf region, together with its developed financial system, abundant natural resources, and outstanding human capital, will provide a strong foundation for recovery and the resumption of rapid social development and economic growth.


25

CHALLENGES TO INDUSTRY

The greatest hindrance to the growth of Egypt’s telecommunications and IT sector is a lack of infrastructure devel-opment, primarily stemming from the absence of adequate public private partnerships. Egypt’s fibre-optic cables network is concentrated in the hands of state-owned Telecom Egypt, which significantly hampers the expansion of the country’s Internet bandwidth and reduces market competition and diversity. In order to improve IT develop-ment and infrastructure in Egypt, the government will need to continue to deregulate the industry, attract more foreign investors and increase its support for PPPs. In conjunction with these partnerships, the Egyptian govern-ment will also have to undertake further reforms specifically to protect foreign investors as such reforms have been largely neglected for the past three years, despite overall improvements to the country’s regulatory environment. Access to infrastructure that is necessary for mobile deployment, including fibre duct, international gateway, land-ing stations and tower sites should be made simpler and more cost-effective.

Beyond its infrastructure needs, 26% of Egyptians live in poverty, with the poverty rate fluctuating between 49% in Upper Egypt, the poorest region of the country, and 6.9% in the metropolitan region of the country. These poverty rates have a clear correlation to Internet access with 6.8% of lower income households accessing the Internet as compared to 74% for higher income groups in 2008. In 2013, a 2 Mbps connection cost US $11 per month, while an unlimited plan cost US $30 per month, an amount simply not feasible for many Egyptians. Overall, the poverty rate in Egypt coupled with an adult literacy rate of 72% represents a major barrier to market penetration of IT services, particularly Internet access, which in turn will limit development of broadband infrastructure. Furthermore, a rela-tive lack of digital content in Arabic will hamper Internet penetration amongst Arabic-speaking customers. Accord-ing to Google, only 1% of online content is in Arabic making a greater uptake of mobile device and internet usage a significant challenge without first developing more Arabic language content for both platforms.

Several other obstacles remain as Egypt attempts to increase its attractiveness to foreign IT companies, particularly regarding contract enforcement and the ease of following the country’s taxation regulations. In the most recent World Bank Doing Business rankings of 183 economies, Egypt ranked 156th in the contract-enforcement category, moving back four places from the previous years’ ranking. Egypt performed poorly regarding the ease of paying taxes as well, ranking 148th.

Another major challenge to Egypt’s IT sector is software piracy. According to Business Software Alliance, the piracy rate in Egypt was 59% in 2009 with total losses from piracy totalling US$ 146 million. In recent years Egypt has joined several international conventions to increase protection of intellectual property rights, but as long as the rate of piracy remains high the country will struggle to attract multinational companies operating in the IT sector.

Furthermore, the historically close relationship between the Egyptian government and members of the country’s business elite has led to perceptions of Egypt as a relatively corrupt country. Egypt is ranked 94th out of 178 coun-tries according to Transparency International’s Corruption Perceptions Index, putting the country on par with Mex-ico and Burkina Faso. The extent of upper-level corruption in Egypt became especially clear following the political uprisings of January 2011 and the high-profile trials of several businessmen and officials with links to the former regime. Companies thought to have had close relations with the Mubarak family are likely to be negatively affected by Egypt’s political transition. In this respect, Orascom Telecom Holding and Mobinil remain particularly vulnerable to public outcry as Orascom CEO and Mobinil founder Naguib Sawiris is known to have been personally and com-mercially connected to Egypt’s government elite.

Another critique of the government is that both Mubarak, the interim SCAF administration and President Morsi centralized Internet infrastructure and fiber-optic cables into highly controllable chokepoints. As virtually Egypt’s entire telecommunications infrastructure is owned by Telecom Egypt, it has been easy of governments to suspend Internet access or decrease speeds. During the January 2011 revolution, authorities were able to shut down all Internet access for six days in less than one hour. Disruption to connectivity occurred in November and December 2012, and again in March 2013. It remains to be seen if the new Preisdent El-Sisi will similarly regulate access and speed.


26

SWOT CHART

Strengths

• Strong government support for the IT sector as repre-sented by the efforts of the Ministry of Communications and Information Technology, the Information Technology Industry Development Agency, and the Information Tech-nology Institute.

• Partial deregulation and liberalization of the telecommu-nications sector has led to increased competition in mobile and Internet communications.

• High market receptiveness to new technologies and modes of communications such as broadband Internet.

Opportunities

• The majority of the Egyptian population is between the ages of 15-35, an ideal target for mobile and broadband Internet services.

