Description
Micro, Small And Medium Enterprises In Egypt Entrepreneurship, Business Procedures And Value Chain Analysis
Creative Associates International | August 2014
Entrepreneurship, Business Procedures
and Value Chain Analysis
MICRO, SMALL AND MEDIUM
ENTERPRISES IN EGYPT
1
MICRO, SMALL AND
MEDIUM ENTERPRISES
IN EGYPT
Special Focus on Entrepreneurship,
Streamlining Business Procedures and
Value Chain Analysis
AUGUST 2014
REPORT SUBMITTED BY
ACCELERATE CONSULTING AND DEVELOPMENT
5 AMMAN SQUARE, DOKKI
SUITE 21, FLOOR 2
CAIRO, EGYPT
2
Table of Contents
Executive Summary ............................................................................................................... 4
Introduction .......................................................................................................................... 5
CHAPTER 1: DEPICTING THE MICRO, SMALL AND MEDIUM ENTERPRISE ECOSYSTEM IN EGYPT
................................................................................................................................................................................................ 6
1. Macroeconomic Outlook .............................................................................................................................................. 6
2. The Role of Micro, Small and Medium Enterprises in Economic Growth................................................ 9
3. Key Challenges ............................................................................................................................................................... 11
4. Recent Developments ................................................................................................................................................. 12
A. Government Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem ............. 12
B. Banking-Sector Reforms ....................................................................................................................................... 13
C. Donors Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem ........................ 14
D. Private-Sector Initiatives to Promote the Micro, Small and Medium Enterprise Ecosystem
……………………………………………………………………………………………………………………………………………………………………17
5. Business Development Services Provision Support....................................................................................... 17
6. Conclusions and Recommendations ..................................................................................................................... 20
CHAPTER 2: UNDERSTANDING THE ENTREPRENEURSHIP ECOSYSTEM IN EGYPT ................... 22
1. Overview of the Current Entrepreneurship Ecosystem ............................................................................... 22
A. Entrepreneurship Regions in Egypt ................................................................................................................. 24
B. Entrepreneurial Gender Gap in Egypt ............................................................................................................. 25
C. Egyptian Entrepreneurship Ecosystem Strengths, Weaknesses, Opportunities and Threats
Analysis ................................................................................................................................................................................. 25
2. Key Challenges, Potential Risks and Means of Mitigation............................................................................ 26
3. Facilitating Access to Finance .................................................................................................................................. 28
A. Banks and Debt Financing.................................................................................................................................... 28
B. Venture Capitalists .................................................................................................................................................. 28
C. Angel Investors ......................................................................................................................................................... 29
D. Crowdfunding ............................................................................................................................................................ 29
4. Access to Nonfinancial Services to Entrepreneurs ......................................................................................... 30
A. Accelerators and Incubators ............................................................................................................................... 30
B. Mentoring and Coaching ....................................................................................................................................... 30
5. Stakeholders on the Map ........................................................................................................................................... 31
6. Conclusion and Recommendations ....................................................................................................................... 32
CHAPTER 3: STREAMLINING BUSINESS PROCEDURES ........................................................... 35
1. General Authority for Investment and Free Zones ......................................................................................... 35
2. Social Fund for Development One-Stop-Shop Service .................................................................................. 36
3. Tamayouz Centers ........................................................................................................................................................ 36
A. CAIRO 2010 ................................................................................................................................................................. 36
B. ALEXANDRIA 2012 .................................................................................................................................................. 37
C. OTHERS ......................................................................................................................................................................... 37
4. Suggested Reforms and Recommendations ...................................................................................................... 38
A. Reforms to Existing One-Stop Shops and Replications ............................................................................. 38
B. General Recommendations .................................................................................................................................. 39
CHAPTER 4: VALUE CHAIN ANALYSIS .................................................................................... 41
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1. Textile Sector in Egypt ................................................................................................................................................ 41
1.A Sector Overview ........................................................................................................................................................ 41
1.B Sector Positioning .................................................................................................................................................... 41
1.C. Sector Value Chain and Linkages .............................................................................................................................. 44
1.D. Sector Linkages ................................................................................................................................................................. 46
1.E. Sector Recommendations……………………………………………………………………………………………………………………46
2. Information and Communications Technology Sector ................................................................................. 47
1.A Sector Overview ................................................................................................................................................................. 47
1.B. Information and Communications Technology Sector: Current Developments and Potential
Growth ................................................................................................................................................................................... 48
1.B.1. Information and Communications Technology Infrastructure Development ..................... 48
1.B.2.Information and Communications Technology Value Added in the Egyptian Economy 49
1.B.3. Number of Information and Communications Technology Companies, Issued Capital
and Revenues ............................................................................................................................................................................... 50
1.B.4. Employment in the Information and Communications Technology Sector ........................ 52
1.B.5. Investments, Exports and Value Chain Linkages ................................................................................ 53
i. Investments ................................................................................................................................................... 53
ii. Small and Medium Enterprises Value Chain/Business Linkages ........................................... 54
iii. Exports .......................................................................................................................................................... 59
1.B.6. Projected Information and Communications Technology Sector Growth .......................... 59
1.B.7. Policy Support for Small and Medium Enterprises and Entreprenurship Development
in the Information and Communications Technology Sector ........................................................................ 60
1.B.8. Women in the Information and Communications Technology Sector and Related
Sectors ................................................................................................................................................................................... 62
i. Female Employment Characteristics in the Information and Communications
Technology Sector ............................................................................................................................................................ 62
ii. Empowering Women in the Information and Communications Technology-Related
Sectors ................................................................................................................................................................................... 63
1.C. Conclusion and Recommendations ........................................................................................................ 63
ANNEX (1): Egyptian Micro, Small and Medium Enterprise Stakeholders, Partners, and Service
Providers ............................................................................................................................. 66
ANNEX (2): Stakeholders Summarized Database .................................................................. 73
ANNEX (3): NGOs Supporting Micro, Small and Medium Enterprises and Entrepreneurs ....... 81
ANNEX (4): Universities with Entrepreneurship Initiatives .................................................... 85
ANNEX (5): Government Organizations Supporting Entrepreneurship .................................. 87
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Executive Summary
The purpose of this report is to support Creative Associates International in preparing for the anticipated
United States Agency for International Development (USAID) /Egypt Trade and Investment Indefinite
Quantity Contract and its related task orders on micro, small and medium enterprises (MSMEs),
entrepreneurship support and business processes.
This report describes and assesses the available information on the broad ecosystem of MSMEs and
entrepreneurship in Egypt—focusing on the ecosystem, efforts for streamlining business processes, and
a value chain analysis for such enterprises. The report also offers recommendations on strategy and
actionable program design on how to support MSMEs and entrepreneurs in impacting the Egyptian
economy.
Chapter 1 introduces the current situation of MSMEs in the Egyptian economy including their role,
distribution, key challenges, recent developments and recommendations for further development.
Chapter 2 provides an overview of the ecosystem of entrepreneurship, including key stakeholders,
initiatives, fundamentals and potential. Chapter 3 presents the Egyptian entities and one-stop shops
that streamline the business procedures for small and medium enterprises (SMEs). Chapter 4 gives an
overview of two main sectors in Egypt: textiles and information and communications technology. This
overview includes a value chain analysis of the textiles sector and a detailed analysis of the information
and communications technology sector, including current developments, projected growth, women’s
participation, infrastructure development, value added, number of companies, issued capital and
revenues, employment, investments, exports, value chain linkages, policy support for SMEs and
entrepreneurship development.
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Introduction
The Egyptian economy is one of the more diversified economies in the Middle East—tourism,
agriculture, manufacturing and services sectors all contribute with semi- equal ratios to the gross
national product. Due to recent structural reform, the Egyptian economy is achieving high growth
rates—and an attractive investment climate has evolved thanks to positive developments in
infrastructure, transportation, communication, energy, skilled labor, modern industrial cities, free zones,
banking and stock markets.
Egypt‘s current social and political transformation poses historic challenges and opportunities for its
economic development and growth. The lack of employment opportunities, particularly for youth under
the age of thirty-five, has been cited as one of the principal causes of the Egyptian revolution and the
country’s political unrest, which has taken its toll on the Egyptian economy. With political uncertainty
and economic slowdown, there is an ever more urgent need to create jobs for young Egyptians.
Unemployment has reached its highest level, particularly among women and youth in Upper Egypt, at
13.4% in 2013.
1
Micro, small and medium enterprises (MSMEs) are the backbone of any economy. Nowadays when
governments or international institutions put forward a plan or policy, they show great concern about
the role of MSMEs in the economy as they know that these businesses are crucial to economic growth
and development. Yet despite the importance of such enterprises for Egypt, obstacles often stand in the
way of their development, such as financial and political issues, lack of technology adoption and
unskilled workers. Furthermore, MSME owners of these businesses tend to have informal financing—
borrowing from relatives, friends and rotating credit associations (Gameia)—instead of formal financing,
which requires long and complicated procedures (including registering as an entity).
Many researchers consider most owner-managers of these enterprises to be entrepreneurs because
they start the venture, administer the business, and are responsible for its failure or success. Both SMEs
and entrepreneurs share the broader ecosystem. Indeed, “most new firms are small firms, so that a
substantial part of the entrepreneurship literature is concerned with the dynamics of small and medium
enterprises (SMEs).”
2
Despite these many similarities, the literature holds that there are a few differences between SMEs and
entrepreneurs—most being related to credit provision. As such, policy remedies to barriers facing
MSMEs in the Middle East and North Africa have primarily involved the establishment of special funds
and agencies to fill gaps left by the financial and banking system. Most reparative work on work on
MSMEs and entrepreneurship in Egypt has focused on barriers to growth from technical and economic
angles, with little attention thus far having been paid to nonfinancial obstacles such as political and
institutional challenges. Our report will shed light on these challenges.
1
Central Agency for Public Mobilization and Statistics
2
Naudé, W. (2008) “Entrepreneurship in Economic Development,” Research Paper, United Nations University -WIDER, United Nations
University, No. 2008/20, p.3.
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CHAPTER 1: DEPICTING THE MICRO, SMALL
AND MEDIUM ENTERPRISE ECOSYSTEM IN
EGYPT
1. Macroeconomic Outlook
The Government of Egypt targeted a growth rate of over 3% during FY13/14 and intends to pursue a
long-term plan to support growth by injecting an incentive package of EGP 30 billion. The incentive
package will be used to support public-sector investments and infrastructure projects. The following
main macroeconomic indicators of the Egyptian economy are provided to give a perspective of the
overall business environment in Egypt.
The second quarter (Q2) of FY13/14 witnessed several political developments towards the fulfillment of
the Roadmap
3
, which positively affected the Egyptian economy. Thanks to financial aids provided by
Gulf countries combined with Egypt’s active economic plan, Standard and Poor's increased Egypt's
sovereign credit rating in November 2013 (for the first time since January 2011) from CCC+/C to B?/B in
the short and long terms and also at the level of local and foreign currencies. That a sovereign credit
rating agency observed the remarkable improvement in the Egyptian economic stability is a primary step
towards restoring international markets' confidence in the Egyptian economy.
The economic growth rate stood at 2.5% in Q4 FY13/14 compared to 2.2% during Q3 FY12/13.
Figure (1): Real GDP growth
According to the data of the Central Agency for Public Mobilization and Statistics (CAPMAS), the monthly Consumer
Price Index (CPI) inflation remained constant at 0.9% from June 2013 to June 2014.”
3
The Roadmap is for a transfer to civilian power and includes the successful completion of parliamentary elections.
7
Figure (2): Change in inflation rates in consumer prices
According to the most recent labor force sample survey conducted at the end of Q1 FY14, the
unemployment rate stood at 13.4% compared to 13.2% at the end of Q1 FY13.
Figure (3): Unemployment Rates
Taking the most recent data available from the General Authority for Investment and Free Zones on
newly established companies for June 2014, 800 new companies were established by Egyptian, Arab and
foreign private investors, compared to 755 companies set up in June 2013. The daily average of new
companies established in June 2014 was 36. The services sector accounted for the bulk of new
establishments, with 344 new companies. The services sector was followed by manufacturing (208
companies), construction and building (128 companies), information and communication technology (46
companies), agriculture (43 companies), tourism (29 companies) and financing services (2 companies).
During June 2014, female owners established 9% of new companies, whereas males established 77% of
new companies for that same period. Legal entities accounted for the remaining 14% of new
establishments.
At the level of investment in specific governorates for this June 2014 period, Assuit accounted for the
bulk of new establishments, with 19 companies, followed by Sharqia with 12 companies and Cairo with 8
companies. The issued capital for the newly established companies totaled EGP 1403.5 million, with
8
Assuit accounting for the largest share, with an EGP 29.6 million. Suez followed with EGP 23.7 million,
and Souhag with EGP 10.6 million.
(The information above is for all companies established regardless of their size. ACCELERATE has
requested this information from the General Authority for Investments and Free Zones for the SMEs
established in FY12/13. Information is expected to be ready by the end of August 2014.)
Over the past few years, Egypt has made strides in recognizing the importance of the SME sector and its
significant contribution to economic growth and job creation in Egypt. While there have been efforts to
improve the business environment for local entrepreneurs, these efforts have been diluted by a lack of
sustained commitment to substantive changes and an unwillingness to risk upsetting the established
order.
According to Egypt’s Doing Business Report of 2014, the country is still facing structural challenges that
impede private-sector activity. With an aggregate ease of doing business ranking of 128 among 189
economies (see figure below), Egypt still has room for much improvement—for example, via clearer and
more transparent rules applied more consistently. Such rules would facilitate rather than impede the
private sector in Egypt, where the need to encourage entrepreneurship is thus perhaps even more
urgent than in other countries.
4
Figure (4): Doing Business in Egypt Ranking 2014
Hence, the Government of Egypt should prioritize SME encouragement as part of its short- and long-
term strategy for development. For example, the government should allow temporary business licenses
(able to be transformed into permanent licenses by the power of law within thirty days) and offer tax
exemptions to SMEs for five years from the date of establishment.
In recent years, Egypt has recognized the importance of having a policy framework to support SMEs.
Under the terms of a 2004 law, the government has developed a structured policy framework for micro
and small enterprises (MSEs) that is the responsibility of the Social Fund for Development, the main
public player and policy coordinator for the micro and small segment of the SME population. In parallel,
the Social Fund for Development has recently developed targeted policy tools to help MSEs establish
and grow their businesses by providing a range of programs such as business support services,
microfinance activities and a network of business incubators.
Egypt has also made considerable improvements in delivering targeted policy to enhance SME
innovation through dedicated centers and networks—namely, through the Egypt Technology Transfer
and Innovation Centers. The country also performs moderately well in helping to improve these
4
Doing Business Subnational (World Bank and International Finance Corporation), Doing Business in Egypt Report 2014.
9
enterprises’ operations through startup and growth services provided by the Industrial Modernization
Center.
Yet, multifaceted challenges still impede further development of the micro, small and medium
enterprise (MSME) sector in Egypt. Among these challenges are the following:
? A policy gap exists regarding SMEs with high-growth potential, a sector where institutions are
active but working in isolation from one another and sometimes ill-equipped to meet the needs
of fast these fast-growing enterprises;
? The high number of informal businesses in this sector distorts competition and inhibits the
effectiveness of government policies;
? Targeted policy tools appear to favor medium-sized, well-established industrial enterprises over
younger, smaller enterprises with high-growth potential operating in the services; and
? Lack of coordination among institutions results in support programs not benefiting MSMEs for
which they were designed.
The momentum is building in the region as the Arab Spring generates an appetite for reform, providing
new opportunities for MSMEs. Egypt’s new government is committed to supporting and developing
these enterprises by improving their enabling environment and increasing their access to finance. In
June 2014, a new portfolio for SMEs was added to the already existing Ministry of Trade and Industry.
Nonetheless, the new government still anticipates a long development process since it has yet to
address the priorities that have become more pressing after the January 25 and June 30 revolutions—
priorities that include opening up further access to private-sector opportunities for income and
employment and easing significant constraints on enterprise operations, startup, competitiveness and
growth.
2. The Role of Micro, Small and Medium Enterprises in Economic
Growth
Developing countries usually view MSMEs as a dynamic force for sustained economic growth and job
creation. These enterprises not only create sustainable opportunities by expanding private-led
employment, they also contribute to economic growth by bringing innovative products and services to
the market, thereby increasing effectiveness and efficiency in the economy.
Over the past few years, countries in the Middle East and North Africa region have been aiming to build
stable and sustainable economies through diversifying and expanding an enterprise base across a range
of different sectors, thus improving the competitiveness of the region's private sector. By enlarging the
SME base, these countries hope to create opportunities for locals and motivate innovation in higher
value-added sectors.
5
For Egypt, MSMEs account for about 99% of private enterprises. And they
represent between 86 % and 97% of all formal sector enterprises—and an even higher proportion if
informal enterprises are also taken into account
6
—yet their contribution to gross domestic product does
not exceed 25%.
7
The Egyptian private sector is characterized by the presence of many MSMEs having up to 99 employees
and operating at high levels of informality, with low value-added, low production quality and poor
5
http://the-mea.co.uk/news/focus-sme-role-economic-growth#sthash.HAsswB42.dpuf. Accessed June 18, 2014.
6
World Bank, Middle East and North Africa Region: Micro, Small and Medium Enterprise Technical Assistance Facility, Official Document, February 2012.
7
http://www.msmenewsnetwork.com/index.php/richard-keery. Accessed June 18, 2014.
10
export performance.
8
In contrast, the majority of large companies operate in highly regulated industries
such as oil and gas, telecom and financial services. The estimated number of MSMEs at the end of 2011
totaled about 3.04 million establishments, with an average enterprise size equal to 2.63 workers
generating the bulk of employment and income opportunities. MSMEs are the main source of private-
sector jobs in Egypt, with enterprises with fewer than 50 employees accounting for over 80% of private-
sector employment.
9
These enterprises represent 85% of non-agriculture private-sector employment
and for 33.7 % of total employment.
10
The majority of SMEs in Egypt are in the services sector, and none in the mining sector. Almost 90% of
these enterprises are concentrated in just two sectors—the manufacturing sector (51.1%) and the
wholesale trade sector (40.5%). Figure (5) shows that SMEs in Egypt are highly skewed at the sectoral
level.
11
Figure (5): Small and Medium Enterprise Distributions by Economic Activity
Developing MSMEs is important to economic inclusiveness and social justice. About 56% of Egyptians
live on US 2 to USD 4 per day, depending mainly on SMEs, typically in the informal sector, for their
livelihood. More than 70% of young, first-time job seekers end up working in one of these businesses,
with wages of about USD 3.70 per day.
12
Egypt was ranked 146
th
out of 148 countries for labor market efficiency in 2013-14, its bleak
performance due largely to increased worker strikes, high redundancy costs and low worker
productivity. According to the Central Agency for Public Mobilization and Statistics, Egypt’s annual
unemployment rate stood at 13.4% in Q3 of 2013, compared to 8.9% over the same period in 2010.
Unemployment rates were especially high among women and youth: 23% of females were
unemployed
13
; and about 20.9% of the 25-to-29-year-old age group and 39.3% of the 20-to-24-year-old
age group were unemployed.
8
Sahar Nasr and Laila Abdelkader, World Bank, Middle East and North Africa Knowledge and Learning: Quick Notes Series, Issue no. 90, April
2013.
9
http://english.ahram.org.eg/NewsContent/3/12/1278/Business/Economy/There-is-a-clear-%E2%80%98missing-middle%E2%80%99-gap-in-
Egypts-SM.aspx. Accessed 21 June 2014.
10
United Nation Industrial Development Organization, “UNIDO Activities in Egypt Report,” 2014.
11
Hala El Said, Mahmoud Al Said, Chahir Zaki, “Small and Medium Enterprises Landscape in Egypt: New Facts from a New Dataset,” 2012.
12
Hafez Ghanem, Egypt’s Difficult Transition: Why the International Community Must Stay Economically Engaged, Global Economy and
Development, Brookings, Working Paper no. 66, January 2014.
13
World Bank, Middle East and North Africa Region: Micro, Small and Medium Enterprise Technical Assistance Facility, Official Document,
February 2012.
11
Although MSMEs account for the lion’s share of employment creation in the private sector, these
enterprises fall short of creating enough jobs for young entrants coming into the market. Public-sector
jobs have become the most prevalent—an unwelcome trend that has created distortions in the market
and has contributed to long unemployment spells. The challenge, therefore, is for the government to
create better conditions that will enhance job opportunities in the private sector, especially for the
educated youth, whose entry into the labor market, according to Egypt’s Labor Market Survey (2012),
has been delayed by the economic circumstances.
14
There is a vision to boost the economy and create jobs for the hundreds of thousands of frustrated
youth who swell the ranks of the unemployed every year. However, turning this vision into reality
requires a careful plan and a major shift in thinking. Because of the vital role of fast-growing MSMEs in
creating jobs, Egypt’s government has been focusing its attention on the characteristics of these high-
growth firms, highlighting the importance of building their capacities and skills, and reducing barriers to
entry and operation. Despite these efforts, growth has thus far failed to reach its full potential and
generate enough employment—Egypt has been unable to make substantial progress in reducing its
persistently high unemployment rates.
3. Key Challenges
MSME sector development in Egypt is held back by numerous challenges related to the regulatory
environment, financial infrastructure, financial institution lending capacity, enterprise management
skills, enterprise creditworthiness, liquidity of the financial intermediaries and the availability of risk-
sharing instruments.
MSMEs do not have access to credit services, so they build personal networks to obtain loans based on
trust. These enterprises lack marketing channels, so they make use of personal contacts with merchants
and suppliers. In the struggle to keep their businesses alive, owners rarely have the time to look into
how new approaches or technologies could make their enterprises more efficient. Among the major
challenges facing the sector are non-conducive legal, regulatory and supervisory frameworks. Banks cite
a lack of enterprise transparency, difficulties in using collateral, and uncertainty over creditor rights as
primary barriers to the MSMEs’ greater involvement in bank financing.
There are also high administrative costs of small-scale lending, as well as inadequate banking skills for
dealing with MSMEs. Thus, there is need to build the capacity of financial intermediaries, especially
banks (and mainly state-owned banks), and to address deficiencies in financial infrastructure (including a
lack of available borrower information and outdated MSME lending technologies.) Banks lend
inefficiently and are not able to expand MSME lending significantly to these enterprises while also
managing costs and risks. On the other hand, MSMEs have limited access to finance because they lack
capacities to prepare business plans and loan applications, tend to have opaque or nonexistent financial
statements, and possess insufficient collateral. Moreover, there are also gender-related constraints
concerning access to finance, which include higher costs of finance, difficulties in gaining approval for
financing, and stricter collateral requirements. These problems explain the low levels of bank lending to
these smaller enterprises.
MSMEs also face nonfinancial issues. Besides the cumbersome legal and regulatory framework, as well
as a highly bureaucratic system, they suffer from a lack of adequate business development services,
adequate information, advanced technology and skilled labor.
14
http://www.africaneconomicoutlook.com. Accessed June 21, 2014.
12
In that context, it is important to remove constraints to competition and entry and enable new
generations of MSMEs to emerge who are oriented towards competing in global and domestic markets
based on their firms’ performance, not on privilege. For this to happen, business-friendly policy reforms
will need to level the playing field and remove traditional sources of rent and privilege.
The key to a more sustained and rapid private-led economic growth is to strengthen institutions’ ability
to implement private-sector policies equitably and consistently to generate equal opportunities, create
jobs and develop market players’ skills.
4. Recent Developments
Given the urgent need to create jobs that can absorb the high unemployment rates, in addition to the
various challenges posed by global economic development, Egypt has been intent on creating a strong,
competitive MSME sector that is able to play a leading role in the development process. It is in this
context that this sector’s development has become major focus of attention for the Government of
Egypt, donor agencies, private-sector initiatives and nongovernmental organizations (NGOs) since the
late 1990s. However, despite its high priority, no coherent policy for MSMEs has been developed.
Although there have been several different government, private sector and donor players in the market,
they faced various constraints such as 1) absence of a clear policy towards MSMEs development to
guide and coordinate the various efforts to maximize their benefit; 2) lack of a unified operational
definition for the target group; 3) lack of sufficient and adequate information on the sector; and 4) lack
of coordination among the various institutional actors. However, some efforts and initiatives undertaken
by the Egyptian government—as well as by donors, the private sector and NGOs—to develop the MSME
ecosystem have proved promising and successful.
Efforts to support such enterprises in Egypt can be attributed to the following:
A. Government Efforts
B. Banking-Sector Reform
C. Donor Support
D. Private-Sector Support
A. Government Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem
Creation of a settlement committee for new investment disputes. The Prime Minister, Ibrahim Mehleb,
issued a decree to set up a committee to settle investment disputes. The new entity is chaired by the
minister of Justice and includes the ministers of Trade and Industry; Local Development; Finance; and
Investment and Transitional Justice. It also includes chair of the General Authority for Investment and
Free Zones, chair of the State Council’s Advisory Body and secretary general of the Council of Ministers.
Prioritization of investment legislation amendments. According to the Minister of Investment, Ashraf
Salman, updating and amending the investment laws top the priorities for the Ministry of Investment
since these laws will play a big role in encouraging investments and helping to clear out many obstacles
and issues that used to hinder both domestic and foreign investors. Following the meeting of the newly
reshuffled council of ministers with President Abdel Fattah Al Sisi, Salman added that his ministry will be
giving much attention to attracting foreign investments to enhance the economy, create more jobs and
reduce the high unemployment rate.
Simplification of license procedures. All services rendered by the General Authority for Investment and
Free Zones are being simplified and streamlined, said its chairman, Hasan Fahmi. He added that the
13
governmental authority also seeks to decentralize through its branches in Alexandria, Assuit, Ismailia
and Tenth of Ramadan. More coordination will take place with different license providers so that
licenses are issued from the General Authority’s One-Stop Shop, Fahmi announced. Coordination is
underway with the National Center for Planning State Land Uses to offer lands available for investment
via the General Authority, while allocation shall be made by competent bodies.
Establishment of The General Authority for Investment and Free Zones’ new branches in Sohag, Sixth
of October and Gamasa .The General Authority for Investment and Free Zones will open three new
branches in Sohag, Sixth of October and Gamasa (FY 2014/15) to provide investment services, said the
Minister of Trade, Industry and Investment, Monir Fakhri Abdel Nour. The inauguration of these new
branches is in line with the Ministry’s plan to roll out the one-stop-shop system to bring together into
one place providers of licenses and investment zone permits, expand decentralization and help
investors. Abdel Nour said that the government seeks to clear out all obstacles to producers and
investors and provide necessary support to start up their businesses. He noted that coordination is
underway with the Ministry of Housing and the New Urban Communities Authority to design specific
and appropriate mechanisms for distributing and allocating industrial lands for investors in the period to
come.
Adoption of microfinance laws. The Council of Ministers approved a draft law on microfinance to
create new mechanisms of finance for microenterprises, which typically do not have access to
traditional finance institutions, said the Minister of Trade, Industry and Investment, Monir Fakhri Abdel
Nour. The law primarily seeks to regulate and supervise the microfinance business by ensuring
protection for related parties’ interests and overseeing finance providers to ensure efficiency,
transparency and social justice. The law also seeks to fight poverty. According to the new draft law, a
special unit will be established within the Egyptian Financial Supervision Authority to oversee
microfinance provided by associations and nongovernmental organizations, which will include
representatives of relevant ministries and entities, most notably the Social Fund for Development. The
unit will fight abuses and illegal activities from this type of finance—associations being an easy and
penetrable target—action which requires no substantial financial expertise.
