Technology parks and incubators and skilled human resources are the major engines of growth behind the Egyptian software industry. The software industry is the fastest growing segment among the Egyptian IT segments.
In 2001, the software industry comprised 15 percent of the total Egyptian IT industry accounting for $129 million up from US$105 million in 2000 with a growth rate of 23 percent and expected to increase in 2002 by 15 percent amounting for $148 million.
Egyptian software exports were estimated at $100 million in 2001 and are expected to double annually to reach $500 million by 2005. The number of companies working in the software industry is nearly 300 with 7000 professionals employed in the industry.
In 2001, application solutions software represented over half ($71.11 million) of the Egyptian software industry. Application solutions market in Egypt is almost doubling annually. Application tools captured the second highest share of Egypt's software market in 2000, with over one quarter ($30 million) of the total market.
System infrastructure software had the smallest share of the Egyptian software industry in 2000, accounting for $18.28 million, representing 17 percent. It is forecasted that application solutions will continue to dominate the Egyptian software market and be the major driver of software market development, accounting for an estimated $110 million in 2004, which would represent 56 percent of the total based on a market compound average growth rate (CAGR) of 19.1 percent from 1998.
Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) are application solutions, which have become important cross-industry tools for successful business. CRM is expected to witness a sharp rise in the coming years, especially within the banking, telecommunications and utilities sectors. Nonetheless, the outstanding sales of both types of solution software had a great impact on increasing local and regional application solutions software revenues.
Major software companies working in the Egyptian market are: Raya Holding (Mega and Oratech), IT worx operating from Nasr City's Free Zone, Sakhr as a pioneer in developing many educational and Arabic cultural products for the Arab marketplace including Egypt. MNS has also excelled in mobile applications that make use of GSM technologies, namely SMS & WAP.
In June 2001, the Software Engineering Certification Center (SECC) was officially inaugurated in Egypt as the first in the MENA region. The Center's mission is to promote and support the development of software industry in Egypt by raising the software engineering practices to a higher maturity level, thus becoming more competitive in the international market.
Several Egyptian and multinational corporations (MNCs) operating in Egypt have already committed their efforts to serve the Center's activities. Motorola is one of the companies, which will contribute with a sum of $100,000 annually over a period of three years. The founders of the SECC include Alcatel, Asset Technology Group, CITE, Comsys Software, Delta Software, DMS, Giza Systems, IBM, ICL, IT Worx, LINKdotNET, Lucent Technologies, Mentor Graphics, Microsoft, MobiNil, Nile Soft, Oracle, Pyramid Technology and Raya Holding.
As the IT hub for the Arab region, Egypt has become the major software exporter to most Arab countries, competing with Jordan and United Arab Emirates (UAE). In 1999, Egypt supplied 70 percent of the demand for such software from the Gulf region, primarily represented by the United Arab Emirates (UAE) and Saudi Arabia. Multimedia-related products such as cultural, educational, entertainment and religious CDs are the leading products exported to the Middle East region. The majority of Egyptian software companies have established branches in the UAE, Saudi Arabia, Bahrain and Oman.
In recent years, numerous programs have appeared in Egypt to promote exports among different sectors. Not surprisingly, boosting Information Technology exports has been set as a major priority in almost all of them. Examples of such export development programs are those of the Center for Business Support (CBS) and the Egyptian Exporters Association (ExpoLink) under the Growth Through Globalization Program (GTG).
IT services are comprised of support, consulting, implementation services, operations management, and training. It is the second largest segment in terms of size in the IT market. In 2000, the IT services market generated $210 million in revenue representing almost 29 percent of the total Egyptian IT market.
Support services and operations management accounted for the highest share among IT services, representing 34 percent and 19 percent of the total IT services in 2000. Like the software market, the IT services market rotates around implementation, training and consulting services, which accounted for 47 percent of services in 2000. The trend towards packaged application solutions, Internet/Intranet usage and networking will make IT services a major and dynamic segment of the IT market within the coming years. It is forecasted that by 2004, IT services will generate $445.5 million in revenues with service support representing the largest share, amounting to 35 percent, followed by operations management, which will represent 18 percent of the IT services market.
