Times are hard for the communications and information technology sector due to the lack of investments, which is down to many missed opportunities—either due to poor management by officials, or plans remaining unrealised.
The Ministry of Communications and Information Technology has initiated an ambitious plan to attract investors to the Egyptian market and shed light on promising investment opportunities. But will Minister of Communications and Information Technology Yasser Al-Qadi be able to end the era of missed investment opportunities?
In its plan to attract foreign investments, the ministry is greatly depending on several aspects, the most prominent one of which is technological zones. The ministry plans to establish six technological zones in several governorates. The ministry established a joint stock company, Silicon Waha, with a capital of EGP 1bn in order to manage these zones. The ministry has completed nearly 70% of construction at Borg El-Arab zone in Alexandria and at another in Assiut in preparation for their inauguration by 2017.
Creativity zones are also a major aspect of the ministry’s plan. The ministry has allocated EGP 100m for the establishment of the first two zones within the technological zones in Borg El-Arab and Assiut. The goal of the zones, according to the ministry, is to support intellectualism and creativity, and spread the culture of entrepreneurship.
The ministry also intends for the creativity complexes to result in the preparation of 160 start-ups over the next five years, as well as the provision of 10 patents.
Additionally, the fourth generation (4G) licence is considered one of the most important investment opportunities. The government seeks to conclude this file, especially as the state will make a profit of $1.5bn from the value of the licences provided to Egypt’s four telecommunications companies.
However, the approval of the licence is facing strong resistance from the three mobile operators—Vodafone, Orange, and Etisalat. According to the operators, this is due to the state of chaos in the market as a result of Telecom Egypt’s (TE) unjust monopolisation of the sector’s infrastructure. Moreover, the state overprices the licences and limits the frequencies provided to the operators.
A condition for obtaining this mobile licence from the Ministry of Communications is that operators must pay half its value in US dollars—considering the widely-publicised shortage of foreign currency reserves in Egypt currently, this is a major obstacle for mobile companies working in the Egyptian market. This is besides the depreciation of the Egyptian pound against the US dollar to more than EGP 12 at times.
Communications Ministry pressures telecommunication companies by presenting 4G licence to Zain, STC
The Ministry of Communications and Information Technology is seeking to close the fourth generation (4G) licence file quickly as it is expected to generate income estimated at $1.5bn.
Half the value of frequencies and licence repayments of the four mobile telecommunications companies—Vodafone, Etisalat, Orange, and Telecom Egypt—are to be in US dollars.
The National Telecommunications Regulatory Authority (NTRA) has set 22 September as the deadline to receive mobile telecommunications companies’ applications for the 4G licence.
The Ministry of Communications and Information Technology is marketing the 4G licence regionally in order to put pressure on mobile phone companies operating in the Egyptian market that refuse several items of the licence’s conditions, such as pricing and the limited frequencies granted.
According to the Ministry of Communications and Information Technology, Minister of Communications Yasser Al-Qadi met with the head of Zain, a Kuwaiti mobile and data services company, after which the company sent an official letter expressing its desire to obtain the 4G licence and enter into the Egyptian market.
The minister of communications also met with Khaled Hussain Biyari, CEO of Saudi Telecom Group (STC), with NTRA representatives. Biyari expressed his serious desire to invest in the Egyptian telecommunications sector in the current period.
The minister said if none of the four mobile telecommunications companies operating in the Egyptian market—Vodafone, Etisalat, Orange, and Telecom Egypt—apply for the 4G licence, it will be presented to foreign companies.
According to an official in the ministry, the Egyptian telecommunications market has promising growth opportunities in the field of data transfer via mobile phones, especially since 5% of the mobile phones in Egypt are equipped for 4G services.
There are substantial opportunities for growth in the Egyptian market that indicate its ability to absorb more telecommunications companies.
He noted—to prove his point—that there are five telecommunication operators in Hungary, although the population does not exceed 10 million people, and there are seven telecom companies in South Korea.
Would Telecom Egypt risk profitability to enter mobile market?
