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Egypts IT spending is expected to increase from US$1.7bn in 2012 to US$3.2bn by 2016. The Egyptian IT market grew at a double-digit rate in 2011, despite continued uncertainty following the political events of 2011. The disturbances had a disruptive impact on IT market supply chains, but PC sales made a quick recovery in H211.

Over BMIs five-year forecast period, Egypt will 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 prolonged instability could have an impact on the countrys outsourcing sector.

Spending should grow more modestly in 2012 as a weak external demand picture and elevated borrowing costs represent constraints. However, despite continued economic and political uncertainties, Egypt should continue its rise over the next few years as one of the key regional opportunities for IT vendors.

Industry Developments

In November 2011 Egypts IT authority, the MCIT, launched a programe to extend IT services to all of Egypts governorates, particularly in Sinai and Nuba. The centres will provide computer and internet access, and will also function as hubs for e-government services such as issuing national ID cards and driving licences. The programe comes under the governments national programme to develop Sinai and the plan is to establish about 30 IT houses in appropriate locations. In April 2011, the interim Egyptian government announced it would spend up to EGP150bn over the next five years to build new schools. Information technology is expected to form a significant component of the spending, with around 25% of Egypts schools not equipped with computers.

Competitive Landscape

In H111, Egyptian leader Raya Technology reported a 39% fall in first half net profit to EGP12.4mn (US$2.1mn). The company, which sells mobile handsets as well as provides outsourced IT and call centre services, made a net profit of EGP20.4mn for the same period of 2010. In April 2011, Raya reported a 2.4% rise in 2010 net profit to EGP42.3mn (US$7.1mn).

In November 2011, Indian IT giant Infosys announced the implementation of a core banking system for Egypts Export Development Bank (EDBE.) The system went live in just seven months and covers over 20 branches of EDBE across Egypt. Financial services is a key sector of the Egypt IT market.

Computer Sales

Egypts computer hardware sales are projected at US$1.0bn in 2012 and are forecast to reach around US$1.7bn in 2016. However, computer penetration is forecast to rise from 10% now to above 20% by 2016, and annual computer sales could increase to around 500,000 by the end of BMIs forecast period. Egypts IT market will stay hardware dominated, with spending on PCs sustained by initiatives such as the Computer For Every Student and PC for Every Home programmes. Hardware accounted for an estimated 62% of Egypts IT spending in 2010. 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$234mn in 2012. Access to credit remains a barrier for smaller Egyptian companies, but government and bank backed initiatives will help smaller Egyptian companies invest in IT. Overall spending on software remains rather low, with the estimated 14% share of total Egyptian IT spending on software reflecting the relative immaturity of Egypts IT market.

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 tech-competent competitors.

Services

IT services revenue are forecast at around US$412mn in 2012, accounting for about 25% of Egypts total spending on IT. A market CAGR of 22% is projected for the forecast period through 2016. 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

Egypt has continued to liberalise its telecoms market with the award of a second national fixed licence, and 3G licences to three mobile telecoms service providers. 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.