Egypt Information Technology Report Q4 2010

       The Egypt Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Egypt's information technology industry.
Market Overview
Egypt's IT spending is expected to increase from US$1.4bn in 2010 to US$2.6bn by 2014. BMI forecasts Egyptian IT market growth will remain below pre-economic crisis levels in 2010. Growth is expected to bounce back in FY2010/11 as the external and public sectors lift the Egyptian economy, but unemployment and the threat of inflation could inhibit spending.
Over BMI's five-year forecast period, Egypt will also benefit from youthful demographics and improving information and communication technology (ICT) infrastructure, despite several constraints and a suboptimal distribution network outside Cairo. The Egyptian market is one of the most resilient in the region, but a steep fall in imports in 2009 provided a warning that the impact of the global slowdown on consumption may not have played out yet.
In 2010, several factors should help IT spending growth recover, including new hardware and software upgrade cycles as well as sales of Microsoft's new Windows 7 operating system. Economic recovery, tenders delayed from 2009 and higher incomes boosted by pay raises for civil servants should help to keep IT sales on an upward trajectory.
Industry Developments
In April 2010 the Bank of Alexandria signed an agreement with the International Finance Corporation (IFC) arm of the World Bank to support Egyptian small and medium-sized enterprise (SME) informatisation. Under the agreement, the Bank of Alexandria will launch a localised and freely available version of the IFC's SME Toolkit web platform in both English and Arabic. The SME Toolkit offers online business management information and other interactive tools and educational resources. Meanwhile, in March 2010, Egypt's Minister for Communications, Information and Technology Tarek Kamel announced the government would launch a new innovation strategy later in 2010. The strategy will mirror initiatives such as the recently established entrepreneurship and innovation centre in Smart Village, as well as the Technology Cluster and Business Park.
The aim behind the strategy is for Egypt to move up the value chain from basic business process outsourcing (BPO) and call centre services. In 2010, the Egyptian government continues to award tenders to raise the levels of IT use in schools and promote computer literacy. In June 2009, the Ministry of Communications and Information Technology (MCIT) announced plans to purchase 10,000 computers to distribute to students and teachers, in what was described as the largest procurement tender by a government body in Egypt. MCIT has since pledged further initiatives to promote the use of technology in education.
Competitive Landscape
In 2010, Microsoft hopes migrations to its Windows 7 operating system, launched in October 2009, will boost its sales in the Egyptian market. Among major Windows 7 migrations completed in 2010 was one carried out by the Banque du Caire at its head offices. The migration was implemented by local IT giant
Raya Integration.
Meanwhile in June 2010, Raya announced that it had implemented a Windows 7 Upgrade Project for Banque du Caire, one of the oldest banks in Egypt. Raya upgraded the bank's desktop operating system on computers in its head office and supplied services including application compatibility testing for the bank's existing applications with Windows 7.
Vendors continue to target computers for schools procurement opportunities. In July 2010, chipmaker AMD announced it was implementing a tender from Egypt's Ministry of Education to deploy computers for schools based on its Phenom II X2 processors and AMD780 chipsets. In 2009, Fujitsu Technology Solutions was the winner in a 10,000-notebook procurement by the MCIT.
Computer Sales
Egypt's computer hardware sales are projected at US$862mn in 2010 and are forecast to reach US$1.6bn in 2014. Computer penetration is forecast to rise from 10% now to 19% in 2014, and annual computer sales could increase to nearly 470,000 by the end of BMI's forecast period.
Egypt's IT market will stay hardware dominated, with spending on PCs sustained by initiatives like the 'Computer For Every Student' and 'PC for Every Home' programmes. Hardware accounted for an estimated 61% of Egypt's IT spending last year. Households are responsible for 20-25% of unit sales, with 1.0-1.5mn households said to possess a computer at present.
Software
Overall spending on software remains rather low, being projected at US$197mn in 2010. The estimated 14% share of total Egyptian IT spending accounted for by software reflects the relative immaturity of Egypt's IT market. However, the domestic software market is expected to grow at a CAGR of 11% over the forecast period until end-2014. Access to credit remains a barrier for smaller Egyptian companies, but initiatives such as that launched by the Bank of Alexandria in April 2010 will help smaller Egyptian companies invest in IT.
One market driver has been a significant fall in software piracy, with the illegal software usage rate, as measured by the Business Software Association, falling a further 1% to 59% in 2008. While large corporations have long understood the business case for deploying technology, SMEs are increasingly beginning to see such investments as important if they are to avoid being overtaken by more techcompetent competitors.
Services
IT services revenues are forecast at US$349mn in 2010, accounting for about 25% of Egypt's total spending on IT. A market CAGR of 14% is projected for the period through 2014. The Egyptian IT services market is dominated by demand from government, finance and telecoms sectors, which account for more than half of total spending.
Vulnerable sectors include construction and real estate. Government spending, the largest segment, is projected to be maintained, or even increased, as a countercyclical stimulus to flagging domestic demand. One key driver is likely to be the continued expansion of Egypt as an international outsourcing destination.
E-Readiness
In 2008, Egypt continued to liberalise the telecoms market by awarding a second national fixed licence. This development, which followed the award of 3G licences to three mobile telecoms service providers in 2007, is likely to drive new opportunities for IT vendors. As well as generating additional spending on IT products and services from the telecoms sector, the spread of internet should provide a boost to the PC market over the next few years.
A similar story could be told about broadband, although cost remains a major barrier to broadband subscription in Egypt. It has been well documented that private broadband subscribers often club together with two or three neighbouring families to get a shared broadband subscription and Wi-Fi router. More competition in the market should hopefully bring prices down and lead to subscriber growth.
Companies Mentioned:

• IBM Egypt
• Raya Holdings
• Oracle
• HP
• Microsoft