Egypt Information Technology Report 2008

Market Overview While computers remain a luxury item for many Egyptians, a series of fundamentals should ensure growth over the forecast period, including a large young population and a constructive economic outlook.

BMI projects average IT spending growth of 13% through to 2012 with strong spending in government, telecoms and financial sectors. The Egyptian IT market's position within the MEA region is on the rise, with the Nazif administration committed to promoting IT as part of its overall development strategy. In spite of a worsening global economic climate therefore, Egypt remains one of the more robust growth stories in the region.

Overall IT market size is expected by BMI to increase from US$889mn in 2007 to around US$1.3bn in 2012. In recent speeches administration officials have outlined initiatives in areas such as IT training and new IT parks such as the one at Maadi. The government has announced several plans designed to further computer penetration, and the large expansion of the 'Computer for Every Home' programme in 2006, with more than 1.4mn sales, was followed in 2007 by the launch of the latest 'Nation Online' phase.

The economic context is broadly favourable, with ongoing domestic momentum, investor confidence, and a solid outlook for exports. Infrastructure spending in the oil and gas sector should be boosted by the discovery in 2007 of new reserves of both at several sites, and construction and tourism are also promising verticals. Despite constraints of low disposable incomes and economic disparities, computer penetration will rise in both household and enterprise sectors.

Industry Developments Damage to an underwater cable in the Mediterranean seriously affected internet services across Egypt in January and dealt a blow to the emerging contact centre industry. A number of contact centres, call centres and software development centres have located in Egypt and the industry already accounts for tens of thousand of jobs. The government has emphasised measures to create a favourable environment for offshoring development, including work n implementing IPR protection, and launching new telecoms licences.

Recently, the ICT ministry launched new projects in the Upper Egyptian governorate of Qena. These include customer support centres and a new exchange. President Mubarak has announced that 2007-2016 will be Egypt's 'decade of science and technology' and emphasised the importance of science and IT in particular to not only promote economic growth and competitiveness, but also to further social development.

Competitive Landscape International vendors are strengthening their position in the fast growing Egypt PC market. Fujitsu- Siemens continued an upward trend in 2007, with double digit growth in both notebooks and desktops due to strengthening of its partner network. Dell opened a direct office in Egypt at the end of 2007, whereas previously the company covered the market through four business partners including Raya and Quest.

With demand for packaged software still growing fairly sedately, vendors are concentrating on mining opportunities in the most profitable verticals. Government remains a key focus, and SAP received a boost recently when it was selected as the strategic IT provider for a major government ERP implementation programme. The project's value has been reported at US$10mn and covers a five year project for the Egyptian National Postal Organisation (ENPO) and establishment of a certified SAP customer support centre and programme.

Turning to IT services, the increasing prominence of this segment is drawing more activity from vendors.

The big three players, IBM, Raya and Giza Systems, have over 50% of the market. However, other players are challenging strongly, with a group of 7-10 companies controlling another 20% of the market.

Indian giant Satyam experienced strong growth in the region last year and is looking to grow its consulting and outsourcing businesses by 100% over the next few years.

Computer Sales In 2007 Egypt spent US$607mn of its IT budget on hardware, driven by initiatives like the 'Computer for Every Student' projects. Spending is expected to surpass US$1bn by 2012 growing at a CAGR of 13%.

Hardware (including communications hardware) still dominates the Egyptian IT sector, accounting for approximately 62% of the total market. There is room for considerable growth in the next few years, given the current low level of computerisation, which is much higher in the business sector than in the population at large. Desktops still represent over 95% of the PC market and, despite a government laptop initiative aimed at business executives, desktops are likely to remain the mainstay of the market. Fastest growth should come from the fast developing SME and education sectors. Some 20%-25% of unit sales are accounted for by households, with almost 1mn-1.5mn households said to possess a computer at present.

Software Overall spending on software remains rather low, amounting to an estimated US$137mn in 2007. The estimated 14% share of the total Egyptian IT spending accounted for by software reflects the relative immaturity of Egypt's IT market. Another explanation for low spending on software is piracy, with up to 80% of some IT goods being counterfeit. Another important factor is, of course, low income. The high costs associated with operating systems such as Windows have led some players to champion the cause of Linux. However, the domestic software sector is expected to grow at a double-digit CAGR over the forecast period until 2012. With more than 50% of the regional business community comprising of SMEs, this sector is likely to emerge as the main driver of enterprise application spending over the next few years. The entry of new telecoms service providers should spur spending on OSS and BSS systems as well as applications and service platforms.

Services IT services were worth around US$234mn in 2007, accounting for about 24% of Egypt's total spending on IT. Following the government's recently announced plan to make Egypt an outsourcing and call-centre hub, this sector should be one of the faster growing over the forecast period. Egypt's fast growing IT sector is starting to create demand for larger projects, with larger customers becoming more demanding in terms of their IT expectations, particularly in sectors such as banking, which is increasingly looking to use IDC hosting solutions. However, basic support and maintenance services represent around one-third of IT services spending. IT services CAGR is forecast at 14% for the 2007-2012 period.

E-Readiness Raya has indicated that it is considering a bid for the prospective new Egypt fixed line licence award. The award of 3G licences to three mobile telecoms service providers in 2007 is likely to provide opportunities for IT vendors. Egyptian mobile operator Mobinil was the latest company to be granted a 3G licence in July 2007, following awards for Vodafone Egypt and new entrant Etisalat earlier in the year. As well as generating additional spending on IT products and services from the telecoms sector, the growing popularity of mobile data applications should provide a boost to the PC market over the next few years.

A similar story could be told about broadband, where the number of users is expected to increase to more than 6mn by 2012. However, while the rate of internet penetration will reach 30% by that year, broadband penetration will lag far behind at just 7%.