The Egyptian government is considering alternatives to Telecom Egypt’s (TE) exit from mobile operator Vodafone, now that the company has obtained its 4G network license, a state official disclosed.
TE had been trying to break into the mobile market for years now and had announced intentions to divest its stake in Vodafone once it acquired the licensing to establish an independent mobile network and offer 4G wireless services. The state, however, is reassessing its decision, since it risks losing about EGP1bn a year in additional income.
Sources said that one alternative action plan brought to the table suggested the government maintain its 45% stake in Egypt’s largest mobile operator through a state-owned bank.
The National Telecommunications Regulatory Authority (NTRA) had extended the deadline for 4G license approval beyond the first week of August and until 22 September, giving operators Vodafone Egypt, Orange, Etisalat Egypt, and Telecom Egypt more time to finalise their payments and regulatory procedures.
4G, the fourth generation of wireless mobile technology, offers internet speeds that can be up to 10 times faster than the currently employed 3G.
The authority set the cost of the new licenses at EGP3.5bn for Orange and Vodafone Egypt, EGP4.5bn for Etisalat Egypt, and EGP 5.5bn for Telecom Egypt.
A telecom company official said he was surprised by TE’s years-long struggle to obtain mobile licensing in the first place, given the fact that it has a monopoly over the Egypt telecoms infrastructure and landline services. He pointed as well the risks associated with TE giving up its shares in Vodafone.
According to official statements, returns from TE’s investment in Vodafone Egypt added EGP1.3bn to the company’s consolidated revenues of EGP3bn in 2015. TE’s income was largely driven by proceeds from leasing infrastructure to mobile operators and private internet companies. TE Data, the company’s internet service providing arm, was also a main contributor to profitability, since it controls nearly 70% of the internet service market and has about four million customers.
The combined revenues of Egypt’s three mobile operators totalled EGP4bn over the same time period, with Vodafone taking the lead in terms of profitability, earning EGP3bn in revenues.
With TE gearing-up to venture into the mobile realm, estimates have placed its current share of the telecommunications market at 60%, making it Egypt’s highest-earning telecommunications company.
Communications Ministry to begin construction of Knowledge City in early 2017
Construction on two out of six planned technology park projects has already commenced in the cities of Borg El-Arab and Assiut, according to the Egyptian Ministry of Communication, and is set to be completed by the end of 2016.
As part of its agenda for development, the ministry has announced plans to establish six technology parks in various provinces over the next six years and is expecting the size of the project’s investments to reach EGP20.5bn. Of the total, EGP1.4 bn would be provided by the ministry and its subsidiary bodies, while the private sector is expected to inject an estimated EGP19.1bn.
An official from the Information Technology Industry Development Agency (ITIDA) said that construction on the first two technology parks is about 70% complete. The parks will be managed by Silicon Waha, a new joint stock company, owned by ITIDA and the New Urban Communities Authority, specialising in the establishment and operation of technology parks.
Under a four-year usufruct agreement, Silicon Waha will plan, design, and construct six technology parks centred around telecommunications and information technology. It will also provide the logistical and infrastructure development services required for the project.
The park in Borg El-Arab is being built on a 37,800 sqm land plot and the built-up area is expected to reach 126,000 sqm. Within the parks, the ministry plans to build a training academy, an innovation and entrepreneurship centre, facilities for learning about the outsourcing industry, and offices for national and multinational companies.
The government has offered a number of incentives to companies that choose to operate out of the new technology parks, the most notable of which were the reduction in taxes, from 42% to 25%, and in customs tariffs, from 14.6% to 6.2%.
The Ministry of Communications aims to build eight technology cities in Sadat City, 10th of Ramadan City, New Beni Suef, New Damietta, and New Aswan, in addition to a technology valley in Ismailia, and a technology park in the Maadi district in Cairo.
The ministry also plans to begin construction on Knowledge City in the New Administrative Capital by early 2017. The city, which Silicon Waha will also operate, will be built on an area of 300 acres and include facilities for research, innovation, and entrepreneurship in various fields.
