Surveying the modern architecture, the baby palms, the artificial lake and the full-size football pitch, it is easy to forget that this is the heart of one of our most ancient civilisations. But a few miles from the pyramids at Giza, Cairo’s Smart Village is a monument to a far more recent Egyptian accomplishment – a gleaming 265ha technology park, emblazoned with the logos of Microsoft, HP, Ericsson and Intel.

This high-tech cluster was the product of the vision of Prime Minister Ahmed Nazif – a former minister of communications and IT – who, five years ago, pledged to propel Egypt’s IT industry into one of its leading sectors. In 2005, Nazif created the IT Industry Development Agency (ITIDA), a public-private partnership responsible for attracting foreign investment into Egypt and for increasing the international competitiveness of local IT enterprises. Egypt’s telecoms firms – Telecom Egypt, Vodafone, Etisalat and Mobinil – are obliged to pay 1% of their revenues to the initiative. Funding is channelled into a multitude of programmes designed to improve the appeal of Egypt to foreign investors in outsourcing – from developing the infrastructure to partnering with businesses and universities to increase the output of industry-ready, multilingual graduates.

According to ITIDA, of the 330,000 people who graduate from Egyptian universities every year, up to 90,000 are suited to work in IT outsourcing (ITO) and business process outsourcing (BPO) operations such as call centres. ITIDA estimates that around 30,000 are fluent in western European languages – though English-speakers make up the bulk of that number, a skew that experts warn ITIDA must address quickly.

As a result of the agency’s activities, shiny new purpose-built business parks, such as Smart Village, are becoming a common sight around the country. Media Production City (MPC), a huge information and media complex, recently opened at 6th of October City, another cosmopolitan locale, home to many private universities. Further enticements to foreign companies have come in the shape of lower taxes and custom duties – including a flat income tax at 20% – a new commercial court system, and competition laws.

Nazif’s strategy appears to be paying dividends. Last year, the Egyptian economy grew by almost 5%, in the midst of a global recession, driven by a 14.6% growth in its information and communications technology (ICT) sector.

The sector has seen exports leap from $250m in 2005 to $700m in 2008, and is second only to the construction sector in terms of growth. Egypt has also leapt up management consultant AT Kearney’s index of desirable offshoring locations, ranking sixth last year compared to 13th in 2007. That pace of change is expected to continue in 2010, with the communication and IT ministry forecasting that ICT exports will nudge $1.1bn (€815m) this year, helping the economy to grow another 5.5% and unemployment to remain stable at 9.4%.

Nevertheless, Egypt is facing increasing competition, with other nations across Africa and eastern Europe all vying for a piece of the growing near-shoring market, hoping to exploit their geographical and time zone proximity to Europe and the Middle East. What makes Egypt unusual, however, is the high-profile governmental support.

“If you look to eastern European near-shoring destinations, you simply don’t find anything like the programmes Egypt has in place,” says Frank Ridder, IT sourcing analyst at research firm Gartner. “It makes it so much easier for companies to invest – there are tax benefits, education programmes to grow and improve the talent pool – it is all interconnected.”

According to ITIDA, the total cost per agent of operating a call centre in Egypt is $15,830 (€11,815). This is comparable to India, which would cost $15,050 (€11,233), and is 42% cheaper than Poland. But the government is realistic about its chances of competing with India, which has an infinitely larger talent pool and export revenues exceeding $50bn (€37bn) a year. “We are not telling multinationals that they should not invest in India or elsewhere. What we are saying is that they should ensure they diversify their investments, and utilise this gateway to Africa and the Middle East,” says Tarek Kamel, minister for communication and IT.

Judging by the roll call of blue-chip companies that have already opened beachheads in Egypt, ITIDA has done a good job so far. However, experts warn that India’s might is not the only threat to Egypt’s outsourcing ambitions, and that it still has a long way to go to cement its position on the world stage.

“ITIDA’s first priority must be to improve the perceived maturity of the Egyptian outsourcing market,” said Gartner’s Ridder. “In that respect, they are far behind countries such as Poland and the Czech Republic, which have had multinational companies [MNCs] on their shores for years. They need those MNCs, not just for the money, but also to mature the industry.”

