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Al-Ahram Weekly 3 - 9 February 2000 Issue No. 467 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 3 - 9 February 2000 Issue No. 467
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Special Profile Travel Living Sports People Time Out Chronicles Cartoons Letters Gateways to IT
By Amira Howeidy
What is the Egyptian government doing to attract foreign investment to the IT sector?
Ahmed Nazif
In the next few years we would like to see far more multinational companies coming to Egypt in partnership with local private sector companies operating within the communications and IT fields. This is with a view to achieving two basic objectives, the first being to address the needs of the potentially lucrative local market.
Egypt has a population of 65 million and very high growth in the use of IT. Although the market is relatively new, the indicators are all good. Use of PCs is growing at about 35 per cent a year, and though tele-density stands at only ten per cent, the government is committed to a drastic increase in that figure over the next three years. We want to grasp the opportunity to create a strong local industry through partnerships with international companies.
Our second objective is to build on Egypt's strengths as a gateway to the Middle East and North Africa, allowing Egyptian companies, through partnership agreements with multinationals, to operate as bases for marketing products and services throughout both regions. Certainly we possess the basic resources to achieve this objective, not least a strong pool of qualified and skilled labour, including a young generation of graduates, qualified and ambitious enough to start their own businesses and make them work.
Currently, though, there is minimal foreign investment in IT. [Although] multi-national companies are present, foreign investment stands at $50 million. Our target is to increase this figure to $500 million within five years. The communications market in Egypt today is very healthy -- it is worth about $500 million and we expect it to double in size within the next five years.
Is the government considering cooperation with Israel, the region's most active software provider?
The Israelis have exhibited interest in cooperating with us on hi-tech areas. They are very advanced in this area. We are definitely examining the potential for cooperation but there is nothing concrete yet.
In terms of communication with Arab countries, we are thinking of an Arab Network. In terms of IT, we're talking to the government in Dubai about partnerships whereby Egyptian companies can market their products on-line in Dubai.
Most Egyptian software companies exporting their products feel they receive little government support compared with, say the tourist sector. What is the government doing to promote this sector?
The government has prepared a national plan for the development of the communications and IT industry, identifying a number of areas for action. Regarding the development of an export-oriented industry in software we commissioned a report from the Harvard Computing Group to provide recommendations about how to improve our exports in software.
One of their recommendations involved a strategy to create a software export development organisation. Although financed by government contributions, this entity should be run on a private sector basis. We must build bridges -- linkages between Egyptian software producers and their counterparts in international markets -- in the United States, Western Europe, the Gulf area and so on.
Of course Egypt has a natural advantage in products in Arabic. So one area we need to concentrate on is developing an Arabic software industry, especially given that Arabic-speaking peoples number more than 250 million. We need, too, to focus on human resource development. People are the basis on which this industry is built. We need to prepare our young graduates to become professionals in this area. Professional development means that we provide graduates with on-going training. They can then either work for other companies or form their own start up companies.
A second area ripe for development targets not industry professionals, but the general public. We are seeking to train our young people in the use of IT by creating training centres across the country. We plan to open 200 new centres annually, in public libraries, cultural and NGO sponsored institutions. These will be like computer clubs, where people can come in, find a classroom with PCs and Internet access. The aim is to maximise the exposure of younger generations to this technology. We're also thinking of creating community hi-tech centers -- a strategy that has been successful in other countries, particularly for small businesses seeking to establish e-commerce or simply more access to information.
Are these centres a replacement for the developing of a local Silicon Valley, the establishment of which was heralded as a national priority not too long ago?
We haven't dropped that idea. We still think it is valid. Current strategy retains components for the development of what we call hi-tech areas. We might change the approach a little bit, but not the idea. By that I mean we should be more selective in identifying areas, that they should be closer to existing communities rather than being built from scratch. The second thing is to start with small areas that can grow later on. We would like, too, that these areas be given to private sector companies to develop. The government should undertake the development alone. We also envisage the creation of hi-tech incubators where start-up companies can be nurtured while they grow and are capable of standing on their own. This involves the provision of venture capital to allow the finance of bright ideas from people who cannot invest themselves.
