Why Has Egypt Become a Preferred Destination for Global Companies in Outsourcing?

Egypt ranked third globally in the 2023 Cross-Border Outsourcing Confidence Index

Egypt has become a vibrant market in the outsourcing field, as the Egyptian government announced in February 2022 the launch of Egypt’s Digital Strategy for the Outsourcing Industry during the period from 2022 to 2026.

The strategy is based on four main pillars: Information Technology services, Business Process Operations services, Knowledge services, and Engineering Research and Development. This industry has witnessed an increase in workforce, with the number of employees exceeding 100,000 in the past year, mostly consisting of specialists working in the service export sector. Among these employees, 70% work in large companies, while the remaining percentage is distributed among small and medium-sized enterprises.

Egypt ranked third globally in the 2023 Cross-Border Outsourcing Confidence Index, a significant improvement from the 11th position in just one year. The report, prepared by Ryan Strategic Advisory, evaluates countries based on the opinions of business leaders and decision-makers in the outsourcing field. Countries are assessed according to seven criteria: local labor market, infrastructure, commercial wealth, outsourcing operational ecosystem, political stability, public safety, and economic stability.

The report highlights the role of the Information Technology Industry Development Agency (ITIDA) in creating a favorable regulatory environment to enhance the business climate. Additionally, the government’s efforts to promote Egypt as an outsourcing destination are emphasized.

According to an expert cited in the report, the outsourcing sector in Egypt is experiencing unprecedented growth, fueled by increasing technology adoption and the presence of highly qualified young talents. These factors contribute to economic growth and the creation of more job opportunities. Thanks to investment incentives and the competitive advantages of the Egyptian market, many global companies are keen on entering and expanding their operations in Egypt.

What is Outsourcing and Why Do Companies Resort to It?

Outsourcing involves the use and rental of capabilities, forces, individuals, resources, and services from entities or companies outside the country’s geographic scope. Outsourcing, also known as “contracting out” in English, is an agreement where the second party provides services to the first party. Outsourcing officially became a method adopted by companies since 1989.

While most companies relying on outsourcing can manufacture these products or provide these services themselves, they resort to outsourcing for its advantages in cost reduction, time savings, protection against loss risks, and improving quality by focusing on core activities and obtaining expertise not available in the local market.

One of the famous examples of outsourcing is Apple, which designs and manages its brand but outsources the actual manufacturing of devices to Chinese companies. In 2023, Apple reported a 57% increase in its revenues from China compared to the previous year.

Why Does Outsourcing Succeed in Egypt?

The Egyptian government actively engages with major global companies to promote Egypt in the outsourcing field. They provide international consultants with all the data and information about the Egyptian market. Egypt also engages with foreign markets through participation in international exhibitions and major conferences, presenting itself to global companies as the “cheapest price” destination offering high-quality services simultaneously. Egypt aims to triple its digital export revenues by 2026.

Egyptian authorities show great interest in developing the outsourcing industry. In June of the previous year, President Abdel Fattah El-Sisi directed efforts to enhance the development of the outsourcing industry, support independent professionals, and increase their numbers. This includes investing in human resources, providing training and qualification programs, and capacity building aligned with modern requirements of the job market and knowledge-based economy. Egypt aims to enhance the competitiveness of its workforce internationally, contributing to increased digital export revenues.

The Information Technology Industry Development Agency (ITIDA) has played a pivotal role in developing human capabilities through various initiatives and programs. ITIDA leads the development of the information and communication technology industry in Egypt to enhance the sector’s competitive ability globally and make it a major contributor to the country’s economic growth. ITIDA also plays a crucial role in the development of information technology by identifying and addressing the needs of the local industry through highly efficient specialized programs, advising on sector policies, promoting trade in local and international markets, and providing strategic consultations for local and international companies. As part of the strategy, 48 companies signed agreements in 2022 to establish or expand outsourcing centers, totaling 56 centers.

According to the Ministry of Technology and Information, Egypt has achieved an unprecedented breakthrough in providing outsourcing services due to several reasons, including the outstanding language skills of professionals in the information technology sector, a high percentage of the population’s working-age group, and massive investments that have successfully attracted the information technology sector. This sector mainly benefits from having high talents and competencies proficient in multiple languages, with over 600,000 graduates annually in various fields, including science, technology, engineering, and mathematics. The volume of digital exports in Egypt increased from $3.2 billion in 2017 to $4.9 billion in 2022.

Returns of Outsourcing

In December 2022, the Egyptian Information Technology Industry Development Agency (ITIDA) signed agreements with 29 international companies to increase their investments in the outsourcing industry or establish their headquarters in the Egyptian market, according to a statement from the Cabinet. These agreements include expanding the activities of 21 international companies in outsourcing, while eight other companies are opening offices in the country.

The Minister of Communications and Information Technology, Dr. Amr Talaat, expects these new investments to add an additional billion dollars annually to digital export revenues by 2025, creating more than 34,000 new job opportunities for Egyptian youth in these companies. The new agreements also aim to increase the workforce and enhance job opportunities by establishing 35 service export centers to serve various global markets.

The minister noted that global market estimates for cross-border services are around $540 billion, with an expected annual growth rate of 9% until 2026.

It is worth mentioning that Egypt is facing significant economic challenges following a sharp shortage of foreign currency, leading to multiple devaluations of the Egyptian pound last year. This, in turn, caused inflation rates in the country to reach unprecedented levels.

The Egyptian Prime Minister, Mustafa Madbouly, stated that the currency crisis facing the country is temporary and will end very soon. Madbouly emphasized that the crucial aspect is what comes after, and the lesson learned from the global economic crisis is that as a country, we must possess our production capabilities to the greatest extent possible.

Egypt is required to repay installments and interest on debts amounting to $29.229 billion during the coming year, according to the External Position report on the Egyptian economy issued by the Central Bank of Egypt.

In October of the previous year, Egypt agreed on a financial support package of three billion dollars with the International Monetary Fund (IMF). Cairo pledged a permanent shift to a flexible exchange rate, but this has not been achieved yet.

On March 22, the World Bank announced that it had approved a new strategic partnership with Egypt for the years 2023 to 2027, providing financing of seven billion dollars. The focus will be on creating more job opportunities in the private sector, supporting the delivery of better health and education services, and backing climate change adaptation measures.

The bank stated in a press release that the agreement includes an annual contribution of one billion dollars from the International Bank for Reconstruction and Development and approximately two billion dollars over the entire partnership period from the International Finance Corporation.