• Multi-lingual, well-trained and inexpensive labour pool represents opportunity for growth in business processes outsourcing for foreign companies.

• A lack of quality Arabic language mobile and online con-tent represents a major growth area for development com-panies and mobile operators alike.

• Multiple tower sharing may result in reduction in operat-ing costs and better profit margins.

Threats

• The high speed of technology development may outpace Egypt’s capacity without adequate support in the form of public private partnerships.

• On going political and economic instability could threat-en the recovery of foreign direct investment inflows into the sector and limit government support for infrastructure development.

• The mobile voice market is at risk of becoming saturated due to high penetration levels.

Weaknesses

• Overall low broadband capacity in Egypt and relative high cost of fibre-optic network installation may limit adoption of the most advanced technologies.

• Low median income levels combined with high illiteracy rates may limit the development of the mobile and broad-band data services market.

• Political instability has stunted economic growth and for-eign investment in the communications and IT sector.

• Competitive pricing strategy across companies means that subscribers are constantly jumping from one operator to another.


27

PROJECTIONS

Nominal GDP (US$ bn)

GDP Per Capita (US$)

Population (mn)

Real GDP Growth (%)

2015

271.9

3.7

1566.4 1571 1576.2 1582.1 1589.4

82

273.1

3.8

83.3

273.87

4.1

84.6

274.5

4.2

85.9

4.3

87.2

279.9

2016 2017 2018 2019

Economic Projections

Source : Noozz

Industry Projections

2015 2016 2017 2018 2019

Sector Value (US$ bn)

Internet Penetration (%)

Annual Growth (%) 13.6 14.1 14.9 15.65 16.2

54.1 55.01 56.05 57.06 58.08

6.9 7.24 7.88 8.36.57

Source : Noozz


28

NEEDS ASSESSMENT

• The private sector must continue to lead innovations and opportunities for commercialisation in the telecommunications and IT field. To this end, the Egyptian government must adopt a more market-driven approach and bring foreign direct investment levels back to pre-2011 levels.

• Continued government support for innovation and development in the sector; government leadership and coordination is crucial to the future of the sector, particularly in the area of infra-structure.

• Expansion of Internet infrastructure including WiMAX and broadband connections in urban and commercial centers as well as ADSL lines throughout the country. Efforts should also be made to introduce the latest mobile network technology, including 4G connectivity.

• Mobile operators should focus on growing mobile broadband markets due to looming satura-tion in the mobile voice market. Providers should consider pricing schemes and add on services to distinguish themselves in the face of tough competition.

• Telecom Egypt should push forward with efforts to open up the fixed line telephony market to competition and add value by bundling mobile, broadband and fixed line services into one package.

• Between 2000 and 2010 the number of Arabic speaking Internet users rose by 2,501%. The lack of online Arabic content combined with government censorship and restricting access to websites, will hinder the development of the IT sector as it works to capitalise on this emerging market. The Egyptian government should further promote the development of online Arabic content as it did in the case of government newspaper Al Ahram and through its educational initiatives, such as the Information Technology Institute.

• IT companies should keep a close eye on the growing online retail market and develop web products and security systems to support growth in this segment.


29

The telecommunications and IT sector is one of the fastest growing non-oil sectors in the Middle East and North Africa (MENA) region and is expected to reach US$ 70 billion in annual revenues by 2015. Despite this, the MENA region still remains far behind the global average in terms of new technology development and sector competi-tiveness. Indeed, with the exception of Tunisia, all states in the MENA region remain net importers of technology. However, with an average consumer age of 23, the region is also home to the globe’s youngest population a de-mographic that represents a potential boon for innovative technology and communications companies. MENA’s burgeoning youth demographic will support a new era of innovation and connectivity.

Mobile and Internet content designed to meet the needs of the region’s youth population is likely to be a high regional priority. The number of Arabic-speaking internet users in the Middle East and North Africa region reached 135 million by the beginning of 2014. Internet penetration is highest in the UAE, where 92% of the population is online, followed by 82% in Saudi Arabia, 79% in Kuwait, 61% in Lebanon and 56% in Jordan. Growing numbers of Arabic-speaking users are already using social networking sites, particularly Facebook, with 70% of MENA Face-book users based in five countries – Egypt, Morocco, Tunisia, Saudi Arabia, and the United Arab Emirates. Social network penetration is highest in Jordan, where 95% of Internet users visit social networks. However, there remains relatively little high-quality online Arabic content and a relative dearth of companies creating digital content spe-cifically for Arabic-speaking users. This holds true for Arabic content designed for mobile devices as well, as only a handful of the available iPhone, Blackberry, or Android applications are developed for Arabic language users despite the regional popularity of these phones.