B. Banking-Sector Reforms
In Egypt, despite banking reforms that had been launched in 2004, the limited ability of MSMEs to easily
access suitable and sufficient means of finance has always been considered a major obstacle facing
these enterprises. From a supply point of view, most banks are becoming more risk averse towards
SMEs, especially due to a widespread notion that financing these enterprises is risky and that serving
them requires high transaction costs that make them less profitable than larger companies.
Thus, the Central Bank of Egypt launched in December 2008 an initiative, as an integral part of Phase II
of the Banking-Sector Reform Program (2008-2011), to enhance SMEs’ access to finance and banking
services. Those reforms led to robust, solid and well-capitalized banks. The number of banks decreased
from 57 to 39; assets increased by 88% to reach EGP 1.1 billion in 2008—up from EGP 0.57 billion in
2003—with total deposits increasing by 85% over the same period; the capital adequacy ratio increased
from 12.2% to reach 15.1%; and total net worth increased by more than 100% from EGP 32 billion to
EGP 75 billion. Yet, despite the significant improvement at the macroeconomic level, there is still a
challenge related to the access to finance, especially for SMEs.
14
14
Hala El Said, Mahmoud Al Said, Chahir Zaki, “Small and Medium Enterprises Landscape in Egypt: New Facts for a New Dataset,” 2012
14
The Central Bank of Egypt has been working on encouraging banks to lend to SMEs by allowing them
lower reserve requirements if they expand their lending to these enterprises. The Egyptian Banking
Institute has been training banks’ staff on dealing with SMEs.
Today, just under half of Egypt’s banks have activity in SME banking. These include the National Bank of
Egypt (the largest one), Banque Misr, AlexBank, Suez Canal Bank, United Bank, HSBC, the Commercial
International Bank, and Banque du Caire (the microfinance pioneer). The government had announced
prior to 2011 that it would transform a major state-owned bank (Banque du Caire) into a lender to
SMEs, but little progress had been made when efforts ceased as of Jan. 25, 2011. There has been
progress, however, in registering more microfinance institutions in the credit bureau database.
Despite the Central Bank’s push in this sector, incentives for banks to build SME portfolios are still weak
(high cost, high risk, lack of innovation in products and services)—only four main banks are engaged in
micro-lending in Egypt. Banks extend credit using their own resources or in their capacity as loan
managers, either on behalf of donors or, more typically, on behalf of the Social Fund for Development.
The National Bank of Egypt has been providing financing for working capital since the late 1980s. The
Principal Bank for Development and Agriculture started its rural finance program in 1993. More recent
entrants into the sector are Banque du Caire, which started its micro-lending operations in 2001, and
Bank Misr, which began micro-lending in September 2003. By virtue of an agreement signed with the
Spanish Agency for International Cooperation in 2001, the Commercial International Bank has been
managing a microcredit fund that it disburses through the National Bank of Egypt.
Yet the microfinance sector still remains broadly underdeveloped, with SMEs unable to obtain adequate
finance and the nonbank financial side of MSME finance being minimal. The Social Fund for
Development does more microfinance, but factoring and leasing is still limited—and angel investors are
few. In the nonbank financial sector, microfinance institutions are weak and inefficient in supplying
credit.
The already difficult circumstances facing MSMEs in accessing finance could worsen with the recent
economic and political developments. Financial services in Egypt are underutilized by these businesses
as only 50 % are dealing with banks.
15
In some cases, liquidity within banks and equity funds for SME
lending do exist. However, a shortage of bankable enterprises keeps these funds inert, and private
equity funds geared toward SMEs are unable to draw down their funds because of the enterprises’ poor
bankability. In other cases, where there are financial-sector concerns, financial market failures hurt
small firms more than large ones, as highly bankable investments and new ideas starve for capital—
stifling small-firm entry, growth and innovation.
C. Donors Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem
In recent years, the interest among donors in MSME development has increased—an overall positive
trend. However, at times, donors are working on parallel initiatives that do not always complement one
another. This is particularly true of groups that continue to subsidize financial and nonfinancial services
while others are trying to make them more financially sustainable. The following are some, but not all,
of the donors’ efforts undertaken in the past few years to support and develop MSMEs in Egypt.
World Bank: The World Bank grant for SMEs has three pillars: SME regulatory framework (still no law for
microfinance), capacity building of banks and nonbanks, and capacity building of SMEs.
15
http://www.sme-egypt.com/Documents/A%20paper%20on%20SMEs%20Landscape%20in%20Egypt.pdf. Accessed June 21, 2014.
15
The World Bank’s USD $300 million Enhancing Access to Finance for Micro, Small and Medium
Enterprises Project aims to sustainably improve inclusive access to finance for MSMSEs on a commercial
basis through a line of credit and apex institutions that on-lend the funding to banks and microfinance
nongovernmental organizations. The USD 300 million loan for these enterprises will go through the
Social Fund for Development, as they cannot lend directly to SMEs but through regulated financial
institutions. There had been an attempt to work through the Post Office, but changes in management at
the Post Office made it impossible to pursue. The World Bank also works with the Alexandria Business
Association. However, the World Bank program aiming to support MSMEs is only via loans and technical
assistance facilities.
The World Bank also has another MSME project in the pipeline called the Middle East and North Africa
Micro, Small and Medium-Enterprise Facility (also referred to as the World Bank Middle East and
South Africa Micro, Small and Medium Enterprise Technical Assistance Facility), which comes under
the umbrella of the Arab World Initiative. It is supported by two trust funds, one managed by the
International Finance Corporation and the other by the World Bank. The main objectives are to improve
the business environment for MSME finance, build the capacity of financial institutions for sustainable
financing, and support MSME business development services. The facility is expected to impact around
250,000 of these businesses over the next five years, with a total funding of USD 30 million, of which
around USD 10 million is executed by the World Bank.
16
Canadian Aid: The Government of Egypt has also turned to Canada for support in the MSME sector. In
2000, the Small and Medium Enterprise Policy Development Project was created with the support of
Canada’s International Development Research Center and efforts by the Egyptian government to bring
about significant policy changes. The project has been successful in developing a more favorable
regulatory framework, enacting revisions to the income tax regime, initiating a thorough assessment of
the informal sector, and making changes to the Tender Law. The Prime Minister has directed the
Minister of Finance to develop additional venture capital opportunities for SMEs. Moreover, based on
the project’s work, a coherent new vision for SME development has been endorsed and adopted—
Enhancing Competitiveness of Small and Medium Enterprises in Egypt: General Framework and Action
Plan.
From 2004 to 2011, an USD 18 million CAD Business Development Support Services Project was
established to foster better employment opportunities through support to SME development, with an
emphasis on Egypt’s marginalized groups, particularly women and youth. The project’s purpose was to
enhance the SME sector in selected governorates by supporting existing and/or new business
development service providers and other related local institutions.
The Business Development Support Services Project has aided the Egyptian Bank Institute in establishing
a SME unit in accordance with the Central Bank in Egypt’s decree for improving access to finance. This
unit offers a wide range of capacity-building services to SME units and staff in all banks and enhances
entrepreneurs’ awareness about access to finance. The unit also provides several training packages for
small and medium business owners who need to enhance their understanding of dealing with and
satisfying the requirements of banks. Also to bridge the gap between both sides, the unit conducts
awareness-raising events, through which entrepreneurs are acquainted with bank requirements as well
as offered a training program titled “SME Guide for Dealing with Banks.” The Egyptian Bank Institute has
recently launched initiatives in the field of financial education, as well as entrepreneurship and SME
16
World Bank, Finance and Private Sector Development, Concept Note: “Middle East and North Africa Region, MICRO, SMALL AND MEDIUM
ENTERPRISE TECHNICAL ASSISTANCE FACILITY,” February 2012.
16
development, as these fields play an important role in economic development. The initiative’s main aim
is to facilitate access to finance for SMEs and generate the spirit of entrepreneurship and innovation so
crucial to encouraging young graduates to participate in the entrepreneurship ecosystem in Egypt.
The Business Development Support Services has also successfully launched the General Authority for
Investment and Free Zones’ Bedaya Center for Entrepreneurship and SME Development. Bedaya
programs are tailored to deliver value to clients with the aim to support SME businesses, enhance their
competitiveness, strengthen their innovation and promote the entrepreneurial culture in Egypt. The
ongoing updating of these programs ensures the consistency of the offered services with the changing
needs of SMEs and entrepreneurs while also simultaneously identifying where the gaps exist and
providing solutions. Bedaya’s services to promote the early-stage growth of SMEs include 1) business
clinics that provide business development services; 2) private equity investment funds (smart capital);
and 3) a Startup Academy, the first program in Egypt aimed at building entrepreneurs’ capacities to
prepare business models via a 15-week workshop.
Two additional projects were endorsed to support SMEs: The Small and Medium Enterprise Program
(2004-2012) and The Egypt Enterprise Development Project (2008-2014). The former aimed to improve
employment opportunities by supporting to SME development in four governorates, the latter in six
governorates (See the two projects’ outcomes in the section on business development provision
support.)
European Union: The European Union and the European Bank for Reconstruction and Development has
also stepped up their support for SMEs in Egypt. The Small Business Support Program has already
begun more than 100 projects to help Egyptian businesses access high-quality business advice, with the
European Union providing €2.4 million to the program. As SMEs continue to suffer from poor access to
finance, limited managerial skills and low productivity—greatly hampering their potential to create
jobs—strengthening this area is a top priority for both the European Union and the European Bank for
Reconstruction and Development in Egypt. The Small Business Support Program connects SMEs with the
expertise that can transform their businesses. Working with local consultants and international experts,
the program gives these businesses the tools, skills and know-how to innovate, attract finance and
expertise, and become the next generation of business leaders. In addition to working with individual
businesses, the European Bank for Reconstruction and Development also engages in policy dialogue
with government agencies, local business associations and chambers of commerce to help promote the
role of investment and local consultancy services in small-business development. To date, the
multilateral development bank has invested approximately €240 million through 10 projects in Egypt, in
various sectors, and has carried out more than 100 advisory projects with SMEs.
Local and International Nongovernmental Organizations: Most nongovernmental organizations focus
primarily on managing microcredits. The Aga Khan Foundation has implemented several socio-
economic programs in Egypt in the Darb al-Ahmar district that are focused on housing rehabilitation,
microfinance, apprenticeships and health care. Nurse’s training and early childhood education
programs are also underway in Aswan. The First Microfinance Foundation of Egypt was founded by the
Aga Khan Agency for Microfinance, which is committed to alleviating poverty by boosting socio-
economic development within low-income communities. They also provide access to financial and
nonfinancial products and services in rural and urban areas.
The PlaNet Finance of France is a microfinance nongovernmental organization that is making its
expertise available to a wide range of actors in Egypt involved in microfinance. This organization’s
programs are designed to fight poverty in a more comprehensive way. Through its microfinance
17
programs, PlaNet Finance Advisory Services leverage the microfinance institutions’ network and
resources to tackle critical issues such as health, environment, education and rural-area development.
D. Private-Sector Initiatives to Promote the Micro, Small and Medium Enterprise Ecosystem
Aside from mainstream reforms to improve credit information, creditor rights, and dispute resolution,
MSMEs and startups in Egypt benefit also from other innovative financing such as angel finance, seed
finance, venture capital and crowdfunding. These instruments are rare but have been recently
appearing in Egypt. Some of these are Beltone MidCap, Union Capital, and others (as detailed in Chapter
2 on venture capitals, angel investors, and crowdfunding platforms).
5. Business Development Services Provision Support
The provision of business development services in Egypt is still in its early stages. Most donor-supported,
public- and private-sector service providers are either unsustainable, provide inadequate services, or
have limited outreach programs and accessibility to MSMEs. These providers’ technical capacity to
innovate and design market-driven services needs strengthening. This lack of mature business
development service providers tends to compound the general weaknesses of the micro and small
enterprises’ (MSEs) human resource base, which is characterized by a relatively low level of formal
education. As a result, deficiencies in the administrative and technical capacity of MSEs are pervasive,
leaving these enterprises with few available alternatives with respect to assistance in these areas. This
systemic weakness severely restrains these enterprises’ ability to develop, grow, and build innovative
capacities.
In most cases, entrepreneurs, as well as MSEs, embark on investments without being equipped with the
minimum prerequisites for success. For example, an entrepreneur may neglect to conduct a feasibility
study, relying instead on his/her own limited knowledge of the investment in question. Furthermore, at
operational level, he/she tends to lack the tools that employ relevant key indicators for measuring
business performance to ensure the development of the enterprise and take corrective measure where
necessary. These prerequisites for success involve all business core functions: marketing and sales,
quality assurance, production and operations, finance, and accounting. It also involves supporting
functions such as information management, human resource development, and administration.
Discussions with various stakeholders have revealed that MSEs need additional training in
understanding basic accounting, cash management and credit control practices. Some stakeholders
believe that these businesses need more information on the markets in which they operate, as well as
the general business environment, in order to develop sound business plans.
Despite these obstacles, various multi-donors have undertaken initiatives that focus on enhancing and
promoting the provision of business development services in Egypt. It was observed that the Canadian
International Development Agency-funded projects–the Business Development Support Services
Project, the Egypt Enterprise Development Project, the Decent Employment for Youth (in
collaboration with the International Labor Organization), and the Small to Medium-Sized Enterprise
Program in Egypt—have succeeded in operating in many governorates spanning Cairo, Alexandria,
Lower Egypt, and Upper Egypt.
The Canadian International Development Agency has managed to introduce some demand-driven,
nonfinancial business development services to existing business development service providers, such as
the fee-for-services scheme—one that employs incremental and timely increase in fees to cover
operating costs—from the outset. The agency also provided financial support to facilitators (i.e., the
18
General Authority for Investment and Free Zones and the Egyptian Bank Institute) and other business
development service providers on a declining basis (for service provision). In addition, it has improved
the skills of service providers’ staff in designing, delivering, managing and monitoring new products and
services; built these providers’ institutional capacity to implement and sustain cost-effective services
responsive to SMEs and marginalized groups’ needs; and supported linkages and networking between
services providers, Egyptian government officials, and SMEs.
The Business Development Support Services Project, for example, used innovative approaches (e.g.,
specific interventions, coaching and technical support to business development service providers,
facilitators and project staff) to promote and integrate crosscutting themes of gender equality, child
protection and environment sustainability. The project also managed to establish two SME units, one at
the Egyptian Bank Institute and the other at the General Authority for Investment and Free Zones (which
resulted in the establishment of the Bedaya Center for Entrepreneurship and SME Development). In
addition, the project succeeding in building the capacities of many business development service
providers and established a business advisory program in collaboration with the American University in
Cairo. The delivery of a business advisory program is key to building a cadre of young business advisers
who can support the growth and development of Egyptian SMEs.
El Mobadara,
17
also with the help of the Canadian International Development Agency, has promoted
different business development services tailored to women (e.g., vocational training, entrepreneurship
training, and exhibitions) through the Regional Enterprise Development Centers in six governorates. It
also adjusted its training materials to the lower education levels of women in rural areas, organized
transportation to and from training locations, and charged lower training fees to women because of
their lesser ability to pay the full costs. The intended result of the Egypt Enterprise Development Project
is to 1) increase the availability of affordable, acceptable and gender-responsive nonfinancial services to
MSMEs through the Regional Enterprise Development Centers, with targets to offer business
development service packages to approximately 6,000 startups and existing MSMEs and to 2) enhance
access to affordable financial services targeting male- and female-owned MSMEs to help create at least
15,000 jobs.
18
The Small to Medium-Sized Enterprise Program (2004-2012) has also succeeded in (1) establishing 20
sustainable business development service providers in 10 governorates in Egypt, reaching 22,000
MSMEs including 7,000 women-led enterprises—and now serving about 4,000 clients annually, enabling
these businesses to increase their sales and exports and enhance their profitability and long-term
competitiveness. The project has also (2) strengthened the capacity of two key government institutions
to incorporate business development service strategies and practices into their work: (a) the General
Authority for Investment and Free Zones, a principal governmental authority that regulates and
facilitates investment in Egypt, and (b) the Central Bank’s Egyptian Bank Institute, which is developing
publicly- and privately-owned banks’ capacity to offer business development services to MSMEs to
improve their access to financial services.
The United Nations Development Program also had efforts on that front: in December 2002, the
program established the Business Enterprise Support Tools Project. The project was designed as an
17
In 2008, El Mobadara became the executive agency for the implementation of the CAD USD 4.75 million Canadian International Development
Agency-funded Egypt Enterprise Development Project, the first-ever Egyptian entity to be assigned an executive agency role by the Canadian
agency.
18
Middle East and North Africa-Organization for Economic Cooperation and Development Investment Program and OECD-MENA Women’s
Business Forum, Analysis of Business Development Service Provision and Incubation for Women Entrepreneurs in the Middle East and North
Africa Region, Working Draft, December 2013.
19
intervention to create long-term jobs by encouraging MSMEs to develop and expand. The project
introduced an innovative, integrated approach to providing business support services to MSMEs on a
local level in four pilot communities—Giza, Fayoum, Beni-Suef and Minia—and was implemented by
establishing the Integrated Business Support Centers. These centers assisted people who were
interested in starting up their own businesses as well as owners of existing SMEs—and whose
companies have the potential to grow and create jobs—by providing a range of business services:
vocational and business skills training; marketing services; consulting services; information services; and
technical services (e.g., photocopying, editing, etc.). These centers, at times, also served as a physical
space to shelter startup or expanding companies. The Integrated Business Support Centers were also
designed to provide financial services in the form of a financial-leasing scheme to be managed in
conjunction with the centers.
19
The Social Fund for Development is also about to launch a new and innovative project funded by the
European Bank for Reconstruction and Development, as a component of the MSME Support Program
approved by the Middle East and North Africa Transition Fund in 2013. The project aims to strengthen
the Social Fund for Development’s capacity to focus on women’s entrepreneurship development in
three key regions of the country (Greater Cairo, Delta and Upper Egypt) where the number of women
clientele is high. During the first two years of the pilot (2013-2015), the project will help women
entrepreneurs to access nonfinancial business development services to improve their performance.
Targeted beneficiaries are women entrepreneurs with a credible track record who have been in business
for at least two years. Women entrepreneurs, to be considered for the project, must have a competitive
advantage; are financially and commercially viable (yet lack resources to finance a complete project);
have the management and financial resources to follow through on any business advice and take
effective action; have a genuine need for business advice and can absorb the assistance given (even if
they have little or no previous experience using external consultants); and are ready and able to pay at
least 10% of the net project cost.
In the pilot phase, the project aims to assist approximately 60 women entrepreneurs with targeted
advisory services and mentoring that will lead to the improved performance of their enterprises, plus
train approximately 150 women entrepreneurs in advanced entrepreneurial and management skills
(including on how to access financing). The project will also train, on the job, approximately 15 local
business advisers and at least six Social Fund for Development personnel in delivering business advisory
services to women entrepreneurs. This component will contribute to building business advisers’ capacity
to serve the women entrepreneurs’ market.
The United States Agency for International Development’s mission in Egypt also supported MSMEs and
entrepreneurship through two projects—the Egyptian Competitiveness Program and the ALROWAD
Project. The Egyptian Competiveness Program aimed at improving labor skills and productivity by
supporting entrepreneurship. One of the main tasks under this component was to improve public
awareness of financial services, business development services, and training and academic opportunities
for entrepreneurs. ALROWAD, a USAID Economic Growth Annual Program Statement (APS) grant,
supported entrepreneurial Egyptian business consultants (including individuals, firms and associations)
to expand their expertise and service offerings by leveraging social media, peer-to-peer networks, and
information technology. The ALROWAD Project supported qualified Egyptian consultants in establishing
professional communities in their areas of specialty. The project steered the consultants toward
community leadership and aimed to establish the professional communities as profitable services as a
way to support Egyptian entrepreneurs and MSMEs to grow, innovate and expand. ALROWAD has
19
Hanna Ruszczyk, The Business Support Tools (BEST) External Review, June 2005.
20
demonstrated its ability to improve MSMEs on many nonfinancial issues, including technology, business
development service provision and labor skills development. As a result, 35 professional communities
were created to expand business development services to MSMEs and entrepreneurs, led by Egyptian
business consultants across the gamut of commerce and industry. ALROWAD has managed to build a
membership of 1,800 (of whom more than 70% are women), create 1,455 new jobs and 105 new
business services, and train up to 3,000 MSME members. The project also developed a comprehensive
interactive website to provide business development solutions and to create business development
service awareness.
However—and with respect to the notable level of support from donors, international organizations and
NGOs in providing business development services and their programs’ broader efforts to improve such
services for MSMEs and entrepreneurs—business development service providers should have a wider
outreach to provide training and capacity building beyond what these programs offer. This goal can be
successfully accomplished by addressing more capacity-building programs to service providers to ensure
and improve sustainability and funding of programs; by coaching and mentoring these service providers
to tailor training and services to fit the needs of entrepreneurs and MSMEs; and lastly, by linking these
business development service providers to sources of finance that can assist MSMEs and entrepreneurs
in identifying the appropriate sources that can help actualize their business ideas and support them in
their quest for loans.
6. Conclusions and Recommendations
Developing countries usually perceive MSMEs as a dynamic force for sustained economic growth and
job creation. In Egypt–despite institutional, regulatory, and banking efforts and reforms by the
government, donors, and private sector—the ability of MSMEs ability of MSMEs to expand, grow and
sustain their activities is still held back by numerous challenges. These enterprises are geographically
concentrated in one or two governorates, operating chiefly in two economic activities—manufacturing
and trade. Among the major challenges facing these sectors are non-conducive legal, regulatory and
supervisory frameworks.
The easy access to suitable and sufficient means of finance has always been considered a major obstacle
facing many MSMEs. After the revolution it has become even more difficult for any such enterprise to
obtain commercial lending as banks have been financing the growing demands of the government debt.
Financial services seem to be underutilized by these businesses as only 50% are dealing with banks and
benefiting from an improved access to finance. On one side, banks cite a lack of enterprise transparency,
difficulties in using collateral, and uncertainty over creditor rights as primary barriers to their greater
involvement in finance. There are also high administrative costs of small-scale lending, as well as
inadequate banking skills for dealing with MSMEs where there is need to build the capacity of financial
intermediaries, especially banks (and mainly state-owned banks). On the other side, MSMEs’ limited
access to finance can be attributed to their incapacity to prepare business plans and loan applications,
as well as their tendency to have opaque or nonexistent financial statements and insufficient collateral.
Aware of the importance of developing and promoting MSMEs, the Government of Egypt has
undertaken several initiatives to support this end, either on the policy or the regulatory level. Yet,
neither a national strategy or policy—nor a comprehensive package of policies—has been formulated.
The MSME ecosystem in Egypt needs to be aided by its government, not only through debt support, but
also through policy and infrastructure support like collateral registry and a microfinance law.
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Donors also had a stake in promoting MSME development. They contributed greatly to improving the
business environment for MSMEs by easing access to finance, building the capacities of financial
institutions, and offering business development services and training to service facilitators and
providers.
The private sector has also stepped in to fill in the financing gap for startups. Many of the existing
Egyptian entrepreneurship programs have strengthened and expanded alongside other donors’ efforts
in that regard, mainly in the last three years.
On the microfinance side, the efforts to develop MSMES have been minimal—the microfinance sector
remains broadly underdeveloped, with microenterprises largely unable to obtain adequate finance.
From a policy implication standpoint—post January 25 and June 30 revolutions—there is a need for
strategic economic reforms to vitalize Egypt’s struggling economy and promote investment, especially
for SMEs. This goal can be achieved through the following actions:
? Improving the legislative infrastructure, several bankruptcy rules and regulations, and creditor
capacity to take fast possession of collateral in case of default; speeding up the process of
establishing collateral registries, which should aim at building electronic registers and
streamlining the registration process;
? Encouraging banks to build on their expertise in matchmaking their clients in different stages of
value chain (linkages);
? Updating financial methods for financial reporting (e.g., standardized template);
? Changing the entrepreneurial mindset; and
? Enhancing entrepreneurship education.
The Government of Egypt should prioritize SME encouragement as part of its short- and long-term
strategies for development. Procedures should be facilitated by allowing temporary licenses to be
transformed into permanent licenses by the power of law within thirty days and by offering tax
exemptions to SMEs for five years from the date of establishment.
Moreover, the institutional setting of MSME policy should be reconfigured: a single inter-ministerial
body should oversee and coordinate the work of ministries, while a one-stop-shop arrangement for
assisting and informing SMEs should be rolled out across Egypt’s regions. The SME sector, dominated by
informal businesses, needs formalizing: A Ministry of Finance task force should take a comprehensive,
carefully coordinated approach towards the informal sector, one that combines incentives and
encourages formality, growth and innovation.
Egypt should also provide better services and financial support to innovative SMEs by establishing
linkages, promoting synergies between different support programs, and developing alternative
financing, guarantee schemes, and research and development funds. Comprehensive packages of
technical assistance, advisory services, and policy support are urgently needed to respond to the
increasing demand for generating job opportunities and attaining a level playing field in the context of
the Arab Spring upheavals.
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CHAPTER 2: UNDERSTANDING THE
ENTREPRENEURSHIP ECOSYSTEM IN EGYPT
1. Overview of the Current Entrepreneurship Ecosystem
A strong, sound and synergetic entrepreneurship ecosystem is essential to start a grassroots
entrepreneurial movement in Egypt and to show economic impact out of all the entrepreneurship
activities taking place. The Egyptian ecosystem has shown much progress since 2011, driven by a small
group of successful businessmen deploying their own resources to develop a successful
entrepreneurship ecosystem.
One of the major changes occurring in Egypt’s entrepreneurship ecosystem over the last four years is
the change in professional leadership of various entrepreneurship organizations. Several smart
entrepreneurship organizations learned that they need to find passionate managers who are
professional and transparent in their approach. This awareness is apparent among several organizations
including Flat 6 Labs, Endeavor, Middle East Council for Small Business and Entrepreneurship, and Nile
University. We have witnessed two major international nongovernmental organizations, Endeavor and
Injaz, continue to improve their programs as well. With the rise of these catalysts and leaders, some
traditional business associations and government agencies have pulled back on their support to
entrepreneurship, whereas others have tried to catch the rising stars. These polar tendencies are due
largely to the political instability and the resulting difficult business environment. Prior to 2011, the
typical entrepreneurship event in Egypt was a business plan competition hosted by a local business
association and partially financed by the government, which did not create or support many businesses.
Today new generations of Egyptian ecosystem players are changing the formula; they are self-financing
or receiving financing from the private sector. They rely on a multiple set of services—including
mentoring, shared workspace and training—and have expanded their targets from just students. More
recently, many organizations are shifting away from supporting entrepreneurs in the technology sectors
to supporting entrepreneurs in other growth sectors, including waste removal and alternative energy.
In 2013, over 30 organizations that support entrepreneurs in Egypt have been identified—and the list
continues to grow. The list includes nongovernmental organizations, universities, private-sector
accelerators/incubators, companies, business associations and government agencies (Annex A includes
a list of some of the most active organizations).
Although the number of entrepreneurship actors has grown, it is noticeable that not all organizations
are making the same impact. What has become apparent over the last four years is that organizational
and governance structures are key to the success of any entrepreneurship program. In addition to
infrastructure, other factors such as culture, education and training, access to markets, funding and
finance, skilled workforce and strong teams, and regulatory frameworks are strengthening the whole
entrepreneurship ecosystem.
23
According to the World Economic Forum in 2012, the entrepreneurial ecosystem includes several
components that affect the whole process, as represented in Figure (6) below.
As outlined in Figure 6, there are six main components needed for creating an effective entrepreneurial
ecosystem: markets, culture, education and training, funding and finance, human and workforce
availability, and regulatory framework and infrastructure.
