Balancing act

Giza Systems is just one of a growing number of Egyptian information technology companies attempting to break into the wider Middle East IT market. The leading player is certainly not alone in touting its array of software and services in an attempt to catch the cash rich accounts from rich GCC states.

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By  Greg Wilson Published  July 4, 2004

|~|ShehabElNawawi-Giza-body.jpg|~|Shehab Nawawi, chairman & managing director, Giza Systems|~|Giza Systems is just one of a growing number of Egyptian information technology companies attempting to break into the wider Middle East IT market. Initially, the systems integration and development player intends to target a number of Gulf countries with its range of vertical applications. Giza Systems is not alone, and attendees of IT trade shows around the region will witness Giza and its peers in attendance, touting an array of software and services that they hope will help them catch the cash rich accounts from rich GCC states. The multiplying number of Egyptian organisations setting their sights on regional business opportunities is a product of the country’s intensifying information & communication technology (ICT) focus. “Before the formation of the [Ministry of Communications & Information Technology] MCIT in 1999, there was very little focus on telecoms and IT,” says Shehab Nawawi, chairman & managing director, Giza Systems. “With the formation of the ministry, there [has been] a political push towards developing the telecoms and IT sector in Egypt. We [took advantage of] that and we have grown substantially over the past two or three years. Our aim is to capitalise on this success and push our [business] into the region,” he adds. Building an ICT industry capable of exporting products and services is a core component of Egypt’s Information Society Initiative (EISI). The other fundamental element of the programme is the creation of an internet-enabled, PC savvy society. When both parts of the strategy are brought together, EISI proposes to use ICT “as a vehicle to support the nation and address socio-economic challenges.” Physical manifestations of the information society initiative include such ambitious projects as Egypt’s free internet model, the PC for every home (and more recently office) scheme, the licensing of approximately 640 Information Technology Clubs, a Software Engineering Competency Centre (SECC), a 300 acre Pyramids Smart Village technology park, changes to the regulatory environment and a never ending pursuit by the ministry for foreign direct investment (FDI.) According to some IT professionals in the country, Egypt is poised on the brink of change. “[MCIT] has done a lot of work to build the foundations,” says Moustapha Sarhank, president, ISS Middle East. “They have implemented a robust and affordable infrastructure, they have invested a lot in human resource development and they have put together an appealing package to outside investors… This is on the verge of taking off,” he adds. But in reality, Egypt’s ICT drive has been derailed by the global economic depression and increasing political turmoil during 2001/2002, and is only now showing signs of recovery. Research by IDC’s Middle East office indicates that IT spending in Egypt dropped by a massive 14% in 2002, and grew at only 6% during 2003. There are signs that robust growth will return in 2004. IDC is expecting the country to exceed the regional average and rack up 16% growth in 2004. However, the market is still in recovery, according to Jyoti Lalchandani, software & consulting regional director, IDC Middle East. “[For example,] the prices of low end PC products is very high and that is because the Egyptian pound is [weak] against the dollar. This makes importing IT very expensive,” he adds. Dr. Ahmed Nazif, Egypt’s Minister of Communications & Information Technology, acknowledges the last two years had been difficult. However, with the currency stabilising and the tourism sector picking up, Egypt’s ICT sector is well positioned to capitalise on emerging opportunities. “The ICT industry… has weathered the situation very nicely,” he says. “The years 2002 and 2003 were a bottleneck for us, but there is growth within the industry. The number of new companies established between 2002 and 2004 doubled, and the number of new professional jobs created exceeded 25,000. We are also export-oriented… Egyptian companies are becoming bolder outside the country,” Dr. Nazif explains. The MCIT points to a number of statistics that highlight the initial success of EISI. For instance, since the introduction of the free internet model at the end of 2002, the number of internet users has exceeded three million and the number of houses hooked up to the web has reached 856,000. In addition, recent changes to the pricing structure are expected to spark greater demand for broadband connections. The subsidised PC for every home programme has already helped 65,000 people invest in machines, while the Information Technology Clubs have introduce thousands people to IT in the remote areas of the country. Despite the positive numbers, these initiatives are barely scratching the surface, admits Sarhank. “There is a long way to go. Many [Egyptian] businesses have yet to invest in [IT] solutions, and we still have a long way to go to get the SMEs [small-to-medium sized enterprises] online,” he says. The relative immaturity of Egypt’s ICT market is brought to the fore by IDC’s IT spending statistics, which emphasises the dominance of PC spending. When a market spends more on hardware than software, it is usually deemed immature. There are other signs of immaturity in the market, such as a failure to understand the critical relationship between technology and business. “We still have to create awareness inside Egypt about the importance of IT as a major contributor to the advancement of the modern organisation,” comments Atef Helmy, managing director, Oracle Egypt. Another indicator of the immature market is the absence of mature service providers. Although large ICT players exist in the market, they are few and far between in comparison with the software houses based in India, many of which are capable of bidding for and winning work from some of the world’s largest software vendors. A large part of the market is made up of smaller ‘mom & pop’ software houses that are unable to generate the necessary critical mass to supply solutions across the Middle East. The poor economic environment of 2001/02 did not do much to encourage market consolidation. However, in an effort to build economies of scale and pool expertise, some local companies are forming strategic alliances. According to Sayed Ismail, chairman of the Software Industry Chamber at the Federation of Egyptian Industries & chairman of the Egyptian Commodity Council for Software and Hi-tech, strategic partnerships are becoming increasingly commonplace