Information technology can play an important role in helping companies respond to this difficult and rapidly changing economic environment, Karim Ramadan, Microsoft Egypt’s general manager, said.
If the global crisis poses a threat to certain sectors, the information and communication technology (ICT) domain, which has grown in 2008, will likely remain a solid contributor to the nation’s GDP, said sector insiders.
Today, Egypt’s emerging ICT sector contributes to one percent of GDP and employs about 50,000 people. Research conducted by economic and financial analysts Global Insight shows that Egypt is currently spending $9.8 billion on ICT and that figure is set to rise to $13.5 billion by 2011.
“Information technology is all about efficiency, and that’s exactly what companies need in downturns, Rahim El-Kishky, CEO of Information Technology and Services Co. (ITSC), told Daily News Egypt.
“ICT in general will remain one of the largest sectors contributing to GDP, in fact its share in GDP might be larger because if the economy slows down, all sectors will decline and ICT will be the least affected, he added.
The sector boomed in 2008 on the back of heightened competition between the three GSM providers, a fact that “is always healthy for the market as it usually expands the addressable market rather than competing for existing customers. El-Kishky said.
New services have also been offered, such as the introduction of 3G which is good for customer retention.
While the sector evolved in many ways, the delay in auctioning off the nation’s second fixed-line network license postponed a much-needed influx of money that would have contributed to the nation’s GDP. The National Telecom Regulatory Authority (NTRA) cited the global economic crisis as a reason to postponing the auction until next year.
According to El-Kishky, the economic crisis will not be over in a year, the sole beneficiary of the delay was Telecom Egypt (TE) as it keeps its monopoly on fixed lines. “It is already not very attractive as a standalone without GSM and delaying it [the second fixed-line network license] will make it even less attractive as Telecom Egypt adds more subscribers.
Amidst the global credit crunch and lack of liquidity in the market, the Ministry of Communication and Information Technology (MCIT) has focused its efforts on making Egypt a lucrative international IT hub to encourage European outsourcers seeking to cut costs.
The increase in number of internet users and development of data transfer methods has allowed companies to reduce costs by outsourcing operations abroad. According to a report published by Yankee Group, a technology research and consulting firm, Egypt is poised to become the host country of choice for European companies.
“One of our main accomplishments this year is that Egypt was named Outsourcing Destination of the Year at the 2008 National Outsourcing Association (NOA) Awards, Hazem Abdul Azim, CEO of the Information Technology Industry Development Agency (ITIDA) – the MCIT arm founded in 2004 to promote the ICT industry – told Daily News Egypt.
Egypt made its way to the prestigious award after beating the Philippines and Romania, Abdul Azim explained.
This year saw ITIDA join forces with multinationals operating in Egypt – such as IBM – to promote investments, including Egypt’s first Nanotechnology Center, training and human recourses development services through introducing the Science, Management and Engineering (SSME) into Egyptian universities’ curricula and the establishment of a new IBM Egypt Global Delivery Center.
The government has also made strides in attracting foreign direct investment by “introducing 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, Abdul Azim said.
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.
Despite governmental and private sector efforts to boost the ICT sector, fears of a slowdown hover amidst current global uncertainty. Employees fear hiring freezes or rigid salary cuts and investors are wary of expanding their operations.
However, experts continue to assure skeptics that the global financial crisis would benefit emerging destinations, as multi-national companies seek to reduce the cost of doing business by transferring certain business operations and procedures to cost effective countries like Egypt.
Microsoft assured its employees, partners and clients that it “will continue to grow and add thousands of new jobs this year, but given the current economic environment we are reviewing our hiring plans and will make some adjustments as appropriate, Ramadan said.
Meanwhile El-Kishky explains how IT companies remain cash-rich.
Global IT firms have been famous and actually criticized for accumulating cash and not paying dividends he says, and most of them are debt free. As a result they flourish even more in bad times. Downturns present a growth opportunity for cash rich companies in general, they can expand their network (in case of GSM operator), improve service quality, offer discounts and capture more existing customers from their competitors while they are cutting back. As a result they flourish even more in bad times.
