Egypt's call centre boom

Egypt's tech-savvy government is making the country a force to be reckoned with in global IT outsourcing

by Andrew Saunders
Last Updated: 09 Oct 2013

Staring up at the gobsmacking antiquity of the Great Pyramid of Cheops, perched on the edge of the Western Desert just south of smog-shrouded Cairo, it's hard to avoid the conclusion that, for all its contemporary achievements, Egypt's finest days are behind it. After all, when the pyramids were built some 4,500 years ago, the best that British builders could do was to prop up a rickety-looking stone circle, just outside Amesbury in Wiltshire.

Not the most obvious setting for a technology-fuelled economic revolution then. Nonetheless, it is to the global market in IT outsourcing that Egypt has turned, as part of an effort to recapture some of the economic and political might it enjoyed in the time of the pharaohs.

In doing so, its leaders are taking on some of the biggest markets in a big business - most notably India, of course, the original offshore technology destination which accounts for the vast majority of IT outsourcing. 'We see a chance for Egypt. We want to be part of the global outsourcing agenda,' says Dr Tarek Kamel, minister of communications and information technology. 'We are not telling the multinationals not to invest in India, but that they should diversify their investments, and use Egypt as a gateway to the African market.'

The government has invested heavily in telecoms and internet infrastructure to provide the necessary communications backbone. It has also built some swanky business parks, of which Smart Village is the flagship. Situated on the northern outskirts of Cairo, Smart Village is all blue glass and manicured lawns, fat pipes and 3G. Outside, the traffic on the Cairo-to-Alexandria highway seethes - the 10-mile journey downtown can take a couple of hours - but within the campus's tranquil confines, surrounded by big-name tenants like Microsoft, Oracle and HP, you could almost be in Silicon Valley. Civilised it may be,ancient it definitely is not.

Egypt is not alone in wanting some of this action, as the rampant growth of outsourcing in the past decade or so has led to a range of new destinations being added to the shopping list of those firms looking to outsource. From Mauritius to Hungary, from the Philippines to Vietnam, international competition for the outsourcing dollar is hotting up.

The Egyptians may have prepared their ground well enough, but meansuring it against India is premature, says Professor Leslie Willcocks of the LSE's outsourcing unit. 'There's no comparison between Egypt and India in terms of scale and capability,' he says. 'The global outsourcing budget for 2010 is expected to be around $60bn, 80% of which goes to India. Egypt will account for less than $1bn.'

So why would a company choose Egypt? 'We look at new outsourcing destinations all the time,' says Bill Payne, VP in the managed business process services division of IBM. 'But when I saw the language skills and the quality of graduates here, a light bulb went on over my head.'

English and Arabic are commonly spoken, he says, with German, French, Spanish and Italian all fairly readily available. IBM has had a presence in Cairo since 1954, but has been operating a call centre here only since the middle of last year.

Then there's geography - Egypt is only two hours ahead of GMT and just four and a bit hours' flying time from London. Compare that to five and half hours' time-difference and nearly 10 hours in the air for those who choose Mumbai.

That's the case for Egypt. On the flip side, the record of government-sponsored economic development is pretty unedifying. Until recently, the standard of living for most of Egypt's 75 million people hadn't changed much since the military coup that deposed King Farouk in 1952 - despite a stream of ambitious but largely ill-fated state initiatives.

And hanging over every consideration of the future prosperity - or otherwise - of Egypt is the huge unanswered question of who is going to be in charge. President Hosni Mubarak has been in power for 29 years, during which time, despite cultivating the electoral trappings of democracy, he has run a totalitarian ship and brooked no opposition.

Now 81, he underwent major abdominal surgery in March. The presidential election is due next year and, as speculation about his health and possible successors mounts - son Gamal is the 'official' choice - unrest among the Egyptian populace has grown. In the country that gave birth to the radical Islamist group the Muslim Brotherhood, it doesn't take much imagination to paint a picture of the kind of political upheaval that could drive away all but the most risk-tolerant of foreign direct investors.

In the meantime, the outsourcing revolution rolls on. Entry-level in this market is Business Process Outsourcing (BPO) - call centres to you and me. BPO's appeal for host countries looking for a quick economic fix is that it can create a lot of relatively well-paid jobs very quickly - no small advantage in a country where the brightest youngsters have traditionally gone to work in the West, often never to return. But, like any industry, BPO relies on a sustainable supply of raw material - in this case, multilingual IT graduates. Should the pipeline run dry, the occupants of Smart Village might simply move on to the next hot destination.

