IT sector set for growth but inhibited by lack of investment

Waleed Khalil Rasromani
8 Min Read

CAIRO: The software industry in Egypt has been on the rise since the establishment of the Ministry of Communications and Information Technology in 1999.

While the country has long been a center for Arabization and localization of software for the region, the liberalization of telecommunications, along with e-government initiatives, have stimulated information technology (IT) and related businesses domestically and set the stage for further expansion regionally and internationally.

The Daily Star Egypt spoke to several business leaders and experts to assess Egypt s position in the global IT market, the challenges and prospects for the future.

Egypt is an up and coming player in the global IT market, says Karim Ramadan, general manager of Microsoft Egypt. Local companies have grown beyond their traditional activity of Arabization and localization to custom development in other countries in the region. Ramadan adds that a number Egyptian businesses now provide IT services to Fortune 500 companies in United States.

Expansion to the U.S. market, however, was hampered by the events of Sept. 11, according to Tarek Thabet, managing director of the IT consulting firm Megacom, due to the difficulties experienced by Egyptians traveling to the U.S. as well as the apprehension of American companies to deal with Arab countries.

While the situation has improved and Egyptian companies attempted to allay the anxiety of their clients in the U.S. by appointing American project managers, Thabet says that the Egyptian IT business still suffers from the aftereffects of Sept. 11.

Egypt nevertheless continues to be well-positioned to supply IT services to the Gulf and Europe; Thabet cites the proximity to Europe as one of the competitive advantages of Egypt over India. This is relevant for IT projects because the overlap in time zones makes coordination with clients in Europe more convenient.

Competition amongst a multitude of employers in India has also driven up wages and resulted in a high turnover, says Ramadan. Egypt consequently benefits from a less expensive and more stable workforce.

The Indian IT industry is characterized by large teams of disciplined and organized workers. While this makes India well-positioned to win large-scale projects that require volumes of coding, it gives Egypt s IT workforce an opportunity to distinguish itself as more creative and more focused on high-level design work rather than low-level coding.

Ramadan affirms the value of high-level design skills, explaining that the latest version of Microsoft s development tool requires 70 percent less coding than previous versions, with a large amount of a program generated by the development tool. This trend is not restricted to Microsoft, and as a result software development will become increasingly focused on design and architecture.

The limited domestic demand for IT services is one of the major challenges for large solution providers, says Raya Chairman Medhat Khalil. Egyptian businesses are generally not heavy users of IT and large projects are rare. Nevertheless, Khalil says that the liberalization of the banking and telecommunications market will provide opportunities for IT services to these sectors.

The future of the industry, however, is in exports. Mariam Semeda, an analyst at the International Finance Corporation, explains that none of the countries in the region have sufficient domestic demand for IT businesses to flourish. Companies must therefore operate on a regional level.

Semeda adds that the small size of most local IT companies, as well as the reluctance of businesses to form consortiums, makes it difficult for Egypt to pursue large projects. IT companies need to pool their resources – either through acquisitions or through cooperation on specific projects – in order have the capacity to bid for more substantial work.

As the local IT industry develops, Ramadan explains that Egypt must decide whether it will take a similar route to India – which provides all types of IT services – or specialize in niche markets, as Israel has done with security software.

Culture, location and availability of labor give Egypt an edge in certain niche markets. Since Egyptian culture and its dialect are commonly understood throughout the Arab world, Thabet says that the development of multimedia applications for education is a field that cannot be ignored.

The low cost of communications relative to other countries in the region also supports the growth of IT-enabled services such as call centers and outsourcing. While international lines to Europe and the U.S. are competitively priced, Khalil explains that communication to the Gulf is expensive because of the lack of deregulation in those markets. For this reason, Egyptian call center agents serve American and European customers but not those in Gulf countries, where it shares a common culture and language. Plans are underway, however, to deregulate the telecommunications market in Qatar and the U.A.E.

Despite the progress over the past decade, Egypt is still not widely recognized as a global provider of IT services. Thabet suggests that a national plan be put in place for improving the image of the Egyptian IT industry abroad.

The main obstacle to new IT ventures, according to Semeda, is the lack of financing; venture capital funds are needed to encourage entrepreneurship. Viable incubation schemes would also aid small businesses, as Semeda says that the existing incubator in the Smart Village is frequently unaffordable for start-up companies.

Thabet adds that the lack of information about the local and international IT markets inhibits investment. The compilation of statistics on IT projects open to Egyptian companies would allow businesses to make more accurate financial forecasts and encourage investment in the industry.

Brain drain also continues to be a challenge. Khalil says that the flight of Egyptian programmers to other countries has resulted in a scarcity of mid-level managers. Raya addresses this by training and by trying to attract Egyptians who are abroad back to their country.

Government projects such as smart-cards and portals have stimulated the industry and laws are underway that provide the right business environment for growth. Key items on the policy agenda include the deregulation of the telecommunications market, the enforcement of intellectual property rights and the implementation of digital signatures for government documents.

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