The Services Sector: An Overlooked, High Export Earner for Egypt
Egypt has largely overlooked potential, with the right vision and policies, to leverage its natural and strategic advantages for export success in its large (52% of GDP), job-rich, “green” and profitable services sector.
Services, as opposed to agriculture and industry, are activities where people offer their knowledge and time to raise productivity, performance and potential, and produce services rather than end-products. And while certain services such as domestic retail banking, transport and telecoms are by nature inwardly-oriented, Egypt’s favorable location, equable climate and all-round touristic appeal, large, fairly skilled, adaptable, readily trainable and cost-competitive labor force, and strong trade links with its main markets combine to give the country upside potential of many billions of US Dollars in exports of tourism, transport and seven various business and professional services, all surveyed below.
Tourism and Transport
We begin with tourism, Egypt’s largest services export. In 2019, which is more indicative of underlying, pre-COVID-19 pandemic trends, 13.6 million tourists visited Egypt, generating direct revenues of $14 Billion and directly employing 2.4 million people or 9% of the labor force, with further secondary revenue and employment benefits. The country’s long-term potential remains markedly high, once COVID-19 is controlled and vaccinations completed. Egypt has many tourism-related competitive advantages; most importantly an equable climate, proximity to its main, European and Arab markets, a wealth of historic, cultural, beach/resort, nature/adventure and entertainment attractions suitable for year-round tourism, and friendly and hospitable people. Facilities are good and prices low, with the large, skilled, cost-competitive and Arabic-speaking tourism labor force also widely proficient in English and other foreign languages.
Much can still be done, starting with faster vaccination of the population against COVID, and looking and planning beyond the pandemic. Improving foreign language proficiency, infrastructure and service efficiency and reliability are essential for acquiring a reputation for quality and good value for money, as done successfully during the past two decades by Turkey, which remained popular and enhanced its tourism revenues even as wages and prices climbed. Full utilization of Egypt’s less-visited attractions is needed, especially history, culture and entertainment-rich Alexandria, the stunning northwest coast beaches with their white sand, clean turquoise water, and reliably pleasant, sunny and rainless summers, the scenery, nature, adventure and natural-based healing tourism in the Sinai Peninsula, the scenic and nature-rich southern Red Sea region, and the unique lakes, scenery and desert safari tourism potential of Fayoum Province. More nature and eco and geo-tourism are also needed in Egypt’s 30 official nature protectorates and five main desert oases. More young visitors can be attracted via sports and adventure activities and entertainment, while more of the higher-earning conference, luxury, diving, spa and nature-based healing tourism are needed to boost revenues. The most important key to success, though, is providing the excellent touristic experience, service and value for money.
Quality and high-revenue medical services for Arab and European visitors are another largely overlooked opportunity. Egypt has Africa and the Arab region’s largest pool of skilled, Arabic and English-speaking doctors (300,000) and pharmacists (250,000), plus technical staff and nurses (300,000). Many highly skilled medical staff also work outside Egypt, mostly in Arabian Gulf countries, and can be attracted back home by high domestic salaries. Investments are needed in centers for medical checkups, diagnoses, surgeries, physiotherapy and natural healing. A dry climate, curative sulfuric or highly saline water, and warm sands give special spa/natural healing potential to outlying areas: Fayoum Province, Natrun Valley, Sinai, the Red Sea region, Aswan and Nubia, plus a new, specialized healthcare city north of Lake Qarun in Fayoum. It is noteworthy that medical tourism earns India $6 Billion yearly, but Egypt has high potential to attract Arab, European including Russian, North American, as well as well-to-do Egyptian and African patients.
Reforms are necessary, though, as the goal is affordable, top-quality service. Well-chosen locations, quality facilities and infrastructure, deregulation and freedom to set up business and import supplies are all needed. Medical and especially nursing-school education in priority specializations have to be improved to international standards. For greater public acceptance of luxury medical tourism, the necessary reforms, resources and efforts are needed to improve health care for ordinary Egyptian citizens. Health insurance would provide free, state-paid health care for all citizens, and be funded by individual insurance premiums on middle and high-income state and private sector employees, plus taxes on private sector companies, upscale health care providers, and especially tobacco, alcohol and building materials firms.
Egypt’s strategic location, astride two continents and seas, at the Nile-Mediterranean confluence and hosting the Suez Canal, gives excellent potential for transport service revenues. Upside potential exists in road, railway and Nile trade connections from Sudan, South Sudan and Ethiopia to the Mediterranean, and airline transit and travel. Egypt is well-located for transit and 2–3 day stopover visits by tourist and business travelers between Europe-Africa, and eastern North America-south/southeast Asia. Airline transit, and passenger and cargo airplane re-fueling and service centers all promise good revenues, and merit official policy support. The primary mode, though, is Suez Canal ship transit, which earned $5.8 Billion in 2019 and whose expansion, completed in August 2015, raised daily capacity from 78 to 97 ships. Among other purposes, the Canal expansion was implemented in part to defend market share against competing modes of global transit: among them nearby Israel’s upcoming, competing Eilat-Ashdod cargo railway. With long-term world trade growth, Canal traffic volume will likely rise over the years towards the target capacity. The Suez Canal remains an attractive global transit mode, but related transport services are largely overlooked and promise much more.
