Egypt Deep Dive Part I: Early successes and the rise of bottom-up tech entrepreneurship
Om El Donya (Earth’s Mother) — this is how Egyptians like to see their 5000+ years old nation. At the crossroads of continents and civilisations, on the shores of the Mediterranean and the Red Sea, Egypt has been humanity’s favoured playground throughout history and shelters among its most beautiful treasures, marks of a great civilisation that have survived the ravages of time.
The Egypt of 2023 could not be more different. And thus begins Part I of a two-part deep dive into the Egyptian tech ecosystem, with Part I covering Egypt’s political and economic history, and how its modern incarnation has been shaped by the military’s powerful influence on daily Egyptian life.
Part II will focus on the early players within the still nascent Egyptian ecosystem and international acquisitions before turning to the revolution, the growth of the ecosystem, its democratisation, and what may be in store for North Africa’s largest tech ecosystem.
While its sites and heritage continue to raise wonder and admiration, the country has lost the influence it once had. For the past 10 years, Egypt has been caught up in an economic crisis punctuated by stressful IMF deadlines and marked by political unrest, high inflation, a recurrent devaluation of the Egyptian Pound and a worsening budget deficit. While the situation is particularly burdensome for the most vulnerable people (30% of the population lived under poverty in 2019 according to the World Bank), the country can count on several tailwind factors. These are strong levels of local investment, a renewed attractiveness to foreign direct investment and one of the most dynamic startup scenes in Africa and MENA that is able to foster innovation and growth in its economy.
These tailwinds, combined with it having the 3rd largest population in Africa (100 million+) and GDP ($378 bn) makes Egypt an economic giant on the African continent. Admittedly part of the Big Four since the early days of startup funding statistics (alongside Nigeria, South Africa and Kenya) and home to several unicorns with successful exits (Fawry, Swvl, MTN Halan), the Egyptian ecosystem is showing signs of fragility in light of the current poor economic climate, with startup valuations cut in half and international funds becoming less and less easily available. A reality that is reflected in Q1 2023’s funding statistics. As revealed by data from the Baobab Network, if the MNT-Halan deal ($340m) removed from the equation, Egyptian startups only raised $23m during Q1 2023 versus an average $150m per quarter between 2020 and 2022.
One point of particular interest is the bottom up nature of the entrepreneurial dynamic that has happened since the Spring Revolution in the wake of a military-led interventionist economy, and its evolution since. This evolution is recently come into sharp focus in the light of recent announcements from Prime Minister Mostafa Madbouly to create a dedicated permanent unit focused on startup regulations and policies in the country.
The unit includes representatives from 5 ministries, the country’s Central Bank, and two other public agencies. In light of the ecosystem’s importance to the continent and North Africa, plus this announcement, its an apt time to delve into the intricacies of Egypt’s entrepreneurial and innovation ecosystem to understand their foundations and assess their long-term vulnerability to the fluctuations of the country’s economy.
Om El Donya — A giant with feet of clay
Culturally, Egypt is one of the greatest civilisations in the world. No history book across the globe can afford not to mention its influence at different points of history. Strategically positioned between the Middle East and North Africa at the shores of the Mediterranean and the Red Sea, and bordered by Libya and Sudan while looking at Saudi Arabia, Israel, Lebanon and Turkey across the sea, Egypt is one of the few iconic places on Earth where history actually happened.
Strolling in Cairo in 2023 gives you a good sense of that, from the iconic Giza pyramids to the old city of Heliopolis, passing by the Khan Al Khalili in the Islamic City, the 2000 years-old Old Citadel to the trendy neighbourhood of Zamalek — home to the singer Om Kalthoum, who considerably influenced Arab culture in the 60s. Summing up this wonderful civilisation in one paragraph is a risky exercise. For the purpose of this deep dive, we will focus on the last century, from the end of British rule in 1922 until now.
If British rule, from 1882 to 1922, introduced some political and economic reforms that helped the country’s development, it was mostly characterised by the suppression of indigenous rights and the promotion and defence of British interests — the Suez Canal especially. After 1922, a new political regime was promoted by the British after giving political independence through King Fuad I. The British military remained, along with British control over the country’s affairs, until 1952. During that time, some minor families were given privileges and economic power, but most of the population was used as low cost labour and had limited ability to participate in Egypt’s economic and political life.