in Egypt. “There were lots of acquisitions about five years ago, but the trend today is to form partnerships,” says Ismail. “This enables each company in the partnership to deliver a particular expertise… this model is one that fits with the current economic environment in Egypt,” he adds. Building demand for solutions in its own backyard is vital to fuelling massive growth in Egypt’s ICT industry. The country is, essentially, totally under-penetrated and offers huge potential to companies that can capitalise on the opportunity. Strong local growth will form a core base for any business looking to expand their business around the region. “Developing the home market is vital if Egypt is to position itself as an ICT hub,” says Lalchandani. “One of the main difficulties with the Egyptian market is that it doesn’t have a substantially large home market yet. It [must be] able to grow that,” he adds. A significant hurdle facing local systems integrators and independent software vendors in Egypt is the extreme price sensitivity of the market. Some development companies prefer to concentrate on opportunities in other regional markets where the margins will be better. ||**|||~|Minister-DrAhmedNazif2.jpg|~|Dr. Ahmed Nazif, Egypt’s Minister of Communications & Information Technology|~|“The majority of [revenues] come from outside of the country,” says Khaled Bichara, president & CEO, LinkdotNet. “[Elsewhere in the region,] a project for a US$100,000 would make customers think [alright], its US$100,000. But if you look at the same project in Egypt it would be LE700,000,” he adds. The government is planning to take steps to slash the costs of IT. Aside from the existing subsidised PC schemes, the Egyptian Federation of Industries is also negotiating with the Ministry of Finance to remove the 10% sales tax from all software solution sales. Although the deal has already been approved in principle by the cabinet, the final details need to be ironed out. “We are looking to remove the sales tax completely,” confirms Ismail. But frugal customers and an immature market aren’t the only factors inhibiting the development of Egypt’s ICT industry — most service providers have to acquire new skills and learn new methodologies before they can expect to compete at a regional or even global level. The country has taken the first steps towards embracing standard software certifications with the opening of SECC and the promotion of the Capability Maturity Model programme. “We’re making real moves to address the quality issue,” says Ismail. “We have 20 companies that have applied for CMM levels two and three with our SECC. Certification is vital if Egyptian companies are to be competitive in the international market,” he adds. Giza Systems is currently putting itself through the CMM and ISO certification process, in an effort to streamline its operations and introduce a greater degree of transparency to its organisation. According to Nawawi, certification is vital if it is to win business outside Egypt. “When we are competing in new markets, against much bigger [companies], the customers aren’t going to know us, so it is important they can judge us by international standards,” he adds. Egyptian ICT providers must also expand their marketing repertoire beyond the usual attendance at trade shows and ill-conceived advertising campaigns. There is a growing acknowledgement that effective marketing is vital to unlocking revenue on the home front and winning business aboard. Increasingly, Egypt’s brigade of programmers and integrators must develop more sophisticated strategies that are designed to build awareness and educate the market. “Marketing is probably the key issue that we haven’t yet turned our attention too,” says Ismail. “We have to start marketing the Egyptian brand worldwide,” he adds. Nawawi adds, “We could have many of the best products in the world, but nobody would know about it. [Marketing] is one of the biggest challenges. We have a lot good solutions and a lot of good products in this country, but the problem is exporting them, and that is because we don’t know how to package it.” Marketing expertise is of paramount importance if Egypt is to win coding work and investment away from other established and emerging hubs, such as India, Dubai and even Jordan. The economic upheaval of 2001 and 2002 has left Egypt trailing local rivals in their bid to secure international investment and improve the national infrastructure. “We do see a lot development being carried out in Egypt, but one must realise is that Dubai and India have already taken the lead in terms of development work. They have [already] built the infrastructure,” says IDC’s Lalchandani. “Egypt faces a huge challenge to catch up because companies have already made investments in countries like Jordan, the UAE and India,” he adds. Egypt isn’t deterred by the head start held by the likes of Dubai and India. Although Egypt’s Smart Village project only opened in September of last year, its sales & marketing director, Ahmed Naim, is confident it will evolve into a thriving international development centre by 2008. The initial focus has been on convincing existing ICT players in the country — both multinational and local — to move to the village. However, stage two is due to start towards the end of this year and this will see the technology park’s services target at international customers. “At the end of this year we are going to start to really focus on the international market,” says Naim. “We are trying to attract companies based on our cheap efficient resources… if companies are trying to develop cost effectively then they have an interest in coming to Egypt,” he adds. Complementing Egypt’s development talent pool is the country’s linguistic expertise. It is not uncommon to find Egyptians that can speak English, French and Arabic fluently. This will position Egyptian call centres well when it comes to bidding for international business. “[Egypt] can play the card that they have the local language expertise and competitive [priced] resources. It will be interesting to see how it plays out,” comments Lalchandani. Just how successful Egypt’s information society initiative will be at in building a booming ICT export business, attracting foreign investment or creating a connected country, remains to be seen. But, if the last two years have been about creating the infrastructure, then the remainder of 2004 and into 2006 have to be all about execution. Local rivals may of taken an early lead establishing themselves as development or marketing centres, and the development industry may be considerably more mature, but Egypt’s massive pool of programming talent will stand the country in good stead for future growth. “Egypt is a huge country and it has huge potential, but I am not sure how long it will take for the local market itself to develop,” says Lalchandani. ||**||

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