Increasing the level of automation among the governmental and private sectors has increased the demand on implementation services that involve application development, hardware and software installation, systems/network implementation and network integration.
Continuous support services have become a complementary service with the increase in selling packaged solutions in the Egyptian local market. Software companies have to ensure continuous support and maintenance to clients against problems that may result from programming errors. Many companies offer hot line support, on site-per call support, and website support.
Operations management, ranked second after support services, is triggered by outsourcing, which has become a common trend in the IT sector. In some cases, the entire information management of a company is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations. Outsourcing can range from a large contract by which a company manages IT services for another company to the practice of hiring contractors and temporary office workers on an individual basis. From the IT vendors' side, outsourcing is a way to expand their local IT services to include the range of operational services. Demand for outsourcing is being driven by the increasing need for external network management, new solutions migration and the growing complexity of IT operations.
With the increase in competition between companies and the importance of improving performance and business processes, IT and management information systems consulting are essential. Systems integrators and Independent Software Vendors (ISVs) have become important players in the software market, which reflects demand for software and related services beyond personal use as multi-year system-wide solutions.
As is the case worldwide, the IT market in Egypt is facing a shortage of skilled IT personnel in all technology segments and among different managerial levels. As IT sector performance is mainly measured by its manpower, training has become essential to fill the gap between the demand and supply in both technical and project management expertise.
3. The Government's Role in Promoting the Software Industry
As previously stated, the GOE aims to boost software exports to $500 million by 2005 from the $100 million recorded in 2001. The government has taken serious measures to achieve this goal through a series of incentive building legislations, including:
Tax holidays: A five-year tax holiday for all software companies and 10-year tax holiday for those software companies that establishes their operations in new industrial zones. Removal of customs and sales tax on software, which had previously been set at 5 percent and 10 percent, respectively.
Intellectual Property Rights (IPR)
As of 2000, Egypt's software piracy rate was 56 percent; although this figure marks a 19 percent decrease from the previous year, it is still high in comparison to the world average of 37 percent.
The relatively high piracy rate and the insignificant value added of software perceived by many Egyptian organizations and companies are still two primary reasons for the immaturity of the country's software industry.
Intellectual Property Rights (IPR) has become a major legislative concern for the software industry in Egypt because they would give international companies more confidence in the Egyptian market. The lack of IPR bars the local IT industry from competing in global market.
In terms of private sector efforts at curbing software piracy, a consortium of MNCs in Egypt, including Microsoft and Oracle, have taken the initiative in providing university students with software packages for nominal prices to encourage student use of legally licensed software.
World Intellectual Property Organization (WIPO)
The World Intellectual Property Organization (WIPO) has provided Egypt assistance in promoting awareness of intellectual property rights among parliamentarians and producing a WIPO-compliant IPR law. The organization is committed to supporting Egypt build a robust IPR infrastructure.
The major obstacle to making the country ready for full-fledged ITA compliance, however, goes back to the issue of software piracy. Three of out four pieces of software in the country have been copied illegally. Even with the 19 percent decrease in 2000, software piracy was still responsible for losses in retail software revenue of $12.2 million. Egypt had the fifth lowest piracy rate in the Middle East, with Israel having the lowest value. In the African Continent, it had the second lowest piracy rate after South Africa, which had a 45 percent piracy rate.
Hardware Industry
Under the current IT development trend, the hardware industry has been the focus of the sector, accounting for $461.71 million, representing the highest share of the whole IT market. In 2001, the hardware industry, included:
1. Multi-user server systems (which entail high-end servers, mid-range servers, low-end servers, and server add-ons),
2. Single-user systems, which are commonly termed workstations, (personal computers, PC printers, other PC add-ons) and
3. Data communications equipment (Local Area Network and other data communications equipment).
Egypt has an extremely high PC growth rate in comparison to neighboring countries, and is considered the fastest growing market for personal computers in the Arab region. Its PC growth rate is the second highest worldwide after China, and is well above the global average of 18.3 percent. Despite this, the volume of computers in Egypt compared to the population of 67 million shows that the market is still "under computerized."
