Afrikan Heroes

Every day, Egypt’s entrepreneurs wake up to pursue their next rounds of investments, expanding across borders, entering into strategic partnerships, without looking back. From Swvl to Colnn to Fawri, the Egyptian startup ecosystem is always in the news. But behind all these struggles and hustles, there are stories, the reasons that have made the country’s startup ecosystem one of the most successful in Africa.

In fact, Egypt has over the past few years scaled up its entrepreneurial activity, becoming the fastest-growing startup ecosystem in the Middle East and North Africa (Mena) region according to a report by Magnitt. Below are some of the reasons why Egypt’s startup owners’ struggles are continually on the rise.

A Relatively Strong Economy and Available Market

Inspired by the falling inflation rate and an economy that is on its way to recovery, more people are gaining the confidence to launch their own business.

“We have seen a lot of change in the startup ecosystem in Egypt in the last couple of years. We see it in the number of our applications; it is doubling. Also, in the quality of the entrepreneurs who are applying to join the programme,” says Marie Therese, managing partner at accelerator Flat6Labs Egypt.

With a population of more than 100 million, Egypt’s market has the potential to be one of the most lucrative and it is attracting the attention of not just startups from the wider region, but also investors.

“Over the past three years we have been seeing more access to finance and more interest from global investors to invest in the ecosystem, adding to that the governmental initiatives supporting starts and SMEs,” says Mohamed Hamza, associate director at AUC Venture Lab. “We have been seeing an increased awareness about entrepreneurship through the work of various stakeholders, appearing on TV and having dedicated programmes directing attention towards the topic as well as the introduction of entrepreneurship education as a requirement in a number of public universities.”

Presence of Venture Capital Firms, Accelerators and Incubators in Egypt

There is also the presence of an appreciable number of venture capital (VC) firms, accelerators, and incubators in Egypt. These startup funders have been on the increase, and they are continually showing interest in entrepreneurship in Egypt. 

As a matter of fact, a report by the Global Entrepreneurship Monitor (GEM), launched by The American University in Cairo School of Business in 2018, noted that 82 percent of Egyptians perceive successful entrepreneurs as having high social status and almost 76 percent of Egyptians, mostly youth, perceive entrepreneurship as a good career choice, compared to a global average of 61.6 percent. This is even brightened by 55.5 percent other Egyptian non-entrepreneurs surveyed who expressed their interest in starting their own business, a percentage that is double the global average.

“There is a shift in the mindset. Young people are more eager now to start their own projects. Also, there are so many entities that provide help and support to startups. The more young people know about these entities and the fact that there is so much support, the more they are encouraged to start their own projects,” says Therese.

Lack of Interesting Jobs For Young People

Again, Egypt’s younger population may be showing increasing interest in entrepreneurship because young people are just getting fed with uninteresting jobs. 

One of the biggest drivers for the rise in entrepreneurship in Egypt is the lack of “interesting jobs for young people”, notes Therese. 

This is seen in the statistics. Egypt’s overall unemployment rate currently stands at around 8 percent according to CAMPAS, Egypt’s statistics agency, however, its youth unemployment rate as of 2018 was more than 32 percent according to the World Bank.

According to the GEM report cited above, opportunity-driven entrepreneurship has been decreasing at the expense of necessity- driven entrepreneurship that is driven by the lack of other work alternatives, increasing from 31.1 percent in 2016 to 42.7 percent in 2017, compared to a global average of 22.2 percent.

Solving global problems in Cairo

You would have no choice here but to cite Swvl as an example of an Egyptian startup trying to confront a global problem from a local perspective. Take for instance the historic city of Cairo, Egypt’s capital, a city noted with a dense population of 30 million, its crumbling infrastructure and other social and infrastructural problems it is facing. Startups within the city have taken note of these problems and have hopped in and have accepted Cairo as fertile ground for solving problems that many cities in emerging markets around the world are experiencing.

Take a look at Egypt’s transport sector. Cairo has excelled here by solving the transportation problem for overcrowded cities with poor public transportation systems. The city has seen startups that have provided the solutions. Swvl is one such example. Swvl is an application for booking buses. The startup recently closed a $42 million investment round, marking the biggest VC investment deal in the country and the highest in Mena in the second quarter of this year.