Areas in which Ridder would like to see rapid maturity is intellectual property rights, security and data privacy – all aspects that any international firm will need to be reassured on before they consider Egypt as a serious contender in not just the call-centre market, but in R&D and innovation outsourcing too.

A major stumbling block to attracting those all-important MNC contracts would be the relative limitations of its talent pool. Despite boasting a decent volume of ready-to-work graduates, its human resources are still relatively small when compared to other outsourcing players in the field.

“Clearly, if I were a multinational telecoms firm and I wanted to locate a sizeable customer services team offshore, perhaps thousands of people, I would struggle to place that centre in Egypt,” says Mark Kobayashi-Hillary, director at the National Outsourcing Association and author of Talking Outsourcing. He identifies the Philippines as a threat to Egypt, in terms of a skilled workforce, particularly in the BPO market.

On the flipside, an influx of big-name employers could pose its own threat to Egypt’s long-term success: salary inflation, leading to a higher cost of operations for MNCs and local companies alike.

India and other BRIC countries are already experiencing upward pressure on wages as MNCs fight for the best talent – often forcing local businesses to look overseas for cheaper locations for their own call centres. This may work in Egypt’s favour in the short term, but it needs to insure against befalling the same fate. But ITIDA strategy advisor Amin Khaireldin, is philosophical on the subject: “I believe in the concept of an open market. For me MNCs or local businesses – they are the same thing. Frankly, if these businesses want to come to Egypt, we should let them get on with it.”

“The best thing we can do to minimise the acceleration of costs is to produce more resources,” he adds, highlighting initiatives by his organisation and the Information Technology Institute (ITI) designed to swell the number of qualified staff throughout the country’s major cities. ITI focuses on providing software development training to graduates, while this year ITIDA will launch a middle management training programme.

Another concern expressed is that, with parliamentary elections before the end of 2010 and presidential elections in 2011, the favourable investment climate could change. However, with ITIDA enshrined in law, the agency is working on its agenda for the next decade, which Khaireldin says will see the focus shift more towards innovation, intellectual property rights and R&D. IHS Global Insight economist Arsene Aka adds: “IT now plays such an important role in the economy, I cannot imagine that a new government could do a complete 180º turn. For a start, I do not think that the public would accept it.”

PEOPLE POWER

Many of the major IT and telecoms giants that have outsourced some of their operations to Cairo cite the quality and enthusiasm of Egypt’s workforce as key reasons for them being there.

One such company is Vodafone International Services (VIS), a subsidiary of Vodafone Group that was started in Cairo 18 months ago. A separate entity to Vodafone’s local telecoms operation, it runs offshore customer services for a combination of Vodafone countries and third-party clients. Its 24-hour Cairo office has 1,700 customer care agents.

“Countries with high GDPs have a serious lack of talented, multilingual individuals who are willing to do call-centre work for more than six months, which makes it impossible to service your clients as you would like. But here, we saw that you can fill the gaps with high-quality agents, who work for a lower salary than in other countries, in return for good career opportunities and working environment,” says VIS director Denise D’Elia.

David Brooks, IBM’s business process delivery manager, is also enthusiastic about the quality of call centre agents his firm has been able to recruit since it opened its Cairo operation at the end of 2009. “You can clearly see their eagerness to work,” he says. “We find the standard of language very high, though we’d like to see more focus on the French and German capacity.”

Ricardo Langwieder-Görner, business development director of business process outsourcing firm Stream, also warns of the limits to the multilingual capabilities. But the BPO industry veteran still expects his Cairo operation to have doubled in size, to 800 operators, by the end of the year, predicting it could grow into the thousands by 2013 if the government’s education and training plans are successful.

Mohamed Reda, chairman of BPO group Allied Soft has been impressed by all of the support the government has given. With 3,000 staff across Egypt, as well having centres in Bangalore, Karachi and Prague, he is now interested to see the results of ITIDA’s focus on growing the pool of people with managerial skills. “A lack of managers is a problem suffered in all outsourcing destinations that are fairly immature. That is where the work is needed now,” he says.