EGYPT’S IT AND COMMUNICATION INDUSTRY

 

Standard of the President of Egypt

Standard of the President of Egypt (Photo credit: Wikipedia)

 

SPECIAL REPORT

 

Following the January 25th 2011 revolution, deteriorating economic conditions devastated many sectors that the Egyptian communication and information technology industry depends on for much of its business. At the same time, internet use in Egypt expanded rapidly in the aftermath of a social media-catalyzed revolution, buoying what has proven to be a resilient sector of the Egypt economy.

 

A resilient sector in uncertain times

 

Communication and information technology (ICT) has been one of Egypt’s fastest growing sectors in recent years. The industry has been bolstered by government support, growing interest in mobile internet, and the introduction of 3G services.

 

In 2003, ground was broken for Egypt’s Smart Village located west of Cairo. The 470 acre area symbolizes the increasing importance of the ICT industry, gathering the Ministry of Communication and Information Technology with the head offices of major telecom operators, IT companies and banks among green spaces, a lake and waterfalls.

 

Egypt has three mobile service providers: Mobinil, London-based Vodafone, which continues to lead the industry in market shares and revenues, and UAE-based Etisalat, which entered the Egyptian market in 2006.

 

Telecom and IT took a heavy blow early on during the revolution. On January 28, the government ordered a communications shutdown in Cairo and some large metropolitan areas in an attempt to end the street protests. Mobile services returned the next day, but an SMS and internet ban continued for five days. Industry leaders say that the shutdown was out of their hands and determined by a legal mechanism. They insist they protested the decision strongly.

 

The telecom industry lost about $91 million during the communications blackout, according to the Organization for Economic Cooperation and Development. Telecom services were also hit by the temporary shutdown of the banking sector and the Egypt Exchange.

 

Telecom operators and IT companies ended 2011 with drops in revenue, but a post-revolution jump in internet use portends a promising future for the industry.

 

In April 2011, the Ministry of Communications and Information Technology (MCIT) reported that internet penetration rose to 32.19 percent, compared to 24.91 percent in the same period of the previous year. By January 2012, the penetration rate stood at 36.31%, according to MCIT statistics.

 

According to global social media and digital analytics company Socialbakers, Facebook penetration in Egypt is currently 13.18%, totaling 10,609,900 users, a figure which has grown by 1,680,160 users since November 2011. According to Socialbakers, Egypt ranks 20 globally in terms of the total number of Facebook users.

 

Mobile penetration exceeded 90% by the end of 2011, according to the MCIT.

 

Internet providers reported healthy subscription growth through 2011 while mobile internet has proven a boon for telecom companies. Since early 2011, traffic on social media sites continues to grow rapidly while Egyptians are increasingly going online to keep updated on current events.

 

Internet user demographics have also transformed following the revolution. An older age group is now showing interest in the use of internet. With a broader segment of the Egyptian population going online, internet providers are focusing on providing more Arabic online content.

 

Even as internet and mobile subscriptions continue to increase, this is countered by declining prices in a competitive and saturated market after the addition of a third telecom provider, Etisalat, particularly in voice services.

 

In early 2012, state-owned and sole landline operator Telecom Egypt, which owns 45% of Vodafone, sent a release to the stock exchange saying it will apply for licensing to provide a fourth mobile operator. The fourth service provider would operate as a Mobile Virtual Network Operator (MVNO), using infrastructure leased from other providers while offering its own call services. A fourth operator would further drive down prices in an already saturated market.

 

Revenues recovered over the course of 2011, but failed to produce profit thanks to rising costs. Companies are investing heavily to develop and maintain their networks. They have also been forced to deal with increased security expenses due to the precarious security situation post-revolution.

 

The most serious challenge facing the telecom and IT industries in the medium term is the overall economic slowdown that has afflicted key sectors. One of the biggest setbacks has been the decline in tourism, an industry that once generated 11% of Egypt’s GDP. Travel and hospitality companies continue delaying expansion and cutting back on expenses, even as telecom revenues have taken a hit from the lack of roaming charges usually generated by tourists.

 

The ICT industry also suffers from more systemic challenges, such as substandard infrastructure outside of major urban areas. Government and private sector collaborative initiatives, such as the e-Misr National Broadband plan, aim to overcome these challenges.

 

ICT is set to play a major role in education, literacy, e-government and a host of other vital issues in post-revolution Egypt. Recently, the MCIT and Ministry of Higher Education announced an agreement to distribute 10,000 locally-manufactured tablet PCs to university students over the next six months. No criteria were announced for who would receive the tablets.

 

The ICT industry continues to prove resilient despite the economic conditions. Internet and mobile subscriptions rates are expected to show healthy growth in 2012. As long as business picks up among enterprise clients, growth will continue to be robust, and ICT will continue to be a major economic engine in the Egyptian economy.

