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RiseUp16: How Can Startups Thrive Under Egypt's Economic Crisis?

19 December, 2016
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Over the past few months, the Egyptian economy has witnessed a series of turbulences. There was the devaluation of the Egyptian pound, followed by its flotation, alongside price hikes across the board as well as increases to taxes.

What does all of this mean for an entrepreneur, start-up or someone managing their own company? Ayman Ismail, the founder of the AUC Venture Lab and an assistant professor at the AUC School of Business, posed such a question at this year’s Rise Up summit, elaborating on the challenges, and with them opportunities, of the market.

Egypt is consuming more than producing, and importing more than exporting. Imported products from China, for example, are cheaper than local ones.

The government has borrowed large sums of money, and its budget “looks very bad”, Ismail stated. Almost 30% goes to debt services, paying off a lot of interest accumulated through its debt. Another 25% goes to state employees' salaries. Another almost 27% goes to subsidies. Those three items alone make up 80% of the budget.

Health, education and everything else fall under the left over 20%. “When you go to the government and ask it to spend more on roads, infrastructure, healthcare, cleaning streets, building more schools and building more hospitals, they say that they do not have the money,” Ismail said. “So they are stuck. What do they? They borrow. So every single year, for the past three or four years, they have been borrowing a lot,” said the professor, adding that in 2016 the government borrowed around EGP 350bn.

This vicious cycle leads to adding more taxes and cutting spending on services.

Meanwhile, every 30 years, Egypt's population doubles and a whole new Egypt needs to be built, including added infrastructure and services.

“The good news is, different people need different things. So whatever business you are getting into, your market is doubling. This is why a lot of companies are interested in entering the Egyptian market. It is a huge market.”

Market wise, it has indeed grown, with 12 million new citizens since 2011 born in Egypt. Customers wise, their behaviors are changing.

With the financial crunch, people are trying to save money. “Any product or service that is going to save people money is going to flourish now,” Ismail advised. These are called defensive industries, he explained.

Also, consumers want to do things easier and faster. "We spend too much time in traffic, paying bills, and doing things we do not need to do,” Ismail said. If a startup can make life more convenient, cutting time and costs, its services are something Egyptians are going to buy.

Products and services also have to cater the new generation that has a new mindset. We cannot build for the coming 80 million the same way we did in the past, Ismail stated. We need to disrupt the old methods, and incorporate new technology. “This is a huge opportunity for anyone who is willing to do something disruptive, something that will serve the coming generations that are very different,” he said, elaborating by talking about how three-year-old children can now use tablets.

The Egyptian government needs to update its laws to accommodate technology, stated Mathew Spence, a fellow at Stanford University and a partner at Andreessen Horowitz venture capital firm, during a Rise Up discussion that dove deep into essential issues surrounding policy and entrepreneurship.

The government should also buy products from innovative companies instead of the big players, Spence added. Through his experience working with the White House, Spence believes that that having the government and entrepreneurs involved in the conversation is “incredibly important”.

Internally, a company has to protect its top talents. Do not assume that because unemployment is high, people will not leave, Ismail asserted. One way to win them is to give them shares. Allocate 3% for your top employees; make them feel part of the company, he said.

When it comes to investments, Ismail handed out another piece of good news. There will be more money in 2017 than there has been for the past five years, he confirmed.

Banks have yet to lend money to small companies. That part will continue to be hard, Ismail believes. The central bank is trying to push for the move. “This is going to take time before it happens, but eventually banks will figure it out,” he stated.

“There will be more investments in Egypt over the next year. Regional funds are also looking at the country. Prepare your start up,” he maintained.

Investors are looking for products that make a person's life easier and cheaper, a company that can grow very quickly, and maybe with regional potential, he expounded.

For the time being, “do not try to sell luxury goods when the economy is in depression”, Ismail stressed.

Market faster, do not work slowly, figure out how to do more with less money, take care of your top talent, and figure out the story you are trying to pitch that is compatible with the times, the professor summarized.

“Your story has to fit with what is happening to the bigger picture of the economy,” concluded Ismail.

Tags Rise Up Summit start-up economy