Communications Ministry strategy to motivate creativity targets developing 160 emerging companies in 5 years
The Ministry of Communications and Information Technology and the Information Technology Industry Development Agency (ITIDA) have devised a strategy to stimulate creativity and entrepreneurship within technological zones—an initiative entitled the iCluster Initiative.
The ministry aims to develop 80 emerging companies over the first five years of the initiative from each cluster, totalling 160 companies.
Daily News Egypt received the details of the strategy. The first phase of the plan involves setting up two clusters in the technological zones in Borg-El Arab, Alexandria, and Assiut. The budget estimated for each project amounts to EGP 50m over five years.
Moreover, the strategy aims to utilise the clusters to power economic development in the Delta and Upper Egypt by operating as incubators for creative ideas and emerging companies in the communications and information technology sector. This would help create new job opportunities, especially once the clusters integrate to form an environment suited to increase entrepreneurship through exchanging expertise among the companies located in both of them.
The key elements for clusters
According to the Communications Ministry’s strategy, each cluster contains several main elements: services, partnership, geographic scope, organisational structure, an activities and implementation plan, a budget and sustainability plan, and achievement.
Services can be summarised as providing services and centres for development of appropriate human resources, establishing partnerships between industries and research institutions, increasing cluster-companies’ exports, and creating high-value job opportunities.
As for partnership, each cluster will hold partnerships with at least seven legal, already-established institutions. Furthermore, each cluster will focus on partnering with at least one university or academic institution.
Clusters will also cooperate with at least three private companies each. In addition to this, they will include centres to support entrepreneurship, such as incubators, shared workspaces, and entrepreneurship accelerators.
The partnership elements are to be comprised of several types of partnerships.
The first type is cooperation with a government institution concerned with economic development. The second is the establishment of partnerships with a non-governmental economic institution and either risk-capital firms or structural investment networks and banks.
The third type of partnership is collaboration with human resources training centres, as well as with advertising and marketing agencies, design and beta development companies, and chambers of commerce.
The geographical scope includes the scope of activities and locations of their beneficiaries. The strategy identified that 50% of the initiative clusters’ partners should be in the geographical scope of the cluster. The geographical scope of the Borg El-Arab initiative cluster includes Alexandria, Beheira, and Matrouh. The Assiut initiative cluster includes Assiut, Minya, Sohag, and the Red Sea.
The organisational structure consists of a team responsible for the implementation of activities and the provision of services. It also includes a management committee representing all partners of the cluster as well as the coordinator of the cluster, on condition that he belongs to a non-profit organisation.
The activities of initiative clusters include several key areas, most notably research and development in conjunction with academic bodies. They also include training, human resources development, organisation of competitions to discover innovators and entrepreneurs, support of the first product of emerging companies “fast prototyping”, provision of funds, support for emerging companies, and provision of common workspaces.
80 start-ups and 10 patents within five years
The initiative clusters are scheduled to sign partnership contracts with universities, private companies, and private start-up support centres. The members of a certain cluster should cooperate within a specific workspace and geographical area to produce high-valued innovations for the global market.
According to this strategy, 80 start-ups should graduate from each initiative cluster within five years, 10 companies within the first 18 months, and 30 companies within 30 months. The number of graduated companies should reach 50 after 42 months and 80 companies after 60 months at a growth rate of 20%.
Within five years, the initiative clusters aim to educate 25,000 young people about entrepreneurship and emerging companies, train 5,000 young men, and help 1,000 young people develop creative ideas.
The graduates from the initiative clusters are expected to produce 10 global products and 10 patents within five years.
Advantages of financing through initiative clusters
Initiative clusters seek to finance emerging companies and entrepreneurs through grants, loans, and investments in partnerships with the private sector.
The financing is divided into three stages, with each stage lasting up to five years. In the first stage, the company is financed by a maximum of EGP 7m per year, to reach a total of EGP 25m. In the first renewal stage, the companies will be financed by a maximum of EGP 3m per year, to reach a total of EGP 10m. In the second renewal stage, the finance will reach EGP 2m per year, while the total funding should not exceed EGP 5m.
