Oct 13, 2011

The Internet Economy, how Egypt leads Turkey!

This post has been in draft mode for the past couple of weeks. Excuse the delay!

Last night one a group of management consultants, from a top tier management consultancy, came to school to give a lecture on the Internet Economy. They had been commissioned to run a report on 16 countries analyzing the contribution of the Internet economy to each of these nations.

The results of their analysis was slightly surprising. The Internet had contributed over 7% to British GDP and close to 5% to the Dutch one. What was really surprising was the Internet's contribution to the Egyptian and Turkish economies. They had calculated that the Internet had contributed to each GDP 1.6% and 1.2% respectively.

I personally have found these numbers quite surprising. First due to the significant difference in the development of each of the economies, by all measures the Turkish economy was more mature than the Egyptian, additionally the Turkish economy was more connected to Europe and the US. Turkey signed their EU FTA in 1996 while Egypt only in 2004. Additionally with a more mature banking sector I would have imagined Turks had spent more online than Egyptians.

The consultants had calculated the contributions based on the GDP expenditure method. That is adding all internet consumption, private investment, government expenditure and subtract IT imports from exports. They would then go on and ensure that all double entries have been subtracted out. Finally they went in to the shadow economy, polling porn and gambling sites, to understand and ensure that consumption in these areas was counted as well.

The data that they went on to share, was quite interesting. Even though Internet retail and consumption in Turkey exceeded Egypt's significantly, the level of enterprise investment hasn't. It seems Cairo's smart village was really putting in some serious investment. Internet retail in Egypt was mainly attributed to foreigners booking holidays and tourism packages online in the country. It is also to be noted that government expenditure in Egypt on IT was quite high according to their research, atleast comparative to that of Turkey. As well they concluded that net exports were larger in Egypt.

Yet that difference in net exports between both would allow me to predict that in the medium term Turkey would be expected to trounce Egypt in Internet economy contribution. The large net imports that Turkey is doing is predominantly in the IT infrastructure space, which would allow me to deduce that they are slowly gaining the capabilities and the smart policies to allow this contribution to increase.

Finally, the data is all relavent to 2010, so pre the toppling of the Mubarak regime. With Egypt in the cross roads it will be a couple of years till this data holds again let a lone grow. Anyhow the report has many interesting insights, I would encourage you to all read it. You can download it here.