A fourth area relates to the increase in local demand for IT through the execution of large IT projects by the government. The government is a major user of IT. One way to enlarge the market and increase demand and therefore increase the size of the industry is for the government to contract with the private sector in the IT field in areas such as a national ID project, or increased automation across entire sectors such as tourism. In the health sector, too, we need a health-care network linking our hospitals and health care offices across the country. In the area of education of course, this means introducing more computers into the class room, creating more software for education, and providing training for teachers.
But what are the priorities for the time being? Is there a budget allocated for such expansion?
We have strategic priorities, and a budget. Of course the finance isn't all coming from the government. Part of it will come from the private sector. But since we're in the middle of the current fiscal year we are receiving a nominal budget of LE24 million until June. The budget for the next two years will be decided soon.
Although the government has worked on improving the infrastructure, ambition has so far outstripped results.
We cannot have a successful industry without the proper communication infrastructure to support it. Over the past 20 years Egypt has progressed a lot in its telecommunication infrastructure, increasing the number of telephone lines from half a million to 6.5 million last year. But there is still a lot to be done. Besides increasing tele-density, we also need to improve the variety of services offered in both voice telecommunication and data networks, and even video.
In this area, we are moving towards the deregulation of telecommunications. The deregulation process started with mobile and public telephones and will soon encompass liberalising Telecom Egypt. Ten per cent of its shares are currently being made available as a public offering, a figure that is likely to increase over time.
We still need to do some work, and we are doing it in terms of the deregulation process. The new Telecom Act, for example, has been tailored to this new environment. It will allow the private sector to provide services while the government's role will be limited to monitoring. We need to improve the regulatory body -- the Telecommunications Regulatory Authority (TRA) -- so that it can do a better job in terms of licensing services and in terms of, again, monitoring the quality of the service, of prices and in acting to prevent monopolies.
We are also planning our network for the future. We've formed a number of working groups within the industry to help in this process.
But with so much enthusiasm for deregulation, isn't a ten per cent public offering of Egypt Telecom a meagre start?
Current legislation requires that the government keep a majority shareholding in the company. What we're concerned about really is not how much of the company is sold. We are more concerned with developing the management of the company. One option we are considering is the introduction of a strategic investor who would help improve the company's management practices. It really doesn't matter who owns the company, what matters more is how the company is run.
Remember, you are talking about a public utility. It's not like selling a factory somewhere. This is the network that connects Egypt, a public utility that has been in government hands for a century. It has its own practices, its own bureaucracy employing 60,000. So change must be introduced carefully. We are improving company practice before offering it to the public. What the market judges usually is not how the company is today, but it's potential, and the potential for Telecom Egypt is very, very bright.
So don't take the ten per cent as the end of the game. It is just the start.
Why would foreign investors consider Egypt at all when telecommunication networks and services need so much work? General Electric, for instance, after studying the environment and quality of the services locally, decided against remaining in Egypt.
Well, we have a number of companies coming in and they are very positive in terms of wanting to invest here. The point is that what we are doing is preparing the environment for this type of investment. What you have seen with the mobile phone companies in Egypt is a good indication. When we started putting out the mobile, people wondered if it was something that would take off in Egypt. Yet today they are blaming the government because there are only two companies. Why not have a third company?
Well two years ago, two was more than adequate. Now we have almost one million mobile subscribers, a figure beyond everyone's expectations. This growth has placed a challenge on the network which we are continuously working on improving. There were some bottlenecks, especially in the trunking between the exchanges in the network. But we keep putting in new resources to improve the situation.
Isn't it high time then to allow a third mobile company to operate?
We are bound by an agreement with the two companies to allow them four years of exclusive market access. Those four years will end in the middle of 2002. By then we will be able to put out other licenses if needed.
Why, after two years and with one million subscribers, haven't mobile prices been reduced?
