Egypt's growing interest in Africa
Toward the end of last year, billboards adorned Egypt’s capital city of Cairo with adverts for Africa-focused conferences and summits. The continent has always had a particular pulling power for those hoping to strike it rich. These days, it has become less about discovering and monetising its resources and more about accessing its fast-growing economies – characterised by a young population, rising gross domestic product (GDP) per capita and robust mobile penetration rate.
The Egyptian government has been attempting to position itself as one of the leaders of the African market and a touchpoint for the continent’s 54 countries to convene and communicate. Egypt’s minister of investment and international cooperation Sahar Nasr has highlighted on several occasions her government’s desires to boost trade and investment ties with the rest of the Africa.
“In Egypt, you see that effort in terms of connecting to the rest of the continent and I would say there are a lot of good reasons to do so. One of them is because of the opportunity that lies in Africa,” says Sérgio Pimenta, vice-president of the International Finance Corporation (IFC) in the Middle East and Africa. “When you look at the growth of a continent, you look at all the continents to see where the growth is going to come in the next decade. You know that Africa is on the front of the line so hugging that interest in Africa is something that makes a lot of sense.”
Several international startup giants have already established a presence in some of Africa’s largest cities. Uber launched its bus service in Cairo and is now heading to Nairobi, Careem is operational in Sudan, while Spain’s food delivery platform Glovo has expanded to Kenya and Ghana.
It can be easy to disassociate the North African countries from the rest of the continent. For many North African and especially Egyptian startups, expanding to the GCC gives them better access to finance, markets with higher GDP per capita and easier access to Europe and Asia.
But in a recent trend, several startups have started to face farther south to Africa than head to the wider Middle East region to scale. Transport startup SWVL announced its expansion to Kenya after it closed its Series B funding round and has plans to expand to more cities this year including in Uganda and Senegal. Halan is another Egyptian ride-hailing startup that also scaled in the continent, launching its first operations outside of Egypt in Sudan’s capital city of Khartoum. The country's first smartphone maker Silicon Industries Corporation is eyeing up a presence in Kenya, the Democratic Republic of Congo, South Africa, Ghana, Mozambique and Nigeria.
Even Cairo-based accelerator Flat6labs is establishing closer ties with its neighbours.
“Next year we’re going to Morocco and Jordan and after that it will all be about Africa,” says Marie Therese Fam, managing partner at Flat6labs. “We believe there is a real pool of talent, the only question is funding which we are exploring right now.”
There are certain similarities that the Egyptian market shares with countries like Kenya, Nigeria and Angola, making it perhaps a more logical destination to expand and scale.
“We believe there is tremendous potential for Egyptian startups to expand into structurally-similar geographies with similar challenges, even if they are thousands of miles apart,” says Tarek Assaad, managing partner at Algebra Ventures. Entrepreneurs in Egypt are building solutions that are initially implemented in Egypt but are relevant to a broader footprint of emerging countries, especially in sub-Saharan Africa.”
In 2017, some $560 million was invested in African tech startups, a 53 per cent increase from the $366 million invested in 2016. According to Pimenta, the IFC has invested more than a billion US dollars to date in technology, both directly in startups as well as in other sectors that help to bring modern technologies into their operations.
“Technology is enabling entrepreneurs to develop local solutions for local problems and to quickly grow their presence beyond their initial core market,” says Assaad. “Solutions that are able to serve the long tail of costumers and small businesses at low cost are particularly well suited to pursue this strategy as opposed to expansion, say into the GCC where spending power and structural challenges are often different from Egypt."
The danger in scaling across a continent is in treating it as a homogenous market. The fact that Africa comprises 54 countries, the majority of which speak different languages, have different customs and cultures presents its own challenges.
Halan’s founder and chief executive officer Mounir Nakhla expanded his tuk tuk and motorcycle-hailing business to Sudan after recognising the opportunities in the market. But as is the case with expanding to any new country, the company came across several issues.
“I thought it would be a great pilot to test our implementation skills cross border,” says Nakhla. “Sudan is really an extension to Egypt, so it was a normal progression. But there were multiple challenges. Language is very easy to change from one country to another, but operating in a culture that you are not familiar with would definitely prove challenging.”
Some of the major differences that Halan came across in Sudan were the popularity of Apple’s iPhones in the country, when the company had not yet fully developed its app for the iOS store. The Sudanese government also prevents adverts on Facebook, a marketing tool it had relied on in Egypt.
But while there is a push and a desire for modernisation and embracing of new technologies throughout the continent, cross-border trade is difficult. Many attendees at the Africa Summit in Sharm El Sheikh in December last year pointed it out that it was easier to trade and do business with Europe than their neighbours – particularly in heavily regulated sectors like financial technology.
“The market is still fragmented. It is part of a lot of efforts for national integration. They need to have strategies that can be adjusted to each country. Sometimes they don’t know these countries or sometimes can feel less comfortable because of the diversity of the country,” says Pimenta.
“The other challenge that a lot of companies still face in Africa is access to finance. Financing is still not as available and the instruments are not always adjusted to the needs of entrepreneurs. The third challenge is access to qualified people who can work with them and have the education, skills and knowledge to help them,” he adds.
In its struggle with poverty, unemployment and lack of infrastructure, there is in fact opportunity for entrepreneurs to innovate and bring new technologies. For Egyptian startups in particular, having the experience of growing in a market with a population of close to 100 million with a wide array of income levels and cultural diversity, scaling in Africa might present greater success than heading to the GCC or Europe, particularly when they are addressing issues that they have in common with their African neighbours.