Considering the disruption posed by security and political risks in Egypt, and the depreciation of the pound against the US dollar in 2013, the market performed well with solid growth. As economic and political environment becomes more supportive in 2014 we forecast growth will move to a higher trajectory as rising incomes enable consumers to purchase devices and vendors to capitalise on low penetration rates and enterprise confidence unleashes investment in software and services. A buoyant retail market, combined with the modernisation of enterprises and public administration, will ensure overall IT spending will increase as a share of GDP over the medium term to 2018. Further, the government's ICT strategy supports the market and initiatives such as tablets for education and promotion of Egypt as an outsourcing destination, boosting development.
Headline Expenditure Projections
- Computer Hardware Sales: EGP6.737bn in 2013 to EGP7.467bn in 2014, +10.8% in local currency terms. We expect strong growth for the market in local currency terms due to positive trends such as deferred purchases from 2012/2013, government procurement initiatives and widening availability of low-cost tablets.
- Software Sales: EGP1.673bn in 2013 to EGP1.99bn in 2014, +18.9% in local currency terms. Modernisation initiatives by enterprises and government will ensure strong demand growth for efficiency generating and capability expanding software.
- IT Services Sales: EGP2.894bn in 2013 to EGP3.462bn in 2014, +19.7% in local currency terms. The growth of the local outsourcing and software development industry is key to IT services growth, while demand from government, finance and telecoms sectors domestically also important growth drivers.
Key Trends And Developments
Egypt's government continues to take a proactive approach to developing the IT sector, including policy initiatives and incentives for investment. BMI believes this is laying the foundations for medium term growth, particularly in IT services, but there is also prospect for an emerging software development industry as the skills base strengthens. Government policy is helping by providing investment incentives attached to training commitments by international vendors. For instance, in November 2013 ITIDA signed an agreement with energy management services provider Schneider Electric to establish a customer care centre in Egypt, under which ITIDA will provide support through three years of training subsidies for newly hired Egyptian professionals in areas such as pre-sales, technical support, logistics and revenue generation.
Between 2013 and 2017, the MTIC plans to invest EGP450mn (US$64mn) in Egyptian ICT companies and EGP20mn (US$2.8mn) in small and medium-sized enterprises (SMEs) in the mobile and open source applications fields. By 2018 the MTIC expects to have doubled the ICT sector's 2014 output to EGP120bn (US$17bn) and to have created more than 100,000 direct jobs.
In the hardware market demand continues to grow as rising incomes grant Egyptians disposable income for computing devices. The fastest growth device category has been tablets, particularly low-cost Android devices. Tablet volumes have also been boost by the government procurement of tablets for education, and in the process providing a boost to domestic manufacturing. In February 2014 MCIT signed a protocol with the Federation of Egyptian Chambers of Commerce (FEDCOC) for the supply of computing devices to schools. Priority will be given to locally manufactured and assembled devices, with a list of Egyptian companies listed in the Chamber of Commerce. BMI considers the boost to local companies positively, with guaranteed demand allowing for fixed investment in expensive production facilities. However, this could result in lower quality devices, a risk that is heightened in the first delivery phase.