Accessible markets. The presence of accessible markets is one of the main pillars for establishing an
entrepreneurial ecosystem in the region—but Egypt has been slow to capitalize on these opportunities.
The major problem in accessing markets in Egypt is structural. According to the Doing Business Report in
2013, Egypt is considered one of the weakest countries in the world in enforcing contracts, ranking 152
nd
out of 184 countries. In Egypt, companies are built based on personal relationships rather than
enforceable legal contracts, which inevitably limit the amount of new business opportunities that can
enter the market. Another obstacle is the major disconnect between supply and demand. Products are
developed—not based on actual customers’ needs—but rather on the contingency that they might
create the need, leading to a great discrepancy.
Culture really matters. Entrepreneurial activities are highly manipulated by the cultural environment of
the region. Before 2010, changing the mindset was considered a critical challenge but progress has been
made—attributable mainly to the media and social media that covered hundreds of inspirational stories
about entrepreneurship. According to the Global Entrepreneurship Monitor Report, (Figure 7 shows
some positive trends in 2008, 2010 and 2012 in the perception about entrepreneurship) more
individuals than previously find entrepreneurship to be a good career choice, have less fear of failing as
an entrepreneur, and see more opportunities to become entrepreneurs.
Education and training. Since 2011, Egypt has placed great emphasis on providing programs on
entrepreneurship to secondary schools and universities, which has continued to increase but with
diversification towards technology. According to the General Authority for Investment and Free Zones,
Figure 6: Entrepreneurship Ecosystem
24
the information communication and technology sector accounted for 4.28% of social entrepreneurship
20
and GDP in 2011, which grew at a rate of over 11.5% between 2011 and 2012.
Raising funds and access to finance. Before 2011, entrepreneurs had been depending on banks, families
and friends to finance their projects. In 2010, entrepreneurs faced difficulties in getting commercial
loans due to the high risks associated with their projects. However, in the last four years, other forms of
funding such as angel investments, crowdfunding, venture capitals and private equity have performed
strongly.
Human and workforce availability. One of the most important components for any successful
entrepreneur is their initial workforce. Egypt lacks skilled labor, which is a primary obstacle to upgrading
growth companies. In 2010, Egypt ranked last compared to other countries in the level and quality of
education of primary and secondary schools on encouraging creativity, self-sufficiency and personal
initiative.
Regulatory framework and infrastructure. In terms of government policies, Egyptian entrepreneurs still
face several obstacles related to bureaucracy, taxes being imposed on new and growing firms, and in
obtaining required permits and licenses. Thus, most early-stage businesses tend to be informal. The Ease
of Doing Business Index for 2012 shows that rates for starting a business in Egypt has receded, especially
in terms of paying taxes and dealing with permits.
A. Entrepreneurship Regions in Egypt
Entrepreneurs are located across different urban and rural regions in Egypt, yet highly dense within
Greater Cairo. Approximately 40% of early-stage entrepreneurs and established business owners are
based in Cairo.
21
The Delta region ranks the second-most active entrepreneurial area in Egypt in terms of
20
A Social entrepreneur is an individual with innovative solutions to society’s most pressing social problems. He/she is ambitious and persistent,
tackling major social issues and offering new ideas for wide-scale change. www.ashoka.org
21
United States Agency for International Development Entrepreneurship Report
Figure (7): Egypt Perception Change on Entrepreneurship
25
number of entrepreneurially active adults concentrated in one region. In contrast, Alexandria, compared
to other regions, has the lowest percentage of early-stage entrepreneurs and established business
owners, although it is one of Egypt’s major cities. Looking only at technology startups based in Cairo,
Egypt may seem incredibly entrepreneurial. However, against the backdrop of struggling souvenir
hawkers in Luxor or subsistence farmers in Sharqia or Assuit, this impression of local entrepreneurship
might differ. Entrepreneurship development is very local and usually needs a concentration of talented
people.
B. Entrepreneurial Gender Gap in Egypt
Despite efforts to encourage Egyptian women to start their own businesses, their participation in the
newly rising entrepreneurship ecosystem still remains lower than expected. The early-stage
entrepreneurial activity prevalence rate for men is 13.1% compared to 2.4% for women. Almost 86% of
early-stage entrepreneurs in Egypt are led or owned by men, while women comprise the remaining 14%.
Compared to the years 2010 and 2008 (with participation rates for women in total entrepreneurship in
Egypt having reached 35% and 20%, respectively), 2012 has recorded the lowest rates of participating
entrepreneurial women in Egypt. In contrast, the percentage of entrepreneurial men has increased from
65% in 2010 to 86% in 2012. Typically, the main motive for men to become entrepreneurs is to pursue a
market opportunity (5.4%) rather than out of necessity (4.5%). For women, there is no difference
between opportunity and necessity motives.
22
C. Egyptian Entrepreneurship Ecosystem: Strengths, Weaknesses, Opportunities and Threats Analysis
In Egypt it is rare to find entrepreneurs who are taking advantage of change to create innovative,
valuable products or business models that will lead Egypt into new growth markets.
23
Most Egyptian
entrepreneurs show little desire to grow and thus are not pursuing new markets or products. There is no
concrete data that explains this lack of desire to grow, but the entrepreneurial mindset may be part of
the cause (as discussed previously in the chapter).
Still, there are some exciting areas of innovation and entrepreneurship in Egypt—in particular, the
information and communications technology sector—that have a promising number of growth
entrepreneurs. In other sectors, such as food processing and textiles, the majority of Egyptian
entrepreneurs are simply duplicating other pre-existing businesses run by family members, friends or
neighbors. These duplicating entrepreneurs reduce risk via letting others test markets, products and
business models. This form of entrepreneurship does not contribute much additional value to the
economy, especially unfortunate given there are so few innovations being introduced in Egypt. This type
of entrepreneurship is one possible reason for the interest in franchising among investors like the Social
Fund for Development. Egyptian financial organizations prefer franchising because it provides an easily
understood, live financial model that has been tested.
Meanwhile, there have been many entrepreneurship initiatives recently implemented. Several gaps still
exist, however, in the system. Two critical gaps are commercial opportunity recognition and private-
sector collaboration. As stated previously, it is critical for entrepreneurs to be able to identify and react
to change by creating new products, business models or processes. Entrepreneurs also need to
recognize that change will most often occur in the market place. This means entrepreneurs need to
22
Global Entrepreneurship Monitor Report, 2012
23
Egypt Entrepreneurship Final Report, Where are all the Egyptian Entrepreneurs?, Mike Ducker and Deloitte, TAPER II project,
http://www.academia.edu/5193052/EGYPT_ENTREPRENEURSHIP_FINAL_REPORT_WHERE_ARE_ALL_THE_EGYPTIAN_ENTREPRENEURS
26
engage with market players and test new ideas. They need to understand how to investigate the
unknown—namely, how to capture opportunities about markets when there is no existing market
analysis. To do so, entrepreneurs must engage with market players to identify problems and
opportunities. Table (1) shows the strengths, weaknesses, opportunities and threats of the Egyptian
ecosystem in light of what was mentioned above.
Table 1: Egyptian Entrepreneurship Ecosystem – Strengths, Weaknesses, Opportunities and Threats Analysis
S
t
r
e
n
g
t
h
s
? Egypt’s unique geographical location in the
center of the world
? Large and young population with multilingual
capabilities
? Existence of local initiatives that support
Egyptian entrepreneurs
? Existence of incubators and accelerators
? More comprehensive training programs
provided to entrepreneurs
? New entrepreneurship media
? Increased desire from multinationals to support
entrepreneurs in innovation
? An increasing number of public-private
partnerships in Egypt after the 2011 revolution
? Other means of funding such as crowdfunding,
angel investments and private equity
? Different initiative setup—such as accelerators,
incubators, co-working spaces, angel groups,
crowdfunding platforms, venture funds and
startup training
? The growth of startup competitions
? A change in the entrepreneurial mindset
? New models recently developed whereby
nongovernmental organizations, universities,
private-sector incubators and accelerators,
government agencies, and mentors collaborate
to implement cost-effective entrepreneurship
initiatives
O
p
p
o
r
t
u
n
i
t
i
e
s
W
e
a
k
n
e
s
s
e
s
? Insufficient number of qualified graduates
? Low quality of education regarding innovation,
creativity, leadership skills and management
? Immigration of talented Egyptian entrepreneurs
? Political instability
? Lack of talented and trained employees
? Centralization of services promoting
entrepreneurs
? Absence of coherent network of entrepreneurs
? Access to land
? Harsh competition (internally and externally)
? High speed of technology development that will
be difficult for some entrepreneurs to cope with
? Bureaucracy
? Restricted policies and regulations, especially for
taxes and licensing
T
h
r
e
a
t
s
2. Key Challenges, Potential Risks and Means of Mitigation
Over the last four years, the Egyptian entrepreneurship ecosystem has kept a watchful eye on the future
orientation of enterprise growth; the international, regional and local media have also covered the
incredible changes. Young Egyptians want to be entrepreneurs, and now many more than before show
respect to others who have chosen to take this path. There has been an implausible growth in
entrepreneurship programs and events over the last four years and in the number of organizations and
people providing early-stage technical support and financing to entrepreneurs. Many of the existing
27
Egyptian entrepreneurship programs have strengthened and expanded in tandem with other donors’
efforts in that regard. Yet, progress is mostly due to a select number of Egyptian private-sector
individuals who have made a concentrated effort to make a difference. These individuals include Ahmed
El-Alfi and Hany Sonbaty, founders of Flat 6 Labs and Sawari Capital; Dr. Khaled Ismali, Chairman of
Endeavor and founder of KiAngles; Ihab El-Fouly and Tarek Fahim of Tamkeen Capital; Hossam Allam
and Con O’Donnell from Cairo Angels; Mohammed Gawdat and Samer ElSahn from Tahrir Square; and
Shereen Allam of AWTAD, which supports women entrepreneurs. These individuals contributed
considerable financial resources—and time—to change the ecosystem in Egypt.
24
Despite the efforts exerted, several other new entrepreneurship initiatives are still facing many
challenges. In asking some early-stage investors for their top criteria for investing in an early-stage
company, in almost every case they cite wanting to back a leader with a strong team and a big market
opportunity. Entrepreneurs in Egypt, compared to their global and even regional counterparts, struggle
to gain access to key growth factors, including talent, markets, government decision makers and land. In
terms of access to markets, many Egyptian markets are blocked either by new firms that are controlled
by state-owned entities or by large corporations that do not outsource to other firms that may add
potential value. Other challenges facing early-stage entrepreneurs and startups include lack of adequate
primary and secondary education; conducive regulatory environment; efficiently structured financial
infrastructure; thriving financial institutions with more lending capacity; training and awareness on
enterprise-management skills and enterprises‘ creditworthiness; liquidity of the financial intermediaries;
access among early-stage businesses to affordable business advisory services; credible and trusted
advisers to turn to in their decision making; the availability of risk-sharing instruments; and finally,
adequate entrepreneurial culture and awareness (particularly for women and youth). With no voice
within the government, Egyptian entrepreneurs will continue to face such headwinds.
Fortunately, there is a wide range of entrepreneurship programs and initiatives that exist to support
entrepreneurs to grow and expand their businesses besides the insufficient access to international best
practices, innovations, and partnerships.
Business risks associated with any entrepreneurial activity entail heavy losses, debt payments,
employment problems, stiff competition, market and political instability, conflicts, enforcement of law,
slow processes and decision making.
15
To mitigate risks associated with entrepreneurial activities, early-
stage businesses and startups have to conduct research (e.g., business strategies and plans, feasibility
studies, etc.). In addition, entrepreneurs should choose business opportunities that match their skills,
experiences and interests; compile key information about sectors, success stories and best practices;
identify mentors to guide their path; adjust capital sources needed for their businesses with the
business risks that might incur pursuing creativity and innovation; and identify main markets and
competitors.
16
24
United States Agency for International Development, “Egypt Entrepreneurship: Success, Challenges and the Lessons of Supporting Job-
Generating Entrepreneurs in Egypt,” Cairo, 2013.
15
http://www.exforsys.com/career-center/entrepreneurship/entrepreneurship-associated-risks.html. Accesses on June 25, 2014.
16
http://blog-businessandeconomy.blogspot.com/2011/10/how-to-overcome-business-risk.html. Accessed on June 24, 2014.
28
3. Facilitating Access to Finance
Access to finance is still a significant bottleneck blocking the creation, growth and success of startups
and small and growing companies. High administrative costs of small-scale lending, inadequate banking
skills for dealing with early-stage businesses, and deficiencies in financial infrastructure due to the lack
of available information and outdated early-stage financing approaches are the problems threatening
any startup’s survival.
Most of the SMEs and microfinance programs, which focus primarily on subsidized financing, have not
shown a correlation between their program activities and economic/job growth. While there is demand
for commercial capital for high/fast-growth entrepreneurs, the largest gap exists for companies that
need financing between USD 200 thousand and USD 1 million. These companies, therefore, often rely on
capital provided by accelerators, angel investors, crowdfunding platforms and early-stage venture
capitalists.
For entrepreneurs focused on growth, 47% of them considered access to finance to be a major obstacle.
There are major financing gaps for high-growth businesses, as evidenced by the fact that 83% of the
fastest-growing companies, called gazelles, stated they self-financed their business growth. For these
high/fast growing entrepreneurs, bank and debt financing are mostly through government and
microfinance organizations that focus on lending to micro, small and medium enterprises (MSMEs) with
high-growth potential. Wherein lies the problem is that only a handful of these entrepreneurs who are
ready for investment from a major venture capital firm have reached that growth state that would
qualify them for financing. On another note, and moving up the finance chain, most private equity firms
have been proven to be very risk adverse towards further investing during political crises.
The real heroes in early-stage investment are those Egyptians who have built accelerators/incubators
and crowdfunding platforms, or who have invested as individual angels or through angel groups. A great
deal of the progress over the last four years has been driven by small, successful groups investing a
significant amount of their own financial resources and time to change the ecosystem in Egypt. These
include Flat 6 Labs, Sawari Capital, Endeavor, KiAngles, Tamkeen Capital, Cairo Angels, Tahrir Square,
AWTAD, Innoventures, Shekra, Beltone MidCap, Union Capital and many more.
A. Bank and Debt Financing
Bank and debt financing are usually cheaper than equity financing, yet it is still very difficult for any
early-stage entrepreneur to receive such funding in any country, especially in Egypt. Only 7% of new
investments and working capital in Egypt is financed externally through the banking sector, compared to
more than 13% in the Middle East and North Africa region, and 18% in the rest of the world. Egyptian
banks often prefer to extend credit to large corporate clients and connected individuals who
are considered less risky, while startup entrepreneurs remain financially constrained. After the
revolution it has become even more difficult for any type of SME to obtain commercial lending as banks
have been financing the growing demands of the government debt. Moreover, banks lend inefficiently
and are not able to expand lending to early-stage businesses significantly while also managing costs and
risks. Hence, equity financing for early-stage businesses, coupled with the necessary business
development services to ensure their growth and sustainability, are of utmost importance.
B. Venture Capitalists
Venture capitalists are an important source for providing the high-growth, entrepreneurial SME
community with much-needed financing. Types of venture capital include seed and startup financing
and early-, expansion- and mature-stage financing. In Egypt, the government has launched initiatives to
29
enhance the venture capital industry, such as the adoption of the law No. 8-1997 and the Capital
Markets Law No. 92-1995, which grants venture capital firms tax exemptions. According to the Middle
East and North Africa Venture Capital Report of 2013, published by the Middle East and North Africa
Private Equity Association, venture capitalists typically invest in startups and non-listed, early-stage
small businesses. The investment commitment over the life of the deal averages USD 3 to 5 million,
reaching in some cases up to USD 15 million. A typical exit plan is usually through initial public offerings,
mergers and acquisition, management buy-out or trade sale. Despite venture capital not being confined
solely to technology investments, technology is often a core factor that creates the level of scalability
required in a venture capital deal. According to the Global Venture Capital and Private Equity Country
Attractiveness Index Report produced by Ernest and Young, in 2009 Egypt ranked 67
th
globally in terms
of a venture capital ranking index, while in 2012 it ranked 56
th
—the country at that time still in the
midst of a fluctuating and turbulent environment. Index ranking is based on weighted average
assessment of key performance factors including (1) economic activity; (2) depth of capital markets; (3)
taxation; (4) investor protection and corporate governance; (5) human and social environment; and (6)
entrepreneurial culture and deal opportunities. Even with vacillating rankings across the last few years,
Egypt still occupies a midpoint position among major developing African and North African regions.
C. Angel Investors
Angel investors are unlike formal venture capitalists. They have different investment criteria, tending to
invest more on intuition rather than on the precise valuation of a company balance sheet. That angel
investors rely so heavily on their intuition is because they typically invest in the very early stages of a
company, when the entrepreneur may not yet have a well-articulated business plan. Angel investors
play a role in providing substantial managerial knowledge and access to a company’s personal networks.
In addition, business angel investments help mitigate information asymmetries by providing a positive
signal of the venture’s quality. Angel-investing activities are still considered new to the Egyptian
ecosystem.
D. Crowdfunding
Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new
business venture. Crowdfunding makes use of the easy accessibility of vast networks of friends, family
and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out
about a new business and attract investors.
Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from
whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists. This
type of financing is beneficial to entrepreneurs as it provides access to capital, hedges risk, works as a
marketing tool, allows crowdsourcing and brainstorming, and introduces loyal customers easier than
any other source of traditional funding and provides the opportunity of pre-selling.
However, the concept in Egypt is still new and only a few companies are engaged in crowdfunding—
such as Shekra and Shariqty—which do not rely on their technology platforms but on their hard-working
management teams to help pipelines of entrepreneurs who deserve the investments.
30
4. Access to Nonfinancial Services to Entrepreneurs
A. Accelerators and Incubators
Accelerators and incubators are innovative investment vehicles and business service providers that have
made a novel contribution to advancing entrepreneurship around the globe, helping an entire
generation of young companies—and particularly high-tech startups—to grow and thrive. Business
incubators typically focus on attracting an array of pure startup companies and firms at an early stage of
development. The key distinguishing feature of an incubator is its ability to give startups preferential
access to a network of potential partners. Incubators contribute to economic development by creating
new, high-quality businesses, improving business competitiveness, generating job opportunities, and
developing new, innovative products and services.
In 2010, incubators in Egypt were driven by different government programs, which have shown limited
success. The Technology Innovation and Entrepreneurship Center and the Social Fund for Development
are the main government-led incubators. There are also six private-sector support accelerators and one
nongovernmental organization focused on social enterprises that have helped to launch 70 startups.
Three of the private organizations are focused on information and communication technology, and the
majority are in Cairo. All of them provide seed funding as well as a number of services including training,
mentoring, awareness, advisory and connections. While all of these private-sector accelerators and
incubators have received funding from a small, select group of successful business people, the majority
of their funding has come from their founders. Many of Egypt’s top startups owe their genesis to these
private-sector accelerator/incubator groups, with many of these enterprises receiving follow-on
investments.
A high number of seed deals were driven by Flat 6 Labs as they take in six to seven teams every cycle
and provide seed funding, mentoring and coaching, training and connections over a four-month period.
Initially Flat 6 began working in technology and slowly moved into other sectors, including alternative
energy and bottom-of-the pyramid products. Flat 6 Labs are considered the most active
accelerator/incubator in Egypt and one of the best in the Middle East and North Africa region.
B. Mentoring and Coaching
Mentors and coaches are typically individuals who volunteer their time and efforts to provide advice,
knowledge, connections and encouragement to entrepreneurs. Mentoring is critical for ensuring a
sound entrepreneurial ecosystem. In 2010, Injaz and Endeavor were utilizing volunteers from the private
sector to support entrepreneurship programs. Since 2013, mentoring and coaching have become two
important tools in the Egyptian entrepreneurship ecosystem. The new accelerators and incubators have
leveraged the need for mentors for the growing number of startup events like Startup Weekend and the
Startup Cup.
31
5. Stakeholders on the Map
According to the United States Agency for International Development’s Egypt Entrepreneurship Report
of 2013, some of the current and influential stakeholders in the Egyptian entrepreneurial ecosystem
include the following
17
:
Incubators/ Accelerators
? Flat 6 Labs
? Tamken Capital
? Innoventures
? Tahrir Square
? Inno101
? Nahdet El Mahrousa
Nongovernmental Organizations
? INJAZ
? Endeavor
? Middle East Council for Small Business and
Entrepreneurship
? AWTAD
Co- Working Spaces
? The District
? Al Maqqar
Government Entrepreneurship Initiatives
? GAFI Bedaya Center
? GAFI SME Clinic
? The Innovation and Entrepreneurship Center
? Industrial Modernization Center
? Social Fund for Development
Universities
? American University of Cairo’s Women’s
Entrepreneurship and Leadership Program
? Nile University
? British University in Egypt
? Enactus
18
Early-Stage Investors
? Cairo Angels
? Shekra
? Sawari capital
? Ideavelopers
? Vodafone Ventures
? KI Angels
? MC Egypt
? Abraaj Group
17
Egypt Entrepreneurship: Success, Challenges and the Lessons of Supporting Job-Generation Entrepreneurs in Egypt, 2013, USAID.
18
An annual student competition through which students develop social enterprises to solve problems in their community
32
6. Conclusion and Recommendations
Growth-focused entrepreneurs are major job creators. In many ways the 2011 revolution has marked
the beginning of a new Egyptian entrepreneurship ecosystem that now focuses on growth
entrepreneurs driven more by effective stakeholders than by government agencies or traditional
business associations. These stakeholders include a small group of individuals from the private sector
who have stepped in and spearheaded an entrepreneurship development movement in the country.
These individuals have set up accelerators, incubators, co-working spaces, angel groups, crowdfunding
platforms, venture capital funds and startup training initiatives. Egypt has also seen in the last four years
passionate and professional managers from various entrepreneurship NGOs and private universities
assume leadership roles to help accelerate their programs. Despite some universities being hindered by
their governance structures in their ability to support young entrepreneurs, most still manage to drive
their initiatives with the support of student groups. The majority of these initiatives are also supported
by hundreds of new private-sector volunteers who mentor, guide, advise, and teach—and sometimes
invest as an angel investor. Due to the growth of the Egyptian ecosystem and support from different
donors, there is now a greater positive perception of entrepreneurship in Egypt. These initiatives have
established Egypt as one of the major entrepreneurship hubs in the Middle East and North Africa region,
a distinction which has been highlighted in the international press. While these private-sector leaders,
nongovernmental organizations and youth groups led the new wave of entrepreneurship activities in the
ecosystem, traditional players have played a much smaller role. Government agencies and traditional
business associations that drove the entrepreneurship activities before 2010 have been hampered by
the political instability of the last three-and-a half years, a constraint that has led to new models being
developed whereby nongovernmental organizations, universities, private-sector
incubators/accelerators, government agencies and mentors collaborate to implement cost-effective
entrepreneurship initiatives.
While the growth of these new initiatives during a politically unstable time is inspiring, many new
initiatives are still narrowly focusing on startups, technology and social entrepreneurship. There is not
much support for pure growth-focused, nontechnology and nonsocial entrepreneurs.
Entrepreneurs are also facing many constraints such as finding the appropriate sources of finance and
the right talent or product/market to grow their company. The entrepreneurial culture is nonexistent
and Egypt’s education system ranks among the poorest in the world—two major impediments that
reduce the potential to start, expand or grow a business. Entrepreneurs have limited access to many of
the markets controlled by stated-owned entities, government joint ventures or large corporations that
tend not to outsource. Early-stage entrepreneurs struggle to get access to land and support services due
to layers of bureaucracy and a lack of voice to advocate for a better business environment. The
ecosystem emerged with a bang, but it’s only the beginning of a long and difficult journey.
Recommendations:
? Grow the ecosystem. Growing the ecosystem is much more important than growing a program.
It is important to reach out to different entrepreneurship initiatives and private-sector
volunteers. Expanding to secondary locations, which are still dependent on support from Cairo,
is also important. Networking and collaboration among all the ecosystem stakeholders should
be the top priority.
? Engage people. Women and young entrepreneurs need more attention. Egyptian women
represent 50% of the science and engineering graduates and should not be pigeonholed into
industries that represent less than 1% of global markets. Women-focused entrepreneurship
33
programs need to expand their targets away from crafts and home-based businesses and focus
more on how women can manage interpersonal relationships to overcome major cultural issues.
Moreover, mentors, coaches, angels and volunteers are the unsung heroes of the ecosystem
and should be treated as such.
? Recruit talent. The biggest determinant of an entrepreneur’s success in Egypt is the
entrepreneur’s characteristics, including his/her level of motivation and his/her team. Smart
policymakers understand that in the global world today retaining and recruiting talent
(especially entrepreneurs) in your country is a battle you must win to grow an economy. The
objective of any good ecosystem is to attract these people to leave their safe jobs and to start
their own businesses. In doing so, a country can extract incredible additional economic value out
of these individuals as founders of startups rather than as employees of large corporations or
government agencies.
? Support new initiatives to establish growth-focused entrepreneurs. The majority of ecosystem
players and initiatives have focused on early startups over the last four years that have, in turn,
helped to develop more startups. It is time now for new entrepreneurship initiatives to support
established growth entrepreneurs or those companies that are viable but need support to find
their next growth surge. The only ecosystem player who supports these growth entrepreneurs is
Endeavor, but there is a need for more of these activities, which include the following:
o Raise more capital: There is a need for programs that can help to support more capital
for growth-focused entrepreneurs.
o Improve access to land: The time, money and frustration involved in expanding a
physical business in Egypt are among the worst in the world. The development and
control of industrial lands needs to be rethought with early-stage entrepreneurs at the
table to hear their ideas.
o Provide specific expertise as advisers: Entrepreneurs at this stage of growth usually
have very specific needs, and only a few experts can provide this guidance. Programs
need to be more selective about the connections that should be made.
o Provide guidance on team building: When a company rapidly grows, it needs to bring in
experts to help manage and build the team. This transition often means the company
must give up some control on management decisions, and thus it needs mentors who
can provide guidance on this.
o Promote industry collaboration: The success of the Egyptian entrepreneurship in
information and communications technology is driven by the sector’s collaborative
nature. Other industries should follow the sector’s example to benefit from the constant
flow of innovation and new market value.
? Establish a platform for entrepreneurs to voice their concerns and problems. Early-stage
entrepreneurs need a strong platform to advocate directly with the government. Thus, a
platform to voice concerns and problems should be created.
? Strengthen the regulatory framework and infrastructure. Formal legal and regulatory
structures should be made more accessible to most entrepreneurs so as to lower their
transaction cost, enabling them to grow. Regulatory institutions must be functional so as to
proactively move against monopolies and other predatory practices. Moreover, the state should
still be required to play a significant role in supplying basic infrastructure, investing in human
resources and narrowing the gaps between regions. State affirmative action is needed as well to
remove age- and gender-related discrimination against entrepreneurs.
? Increase access to information. Access to information lies at the very heart of reforming the
entrepreneurship ecosystem in Egypt. Most current problems experienced by entrepreneurs in
Egypt are rooted in their lack of information and their asymmetrical access to it. Information is
34
necessary for both market contenders and the state. On one hand, public information must be
made equally accessible to all market actors. This act requires a variety of legal and institutional
reforms that would collect data and make it available. On the other hand, information about
entrepreneurs and enterprises must be made available for state agencies. By doing so, the state
can gather and process information so as to set accurate plans and strategies. Moreover, making
this information public is the only way by which private-sector entrepreneurs can access
financial and nonfinancial resources across the board. However, informational problems and
solutions are not solely technical. They are social and political as well, requiring the building of
mutual trust between economic actors—who are themselves social actors—and the state.