 

The e-Misr National Broadband plan – a tool for economic development

 

The communication and information technology (ICT) sector has been one of the fastest developing industries in Egypt in recent years, but continues to face systemic challenges.

 

The industry has been bolstered by government support, growing interest in mobile internet, the introduction of 3G services and booming interest in internet use following the social media-catalyzed January 25th 2011 revolution that toppled former President Hosni Mubarak.

 

One of the most serious limitations to growth is substandard infrastructure outside of major urban areas, which has created geographical gaps in internet access.

 

The government hopes to address this issue and use ICT as a developmental tool through the e-Misr National Broadband plan, which was announced by the National Telecom Regulatory Authority (NTRA) in November of 2011.

 

As Egypt looks to develop its economy and improve governance in the aftermath of the revolution, ICT will be an essential tool. The industry also has vested interests in many of the concerned issues, such as education, literacy levels, efficient governance and a democratic system that promotes the free flow of information.

 

“There is a momentum now in the country thinking that ICT is not just making a phone call or sending an SMS or checking your email or playing on Facebook,” says Khaled Rabie, Vice President of Public & Economic Affairs at Ericsson Egypt & North East Africa and member of the ICT Industry Committee, a consultative body operating under the NTRA. “That’s only part of it. The bigger part goes to the whole country’s development, and much statistical information says that on average globally a 10% increase in broadband penetration earns 1% growth in GDP.”

 

The government has made the plan’s development an inclusive process, says Rabie. Drafting and implementation of the e-Misr plan includes all telecom operators, and an array of leading information technology companies and hardware suppliers.

 

“A feedback mechanism will provide a living spirit to that plan, making it possible to be executed, and they provided the targeted outcomes through steps, medium term 2013 and long term 2021,” he explains.

 

Industry participants say they hope to move from the initial strategic planning to specific geographical, economic and financial plans by the end of Q2/2012.

 

The initiative is hoped to increase job opportunities, stimulate economic growth, improve the role of IT in governance and close the digital divide within Egypt.

 

The initiative, to be effectively completed by 2021, will focus on increasing the geographical coverage of broadband infrastructure and to create the broadband subscriber base required to lead to a sustainable growth cycle. The subscriber base in Egypt is currently less than 2% of the population. The e-Misr initiative aims to increase this to 40%.

 

The initiative will provide citizens in rural and non-economically viable areas with means to access broadband services.

 

According to the e-Misr launch report, the plan is expected to result in the creation of an average of 11,000 jobs a year for the next four years. The figure includes indirect job creation.

 

The investments related to the e-Misr initiative are expected to reach about EGP 14.4 billion in 2015, including both private investment and government subsidization, according to the Ministry of Communication and Information Technology.

 

Industry analysts and participants say the plan’s success will require many elements to come together: political willingness, active private sector participation and legislation facilitating the acquisition of licenses and permits.

 

It will also be a test for governance in post-revolution Egypt, requiring all stakeholders to work together to achieve a common vision.

 

“The initial planning phase, putting a strategy and consulting with all stakeholders was a job well done,” says Rabie. “The implementation phase shall be all stakeholders’ responsibility.”

 

Bridging the e-payment gap

 

Despite Egypt’s reliance on cash and check payments, banks and the government are working to expand electronic payment services. These efforts have been bolstered in recent years by massive growth in internet use.

 

Expansion of e-payment services are being fueled by a large tech-savvy youth population’s demand for services that are as simple as the click of the mouse or the press of a send button.

 

The emergence of a younger market segment opting for e-payments was made clear in a 2011 study by market research firm Synovate. The study reported an increasing use of credit cards in Egypt, especially among the younger demographic.

 

In light of growth in the telecommunications sector and lack of physical banking infrastructure, payment technology companies are looking to go beyond electronic payment methods, such as using a credit card at a point of sale machine, to include digital payment methods, such as using a mobile phone app.

 

Visa, the global payment technology company, and global telecom company Vodafone recently announced a worldwide partnership to offer mobile payment (m-payment) services. Visa sees huge potential for m-payments in the Egyptian market, which has a major consumer market but, like most developing economies, also has a largely unbanked population.

 

The government has also taken major strides towards tapping into the potential of e-payment methods. The Ministry of Finance recently introduced a service to make taxes and customs payable electronically for large enterprises. The service is part of a broader project to make all government transactions electronic. The Egyptian Tax Authority is currently working to implement a decree making tax payments through banks mandatory.

 

The increasing but still limited growth in banking products, credit and debit cards, online payment portals and other e-payment services has deprived the Egyptian economy of what many studies indicate is a major catalyst for economic growth.

 

A Moody’s Analytics study, which surveys 51 countries or 93% of the world’s GDP, shows electronic card usage added $1.1 trillion (LE 6.64 trillion) to private consumption and GDP from 2003 to 2008, an extra 0.2% year in GDP growth.

