World Bank

Measuring foreign direct investment in the area of information and communication technology in Egypt

Executive Summary

Prepared for the Ministry of Communications and Information Technology, Information Centre (MCIT-IC)

Tim Kelly (Lead ICT Policy Specialist, infoDev/World Bank) and Geoffrey Robertson (consultant)

15 January 2010

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68870 Vol. 1

Executive summaryThis study of the measurement of foreign direct investment (FDI) in the information and communication technology (ICT) sector of Egypt’s economy was undertaken as part of the second amendment to a reimbursable technical assistance (RTA) programme delivered by the Global Information and Communication Technology (GICT) department of the World Bank to the Information Centre of the Ministry of Communication and Information Technology (MCIT-IC) of the government of Egypt. The initial agreement was signed in June 2006 and the second amendment in August 2008.

The focus of the Ministry of Communication and Information Technology (MCIT) is to promote the development of ICT services (and ICT-enabled services) so that Egypt has the best ICT technology available to it. In addition ICT services provide significant export earnings, and provide employment opportunities, particularly for the increasingly well-educated Egyptian community. To achieve the further development of the ICT sector, Egypt aims to attract foreign direct investment (FDI) from foreign entities that are ICT specialists. Indeed, attracting FDI is a key pillar of Egypt’s ICT Strategy. To understand and monitor the success of this policy, MCIT therefore needs good statistical data on FDI.

The World Bank’s GICT department has been invited to assist in MCIT’s measurement of FDI in the ICT sector by clarifying what are ICT products and services, and what are appropriate measures, based on international best practice, of FDI, and what strategies should be developed to obtain a more accurate measure of FDI. The project was carried out in two phases:

Phase 1: September 2008 – May 2009, resulted in the first two deliverables Phase 2: June 2009 – January 2010, resulted in the final two deliverable and the final report

The team has carried out a number of missions of which three (in October 2008, July 2009 and November 2009) were directly related to the completion of this assignment. The Task Team Leader was Tim Kelly (Lead ICT Policy Specialist, infoDev) and the Consultant for Deliverables 2 and 4 was Geoffrey Robertson. Carlo Rossotto (MNA Project Coordinator, GICT) provided overall quality control and provided substantial inputs in Deliverable 3. In addition, Isabelle Huynh and Therese Cruz provided invaluable support at different stages of the project.

DeliverablesThe program has generated four substantive deliverables that were provided to the MCIT team, as planned, during the course of the project and which have been revised based on comments and subsequent work.

Deliverable 1, “Definition of the ICT Sector” (38pp), was delivered in January 2009 and revised in February 2009.

Deliverable 1 contains five substantive chapters and two annexes:

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1. Introduction2. The role of FDI in the ICT sector3. FDI in Egyptian ICT statistics: What’s the problem?4. Towards a definition of the ICT Sector5. Conclusions: Key issues for defining the ICT sector in EgyptAnnex A: Research meetings and interviews conductedAnnex B: Terms of reference for FDI module

The main output from this deliverable is recommended definition of the ICT sector (Figure 15), which was used in the subsequent analysis.

Deliverable 2, “Proposed system for data collection in FDI in ICT” (39pp), was delivered in April 2009 and revised in May 2009.

Deliverable 2 contains five substantive chapters and five annexes.

Chapter 1. Introduction.........................................................................................................................7Chapter 2. Concepts and definitions associated with foreign direct investment..................................9Chapter 3. International standards on the measurement of FDI in economic statistics......................10Chapter 4. Current measurement of FDI in Egypt’s BOP and IIP statistics...........................................14Chapter 5. Proposed improvement to FES and FDI statistics in the ICT Sector....................................17Appendix A. Concepts and definitions associated with FDI.................................................................20Appendix B. Proposed FDI Survey Form..............................................................................................22Appendix C. Analysis of proposed data items, their purpose, priority and easy of collection.............26Appendix D. Outputs from the FDI survey...........................................................................................28Appendix E. Data Entry and Tabulation System for the Proposed FDI Survey.....................................31

The main outputs from this deliverable are the definition and concepts associated with FDI (annex 1) and the proposed FDI Survey Form (annex 2) that was used in the data gathering.

Deliverable 3, “Matrix of sample companies”, was developed by MCIT-IC staff under the supervision of the project team. Work was carried out in June and July 2009 and the final sample was agreed on 14 July 2009. It covers 50 companies to be included in the survey as well as 6 other companies on the margins of the ICT sector but that do not fall within the definition adopted in Deliverable 1.

The main output from this deliverable was the sample of companies that was used in the subsequent data gathering stage, conducted between August – October 2009.

Deliverable 4, “Results and analysis of data collection of FDI in ICT” (19pp), was delivered in November 2009 and revised in January 2010.

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Deliverable 4 contains four substantive chapters and an annex. In addition, a series of confidential annexes, in the form of a spreadsheets with estimates and data on individual companies, was made available separately to the client.

Executive summary...............................................................................................................................4Chapter 1. Introduction.........................................................................................................................5Chapter 2. An analysis of the interim results on FDI..............................................................................8Chapter 3. Analysis of the results for FDI in the ICT Sector..................................................................13Chapter 4: Recommendations and next steps....................................................................................16Annex A: Streamlined survey questionnaire........................................................................................18

In addition, a presentation of the outcomes of the project was made to the MCIT-IC project team and to the Central Bank of Egypt (enclosed below).

The main output from the final deliverable is the final estimates for the flow of FDI in the ICT sector. between 2006 and 2008, and the cumulative level of FDI, which exceeds US$3 billion as of June 2008. The estimates are shown below.

FDI inflows (LE million) US$mFY 2006-07 LE 12’339 US$2’260FY 2007-08 LE 1’431 US$ 262

Cumulative level of FDI (LE million) US$m

30 June 2006 LE 3’235 US$ 59430 June 2007 LE 15’616 US$2’87030 June 2008 LE 16’847 US$3’097

The final deliverable also resulted in five recommendations for the continuation of the analysis, which are reproduced below. As a result of this project, Egypt now has a much clearer idea of the actual level of foreign direct investment in the ICT sector as well as a clear methodology for moving forward with data collection in future years.

Recommendation 1: The momentum gained during the study should be continued as a full data collection is commenced on a regular reporting cycle. A timeline for the next phase of this work was established in the revised Deliverable 2. Although the schedule has been slightly delayed because of data collection problems, the next phase of regular data collection and report should be launched upon the completion of this project.

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Recommendation 2: The study results should be published with confidential information removed. This should encourage companies both to appreciate the study and to cooperate more fully in future data collection. Furthermore publication will assist in encouraging companies to revised and improve their own internal data collection and reporting. Reporting the results will also act as a showcase for Egypt’s achievements in the field of ICT and in attracting further investment. The headline figure of US$3billion in cumulative FDI can be a powerful sales tool for promoting the benefits of ICTs in economic growth in discussion with other agencies.

Recommendation 3: Data collection would be more effective if the requirement to report were made a legal obligation. Already companies have some obligations in reporting to GAFI and ITIDA. These requirements should be codified and, as appropriate, extended to the necessary FDI data.

Recommendation 4: The survey questionnaire should be further improved and streamlined. The original questionnaire proposed in Deliverable 2 was simplified because companies were resistant to answering too many complex questions. Based on the experience of this project, it should be possible to further improve and streamline the questionnaire for the phase of full data collection.

Recommendation 5: FDI estimates should be presented as an annualised figure. The calculation is complicated by the fact that different companies have differing year-ends (e.g., in December, in March or in June. It will be necessary to present a consolidated figure so that changes over time can be compared on a like-with-like basis.

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