? Foster awareness on the entrepreneurship culture in general. By promoting cultural awareness
among young people, as actors and users, Egypt will be enhancing their sense of initiative and
entrepreneurial spirit. Access to culture and active participation in cultural activities can
reinforce young people’s well-being and their awareness of sharing a common cultural heritage.
35
CHAPTER 3: STREAMLINING BUSINESS
PROCEDURES
1. General Authority for Investment and Free Zones
Between 2004 and 2005, the General Authority for Investment and Free Zones began setting up one-
stop shops in Cairo, Alexandria, Assuit and Ismailia. The Cairo One-Stop Shop began operating in late
2004 and moved into permanent headquarters in January 2005. The one-stop shops in Alexandria,
Assuit and Ismailia followed later that year.
The General Authority for Investment and Free Zones added a fifth one-stop shop in the Tenth of
Ramadan City in 2013 to primarily serve the Sharqia governorate. Currently, the one-stop shop in Cairo
is the central hub that serves the entire country (including Dakahlia, Damietta, Fayoum, Giza, Gharbiya
and Sharqia), and therefore has the highest volume of registrations. Like in Cairo, the one-stop shop in
Alexandia has its own building that services investors in the city and the northern coastal governorates.
Meanwhile, Assuit’s one-stop shop occupies a single floor in the governorate building and covers the
southern governorates of Aswan, Sohag and the New Valley. Finally, Ismailia deals with the Canal
governorates, Port Said and Suez. With guidance from an interministerial committee, the General
Authority for Investments and Free Zones took leadership of the startup reform efforts in Egypt. It
streamlined procedures, cut costs, eliminated the minimum capital requirement and reorganized the
one-stop shop several times to make the process of incorporation faster, cheaper and easier. Reforms
included integrating more agencies, such as tax authority, into the one-stop shops, introducing a flat fee
structure and eliminating the bar association fees.
For micro, small and medium enterprises (MSMEs) and entrepreneurs, formal incorporation has many
benefits. Legal entities outlive their founders. Resources are pooled as shareholders join forces. The
legal form under which the company is registered matters: Evidence shows that marketing business
incorporation had helped increase the number of businesses established. In 2005, the General Authority
for Investment and Free Zones registered 5,807 new companies. However, in 2012 the number of new
business established rose to
7,832. The increase was
significant for the limited
liability companies, the main
form for MSMEs.
In 2006, the International
Finance Corporation began
working with the General
Authority and five other
government agencies to
simplify key administrative
procedures for starting a business as part of a pilot program in Alexandria. The International Finance
Corporation noted in its post-operation comments that relations between the government agencies was
one of the most challenging project aspects—and one that took a meeting among executives to rectify.
36
Today, there is a strong presence of ministries and other government entities in the one-stop shop to
respond to investor inquiries and provide information and services. The key aspects are as follows:
? A high number of entities are represented in each branch (43 in the Cairo, 29 in Alexandria, 12 in
Ismailia and 7 in Assuit).
? Three of the most important delegated representatives (the public notary office, the commercial
registry and the tax authority office) are now electronically connected to the central database,
resulting in more efficient, integrated services with a high degree of reliability and accuracy.
? The General Authority for Investment and Free Zones applies an incentive system to the ministry
and other representatives, in addition to certain nonmonetary privileges, to ensure a motivating
work environment and loyalty.
? The one-stop shop fully involves other entities in developing workflow processes through the
automation of services.
? Affiliated governmental entities (the Ministry of Tourism, the Ministry of Defense and the
Industrial Development Association) hold regular meetings to tackle difficulties facing investors.
? The General Authority for Investment and Free Zones has memoranda of understanding with
various entities to guarantee effective cooperation for the investor (including with the
commercial attaché office to help in promotional efforts, with the Social Fund for Development,
and with other civil society groups such as business associations).
2. Social Fund for Development One?Stop?Shop Service
The Social Fund for Development’s one-stop-shop entities are service units where agency
representatives entrusted with issuing documents and licenses for small enterprises are grouped in one
place pursuant to the Law on the Development of Small Enterprises 141/2004 and its executive
regulations. These service units are part of the service complex that includes, in addition to the service
unit, an integrated loan center.
The unit comprises government representatives and Social Fund for Development staff to assist in
issuing the following:
? Tax card
? Commercial registry
? Temporary license for startup enterprises (valid for 30 days)
? Final license
? National number for startup and existing enterprises
3. Tamayouz Centers
A. CAIRO 2010
On Tuesday, April 13, 2010, the minister of Trade and Industry, the minister of Telecommunication, the
governor of Cairo, and the chair of Cairo Chamber of Commerce opened the groundbreaking public
service office called Tamayouz. This pilot Tamayouz center is the first service office in Cairo that provides
one-stop-shop services to individual traders and partnerships from different regional areas. The
Tamayouz center brings together the services of eight different agencies under one roof. These agencies
include Real Estate Publicity, Tax Authority, Insurance Authority, Commercial Registry, Import and
Export Control Organization, Customs Authority, Cairo District Licensing, and Chamber of Commerce.
37
In an area that exceeds 750 square meters of automated state-of-the-art office space, clients are met by
professional reception employees who provide them with information, enter their preliminary
identification data, and direct them to the appropriate agents in Tamayouz. To ensure full transparency
and efficiency, Tamayouz provides its services to clients through the front office, keeping the procedural
work to the back-office agency representatives who are connected to their respective agencies.
Required documents and fees are found on online advisory systems. Printed brochures, as well as
explanatory signboards, are located everywhere in the center.
Since its opening on March 28, 2010, Tamayouz has been attracting large numbers of customers. The
center has been providing around 350 services every day, in addition to responding to over 700
information requests. However, high customer traffic never meant the dilution of quality. “There is no
end for development. We also opt to enable provision of all these services through a single agent to
achieve a real single window model,” said Dr. Hassan El Gogary, the project manager.
The major advantage of Tamayouz is its focus on customer service and satisfaction. The young staff of
Tamayouz were very well selected and trained for an entire year by the consultants of the USAID-funded
Technical Assistance for Policy Reform Project and the Cairo Chamber of Commerce. The consultants
trained the staff on customer service, business etiquette, service quality, and computer and language
skills as well as provided a focused training on participating agencies’ business procedures. To achieve
even more integrity, Tamayouz awards incentives to its staff based on performance and customer
satisfaction.
Customers of Tamayouz no longer have to visit five or six different governmental authorities to establish
a business or add or change an activity. Furthermore, Tamayouz has managed to cut company
establishment time to one-third of the time consumed when services were obtained via individual
governmental agencies; in cases of tax and insurance services, procedural time was reduced from 30 to
three days.
B. ALEXANDRIA 2012
On June 28, 2012, Tamayouz Alexandria was officially opened by U.S. Ambassador Ann Patterson;
Minister of Supply and Internal Trade, HE Attya; and Federation of Egyptian Chambers of Commerce
Chair, Ahmed El Wakil. The center is the first of the planned national network. It will serve as a model
and as a center of excellence, a proving ground and training center for Tamayouz implementation
nationwide. The opening was a success and initial public response was excellent. In the first 10 days of
operation, the center helped 1,111 customers and provided 826 services, including 250 services to new
companies.
Tamayouz is a success but there are still challenges. The Egyptian Competiveness Program worked with
the Federation and the Alexandria Chamber to improve the service delivery further by reducing the
opportunities for corruption. The approach included (1) a baseline survey to quantify the improvement
and the impact of the center; (2) replacing the Tamayouz manager; and (3) increasing the marketing
campaign to inform potential customers about the center, as well as the services’ cost and estimated
time.
C. OTHERS
The United States Agency for International Development and the Egyptian Competiveness Program
supported the Tamayouz Center in Alexandria and developed and opened a new Tamayouz Center in
Qualyoubia in 2013. Due to the success of the Qualyoubia Tamayouz center, the Egyptian
Competiveness Program began work on similar centers in Port Said, Sohag and Assuit. The work on
38
these three new centers are well underway (the Port Said center has already been opened)—and under
the competiveness program’s Wind-Up Plan, these centers (once opened) will continue operating as
prior to the program’s closing.
4. Suggested Reforms and Recommendations
A. Reforms to Existing One-Stop Shops and Replications
Although the results indicate that the one-stop shop is generally satisfactory (i.e., excellent treatment,
relatively short time for issuing licenses, reasonable fees, delivery of services through a single window),
establishing a project on a wider scale would require a more thorough assessment of the following one-
stop-shop factors:
? effectiveness of its setup;
? achievements to date;
? service limitations;
? service management;
? appropriateness of its resources and the timelines of its service delivery;
? customer response, and;
? relationship with other local government entities
However, the following constraints, coupled with the center’s non-conducive operating environment,
reduce the center’s effectiveness and can undermine its role as a one-stop shop aiming at alleviating the
regulatory and paperwork burden to SMEs
? Lack of publicity on center’s role;
? Absence of an authority to issue licenses as per district rules and regulations;
? Local administration staff’s unfavorable attitude and their violation of the governor's
instructions;
? Lengthy and cumbersome procedures;
? Complicated, conflicting legal requirements and conditions;
? Entities’ regulations and directives are outside of the center’s control;
? Confinement of center’s role to facilitating the delivery of industrial licenses only (this limits the
number of licenses issued through the center as it is easier, less risky and less costly to start
commercial and service activities).
Such analysis would help in designing an effective SME policy. The policy design should evolve through a
transparent, participatory consultative process with stakeholders and beneficiaries. Policy architects
should be responsive to local and regional needs and coordinate at the local and national level with
different entities involved in SME development. The interactive consultation with local government and
institutions should take place through a direct link with enterprises to address their needs, problems
and concerns and provide them with realistic and factual inputs on policy design. Fine-tuning policies
through follow-up, assessment, and input during policy implementation phase is equally important. This
step would require conducting the necessary local and regional studies and surveys and then articulating
and implementing the appropriate support programs.
Reforming the regulatory framework for SMEs should entail an explicit understanding of the overall
economic importance of this sector within a broader strategy for creating an enabling environment for
SMEs. Central to this policy objective is the reforming of the financial-sector regulatory framework. The
39
reforms should encompass changes in banking regulations so as to allow banks to recognize the special
status of SMEs, provide needed financial services to this important sector, and enhance existing services.
Also, establishing specialized financial institutions should help foster competition in the SME lending
market. This act will require developing the standards governing the delivery of financial services.
Against this backdrop, the role of the one-stop shop must also to be reinforced and enhanced. To
achieve this goal, several actions must be carried out, taking into consideration the suggestions and
recommendations of the center's staff.
? Governorates should be carefully selected for replication. Considerations such as local density of
SMEs, the rate of their formation, the rate of closure, average per capita income, and the
availability and capability of existing delivery channels—and their selection—are all important
factors that must be carefully scrutinized and dealt with in advance in all potentially
participating governorates.
? The citizen requiring the licenses for activities that should be approved by the supplier should be
allowed temporarily to obtain water and electricity for his/her firm until approval of the
Inspection Committee is received.
? The Environmental Affairs Agency should have subsidiaries in the governorates to approve
industrial activities, as approvals of such activities have to be issued at the headquarters in
Cairo.
? Certain building regulations—such as those for bakeries and plastic factories—have to be
reconsidered and consistently enforced. For example, recent directives of the Environmental
Affairs Agency stipulate that plastic factories should not be built in places adjacent to residential
buildings—a condition that cannot be applied in Mansoura, for practical reasons. In addition,
bakeries were allowed to use natural gas although using natural gas is still generally prohibited.
? To face the difficulties associated with the social insurance for small firms, owners, and workers,
it is recommended to establish an electronic connection between the Social Insurance Authority
in Cairo and the Social Insurance Directorate in the governorates. This electronic connection
would help to process timely and accurate procedures and would give a true picture of each
subscriber's status.
? The representative of the industrial safety should be accorded the authority given to the
tripartite committee comprising representatives of the ministries of manpower, health and
housing.
? Representatives of the tax administration, health, defense and fire should be included in the
center's structure.
? Adequate staff should be available to reduce the representatives’ workload and to secure the
permanent availability of substitutes.
? Adequate and efficient means of communications between the center and its customers should
be provided.
? An awareness campaign and effective publicity should be organized to promote the center's
activities and gain support for its efforts.
B. General Recommendations
Other diverse but equally important steps that need to be taken include the following:
? Establishing an institutional mechanism to identify SMEs so as to entitle them to benefit from
the facilities (that will be) provided exclusively for the sector.
40
? Reviewing labor and social legislation to determine whether such legislations meet the needs of
SMEs and to ensure compliance with social security regulations.
? Updating data sets to develop a simple, unified definition for SMEs.
Availability/accuracy, accessibility and adequacy of data must be ensured as follows:
? Availability/Accuracy. Regularly updating the establishment census for SMEs is suggested. Such
regular updating will be extremely useful not only as a frame for sample surveys but also as a
system for follow-up and monitoring.
? Accessibility. The issue of accessibility of data sets collected through governmental and
nongovernmental agencies needs special attention. Integration data sets from different sources
should be considered. A database structure needs to be agreed upon by stakeholders.
? Networking. Networking among SMEs stakeholders is urgently needed; it can be achieved by
launching a website that provides information relevant to SMEs in Egypt, a blog space to
exchange ideas, and/or an interactive communication space for SME users.
? Policy issues should be discussed among government officials, credit providers, donor investors,
involved institutions, business associations, SME experts—and before all entrepreneurs and
borrowers.
? Resources should be allocated to contend with relevant environmental conditions.
41
CHAPTER 4: VALUE CHAIN ANALYSIS
1. Textile Sector in Egypt:
A. Sector Overview:
The Egyptian economy witnessed a noticeable turnaround after the Jan 25 revolution toward a more
inspiring economy premised on more equity for the masses, less tolerance of monopolistic practices,
and greater shared value of economic outcomes. However, Egypt’s ranking in the world competitiveness
report has deteriorated, its ranking in 2011 having fallen twenty places down to the 94
th
position (out of
142 countries). Its best sub-ranking is in market size (27
th
), whereas its worst sub-ranking is in labor
market efficiency (141
st
). Also, technology and innovation pillars continue to worsen. If this economic
downturn continues and no drastic changes are made, Egypt may lose its competitive position in many
sectors through the coming years.
Despite setbacks in the Egyptian economy during the last four years, still one of the main sectors that
enhances the Egyptian export position around the world and is considered to be a main pillar for growth
is the textiles sector. It is one of Egypt’s most important industrial sectors, accounting for 25% of the
country’s total industry and nearly 30% of all industrial labor employment. Cotton and textile fabrication
ranked third in Egyptian exports and accounted for 25% of all Egyptian cumulative exports in 2010.
19
Before 1973, the textiles industry—especially cotton—was a leading and competitive industry for the
Egyptian economy. However, after the establishment of the Open Door polices, and especially during
the 1980s, textiles started to lag behind. In 1993, the total shares in the textiles industry was falling
behind that of oil, petroleum and tourism. In 2003, the industry's total production reached around 27%
of the total industrial production in Egypt. Between the years 2005-2008, the sector had experienced an
average growth of 10% due to the Qualified Industrial Zone Protocol with the United States. It is highly
significant that Egypt’s textile garment industry is one of the very few manufacturing processes that
have the complete supply chain within the country’s resources. Although the public sector has
historically dominated most of the activities in this sector, the private sector is now playing a major role.
It is worth mentioning that the Egyptian agreements with the European Union, the United States and
the Qualified Industrial Zone all had shifted the sector to a state of continuing growth. The industry has
since then been unceasingly working on enhancing its productivity and its competitiveness by trying to
adopt the latest technology. As a result, the textiles industry has become a major contributor to the
local economy and the international market as well—despite major challenges facing the sector such as
lack of qualified trained labor (according to international standards). This lack of skilled labor is due
primarily to a weak research and development and technology framework. However, Egyptian unskilled
labor is very cheap, which yields a comparative advantage for the whole sector among its rivals. Yet,
achieving a competitive advantage is the major challenge ahead.
B. Sector Positioning
Today, the textiles industry contains more than 3,000 companies, with both private and public
enterprises ranging between companies that employ only two laborers to those employing as many as
19
http://www.alexbank.com/Uploads/documents/research/Towards%20A%20New%20Egyptian%20Economic%20Reform.pdf
42
20,000 laborers. The textiles industry employs around 8% of the total industrial workers and 2% of the
whole labor force, including government and agriculture labor. In terms of exports, the industry
accounted for 13% of total exports in 2002. Between 2006-2010, the government increased the annual
textile exports by 3 billion EGP. Although there is stiff competition internationally from the United
States, China, Turkey, India and Israel, the Egyptian economy shares around 35% of the world market.
Today the textiles industry is attracting foreign direct investments from around the globe. Total
investments (foreign and local) have risen by an average of 9.5% per year over the past four years.
20
The industry’s main export products are fibers, yarns, cotton and blended fabrics, carpets and floor
coverings, apparel and tailoring, and knitted apparel. The main governorates that produce textiles in
Egypt are Alexandria, Qualyoubia, Gharbiya and Cairo.
The textiles industry is characterized by the existence of both public and private enterprises. Despite the
dominance of the public enterprises in the sector, private companies operate in the industry, which
includes SMEs and informal workers. Egyptian law No. (141/2004) differentiates SMEs based on two
criteria: the enterprise’s capital and the number of employees. Small enterprises have capital between
EGP 50,000 and EGP 1 million and less than 50 employees. Medium enterprises have capital between
EGP 1 and 50 million and more than 50 employees. The General Authority for Investment and Free
Zones’ data on the textile sector for small enterprises is shown in Table (2).
Table 2: Number and Capital of Newly Established Small Companies in Textile Sector (Values in EGP Million)
Source: General Authority for Investment and Free Zones, 2014
The number of established small companies in the textiles sector increased steadily from 2009 to 2013,
despite political instability in Egypt after 2011. Egyptians, compared to Arabs and foreigners,
contributed the most capital to these established small companies, which shows that Egyptians have
access to various sources of funding.
The General Authority for Investment and Free Zones’ data for newly established medium enterprises in
the textile sector is shown in Table (3).
20
20
“High Financial Profitability and Low Economic Returns,” Selim Tarek and Wissa Yasmine, April 2012, The American University in Cairo.
Textile Sector (Small Enterprises) 2009 2010 2011 2012 2013
Number of Companies Established 82 141 111 200 321
Total capital 30.64 60.25 44.25 56.13 71.65
Group
Contribution
in Capital
Egyptians 18.71 50.70 30.59 32.25 55.40
Arabs 2.47 4.46 6.85 20.81 13.00
Foreigners 9.46 5.09 6.81 3.07 3.25
43
Table.3 Number and Capital of Newly Established Medium Companies in Textile Sector (Value in EGP Million)
Source: General Authority for Investment and Free Zones, 2014
The number of medium companies established in this sector was not big compared to the small
companies. These lower numbers imply that there is a need to support owners of these medium-sized
companies as they are key players in the supply and the value chain of this sector. The major
contributions in capital were from Egyptians and Arabs, while foreigners’ contribution decreased
considerably due to the political and economic instability following 2011.
The significant discrepancy in the number of small and medium companies established and Egyptians’
greater contributions in capital to small companies indicates the willingness of many domestic
entrepreneurs to invest in and start small companies in the textile sector.
Therefore, it is imperative that the textile industry capitalize on this opportunity for development. It
constitutes a major contributor to the nation's exports, as it is ranked second after food processing in its
share of exports by the manufacturing sector. High domestic and international demands for the sector’s
different products such as yarn, cotton, and carpets represent a major opportunity for the entire
country. Woven apparel represents the largest category of the textiles sector that assisted Egypt to
become the second largest exporter to the Middle East and North Africa region.
21
Sector opportunities: Cheap labor and low energy cost are the two most important factors that give the
country a competitive advantage for this sector. Moreover, the whole supply chain for the textiles
industry is present within the Egyptian economy.
Sector challenges: That the entire production process is inside Egypt constitutes an asset and a liability,
particularly after the Free Trade Agreements that have exposed Egypt to the fluctuations and
competitiveness of the international market. If any of the stages of production fail to adapt to the
international manufacturing and trading patterns, the entire industry will be under high risk. The weak
technological base of the textiles sector and the poor quality of textiles produced in Egypt over the past
30 years, excluding the apparel industry, has made it difficult to compete with the higher-quality and
lower-priced textile products imported from China.
21
High financial profitability and low Economic Returns, Selim Tarek and Wissa Yasmine, April 2012, The American University In Cairo.
Textile Sector ( Medium Enterprises) 2009 2010 2011 2012 2013
Number of Companies Established 21 38 23 64 101
Total capital 74.08 248.23 156.77 333.02 435.04
Group’s
Contribution
in Capital
Egyptians 45.75 125.13 89.56 57.45 112.23
Arabs 8.50 28.16 7.00 223.19 303.38
Foreigners 19.83 94.94 60.21 52.38 19.43
44
C. Sector Value Chain and Linkages
Egypt has the only fully vertically integrated textile industry in the region, with the entire production
process—from the cultivation of cotton to the production of yarns, fabrics, and ready-made garments—
carried out domestically. However, there is a need to establish textile clusters to enable the firms to
operate more optimally.
The major players in the Egyptian textile value chain can be divided into three segments: growers
(cotton farmers); processors (ginning factories, weavers/clothmakers and ready-made textile
producers); and sellers (exporters and retailers).
22
See Figure (8).
Figure 8: Egyptian Textile Value Chain
Source: (Abdallah, 2012)
Growers:
The Egyptian government is the sole buyer of the replanting seeds in Egypt. Egyptian farmers are free to
plant any crop they choose, but if they are planting cotton, the government specifies the areas for
planting each variety of cotton.
Processors:
The processing segment includes the production of intermediate goods like lint, yarn and fabric, as well
as finished goods like ready-to-wear clothing. Cotton ginning in Egypt is dominated by five firms, four of
which are publicly-owned.
22
The textile cluster in Egypt, Abdallah rawiah et al, 2012, Micro economics of competitiveness.
45
For textile commodities, spinning and weaving are the main feeding sectors for the textiles industry.
Most spinners export because they produce fine counts—an expensive product for the local market—
and fabrics from imported yarn mainly target the local market.
The Egyptian textile and apparel industry consists of 40 public-sector companies that are organized into
three large holding companies and an estimated 3,500 private- and investment-sector companies
ranging in size from over 10,000 workers to fewer than 10. The public sector dominates the early stages
of production, with a 90% share of spinning and 60% share of weaving in Egypt, but performs much
weaker in apparel production, with only a 30% share. In looking at the age of machinery used at various
stages of the value chain, the reasons for the production weaknesses of Egypt’s public sector are clear—
public companies are saddled with aging equipment (almost all of it is older than 15 years) that hurts
their overall operational efficiency. Overemployment, inferior technology, and low levels of capital
utilization are other major contributors. In the apparel industry, where public companies face greater
competition from the private sector, the picture is somewhat better, showing a greater share of newer
equipment.
23
Dyeing and finishing are the weakest points in the value chain, with the least amount of investments.
Therefore, the Egyptian government is looking to attract new private investments into upstream
segments of the textile industry to sharpen Egypt’s competitiveness edge in the global market.
24
For the ginning cluster, privatization initiatives have been under way since the mid-‘90s but have been
unsuccessful for two overarching reasons. First, the antiquated equipment would require large private-
sector capital expenditures since there is no local loom machinery industry and the government
maintains high import taxes on foreign machinery, thereby diminishing the attractiveness of any such
investment. Second, many Egyptian officials saw privatization as a threat to social peace as it would
make thousands of public-sector employees redundant; however, the foreign investment in private-
sector firms is common, majority-foreign ownership is legal, and most spinners target the export
markets.
In 2008, an Industrial Development Strategy was developed by Egypt’s Ministry of Industry; it identified
the most important industrial sectors that contribute to manufacturing value added. The strategy’s
focus is closely aligned with the objectives of developing exports and deepening Egypt’s integration into
the global economy. Rather than designing a unified strategy for the textile sector, Egypt may benefit
strategically by directing investments in fine weaving and dyeing to produce larger quantities of high-
quality fabrics for the export market. Structural problems in the spinning and weaving sectors include
the high cost of initial investment and the long time for break-even and return on investment. Many
investors are more interested in ready-made garments because the initial cost of investment is lower
and the return on investment is usually faster. There are no clear policies or strategies that address
increasing local value addition in terms of local content or local processing.
Exporters:
The largest textile producers manage exports themselves, but most processors rely on exporters to
reach international markets. Textile and finished-goods producers generally affiliate with the Egyptian
Exporters Association (ExpoLink), a less-focused trade association that promotes the development of
trade in all Egyptian manufactured goods.
23
http://www.piie.com/publications/wp/wp05-8.pdf
24
http://www.uneca.org/sites/default/files/uploaded-documents/era2013_casestudy_eng_egypt.pdf
46
D. Sector Linkages:
Linkages opportunities in the textile sector are limited and lie in backward linkages (high-quality cotton
fabrics) and forward linkages (finished new products). However, a number of factors affect these
linkages, as shown in Figure (9) below.
Figure 9: Factors Affecting Egyptian Textile-Sector Linkages
Source: Economic Report on Africa, 2013
E. Sector Recommendations:
? Policy leaders must define a vision for cluster improvement that can endure across business cycles
and political administrations.
? Investment in the ginning mills must be spurred through privatization of the spinning segment.
? The key bottleneck—an uncompetitive ginning sector—must be removed if Egypt is to become
the leading producer of long-staple yarn and fabric in the world and the leading supplier of textile
expertise to the Middle East and North Africa.
? Subsidies to state-owned mills should be eliminated to force these enterprises to compete on
their own merits. By purchasing commodities at artificially-inflated prices, government-owned
factories gain an unfair competitive advantage over private-sector players, causing inefficient
resource allocation and discouraging private investment that might upgrade competitiveness.
? Either permit growers to diversify their crops and increase production of short-stem cotton at
competitive prices or reduce the non-tariff transaction barriers to importing raw products.
47
2. Information and Communications Technology Sector
1.A. Sector Overview
Egypt is one of the highest-growth potential information and communications technology markets in the
Middle East, receiving much attention from tier-one vendors and distributors, most of whom are already
very familiar with the market. Given its huge population, rising economy and relatively low personal
computer concentrations, the country will continue to be an important market player over the forecast
period.
The Egyptian government has made big strides in the last couple of decades towards establishing the
country as a potential information and communications technology hub in the region. Major
infrastructure developments have upgraded the sector’s capacities in Egypt. In addition to laying a
modern communication infrastructure, the Egyptian government is promoting the use of computers and
the internet for economic growth. With its proactive policy and clear, long-term vision, the Egyptian
government, in partnership with the private sector, seeks to make the information and communications
technology sector a major leader in the country’s economy.
Alongside the Government of Egypt’s reform efforts, there has been a significant and ongoing
deregulation of the business environment. As a result, there was a 11.04% increase in the number of
companies operating in the information and communications technology sector in Egypt between
December 2012 and December 2013, with 5,644 companies operating in December 2013 compared to
5,083 operating companies in Dec 2012—of which 77.36% were information and communication
technology companies, 15.15% value-added services, and 7.49% communication companies.
25
In 2012/2013, the information and communications technology sector sustained an annual growth rate
of 2.31%, and had received, up until September 2013, about EGP 46.76 billion in government funding.
Moreover, in FY 2012/2013, the sector generated revenues of EGP 41.72 billion, contributing 2.77% to
real gross national product (GDP). The total number of direct employees in this sector (Information and
Communication Technology, Telecom, Post, Smart Village and Maadi Technology Park) reached 217.78
thousand employees in Q1 2013.
