CAIRO: Currently, the Middle East and North Africa (MENA) region is a net importer of information and communications technology (ICT). Companies in the region purchase ICT products and services that enhance efficiency, but due to heavy outsourcing, national economies — such as Egypt — are not maximizing the gains that lie in the domestic workforce.
As the Egyptian government undergoes a series of transformations, upcoming policy measures applied to the ICT sector will be paramount in spurring innovation and securing consistent growth for the future.
“For the MENA region, key focus areas with strong local potential include Arabic and Islamic services and applications, IT services and smart devices for the energy and utilities sectors, e-education and e-health systems that support the massive buildup of related sectors in the Gulf Cooperation Council (GCC),” said Bahjat El-Darwiche, Partner at Booz & Company, a global management and consulting firm advising corporations and government ministries.
By investing current ICT expenditures incurred by firms stationed in Egypt back into the domestic economy in order to service local demands, the market will produce more consistent trends.
El-Darwiche went on to challenge the new Egyptian government to be mindful of recent initiatives that include the European Union’s Digital Agenda and Malaysia’s Strategic ICT Roadmap, both programs aiming to establish nationally concentrated ICT services through an agenda of coordinated policies capable of fostering ICT reformation.
Governments in the region have adopted initiatives recently to establish business-friendly policies and reduce startup costs for companies, as well as develop a talent pool to fulfill ICT vacancies. In Egypt the first Telecenter Academy was established in 2009 with the aim to develop domestic capacity in order to service information and communication technologies demands, an alternative to outsourcing.
The gains from these initiatives will be rendered limited if not augmented with improved policies and regulations pertaining to intellectual property and copyright protection.
“Companies will reap little reward for developing an innovative new software suite if they can’t protect that software in the market. Although some countries have intellectual property and copyright laws in place, they are not consistently enforced. As a result, the MENA region experienced losses of more than $1.4 billion in 2009 due to IT software piracy,” said, Ramez Shehadi, an analyst at Booz & Company.
In order to ameliorate this dilemma, Shehadi added, “Policymakers should work to develop ICT business associations and trade groups, which protect property rights as well as emphasize exports as a key target of the local ICT innovation ecosystem.”
Such associations and additives do not come without expense. Research and development in the context of developing a robust domestic ICT industry is essential. The EU has formalized a Digital Agenda that calls for doubling Europe’s R&D investment in ICT by 2020, from $8 billion to $16 billion for public spending, while promoting an equivalent increase in private spending, from $51 billion to $102 billion.
MENA governments must significantly increase their R&D spending and provide financing for entrepreneurs in order to tap the benefits that lie in ICT innovation. In light of this, the burden does not have to be placed entirely upon government expenditure as private sector investment could complement such policy initiative.
In markets such as Europe and the US, governments provide ICT corporations such as Orange, Deutsche Telekom, and Telefónica with incentives and tax breaks to facilitate internal innovation programs, along with funds to invest in external startups and thus boost their own services. This enables ICT firms to fully capitalize upon their own developments and innovations.
Egypt has recently taken steps to follow similar trajectory as the Information Technology Industry Development Agency (ITIDA) recently announced it would provide loans to ICT companies in cooperation with the Social Fund for Development. These funds will amount to LE 150 million or $25.8 million at 6 percent at interest rates, half of which will be paid by ITIDA, itself. All companies within Egypt are allowed to apply for the loans including the shareholding corporations with capital exceeding LE 1 million.
Going forward the new Egyptian administration will be wise to utilize the its domestic talent pool, trimming the practice of outsourcing ICT services while simultaneously cultivating and securing an industry that promises long term and consistent return on investment.
