Start-Ups: The Growth Egypt Needs

Egypt is the Mediterranean region’s largest economy, connecting the Arab world to Europe through my native country Cyprus, which forms the continent’s south-eastern border. My ties to Egypt are quite personal, as I bear the name of Cleopatra, the Egyptian queen of the Ptolemaic dynasty, which ruled Egypt until the Roman period. Curious about the history of this richly diverse country, I travelled through Egypt in my youth, exploring the Sinai mountain region while on a religious pilgrimage to St Catherine’s monastery. I also worked as a conflict resolution volunteer in rural areas in the northern and eastern regions.

At the last European Bank for Reconstruction and Development (EBRD) annual meeting and business forum, where I represented the Arab International Women’s Forum, Egypt was seen to offer compelling opportunities, with reforms across sectors, an eagerness to attract investors in manufacturing, food production, processing and distribution, and energy – specifically renewables. The conversation missed a key dynamic for growth, however: youth, specifically young people as Egypt’s start-up entrepreneurs, including the tools they need to prosper, especially their access to finance.

Illustration by Costas Mantzalos

Start-ups: The growth Egypt needs

With elections coming to Egypt this March, much of the attention is focusing on the state of the national economy after an eventful year. A currency flotation in November 2016 administered some bitter medicine, increasing the cost of living and inflation. But towards the end of last year, price increases moderated, and the current account deficit has continued to fall. Egypt’s GDP growth rate, at around 4–5 per cent, is an improvement on the 2 per cent average during the troubled years of 2010–2014. These policy changes are part of a reform plan initiated in 2014, which includes reducing subsidies, introducing VAT and removing investment barriers. The country’s Vision 2030 agenda aims for a ‘competitive, balanced and diversified economy, dependent on innovation and knowledge’.

Egypt’s start-up technology sector could help deliver that goal. The country has the necessary fundamentals to achieve success in digital, including widely spoken English-language skills, a large technically skilled workforce relative to its peers, and a young and digitally savvy population. The cost of starting a business, at 7 per cent of income per capita, is less than half the MENA average. The arrival of 4G networks in September 2017, led by Vodafone and Orange, has brought faster download and upload speeds and reduced latency, which is vital to productivity. The country has long-standing financial literacy and entrepreneurship programmes, such as INJAZ Egypt, which has delivered training to over 600,000 young people, with donors including HSBC, Boeing and Citi. This is a vital intervention in a country where 40 per cent of youth are not in education, employment or training, according to World Bank data.

The data shows reasonable momentum. Sales of Egyptian software hit $304 million in 2017 and Egypt’s start-ups are raising funding, albeit at modest levels. A Forbes Middle East ranking calculated that the top 20 start-ups in Egypt raised $24.2 million last year, as against the UAE’s $41.6 million. Considering that Egypt’s population stands at nearly 100 million, compared to the UAE’s 10 million, such divergence indicates an underachievement, with scope for growth.

With the right support, Egypt could punch at or above its weight, and could even be a regional leader. It has had its share of success stories, such as SySDSoft, founded by Egyptian entrepreneur turned venture capitalist Khaled Ismail, which was acquired by Intel in 2011. Current start-ups span a wide array of products and services: for instance, FinTech firm Money Fellows, which raised $600,000 from Dubai Angel Investors and 500 Startups, for a product that digitises ‘gam-eya’, an informal financing custom in the Middle East in which friends and families contribute money and take turns to withdraw. Others include Yaoota, described by Forbes as Egypt’s answer to Google Shopping.

The venture capital community, domestically and from the region, is providing kindling. Cairo Angels backed Instabug, founded by Moataz Soliman and Omar Gabr in 2012, which provides IT crash-reporting software, and Eventtus, an event app provider. Flat6Labs is a regional start-up accelerator with a presence spanning Saudi Arabia, the UAE, Lebanon and Tunisia. It offers start-up support, including funding, office space, legal help and mentorship.

To prosper, though, Egyptian businesses need to be made more aware of the power of digital in relation to their bottom line. A survey by Google found that only 7 per cent of Egyptian SMEs had an online presence, compared to 18 per cent in the UAE and 15 per cent in Saudi Arabia, while an index by McKinsey put demand for digitisation from the Egyptian business community as the second lowest in the region, alongside Oman. This could either present a problem or, to optimists, an opportunity. It suggests the country’s vast army of SMEs is yet to leverage the power of digital.

Greater financial access would help Egypt move to the next level. There is limited availability of bank loans, as mainstream players lack products designed for firms with high failure rates or unpredictable growth. Where there are loans, interest rates are high. More credit data would help: only 7.8 per cent of Egyptian adults are included in public credit registries, compared to the MENA average of 14 per cent, which stymies the flow of credit that kindles entrepreneurial activity, whether digital start-ups or otherwise.

Start-ups also need access to international venture capital, which brings not only financial resources but also expertise, mentoring, ideas and market access strategies for going global – essential for start-ups if they are to attain scale. While Egypt- and MENA-based funds dominate the landscape, there are global VC players, including California-headquartered Endure Capital, which has invested in start-ups in renewables, online retail and even online therapy. Others include the Egyptian American Enterprise Fund, which mostly invests through existing VC funds, although it has done direct deals in financial services and healthcare start-ups, and Vodafone Ventures Egypt, the country’s first technology-focused corporate VC. Ideadevelopers, a subsidiary of EFG-Hermes Private Equity, has invested both in Egypt and beyond.

With continued progress in Egypt's investment reforms, greater adoption of technology by the country’s SMEs, and courage on the part of Egyptian entrepreneurs to found their own companies, the start-up sector can thrive, fostering innovation in the country and the wider Mediterranean. 

Cleopatra Kitti was in conversation with Adam Green