Egypt’s ICT Sector Experience in the National Accounts Arab Republic of Egypt Ministry of Communications & Information Technology 1st GCC e-Government Conference MUSCAT 2009 Egypt’s ICT Sector Experience in the National Accounts Dr. Nagwa El-Shenawy Ministry of Communication & Information Technology

Contents Introduction Background on ICT sector in National Accounts Development of ICT sector in National Accounts of Egypt Methodology for calculating ICT sector’s GDP New Price Index (Deflator) for the ICT Component of GDP developed by MCIT Main economic Indicators for ICT sector The ICT Component of GDP Real Growth Rates of ICT sector ICT sector’s contribution in the Egyptian Economy Future vision of the ICT sector in Egypt’s National Accounts Challenges facing those in charge of National Accounts for the ICT sector Steps forward by MCIT

Introduction Over the past years the inclusion of ICT sector in the National Accounts has witnessed remarkable development from being integrated with the Transportation sector to gaining independence as a separate sector since 2004 due to its growing size and importance. Ever since, the methodology for collecting data on the sector’s activity has been developed by the Ministry of Economic Development – the entity in charge of Egypt’s National Accounts - in cooperation with the Ministry of Communications & IT (MCIT).

1. Background on ICT sector in National Accounts

1. 1 Development of ICT sector in National Accounts of Egypt Egypt follows the rules and recommendations of the System of National Accounts (SNA) 1993 which follows the latest requirements by the IMF for Special Data Dissemination Standard (SDDS). This alignment of the Egyptian National Accounts System with International practices allows the follow up of international developments in that area and comparing Egypt’s figures with countries that follow the same standards. The National Accounts of Egypt includes all commodity and service activities in the economy whose total value added constitutes the Gross Domestic Product (GDP). Until 2004 the ICT sector was integrated with the Transportation sector in the National accounts. With the remarkable growth in the fixed lines, mobile & Internet the sector’s size and activity grew tremendously and was separated to become an independent sector in 2003-2004. Going backward a time series was generated for the CIT sector till 2001-2002.

1.2 Methodology for calculating ICT sector’s GDP Calculation of this component of GDP is done by the Ministry of Economic Development (MED) using the Value Added Approach as follows:

1.2 Methodology for calculating ICT sector’s GDP …Cont’d

1.3 New Price Index (Deflator) for the ICT Component of GDP developed by MCIT It has been suspected that the real CIT component of GDP underestimates the sector performance, because the deflator that it uses overestimates the prices of its services. MCIT in cooperation has developed a new price Index to reflect accurately the changes in telecommunications services prices and which can be used as a deflator for the ICT component of GDP. The new index has four subcomponents: Fixed line telecommunication services. Mobile telecommunication services. Internet services. Postal services. Each of the subcomponents is based on a representative basket of the telecommunication services available in Egypt, starting from first quarter of the year 2002 to the present on a quarterly basis.

1.3 New Price Index (Deflator) for the ICT Component of GDP developed by MCIT…Cont’d The detailed 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. Weights for the detailed items included in the index subcomponents were determined based on the revenues generated from each of them through sales of services as it is considered indicative to producers’ prices. The OECD advocates using the producer price index (SPPI) as a deflator for value data and this is adopted by several countries such as (UK, Germany, Korea, Sweden, Czech Republic). 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. The base period for the index is fiscal year 2006/07, which is the same base period for the quarterly national accounts in Egypt. It is also the base year for the five year plan 2006/07 – 2011/12.

1.3 New Price Index (Deflator) for the ICT Component of GDP developed by MCIT…Cont’d The importance of using the PPI is revealed in being the most appropriate deflator for the ICT component of GDP because it is composed only of services prices and not the goods which are mostly imported unlike the services which are locally produced. Using this new deflator has produced noticeable variations in the results for the economic indicators for the ICT sector.

2. Main economic Indicators for ICT sector

The ICT Component of GDP at current prices The ICT component of GDP at current prices has increased from 5.12 Billion EGP in Q1 2006-2007 to 7.95 Billion EGP in Q1 2009-2010 at a growth rate of 55.2%.

The deflator used by Ministry of economic Development (MED) & Ministry of Communications & IT (MCIT) The trends of the price indices differ noticeably where the MED’s deflator takes an upward trend rising by 5.8% while the MCIT’s deflator takes a downward trend decreasing by 8.01%.

The ICT Component of GDP at fixed prices The values of the ICT component of GDP at fixed prices using MCIT’s methodology are higher than those calculated by MED which reached 7.5 billion EGP during Q1 2009-2010 compared to 8.2 billion EGP by MCIT during the same period.

Correcting the ICT component of GDP at current prices (Annual figures) MED started publishing the corrected figures since this year The values of the ICT component of GDP at current prices increased after correcting it using MCIT’s methodology in comparison to that of MED. While the value by MED registered 14.5 billion EGP in 2006-2007, MCIT registered 23 billion EGP for the same period.

Real Growth Rate of the ICT ‘s sector GDP The Real growth rate of ICT’s GDP reached 16.88% during Q1 2009-2010 using MCIT’s methodology compared to only 13.48% using MED’s methodology. The same applies for most of MCIT’s figures compared to that of MED during Q1 2007-2008 till Q1 2009-2010.

Contribution of ICT sector in GDP The contribution of ICT sector in GDP reached 3.89% during Q1 2009-2010 using MCIT’s methodology compared to 3.57% using MED’s methodology.

The contribution of ICT sector in the GDP growth rate The ICT sector contributed 0.59 percentage points from the overall GDP growth rate of the Egyptian economy which reached 4.7% during Q1 2008-2009 according to MCIT’s methodology compared to 0.44 percentage points according to MED’s methodology.

Coordination between MED and MCIT After reviewing the process between MED & MCIT, they concluded that it is best to use the new deflator for the ICT services instead of the one used previously while correcting for the values for the sector’s real GDP. MED started publishing the corrected figures for the ICT’s GDP and its growth rates since 2007-2008. This has impacted positively its position among other sectors in the Egyptian economy to become one of the leading sectors in terms of growth rate registering the highest growth rate in 2008-2009 compared to the other sectors at 14.5%.

3. Future vision of the ICT sector in Egypt’s National Accounts

3.1 Challenges facing those in charge of National Accounts for the ICT sector The GDP data is composed of 2 parts: Actual data for major Telecom operators that includes their Investment and production which constitutes the highest proportion of the sector’s total investment and production. First Includes Postal activities and informal sector’s companies and the communications companies with no data available on their revenues and IT companies. Second Estimated using statistical tools and experts’ advise. It is important however to collect actual data for these activities.

3.1 Challenges facing those in charge of National Accounts for the ICT sector…Cont’d The difficulty of obtaining actual data from some entities in the second group as a result of their reluctance to disclose financial data fearing its leakage to competitors or Regulatory bodies or from raising taxes imposed on them. The difficulty of getting actual data from entities not listed in the formal sector. Delays from the four major Telecom operators in providing data which requires a lot of coordination between MCIT and the responsible persons in those companies.

3.2 Steps forward by MCIT MCIT has started investigating the possibility of estimating the official part of the sector with no available data through projects to estimate the digital economy in Egypt following International standards and in cooperation with large Multinationals in that field as well as through Field surveys. MCIT is coordinating with Egypt Post to obtain its quarterly data such that what is left for estimation is only the informal sector. Currently, other countries’ experiences and International recommendations on how to estimate for unavailable data are being studied.

Web site: www.egyptictindicators.gov.eg Thank You Web site: www.egyptictindicators.gov.eg E-mail: nagwash@mcit.gov.eg