The DNA of Egypt’s entrepreneurship ecosystem: Do the GEM Egypt Report and Startup Manifesto see eye-to-eye?

Entrepreneurship is considered a good career choice according to 75.9 percent of Egyptians – compared to a global average of 61.6 percent

Data and overviews of Egypt’s entrepreneurship ecosystem are scarce – but in December 2018, two comprehensive documents entered the scene.

The Global Entrepreneurship Monitor (GEM) Egypt National Report provides an annual assessment of entrepreneurial activity, aspirations and attitudes. The report for 2017/2018 is based on a survey of over 2,520 Egyptian adults and a survey of 51 entrepreneurship experts in nine key areas, and is published by the American University in Cairo’s School of Business.

The Startup Manifesto, brought to life by ecosystem builder RiseUp, aims to provide an overview of current challenges and possible solutions for building a vibrant, effective entrepreneurship ecosystem. Under the tagline “For the ecosystem by the ecosystem”, the Startup Manifesto’s objective is to be a platform for collective action by all players and stakeholders.

The reports – both supported by Oxfam and the Danish-Arab Partnership Programme – intersect in eight key areas, providing a rather vivid overview of how Egypt’s entrepreneurship ecosystem is developing.

1. Societal values and the perception of entrepreneurship
According to the GEM’s survey, entrepreneurship is considered a good career choice according to 75.9 percent of Egyptians – compared to a global average of 61.6 percent – while 82 percent of respondents perceive successful entrepreneurs as having a high social status.

“This high rate is a positive indicator of the growth of the entrepreneurial culture, especially within youth,” the report reads. However, Egypt scored 3.5 out of 9 in the national culture encouraging entrepreneurial risk-taking pillar, based on a none-digit Likert scale, with 1 being least encouraging and 9 being most encouraging.

The Startup Manifesto’s take is less optimistic, as it conveys a problem: starting one’s own business is perceived as an irresponsible endeavor, compared to having a stable job. According to the manifesto, the solution lies in increasing the awareness of the role entrepreneurs can play to benefit the economy and country.

2. Women entrepreneurship
Based on the GEM, women worldwide are less likely to engage in entrepreneurship than men, and when they do, it is out of necessity. Female participation in early-stage entrepreneurship in Egypt stood at 7.5 percent in 2017, compared to 18.8 percent for men. Moreover, just over 2 percent of women own established businesses, compared to 9.1 for men, which places Egypt among the lowest of the surveyed countries.

 VC funding for women needs to be facilitated and awareness campaigns need to be targeted at males

The Startup Manifesto examines the low rate in the context of Egypt having a relatively high female enrollment rate in higher education in general, and in science and engineering in particular. The path of establishing high-growth startups is perhaps exclusive to women who grew up in middle- and high-income families, as they face less pressure to enter the traditional labor market, according to the document. This makes entrepreneurship – to them – a more conceivable career option.

Looking deeper, acquiring seed-funding is easier for women than men due to an increase in women-centric programs, as opposed to venture capital (VC) funding. Additionally, familial obligations may prevent some women from starting their own businesses.

Hence, VC funding for women needs to be facilitated, and – according to the manifesto – awareness campaigns need to be targeted at male members of the ecosystem.

3. Youth entrepreneurship
In terms of youth entrepreneurship in Egypt, 13.2 percent of 18-24-year-old are early-stage entrepreneurs, according to the GEM. The same applies to 18.3 percent of 25-34-year-olds and 12.2 percent of 35-44-year-olds. The first two age groups scored a higher percentage than the global average, which may be “attributed to higher awareness and interest in having an entrepreneurial or independent career” or the higher rate of necessity-driven entrepreneurs given a high rate of youth unemployment.

The manifesto states that individuals aged between 25 and 34 years are more likely to become entrepreneurs over other age groups, which comes with its own challenges. The challenges these entrepreneurs face are linked to their age, as some of them – being young students – quickly jump into entrepreneurship without gaining initial experience. It also suggests encouraging a “responsible entry” into the entrepreneurship scene and establishing support mechanisms for young high-potential entrepreneurs to help them dedicate most of their focus to the business.

4. Job creation
The GEM report suggests that 52.5 percent of Egyptian early-stage entrepreneurs do not expect to add any new jobs to their business within five years. This is higher than the global average of 46 percent. This model of “self-employment businesses” is typical for necessity-driven informal micro enterprises. Almost 24 percent of early-stage entrepreneurs expect to grow their business by 6 employees or more in the coming five years; also above the global average of 19.7 percent.

Entrepreneurship should not be understood as the ultimate solution for unemployment

“This indicates a quarter of the early-stage entrepreneurs with high-growth aspirations, typical of opportunity-driven entrepreneurs,” the report states.

The manifesto declares that “entrepreneurship should not be understood as the ultimate solution for unemployment, but […] as a means for directly or indirectly creating job opportunities”. Hence, startups can alleviate the pressure of high unemployment rates. Issues arise due to startups headhunting from one another, affecting the ecosystem in a negative manner.

Additionally, there are reports of unsuited behavior from startups in contractual relationships with potential employees, the manifesto warns. Other challenges include job seekers being unaware of job postings in the startup ecosystem, the lack of standardization of employment conditions in the scene and startups recruiting from private universities at the expense of qualified candidates from public universities.

