Egypt Deep Dive Part II: An ecosystem awash in concern, resilience, and bottomless potential
Welcome back to this two-part deep dive into the Egyptian tech ecosystem. In Part I, we considered how the winds of history have shaped the Egyptian economy and political life, which has inevitably bled into the country’s tech ecosystem, one rife with potential but hampered by a less than favourable macro-economic environment.
In Part II, we will investigate the Egyptian ecosystem and its actors in greater detail, discuss how the revolution continues to reverberate in the tech sector plus review the immense challenges and opportunities that lie within.
Private enterprise begins to flex its strength amid government ecosystem involvement
To pick up where Part I concluded, the Egyptian government between 1993 and 2004 established a range of agencies to guide the development of digital-first industries in the country, with these efforts continuing into the 2010s.
These government efforts were accompanied by early isolated private initiatives in Internet-based businesses, such as Otlob.com, a food delivery service that first appeared in the ecosystem in 1999, quickly followed by local and MENA based e-commerce websites. The most notable were Souq.com, which not only paved the way for a future e-commerce industry in Egypt, but whose acquisition by Amazon in 2017 had a resonating impact on the local ecosystem.
A few years before, Maktoob, an Arabic internet service provider (emails, instant messaging, online advertising) based in Dubai, was acquired by Yahoo in 2009. This early acquisition paved the way for the first investments in Souq. And so began the waterfall… Fawry, an e-payment solution created in 2009, that later became Egypt’s first unicorn grew rapidly and was eventually acquired in 2015 by a consortium of investors that included the MENA Long-Term Value Fund in a deal worth $100 million.
Fawry quickly engaged in startup support activities within the ecosystem through direct investments or indirectly through incubation programs or the provision of their core APIs and technology to new businesses. One of Fawry’s co-founder, stepped back in 2020 to start a $25 million fintech-focused fund in Egypt. By 2023, it was already pursuing its seventh investment.
A significant effect of the entrepreneurship dynamics that began in the Middle East and spread to Egypt was the $3.1 billion acquisition of Careem by Uber, which proved catalytic to the Egyptian ecosystem. Two former Careem employees, Mostafa Kandil and Mohamed Aboulnaga, who went on to build Swvl and MNT Health respectively, the two other unicorns to emerge in the Egyptian ecosystem.
From the perspective of many Egyptians, the January 25th Revolution in early 2011 has democratised this entrepreneurial culture and triggered a sense of empowerment among the population. This feeling was encapsulated by a fierce willingness to tackle economic and social challenges on one hand and finally being responsible for the future of their community on the other. After several years, with a sustained commitment from the government, in parallel with the combined involvement of a wide range of stakeholders including universities, financial institutions, startup support organisations and corporations, many Egyptians — from the diaspora to the less privileged — found the support needed to realise their efforts in growing their ventures. This third period of entrepreneurial boom in Egypt’s recent history of country differs from its predecessors in two critical aspects:
1- It is democratic through crowding in a wider variety of entrepreneur profiles than ever before (although some gender inequalities remain consequent)
2- A specific venture profile has emerged, described by Dr. Phil Budden and Prof. Fiona Murray as “innovation-driven enterprises”, in MIT’s systemic approach for assessing ‘innovation-driven entrepreneurship’ in ecosystems. They are the type of businesses that are able to reshuffle industries and generate new cycles of growth at a macro level.
The revolution, the build up of an ecosystem and the democratisation of entrepreneurship
With approximately 60% of its 100 million+ population under 30, the 2011 revolution in Egypt concerned first and foremost its youth. A massive generation between 20 and 30-years-old, driven by their individual vision for a better country, hope, and energy that needed guidance and support to make an impact.
Similarly to what happened in Tunisia, the first stakeholders to step in were startup support organisations and business angels. We can mention the Technology Innovation and Entrepreneurship Center (TIEC), a government-funded incubator established in 2010 to support technology innovation and entrepreneurship. There’s Flat6labs, active in Egypt since 2011, offering support and seed funding to startups, Innoventures LLC, which eventually launched Instabug, and lastly the Cairo Angels network of business angels that started investing in early stage startups in 2011.
These organisations were the first to offer coworking spaces, and access to funding and the necessary expertise needed by the first generation of young Egyptian founders. They were quickly followed by eminent diaspora entrepreneurs and investors willing to contribute to this bottom-up dynamic. Examples include Ahmed Al-Alfi, an Egyptian-American entrepreneur, founder of the GrEEK Campus, a massive tech hub in downtown Cairo offering coworking space and other services to 100+ companies, and later a VC fund, Sawari Ventures, that closed a $71 million fund in 2021. In 2015, the reputed American University of Cairo (AUC) launched the Entrepreneurship Chair and the AUC Venture Lab, which continues to play a key role in providing the ecosystem with quality founder profiles and continuous support to founders and other stakeholders.
In the second half of 2010, convinced by the ecosystem’s bubbling energy and groundswell of innovative ideas on the ground plus the early acquisition of Fawry, the government accelerated its efforts to support entrepreneurial and innovation ecosystem. This shift is well illustrated by the Innovation Cluster Initiative, launched in 2016 and aims to develop innovation clusters in Egypt’s different regions, followed by the National Innovation Strategy in 2018, focusing on key areas such as education, research, and development and investments.