Yet, some early family-owned businesses thrived at the time, trading in agriculture products, cotton especially, or manufacturing, eventually becoming heavy conglomerates in what can be defined as the first entrepreneurial dynamic in this period of Egypt’s economic history. Outside the bubble of some privileged families, the 30 years of monarchy were marked by social tensions and political unrest, giving birth to movements such as the Muslim Brotherhood and the Free Officers Movement, led by Gamal Abdel Nasser. Nasser would abolish the monarchy and establish Egypt as a republic after a military coup in 1952, marking a brutal shift in the last century’s trajectory.
From imperial to military rule: Nasser, Al Sadat, Muburak and El-Sisi
The early days of the Republic under Gamal Abdel Nasser were marked by a fierce anti-imperialism, an adhesion to the socialist cause and a leading role in the non-aligned movement. Firmly opposed to religious extremism but carrying a modern vision of the Arab world, Nasser committed Egypt to the path of pan-Arabism, forging close ties with the Middle East and Gulf countries. Economically, the country’s early socialist policies reversed a century of capitalistic development in the country, ushering in a strategy of redistribution. The promotion of land reform in 1952, the nationalisation of industries (banking, insurance, transportation) and the promotion of social welfare programs were among the most noticeable and impactful measures in terms of poverty reduction and increasing access to basic necessities.
After his death in 1970, Nasser was replaced by Anwar Al Sadat who took Egypt back towards economic liberalism, free trade, and a more flexible foreign policy while maintaining a strong military institution. This pivot was called “infitah” (openness). Economically, the infitah strongly emphasised free trade, encouraging foreign direct investment in the country and greater openness to international institutions and donors especially.
The infitah marked the beginning of a long collaboration period with donor institutions on large transformational projects in exchange for structural reforms in Egyptian society. Importantly, in 1978, in an attempt to fake a reduction in the military budget, the armed forces were given a direct right and role in undertaking profitable activities, marking the beginning of a strong military nexus within the national economy and can be described as Egypt’s own military industrial complex.
The legacy of this decision is that in Egypt today, the military as an institution is now everywhere in the economic landscape. From direct involvement in key industries through a network of subsidies (production of cement, steel, home appliances, or tourism) or as described by the Carnegie Middle East Centre, directly influencing “a vast network of retired senior officers who occupy high managerial positions or sit on company boards throughout the sprawling public enterprise sector and in parts of the private sector. The majority of regional governments and almost all public authorities (in maritime transport, aviation, railways, and the Suez Canal) have been headed by former generals or other high-ranking retired officers for decades.”
In 2014, Abdel Fattah El-Sisi further expanded the role and influence of the military in the economy by placing all “public and vital facilities” under their institution’s jurisdiction. For instance, the military are responsible for the massive infrastructure works behind New Cairo, a brand new city, 1 hour east of Cairo’s “old” centre, with New Cairo being greener, less polluted, and more expensive to live in.
From a macro point of view, these structural characteristics have undermined Egypt’s economic potential for decades, leading it to rely on an economic rent made of a unique legacy of tourist sites, trade through the Suez Canal, worker remittances and financial aid from Gulf countries, and strong industries such as agriculture (cotton), transportation, or banking. Aside from that, decades of publicly-funded large infrastructure projects have created a recurrent budget deficit that triggered rising interest rates, a recurring devaluation of the EGP and crawling inflation in the country.
Moreover, the country’s openness to international trade and finance has made it highly vulnerable to external shocks, exemplified by the 2008 financial crisis and more recently Russia’s invasion of Ukraine. These economic factors, combined with the 2011 revolution which caused a sharp drop in tourism and foreign investments and thus, in the country’s foreign reserves, has plunged Egypt into a deep economic crisis and urge for a series of loans from the World Bank and IMF in a 15% inflation context.