26
In addition, with its unique location at the crossroads of Europe, Africa and the Middle East, Egypt is well
situated to offer easy access to markets in the Arabian Gulf, the Levant, North Africa and Sub-Saharan
Africa, as well as Europe. As such, it started to position itself as a potential information and
communications technology hub in the Middle East region and as one of the top five major outsourcing
and off-shoring destinations. Moreover—and as a reflection of Egypt’s competitiveness in this sector—a
multitude of international companies are using Egypt as a base for software development, technical-
support contact centers, and research facilities such as IBM, Intel, Microsoft, Cisco, Oracle, Satyam,
Wipro, Orange, Alcatel, Tele-performance and Vodafone. Egypt is also a key communications node,
notably hosting SEA-ME-WE2, the world’s first submarine cable linking Southeast Asia, the Middle East
and Europe. Hence, Egypt is an ideal location to base a business with regional – and even global –
ambitions.
25
Ministry of Communications and Information Technology, “ICT Indicators in Brief,” Monthly Issue, January 2014.
26
General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
48
1.B. Information and Communications Technology Sector: Current Developments and
Potential Growth
A conducive regulatory environment is critical for boosting the information and communications
technology sector and its growth. Since the late 1990s, the Egyptian government has made deregulation
and development of the telecommunications sector a top priority. One of the main steps in deregulating
the sector was creating the National Telecommunications Regulatory Authority in 1998. The key
responsibilities of this regulatory body are to increase private investment in the sector; to oversee
telecommunications technical aspects such as monitoring frequencies and their spectrum; to issue
service licenses; and to approve all sector-related tariffs. In October 1999, the Ministry of
Communications and Information Technology was launched as the policy authority for the information
and communications technology sector. This ministry’s mandate is to develop and improve the
telecommunications infrastructure and promote the development of Egypt’s information society.
As success under current global conditions has become linked to the country’s ability to overcome the
challenges of globalization, the Government of Egypt has implemented several action plans that were
instrumental in developing the information and communications technology industry’s opportunities
and maintaining its position in the world markets.
1.B.1. Information and Communications Technology Infrastructure Development
Egypt has three advanced mobile phone networks (Mobinil, Vodafone Egypt and Etisalat Egypt); all
three have 3G and 3.75 G infrastructure. They serve over 99.70 million subscriptions till December
2013—the number of subscriptions growing by 3% since December 2012 and hitting a penetration rate
of 118.9%. Internet subscriptions show an annual growth rate of 17.4%—there are more than 38.75
million regular internet subscribers till December 2013 and over 2.63 million ADSL subscribers till
December 2013. Fixed-line subscriptions reached about 6.82 million till December 2013. The country’s
network of postal outlets is being reconfigured to be a business communications network, as well as
points of contact for government services. WiFi networks are provided countrywide by businesses,
restaurants and cafes for their customers. In 2013, the number of citizens acquiring the International
Computer Driver License (ICDL) certification in Egypt reached 8,000.
27
27
General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
49
The following table of indicators shows the information and communications technology infrastructure
developments from December 2007 to December 2013:
Table 4: Information and Communications Technology Infrastructure Developments (Dec2007-Dec2013)
Source: Ministry of Communications and Information Technology, Cairo, Egypt.
1.B.2. Information and Communications Technology Value Added in the Egyptian Economy
The information and communications technology value added GDP at current prices reached EGP 30.9
billion (USD 5.6 billion) in 2008/2009, while its value added at fixed prices reached EGP 30.3 billion (USD
5.5 billion), with an annual growth rate 14.5%. The private sector played a leading role in generating the
total information and communications technology value added as it contributed about 69 % of the total
value added generated in 2008/2009. The below figure shows the growth rates of some of the fastest-
growing sectors in the Egyptian economy in 2008/2009.
Figure 10: Information and Communications Technology Sector’s Contribution in the Egyptian Economy (2008/09)
Source: Nagwa El Shenawy, “Statistical Compilation of the ICT sector and Policy Analysis in Egypt,” WSIS Forum,
Geneva, 2011
50
1.B.3. Number of Information and Communications Technology Companies, Issued Capital
and Revenues
There was a 43.46% increase in the number of companies operating in the information and
communications sector in Egypt between 2010 and 2013, with 5,644 companies in December 2013
compared to 3,934 companies in 2010, of which 77.96% were information and communications
technology companies, 14.22% value-added services and 7.78% communication companies.
28
At 16.1%,
the increase in the number of small and medium companies operating in this sector for that same
period was much lower, recording a total number of 1,387 companies by 2013. Table (5) shows the
increase in the number of total information and communications technology companies in Egypt
between 2010 and 2013, while Table (6) shows the (trivial) increase in the number of small and medium
companies for that sector for the same period.
Table 5: Number of Companies in the Information and Communications Technology (ICT) Sector (2010-2013)
2010 2011 2012 2013
Total No. of ICT
Companies in Egypt
(2010-2013)
Growth Rate%
(2010-2013)
Total No. of ICT Companies in
Egypt
3934 4428 5083 5644 19089 43.46
ICT 3078 3457 3982 4366 14883 41.84
Value-Added Services 532 621 707 855 2715 60.7
Communications 324 350 390 423 1487 30.5
Source: Ministry of Communication and Information Technology, Cairo, Egypt.
Table 6: Number of Small and Medium Companies in the Information and Communications
Technology (ICT) Sector (2010-2013)
2010 2011 2012 2013
Total No. of ICT SMEs
in Egypt (2010-3013)
Growth Rate%
(2010-2013)
Total No. of Small and Medium
ICT Companies in Egypt
291 321 430 338 1387 16.1
Small
29
Companies (EGP 50000-1
million)
277 302 409 321 1309 15.8
Medium
30
Companies (EGP 1
million-50 million)
14 19 21 17 71 21.4
Source: General Authority for Investment and Free Zones, Cairo, Egypt.
28
Ministry of Communications and Information Technology
29
According to the General Authority for Investment and Free Zones, small enterprises have an issued capital of ?50000 ?1 million EGP.
30
According to the General Authority for Investment and Free Zones, medium enterprises have an issued capital of ? 1 million ? 50 million EGP.
51
According to data provided by the Ministry of Communications and Information Technology and the
General Authority for Investment and Free Zones, small and medium information and communications
technology companies constituted only 7% of the total number of information and communications
technology companies in Egypt from 2010 to 2013—the growth rate of these companies having
fluctuated quite a bit between 2010 and 2013. Despite the number of SMEs in this sector having grown
only 9% in 2011, there was a surge in the number of companies established in 2012, reaching a high
growth rate of 35%; by 2013, however, the number of established SMEs had declined by 21.5%. The
sharp fluctuations in the new small and medium companies’ growth rates in this sector have been
attributed to the political and economic imbalances that Egypt has witnessed in the past four years.
As shown in the Table (7) below, there was a surge in the amount of issued capital for all information
and communications technology companies, from 35.75 billion EGP in 2007 to 46.47 billion EGP in
2013—an almost 30% increase. Yet, if we compare the total issued capital for all information and
communications technology companies in December 2012 with the total issued capital in December
2013, we will find that the amount was almost stagnant, increasing by only 0.3%.
31
Table 7: Information and Communications Technology (ICT) Issued Capital (2010-2013)
2010 2013
Growth Rate %
(2007-2013)
ICT Companies Total
Issued Capital (Billion
EGP)
35.7 46.47 0.30
Source: Ministry of Communications and Information Technology, Cairo, Egypt.
Over the last decade Egypt’s information and communications technology sector was transformed from
one dependent on subsidies and grants to a revenue-generating sector and a net contributor to the
treasury, adding over USD 7.8 billion to the treasury between the years 2005 to 2008—hence enabling
the government to enhance and widen its provision of social services and developmental plans.
32
In
2013, this sector’s contribution to the treasury was EGP 13.20 billion (USD 1.846 billion).
33
31
The General Authority for Investment and Free Zones (GAFI) and Ministry of Communications and Information (MCIT), 2014.
32
The Organization for Economic Cooperation and Development, “Egypt Information and Communications Technology Sector: Competitiveness,
Growth and Key Challenges,” 2010.
33
Ministry of Telecommunications and Information Technology (MCIT), Cairo, Egypt.
52
1.B.4. Employment in the Information and Communications Technology Sector
The total number of direct employees in the information and communications technology sector had
climbed to 217, 780 employees in Q1 2013, up from 182,000 in 2009 and 175,000 in 2008. These figures
include Information Technology (IT), Telecom, Post, Smart village and Maadi Technology Park employees
but do not include employees from the outsourcing industry (e.g., call centers, which reached 50,000
employees during the period 2006-2009). Also, they do not include indirect employees in information
and communications technology clubs, internet cafés and private communication stores, which was
estimated to be at 500,000 in 2009.
In this context, Egypt’s information and communications technology sector was expected to create
around 40,000 new direct jobs within the years 2011-2013—in line with the launch of the second
investment information and communications technology zone in Maadi. Yet due to the political
uncertainty facing Egypt since 2011, the number of jobs created in this sector in 2013 fell far short of
expectations.
However, the information and communications technology sector has many drivers that could help
boost job creation, such as the following:
? Talented and educated pool of potential employees. More than 300,000 Egyptians obtain
university degrees every year, of whom 70,000 are in commerce, 18,000 are in engineering and
over 3,000 are in information and communications technology, thus producing a large potential
talent supply with the skill sets necessary to succeed in this sector;
? Bilingual/multilingual population. Egyptians speak European languages with a neutral, easily
understood accent. Annually, more than 22,000 students graduate who are fluent in various
European languages including English, French, and German, many of whom have been studying
their second language since primary school. Thus, a large potential supply of talent with the
language skills to succeed at all levels of the value chain—from call-center operators to senior
researchers at offshore development centers for multinational corporations—is available;
? Already existing information and communications technology infrastructure. The existing
information and communications technology infrastructure in Egypt greatly eases start-up costs
and enhances day-to-day productivity. Its competitive infrastructure includes submarine fiber-
optic cables that link Egypt to Southeast Asia, the Middle East and Europe; landlines that have
dial-up access; and high-speed broadband and wireless networks that are already in place in
major urban areas throughout the country;
? Affordable skilled labor. In Egypt, skilled labor is readily available at reasonable prices.
Programmers, for example, are paid, on average, USD 10-20 per hour. Since wages are stable,
growing only 5% annually, employers can afford to hire—and keep—skilled laborers at a rate
that is cost-effective for their companies.
? Tech-oriented consumer base. Egypt’s technology-savvy consumer base (comparable to the
entire populations of many European countries) is hungry for new products and services. Thus,
scaling up demand for more products and services to be supplied by current or new information
and communications technology companies is a very viable possibility.
53
1.B.5. Investments, Exports and Value Chain Linkages
I. Investments
Investments in information and communications technology in Egypt grew considerably from 2001/02
to 2009/2010. During 2005-2007, the sector had succeeded in attracting local and foreign investments
of more than USD 8 billion. Consequently, seventeen international companies are now operating in
Egypt and exporting IT-enabled services (e.g., call centers). Implemented investments by the
communications private sector grew sharply in the past few years, reaching EGP 17.3 billion in
2009/2010. Public-sector investments represented only 12.2% of total implemented investments in the
communications sector in 2009/2010, proving the dominance of the private sector, both locally and
multi-nationally, in the communications sector. This is evidence of the successful privatization and
deregulation trend the government has supported to improve the sector.
34
As of February 2014, the
information and communications technology industry consisted of 5,686 companies operating inland
with total investments of USD 10.75 billion and 38 companies operating in free zones with total
investments of USD 100.98 million.
35
The Egyptian national vision is mainly focused on attracting more foreign direct investments—especially
in business process outsourcing activities—particularly in view of their positive spillover on employment
rates. To achieve this goal, a comprehensive framework—one aimed at attracting more multinational
corporations that are interested in business process outsourcing, at encouraging technology and know-
how transfer, and at building qualified yet cost-effective human capital—was put in place. The
government’s Information Technology Industry Development Agency supports the information
technology and business process outsourcing industries in Egypt.
The Information Technology Industry Development Agency provides end-to-end support for foreign
direct investors seeking to enhance their global offerings using Egypt’s competitive advantages. The
agency helps overseas investors explore and apply for incentives covering all strata of the information
technology industry, and especially in the business process outsourcing/information technology
outsourcing fields. The agency’s full-fledged support to investors includes backing all activities required
by investors, including information gathering, site visits, case studies and others. It also provides
incentives that support the company’s needs as well as facilitates the setup and establishment of
procedures in Egypt. The agency also worked on reducing companies’ startup costs, including the
telecommunication costs of running circuits to link Egypt with the Gulf and other Arab countries. The
General Authority for Investment and Free Zones operates a one-stop shop that streamlines and
expedites investor services that most businesses can incorporate in 72 hours.
Egypt has been undertaking many other initiatives with the objective of creating an attractive and
conducive business environment for international multinational organizations, such as offering different
types of business lines that include research and development/engineering activities, knowledge
process outsourcing services, localization and Arabic content services, business process outsourcing
services, technical support activities, contact centers, and IT products and services. In addition, Smart
Village Egypt was launched in 2003 to be the first, fully operational technology cluster and business park
in Egypt. It was established to accommodate local and multinational companies, government and
financial authorities, educational institutions, and research and development centers, all of which share
state-of-the-art infrastructure, modern facility management and a broad range of business and
34
Alex Bank, “Information and Communication Technology Industry: Boosting Industry in Egypt,” Sector Survey, January 2011.
35
The General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
54
recreation services. In 2010, the government announced the launch of a new business-delivery hub,
called Maadi Investment Park, which is specifically aimed at attracting business process outsourcing
companies. This park is centrally located in Cairo and easily accessible by public transportation.
Moreover, a United Kingdom-based company has signed a deal to establish a business center in
Alexandria, while several other leading multinational corporations are also actively considering
Alexandria as a business hub.
The Government of Egypt also provides incentive packages catering to investor needs via 1) offering tax
exemptions and reductions for the information and communications technology sector, 2) reducing land
prices for investors in this sector, 3) easing export and import regulations, 4) providing demand-driven
training programs for sector professionals at the government’s expense, and 5) assigning Government of
Egypt officials to facilitate interaction with government organizations.
II. Small and Medium Enterprises Value Chain/Business Linkages
Broadly speaking, the definition of value chain/business linkages refers to any program aimed at linking
purchasers with potential suppliers. Purchasers are usually identified as multinational corporations
interested in investing or already operating in a host economy, perhaps a developing one, wherein
suppliers are local businesses trying to enhance their competitiveness and to capture opportunities for
increased trade. The four types of linkages are described below:
1. Backward linkages occur when multinational corporations buy parts, components, materials and
services from local suppliers;
2. The second type of linkage forms when these corporations engage in joint ventures, licensing
agreements, or strategic alliances with local partners—offering them access to technological and
managerial know-how—or when they offer foreign companies access to local authorities, institutions
and markets;
3. Forward linkages with customers occur when multinational corporations outsource the distribution of
their brand-name products through marketing outlets; when they produce machinery, equipment or
other inputs; or when they offer after-sales services to industrial buyers beyond the usual advice on
usage and maintenance of the purchased good;
4. The last type includes demonstration effects and human capital spillovers. This term refers to the
uncontrolled, not channeled, ways of transferring technology or know-how as opposed to the second
type of linkage that occurs through formal, contractual channels.
As a result of these linkages, many internal and external benefits are reaped. Internal benefits include
helping to develop domestic industry; deepening the involvement of the foreign direct investor in the
host country; maximizing the purchasing of foreign direct investments and companies to the benefit of
the host country; assisting the host country’s general economic growth through a multiplier effect;
facilitating import substitution; and promoting corporate social responsibility. External benefits include
attracting more foreign direct investments via the development of useful selling tools (which allows
domestic companies to grow and move into export markets) and improving the general profile of the
country’s industrial capacity.
Many multinational corporations have started to use Egypt as an offshore destination, and Egyptian
outsourcers have started to serve international companies. In the past few years, the country has
55
developed a promising contact center industry that serves technology multinational corporations and
that continues to grow at a rapid pace.
As a matter of fact, Egypt is well positioned as the Middle East's prime winner to take advantage of the
boom in global outsourcing, already worth an estimated USD 300 in 2009, according to international
research centers. Egypt was assessed as having the strongest position based on its young population and
its sustainable and abundant talent pool of technologically skilled and multilingual university graduates.
Its geographical location—adjacent to Europe and Asia—coupled with strong government support are
also factors that contribute to Egypt being a potential outsourcing hotspot. A multitude of international
companies are using Egypt as a base for software development, technical-support contact centers and
research facilities. Examples of which include IBM, Intel, Microsoft, Cisco, Oracle, Satyam, Wipro,
Orange, Alcatel, Tele-performance and Vodafone, among others.
In Egypt, for example, small-scale enterprises supplying Microsoft Egypt have been able to leverage the
reputation of their lead partner through the lighthouse effect of having credibility bestowed upon them
by a global player. SME suppliers that are certified Microsoft Gold Partners have used the Microsoft
network for projects both in Egypt and in the region. On the other end, the supplier network assists
Microsoft with new-market entry and local credibility.
The case of Microsoft Egypt gives insights into the relationship between multinational corporations in
Egypt and local partners (suppliers). Various companies in the Egyptian market joined Microsoft’s global
value chain such as Arabize, Bayanet, IT Worx, MNS, OMS, and Xceed. Based on Microsoft’s
classification, companies were split into two categories:
1- Companies providing a service that complements an existing Microsoft product, thus vertically
integrating into Microsoft’s value chain. A typical example of such companies is a systems
integrator. These companies’ customers are the end users of Microsoft’s products; and
2- Companies providing the support functions for Microsoft, thus helping it deliver its final
product. These companies’ customer is Microsoft. It is worth noting that companies in this
category tend to serve Microsoft on a global scale (as opposed to the first category of
companies who serve Microsoft’s local or regional customers) as the services they provide are
largely location independent. Table (8) below shows the profile of these firms.
36
36
United Nations Conference on Trade and Development, “Integrating Developing Countries SMEs into the Global Value Chain,” 2010.
56
Table 8: Local Suppliers’ Profiles
The above companies have been part of Microsoft’s global value chain for four-and-a half years. A large
percentage of them have international competitors located mainly in the Gulf region or in India. Bayanet
and OMS have a relatively low degree of transformation of their incoming Microsoft services (about
52%) compared to IT Worx and MNS.
The Microsoft partnership has been instrumental in enabling local companies to access regional-growth
opportunities and therefore to become more integrated into the global value chain, as opposed to being
just a local implementer. Many partners that have developed a successful relationship with Microsoft
Egypt have used that network to implement Microsoft projects in other neighboring countries.
Microsoft has encouraged this expansion and has provided its trusted Egyptian partners with the
necessary support (technical and commercial) to succeed in the regional markets. Microsoft benefits
from this expansion when serving its customers in other Arab markets, where resources are less readily
available and technical know-how is less developed. Companies such as Xceed are proud of such a
strong tie with Microsoft and often leverage it to impress other multinational corporations.
However, local partners (suppliers) voiced their concerns over the challenges they face that might
threaten their symbiotic relation with these corporations (namely Microsoft, as Microsoft Egypt relies
100% on its partners) and their role in the multinational corporations’ global value chains.
Challenges facing local suppliers as reflected by Microsoft Egypt’s local suppliers:
- None of the companies belonged to a cluster. Stiff competition amongst the Microsoft partners
leads to them overcommitting to end customers. Very few firms belong to an industry
association, making clustering a difficult (e.g., Arabize had no partners, whereas Xceed
57
partnered with human resource companies, training companies, Telecom Egypt, and the
Information Technology Industry Development Agency).
- Lack of qualified, skilled labor human resources. All of the companies confirmed that the lack of
qualified and skilled human resources posed a threat to their firm’s position in Microsoft’s
global value chain. Generally speaking, the lack of capable and available skilled human resources
is a prevalent in Egypt.
- Stronger enforcement of intellectual property rights. In Egypt, new laws are being
implemented to protect intellectual property rights related to software, database designs and
layouts of integrated circuits. However, the laws needs to be better enforced. The Government
of Egypt, in cooperation with multinational donors, has started educating judges and district
attorneys on the specific issues related to intellectual property rights. The penalties imposed by
the government on intellectual property violations are in certain cases too harsh, so harsh that
untrained judges find it difficult to implement them.
- Lack of creativity. There is a lack of originality among these firms and a relatively low
percentage of product transformation. Most information technology firms tend to be service-
oriented companies that offer add-ons to existing Microsoft products rather than provide their
own innovative solutions.
The Microsoft case incorporates a concept of quality that ought to include not only job creation and
technology transfer, but more importantly, the long-term commitment of a multinational corporation
and the extent to which it establishes mutually beneficial linkages with local suppliers. In such a
qualitative approach, value is imputed through the interaction and networking with domestic
enterprises and the opportunities that arise as a result, as in the case of Microsoft Egypt.
58
Box 1: Microsoft Global Supply Chain and Standard Partner Program for Local Suppliers in Egypt
Microsoft was founded in 1975 and is today the world’s largest software company with global annual revenues of USD
44.28 billion, a market capitalization of USD 283 billion, and a workforce of 76,000 employees in 102 countries. Created in
1993, Microsoft Egypt is a wholly owned subsidiary of Microsoft Corporation. Microsoft Egypt has been very successful in
growing business in Egypt, especially in the last decade. It now employs over 100 professionals and occupies a large building
in the Smart Village, Egypt’s premier information technology park. Microsoft Egypt was awarded the Best Microsoft
Subsidiary in Europe, Africa and the Middle East in 2004. Bill Gates presented the award in person to the Microsoft team in
Cairo in July 2004.
To deliver the final product to the end user, Microsoft has to ensure that the following six consecutive phases of the value
chain are completed:
Microsoft has a standard Partner Program for local companies. Microsoft Egypt follows the global model with its local
partners. A local company’s level of expertise and level of engagement are what determines the level at which it joins the
Partner Program. A company advances in such a program by earning Partner Points, which it accumulates through
upgraded capabilities and an established track record. The Partner Program is divided into three membership levels:
Microsoft Registered Members (Level 3), Microsoft Certified Partners (Level 2), and Microsoft Gold Certified Partners
(Level 1).
Microsoft Egypt offers quite a few training programs to its partners such as Website: Microsoft has a website through
which partners can request and register for training; Partner Academy: the Microsoft Partner Academy offers training every
year on soft skills and technical tracks; Online Web Courses: Microsoft Egypt provides online readiness using webcasts and
online courses; IT Pro: Microsoft Egypt also offers IT Pro seminars quite often in its subsidiary where partners are invited to
attend sessions; and Training on New Products: Microsoft Egypt provides in-depth training on the launch of new products
and the aftercare as well.
Microsoft offers a wide array of products in Egypt that could be classified into 1) operating systems such as Windows NT
and Windows Vista; (2) software development tools and database products such as SQL server; (3) office automation tools
such as Office 2007; and (4) business applications (mainly enterprise resource planning applications) such as Dynamics
(previously known as Axapta and Great Planes).
Microsoft Egypt does not sell its products directly to customers, preferring instead to reach end customers through various
partners. These partners can be classified as follows: original equipment manufacturer, distributors, direct-sale
representatives, and system integrators.
59
III. Exports
The Information Technology Industry Development Agency remained committed in 2013 to support and
promote information and communications technology exports through several initiatives and programs.
The agency ventured to recognize new funding sources and cooperatives for this sector’s projects. As
Egypt has a significant information technology and business process outsourcing industry already in
place, several international customers and major multinational corporations (including Intel and France
Telecom’s Orange) are developing products in Egypt for export to the global marketplace. Local players
(including ITWorx, ITsoft, Sakhr, Harf and Arabize) export software ranging from Arabic-language
solutions to plug-ins and modules for popular software packages globally. Major multinational
corporations including Microsoft, Adobe and Corel develop their products in Egypt for global export.
New research and development centers in niche areas of data mining and wireless technologies are
exporting to major markets as well. In 2013, Egypt's total exports from the information and
communications technology sector reached USD 1.3 billion. The Ministry of Communications and
Information Technology aims to reach USD 2.5 billion in sector exports in 2017.
37
1.B.6. Projected Information and Communications Technology Sector Growth
To support the democratic transition and grow the information community and digital citizenship, the
aims are to raise the number of high-speed internet subscribers in Egypt to USD 13 million by 2015; to
raise revenues generated from outsourcing services to USD 2.5 billion and from intellectual property to
USD 1 billion; to have personal computers in at least 40% of Egyptian households within five years,
including establishing a national network of 1,000 technology homes; and to boost exports of software
and embedded software within two years to USD 500 million.
According to Egypt’s 2012-2017 information and communications technology strategy to strengthen the
economy, Egypt is targeting to maintain sector growth rates of 7-10% over the next five years while
increasing the sector’s contribution to national income to 5%. It also aims at the expansion of the
national network of technology parks to 20 and the growth of Egypt Post as a primary savings facility by
a yearly average of about 15%.
38
During the EGX Initial Public Offering Summit 2014, the Egyptian Minister of Communications and
Information Technology, Eng. Atef Helmy said that by 2020, the volume of investments are expected to
reach EGP 130 billion (USD 18.5 billion), out of which only 1.5% will have been contributed by the
government, with the private sector providing the rest. These investments, Helmy said, will lead to a
19% growth in the sector, while its contribution to Egypt’s gross domestic product (GDP) will rise to 7%
in 2020.
In line with Egypt’s information and communications technology strategy for 2020, the government will
create a digital society that would allow Egyptians to use information and communications technology
services and maintain communications growth by attracting global companies. As part of this plan, the
government is working on installing maritime cables in the Suez Canal (within the framework of the Suez
Canal National Project with EGP 12 billion/USD 1.7 billion) with the aim of making Egypt a global hub of
internet services, which would further qualifying the country to become an attraction area for global
investments.
37
The General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
38
Ministry of Communications and Information Technology, “ICT Strategy 2012-2017,” 2012.
60
The Egyptian government also hopes to increase the number of professionals working in outsourcing to
75,000; in information technology to 30,000; and in innovation and entrepreneurship to 10,000. Egypt’s
vision, as well, is to create in a total of one million jobs in the information and communications
technology sector by 2020, including 200,000 direct job opportunities.
39
1.B.7. Policy Support for Small and Medium Enterprises and Entrepreneurship Development
in the Information and Communications Technology Sector in Egypt
The Government, with the help of the Ministry of Communications and Information Technology, has
actively supported the information technology industry through various initiatives, as listed below.
40
- High- tech business parks (e.g., The Smart Village) have been established to facilitate companies’
operations by providing them with world-class infrastructure at a very reasonable cost.
- Partnerships have been made with major information and communications technology firms
such as Siemens, Alcatel and Cisco to train information technology engineering graduates.
- The lack of venture capital triggered the creation of Techdevfund and Ideavelopers. The
Technology Development Fund was created to bring together investors and startups. It is
managed by EFG-Hermes and has investments from various sources such as the Government of
Egypt, Telecom Egypt and various banks. At the initial stage, a sum of EGP 50 million was
dedicated to fund information technology incubators. Ideavelopers is a separate but related
organization that provides expert consultation services to help businesses increase their
productivity.
- Along with the private sector, the government has started a plan to improve the workforce’s
information technology skills. From 2000 to 2006, the Ministry of Communication and
Information Technology supported the training of 133,737 students in basic IT skills and 23,999
in professional IT training skills. In 2004, the ministry, along with Cisco, has formed a public-
private partnership to create the E-Learning Competence Center. This center provides e-learning
solutions for individuals and SMEs ranging from beginners’ courses to networking and advanced
troubleshooting computer skills. In 2001, the Egyptian Technology University was approved by
the Prime Minister of Egypt. The university offers advanced graduate courses and currently has
22 executive MBA students.
