9th World Telecommunication/ICT Indicators

Meeting (WTIM-11) Mauritius, 7 - 9 December 2011

Contribution to WTIM-11 session Document C/18-E 8 December 2011

English

SOURCE: Ministry of Communication & Information Technology, Egypt

TITLE: Egypt’s Experience in Measuring ICT Economic Indicators

December 2011

Arab Republic of Egypt

Ministry of Communications and

Information Technology

Dr. Nagwa El Shenawy

Information Center Director Ministry of Communication & Information Technology

Outline Introduction.

Measuring ICT Economic Indicators

Measuring ICT output.

Overview

Importance

ICT output Methodology

Results

Challenges

Measuring ICT investment

Importance

Definition

Methodology

Measuring Foreign investment (objective – methodology – results – changes)

Challenges ahead

Recommendations

Measuring ICT Economic Indicators

In measuring ICT economic indicators, MCIT has

determined the most important indicators to measure as

follows:

ICT Output

Indicators ICT Investment

Indicators

Foreign Trade

Indicators

Revenues

ICT output (component of GDP)

ICT growth rate

ICT contribution to

GDP

Foreign Direct

Investment (FDI)

Local Investment ICT Exports

Goods & Services

ICT Imports

Goods & Services

1 2 3

This presentation will focus on

sections (1) and (2) to show MCIT

experience in measuring these

indicators

Overview

The ICT sector was merged with the Transportation sector in Egypt’s

National Accounts until 2004 when the sector activities have increased

significantly, especially with the increasing usage of mobile phones and

internet. Hence, it was separated to become an independent activity

named “Communications Sector”, to have the first separate data for the

sector in 2003/2004.

Egypt’s National Accounts include all the activities of goods and

services included in the economy, which equals in their value added the

summation of GDP.

Egypt follows the System of National Accounts (SNA) for 1993, which

fulfills the requirements of the International Monetary Fund (IMF)

regarding the Standardized Data Dissemination System (SDDS).

System of National Accounting has developed to accommodate recent

changes in the global economy. Hence, MCIT Information Center (IC)

has started to follow the latest SNA 2008 for reliable and comparable

measurement of economic indicators within National accounting

framework.

Importance It was clear that the a lot of data regarding the Economic performance of the ICT

sector has been either incomplete or inaccurate. This was an obstacle towards:

1. Measuring the sector performance, its growth rate and contribution to the

economy

2. Formulation of policies, to foster the strength points and improve the weak

points inside the sector.

Following its role to support the decision making process, MCIT-IC has started

efforts to provide accurate and reliable indicators concerning the economic

performance of the ICT sector, based on:

Cooperation with ICT companies performing in the sector.

A robust scientific methodology.

Following international standards recommended by international organizations

concerned with ICT indicators, such as the OECD, ITU, World Bank,

UNCTAD….etc.

ITU Telecom Revenue Definition Total revenue from all

telecommunication services

This is the total (gross) telecommunication revenue earned from all (fixed, mobile and data

including Internet) operators (both network and virtual operators) offering services within the

country. This should exclude revenues from non-telecommunications services. Revenue

(turnover) consists of telecommunication service earnings during the financial year under review.

This should refer to actual revenues earned by retailers and not from wholesale. Revenue should

not include monies received in respect of revenue earned during previous financial years, neither

does it include monies received by way of loans from governments, or external investors, nor

monies received from repayable subscribers' contributions or deposits. Revenues should be net

of royalties. It should exclude revenues generated from traditional broadcasting.

Revenue from fixed

telephone service

Revenues from fixed telephone services includes: Revenue received for the connection

(installation) of telephone service (this may include charges for transferring or cancelling a

service); Revenues from recurring charges for subscription to telephone (and broadband and

Internet access if can not be separated from fixed telephone) including equipment rentals where

relevant; and Revenue from calls (local, national and international calls).

Revenue from mobile

networks

Revenues from the provision of mobile cellular communications services including all voice and

data (narrowband and broadband) services. This should refer to actual revenues earned by

retailers and not from wholesale.

Revenue from leased lines Revenue from the provision of leased lines. This should refer to actual revenues earned by

retailers and not from wholesale.

The ICT component of GDP is calculated through the Value Added Approach, as follows:

ICT Output Methodology

ICT Output

(Component of GDP)

ICT Output

(Component of GDP) + = Communications Output Communications Output IT Output IT Output

80% 20%

Includes only

services, as

most of the

goods in the

sector are

imported from

abroad, and

only a small

portion is

assembled in

Egypt.

Includes only

services, as

most of the

goods in the

sector are

imported from

abroad, and

only a small

portion is

assembled in

Egypt.