As the MENA region becomes increasingly connected to global trends and technology developments, Egypt is uniquely positioned to capture the region’s ascent within the IT sector. Indeed, Egypt’s status as the most populous Arab country and government efforts to increase internet usage are reason alone for the country’s attractiveness as a major telecommunications and IT market in the region. Yet Egypt stands out in the region for many other reasons as well. According to the World Bank’s Doing Business 2011: Middle East & North Africa report, Egypt made some of the largest efforts in the region to improve its business regulatory environment over the past five years, coming in second only to Saudi Arabia. In addition, Egypt is one of only six economies in the Arab World – alongside Jor-dan, Morocco, Oman, Qatar, and Saudi Arabia – that has created a one-stop shop for business registration. Egypt’s relative ease of business registration and friendly regulatory environment is likely to make Egypt a more popular destination for IT companies and entrepreneurs, many of whom will be looking to start small- to medium-size en-terprises to take advantage of opportunities in Egypt’s growing IT sector. Egypt is also one of only six Arab countries that do not require entrepreneurs to put up a set amount of capital before starting registration formalities, adding to its attractiveness as an IT destination.

MENA-WIDE OVERVIEW

Source : Blominvest

Internet Market in the MENA Region

Use

rs, %

of p

opul

atio

n

Internet users (right scale)Broadband subscribersInternet subscribers

Subs

crib

ers,

%

of p

opul

atio

n

(


30

Global IT companies have responded positively to Egypt’s increasing reforms and the country has surpassed its MENA competitors as the preferred location for information technology outsourcing in the region. Indeed, ana-lysts have repeatedly ranked Egypt as one of the top ten preferred call centre destinations globally. Still, the MENA region has the lowest amount of private infrastructure investment in the world, a fact that is likely to negatively impact the growth of its telecommunications and IT sector moving forward. On this front, however, Egypt still ranks relatively high and according to the United Nations Conference on Trade and Development’s latest World Invest-ment Report, Egypt ranked third in the MENA region after Saudi Arabia and Qatar in terms of FDI inflows.

As the IT industry begins to explore new opportunities within the MENA region, the telecommunications indus-try has been steadily seeking opportunities from without. The emerging telecommunications markets in Africa and South-East Asia have been of particular interest to MENA telecom companies as market penetration rates for mobile services tend to be significantly lower there. As home to Orascom Telecom Holding, one of the four main telecom companies in the MENA region, Egypt stands to gain from Orascom’s development of new markets in particular.

Regionally, telecom companies have begun to capitalize on the relative lack of fixed-line infrastructure by heavily marketing their mobile internet services. As one of the first countries in the region to introduce 3G mobile services, the Egyptian market has already seen considerable gains in mobile internet usage with an annual growth rate of 7%. Increased interest in mobile internet has correlated with the rise of smartphones in the MENA mobile market. Smartphone sales in the region reached approximately nine million units in 2013 and sales are forecasted to grow by 39% annually for the next four years. Smartphone penetration is highest in Saudi Arabia, where 79% of the pop-ulation uses smartphones, followed by 72% in the UAE, 69% in Kuwait and 63% in Lebanon. As the MENA region becomes increasingly interconnected, the Egyptian telecommunications and IT sector stands to gain significantly from both the country’s geographic location as a regional hub and its sizable population and youth demographic.

Social and Governance Indicators

Source : Rabobank

180

160

140

120

100

80

60

40

20

0

180

160

140

120

100

80

60

40

20

0

Human Development Ease of Doing Business Economic Freedom

Average of 5 rankingsCorruption Press Freedom

TunisiaEgyptMorocco

Algeria Jordan

(


31

MENA Labour Force Growth

Source : World Bank

Regionally, telecom companies have begun to capitalize on the relative lack of fixed-line infrastructure by heavily marketing their mobile internet services. As one of the first countries in the region to introduce 3G mobile services, the Egyptian market has already seen considerable gains in mobile internet usage with an annual growth rate of 7%. Increased interest in mobile internet has correlated with the rise of smartphones in the MENA mobile market. Smartphone sales in the region reached approximately nine million units in 2013 and sales are forecasted to grow by 39% annually for the next four years. Smartphone penetration is highest in Saudi Arabia, where 79% of the pop-ulation uses smartphones, followed by 72% in the UAE, 69% in Kuwait and 63% in Lebanon. As the MENA region becomes increasingly interconnected, the Egyptian telecommunications and IT sector stands to gain significantly from both the country’s geographic location as a regional hub and its sizable population and youth demographic.

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