So keen are the Egyptian authorities to avoid this unhappy scenario that they have been busily redesigning their higher education system to provide multinational outsourcers such as IBM and Vodafone with an ample stock of eager and capable employees. 'Education is being tailored to provide graduates who are ready for employment straight away,' says IBM's Payne. 'They are work-ready, with good degrees and good languages and their skills are aligned to the needs of the international companies looking to employ them.'

Turning universities and colleges into production lines for call-centre workers may not be everyone's idea of a good education, but with salaries of as much as $13,000 on offer for graduates with a year's experience - in a country where the average wage is only a couple of hundred dollars a month - it's easy to see why many young Egyptians aspire to a BPO job. Even compared to the professions - accountancy or law, for example - the money is very good and there's no qualification period before the cash starts flowing.

There's another, more familiar reason why big tech companies might feel at home here - the old boys' network. There aren't many countries with more IT alumni in the government than Egypt. Mubarak's right-hand man, prime minister Ahmed Nazif, is a former IT executive with a PhD in computer engineering from Canada's McGill University. Many of his colleagues share a similar industry background.

In fact, say some, the administration's enthusiasm for IT is one of Egypt's greatest selling points. The government has set up a quango, Itida (Information Technology Industry Development Agency), to market Egypt internationally and is taking steps to speed up the country's notorious bureaucracy. It seems to be working - Egypt has been named 'Outsourcing Destination of the Year' by the Outsourcing Association and appears regularly on surveys of offshore IT hotspots.

There are also extremely attractive tax breaks and associated financial incentives available to foreign companies, so Egypt looks attractive on price, too. The typical per-seat cost for a call centre is around $15,000 - a highly competitive figure.

But if BPO makes an attractive starting point for spearheading economic development and diversification, it certainly isn't so compelling in the long term. The speed with which new outsourcing destinations emerge, rise and then fall is ample testimony to that, and even the countries that do manage to maintain their competitiveness can find that after a few years on the BPO trail, it creates as many problems as it initially seemed to solve.

As Indian experience demonstrates, the more companies that pile in, the more even the best-supplied labour market tightens. People's expectations increase and the inevitable cycle of pay rises and promotions leads to spiralling costs. Too much of that and the multinationals - without a compelling reason to stay put - will move on to the next low-cost hotspot.

Then there's the nature of BPO work itself, and its wider social impact. The pay may be good, but the prospect of spending all day on the phone answering the same questions in three different languages soon palls. The smartest kids move on after a year or two, but most people don't have that option. In societies where the sexes often don't mix much socially and spare cash is a novelty, the consequences can be explosive.

In India, there have been a number of scandals, as bright but bored youngsters indulge in recreational sex and drugs during office hours to help pass the time. Pretty tame by western standards, but in a conservative society where marriage prospects for both men and women are badly affected by such tales, the status and desirability of BPO jobs are in rapid decline.

Still, for Egypt all that is yet to come. If other countries are falling out of love with BPO, that just presents a greater opportunity to take up the slack. But in the medium term Egypt needs to move on rapidly from low-grade BPO operations to higher-value sectors like software development and R&D if its ambitions of creating real, lasting and indigenous economic strength are to be realised.

One man with experience of operating in both India and Egypt is Dr Mohamed Reda, chairman of Swiss software development firm Allied Soft. He is optimistic that Egypt can make that vital leap up the value chain into what is known as KPO - Knowledge Process Outsourcing - a catch-all term for high-value activities such as innovation and the development of proprietary technologies. 'BPO has got a future here, but KPO will grow to be more important,' he predicts. 'There is also a great opportunity for Egypt to step up and take over from India, as India itself moves on in the cycle.'

The LSE's Willcocks agrees: 'If the authorities can help create jobs and develop a track record for the country, that will help build the critical mass needed for a strong domestic IT industry to emerge. Rather like in India, where it started out doing low-level data-cleansing but has now moved on.'

But there's one vital lesson the Egyptian authorities have yet to learn. State aid can only do so much to build industries - sooner or later, politicians have to relax their hold if such tender new enterprises are to flourish and take root. And in a country whose rulers have had an iron grip on economic as well as political power since the days when the pyramids were built all those eons ago, that's probably the hardest lesson of all.

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