The Future of IT Outsourcing in Egypt

Although Egyptian IT industry is between 15 and 20 years behind India in its development cycle and its outsourcing IT services. However, there is growing interest from Middle Eastern countries in BPO and Software outsourcing to Egypt instead of India or Europe; this is particularly the case in the Gulf countries.

Indian companies even acknowledge that the skill base of Egyptian IT engineers meets the technical standards demanded by their Indian counterparts. Furthermore, Egyptian IT engineers are multilingual. This gives them an advantage over India, because India has primarily English speakers. The lack of multilingual capabilities in India makes it difficult for the EU countries to send some outsourcing work to India, which could make Egypt look appealing.
So, Egypt is off to a good start. However, there are structural problems in need of urgent attention before Egypt can leverage the progress it has made to date or before it can be a top five location for IT outsourcing during the next 5 to 10 years.

What Egypt Needs to Maintain Momentum

The Egyptian pitch is currently too focused on Cairo, which is one of the most polluted cities in Africa. Like Los Angeles, Cairo has its own smog problem, but Cairo also suffers from infrastructure problems such as a half-completed Ring Road. Although, the smart village outside Cairo has state-of-the-art infrastructure and has attracted a number of global IT players, it is only one location, whereas India offers at least six or seven different locations.

Therefore, the Egyptian government needs to replicate the ICT infrastructure of the smart village in other parts of the Egypt. To do so, the Egyptian government needs to tackle the following:

• Quality of life: When compared with the quality of life in the Gulf states, the quality of life in Egypt is significantly lower. Therefore, to attract foreign nationals to come and live in Egypt and work in the developing IT industry, the government needs to demonstrate that the quality of life in Egypt is on a par with Kuwait City, Saudi Arabia or Dubai. This includes convincing foreign nationals that they are safe walking along Egyptian streets.

• Development of road and rail infrastructure: According Egyptian government statistics, only 78% of roads in Egypt, are paved (2003 figure). Most main roads are adequate; however, local routes tend to be in a poor state of repair. A number of major routes are incomplete (e.g., the Cairo Ring Road). The Egyptian government has estimated it needs to spend $1.7 billion on major road construction and expansion projects (including $258.0 million on the completion of the Cairo Ring Road). Cairo also suffers from heavy congestion on its road, which prioritization of the third Cairo metro line (the Egyptian government has estimated the cost of phases 1 and 2 at more than $1 billion) may ease. Egypt’s railways have suffered from long-time neglect and under-investment for the last 50 years. According to the Egyptian government, only 47% of the railways’ locomotives are serviceable, and only 15% of the rail network is electrified. The number of fatalities also illustrate the dangerous state of the Egyptian railways; in the last decade, more than 500 people have died in accidents on the Egyptian railways. All this adds up to a dire need of investment required in the Egyptian rail infrastructure. The Egyptian government plans to invest more than $2 billion on the rail infrastructure. Prioritizing investment in the road and rail infrastructure will not only assist internal transportation, but it will also make life easier for the outsourcing industry. However, the Egyptian government must exploit private financing methods such as build, operate, transfer (BOT) if it is going to meet its ambitious targets.

• Data and building security: There are some concerns about terrorism and geopolitical stability in the region. For companies considering sending sensitive work such as BPO, convincing them that their data would be protected is extremely important. Of course, there are concerns about sending BPO work and even ITO work to India because of data and other security concerns as well. For instance, in 2005, four former workers of outsourcing provider MphasiS BFL Group were arrested for stealing more than $426,000 from Citibank customers. However, this and other security lapses have led Indian companies to enact stringent security measures such as closed-circuit cameras watching employees and data-masking technology. Egypt would do well to tackle the reality of data and building security needs, as well as the perception problems that exist in some parts of the West.
  

• The education system: Ensuring an adequate educational system that will turn out well-trained employees—at a high rate—should be a paramount concern for the Egyptian government and business groups. If the outsourcing market continues to grow, pressure will build on companies to hire faster. In addition, the labor market will tighten, wages will go up and attrition will rise—just as has happened in India. Broadening educational access and ensuring high quality will help Egyptians by raising the standard of living and will provide an adequate worker pipeline for outsourcing service providers.

Egypt in 5 Years: Two Possible Scenarios

A broad range of factors will come into play in Egypt’s development as an outsourcing locale, but one test of Egypt’s ambitions is its ability to learn from the mistakes made by the Indian IT outsourcing market during its development. Symbyo Technologies believes that there are two main paths by which Egypt can develop in the IT outsourcing market:

• Learning from Indian mistakes: Egypt has similar challenges in workforce creation and infrastructure to those of India. But if Egypt keeps in mind the spectacle of India wrestling with these problems after its outsourcing market exploded, and attempts to rectify these problems as it builds its market before the market takes off, it could succeed. And it could essentially succeed at a faster rate, potentially leapfrogging India in some areas. By focusing on its infrastructure woes, educational system and security issues, Egypt could become a significant player in the outsourcing world.

• Not heeding the lessons learned in India. Egypt’s pool of technical graduates is starting to come under pressure because of the success of the Egyptian government in attracting global IT players. Staff attrition rates are rising as the talent pool cannot meet demand. This is the start of the upward spiral of rising staff and business costs. Poor planning in India means electricity and water supplies are inadequate, there are road construction delays and badly designed roads create traffic snarls and hours-long commutes. If Egypt fails to heed the lessons learned in India, it will be the end of any opportunity Egypt had of threatening India’s dominance.

Based on its current efforts and plans, Egypt appears on track for the first scenario, learning from India’s mistakes. However, the Egyptian government needs to continue to focus on its primary goal and to learn the lessons from countries with more developed IT service industries.