-

Revenues of

Telecom

Companies

(Production)

Revenues of

Telecom

Companies

(Production)

= 70%

30%

Revenues for the main

telecom companies

(fixed and mobile)

Revenues of: Post

sector+ NTRA +

Companies in the

informal sector

+ companies with no

data available (public

phones, and small

shops)

Operating

Expenditures (OPEX)

-

wages

cost of

intermediate

goods and

services

cost of

intermediate

goods and

services

Mobile operators:

-GSM

- Airtime, sms &

other value added

services.

- Interconnect &

roaming.

- Handsets &

accessories

- Connection fees….

-Internet

Fixed operators:

-Retail

- Access

- Voice

- Internet & data

-Wholesale

-Domestic

-International

Results

ICT Sector Revenues

Results … cont’d

ICT Output (Component of GDP) at current prices

ICT Real Output (at constant prices)

ICT Real Output

(Component of GDP)

ICT Real Output

(Component of GDP) +

-

Revenues of

Telecom

Companies

(Production)

Revenues of

Telecom

Companies

(Production)

= Communications Output Communications Output IT Output IT Output

=

80% 20%

Includes only

services, as

most of the

goods in the

sector are

imported from

abroad, and

only a small

portion is

assembled in

Egypt.

Includes only

services, as

most of the

goods in the

sector are

imported from

abroad, and

only a small

portion is

assembled in

Egypt.

70%

30%

Revenues for the main

telecom companies

(fixed and mobile)

Revenues of: Post

sector+ Companies in

the informal sector

+ companies with no

data available (public

phones, internet cafés

and small shops)

MCIT Deflator (Communications Producer Price Index)

ICT Product in

current prices is

divided by the ICT

deflator of the

period to get the

ICT Product in

constant prices

Operating

Expenditures (OPEX)

- wages

cost of

intermediate

goods and

services

cost of

intermediate

goods and

services

To get ICT output at constant (fixed prices), MCIT has decided to compile a

quarterly Producer Price Index for communication services, that is based on a

representative basket of the telecommunication services available in Egypt,

starting from first quarter of the year 2002 to the present.

The structure of the basket depended on the OECD services producer price

index (SPPI) for telecommunication services, which is based on the business

telecommunications activity that is defined within the ISIC v3.1. This structure

has been slightly adjusted according to the nature of the telecommunications

services available in Egypt.

The index has four subcomponents:

Fixed line telecommunication services.

Mobile telecommunication services.

Internet services.

Postal services.

Different types of services for each of those four subcomponents have been

included in the index.

MCIT Deflator (Communications Producer Price Index)

Weights for the detailed items included in the index subcomponents were

determined using revenues generated from each of them through sales of

services.

After the four sub-indices are calculated, one composite index is compiled by

giving weights to each of those four sub-indices based on the revenue

generated from each of them.

Detailed disaggregated data for rate structures and revenues of such services

have been used for compilation of the index. Data was obtained from the fixed

and mobile telephone companies operating in Egypt, the National Telecom

Regulatory Authority (NTRA) and Egypt Post.

Data for price rate structures cover the period 2002 until the present and reflect

all the changes in price rate for this period. Due to the complexity of the mobile

phone component and internet ADSL connection, a typical simplified rate

structure was used.

MCIT Deflator (Communications Producer Price Index)… cont’d

MCIT Deflator (Communications Producer Price Index)… cont’d

Communication Services (Composite Price Index)

Results (ICT Real Output)

ICT Real Output (Component of GDP) at constant prices

Results (ICT Real Output)… cont’d

ICT Sector Real Growth Rate

ICT Output (Discrepancy between MCIT and MOP)

After MCIT adopted the new deflator, calculation of ICT output has shown a

notable difference between MCIT and MOP, as follows:

MOP MCIT

MCIT has exerted many efforts with MOP to make them adopt the new deflator compiled by MCIT, so as to get

accurate figures for the ICT output. This has resulted in much better estimates published by MOP and validated by

MCIT.

Main Challenges in Calculating ICT Output

The difficulty of getting some requested data from the Telecom

companies (financial data – tariff and traffic data), due to

confidentiality in addition to other reasons.

The communications price index (Deflator for output) requires

continuous methodological updates in order to follow up with

the different updates and developments occurring in the ICT

sector.

The main Challenges MCIT has been facing since it started its

calculation of ICT Output:

Correct measurement of ICT investment in both nominal and volume terms is crucial for estimating the contribution of ICT to economic growth and performance.