What needs to be done, according to the Startup Manifesto, is creating awareness on why headhunting from other startups is harmful, developing a redress mechanism where current and potential employees can report misconduct, strengthening existing recruitment platforms to connect startups to jobseekers, creating awareness of the up-side of startup employment, initiating internship programs etc.

5. Internationalization
In the GEM report, internationalization mainly refers to a startup’s or entrepreneur’s aspiration to operate beyond the domestic spheres within a more globalized world, and the ability to compete in a more sophisticated and competitive global market. It measures this variable by the percentage of entrepreneurs who report that 25 percent or more of their customers come from outside the country. Egypt’s internationalization rate lies at 15.8 percent, falling below the global average of 19. 2 percent. Among established businesses, the rate stands at 13.3 percent.

The figures suggest that a higher number of new businesses, rather than old, established businesses, are looking for customer bases on an international level.

The Startup Manifesto looks at internationalization from a perspective of trading and cross-border expansion. In comparison, Egyptian businesses tend to export less than other regional players. The large domestic market and strict export regulations are considered the cause of that, while barriers on importing have recently increased to mitigate balance of payment issues.

In order to incentivize and prepare startups for trading, guidelines need to be facilitated for startup trading, tariff- and non-tariff barriers need to be tailored for startups and an import/export agency for startups should be established. Regarding cross-border expansion, the manifesto suggests a matchmaking mechanism to link experienced startups with global market seekers and guidelines need to be established to facilitate internationalization in a number of selected markets.

6. Media
The media attention directed at entrepreneurship in Egypt is seen positively by 68.7 percent of respondents in the GEM, which represents an improvement from the previous five years during which the percentage moved between 58 percent and 63 percent.

To incentivize and prepare startups for trading, guidelines need to be facilitated for startup trading

“This increase indicates a noticeable change in how entrepreneurship is covered in the media in Egypt, where several radio and television talk shows are starting to present positive stories of successful entrepreneurs,” the report highlights.

The role of the media is considered a critical one for the promotion of entrepreneurship, as it affects the the society’s perception of the notion, the manifesto claims. While coverage has been increasing, the amount of Arabic coverage of startup activities is still low, the complexities of the startup life are underreported, the success stories are repetitive, the coverage is very founder-centric and tech startups are overemphasized at the expense of other industries.

To counter these issues, the manifesto suggests the creation of an Arabic glossary of technical entrepreneurship terminology, the diversification of success stories, shedding light on non-tech and purpose-driven startups and telling more nuanced stories about the industry.

7. Government policies and laws
Egypt’s score in the support and relevance of government policies stood at 4.2 on a nine-digit Likert scale in the GEM, with 1 being highly insufficient and 9 being highly sufficient. The global average stood at 4.3. The number indicates an improvement from the previous years, during which the score pendled between 3.1 and 3.6.

According to the GEM report, “this reflects changes in the government leadership, with new ministers putting entrepreneurship as a priority”.

Regarding taxes and bureaucracy, Egypt scored 3.0, showing that the area needs a complete overhaul. The areas that saw a rigid improvement were overall government policies favoring new firms, and “support for new and growing firms becoming more of a priority for policy at both the national and local level”. The reforms undertaken to pertain to this result were the modification of several laws, the formation of a new micro-, small- and medium-sized (MSME) development agency and the launch of several entrepreneurship support programs.

However, there has been a decline in bureaucratic and taxation support for entrepreneurs, with taxes becoming an increasing burden for small businesses.

According to the manifesto, the new Investment Law does not directly address startups and the translation of the law into action has been considered slow, according to the Startup Manifesto. Additionally, the Companies Law does not provide shareholders with the freedom to organize their companies and does not specify adequate transparency and disclosure requirements. One of the main challenges in the legal framework of company governance and establishment is the presence of several laws regulating doing business in Egypt, which calls for the need of a unified corporate law.

8. Infrastructure
The physical infrastructure scored a ranking of 6 on the above-mentioned nine-digit Likert scale, referring to the ease of access to physical resources at a price that does not discriminate against new and growing firms. The GEM defines physical infrastructure as Egypt’s strongest area among entrepreneurship framework conditions. The availability of infrastructure has not changed over the past five years; however, the ability of companies to access such infrastructure has declined, especially due to price hikes after the devaluation of the Egyptian pound, inflation and the reduction of subsidies.

The Startup Manifesto explains that the growth of startups is directly linked to the infrastructure in which they develop.

“A relatively underdeveloped infrastructure can negatively impact the collective competitiveness of Egyptian startups in comparison to regional and international players,” it states.

The manifesto also shows that the current internet infrastructure, for example, can be “tremendously improved in terms of speed and reliability”, which calls for investing in large-scale projects to upgrade the existing infrastructure and the need for public-private partnerships involving startups.

In terms of workspace infrastructure, coworking spaces still do not have a legal framework to operate in and do not offer all the things entrepreneurs need. Additionally, registered and affordable office spaces are scarce.

Lastly, the manifesto refers to the centralization of startup support organizations and resources in Cairo and Alexandria, suggesting that those should be extended into other governorates and that efforts should be integrated.

In conclusion, the GEM provides a rather quantitative academic approach, while the Startup Manifesto relies on a qualitative model. While their outcomes do not necessarily see eye-to-eye in all eight areas, they certainly provide readers and stakeholders with an overview of what Egypt’s entrepreneurship ecosystem looks like and what it needs in order to move forward.

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