“Startups can offer many innovative solutions for the big issues. We cannot say they are solving the whole thing at one time, but at least they are offering a know-how and a new way of dealing with things just like what happened with the transportation market starting with Uber then the rise of Careem then Swvl which is much more Egyptian and much more related to our situation and streets,” says Ahmed Adel, business mentor at Fekretak Sherketak.

Swvl understood the Egyptian market and this enabled it to become Egypt’s transport market leader. By setting the pace, the startup highlighted the opportunities in Egypt’s buses sector with both Uber and Careem launching their own service.

“We can even see that the public transportation sector started to use mobile applications such as Mwasalat Misr which I think will be a good experiment that will be generalised soon,” says Adel.

Challenges

However, notwithstanding the innovation and enthusiasm in Egypt’s startup ecosystem, there remains plenty of challenges that hinder the growth of startups in the country, many of which end up failing. Egypt has the highest rate of business discontinuation among the 49 countries studied in the GEM report with a rate of 10.2 percent in 2017, a significant increase from 2.7 percent in 2010.

The report states that this high discontinuation rate is as a result of the challenging business environment reflected mainly in the lack of profitability for businesses and the difficulties in accessing capital.

“Investors need to understand that the nature of investing in startups is different,” says Mohamed Khedr, managing partner at Endure Capital and founder of Fatakat, an online network aimed at Arab women. “Investors are used to dividends and thus find it difficult to supply startups with money for seven or 10 years and wait for its exit until they can have their money.”

Khedr says many investors “do not understand that they can have a maximum of 30 percent stake because the founders still have upcoming investment rounds and stake to share and do not want to end up with 3 or 4 percent share”. 

Other investors in Egypt’s startup ecosystem also tend to be overbearing and, most times seem to get too involved in the day to day running of the startups. This perhaps leads to the ultimate disintegration of the startups before they even begin to gain traction. 

The Regulatory Environment Is Also A Hindrance

Egypt’s regulatory environment is also bad for most startups. This is worse when it comes to investing in startups.

“There needs to be new laws that are introduced specifically for startups such as shareholders’ agreement as well as regulations that ease taxation and financial restrictions and facilitate procedures of registering startups,” says Khedr.

Lack of Experience

Egypt’s startup owners may not be getting their acts together after all, and this may be a crucial reason why most startups in the country fail. However, this is not an Egypt factor alone. Generally, Egyptian entrepreneurs have a low fear of failure compared to the global average in GEM.

Nevertheless, despite these positive attitudes, most entrepreneurs in Egypt insist that running personal businesses or startups are still a tough and stressful job, especially with extended working hours, high risk and high level of uncertainty. About nine out of 10 startups in MENA fail. Few are however aware of the failure rate. This is because much of the media focus on the success stories, investment rounds, and acquisitions.

“One of the biggest reasons why startups fail is experience. You can learn how to be an entrepreneur but not open your own business,” says Adel who founded a startup when he was still a university student and had to shut it down a year later. “You can be an intraprenuer. You can join a startup to learn more. I am not encouraging students to open their startups without experience. If you have a good idea that you think will change the market, just get some experience in your team.”

Lessons In Failure

Yet, there are lessons to be learned in failure. Many entrepreneurs in Egypt who have failed to learn from their mistakes. Most of them strive to start new businesses. Wasla Browser is a notable example. The Wasla Browser is the third venture for Wasla Browser’s team members after their initial startups failed. While university graduates continue to found their own businesses in the hope of becoming their own boss and creating employment opportunities for themselves, it is the ones who are on their second or third ventures that are likely to see success and it is these founders who are contributing to the most value to Egypt’s startup ecosystem.

“The youngest people think that they will be their own decision makers, and no one will tell them what to do and so on which is actually not true. An entrepreneur is bossed by the market itself, the customers and investors,” says Adel.

Contributions from Yasmeen Nabil, a researcher with Wamda, a platform of integrated programs that aims to accelerate entrepreneurship ecosystems throughout the MENA region.

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.

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