Investment in physical capital

Expand and renew the capital stock

+

enable new technologies to enter the production process

Economic Growth

Total annual investment in

telecom

Also referred to as annual capital expenditure, this is the gross annual investment in

telecom (including fixed, mobile and Internet services) for acquiring property and network.

This should include all operators (both network and virtual operators) offering

services within the country. The term investment means the expenditure associated with

acquiring the ownership of property (including intellectual and non-tangible property such as

computer software) and plant by the operator. This includes expenditure on initial

installations and on additions to existing installations where the usage is expected to be

over an extended period of time. Note that this applies to telecom services that are

available to the public, and excludes investment in telecom software or equipment for

internal use. Excludes expenditures on research and development and fees for

operating licenses and for the use of radio spectrum.

Fixed telephone service

investment

Annual investment in fixed telephone service for acquiring property and network within

the country.

Fixed (wired) broadband

investment

Annual investment in fixed (wired) broadband service for acquiring property and network

within the country.

Mobile communication

investment

Annual investment in mobile telephone service for acquiring property and network within

the country. It should include investments made for mobile broadband services.

Foreign investment Annual investment in telecom (for fixed, mobile and Internet) services coming from foreign

sources, also referred to as Foreign Direct Investment (FDI). This is usually collected by

national banks as part of the Balance of Payments.

Wide discrepancies between different sources measuring the

investment figure for the ICT sector resulted in different numbers.

A need aroused to validate the correct methodology for calculating

Investment in the ICT sector according to International

Organizations’ standards for sake of accuracy and comparability.

Source Telecom

Companies

GAFI Ministry of

Planning

Value (Billion EGP)

7.4

0.4 17.3

Time period 2009 FY 2009-

2010

2009

Interviews were held with all officials

measuring the investment figure to

understand the source of difference.

Research is being conducted to document

the different international experiences in

measuring the Investment in ICT sector.

An outline was set to define steps and

mechanisms to validate and calculate a

more accurate figure.

Why conduct a research? No precise accurate figure for FDI in ICT existed

Absence of clear methodology of calculation

Differences in the two measures of FDI by CBE and GAFI

CBE figure based solely on the foreign exchange records and is therefore an inadequate measure

Values in million USD

CBE GAFI FDI in ICT sector

1’921 1’164 2006

10.1 19.3 2007

Meanwhile the Ministry (MCIT) estimated the value of FDI flows to be

around 1 billion USD annually.

What is FDI?

Direct investment relationships arise when a direct investor directly owns equity that entitles it to 10

per cent or more of the voting power in the direct investment enterprise.

The FDI stock is the accumulation of investment while the flow is the annual change in FDI.

This project was conducted based on the IMF Balance of Payments Manual definitions of

FDI.

A clear definition was adopted of which businesses are in scope (FDI enterprises in the ICT

sector)

Defined the sample

Started with 16 major MNCs in the ICT sector

Conducted a test survey to examine feedback

Designed the Survey

Collected Data through:

Filled surveys

Financial Statements

Interviews

New Investment

New Investment

Reinvested earnings

Reinvested earnings

Net claims and

liabilities with

related companies

Net claims and

liabilities with

related companies

FDI flow FDI flow

598

2,849

3,093

2,773

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FDI stock (Million USD)

2005/06 2006/07 2007/08 2008/09**

** FDI in 2008/09 shows a decrease because not all companies responded and the figure was partly

estimated from the figures obtained the pervious year.

Continue the improvement of the total investment figure.

Treatment of License payments & fees and what to

include in the calculation of telecom investment.

Data required to measure FDI can be taken readily from

the balance sheet and profit and loss statements of FDI

enterprises but unless they are listed in stock market

they are sometimes reluctant to share such information.

Some estimation work was involved in case of no figures

for reinvested earnings were obtained , hence they were

estimated from a series of assumptions that lead to an

estimated net profit figure from which reinvested

earnings was estimated.

Countries are encouraged to unify and update the National Accounting

framework used in calculating the sector’s economic indicators by applying

the SNA 2008 (IMF, World Bank, OECD, EU).

As illustrated in the OECD Manual, a deflator specific to the ICT sector ,

whether its hedonic or a Producer Price Index (PPI), should be created in

order to calculate GDP in real terms.

Countries who still have the ICT sector clubbed with other sectors are

advised to separate it to be able to start measuring indicators which help

evaluating its performance and are useful in policy making process.

Investment methodology of ITU is recommended (added to EGTI future

activities) and asking other International organizations for their cooperation

to improve and update this methodology of measurement (OECD, IMF,

World bank, EU).

The Value Added approach is recommended for calculating the sector’s

component of GDP as it is a simple and robust approach.

Special request to international org and MN to solve one of the major

problem which is availing financial data.