Two Canal-related projects look promising. Depots for (diesel) ship fuel, food, drink and other ship supplies would give Egypt high sales profits in the world’s busiest shipping lane, and benefit Egypt’s oil refineries; one at Suez included, which are operating at well below capacity. Ship maintenance and repair yards would also thrive. Egypt lacks their technologies and skilled workforce, so leading Asian firms would need to invest, and train and employ Egyptian staff, while Egyptian firms acquire the expertise to gradually enter this market. Employing Egyptians would be a key condition, but here in particular, long-term, specialized university, technical and vocational education, deregulation, ease-of-business and labor flexibility rules are essential to attract such larger, longer-term, costlier and riskier investments.
Business and Professional Services
With millions of qualified and cost-competitive university graduates, augmented by 300,000 graduates yearly, Egypt can employ many of them for profitable exports of seven business and professional services: 1) Accounting and auditing, 2–4) Market study and management, engineering and legal services consulting, 5) Finance and investment services, 6) Information technology and 7) Business process outsourcing. Beginning with accounting and auditing, the world’s “big four”, many other international and domestic firms are active in Egypt. Those firms can provide quality auditing services to Arab and African firms, state and region-based entities. The same holds for management consulting, where similar firms are active, and there are multiple opportunities in areas such as marketing feasibility and capital budgeting appraisal, strategy, human resources, risk management and government consulting. With Egypt’s Arabic and English-speaking engineering graduates notably strong, enhanced, diverse-field consulting services can benefit Arab, African and Arab region-based foreign clients, and a number of Egyptian firms, such as Sabbour Consultants, already have high quality and a strong Arab, African and global presence. With many qualified Egyptian law graduates, legal consulting services are also feasible to Arab region clients, most of which have similar, statutory law-based legal systems. Some of the fields above require post-graduate degrees and professional certifications; a worthwhile investment for many.
Financial services represent a significant 8% of GDP, and are another potential exporting success. Egyptian and Egypt-based international finance firms can provide financial and investment consulting services to Arab and African client firms and governments. Moreover, given Egypt’s fairly large and diversified economy, those Egyptian firms can offer investment banking advice and become vehicles to attract foreign direct business investments (FDI) into Egypt and portfolio investments into Egypt’s financial markets. Egypt-based international firms can also provide advice and brokerage services on international investing to corporate and wealthy individual Arab and African clients. Egypt needs to reform, privatize, deregulate and support its banks to be more active financial intermediaries for FDI firms in Egypt. Lobbying Arabian Gulf states is also necessary in order to allow Egyptian banks more opportunities to expand and compete for retail and investment banking services to expatriate Egyptians living and working there.
Information and Communication Technology is also important in Egypt, representing 4% of GDP and growing. Egypt has strong graduates and professionals and is a regional heavyweight, especially in software development and Arabization. Egyptian firms already do good business and some operate in Arabian Gulf countries. High upside potential, given excellent manpower value for money, exists in software Arabization for international firms selling to and operating in the region, and software development for European, Arab and African clients. Another area is information systems development for Arab and African private and government organizations, with many jobs creatable as business and systems analysts, architects, designers, programmers and managers. A problem we address below is brain drain, with many top information technology (IT) and engineering professionals leaving for higher-paying jobs outside Egypt.
Business Process Outsourcing (BPO) can succeed in Egypt. Under BPO, Arab and global firms, based in Egypt, Europe, North America, the Arab region, Africa, India or elsewhere would outsource to their Egypt-based branches, or qualified Egyptian firms, back-end processes such as billing, taxes, payrolls, translation and IT, and/or front-end processes such as IT help desks and customer contact centers in Arabic, English or French. French language education is lagging in Egypt and needs strengthening, as that would help do business and trade with French-speaking European, North and West African countries and people. BPO earned India (which is moving up the value chain to knowledge process outsourcing, or KPO) $8.6 Billion in 2019. The Philippines and China are newer contenders, but Egypt can succeed with Arab, African and European clients, given improved skills, service quality, productivity and foreign language proficiency, and the rising costs of India and China, and a better geographic location, give Egypt an opportunity to out-compete the Philippines.
For the services sector, four factors are keys to success. Formal and professional certification education is essential, as are high labor productivity and value for money and the service provided. Human resource investment is crucial, as is growth in skills and labor productivity that outpaces that of wages, as that is what attracts business, delivers quality service, generates increasing profits, and allows healthy and virtuous wage growth. India did this successfully in IT and BPO and now KPO, as did Turkey in tourism. As seen above, Egypt has much to do, especially in education, training, and English and French-language proficiency, but those would be excellent long-term investments. Stopping the brain drain of Egypt’s great talent, especially in IT, management and engineering consulting, requires labor compensation improving and more closely tracking international levels, with provision for Egypt’s lower cost of living, along with a favorable work environment that rewards merit rather than seniority and allows faster promotion, so as to retain top talent. Finally, to attract foreign investors, ease-of-business reforms, labor market flexibility, a clear and transparent business and legal environment, cutting red tape, and physical property and intellectual copyright protection all far outweigh the excessive tax and profit repatriation incentives that Egypt typically offers. The tax money is badly needed for spending on health and education. With the right strategic vision and policies, services exports can succeed for Egypt.
