Egypt: A Safe Bet in the MEA Region in Unstable Times? | Blog
Given the current unrest in the Middle East and Africa (MEA) region, Egypt can potentially be a reliable choice for businesses seeking stability. Egypt’s support for US interests and its impartial stance in conflicts make it an appealing option for ally-shoring. To better understand the pros and cons of selecting Egypt for service delivery now, keep reading.
The MEA region is currently experiencing significant turmoil characterized by ongoing conflicts in Syria and Yemen, strained relations between Israel and Iran, and persistent tensions between Lebanon and Israel.
The Israel-Hamas conflict that began on October 7 has further intensified the regional instability, leading many global companies to temporarily close offices or implement remote work policies. For example, Bank of America closed its Tel Aviv office, while Citigroup and JP Morgan Chase instructed employees to work remotely.
The prevalence of gray swan events in the MEA region has noticeably risen and become more common, leading to the increased likelihood of unforeseen events. As a result, organizations need to find innovative solutions to maintain stable operations in the MEA’s complex geopolitical landscape.
Considering this challenging situation, a compelling hypothesis emerges: Egypt could be a viable alternative for organizations seeking stability. Owning to its neutral stance in the conflict, Egypt has remained stable with no reported service delivery disruptions or harassment of foreign nationals or tourists. To navigate this complex landscape, Egypt must balance its domestic politics – the geopolitical game of thrones – while pursuing economic growth.
From a global services perspective, Egypt offers several advantages. It has become a key player in the MEA region, attracting various organizations from diverse sectors. Egypt’s service delivery value proposition includes a large, educated, and multilingual workforce of approximately 250,000 full-time equivalents (FTEs), capable of supporting over 20 languages in both voice and non-voice business process services (BPS).
In the relatively less mature MEA region, Egypt stands out as a global services delivery hub, hosting global enterprises and providers offering diverse services, including customer experience management (CXM). Egypt is also expanding its services into IT and technology solutions, exemplified by Luxoft opening a center in New Cairo in the third quarter of 2023.
Additionally, Egypt can serve as a strategic satellite hub for companies seeking to diversify from potentially risky locations in the MEA region. This is primarily due to sharing the same time zone with Israel, which facilitates collaboration.
Moreover, Egypt is experiencing growing demand for BPO talent, surpassing other prominent offshore/nearshore locations, as illustrated below, which demonstrates its increasing delivery capabilities.
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The complications with Egypt
At the same time, Egypt possesses its share of economic and political challenges. The country has been confronting multiple macroeconomic obstacles as the economy recovers from the double whammy of reduced tourism due to COVID-19 (impacting a massive income source for the country) and the global uncertainties exacerbated by the Russia-Ukraine conflict.
In 2022, the Egyptian Pound lost approximately 50% of its value and remained one of the worst-performing currencies in the first half of 2023 due to a lack of foreign reserves. It is expected to further depreciate by the end of 2023, putting pressure on policymakers to devalue it even more.
Other economic indicators paint a grim picture, with urban consumer inflation reaching 38% in September 2023. Egypt’s high debt-to-GDP ratio led Moody’s to downgrade its government bonds to the substantial risk Caa1 bracket, seven rungs into junk territory in October. The International Monetary Fund (IMF) has imposed stringent terms for Egypt to address the economic crisis, including selling state assets and further currency devaluation.
This presents a challenge for Egyptian policymakers, as upcoming year-end elections may make currency devaluation and asset sales unpopular with the public, even though Abdel Fattah El-Sisi is predicted to secure a third term as president.
Ally-shoring – a prudent choice during uncertain times
Against the backdrop of these economic woes, global geopolitics have been marked by black swan events since 2020. These include the Hong Kong national security law, the COVID-19 pandemic, the Russia-Ukraine conflict, and the ongoing Israel-Hamas tensions in the MEA region.
This has made the already complex MEA region more challenging to navigate. Ongoing conflicts in countries like Syria and Yemen and the Israel-Hamas dispute further complicate matters. As a result, the much-anticipated Israel and Kingdom of Saudi Arabia peace deal is on hold, and the United States’ detente with Iran, particularly regarding oil supplies, faces threats that could impact the global economy.
In response to these uncertainties, organizations are turning to “ally-shoring” as a strategy. Ally-shoring involves establishing delivery centers in allied nations to build lasting relationships that protect both economic and national security interests. U.S. companies have increasingly embraced this approach, with Mexico in Latin America and Portugal and Spain in Europe becoming popular choices. The Ukraine conflict and trade tensions with China have partly contributed to this shift.
The situation could potentially result in a higher penetration of US-headquartered companies in Egypt in the near and medium term. Let’s explore the reasons for this possible trend:
- First, a longstanding military alliance exists between the U.S. and Egypt, facilitating the smooth movement of US military assets via the Suez Canal
- Second, shared concerns about Iran’s regional influence and its support for proxy terrorist groups contribute to this choice
- Third, Egypt’s limited likelihood of actively participating in conflicts, given its struggling economy and dependence on Western economic aid, positions it as a stable option
- Lastly, Egypt’s proactive efforts to attract companies, particularly in the IT sector, as part of its 2030 vision, have led to impressive growth, with a 16.7% increase in 2021/2022 and a 5% contribution to GDP, despite global economic challenges. These growth indicators are driven by digital infrastructure investments and improved business conditions, making Egypt attractive for companies looking to establish centers in the region
In the near future, Egypt’s business environment appears stable, although concerns persist related to its neutral stance in ongoing conflicts, potential refugee issues, and economic challenges. Nevertheless, the overall risk to business operations remains low. Pro-Palestine protests in Egyptian cities have been peaceful and have not disrupted daily activities. Egypt’s role as a mediator between the West and the Arab world through the Rafah border is noteworthy, but its likelihood of becoming a major player in conflicts remains low.
The outlook
Egypt’s alignment with US interests and its neutral stance in conflicts make it an attractive ally-shoring option. However, businesses should be mindful of Egypt’s economic challenges, including a depreciating currency and high inflation, exacerbated by political pressures due to upcoming elections. Despite these threats, Egypt offers a strategic advantage, supported by a growing global services sector and government initiatives for business development in these uncertain times.
Everest Group’s dedicated team of analysts tracks 30-plus cities in India and more than 300 cities globally from a global services perspective. If you have questions or would like to discuss global services destination topics, please reach out to [email protected] or [email protected].
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