According to a survey conducted by IDC on the PC market in Egypt, in 2001, PC installed base reached 709,244 units including desktops, portables and PC servers which accounted for 682,895, 16,511 and 9,838 respectively increasing from 521,935 in 2000. The total commercial market accounted for 85 percent of the total installed base.
Triggered by the high demand on Internet usage, household PCs claimed 27 percent of the market by 2000. The same survey claimed that the installed PC base is expected to increase with an annual growth rate of 23-24 percent to reach 1.08 million by 2003.
Locally assembled PC units supplied by both large and small assemblers have dominated the market, accounting for approximately 60 percent of the PCs installed base with local brands represented at a minimum compared to international brands. In 2000, foreign brands such as Compaq, HP, Dell, IBM, Acer represented 37 percent compared to 4 percent for local brands as Nile PC, Optics and Banha
Different incentives by the government have been established to encourage locally produced PCs. Customs tariffs on hardware are relatively low at 5 percent for completed products, and 5-10 percent on parts. In terms of retail, the sales tax on hardware components has been discounted by 50 percent to just 10 percent. While all ICT activities are granted a five-year tax holiday those located in industrial zones (such as 10th of Ramadan City and 6th of October City) are double rewarded with a 10-year tax holiday.
Few private companies have taken the initiative of manufacturing parts for personal computers, such as monitors and plastic computer cases. The first locally produced PC-compatible equipment was manufactured by the state-owned Banha Electronics Company. Other companies have now entered the market, such as International Electronics (a subsidiary of Bahgat Group), one of the leading private sector electronics companies in Egypt.
Though the commercial sector has a higher market share compared to household shares, the level of automation among corporations in Egypt is still low. According to Microsoft's internal estimates, out of some 400,000 companies and organizations operating in Egypt, only 10 percent have installed computers, while the remaining 90 percent have zero installed computers. The government has become an active PCs consumer after the issuance of Presidential Decree No. 627/1983, which stipulated that all government entities should establish computer information centers on their premises. In 1998, the public sector had 61,611 installed PCs, compared to only 15,282 in 1995. While the majority of these public-sector PCs came from local manufacturers, multinational companies and large-scale companies preferred to buy imported PCs.
In terms of price, locally assembled PCs are nearly 40 percent less expensive than their imported equivalent. Small Office/Home Office (SoHos) and Small and Medium Enterprises (SMEs) are the main consumers of locally assembled PCs. Two-thirds of PC shipments in Egypt are made to SoHos and SMEs, which are attracted by the low prices offered by local and regional assemblers.
As an initiative to increase demand by students in schools and universities, the MCIT has a plan to provide university students with PCs at subsidized prices. These PCs will be sold at LE2,000 each, which can be paid by the student in LE50 monthly installments over a three-year period and can be added to Telecom Egypt.
Microsoft Corporation will contribute to the project by offering students the operating system and other software at discounted prices, that can also be paid in installments as low as LE30 per month. The aim of the project is to increase the installed PC base in Egypt and raise computer skills among the younger members of Egyptian society. In addition, MCIT is already in the process of building 120 community centers throughout Egypt to offer free computer training, in cooperation with youth clubs, cultural centers and universities.
Government to boost PC usage: "A computer in every home" Initiative
The government in cooperation with the private sector collaborated forces to boost PC usage through "a computer in every home" initiative. A local PC manufacturer called Centra Technologies established in June 2002 will be responsible for providing PCs with reasonable prices afforded by the average user. The company plans to produce 150,000 machines in the first year of operations. The company's shareholders are Telecom Egypt (TE), Al-Ahram, of newspaper fame, Dokki-based system solution provider Prosylab (the largest shareholder in the company), and Banque Misr.
Centra computers will be manufactured in three government-owned factories: Benha Electronics, which today mainly produces military goods; the Arab Industrial Organization; and the Armed Forces company, El Basariat. Two other local giants, Orascom and Baghat Group, will be involved in manufacture and distribution.
|