The Ministry of Communications’ strategy has identified the ratio and type of financing, in which the cluster provides 20% of the required finance for training in the form of a grant. The cluster will also launch an electronic portal and develop a promotional strategy for the training initiative.
The cluster will provide 24% of the cost of establishing the company in the form of an investment, in exchange for 40% of the return on investment. It will also finance 32% of the research and development budgets—60% in the form of a grant and 40% in interest-free loans over five years.
5 focal industries to stimulate local manufacturing: Ministry of Communications and Information Technology
The Electronics Industry Committee developed a strategy consisting of five focal points to stimulate local manufacturing in Egypt. The first phase will be implemented over three years with investments worth EGP 361m.
The strategy relies on an electronic manufacturing plan that develops and supports some of the existing industries in Egypt, in addition to introducing new industries to the Egyptian market.
Manufacturing mobile devices—such as tablets, phones, and GPS devices—is one of the most important directions Egypt will take in the coming period.
According to the strategy, the committee will also focus on manufacturing LED lamps, given the government’s plan to rationalise energy consumption through exchanging normal light bulbs with energy-saving ones.
The electronic components of an LED bulb represent 75-80%, making the industry a very promising one, as its locally manufactured components can make up 70-80%.
Mohamed Ismail, regional business development director at Transsion, stated that Egypt has various promising investment opportunities in the electronic manufacturing field, making it eligible to be an industrial or exporting base for the Middle East and Africa.
Egypt has free-trade agreements with several countries, distinguishing it from other countries in the region and allowing it to be exempted from customs, such as Agadir, COMESA, and the Greater Arab Free Trade Area (GAFTA).
Ismail believes that Egypt currently has great opportunities in manufacturing parts of mobile and smartphone devices. As an example for the country’s potential investment opportunities in the field, he explained that air shipping phone batteries is banned for security reasons. The ban can be a chance for Egypt to incentivise manufactures to transfer their factories from China to the Suez Canal Economic Zone, in order to facilitate transporting the products to European and Middle Eastern markets in a short time.
Transsion’s TECNO Mobile company agreed with the Ministry of Communications and Information Technology to establish a factory for producing tablets and smartphones in the new technological areas in Borg El-Arab or Assiut.
The final agreement will be signed in September, while Sico Technology agreed with Chinese Megan Group to establish a factory to manufacture smartphones on an area of 3,000 sqm in the technological area in Borg El-Arab by the beginning of next year. The project’s investments are worth $20m, and the factory’s daily production capacity reaches 6,000 devices.
According to the local manufacturing strategy, the television screens industry is considered one of the major industries bound to stimulate local electronic manufacturing, especially since they exist in a limited amount through the Samsung factory in Beni Suef and are being assembled in some other local factories.
The plan does not only target to convert screen manufacturing into a strong industry, but also to create a large base of feed-in industries for the screens production. The Information Technology Industry Development Agency (ITIDA) is discussing with the ministries of investment, finance, and industry and trade to encourage local manufacturing by applying certain custom regulations.
Depending on alternative energy solutions is also a national project. Egypt plans to invest between $3.5-4bn in the renewable energy sector by 2020, as the ministry’s plan aims to move from assembling solar panels, electronic adapters, and control devices to actually locally manufacturing them.
The fifth and final industry included in the committee’s plan is the smart electricity counters’ industry. This industry helps electricity companies control their electricity consumption, collect the data related to consumption, and analyse it.
According to an official at the Ministry of Communications and Information Technology, the ministry is currently addressing the ministries of finance, industry and trade, and investment to allocate free-zones inside the technological areas, in order to establish factories and stimulate local electronic manufacturing.
The Electronics Industry Committee was formed at the end of last year, headed by Hossam Osman, and consists of a number of experts in the electronics manufacturing field, a number of academics, and civil society organisations. The committee was formed to implement an initiative for local electronic manufacturing launched by President Abdel Fattah Al-Sisi in December during the Cairo ICT 2015 exhibition.
