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Egypt Information Technology Report Q3 2007Product Type: Market Research ReportPublished by: Business Monitor International Published: September 2007 Product Code: R302-1339 Description Market OverviewWith Egypt’s IT market size expected by BMI to be on course to increase a value of around US$1.3bn in 2011, from US$889mn in 2006, the market is one of the most promising in the MEA region over the forecast period. With strong real GDP growth likely over the next five years, led in part by two sectors with huge potential for IT vendors (real estate and telecommunications), as well as growing foreign investment, strong growth in IT revenues is likely. Egypt’s rise up the regional IT rankings as revealed in BMI’s regional overview is being fuelled by regional trade liberalisation with around 40% of the direct investments fuelling spending in key verticals such as telecom and finance coming from GCC countries. The same trend is also stimulating new spending by smaller and medium companies on applications, hardware and services with predictions from regional distributors that Egypt could soon surpass regional giants the UAE and Saudi Arabia for computer sales. BMI therefore expects the Egyptian IT market to exhibit relatively strong all-round growth over the forecast period, with considerable opportunities in both the public and private sectors and the rate of computer penetration rising for both households and enterprises. While computers remain a luxury item for many, a series of factors should drive household sector penetration. Private consumption is expected to grow at around 5% annually over the forecast period, boosted by an expansionary monetary and fiscal policy. Moreover, the increasing popularity and affordability of notebooks is also emerging as a major driver of PC sales in the country, providing an opportunity for foreign vendors to strengthen their market position. Despite all this however, limited disposable income and wide economic disparities will remain constraints on the market for the foreseeable future. The administration of Prime Minister Ahmed Nazif seems likely to remain committed to promoting IT as part of its overall development strategy and vendors of hardware systems, packaged software, peripherals and IT services should all benefit. In addition, a number of vertical sectors are providing particularly strong demand. The telecoms sector is growing at an unprecedented rate, with the award of 3G licences to three service providers certain to generate new spending on IT products and services from this sector. The banking vertical, led by the Central Bank of Egypt and other financial institutions, is also building on earlier IT installations. Industry Developments IT Minister Tarek Kamel said in June that Egypt was implementing a new strategy of expanding IT services to Education, Health and Transport areas. The moves are in line with President Mubarak’s policy of supporting national development by applying modern technology to government services. Kamel also signed a number of other protocols in June extending e-services into other domains. Meanwhile, the Egyptian government is continuing with its plans to make ICT a major contributor to Egypt’s economy and exports. A recent report by Egypt’s IT Industry Development Agency (ITIDA) found that Egypt’s ICT exports were currently US$25mn, and forecast that they would reach US$1.5bn annually by 2010. Tarek Kamel himself recently claimed that the Telecoms and IT sector had contributed EGP25bn to the Egyptian economy over the past eighteen months. Competitive Landscape International vendors are strengthening their position in the fast growing Egypt PC market and challenging the earlier dominance of local companies. The development in part reflects the growing demand for notebooks, where foreign vendors generally have an advantage. Notebook growth was over 100% in Egypt in 2006, whereas desktop growth was in single figures. However, desktops still dominate computer sales in absolute terms with around two-thirds of shipments compared with around 30% for notebooks. The growing dominance of foreign vendors was reflected by the fact that Dell is to open a representative office in Cairo before the end of 2007, whereas previously the company covered the market through four business partners including Raya and Quest. According to Dell regional figures, its Egypt sales increased by 79% in 2006 to 12.9% of the market. Growth is continuing to increase in 2007. Overall, HP is the market leader with Dell and Acer in the runner up positions right now, and combined the top three vendors accounted for more than 40% of revenues in 2006. Computer Sales Hardware (including communications hardware) still dominates the Egyptian IT sector, accounting for approximately 58% of the total market. With rates of PC penetration still low, and the 2007 launch of the ‘Nation Online’ phase of the ‘PC for Every Home’ programme, this dominance is expected to be maintained. In 2006 Egypt spent US$507mn of its IT budget on hardware, driven by initiatives like the ‘Computer for Every Student’ and ‘PC for Every Home’ projects. 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. The number of internet users is expected to rise from around 5mn currently to more than 15mn by 2011, representing a substantial opportunity for hardware vendors. Increased competition in the telecoms sector, with the entry of a third operator should also create an environment to support growth. Egypt accounts for as much as 50% of total computer sales in Arabian Levant countries. Desktops still represent over 95% of the PC market and, despite a recent 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 US$124mn in 2006. 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 CAGR of around 6% over the forecast period until 2011. 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. Vendors such as Oracle are looking to rapidly expand their opportunities in this market. Among important verticals, banking and telecoms are likely to provide the most opportunities. Leading banks such as the Central Bank of Egypt, which has partnered with Sun, and United Bank, which is working with Misys Banking Systems, are undertaking major projects to modernise solutions and applications. The entry of a new operator in Egypt’s telecoms market in 2007 should spur spending on OSS and BSS systems as well as applications and service platforms. Services IT services were worth around US$258mn in 2006, accounting for about 29% of Egypt’s total spending on IT. 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 increasing looking to use IDC hosting solutions. However, basic support and maintenance services represent around one-third of IT services spending. 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. E-Readiness The recent award of 3G licences to three mobile telecoms service providers is likely to provide opportunities for IT vendors. Egyptian mobile operator Mobinil was the latest company to be granted a 3G licence, in July. This followed 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 expected to triple from around 5mn in 2006 to 15mn by 2011. However, while the rate of internet penetration will reach 19% by that year, broadband penetration will lag far behind at just 6%, equivalent to around 5mn subscribers. In a bid to increase access to computers and the Internet, the Egypt government’s Social Fund for Development signed an agreement with Intel recently focused on providing technology to SMBs. Egypt’s broadband initiative — first announced at ITU Telecom Africa in May 2004 — has been slow to achieve results, despite the active intervention in the market activity by the government to speed up the rate of service uptake. This intervention mainly took the form of investing to increase the country's international capacity 10-fold over the past three years to over 1,000M/bits of international bandwidth. The broadband initiative is seen by the government as another means of enhancing the country's economic competitiveness. Table of Contents
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