- The first research and development center was opened in 2005 and other centers followed. The
Ministry of Communications and Information Technology, the center’s initial investor, hopes
that these centers will be self-sufficient in three years. Four research and development centers
have been established in to increase innovation in Egyptian data mining and computer
modeling, wireless technologies, mobile and e-services, and electronic design.
- The Information Technology Industry Development Agency provides training programs,
capacity- building programs for local information technology companies, and image-building
programs for Egypt. It is also responsible for promoting legal reforms, including those related to
cybercrimes and intellectual property rights. In addition, the agency functions as a mediator
39
Ibid.
40
United Nations Conference on Trade and Development, “Integrating Developing Countries SMEs into the Global Value Chain,” 2010.
61
dealing with IT disputes and offers technical counseling and help related to the use of e-
signatures and electronic transaction. Various information and communications technology
projects have already been allocated financial resources by the agency through the
establishment of support programs and funds with the main aim of stimulating the local
market’s capacity to grow exports. It has also sponsored various visits to international events,
trade shows and marketing campaigns.
- The Technology Innovation and Entrepreneurship Center was established in 2010 and formed as
a catalyst between the government, private sector and academia. The Information Technology
Industry Development Agency encourages the entrepreneurial spirit of Egypt’s youth with a
variety of educational, technological and financial support. Already the agency has managed to
conduct specialized programs, form strategic partnerships with leading multinational companies
in the information and communications technology sector, and attract greater venture capital
investment.
The Ministry of Communications and Information Technology seeks to support micro, small and medium
enterprises (MSMEs) by means of raising their performance and competitiveness through helping them
identify new marketing and production opportunities. It also seeks to support MSMEs located outside
Egypt’s main cities to create job opportunities in these communities.
The Information Technology Industry Development Agency adopts various initiatives to boost MSMEs by
injecting them with direct and indirect financial support through a set of programs. In May 2014, this
development agency organized the MicroCom Exhibition and Forum to support small businesses and
microenterprises in information and communications technology to develop and market their products.
Ninety-five exhibitors participated and more than 200 applications and products were developed to help
provide integrated solutions for all economic sectors in a variety of fields, including industry, education,
health and tourism. A cooperation protocol was signed in June 2014 with the Financial Services Institute
to provide SMEs with training and consulting services related to nonbank financial areas, helping these
businesses in information and communications technology fields to get acquainted with the suitable
funds, counter challenges, and find solutions to improve their productivity. In September 2014, the
agency signed a cooperation protocol with Bedaya Center for Entrepreneurship and SMEs Development
to encourage financial institutions to pump investments into information and communications
technology projects, especially those designed for small and medium-sized companies.
41
41
The General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
62
1.B.8 Women in the Information and Communications Technology Sector and Related Sectors
I. Female Employment Characteristics in the Information and Communications Technology Sector
In the information and communications technology sector, females accounted for around 30-40% of the
total workforce in 2008. Females’ participation is higher in the fixed telecommunications sector reaching
35%, while females in mobile communications services accounted for 27% of the total employees within
the sector. Total female employees accounted for 34% —compared to 66% for males—of the overall
total employment in Egypt telecoms. Despite the lower percentage of females in Egypt’s total telecom
workforce, the number of female trainees in the Information Technology Institute and the National
Telecommunication Institute (both provide specialized and professional information and
communications technology training) account for 58% and 42% respectively. In addition, females
constitute 49% of the International Computer Driving License certificate holders in Egypt—a statistical
fact that prompted the Ministry of Communications and Information Technology to adopt an initiative
to enhance the computer skills of this particular segment of society.
42
Figure (11) below figure shows the percentage of female to male trainees enrolled at the Information
Technology Institute and at the National Telecommunication Institute in 2008-2009.
Figure 11: Percentage of Female and Male Trainees in Information Technology and National
Telecommunication Institutes
42
Nagwa El Shenawy, “Statistical Compilation of the ICT Sector and Policy Analysis in Egypt,” WSIS Forum, Geneva, 2011.
63
II. Empowering Women in the Information and Communications Technology-Related Sectors
A number of projects aim to enhance the role of women in the labor market by introducing the
implementation of e-commerce and making use of it to increase sales for female SME owners, as well as
to improve women's job qualifications in general. Other projects focus on empowering women
politically by increasing their awareness of their legal rights and providing technical assistance in
learning how to use e-government services. Moreover, women appeared to be important beneficiaries
of other general projects aiming at illiteracy eradication and integrating information and
communications technology into the Egyptian education system. Recently, gender has gradually risen as
one of the important issues that needs to be tackled by the Ministry of Communications and
Information Technology. The ministry has started to publish information and communications
technology indicators classified by gender, though still on a very limited scale.
The National Council for Women and the USAID have financed the establishment of the Support Center
for Women in SMEs. The center—whose target groups are university graduates and SME owners and
employees—aims at developing management, research, marketing, and accounting skills for women
entrepreneurs. The National Council for Women also signed an agreement, funded by the USAID,
supporting e-commerce and information technology. In cooperation with the Scientific Authority for
Egyptian Women, the council is carrying out a project to help equip female SME owners with the
necessary skills to run a business. In addition, the project offers guidance to help women entrepreneurs
utilize e-commerce to increase their local and international sales. Under an agreement signed by the
National Council for Women and IBM in early 2004, IBM Occupational Training Centers were formed to
establish a regional center for women’s occupational training. The project helped to provide technical
assistance to women in shifting to use e-government services and to develop the National Council for
Women's website to offer technical advice, electronic translations, and a security system—along with
other services.
43
The government, the private sector, international organizations and the civil society were also active in
enhancing interlinkages between women and the information and communications technology sector.
Several of the initiatives adopted by these groups focused on areas such as disseminating awareness
regarding the use of information and communications technology in improving women's job
qualifications, intensifying the role of female-owned SMEs, eradicating illiteracy and enhancing legal
awareness.
1.C. Conclusion and Recommendations
The Government of Egypt recognizes information and communications technology as a critical
component of the national economy, not only due to its substantial contribution to value added,
employment, exports and diversification of the economy, but for its dynamic, innovative potential and
its broader role in providing enabling technologies, products and services that underpin the
development of Egypt as a knowledge economy in the global market.
In 2013, there was an 11.04% increase in the total number of companies operating in the information
and communications technology sector in Egypt, reaching 5,644 companies, of which 77.36% were
information technology companies, 15.15% value-added services and 7.49% communication companies.
Yet, indicators show that the number of newly established SMEs in that sector declined by 21.5% that
43
Dina Atef Mandour, “Impact of ICT on Gender Gap in Egypt,” The American University in Cairo: Social Research Center and the Canadian
International Development Agency, Working Paper no. 004, November 2009.
64
year, a downturn mostly attributed to the political and economic unbalances facing Egypt in the last four
years. In general, there was a surge in the amount of issued capital by all information and
communications technology companies between 2007 and 2013—an almost 30% increase. In
2012/2013, the information and communications technology sector had sustained an annual growth
rate of 2.31% and generated revenues of EGP 41.72 billion, contributing 2.77% to real GDP. In 2013,
Egypt's total exports from this sector had reached USD 1.3 billion—and by 2017, Egypt hopes to increase
that number to USD 2.5 billion. The information and communications technology sector in Egypt has
managed to attract local and foreign investments, with total investments reaching USD 10.75 billion in
February 2014.
Egypt was also assessed as being the strongest economic competitor in the Middle East and North Africa
region based on its young population and its sustainable and abundant talent pool of technologically
skilled, multilingual university graduates. Its prime geographical location—close to Europe and Asia—
and it strong government backing has positioned Egypt to be an outsourcing hotspot in the years ahead.
A multitude of international companies are using Egypt as a base for software development, technical-
support contact centers and research facilities.
Women’s employment in the information and communications technology sector is still minimal. There
is no available data on women-owned SMEs for this sector. However, there’s great potential to
empower women in the information and communications technology-related sectors to advance their
involvement in entrepreneurship and enhance SME growth.
While Egypt has witnessed huge developments in information and communications technology lately,
the sector is still facing some challenges in the midst of changing global conditions, where trade borders
are vanishing and competition is increasing in every sector. Despite government efforts, great industry
potential and incentive packages that support information and communications technology in general,
and SMEs in particular, SMEs are still facing stagnant growth rates.
Recommendations
- The government of Egypt, to realize its vision to create more jobs and boost the economy, must
design policies that are more demand?driven and inclusive, strengthen its partnership with the
private sector, move towards higher-value added services, leverage foreign skills and expertise,
strengthen coordination among various government entities, make use of the latest technology,
and set quantifiable targets and monitor progress.
- The information technology industry in Egypt is in great need of qualified experts. Therefore,
training in the different information technology enabled service and information technology
enabled service sectors should be the key priority.
- Many Egyptian companies are small and lack the maturity to compete globally. Capacity-building
activities for SMEs to strengthen their management and technical capabilities is needed and will
help equip them to compete more effectively in the regional and international markets.
- There is a clear lack of information and communications technology associations and clusters—
thus there is a need to strengthen existing associations, as well as create new ones, and
encourage clusters.
65
- The general business environment needs to be improved through faster and more efficient
government service delivery, lower taxes for startups, and the enforcement of stronger anti-
piracy regulations.
- Further incubation-related services for potential information and communications technology
entrepreneurs are needed, and more partnership agreements need to be secured (under the
auspices of the Government of Egypt) between multinational corporations based in Egypt and
local suppliers/partners.
66
ANNEX 1: Egyptian Micro, Small and Medium Enterprise
Stakeholders, Partners, and Service Providers
Donor Agency PROJECT/PROGRAM PERIOD AMOUNT
USAID ? Small Enterprise Credit Project
? Bank Credit Guarantee Fund
? Small and Emerging Business Project; for Institutional development of banks and NGOs in
MSE finance and business services. Includes Banque du Caire, Alexandria Business
Association, LEAD (Lend, Empower, Advance, and Develop) Foundation and through the
Egyptian Banking Institute.
? Technical Assistance for Policy Reform Project II: USAID has been the primary funder of
microfinance since 1989 providing over US$150 million to date including banking sector
reform, doing business and legal reforms. However it now plans to end its microfinance
support in Egypt.
? Training of state-owned banks and provision of advisory services to develop new or existing
MSME portfolios
? Issuance of the microfinance law, its executive regulation and support to microfinance NGOs
to transform into microfinance institutions (MFIs)
? Develop comprehensive training program materials for the SFD to train MSMEs
? Capacity building of tier II and tier III MFIs in the areas of financial management, information
sharing and governance.
? Egyptian Competitiveness Program (ECP)
? ALROWAD (Economic Growth APS recipient)
? Zaytun (Economic Growth APS recipient)
2006
2007
2007
2005-2010
2011-2014
2012-Dec
2013
2011-2013
US $ 35 M
LE 150 M
US $ 86.6 M
US $86 M
US $1.8
67
CIDA ? SME Policy Development
? Business Development Services Project (BDSSP)
? Technology and Knowledge Transfer – gas
? Participatory Development Program
? Employment and Labor Market Support
? Provides non-financial business service through capacity strengthening of existing BDS
facilitators and providers. Examples of BDS include technology transfer, business
management, access to existing credit facilities, quality improvement, export readiness,
franchising, trading houses, brokerage mechanisms.
2006
2004-10
2003-06
2003-08
2002-06
CAD$ 9.2 M
CAD$ 18 M
CAD$ 4.5 M
CAD$ 14.7 M
CAD$ 9.3 M
EU ? Industrial Modernization Program
? Trade and Export Promotion
? FISC Rural (agricultural)
? FISC - SFD*
? Access to EU Research Frameworks and Networks
? EBRD- Small Business Support Program
1999-06
2004-06
2004-06
2004-06
2006-08
2011
2014
Euro 250 M
Euro 20 M
Euro 18 M
Euro 17M
Euro 12 M
Euro 2.4 M
US$ 120 million
GTZ ? SME Promotion Project
? Technical and Vocational Education (Mubarak-Kohl Initiative)
2003-06 Euro 2 M
68
1993-04 DM 39.9 M
JICA ? Technical Support – Export Training Center
? Job Opportunity Study*
2005-08
2005-06
JPY 200 M
JPY 100 M
JBIC ? SFD – Small Enterprise Dev* 2002-08 JPY 5,194 M
KfW ? Microfinance Best Practice Project – Social Fund*
? Dakahleya Rural Finance Program
2005-08
1999-05
Euro 5 M
Euro 22 M
Italian Cooperation ? Poverty Alleviation and Employment Generation
? Integrated Support to Egyptian SMEs
? Italian Invest Promotion Unit
? Relocation of Tanneries from Old Cairo
1998-03
1998-03
1998-04
2003-06
Euro 7 M
Euro 16 M
Euro 1.5 M
Euro 24 M
DANIDA ? Achieving Compliance in Industry 2002-07 Yearly allocation
Danish Budget
AECI (Spanish
Agency for
International
Cooperation)
? Agro Food Technology Center
? Leather and Shoe Technology Center
? Credit Line to Commercial International Bank
2002-04
2002-05
2001-03
Euro 0.8 M
Euro 1.2 M
Euro 12 M
IFC - WB ? Private Sector Development
? Support for secured lending framework
? Support for improving leasing environment
? Integration of MFIs in to credit bureau
? Advisory services to private banks
? Advisory services to MFIs
2004-07
US$ 100 M
69
? Rolling out of business edge for MSME training
? MSMEs Technical Assistance Facility
2014
US $30 M
UNDP ? Institutional Support to SFD*
? Business Enterprise Support Tools (BEST) – MicroStart
2004-07
2002-06
US$ 0.2 M
US$ 0.27 M
United Nation
Industrial
Development
Organization
? 1) Footwear and Leather Industry Service Center – SFD*
? 2) Upgrading Selected Industries in Borg El Arab
? 3) Cluster and Networking Development
? 4) Establishment of National Cleaner Production Center
? 5) Traceability of Agro-Industrial Products for EU Market
? 6) Upgrading the Medicinal and Aromatic Plants value chain: Access to export markets
? Project background and rationale
? 7) Interregional project to promote SME origin and export consortia
? 8) Human security through inclusive socio-economic development in Upper Egypt
? 9) Support to the Development of Culture and Creative Industries and Clusters in the
Southern Mediterranean
1) 2003-06
2) 2003-05
3) 2006
4) 2004-07
5) 2004-07
6) 2011 –
2014
7)2012 –
2014
US$ 0.97 M
Euro 5.8 M
US$ 0.6 M
US$ 2.1 M
LE 18 M
US$ 2,870,000
EUR 140,000
US$ 5,372,791
70
? 10) EPALM: Upgrading date palm value chain in Egypt
? 11) Industrial energy efficiency
? 12) Strategic demonstration project for accelerated conversion of CFC chillers in 6 African
countries (Cameroon, Egypt, Namibia, Nigeria, Senegal and Sudan), AFROC
? 13) Phase-out of chlorofluorocarbons consumption in the manufacture of Aerosol Metered
Dose Inhalers
? 14) National CFC chlorofluorocarbons phase-out plan for Egypt
? 15) Phase-out of Hydrochlorofluorocarbons-141B from the manufacturing of polyurethane
foam
? 16) Hydrochlorofluorocarbons phase-out management plan: enabling activities in the
refrigeration and air-conditioning sector
? 17) National phase-out of methyl bromide in horticulture/commodities fumigation
? 18) Promoting low-carbon technologies for heating and cooling applications
? 19) Upgrading Medicinal and Aromatic Plants value chain: Access to export markets
? Green Trade Initiative
? 20) Inter-regional project to promote SME origin and export consortia
8) 2013-
20169) 2013
– 2016
10) 4 years
11) 2013 –
2018
12) 2008 –
2014
13) 2011-
2014
14) 2010-
201415)
2011-
201416)
2011-2014
17) 2011-
2014
18) 2014-
2019
19) 2011-
2014 20)
2012-2014
EUR 5,500,000
US$ 10,000,000
US$ 3,950,000
US$ 1,000,000
US$ 5,889,000
US$ 900,000US$
1,440,498US$
502,0000US$
1,934,994
US$ 6,500,000
US$
2,870,000EUR
140,000
71
World Bank ? Enhancing Access to Finance for Micro and Small Enterprises Project
? Third Financial Sector Development Policy Loan
US$ 300 M
US$ 500 M
African
Development Bank
? SME Franchising Loan: A line of credit to encourage local franchising to SMEs. Grant
allocation covers TA aspect of project
? Agri-business Development Operation (with 1.93 in grant money): A line of credit to SFD for
the development of the SME agricultural sector with a 1.5 million USD technical assistance
component.
$40 million
$70 million
AFD ? Line of credit to the National Bank of Egypt in order to develop its SME lending activity, and
extend the maturity of the loans it grants to SMEs. The loan will include a TA component
dedicated to train SME department to develop the expertise on the SME market, and to
develop the capacities of SMEs in their relation with banks
? Support the creation and development of micro and small enterprises/SFD
15 million Euros
Arab Fund for
Economic and
Social
Development
? SME credit line for MSMEs
US $ 77 M
Kuwaiti Fund ? SME credit line for MSMEs US $ 85 M
International Fund
for Agricultural
Development
(IFAD)
? On-Farm Irrigation Development Project in the Old Land Operation: To reduce rural poverty
by substantially increasing agricultural productivity and income of the targeted households
in the project area. SFD will support for employment and income generation SMEs through
better access to rural financial and capacity building. It was approved by the IFAD Board in
November, 2009, pending Agreement signature and ratification
US$ 9.9 million
0.3 million (grant)
GIZ ? Policy development on labor market, employment and youth issues, Regional cooperative
support structures to improve employability of youth, Environment for vocational guidance,
skills training, vocational education and job placement
$10.4 million
KfW ? Technical support, training and capacity building of NGOs, banks, MFIs and beneficiaries --
72
CIDA ? Decent Employment for Youth/ILO: provides non-financial business service through capacity
strengthening of existing BDS facilitators and providers. Examples of BDS include technology
transfer, business management, access to existing credit facilities, quality improvement,
export readiness, franchising, trading houses, brokerage mechanisms.
Multi-year
award for
fiscal years
2010-11 to
2016-17
$10,000,000.00
KHALIFA FUND ? To catalyze the start-up of SMEs with the overarching goal for these businesses to achieve
significant socio-economic impact throughout Egypt.
2014 $200 MILLION
International
Finance
Corporation (IFC)
? Support for secured lending framework
? Support for improving leasing environment
? Integration of MFIs in to credit bureau
? Advisory services to private banks
? Advisory services to MFIs
? Rolling out of business edge for MSME training
73
ANNEX 2: Stakeholders Summarized Database
Private Sector Initiatives Type Category of Support Contacts
Union Capital Private Equity
Investment Fund
Minoush Abdel-Meguid, Managing Director
Credit Guarantee Company
Cairo Angels Angel Investors
Shekra Crowd funding Shehab Marzaban
[email protected]
Adel Bosili
[email protected]
[email protected]
Facebook: SharekFekra
Beltone Capital Holding
Financial
Investment
Mr Hazem Barakat
Chairman of the Board of Directors
Tel. +202 2461 0300
Fax +202 2461 9851
E-mail: [email protected]
74
Beltone MidCap Fund Beltone Private Equity
S.A.E.
Mr Abdel-Monem Omran
Chairman of the General Partner
Tel. +202 2461 0300
Fax +202 2461 9851
E-mail: [email protected]
Sphinx Turnaround Fund Sphinx Private Equity
Management
International
Ms Marianne Ghali
Managing Director
Tel. +202 279 267 81/2
Fax +202 279 267 83
E-mail: [email protected]
AIESEC Student-Run
Organization
International Exchange
opportunity provider with global
SMEs
Conferences
Meeting space
Webinars
Think tanks
[email protected]
http://www.aiesec-eg.org/
Facebook: aiesecegypt
ALROWAD/
Accelerate
Consulting/ Support
Services
Training Weekends
Conferences
Blogs/Bloggers
[email protected]
http://alrowad-egypt.org/
Facebook:ALROWAD.EGYPT
75
Creativity stimulant
Alliance Magazine Newsletters Blogs/Bloggers [email protected]
http://www.alliancemagazine.org/
https://www.facebook.com/alliancemagazine
Arabnet Community Networker Blogs/bloggers
Competitions/contests
Newsletters
Conferences Startup toolkits
Employee recruitment needs
provider Workshops
[email protected]
https://arabnet.me/
Facebook: arabnetme
Beit Al Karma Consulting Consulting/ Support
Services
Impact Evaluator of case-by-case
entrepreneur service providers
Standard and Tailored Training
Services
Business Advisory Counseling
Services
Alaa Shahein
[email protected]
http://www.bk-eg.com/
Facebook: /Pages/ Beit-Al-Karma/289651933954
Cilantro Central Media Showcasing entrepreneurs [email protected]
Facebook: cilantrocentral
The District Workspace/Co-Working
Space/ Meeting Space
-- Mazen Helmy
Founder and Managing Director
[email protected]
76
http://district-egypt.com/
Facebook: DistrictEgypt
EBDA2 by Google Competitions/
Contests
Mentorship
Networking
[email protected]
http://www.startwithgoogle.com/
Facebook: StartWithGoogle
Egypreneur Networker Media and showcasing
entrepreneurs Community
Information
provider/newsletters Conference
Positivity stimulant Creativity
stimulant
Culture
Abdelrahman Magdy [email protected]
http://egypreneur.com/
https://www.facebook.com/Egypreneur
Egypt Business Directory Media And Showcasing
Entrepreneurs
Webinars
News
Event coverage
[email protected]
http://www.egypt-business.com/
Facebook: Egypt.Business
El MASHROU3 TV Show Media and Showcasing
Entrepreneurs
Competitions/Contests
Fair/Exhibiting/Tradeshows
Networkers
Community
[email protected]
http://elmashrou3.tv/
Facebook: ElMashrou3
77
El Raseef’s Flash Hub Wamda Networking -- [email protected]
https://www.facebook.com/ElRaseef
Fab Lab Egypt Maker Space -- [email protected]
http://fablab-egypt.com/
https://www.facebook.com/fablab.egypt
Flat6labs Accelerator -- [email protected]
http://flat6labs.com/
https://www.facebook.com/Flat6Labs
Ideavelopers FUNDERS: Venture
Capital
--
[email protected]
http://www.ideavelopers.com/
Microsoft Imagine Cup Awards/
Contests
Advocacy
Grants
Creativity stimulant Startup
toolkits
[email protected]
http://www.imaginecup.com/
https://www.facebook.com/microsoftimaginecup
Innoventures Llc Incubator/
Accelerator
Workspace/co-workspace
Networkers
Consulting/support Services
Mentorship programs
FUNDERS: Angel investors,
Venture capital and Zero stage
venture capital
Hesham Wahby
[email protected]
http://www.innoventures.me/
Facebook: innoventures.egypt
78
Culture
Invenst Llc Accelerator -- [email protected]
https://www.facebook.com/pages/InveNst-Ventures-
Boutique/231962590203619
Mena-Oecd Investment
Programme
Competitions/ Contests Volunteer provider for
entrepreneurs Networkers
Mentorship programs
Government connected
Report producer / Annual
Publications Conferences
[email protected]
http://www.oecd.org/mena/investment/
Mesaha Co-Working Space /
Meeting Space
Youth-led initiatives hub [email protected]
http://www.mesaha.org/
Middle East Angel
Investment Network
Angel Investors Funders: zero stage venture
capital Funders: venture capital
Entrepreneurship education
provider Newsletters (virtual)
Media and showcasing
entrepreneurs Blogs/bloggers
Fair/exhibiting/tradeshows
[email protected]
http://www.middleeastinvestmentnetwork.com/
https://www.facebook.com/pages/Angel-Investment-
Network/132382673486552
O Desk Employee Recruitment
For Entrepreneurs
Alternative income provider (for
entrepreneurs not working in a
full time paying job)
[email protected]
https://www.odesk.com/
https://www.facebook.com/odesk
79
Open Space EGYPT Consulting/ Support
Services
[email protected]
http://www.openspaceegypt.com/
https://www.facebook.com/OSTEgypt
Al Maqarr Coworking Space /
Meeting Space
-- [email protected]
Facebook: AlMaqarr
Rasheed22 Workspace/Co-Working
Space/ Meeting Space
Networkers Positivity stimulant
Community Creativity stimulant
Alternative income provider
Culture Stimulant
[email protected]
https://www.facebook.com/Rasheed22
Sawari Ventures Venture Capitalist -- [email protected]
http://www.sawariventures.com/
Silatech Policy Funder: Microloans Angel
Investors
Venture Capital Private Equity
[email protected]
http://www.silatech.com/
https://www.facebook.com/SilatechPage
Startup Weekend Training Weekends -- [email protected]
http://cairo.startupweekend.org/
Vodafone Ventures Venture Capital Funders: venture capital
Consulting/support services
http://www.vodafone.com.eg/vodafoneportalWeb/en/my
World_mainPage
80
Infrastructure support Customer-
entrepreneur link
Egyptian entrepreneurial
initiatives abroad
Employee recruitment needs
provider for entrepreneurs
Sales/distribution/export
services
http://www.vodafone.com.eg/vodafoneportalWeb/en/my
World_mainPage
Wamda Media and Showcasing
Entrepreneurs
Showcasing Entrepreneurs
Funding
[email protected]
http://www.wamda.com/
https://www.facebook.com/WamdaME
81
ANNEX 3: NGOs Supporting Micro, Small and Medium
Enterprises and Entrepreneurs
NGOs Type Category of Support Contacts
Egyptian Private
Equity Association
Private Equity
Association
-- Dalia Tadros
[email protected]
www.epea-eg.org
Alexandria
Business
Association
Funders:
Microloans
MFI
NGO
Non-financial service
Grant offering
Business development skills
[email protected]
http://www.aba-sme.com/
Taleeda Incubator Legal umbrella
Web space
Training services
[email protected]
http://www.taleeda.org/
Nahdet El
Mahrousa
Incubator Space Networkers
Community Entrepreneurship Education
provider
[email protected]
http://www.nahdetelmahrousa.org/
https://www.facebook.com/nahdetelmahrousa
82
Impact evaluator Volunteer provider for
entrepreneurs
Mentorship programs Researcher
MENA Private
Equity
Association
Infrastructure
Support
Researcher
Report producer / Annual Publications
Advocacy
Think Tank
http://www.menapea.com/home.php
Middle East
Council for Small
Business and
Entrepreneurship
Networkers Entrepreneurship Education provider
Conferences
Books
[email protected]
https://www.facebook.com/groups/mcsbe/
INJAZ Egypt Entrepreneurship
Education Provider
Competitions/Contests
Fair/Exhibiting/Tradeshows
Training Weekends Positivity stimulant
Mentorship programs Government connected
Startup Toolkits
[email protected]
http://www.injaz-egypt.org/
https://www.facebook.com/InjazEgypt
Endeavor Accelerator Networkers Entrepreneurship Education
provider
Conferences Annual Publications
Fellowships Consulting/support Services
Mentorship programs Media and Showcasing
Entrepreneurs
[email protected]
http://www.endeavoreg.org/
https://www.facebook.com/EndeavorEG
83
AWTAD Accelerator Customer-Entrepreneur link Consulting and
support services
Mentorship programs Networker
Creativity Stimulant Entrepreneurship
Education Provider
[email protected]
http://www.awtad-egypt.org/
https://www.facebook.com/pages/AWTAD/95094669293
Ashoka Arab World Fellowship Networkers
Community
Entrepreneurship education provider
Report producer/annual publications
Competitions
[email protected]
http://ashokaarabworld.wordpress.com/
https://www.facebook.com/AshokaArabWorld
Art Of Hosting
Meaningful
Conversations
Networkers
Learning community Conferences
Culture stimulant Consulting
http://www.artofhosting.org/home/
http://artofhosting.ning.com/
https://www.facebook.com/groups/aohegypt
https://www.facebook.com/artofhosting
Arab Development
Initiative
Conferences Entrepreneurship Education Provider
Creativity Stimulant
Startup Toolkits
Policy
[email protected]
http://www.arabdevelopment.com/
https://www.facebook.com/ADInitiative
The American
Chamber Of
Networker http://www.amcham.org.eg/
https://www.facebook.com/amcham.egypt.entrepreneurship
84
Commerce
Al -Mubadara Network Community Creativity stimulant
Consulting/support Services Volunteer
provider for entrepreneurs
Mentorship programs Fellowships
Employee recruitment for entrepreneurs
International exchange opportunity provider
with global SMEs
[email protected]
http://www.almubadarah.org
Facebook: arabempowerment
Egyptian National
Competitiveness
Council
Advocacy Events
Projects
Publications
[email protected]
Facebook: ENCCNGO
85
ANNEX 4: Universities with Entrepreneurship Initiatives
UNIVERSITIES Type Category of support Contacts
Nile University Entrepreneurship
Education Provider
Researcher Fellowships
Creativity stimulant Networkers
Positivity stimulant
[email protected]
http://www.nileu.edu.eg/
https://www.facebook.com/NileUniversity
Entrepreneurs’ Society Student-Run
Organization
Competition/Contest
TV Show
Co-working Space
Mentorship
[email protected]
https://www.facebook.com/pages/Entrepreneurs-
Society/35718649783?sk=timeline
El-Khazindar Business
Research and Case Center
Business Research
and Case Study
Provider
[email protected] --
Cairo University Innovation
Support Office
Innovation Training/
Technology Transfer
Provider
Consultancy and Support Services
Innovation Support and Training
Tech Development, Protection
Business Planning and Development
Tech Licensing
[email protected]
Facebook: Innovation.Cairo
86
The British University
In Egypt
Entrepreneurship
Education Provider
Research in different areas pertinent to
Entrepreneurship, i.e. education, finance,
women entrepreneurs, etc.
