News / Middle East

In Egypt Turmoil, Start-Up Firms Find Ways to Flourish

Two men on a scooter ride near soldiers on military vehicles at Abbasiya square near Egypt's Defence Ministry, in Cairo, May 4, 2012.
Two men on a scooter ride near soldiers on military vehicles at Abbasiya square near Egypt's Defence Ministry, in Cairo, May 4, 2012.
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Reuters
— Egypt's revolutions have been kind to Ahmed El-Kerdany. The young entrepreneur has raised millions of dollars of funding and kept his business growing through the country's worst political and economic turmoil in decades.

In 2010, he and several friends in the city of Alexandria launched Mashaweer, a service which helps customers avoid the traffic in Egypt's gridlocked cities by running errands for them. In December that year, the firm began operating in Cairo.

Two months later, president Hosni Mubarak was overthrown by mass protests across the country, triggering an economic slump that has not yet lifted. This month, president Mohamed Morsi was ousted by the army during another wave of national unrest.

But Mashaweer has continued to grow, raising $4 million from Egyptian investors and expanding its staff to 300 people, whose orange scooters are a common sight on Cairo's streets. It bought a speedboat for deliveries on Egypt's north coast and opened an office in Beirut last November; it aims to open one in Dubai by the end of 2013.

“For some people, the revolution was a disaster for business. For us it was an advantage,” said Kerdany, 27, speaking at Mashaweer's sparsely furnished Cairo offices on several floors of a shabby apartment building.

He said waves of political instability over the past 30 months had slowed growth; corporate clients periodically became more cautious about spending, and mass protests made it harder for Mashaweer personnel to move around Cairo and Alexandria.

But the unrest created opportunities, he said. The firm was able to start an advertising blitz in Cairo as media advertising rates sank during the uncertain period around Mubarak's ouster, and it could buy scooters from desperate distributors on 36-month payment plans instead of the usual 12 months.

Economy

Egypt's economy has been hit hard by the political instability. Gross domestic product grew an annual 2.2 in the first quarter of this year, far below the level of about 6 percent needed to absorb young job-seekers.

Many big, established companies have struggled with poor security, labor unrest, fuel shortages and difficulties obtaining foreign exchange. Last year net profit at Ezz Steel, Egypt's biggest steel maker, plunged by more than half to 250.4 million Egyptian pounds ($35.7 million).

But such figures do not tell the whole story. The post-Mubarak period has also seen a surge of interest among young Egyptians in starting their own companies, some involving new technologies and markets that were not explored before the revolution, businessmen say.

In some cases, push factors are at work; people are being forced to become entrepreneurs because of the growing difficulty of finding secure jobs at established firms.

But there are also pull factors. By disrupting some of the big, dominant companies, Egypt's unrest created more space for small, nimble start-ups to operate. And by removing Mubarak's authoritarian government, it gave young Egyptians a sense of empowerment which encouraged some to start businesses.

“Many companies started after the revolution - the main reason is psychological. Many young people realized they can do what they want,” said Ahmed Zahran, who helped to found solar energy firm KarmSolar in October 2011. “Egyptians became risk-takers after the revolution.”

Data from the investment ministry supports this theory. Capital invested in new firms fell to 897 million pounds in May this year from 1.11 billion pounds in May 2010, as the economic slump hit corporate financing. But the number of new firms founded during the month actually rose, to 823 from 690.

Abdelrahman Magdy, chief executive of Egypreneur, which helps local entrepreneurs find the contacts and services they need, said that before the 2011 revolution, Egypreneur had 2,000 to 3,000 followers on Twitter. It now has about 20,000.

Small

By themselves, Egypt's start-up companies are too small to re-ignite economic growth or solve the problem of youth unemployment, estimated at over 20 percent. According to the investment ministry, firms established in May 2010 created  16,851 jobs; those established in May this year, just 7,151.

But the ability of Egyptian entrepreneurs to operate in the current environment suggests room for much faster economic growth when the political situation eventually stabilizes.

Zahran, 33, who worked for a multinational oil firm in Tunisia and in the energy industry in London before returning to Cairo, said Egypt's economy was “massively underserviced” after years of stagnation, leaving opportunities for expansion.

Many recent start-ups try to address inefficiencies and logjams in the economy, using new technology or business models to grapple with issues such as traffic congestion, vocational training and jobs for young people, and fuel shortages.

KarmSolar was founded in response to one of the biggest curbs on Egypt's development: the fact that most of its population lives on just 8 percent of its land, Zahran said. Providing energy and water supplies to let people live in other, more arid areas has been prohibitively expensive.

The company designs solar-powered water pumping systems and solar-powered buildings to help businesses and villages operate off the national power grid and without using diesel fuel.

KarmSolar has raised 30 million Egyptian pounds of funding, boosting its staff to 25 people from four, and aims to become profitable by end-2014, Zahran said. It hopes to start sales elsewhere in the Middle East in the next five years.

For Ahmed Essam, 30, the explosion of political news and debate in much of the Arab world since its 2011 uprisings is a business opportunity. He resigned his job at a software company after Mubarak's downfall to set up a venture developing applications for smart phones, and is now focusing on an app that plucks news from the Internet.

“Consumption of news is soaring in the Middle East, because of all the political changes - everybody is affected. So there's an opening here,” he said.

For Egypt's big companies, funding has become more difficult since the revolution as capital markets have slowed and banks have become more cautious about lending.

But many of the start-ups, which require only moderate amounts of capital in their initial years, say they have had no problem raising money through more informal channels.

Mashaweer began by borrowing money from family and friends before attracting a wider circle of individual investors who were impressed by the firm's advertising. Zahran said KarmSolar approached energy industry executives who liked its technology.

In contrast to solar energy firms in many other countries, he said his firm was not counting on receiving any state assistance, partly because the Egyptian government would remain distracted by political issues for some time to come.

“We're not expecting any help. Our business has to succeed on its own merits,” he said.

Egypreneur's Magdy said he could see “no end in sight” to Egypt's political conflict, but he didn't expect that to deter many of its entrepreneurs.

“These ventures depend on people's dreams and their hopes. They're not going to stop because of politics.”

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