16 - 22 September 1999
Issue No. 447
|Published in Cairo by AL-AHRAM established in 1875|
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The software challengeBy Amira Howeidy
The consensus is that Egypt has a promising future in exporting computer software. Although this export industry is only two years old, offshore outsourcing already brings Egypt approximately $5 to $7 million annually in revenues. And according to a US-based information technology (IT) consulting group, revenues could jump to $500 million annually within the next five years.
Out of the 140 software companies in Egypt, five have been focusing on exporting their products to Europe and the US in the last two years. So far, the results have been satisfactory, giving IT people reason to believe that Egypt can compete with low-cost software giants such as India whose industry brings in staggering revenues of $3.8 billion annually.
But the road to achieving an industry as lucrative as India's is strewn with obstacles. For one thing, critics say, the Egyptian government is still seeking to profit from the IT sector by imposing high communication fees and equally high taxes and customs duties. IT people, on the other hand, argue that the government should reverse this policy and subsidise communication costs. It should also improve the current infrastructure, software industry people say.
"See that?" commented Nagui El-Fayoumi, executive director and board member of the Egyptian Exporters Association (Expo-Link). "Three power outages in 30 minutes as we spoke. This must change. A LE15,000 computer could easily get damaged from that. And an inadequate infrastructure is very discouraging for foreign investors."
Expo-Link is a non-profit organisation founded by members of the private business community 22 months ago. It promotes Egyptian exports and has chosen software and IT among the five sectors for which it provides services.
"We believe that with more effort, Egypt can follow the Indian model. So we took the initiative more than a year ago and got the Egyptian software developers to sit together, first to create a teamwork environment -- something this business lacks. Then we provided technical assistance," El-Fayoumi told Al-Ahram Weekly. Expo-Link provided marketing strategies for both software companies and the programmers themselves. This included designing and publishing company profiles and introducing them in international IT exhibitions.
In one exhibition in Hanover, Germany, El-Fayoumi discovered that demand is high for Arabised programmes for learning Arabic and the Qur'an. "We realised there is a large [Muslim] Turkish community that is willing to buy this software," he said.
One of the first companies to focus on offshore outsourcing is NileSoft which began targeting the international market in 1997. Among the company's clients is Credit Suisse Bank. NileSoft was responsible for implementing its Online Banking System. The project mainly serves independent asset managers, enabling them to remotely access their clients' banking information needed to manage their profits over the Internet. NileSoft expanded the scope of the project to serve the bank's ordinary clients as well.
In his Heliopolis office, NileSoft's chairman Abdel-Hamid Abed said, "This leased line [for the bank's system] costs me $9,900 per month. An underwater fiber optics cable extending from Japan to Europe, which is faster, costs less. They [EgyptTelecom] are overcharging us," he said.
Egypt has a lot of potential in the international IT market, particularly in exporting software, Abed said. "We have very high quality programmers and countries such as the United States are short of IT people. We can supply them." But the number of Egyptian programmers, now 10,000, desperately needs to be tripled, he argued. Moreover, Egypt should be attractive for international IT firms who wish to invest here because "it can offer 50 per cent lower costs than similar counterparts in Europe," Abed added. But India is even cheaper. He agrees, but points out that there is only a two to three hour time difference between Egypt and Europe. "There is Egypt's proximity to Europe. The time difference ranges from two to three hours only. As for Africa, the time zone is zero. We can serve as a midway point between the European and African continents."
A report recently issued by the US-based Harvard Computing Group (HCG) suggested that Egypt can build its export industry to eventually achieve revenues as high as $600 million annually. In an interview with Al-Ahram Weekly, HCG's president and CEO Michael Cunningham said that this will require coordinated planning, involving financial institutions, education, government and industry working together "with a master plan in place. All other countries that have been successful in building an industry this size have taken a similar approach."
Cunningham's list of priorities if Egypt is to develop a software export take-off include increasing the number and quality of IT graduates, continuing education for mid- and upper-management in Egyptian software firms, financial support to develop existing firms and create new ones and serious steps to implement intellectual property and contract laws.
But he believes that despite its industry's potential, Egypt will take many years to rival India or Israel. "India is already the largest provider of customised software services in Asia, and it is graduating very large numbers of engineers annually well in excess of the entire industry in Egypt. Israel continues to produce very high quality products and tools, and has a very effective international distribution channel in place. I don't think that comparing Egypt's potential revenues to Israel's is reasonable in the near term."
More software companies are shifting their export expansion activities in the direction of the Arab countries, Europe and the US. According to Ayman Samir Abdel-Aal, president of Cairo 2000 which exports software, 50 per cent of the total revenues of the IT industry come from offshore outsourcing. Egypt is the best in the field of Arabisation, he said. However, firms working in the software field "must realise their true potential and professional skills and not overestimate them," he said. Finally, Abdel-Aal complained that Egyptian banks are still unwilling to give software companies loans because they lack assets.
Although the government has expressed its intention to support the software industry, it has done little so far. However, there are increasing efforts to expand the number of IT graduates who currently do not exceed 1,000 per year. The government-affiliated Information and Decision Support Centre has been conducting intensive nine-month training courses to create skilled programmers. But the bottom line is that the industry still needs more graduates and a better business environment to successfully compete with India.