[email protected]
http://www.bue.edu.eg/
American University Of
Cairo Entrepreneurship
And Innovation Program
Entrepreneurship
Education Provider
Incubator Entrepreneurship Education
provider
Networkers Competitions/Contests
Training Weekends Media and
Showcasing Entrepreneurs
Mentorship programs Volunteer provider
for entrepreneurs
[email protected]
http://www.aucegypt.edu/Business/eip/Pages/AboutEIP.
aspx
Facebook: AUC.Business
87
ANNEX 5: Government Organizations Supporting
Entrepreneurship
Government Organization Type Category of support Contacts
Research Development and
Innovation Program
Government Support (Specialized
In Driving A
Culture For Innovation)
Funders: Grants
Fair/Exhibiting/Tradeshows
[email protected]
http://www.rdi.eg.net/
Industrial Development Agency Policy and Industrial Support -- www.ida.gov,eg
Industrial Training Council Skills Development Training
Capacity Building
www.itcegypt.eg
Industrial Modernization Center Policy and SME Competitiveness
Support
BDS
Consultancies
www.ims-egypt.org
Technology Innovation and
Entrepreneurship Center
Incubator/ Accelerator
Incubation Department”
[email protected]
www.tiec.gov.eg
Facebook: tiec.egypt
Bedaya Center for Entrepreneurship
and SME development (GAFI)
Investment Support BDS
Entrepreneurship support
Access to Finance
www.gafisme-bedaya.com
www.CreativeAssociatesInternational.com
doc_784466210.pdf
Micro, Small And Medium Enterprises In Egypt Entrepreneurship, Business Procedures And Value Chain Analysis
Creative Associates International | August 2014
Entrepreneurship, Business Procedures
and Value Chain Analysis
MICRO, SMALL AND MEDIUM
ENTERPRISES IN EGYPT
1
MICRO, SMALL AND
MEDIUM ENTERPRISES
IN EGYPT
Special Focus on Entrepreneurship,
Streamlining Business Procedures and
Value Chain Analysis
AUGUST 2014
REPORT SUBMITTED BY
ACCELERATE CONSULTING AND DEVELOPMENT
5 AMMAN SQUARE, DOKKI
SUITE 21, FLOOR 2
CAIRO, EGYPT
2
Table of Contents
Executive Summary ............................................................................................................... 4
Introduction .......................................................................................................................... 5
CHAPTER 1: DEPICTING THE MICRO, SMALL AND MEDIUM ENTERPRISE ECOSYSTEM IN EGYPT
................................................................................................................................................................................................ 6
1. Macroeconomic Outlook .............................................................................................................................................. 6
2. The Role of Micro, Small and Medium Enterprises in Economic Growth................................................ 9
3. Key Challenges ............................................................................................................................................................... 11
4. Recent Developments ................................................................................................................................................. 12
A. Government Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem ............. 12
B. Banking-Sector Reforms ....................................................................................................................................... 13
C. Donors Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem ........................ 14
D. Private-Sector Initiatives to Promote the Micro, Small and Medium Enterprise Ecosystem
……………………………………………………………………………………………………………………………………………………………………17
5. Business Development Services Provision Support....................................................................................... 17
6. Conclusions and Recommendations ..................................................................................................................... 20
CHAPTER 2: UNDERSTANDING THE ENTREPRENEURSHIP ECOSYSTEM IN EGYPT ................... 22
1. Overview of the Current Entrepreneurship Ecosystem ............................................................................... 22
A. Entrepreneurship Regions in Egypt ................................................................................................................. 24
B. Entrepreneurial Gender Gap in Egypt ............................................................................................................. 25
C. Egyptian Entrepreneurship Ecosystem Strengths, Weaknesses, Opportunities and Threats
Analysis ................................................................................................................................................................................. 25
2. Key Challenges, Potential Risks and Means of Mitigation............................................................................ 26
3. Facilitating Access to Finance .................................................................................................................................. 28
A. Banks and Debt Financing.................................................................................................................................... 28
B. Venture Capitalists .................................................................................................................................................. 28
C. Angel Investors ......................................................................................................................................................... 29
D. Crowdfunding ............................................................................................................................................................ 29
4. Access to Nonfinancial Services to Entrepreneurs ......................................................................................... 30
A. Accelerators and Incubators ............................................................................................................................... 30
B. Mentoring and Coaching ....................................................................................................................................... 30
5. Stakeholders on the Map ........................................................................................................................................... 31
6. Conclusion and Recommendations ....................................................................................................................... 32
CHAPTER 3: STREAMLINING BUSINESS PROCEDURES ........................................................... 35
1. General Authority for Investment and Free Zones ......................................................................................... 35
2. Social Fund for Development One-Stop-Shop Service .................................................................................. 36
3. Tamayouz Centers ........................................................................................................................................................ 36
A. CAIRO 2010 ................................................................................................................................................................. 36
B. ALEXANDRIA 2012 .................................................................................................................................................. 37
C. OTHERS ......................................................................................................................................................................... 37
4. Suggested Reforms and Recommendations ...................................................................................................... 38
A. Reforms to Existing One-Stop Shops and Replications ............................................................................. 38
B. General Recommendations .................................................................................................................................. 39
CHAPTER 4: VALUE CHAIN ANALYSIS .................................................................................... 41
3
1. Textile Sector in Egypt ................................................................................................................................................ 41
1.A Sector Overview ........................................................................................................................................................ 41
1.B Sector Positioning .................................................................................................................................................... 41
1.C. Sector Value Chain and Linkages .............................................................................................................................. 44
1.D. Sector Linkages ................................................................................................................................................................. 46
1.E. Sector Recommendations……………………………………………………………………………………………………………………46
2. Information and Communications Technology Sector ................................................................................. 47
1.A Sector Overview ................................................................................................................................................................. 47
1.B. Information and Communications Technology Sector: Current Developments and Potential
Growth ................................................................................................................................................................................... 48
1.B.1. Information and Communications Technology Infrastructure Development ..................... 48
1.B.2.Information and Communications Technology Value Added in the Egyptian Economy 49
1.B.3. Number of Information and Communications Technology Companies, Issued Capital
and Revenues ............................................................................................................................................................................... 50
1.B.4. Employment in the Information and Communications Technology Sector ........................ 52
1.B.5. Investments, Exports and Value Chain Linkages ................................................................................ 53
i. Investments ................................................................................................................................................... 53
ii. Small and Medium Enterprises Value Chain/Business Linkages ........................................... 54
iii. Exports .......................................................................................................................................................... 59
1.B.6. Projected Information and Communications Technology Sector Growth .......................... 59
1.B.7. Policy Support for Small and Medium Enterprises and Entreprenurship Development
in the Information and Communications Technology Sector ........................................................................ 60
1.B.8. Women in the Information and Communications Technology Sector and Related
Sectors ................................................................................................................................................................................... 62
i. Female Employment Characteristics in the Information and Communications
Technology Sector ............................................................................................................................................................ 62
ii. Empowering Women in the Information and Communications Technology-Related
Sectors ................................................................................................................................................................................... 63
1.C. Conclusion and Recommendations ........................................................................................................ 63
ANNEX (1): Egyptian Micro, Small and Medium Enterprise Stakeholders, Partners, and Service
Providers ............................................................................................................................. 66
ANNEX (2): Stakeholders Summarized Database .................................................................. 73
ANNEX (3): NGOs Supporting Micro, Small and Medium Enterprises and Entrepreneurs ....... 81
ANNEX (4): Universities with Entrepreneurship Initiatives .................................................... 85
ANNEX (5): Government Organizations Supporting Entrepreneurship .................................. 87
4
Executive Summary
The purpose of this report is to support Creative Associates International in preparing for the anticipated
United States Agency for International Development (USAID) /Egypt Trade and Investment Indefinite
Quantity Contract and its related task orders on micro, small and medium enterprises (MSMEs),
entrepreneurship support and business processes.
This report describes and assesses the available information on the broad ecosystem of MSMEs and
entrepreneurship in Egypt—focusing on the ecosystem, efforts for streamlining business processes, and
a value chain analysis for such enterprises. The report also offers recommendations on strategy and
actionable program design on how to support MSMEs and entrepreneurs in impacting the Egyptian
economy.
Chapter 1 introduces the current situation of MSMEs in the Egyptian economy including their role,
distribution, key challenges, recent developments and recommendations for further development.
Chapter 2 provides an overview of the ecosystem of entrepreneurship, including key stakeholders,
initiatives, fundamentals and potential. Chapter 3 presents the Egyptian entities and one-stop shops
that streamline the business procedures for small and medium enterprises (SMEs). Chapter 4 gives an
overview of two main sectors in Egypt: textiles and information and communications technology. This
overview includes a value chain analysis of the textiles sector and a detailed analysis of the information
and communications technology sector, including current developments, projected growth, women’s
participation, infrastructure development, value added, number of companies, issued capital and
revenues, employment, investments, exports, value chain linkages, policy support for SMEs and
entrepreneurship development.
5
Introduction
The Egyptian economy is one of the more diversified economies in the Middle East—tourism,
agriculture, manufacturing and services sectors all contribute with semi- equal ratios to the gross
national product. Due to recent structural reform, the Egyptian economy is achieving high growth
rates—and an attractive investment climate has evolved thanks to positive developments in
infrastructure, transportation, communication, energy, skilled labor, modern industrial cities, free zones,
banking and stock markets.
Egypt‘s current social and political transformation poses historic challenges and opportunities for its
economic development and growth. The lack of employment opportunities, particularly for youth under
the age of thirty-five, has been cited as one of the principal causes of the Egyptian revolution and the
country’s political unrest, which has taken its toll on the Egyptian economy. With political uncertainty
and economic slowdown, there is an ever more urgent need to create jobs for young Egyptians.
Unemployment has reached its highest level, particularly among women and youth in Upper Egypt, at
13.4% in 2013.
1
Micro, small and medium enterprises (MSMEs) are the backbone of any economy. Nowadays when
governments or international institutions put forward a plan or policy, they show great concern about
the role of MSMEs in the economy as they know that these businesses are crucial to economic growth
and development. Yet despite the importance of such enterprises for Egypt, obstacles often stand in the
way of their development, such as financial and political issues, lack of technology adoption and
unskilled workers. Furthermore, MSME owners of these businesses tend to have informal financing—
borrowing from relatives, friends and rotating credit associations (Gameia)—instead of formal financing,
which requires long and complicated procedures (including registering as an entity).
Many researchers consider most owner-managers of these enterprises to be entrepreneurs because
they start the venture, administer the business, and are responsible for its failure or success. Both SMEs
and entrepreneurs share the broader ecosystem. Indeed, “most new firms are small firms, so that a
substantial part of the entrepreneurship literature is concerned with the dynamics of small and medium
enterprises (SMEs).”
2
Despite these many similarities, the literature holds that there are a few differences between SMEs and
entrepreneurs—most being related to credit provision. As such, policy remedies to barriers facing
MSMEs in the Middle East and North Africa have primarily involved the establishment of special funds
and agencies to fill gaps left by the financial and banking system. Most reparative work on work on
MSMEs and entrepreneurship in Egypt has focused on barriers to growth from technical and economic
angles, with little attention thus far having been paid to nonfinancial obstacles such as political and
institutional challenges. Our report will shed light on these challenges.
1
Central Agency for Public Mobilization and Statistics
2
Naudé, W. (2008) “Entrepreneurship in Economic Development,” Research Paper, United Nations University -WIDER, United Nations
University, No. 2008/20, p.3.
6
CHAPTER 1: DEPICTING THE MICRO, SMALL
AND MEDIUM ENTERPRISE ECOSYSTEM IN
EGYPT
1. Macroeconomic Outlook
The Government of Egypt targeted a growth rate of over 3% during FY13/14 and intends to pursue a
long-term plan to support growth by injecting an incentive package of EGP 30 billion. The incentive
package will be used to support public-sector investments and infrastructure projects. The following
main macroeconomic indicators of the Egyptian economy are provided to give a perspective of the
overall business environment in Egypt.
The second quarter (Q2) of FY13/14 witnessed several political developments towards the fulfillment of
the Roadmap
3
, which positively affected the Egyptian economy. Thanks to financial aids provided by
Gulf countries combined with Egypt’s active economic plan, Standard and Poor's increased Egypt's
sovereign credit rating in November 2013 (for the first time since January 2011) from CCC+/C to B?/B in
the short and long terms and also at the level of local and foreign currencies. That a sovereign credit
rating agency observed the remarkable improvement in the Egyptian economic stability is a primary step
towards restoring international markets' confidence in the Egyptian economy.
The economic growth rate stood at 2.5% in Q4 FY13/14 compared to 2.2% during Q3 FY12/13.
Figure (1): Real GDP growth
According to the data of the Central Agency for Public Mobilization and Statistics (CAPMAS), the monthly Consumer
Price Index (CPI) inflation remained constant at 0.9% from June 2013 to June 2014.”
3
The Roadmap is for a transfer to civilian power and includes the successful completion of parliamentary elections.
7
Figure (2): Change in inflation rates in consumer prices
According to the most recent labor force sample survey conducted at the end of Q1 FY14, the
unemployment rate stood at 13.4% compared to 13.2% at the end of Q1 FY13.
Figure (3): Unemployment Rates
Taking the most recent data available from the General Authority for Investment and Free Zones on
newly established companies for June 2014, 800 new companies were established by Egyptian, Arab and
foreign private investors, compared to 755 companies set up in June 2013. The daily average of new
companies established in June 2014 was 36. The services sector accounted for the bulk of new
establishments, with 344 new companies. The services sector was followed by manufacturing (208
companies), construction and building (128 companies), information and communication technology (46
companies), agriculture (43 companies), tourism (29 companies) and financing services (2 companies).
During June 2014, female owners established 9% of new companies, whereas males established 77% of
new companies for that same period. Legal entities accounted for the remaining 14% of new
establishments.
At the level of investment in specific governorates for this June 2014 period, Assuit accounted for the
bulk of new establishments, with 19 companies, followed by Sharqia with 12 companies and Cairo with 8
companies. The issued capital for the newly established companies totaled EGP 1403.5 million, with
8
Assuit accounting for the largest share, with an EGP 29.6 million. Suez followed with EGP 23.7 million,
and Souhag with EGP 10.6 million.
(The information above is for all companies established regardless of their size. ACCELERATE has
requested this information from the General Authority for Investments and Free Zones for the SMEs
established in FY12/13. Information is expected to be ready by the end of August 2014.)
Over the past few years, Egypt has made strides in recognizing the importance of the SME sector and its
significant contribution to economic growth and job creation in Egypt. While there have been efforts to
improve the business environment for local entrepreneurs, these efforts have been diluted by a lack of
sustained commitment to substantive changes and an unwillingness to risk upsetting the established
order.
According to Egypt’s Doing Business Report of 2014, the country is still facing structural challenges that
impede private-sector activity. With an aggregate ease of doing business ranking of 128 among 189
economies (see figure below), Egypt still has room for much improvement—for example, via clearer and
more transparent rules applied more consistently. Such rules would facilitate rather than impede the
private sector in Egypt, where the need to encourage entrepreneurship is thus perhaps even more
urgent than in other countries.
4
Figure (4): Doing Business in Egypt Ranking 2014
Hence, the Government of Egypt should prioritize SME encouragement as part of its short- and long-
term strategy for development. For example, the government should allow temporary business licenses
(able to be transformed into permanent licenses by the power of law within thirty days) and offer tax
exemptions to SMEs for five years from the date of establishment.
In recent years, Egypt has recognized the importance of having a policy framework to support SMEs.
Under the terms of a 2004 law, the government has developed a structured policy framework for micro
and small enterprises (MSEs) that is the responsibility of the Social Fund for Development, the main
public player and policy coordinator for the micro and small segment of the SME population. In parallel,
the Social Fund for Development has recently developed targeted policy tools to help MSEs establish
and grow their businesses by providing a range of programs such as business support services,
microfinance activities and a network of business incubators.
Egypt has also made considerable improvements in delivering targeted policy to enhance SME
innovation through dedicated centers and networks—namely, through the Egypt Technology Transfer
and Innovation Centers. The country also performs moderately well in helping to improve these
4
Doing Business Subnational (World Bank and International Finance Corporation), Doing Business in Egypt Report 2014.
9
enterprises’ operations through startup and growth services provided by the Industrial Modernization
Center.
Yet, multifaceted challenges still impede further development of the micro, small and medium
enterprise (MSME) sector in Egypt. Among these challenges are the following:
? A policy gap exists regarding SMEs with high-growth potential, a sector where institutions are
active but working in isolation from one another and sometimes ill-equipped to meet the needs
of fast these fast-growing enterprises;
? The high number of informal businesses in this sector distorts competition and inhibits the
effectiveness of government policies;
? Targeted policy tools appear to favor medium-sized, well-established industrial enterprises over
younger, smaller enterprises with high-growth potential operating in the services; and
? Lack of coordination among institutions results in support programs not benefiting MSMEs for
which they were designed.
The momentum is building in the region as the Arab Spring generates an appetite for reform, providing
new opportunities for MSMEs. Egypt’s new government is committed to supporting and developing
these enterprises by improving their enabling environment and increasing their access to finance. In
June 2014, a new portfolio for SMEs was added to the already existing Ministry of Trade and Industry.
Nonetheless, the new government still anticipates a long development process since it has yet to
address the priorities that have become more pressing after the January 25 and June 30 revolutions—
priorities that include opening up further access to private-sector opportunities for income and
employment and easing significant constraints on enterprise operations, startup, competitiveness and
growth.
2. The Role of Micro, Small and Medium Enterprises in Economic
Growth
Developing countries usually view MSMEs as a dynamic force for sustained economic growth and job
creation. These enterprises not only create sustainable opportunities by expanding private-led
employment, they also contribute to economic growth by bringing innovative products and services to
the market, thereby increasing effectiveness and efficiency in the economy.
Over the past few years, countries in the Middle East and North Africa region have been aiming to build
stable and sustainable economies through diversifying and expanding an enterprise base across a range
of different sectors, thus improving the competitiveness of the region's private sector. By enlarging the
SME base, these countries hope to create opportunities for locals and motivate innovation in higher
value-added sectors.
5
For Egypt, MSMEs account for about 99% of private enterprises. And they
represent between 86 % and 97% of all formal sector enterprises—and an even higher proportion if
informal enterprises are also taken into account
6
—yet their contribution to gross domestic product does
not exceed 25%.
7
The Egyptian private sector is characterized by the presence of many MSMEs having up to 99 employees
and operating at high levels of informality, with low value-added, low production quality and poor
5
http://the-mea.co.uk/news/focus-sme-role-economic-growth#sthash.HAsswB42.dpuf. Accessed June 18, 2014.
6
World Bank, Middle East and North Africa Region: Micro, Small and Medium Enterprise Technical Assistance Facility, Official Document, February 2012.
7
http://www.msmenewsnetwork.com/index.php/richard-keery. Accessed June 18, 2014.
10
export performance.
8
In contrast, the majority of large companies operate in highly regulated industries
such as oil and gas, telecom and financial services. The estimated number of MSMEs at the end of 2011
totaled about 3.04 million establishments, with an average enterprise size equal to 2.63 workers
generating the bulk of employment and income opportunities. MSMEs are the main source of private-
sector jobs in Egypt, with enterprises with fewer than 50 employees accounting for over 80% of private-
sector employment.
9
These enterprises represent 85% of non-agriculture private-sector employment
and for 33.7 % of total employment.
10
The majority of SMEs in Egypt are in the services sector, and none in the mining sector. Almost 90% of
these enterprises are concentrated in just two sectors—the manufacturing sector (51.1%) and the
wholesale trade sector (40.5%). Figure (5) shows that SMEs in Egypt are highly skewed at the sectoral
level.
11
Figure (5): Small and Medium Enterprise Distributions by Economic Activity
Developing MSMEs is important to economic inclusiveness and social justice. About 56% of Egyptians
live on US 2 to USD 4 per day, depending mainly on SMEs, typically in the informal sector, for their
livelihood. More than 70% of young, first-time job seekers end up working in one of these businesses,
with wages of about USD 3.70 per day.
12
Egypt was ranked 146
th
out of 148 countries for labor market efficiency in 2013-14, its bleak
performance due largely to increased worker strikes, high redundancy costs and low worker
productivity. According to the Central Agency for Public Mobilization and Statistics, Egypt’s annual
unemployment rate stood at 13.4% in Q3 of 2013, compared to 8.9% over the same period in 2010.
Unemployment rates were especially high among women and youth: 23% of females were
unemployed
13
; and about 20.9% of the 25-to-29-year-old age group and 39.3% of the 20-to-24-year-old
age group were unemployed.
8
Sahar Nasr and Laila Abdelkader, World Bank, Middle East and North Africa Knowledge and Learning: Quick Notes Series, Issue no. 90, April
2013.
9
http://english.ahram.org.eg/NewsContent/3/12/1278/Business/Economy/There-is-a-clear-%E2%80%98missing-middle%E2%80%99-gap-in-
Egypts-SM.aspx. Accessed 21 June 2014.
10
United Nation Industrial Development Organization, “UNIDO Activities in Egypt Report,” 2014.
11
Hala El Said, Mahmoud Al Said, Chahir Zaki, “Small and Medium Enterprises Landscape in Egypt: New Facts from a New Dataset,” 2012.
12
Hafez Ghanem, Egypt’s Difficult Transition: Why the International Community Must Stay Economically Engaged, Global Economy and
Development, Brookings, Working Paper no. 66, January 2014.
13
World Bank, Middle East and North Africa Region: Micro, Small and Medium Enterprise Technical Assistance Facility, Official Document,
February 2012.
11
Although MSMEs account for the lion’s share of employment creation in the private sector, these
enterprises fall short of creating enough jobs for young entrants coming into the market. Public-sector
jobs have become the most prevalent—an unwelcome trend that has created distortions in the market
and has contributed to long unemployment spells. The challenge, therefore, is for the government to
create better conditions that will enhance job opportunities in the private sector, especially for the
educated youth, whose entry into the labor market, according to Egypt’s Labor Market Survey (2012),
has been delayed by the economic circumstances.
14
There is a vision to boost the economy and create jobs for the hundreds of thousands of frustrated
youth who swell the ranks of the unemployed every year. However, turning this vision into reality
requires a careful plan and a major shift in thinking. Because of the vital role of fast-growing MSMEs in
creating jobs, Egypt’s government has been focusing its attention on the characteristics of these high-
growth firms, highlighting the importance of building their capacities and skills, and reducing barriers to
entry and operation. Despite these efforts, growth has thus far failed to reach its full potential and
generate enough employment—Egypt has been unable to make substantial progress in reducing its
persistently high unemployment rates.
3. Key Challenges
MSME sector development in Egypt is held back by numerous challenges related to the regulatory
environment, financial infrastructure, financial institution lending capacity, enterprise management
skills, enterprise creditworthiness, liquidity of the financial intermediaries and the availability of risk-
sharing instruments.
MSMEs do not have access to credit services, so they build personal networks to obtain loans based on
trust. These enterprises lack marketing channels, so they make use of personal contacts with merchants
and suppliers. In the struggle to keep their businesses alive, owners rarely have the time to look into
how new approaches or technologies could make their enterprises more efficient. Among the major
challenges facing the sector are non-conducive legal, regulatory and supervisory frameworks. Banks cite
a lack of enterprise transparency, difficulties in using collateral, and uncertainty over creditor rights as
primary barriers to the MSMEs’ greater involvement in bank financing.
There are also high administrative costs of small-scale lending, as well as inadequate banking skills for
dealing with MSMEs. Thus, there is need to build the capacity of financial intermediaries, especially
banks (and mainly state-owned banks), and to address deficiencies in financial infrastructure (including a
lack of available borrower information and outdated MSME lending technologies.) Banks lend
inefficiently and are not able to expand MSME lending significantly to these enterprises while also
managing costs and risks. On the other hand, MSMEs have limited access to finance because they lack
capacities to prepare business plans and loan applications, tend to have opaque or nonexistent financial
statements, and possess insufficient collateral. Moreover, there are also gender-related constraints
concerning access to finance, which include higher costs of finance, difficulties in gaining approval for
financing, and stricter collateral requirements. These problems explain the low levels of bank lending to
these smaller enterprises.
MSMEs also face nonfinancial issues. Besides the cumbersome legal and regulatory framework, as well
as a highly bureaucratic system, they suffer from a lack of adequate business development services,
adequate information, advanced technology and skilled labor.
14
http://www.africaneconomicoutlook.com. Accessed June 21, 2014.
12
In that context, it is important to remove constraints to competition and entry and enable new
generations of MSMEs to emerge who are oriented towards competing in global and domestic markets
based on their firms’ performance, not on privilege. For this to happen, business-friendly policy reforms
will need to level the playing field and remove traditional sources of rent and privilege.
The key to a more sustained and rapid private-led economic growth is to strengthen institutions’ ability
to implement private-sector policies equitably and consistently to generate equal opportunities, create
jobs and develop market players’ skills.
4. Recent Developments
Given the urgent need to create jobs that can absorb the high unemployment rates, in addition to the
various challenges posed by global economic development, Egypt has been intent on creating a strong,
competitive MSME sector that is able to play a leading role in the development process. It is in this
context that this sector’s development has become major focus of attention for the Government of
Egypt, donor agencies, private-sector initiatives and nongovernmental organizations (NGOs) since the
late 1990s. However, despite its high priority, no coherent policy for MSMEs has been developed.
Although there have been several different government, private sector and donor players in the market,
they faced various constraints such as 1) absence of a clear policy towards MSMEs development to
guide and coordinate the various efforts to maximize their benefit; 2) lack of a unified operational
definition for the target group; 3) lack of sufficient and adequate information on the sector; and 4) lack
of coordination among the various institutional actors. However, some efforts and initiatives undertaken
by the Egyptian government—as well as by donors, the private sector and NGOs—to develop the MSME
ecosystem have proved promising and successful.