Similarly, many international telecom companies and financial institutions have also committed, through CVCs or their own incubators/accelerators, to providing financial support, mentoring, and technical support in various forms to startups in the Egyptian ecosystem. We can mention Vodafone Ventures, Orange Digital Ventures and Orange Corners, as well as Etisalat Misr that launched the Etisalat Egypt Technology and Innovation Center (EETIC). EFG Hermes, a financial services and investment bank, is partnering with Egypt Ventures on the EFG EV Fintech accelerator to invest in rising fintechs in Egypt. Google Ventures and Salesforce Ventures are other examples of corporate ventures that have actively invested in startups in the region. Another notable initiative has been driven by Egyptian banks and other financial institutions, who have partnered to launch the Avans Manara Fund, which invests in venture capital and startup-dedicated investment funds.
This growing support ecosystem and entrepreneurial dynamic kept convincing more and more youth, researchers, and seasoned professionals to become entrepreneurs, raising the Egyptian ecosystem’s attractiveness and bringing more and more risk capital providers into the ecosystem in different forms.
In particular, international VCs such as Global Ventures, Algebra Ventures or Silicon Badia have entered the ecosystem. Other angel investor networks have been spurred on too, such as AUC Angels, Kamelizer Angel Studio or Alexandria Angels, located in Alexandria, which hosts a more discrete but vibrant nascent ecosystem. International brands have also chosen Egypt as a first destination in the African continent, such as Plug and Play and more recently 500 Startups, which both partnered with the ITIDA, under the Ministry of Information and Communication Technology, to develop the CREATIVA Hubs, a network of tech hubs to support startups located on the country’s university campuses.
Finally, aside from AUC and the University of Cairo, which both have been at the forefront of the ecosystem animation since the revolution, the government has prioritised reinforcing the overall level of the Egyptian university education and turn them into founder-producing organisations that can provide the ecosystem with the quality startups needed to feed and grow the ecosystem.
The combination of all these dynamics from different stakeholders in a large market with an educated population and good level of infrastructure has created the vibrant entrepreneurial dynamic witnessed in Egypt today. The ecosystem’s foundations are solid and Egypt has developed its own internal entrepreneurial and innovation capacities to sustain and enhance this positive dynamic, leading it to become Egypt’s third entrepreneurial boom.
Amid founder concern, resilience and remaining potential
After the hopes for democracy faded after the revolution, with many activists and journalists imprisoned when the Egyptian military took back power in 2013, recent economic uncertainty is raising fears that its entrepreneurial ecosystem may follow a similar tragedy.
Even so, the third entrepreneurial boom in Egypt continues to show resilience supported by its strong internal entrepreneurial capacity.
The $800 million+ bagged by Egyptian startups in 2022 is relatively small compared to world-leading ecosystems such as Boston, London or Shanghai, but still enough even in difficult economic times to make Egypt a continental giant driven by its bottom-up dynamic. And that, in my opinion, is a strong factor of resilience. Egypt’s potential resides within its young and rather educated population. All it needs is the right environment and support to thrive. Today’s Egyptian founders are witness to its foundations and tomorrow’s founders shall be able to enjoy it.
Besides, if the impact of this entrepreneurial dynamic on the Egyptian economy is still minor, one characteristic of innovation-driven ecosystems is their ability to bring to market companies with the potential to create technology clusters, comparative advantages for the local economy, and new cycles of sustainable growth. This type of enterprise is yet to be seen in Egypt, but no doubt their impact is much desirable in times of economic crisis. The Egyptian government seems to be moving in that direction, as illustrated by the aforementioned 2016 Innovation Cluster Initiative. Talking about clusters, Egypt can rely on its legacy in the space industry and its strong military institutions (directly and indirectly) to become drivers for future innovation-driven startups.
The creation of the National Authority for Remote Sensing and Space Sciences (NARSS) in 1994 has put together the foundations in research and in-house capabilities that led to the launch of Egypt’s first satellite in 2007. Since then, the country has accelerated the path to become a continental leader in the space industry by further strengthening its in-house capabilities and by establishing international partnerships, such as the recently announced launch of remote-sensing satellites, co-developed with China. The opening of the industry and its technology to universities and the private sector could lead to the transformation of what is now a government-led industry with a security and research-based approach to a dynamic entrepreneurial ecosystem, host to innovation-driven enterprises.
On the same scale, similar to what Israel managed to achieve in transforming its army from a cost centre to one of the main drivers of innovation in the country, the important role given to the military in Egyptian economic life can become a strong asset in generating innovation clusters. The Israeli Defense Force has a much more open approach to collaboration compared to its Egyptian peer, with this approach inspired by the US. Over time the “open source” approach to military technology allowed many Israeli former officers to build startups and technology companies based on military technology (NSO Group, Cellebrite, Verint Systems etc.). The existing expertise among the military in developing its own economic activities, added to the right mindset and framework of collaboration, can become a fertile ground for future innovation driven enterprises.
To conclude, I would like to warn once again that funding statistics alone should not be considered a marker of the robustness of an entrepreneurial ecosystem, nor should they be considered as prophecies. If the Q1 2023 statistics in Egypt are indeed worrying, Q1 2023 has observed the rise of the third Egyptian unicorn at a time when VC investments have been cut in half worldwide. The robustness and resilience of the Egyptian startup ecosystem comes from its population, its connection to the Middle East and from the bottom-up dynamics that found resonating support in a balanced, diversified and efficient ecosystem.
“Numbers are to analysts what street lamps are to a drunkard: they are much more a support than a light” — Jean Dion.
Abderrahmane Chaoui is an African ecosystem researcher, consultant, and writer.
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