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Egypt’s Internet Future

December 20, 2012 by Sami Chabenne, David Dean, Nicolas De Bellefonds, Amy Stevens, and Paul Zwillenberg
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In this report
  • While the commercial potential of the Internet is significant, Egypt has yet to fully embrace the opportunities.

  • Egypt’s Internet economy could grow substantially over the next five years, with benefits to consumers, businesses, and society overall.

  • The drivers of growth for Egypt’s Internet economy are unlocking the potential of e-commerce, promoting e-inclusion, and building business engagement.

 

A decade ago, the Internet was almost nonexistent in Egypt; less than 1 percent of the population (fewer than half a million Egyptians) ventured online. That picture has changed dramatically. Over the past year, the number of Internet users grew 16.9 percent—reaching 31 million (or 38 percent of the population) in July 2012—a phenomenon that can be attributed, in part, to the revolution.

This enthusiastic embrace of the Internet by the Egyptian people has been sustained by ongoing government investment in three equally important areas: subsidizing Internet-related technology and Internet access, providing Internet training for the general population and for businesses, and introducing Arabic-language Internet content. These efforts have begun to pay off. In 2010, the first Arabic domain name (.مصر) was registered in Egypt. Today, there are as many Internet users in Egypt as in all the countries of the Arabian Peninsula combined.

Now the Internet is beginning to transform Egypt’s economy, too. In 2011, the Internet contributed an estimated E£15.6 billion, or 1.1 percent of GDP, to the Egyptian economy (we call this contribution “e-GDP”)—comparable with that of health services (1.3 percent), education (1.1 percent), and oil refining (1.1 percent). Over the next five years, we foresee significant growth in Egypt’s e-GDP. Today, consumers’ combined purchases on the Internet and the money they spend to access the Internet make up just 50 percent of e-GDP (compared with 59 percent in Saudi Arabia and 71 percent in Turkey). We estimate that as consumer spending increases in combination with sustained government and private investment, e-GDP will reach E£52 billion, or 1.6 percent of Egypt’s GDP, by 2017.

But the Internet’s benefit goes beyond GDP numbers—there are ripple effects on Egypt’s economy and society. The Internet fuels economic activity, enabling businesses to conduct transactions around the world; it helps consumers to make better-informed purchasing decisions; it increases productivity (speeding access to information and the efficiency of sales and procurement); and it contributes to social well-being (simplifying access to government services) and a connected society (facilitating communication with anyone anywhere).

The demographics of Internet usage in Egypt today show a young population of Internet enthusiasts. More than half of Egypt’s Internet users are under 25—and they are very engaged online. In a 2012 survey carried out by Arab Advisors Group, 36.3 percent of respondents reported spending more than eight hours per day online, compared with just 4.7 percent who spent fewer than two hours per day online. Also, 40 percent of those under 25 are in the “highest use” category, compared with just 21 to 34 percent of those 25 to 64. In addition, young users gain access to the Internet through a variety of channels: about 75 percent of mobile-phone users under 34 reported using mobile Internet, WiFi, or both on their mobile device, compared with 50 percent or less of those in older age groups.

While the commercial potential of the Internet is significant, Egypt’s industries are just beginning to get in on the act. The migration of travel and tourism to the Internet, for example, has created a potential E£13 billion online marketplace for Egyptian travel and tourism services, but currently less than 5 percent of Egyptian companies in this sector exploit this opportunity. Similarly, Egyptian small and medium enterprises (SMEs) do not yet take full advantage of the Internet, despite the substantial economic benefits won by early adopters. Between 2007 and 2010, for example, 55 percent of SMEs that were active online saw more than 20 percent annual growth, while only 25 percent of businesses that were not active online grew at such a rate. Nonetheless, as of 2011, only 13 percent of small enterprises and just over 40 percent of medium enterprises in Egypt had an online presence.

Egypt's Internet economy is now at a crossroads. Significant government and private investment has enabled a large and growing share of Egyptians to connect to the Internet. Further, the Internet’s perceived role in Egypt’s recent revolution has built awareness of the power of the medium to bring change to the very fabric of Egypt’s society and way of life. Still, Egypt has not yet embraced the commercial opportunities of the Internet as much as other countries have in the Middle East and North Africa. Egypt’s choice is whether to continue with business as usual or to take bold steps now to unlock the potential of e-commerce and energize online business-to-business transactions, thereby driving substantial growth in its e-GDP.

Based on other countries’ success, we project that Egypt’s Internet economy could grow substantially over the next five years—at an estimated 22 percent per year in nominal terms or 12 percent in real terms—with significant benefits to consumers, businesses, and society overall. Drawing on lessons learned elsewhere, we see three drivers of this growth:

  • Unlocking the Potential of e-Commerce. E-commerce currently represents only 0.2 to 0.3 percent of retail spending, compared with 0.8 percent of retail spending in Turkey and 1 percent in the United Arab Emirates. E-commerce will blossom with increasing consumer confidence in the Internet and greater availability of online and mobile payment options.

  • Promoting e-Inclusion. Expanding the reach of the Internet across Egypt, especially by enabling more Egyptians to access the Internet at high speeds, will extend Internet and PC literacy (benefiting more rural governorates in particular) and contribute to building online content in Arabic.

  • Building Business Engagement. Business engagement will grow with increased awareness of the benefits of going online, support for those engaged in online exports, and public-private partnerships with key industry players.

BCG has published an in-depth analysis of Egypt’s Internet economy, Egypt at a Crossroads: How the Internet Is Transforming Egypt’s Economy, which assesses the Internet’s impact on that country as well as additional opportunities that the Internet represents and how Egypt can grasp them. It also evaluates where Egypt stands on the global Internet stage, predicts Egypt’s Internet-growth prospects for the next five years, and identifies the key success factors for this growth.


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