Days after the one-year anniversary of the Egyptian revolution, it’s now the Egyptian economy, not popular tolerance for dictatorship, that may have reached a breaking point.
Unemployment is higher than it’s ever been. Tourism is floundering, unhelped by recent demonstrations. After rejecting an offer from the International Monetary Fund this June, the controversial military-ruled transition government now returned to the IMF to ask for $3.2 billion in support, in what seems like a tacit admission of the failure of their policies over the past year.
In the startup space, venture capital deal flow has been slow. Sawari Ventures invested in mobile applications company Alzwad and software company Vimov in January 2011, when accelerator Plug and Play Egypt also invested seed funding in its first crop of six startups. Yet investment news slowed until venture capital firm Ideavelopers invested in local daily deal site Offerna in late October 2011. Plug and Play Egypt has now been put on hold.
With the recent launch of Flat6Labs’ first round, seed stage investment in Egypt is picking back up. But what of the small businesses that suffered through the year? As popular frustration with corruption turned to general suspicion of the private sector this year, some small businesses were hit particularly hard.
Others that we spoke to, supported by nonprofit Endeavor, have managed to survive the economic stall by carving out new markets or continuing to dominate their niches.
Targeting High-End Markets
For bakery chain The Bakery Shop, catering to customers with disposable income kept business afloat. “Pre-revolution things were doing quite well. We opened our first store in 2008, in the north coast of Egypt by the sea, where we introduced baguettes, croissants, and pastries to a market that consumes luxury products,” says co-founder Sameh El-Sadat.
After moving back to Cairo, TBS launched a store in upscale neighborhood Zamalek, followed by shops in Heliopolis and Maadi, and two more in 2011. “Things slowed down during the revolution, because people were afraid to spend too much, and the curfew didn’t help,” says Sadat. “But business picked right back up. Given that our market already has a high disposable income, we were not affected.” The fact that baked goods are comforting can’t hurt.
The company, which has two more shops slated to open soon, has also worked hard to beat out competitors and retain its talent, recruiting top bakers, sending them abroad for training, and compensating them well. “It’s important that they feel they are part of the ownership of the business,” says El-Sadat.
At Azza Fahmy jewelry, targeting a similar high-end market also helped insulate business. “You’d think that jewelry is one of the first things that people would stop purchasing during the revolution. But our sales were not affected as much as we expected,” says managing director Fatma Ghaly.
The jewelry company, which founder Azza Fahmy pioneered in the early 1980’s, creating unique designs inspired by Islamic architecture, momentarily put expansion plans on pause. And yet, as it gears up for expansion into U.S. and European markets, the attention that the revolution has garnered Egypt is turning out to be helpful.
“In terms of branding, Egypt got a lot of positive branding as a country,” Ghaly, who spoke about cultivating creativity at CoE, explains. “Now when we approach markets in the U.K. or the U.S., there is curiosity and there is a bit of excitement that wasn’t there before.”
Looking to Africa
For online and mobile banking company eMasary, which was registered in 2009, the story has gone differently. As a company that facilitates online payments for the unbanked community, which comprises up to 90% of Egyptians, according to Infosys, the revolution hit harder.
The company, which has worked on large-scale projects like automating toll station payment on the Cairo-Alexandria Desert Road, had to cancel projects with the Ministry of Transportation due to the regime change. “We had an appointment with the Minister of Transportation on the 26th of Jan. The minister was removed, so the project was cancelled,” explains founder Moatasem Osam.
Once the government was thrown into transition, a project designed to allow consumers to pay traffic tickets online was also cancelled. As a result, the company has been pushed to think more about expansion into Africa, pushing towards Ethiopia, Ghana, and Nigeria as well as Dubai.
And yet, it hasn’t all been negative. “We’re attracting investors now,” says Osam, “perhaps because of the status of the country.
Hoping for Regulatory Change
While the previous regime worked to woo foreign investment, the new government will have to fight more than corruption to rebuild a comfortable environment for small businesses, say these entrepreneurs.
The government should incentivize training and technical certification, says Osam, while facilitating banking facilities for small and medium-sized enterprises. Ghaly hopes that laws governing trade, hallmarking, and custom laws will be relaxed to facilitate imports and exports. And El-Sadat points out that a more enabling regulatory environment will help other entrepreneurs be less afraid of failure.
As each finds new avenues for international expansion or outside investment, the sense that Egypt is a land of possibility may be the biggest boost. “The revolution really portrayed the true spirit of Egypt,” says Ghaly. “There is no longer a stigma of terrorism and ignorance driving portrayal of the Middle East.”