The ignition of digital entrepreneurs and the waterfall effects of early success from the Middle East
In 2015, Egyptian startups raised $4.75m in total. This is tiny compared to the $812m they raised in 2022, highlighting the incredible speed at which the Egyptian startup and innovation ecosystem have managed to play a leading role both in the MENA region and at a continental level. In the case of Egypt, there are 3 dynamics in play that occurred in different moments of time and which has favoured the development of such performant ecosystems. These factors are a century-old entrepreneurial capacity, solid technology foundations laid down by the government and military, and lastly a bottom-up entrepreneurial explosion that was fuelled by the early exits of the Middle East (such as Careem and before them Mektoob or Souq.com). These factors were triggered shortly before the 2011 Revolution and have subsequently led to the democratisation of the dynamics and the involvement of a whole range of stakeholders.
As noted above, 20th century Egypt has seen different periods impacting its society and entrepreneurial capacity differently. The monarchy of King Fuad I in 1922, although deeply unequal and close to British interests, allowed the emergence of a first generation of successful entrepreneurs. The legal framework inherited from the British, rather liberal and favourable to private initiative, promoted the growth of family businesses, which gradually became massive conglomerates with tentacles in several sectors.
One iconic example of this first entrepreneurial dynamic is Talaat Harb, founder of Banque Misr and two dozen other companies in a wide range of industries. If this dynamic was suspended during the country’s socialist years, similar to what happened in Algeria after independence, it essentially changed form, taken over by public institutions such as the army, before the return to liberalisation under President Sadat. Two of Egypt’s largest private corporations, the Mansour Group and Orascom, respectively established in 1952 and 1950, were nationalised by the socialist government of Nasser in the 1960s before being eventually returned to private ownership in the 1970s via the Mansour Group and 20 years later for Orascom, which then became Orascom Construction Industries.
Both companies grew to become international conglomerates and leaders in different industries including engineering, construction, energy or retail. Since then, especially during the liberal years of President Sadat and Mubarak, other large family-owned businesses have emerged, including the Amer Group in real estate or the tobacco producers that are the Mansha brothers, marking Egypt’s second entrepreneurial dynamic in the last century.
This second entrepreneurial period in Egypt did trigger a sort of entrepreneurial culture in the country and erected role models to follow but it was in fact limited to a handful of powerful families, often with strong ties to the government. At the same time, through a series of structural economic and legal reforms, the government had slowly created a healthy environment for business in the country, allowing more private entrepreneurs as well as local and foreign investors to do business in this large market with strong connections to the Middle East.
These efforts to sanitise the economy were accompanied by more structural and long-term efforts to develop in-house capabilities. For instance, the military has been critical in the build-up of technological human capacity, as it is exemplified by the establishment of the Military Technical College (MTC) in Cairo in 1967 or the Military Factory for Engineering Industries (MFEI). This ambition was renewed many years later with the creation of the Information Technology Institute (ITI) in 1993 to provide digital literacy and training to the local workforce.
The third period of entrepreneurial boom in Egypt was only witnessed 20 years later but its foundational institutions were put together during the late 1990s. The first initiatives were aimed at promoting the adoption of digital technologies and modernising IT infrastructure, illustrated by the establishment of the Information Technology Industry Development Agency (ITIDA).
A few years later, the government engaged in the reform of the telecommunications industry, which gave birth to the National Telecommunications Regulatory Authority (NTRA) in 2003, which is in charge of regulating and promoting the adoption of digital technologies. At the same time, the military was involved once again to support the development and the promotion of the Smart Village Egypt project in 2001, which aimed to create a hub for technology companies and startups. The project provided state-of-the-art infrastructure and facilities to attract both local and international companies to Egypt. Finally, in 2004, the e-government initiative aimed to provide citizens with easier access to government services through an online portal helped to educate the market and create early digital habits among the population.
Government efforts would continue into the 2010s, but it was time for a new bottom-up dynamic to emerge, triggered in the Middle East and that found a resonating echo in post-revolution Egypt.
This will conclude Part I of our deep dive into the Egypt ecosystem. See you soon for Part II, covering the Egypt ecosystem’s present and potential future.
Abderrahmane Chaoui is an African ecosystem researcher, consultant, and writer.
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