Any reduction in price must not be based on a reduction of the quality of the services, that's all. That's why even a reduction in price has to be approved by the TRA -- the regulatory authority. They look at it and make sure that it will not cause any damage.
In one case we convinced one of the mobile companies not to reduce prices because this would have killed the system. We have to protect existing subscribers. They made an offer whereby new subscribers would be getting the service practically free.
Critics said that the reason the TRA refused to accept a reduction in prices is that Egypt Telecom owns 30 per cent of the mobile network's shares. Is this true?
No, it's not true.
What is being done about the legislative framework for IT?
When you talk about IT, the legislation that most concerns us are intellectual property laws. Concerning intellectual property rights in Egypt, the existing legislation is very adequate. It covers computer software, as well as data bases and content on the network.
What is needed is greater efficiency in enforcing the law. In developing countries like Egypt there is always a debate on whether full enforcement of such laws actually negatively impacts on the industry because of the limited resources available for people to buy software. So we are thinking of non-traditional solutions to this dilemma.
The agreement we recently signed with Microsoft is an example. They will provide the software at nominal prices for students because a lot of piracy is by students at universities who simply can't afford the software. If you start cracking down on them, you're actually putting the students out of business in this area. So this project will allow students to use any software they need from a company based on a nominal annual fee. They could, for example, pay something like LE20 or LE30 annually, guaranteed by their university, and go to the university library to access software or even make copies of any software they might need. This would then satisfy legal requirements and find the services they require within their reach.
We also need cyber laws for e-commerce, which is an international issue. Cyber laws must be adopted across governments and international institutions, otherwise how can you define when a crime has actually occurred? The question also applies to issues related to the General Agreement on Trade in Services (GATS). How do you tax people, for example, on transactions undertaken on the network?
How can we have an automated society when credit cards remain unpopular and faxed documents are not even recognised as legal? Don't you think there's a gap between current reality and your agenda?
Yes, of course there is a gap and we need to close it over time. We are doing it, we've done it in some areas. For example, we have the new law governing civil information systems which accord legal status to electronic records. We've also provided protection against tampering with electronic records. Actually, the law considers tampering with electronic records the same as tampering with legal documents.
What is the purpose of forming Nile Online, of which many official bodies, such as Egypt Telecom, are major shareholders?
The purpose of the company is to build an Internet backbone for Egypt. It will work like a wholesaler for internet service providers (ISPs).
So actually the company provides its services to the ISPs. Instead of every ISP going out and buying bandwidth on the network internationally and paying so much money for it, Nile Online provides it on a wholesale basis and then provides it to the end user.
It also optimises the use of the network instead of every ISP going out on its own; one goes to Paris and the other through New York. For example, I'm a subscriber on ISP 1, you are a subscriber on ISP 2, and we are sitting in two rooms across the hall. I will talk to you through Paris and you will talk to me via New York. Optimisation of the network is very important in this case.
The new company will also optimise the pricing because a wholesaler can get better deals on the bandwidth
Isn't this creating a monopoly in the market?
There is no exclusivity. They are just offering services. But it does not make sense for an ISP to do it on its own if there's already a cheaper channel. Nile Online are very ambitious people, and they want to increase the number of users to about one million in only three years. Today the number of Internet subscribers/users, by the most optimistic assessment, does not exceed 200,000.
Since Egypt Telecom is a partner in this project, does this mean the government will be in a position to filter or monitor the country's Internet network?
No, there is no control by the government over the company. The company is running its own show. It has its own board, and a strong private sector component within that.
Even the government organisations affiliated to the company are semi-private, including the Television and Radio Union and Egypt Telecom, which is slowly being privatised.
So the momentum, again, is towards deregulation. It is a question not of control but of de-control. The main issue, of course, is that we need as a community to protect ourselves against a lot of content on the network. But we have to do it as a community, not as a government. We have to protect our children from some of the stuff on the Internet for example. But I don't think that even governments will eventually have much impact. They cannot sit on the network and try and filter everything. It's a huge explosion of information.
