Egypt’s economic woes and subsequent currency devaluation have had a knock-on effect on the country’s startup ecosystem. Despite having one of the more vibrant startup sectors in the region, companies in Egypt have been struggling with maintaining revenues, raising finance and acquiring good talent.
At Wamda’s recent Mix N' Mentor event in Cairo on 27 September 2018, leading figures from the ecosystem discussed these challenges.
“The devaluation affected startups in two ways, one in the market itself – the amount of revenues has declined because a lot of people aren’t able to purchase more,” said Amr Saleh, co-founder and chief executive officer at Elkrem, which provides hardware and software tools for developers to build blockchain-enabled products. “We haven’t faced this problem because our market is global, it’s affected us more on the talent side, we’re not able to find talent.”
Egypt’s Central Bank floated its currency back in November 2016, devaluing the Pound by 48 per cent in order to secure a $12 billion loan from the International Monetary Fund (IMF). As a result, purchasing power has declined and inflation has soared while borrowing costs for businesses have also increased.
“The biggest problem, especially for senior talent, is we don’t have enough money in the system to pay them,” said Ahmed Alfi, chairman of Sawari Ventures, a Middle East and North Africa (Mena) focused venture capital (VC) firm. “People outside are betting on our talent, we need them to bet on our talent here. Top engineers shouldn’t go anywhere [outside of Egypt] to go work for a startup.”
Hiring senior staff is a common problem among many of the startups in attendance. Egypt in general has high quality university graduates, particularly engineers, who are increasingly being poached by global companies. Local companies are now competing with international firms for good talent.
What is needed to tackle this problem according to the panel, is more financing options, more investors and more incubators and accelerators as well as changes to the regulatory system to enable startups to give stock options to employees.
During the break-out mentoring sessions, entrepreneurs sought advice from the likes of Paul Huynh, a former Google executive and Tarek Assaad, managing partner at Algebra Ventures, an Egypt-based VC. Besides talent, customer acquisition was a key problem among many in attendance, as well as raising funds.
But amid the challenges, there is a sense of optimism. With a population of some 100 million, Egypt is the Middle East’s largest market, despite the lower purchasing power when compared to the GCC. Cairo alone has a population of 26 million, making it one of the largest cities in Africa and a sizeable market for startups in the city looking to test out ideas and scale their product.
Sawari Ventures recently announced EGP1 billion fund, while Flat6Labs Cairo’s managing director Moustafa Khater hinted at a new offer for startups next year. The government is also encouraging the growth of the startup sector as a driver of the economy, which is enjoying a steady rise in foreign direct investment.
“The awareness among the government is there, there is awareness that we have to make life easier for entrepreneurs and the people funding them to achieve economic growth,” said Alfi. “Seven years ago this audience would have been 90 per cent people in the first or second year out of university, but the talent pool now coming into startups is substantially more experienced and they are better investments because of that experience.”
These “better investments” are likely to maintain momentum in Egypt’s startup sector and push the market forward.