 

Cards, online portals and various other electronic transfer methods increase the speed of transactions from the several weeks required to process a check to several days. This acceleration produces numerous advantages, including lowering interest rates and reducing inflation, ultimately boosting investors’ confidence.

 

Using electronic transactions also reduces costs for financial institutions. It reduces the cost of cash operations, training and counterfeit detection technology and also reduces the need for cash production and maintenance by the government.

 

The risks of transporting cash or using checks have also been a major concern recently, amidst a precarious security situation. E-payments eliminate the dangers of transporting funds, which also reduces insurance rates.

 

The introduction of e-payment methods has been fueled by the rapid growth of internet penetration since 2000, when asymmetric digital subscriber line (ADSL) was first introduced in Egypt.

 

Growth in internet penetration saw a dramatic jump following the January 25 Revolution. According to the Ministry of Communication and Information Technology, internet penetration rose to 32.2% by April 2011 from 24.9% during April of the previous year. This growth has been accompanied by increased interest in e-payment methods, including online bill payments and payment portals.

 

A growing consumer base and growing internet usage attracted online enterprises to the Egyptian market. These companies have been keen to tap into the potential of e-payments. However, the use of credit cards and other electronic payments have remained limited, with most companies continuing to rely on cash-on-delivery payments.

 

Online enterprises are working to provide customers with alternative payment methods. UAE-based Jabbar Internet Group, which brought online enterprise Souq.com to Egypt, also brought the online payment service cashU to Egypt.

 

Growth of the service was initially limited by the high cost, but CashU managed to reduce prices by partnering with Cairo-based Fawry, an electronic bill payment and presentment network. Launched in December 2009, the network allows customers to receive all their bills and pay them through a unified electronic network integrated with existing payment channels including ATM machines, online banking systems, mobile phones, call centers and Integrated Voice Response (IVR) systems.

 

Previously, the cashU system required customers to purchase a prepaid card, similar to prepaid phone cards, but are instead used to purchase items online. Customers can now go to any of the 3,100 retail outlets, banks and post offices in the Fawry network and can charge their cashU card to make online purchases.

 

Credit card ownership in Egypt is steadily rising. Synovate’s banking study showed that the number of credit card owners among the upper and middle class increased to 72% in 2010 from 66% in 2009.

 

Meanwhile, payment technology companies report dramatic growth in the use of their card payment and other e-payment services in the last several years.

 

Payment technology companies and banks continue looking to provide services that correspond with the growth in telecommunication use. Payment through mobile devices is seen as an important way forward. This is particularly true in developing economies, such as Egypt, in order to compensate for the lack of physical banking infrastructure such as ATMs.

 

Analysts suggest that Egyptian consumers would be more inclined towards electronic payments if they were available via their mobile phones.

 

In many developing regions of the world, m-payments have brought insurance, banking, and microfinance and capital market services to even impoverished and isolated segments of societies.

 

Payment through a mobile device offers consumers the convenience of paying on the go, whether paying a bill or buying an item online. M-payments services have become increasingly viable in the Egyptian market due to a soaring mobile penetration rate which exceeded 90% at the beginning of 2012.

 

M-payments are set to become a more viable option for companies and consumers following the availability of services to be launched by Visa in partnership with Vodafone. The m-payment services will be based on the Visa prepaid account and offered to Visa issuers for mobile payments globally.

 

The biggest challenge to moving away from a cash-based system is consumers’ and enterprises’ lack of awareness and a lack of trust in an intangible transaction. Analysts and industry leaders see the move towards an electronic payment economy as a question of pace, but say it will require developing the trust of consumers and that companies develop risk management policies.

 

Increasing the number of Egyptians with banking products is an important element in the growth of electronic payment methods, say analysts. At the start of 2011 it was estimated that only 10% of Egyptians had bank accounts, though this figure is thought to have increased slightly over the past year.

 

However, the move towards digital payment methods, such as m-payments or the rechargeable cash-U card, may make limited banking product penetration less relevant. While banks continue to develop physical infrastructure for e-payments, digital payment methods will bridge the gap as that development continues. Digital methods will also increase financial inclusiveness to encompass more diverse segments of the Egyptian population.

 

Advertisements

About chainsoff.

Intelligence Media Service, Monitors and Analyzes Extremists’ activities, including and not limited to: The Muslim Brotherhood, Kurdish Terrorism, Syrian Politics, Jabhet Al-Nusra, Hezbollah, Cyber Crime, and Taliban activities in Syria. Well known for her deep knowledge on Terrorism. Open Source Exploitation expert in the discovery, collection, and assessment of foreign-based publicly available information, also known as Open Source Intelligence (OSINT), HIMNT
This entry was posted in Uncategorized and tagged , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s