Efforts to support such enterprises in Egypt can be attributed to the following:
A. Government Efforts
B. Banking-Sector Reform
C. Donor Support
D. Private-Sector Support
A. Government Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem
Creation of a settlement committee for new investment disputes. The Prime Minister, Ibrahim Mehleb,
issued a decree to set up a committee to settle investment disputes. The new entity is chaired by the
minister of Justice and includes the ministers of Trade and Industry; Local Development; Finance; and
Investment and Transitional Justice. It also includes chair of the General Authority for Investment and
Free Zones, chair of the State Council’s Advisory Body and secretary general of the Council of Ministers.
Prioritization of investment legislation amendments. According to the Minister of Investment, Ashraf
Salman, updating and amending the investment laws top the priorities for the Ministry of Investment
since these laws will play a big role in encouraging investments and helping to clear out many obstacles
and issues that used to hinder both domestic and foreign investors. Following the meeting of the newly
reshuffled council of ministers with President Abdel Fattah Al Sisi, Salman added that his ministry will be
giving much attention to attracting foreign investments to enhance the economy, create more jobs and
reduce the high unemployment rate.
Simplification of license procedures. All services rendered by the General Authority for Investment and
Free Zones are being simplified and streamlined, said its chairman, Hasan Fahmi. He added that the
13
governmental authority also seeks to decentralize through its branches in Alexandria, Assuit, Ismailia
and Tenth of Ramadan. More coordination will take place with different license providers so that
licenses are issued from the General Authority’s One-Stop Shop, Fahmi announced. Coordination is
underway with the National Center for Planning State Land Uses to offer lands available for investment
via the General Authority, while allocation shall be made by competent bodies.
Establishment of The General Authority for Investment and Free Zones’ new branches in Sohag, Sixth
of October and Gamasa .The General Authority for Investment and Free Zones will open three new
branches in Sohag, Sixth of October and Gamasa (FY 2014/15) to provide investment services, said the
Minister of Trade, Industry and Investment, Monir Fakhri Abdel Nour. The inauguration of these new
branches is in line with the Ministry’s plan to roll out the one-stop-shop system to bring together into
one place providers of licenses and investment zone permits, expand decentralization and help
investors. Abdel Nour said that the government seeks to clear out all obstacles to producers and
investors and provide necessary support to start up their businesses. He noted that coordination is
underway with the Ministry of Housing and the New Urban Communities Authority to design specific
and appropriate mechanisms for distributing and allocating industrial lands for investors in the period to
come.
Adoption of microfinance laws. The Council of Ministers approved a draft law on microfinance to
create new mechanisms of finance for microenterprises, which typically do not have access to
traditional finance institutions, said the Minister of Trade, Industry and Investment, Monir Fakhri Abdel
Nour. The law primarily seeks to regulate and supervise the microfinance business by ensuring
protection for related parties’ interests and overseeing finance providers to ensure efficiency,
transparency and social justice. The law also seeks to fight poverty. According to the new draft law, a
special unit will be established within the Egyptian Financial Supervision Authority to oversee
microfinance provided by associations and nongovernmental organizations, which will include
representatives of relevant ministries and entities, most notably the Social Fund for Development. The
unit will fight abuses and illegal activities from this type of finance—associations being an easy and
penetrable target—action which requires no substantial financial expertise.
B. Banking-Sector Reforms
In Egypt, despite banking reforms that had been launched in 2004, the limited ability of MSMEs to easily
access suitable and sufficient means of finance has always been considered a major obstacle facing
these enterprises. From a supply point of view, most banks are becoming more risk averse towards
SMEs, especially due to a widespread notion that financing these enterprises is risky and that serving
them requires high transaction costs that make them less profitable than larger companies.
Thus, the Central Bank of Egypt launched in December 2008 an initiative, as an integral part of Phase II
of the Banking-Sector Reform Program (2008-2011), to enhance SMEs’ access to finance and banking
services. Those reforms led to robust, solid and well-capitalized banks. The number of banks decreased
from 57 to 39; assets increased by 88% to reach EGP 1.1 billion in 2008—up from EGP 0.57 billion in
2003—with total deposits increasing by 85% over the same period; the capital adequacy ratio increased
from 12.2% to reach 15.1%; and total net worth increased by more than 100% from EGP 32 billion to
EGP 75 billion. Yet, despite the significant improvement at the macroeconomic level, there is still a
challenge related to the access to finance, especially for SMEs.
14
14
Hala El Said, Mahmoud Al Said, Chahir Zaki, “Small and Medium Enterprises Landscape in Egypt: New Facts for a New Dataset,” 2012
14
The Central Bank of Egypt has been working on encouraging banks to lend to SMEs by allowing them
lower reserve requirements if they expand their lending to these enterprises. The Egyptian Banking
Institute has been training banks’ staff on dealing with SMEs.
Today, just under half of Egypt’s banks have activity in SME banking. These include the National Bank of
Egypt (the largest one), Banque Misr, AlexBank, Suez Canal Bank, United Bank, HSBC, the Commercial
International Bank, and Banque du Caire (the microfinance pioneer). The government had announced
prior to 2011 that it would transform a major state-owned bank (Banque du Caire) into a lender to
SMEs, but little progress had been made when efforts ceased as of Jan. 25, 2011. There has been
progress, however, in registering more microfinance institutions in the credit bureau database.
Despite the Central Bank’s push in this sector, incentives for banks to build SME portfolios are still weak
(high cost, high risk, lack of innovation in products and services)—only four main banks are engaged in
micro-lending in Egypt. Banks extend credit using their own resources or in their capacity as loan
managers, either on behalf of donors or, more typically, on behalf of the Social Fund for Development.
The National Bank of Egypt has been providing financing for working capital since the late 1980s. The
Principal Bank for Development and Agriculture started its rural finance program in 1993. More recent
entrants into the sector are Banque du Caire, which started its micro-lending operations in 2001, and
Bank Misr, which began micro-lending in September 2003. By virtue of an agreement signed with the
Spanish Agency for International Cooperation in 2001, the Commercial International Bank has been
managing a microcredit fund that it disburses through the National Bank of Egypt.
Yet the microfinance sector still remains broadly underdeveloped, with SMEs unable to obtain adequate
finance and the nonbank financial side of MSME finance being minimal. The Social Fund for
Development does more microfinance, but factoring and leasing is still limited—and angel investors are
few. In the nonbank financial sector, microfinance institutions are weak and inefficient in supplying
credit.
The already difficult circumstances facing MSMEs in accessing finance could worsen with the recent
economic and political developments. Financial services in Egypt are underutilized by these businesses
as only 50 % are dealing with banks.
15
In some cases, liquidity within banks and equity funds for SME
lending do exist. However, a shortage of bankable enterprises keeps these funds inert, and private
equity funds geared toward SMEs are unable to draw down their funds because of the enterprises’ poor
bankability. In other cases, where there are financial-sector concerns, financial market failures hurt
small firms more than large ones, as highly bankable investments and new ideas starve for capital—
stifling small-firm entry, growth and innovation.
C. Donors Efforts to Enhance the Micro, Small and Medium Enterprise Ecosystem
In recent years, the interest among donors in MSME development has increased—an overall positive
trend. However, at times, donors are working on parallel initiatives that do not always complement one
another. This is particularly true of groups that continue to subsidize financial and nonfinancial services
while others are trying to make them more financially sustainable. The following are some, but not all,
of the donors’ efforts undertaken in the past few years to support and develop MSMEs in Egypt.
World Bank: The World Bank grant for SMEs has three pillars: SME regulatory framework (still no law for
microfinance), capacity building of banks and nonbanks, and capacity building of SMEs.
15
http://www.sme-egypt.com/Documents/A%20paper%20on%20SMEs%20Landscape%20in%20Egypt.pdf. Accessed June 21, 2014.
15
The World Bank’s USD $300 million Enhancing Access to Finance for Micro, Small and Medium
Enterprises Project aims to sustainably improve inclusive access to finance for MSMSEs on a commercial
basis through a line of credit and apex institutions that on-lend the funding to banks and microfinance
nongovernmental organizations. The USD 300 million loan for these enterprises will go through the
Social Fund for Development, as they cannot lend directly to SMEs but through regulated financial
institutions. There had been an attempt to work through the Post Office, but changes in management at
the Post Office made it impossible to pursue. The World Bank also works with the Alexandria Business
Association. However, the World Bank program aiming to support MSMEs is only via loans and technical
assistance facilities.
The World Bank also has another MSME project in the pipeline called the Middle East and North Africa
Micro, Small and Medium-Enterprise Facility (also referred to as the World Bank Middle East and
South Africa Micro, Small and Medium Enterprise Technical Assistance Facility), which comes under
the umbrella of the Arab World Initiative. It is supported by two trust funds, one managed by the
International Finance Corporation and the other by the World Bank. The main objectives are to improve
the business environment for MSME finance, build the capacity of financial institutions for sustainable
financing, and support MSME business development services. The facility is expected to impact around
250,000 of these businesses over the next five years, with a total funding of USD 30 million, of which
around USD 10 million is executed by the World Bank.
16
Canadian Aid: The Government of Egypt has also turned to Canada for support in the MSME sector. In
2000, the Small and Medium Enterprise Policy Development Project was created with the support of
Canada’s International Development Research Center and efforts by the Egyptian government to bring
about significant policy changes. The project has been successful in developing a more favorable
regulatory framework, enacting revisions to the income tax regime, initiating a thorough assessment of
the informal sector, and making changes to the Tender Law. The Prime Minister has directed the
Minister of Finance to develop additional venture capital opportunities for SMEs. Moreover, based on
the project’s work, a coherent new vision for SME development has been endorsed and adopted—
Enhancing Competitiveness of Small and Medium Enterprises in Egypt: General Framework and Action
Plan.
From 2004 to 2011, an USD 18 million CAD Business Development Support Services Project was
established to foster better employment opportunities through support to SME development, with an
emphasis on Egypt’s marginalized groups, particularly women and youth. The project’s purpose was to
enhance the SME sector in selected governorates by supporting existing and/or new business
development service providers and other related local institutions.
The Business Development Support Services Project has aided the Egyptian Bank Institute in establishing
a SME unit in accordance with the Central Bank in Egypt’s decree for improving access to finance. This
unit offers a wide range of capacity-building services to SME units and staff in all banks and enhances
entrepreneurs’ awareness about access to finance. The unit also provides several training packages for
small and medium business owners who need to enhance their understanding of dealing with and
satisfying the requirements of banks. Also to bridge the gap between both sides, the unit conducts
awareness-raising events, through which entrepreneurs are acquainted with bank requirements as well
as offered a training program titled “SME Guide for Dealing with Banks.” The Egyptian Bank Institute has
recently launched initiatives in the field of financial education, as well as entrepreneurship and SME
16
World Bank, Finance and Private Sector Development, Concept Note: “Middle East and North Africa Region, MICRO, SMALL AND MEDIUM
ENTERPRISE TECHNICAL ASSISTANCE FACILITY,” February 2012.
16
development, as these fields play an important role in economic development. The initiative’s main aim
is to facilitate access to finance for SMEs and generate the spirit of entrepreneurship and innovation so
crucial to encouraging young graduates to participate in the entrepreneurship ecosystem in Egypt.
The Business Development Support Services has also successfully launched the General Authority for
Investment and Free Zones’ Bedaya Center for Entrepreneurship and SME Development. Bedaya
programs are tailored to deliver value to clients with the aim to support SME businesses, enhance their
competitiveness, strengthen their innovation and promote the entrepreneurial culture in Egypt. The
ongoing updating of these programs ensures the consistency of the offered services with the changing
needs of SMEs and entrepreneurs while also simultaneously identifying where the gaps exist and
providing solutions. Bedaya’s services to promote the early-stage growth of SMEs include 1) business
clinics that provide business development services; 2) private equity investment funds (smart capital);
and 3) a Startup Academy, the first program in Egypt aimed at building entrepreneurs’ capacities to
prepare business models via a 15-week workshop.
Two additional projects were endorsed to support SMEs: The Small and Medium Enterprise Program
(2004-2012) and The Egypt Enterprise Development Project (2008-2014). The former aimed to improve
employment opportunities by supporting to SME development in four governorates, the latter in six
governorates (See the two projects’ outcomes in the section on business development provision
support.)
European Union: The European Union and the European Bank for Reconstruction and Development has
also stepped up their support for SMEs in Egypt. The Small Business Support Program has already
begun more than 100 projects to help Egyptian businesses access high-quality business advice, with the
European Union providing €2.4 million to the program. As SMEs continue to suffer from poor access to
finance, limited managerial skills and low productivity—greatly hampering their potential to create
jobs—strengthening this area is a top priority for both the European Union and the European Bank for
Reconstruction and Development in Egypt. The Small Business Support Program connects SMEs with the
expertise that can transform their businesses. Working with local consultants and international experts,
the program gives these businesses the tools, skills and know-how to innovate, attract finance and
expertise, and become the next generation of business leaders. In addition to working with individual
businesses, the European Bank for Reconstruction and Development also engages in policy dialogue
with government agencies, local business associations and chambers of commerce to help promote the
role of investment and local consultancy services in small-business development. To date, the
multilateral development bank has invested approximately €240 million through 10 projects in Egypt, in
various sectors, and has carried out more than 100 advisory projects with SMEs.
Local and International Nongovernmental Organizations: Most nongovernmental organizations focus
primarily on managing microcredits. The Aga Khan Foundation has implemented several socio-
economic programs in Egypt in the Darb al-Ahmar district that are focused on housing rehabilitation,
microfinance, apprenticeships and health care. Nurse’s training and early childhood education
programs are also underway in Aswan. The First Microfinance Foundation of Egypt was founded by the
Aga Khan Agency for Microfinance, which is committed to alleviating poverty by boosting socio-
economic development within low-income communities. They also provide access to financial and
nonfinancial products and services in rural and urban areas.
The PlaNet Finance of France is a microfinance nongovernmental organization that is making its
expertise available to a wide range of actors in Egypt involved in microfinance. This organization’s
programs are designed to fight poverty in a more comprehensive way. Through its microfinance
17
programs, PlaNet Finance Advisory Services leverage the microfinance institutions’ network and
resources to tackle critical issues such as health, environment, education and rural-area development.
D. Private-Sector Initiatives to Promote the Micro, Small and Medium Enterprise Ecosystem
Aside from mainstream reforms to improve credit information, creditor rights, and dispute resolution,
MSMEs and startups in Egypt benefit also from other innovative financing such as angel finance, seed
finance, venture capital and crowdfunding. These instruments are rare but have been recently
appearing in Egypt. Some of these are Beltone MidCap, Union Capital, and others (as detailed in Chapter
2 on venture capitals, angel investors, and crowdfunding platforms).
5. Business Development Services Provision Support
The provision of business development services in Egypt is still in its early stages. Most donor-supported,
public- and private-sector service providers are either unsustainable, provide inadequate services, or
have limited outreach programs and accessibility to MSMEs. These providers’ technical capacity to
innovate and design market-driven services needs strengthening. This lack of mature business
development service providers tends to compound the general weaknesses of the micro and small
enterprises’ (MSEs) human resource base, which is characterized by a relatively low level of formal
education. As a result, deficiencies in the administrative and technical capacity of MSEs are pervasive,
leaving these enterprises with few available alternatives with respect to assistance in these areas. This
systemic weakness severely restrains these enterprises’ ability to develop, grow, and build innovative
capacities.
In most cases, entrepreneurs, as well as MSEs, embark on investments without being equipped with the
minimum prerequisites for success. For example, an entrepreneur may neglect to conduct a feasibility
study, relying instead on his/her own limited knowledge of the investment in question. Furthermore, at
operational level, he/she tends to lack the tools that employ relevant key indicators for measuring
business performance to ensure the development of the enterprise and take corrective measure where
necessary. These prerequisites for success involve all business core functions: marketing and sales,
quality assurance, production and operations, finance, and accounting. It also involves supporting
functions such as information management, human resource development, and administration.
Discussions with various stakeholders have revealed that MSEs need additional training in
understanding basic accounting, cash management and credit control practices. Some stakeholders
believe that these businesses need more information on the markets in which they operate, as well as
the general business environment, in order to develop sound business plans.
Despite these obstacles, various multi-donors have undertaken initiatives that focus on enhancing and
promoting the provision of business development services in Egypt. It was observed that the Canadian
International Development Agency-funded projects–the Business Development Support Services
Project, the Egypt Enterprise Development Project, the Decent Employment for Youth (in
collaboration with the International Labor Organization), and the Small to Medium-Sized Enterprise
Program in Egypt—have succeeded in operating in many governorates spanning Cairo, Alexandria,
Lower Egypt, and Upper Egypt.
The Canadian International Development Agency has managed to introduce some demand-driven,
nonfinancial business development services to existing business development service providers, such as
the fee-for-services scheme—one that employs incremental and timely increase in fees to cover
operating costs—from the outset. The agency also provided financial support to facilitators (i.e., the
18
General Authority for Investment and Free Zones and the Egyptian Bank Institute) and other business
development service providers on a declining basis (for service provision). In addition, it has improved
the skills of service providers’ staff in designing, delivering, managing and monitoring new products and
services; built these providers’ institutional capacity to implement and sustain cost-effective services
responsive to SMEs and marginalized groups’ needs; and supported linkages and networking between
services providers, Egyptian government officials, and SMEs.
The Business Development Support Services Project, for example, used innovative approaches (e.g.,
specific interventions, coaching and technical support to business development service providers,
facilitators and project staff) to promote and integrate crosscutting themes of gender equality, child
protection and environment sustainability. The project also managed to establish two SME units, one at
the Egyptian Bank Institute and the other at the General Authority for Investment and Free Zones (which
resulted in the establishment of the Bedaya Center for Entrepreneurship and SME Development). In
addition, the project succeeding in building the capacities of many business development service
providers and established a business advisory program in collaboration with the American University in
Cairo. The delivery of a business advisory program is key to building a cadre of young business advisers
who can support the growth and development of Egyptian SMEs.
El Mobadara,
17
also with the help of the Canadian International Development Agency, has promoted
different business development services tailored to women (e.g., vocational training, entrepreneurship
training, and exhibitions) through the Regional Enterprise Development Centers in six governorates. It
also adjusted its training materials to the lower education levels of women in rural areas, organized
transportation to and from training locations, and charged lower training fees to women because of
their lesser ability to pay the full costs. The intended result of the Egypt Enterprise Development Project
is to 1) increase the availability of affordable, acceptable and gender-responsive nonfinancial services to
MSMEs through the Regional Enterprise Development Centers, with targets to offer business
development service packages to approximately 6,000 startups and existing MSMEs and to 2) enhance
access to affordable financial services targeting male- and female-owned MSMEs to help create at least
15,000 jobs.
18
The Small to Medium-Sized Enterprise Program (2004-2012) has also succeeded in (1) establishing 20
sustainable business development service providers in 10 governorates in Egypt, reaching 22,000
MSMEs including 7,000 women-led enterprises—and now serving about 4,000 clients annually, enabling
these businesses to increase their sales and exports and enhance their profitability and long-term
competitiveness. The project has also (2) strengthened the capacity of two key government institutions
to incorporate business development service strategies and practices into their work: (a) the General
Authority for Investment and Free Zones, a principal governmental authority that regulates and
facilitates investment in Egypt, and (b) the Central Bank’s Egyptian Bank Institute, which is developing
publicly- and privately-owned banks’ capacity to offer business development services to MSMEs to
improve their access to financial services.
The United Nations Development Program also had efforts on that front: in December 2002, the
program established the Business Enterprise Support Tools Project. The project was designed as an
17
In 2008, El Mobadara became the executive agency for the implementation of the CAD USD 4.75 million Canadian International Development
Agency-funded Egypt Enterprise Development Project, the first-ever Egyptian entity to be assigned an executive agency role by the Canadian
agency.
18
Middle East and North Africa-Organization for Economic Cooperation and Development Investment Program and OECD-MENA Women’s
Business Forum, Analysis of Business Development Service Provision and Incubation for Women Entrepreneurs in the Middle East and North
Africa Region, Working Draft, December 2013.
19
intervention to create long-term jobs by encouraging MSMEs to develop and expand. The project
introduced an innovative, integrated approach to providing business support services to MSMEs on a
local level in four pilot communities—Giza, Fayoum, Beni-Suef and Minia—and was implemented by
establishing the Integrated Business Support Centers. These centers assisted people who were
interested in starting up their own businesses as well as owners of existing SMEs—and whose
companies have the potential to grow and create jobs—by providing a range of business services:
vocational and business skills training; marketing services; consulting services; information services; and
technical services (e.g., photocopying, editing, etc.). These centers, at times, also served as a physical
space to shelter startup or expanding companies. The Integrated Business Support Centers were also
designed to provide financial services in the form of a financial-leasing scheme to be managed in
conjunction with the centers.
19
The Social Fund for Development is also about to launch a new and innovative project funded by the
European Bank for Reconstruction and Development, as a component of the MSME Support Program
approved by the Middle East and North Africa Transition Fund in 2013. The project aims to strengthen
the Social Fund for Development’s capacity to focus on women’s entrepreneurship development in
three key regions of the country (Greater Cairo, Delta and Upper Egypt) where the number of women
clientele is high. During the first two years of the pilot (2013-2015), the project will help women
entrepreneurs to access nonfinancial business development services to improve their performance.
Targeted beneficiaries are women entrepreneurs with a credible track record who have been in business
for at least two years. Women entrepreneurs, to be considered for the project, must have a competitive
advantage; are financially and commercially viable (yet lack resources to finance a complete project);
have the management and financial resources to follow through on any business advice and take
effective action; have a genuine need for business advice and can absorb the assistance given (even if
they have little or no previous experience using external consultants); and are ready and able to pay at
least 10% of the net project cost.
In the pilot phase, the project aims to assist approximately 60 women entrepreneurs with targeted
advisory services and mentoring that will lead to the improved performance of their enterprises, plus
train approximately 150 women entrepreneurs in advanced entrepreneurial and management skills
(including on how to access financing). The project will also train, on the job, approximately 15 local
business advisers and at least six Social Fund for Development personnel in delivering business advisory
services to women entrepreneurs. This component will contribute to building business advisers’ capacity
to serve the women entrepreneurs’ market.
The United States Agency for International Development’s mission in Egypt also supported MSMEs and
entrepreneurship through two projects—the Egyptian Competitiveness Program and the ALROWAD
Project. The Egyptian Competiveness Program aimed at improving labor skills and productivity by
supporting entrepreneurship. One of the main tasks under this component was to improve public
awareness of financial services, business development services, and training and academic opportunities
for entrepreneurs. ALROWAD, a USAID Economic Growth Annual Program Statement (APS) grant,
supported entrepreneurial Egyptian business consultants (including individuals, firms and associations)
to expand their expertise and service offerings by leveraging social media, peer-to-peer networks, and
information technology. The ALROWAD Project supported qualified Egyptian consultants in establishing
professional communities in their areas of specialty. The project steered the consultants toward
community leadership and aimed to establish the professional communities as profitable services as a
way to support Egyptian entrepreneurs and MSMEs to grow, innovate and expand. ALROWAD has
19
Hanna Ruszczyk, The Business Support Tools (BEST) External Review, June 2005.
20
demonstrated its ability to improve MSMEs on many nonfinancial issues, including technology, business
development service provision and labor skills development. As a result, 35 professional communities
were created to expand business development services to MSMEs and entrepreneurs, led by Egyptian
business consultants across the gamut of commerce and industry. ALROWAD has managed to build a
membership of 1,800 (of whom more than 70% are women), create 1,455 new jobs and 105 new
business services, and train up to 3,000 MSME members. The project also developed a comprehensive
interactive website to provide business development solutions and to create business development
service awareness.
However—and with respect to the notable level of support from donors, international organizations and
NGOs in providing business development services and their programs’ broader efforts to improve such
services for MSMEs and entrepreneurs—business development service providers should have a wider
outreach to provide training and capacity building beyond what these programs offer. This goal can be
successfully accomplished by addressing more capacity-building programs to service providers to ensure
and improve sustainability and funding of programs; by coaching and mentoring these service providers
to tailor training and services to fit the needs of entrepreneurs and MSMEs; and lastly, by linking these
business development service providers to sources of finance that can assist MSMEs and entrepreneurs
in identifying the appropriate sources that can help actualize their business ideas and support them in
their quest for loans.
6. Conclusions and Recommendations
Developing countries usually perceive MSMEs as a dynamic force for sustained economic growth and
job creation. In Egypt–despite institutional, regulatory, and banking efforts and reforms by the
government, donors, and private sector—the ability of MSMEs ability of MSMEs to expand, grow and
sustain their activities is still held back by numerous challenges. These enterprises are geographically
concentrated in one or two governorates, operating chiefly in two economic activities—manufacturing
and trade. Among the major challenges facing these sectors are non-conducive legal, regulatory and
supervisory frameworks.
The easy access to suitable and sufficient means of finance has always been considered a major obstacle
facing many MSMEs. After the revolution it has become even more difficult for any such enterprise to
obtain commercial lending as banks have been financing the growing demands of the government debt.
Financial services seem to be underutilized by these businesses as only 50% are dealing with banks and
benefiting from an improved access to finance. On one side, banks cite a lack of enterprise transparency,
difficulties in using collateral, and uncertainty over creditor rights as primary barriers to their greater
involvement in finance. There are also high administrative costs of small-scale lending, as well as
inadequate banking skills for dealing with MSMEs where there is need to build the capacity of financial
intermediaries, especially banks (and mainly state-owned banks). On the other side, MSMEs’ limited
access to finance can be attributed to their incapacity to prepare business plans and loan applications,
as well as their tendency to have opaque or nonexistent financial statements and insufficient collateral.
Aware of the importance of developing and promoting MSMEs, the Government of Egypt has
undertaken several initiatives to support this end, either on the policy or the regulatory level. Yet,
neither a national strategy or policy—nor a comprehensive package of policies—has been formulated.
The MSME ecosystem in Egypt needs to be aided by its government, not only through debt support, but
also through policy and infrastructure support like collateral registry and a microfinance law.
21
Donors also had a stake in promoting MSME development. They contributed greatly to improving the
business environment for MSMEs by easing access to finance, building the capacities of financial
institutions, and offering business development services and training to service facilitators and
providers.
The private sector has also stepped in to fill in the financing gap for startups. Many of the existing
Egyptian entrepreneurship programs have strengthened and expanded alongside other donors’ efforts
in that regard, mainly in the last three years.
On the microfinance side, the efforts to develop MSMES have been minimal—the microfinance sector
remains broadly underdeveloped, with microenterprises largely unable to obtain adequate finance.
From a policy implication standpoint—post January 25 and June 30 revolutions—there is a need for
strategic economic reforms to vitalize Egypt’s struggling economy and promote investment, especially
for SMEs. This goal can be achieved through the following actions:
? Improving the legislative infrastructure, several bankruptcy rules and regulations, and creditor
capacity to take fast possession of collateral in case of default; speeding up the process of
establishing collateral registries, which should aim at building electronic registers and
streamlining the registration process;
? Encouraging banks to build on their expertise in matchmaking their clients in different stages of
value chain (linkages);
? Updating financial methods for financial reporting (e.g., standardized template);
? Changing the entrepreneurial mindset; and
? Enhancing entrepreneurship education.
The Government of Egypt should prioritize SME encouragement as part of its short- and long-term
strategies for development. Procedures should be facilitated by allowing temporary licenses to be
transformed into permanent licenses by the power of law within thirty days and by offering tax
exemptions to SMEs for five years from the date of establishment.
Moreover, the institutional setting of MSME policy should be reconfigured: a single inter-ministerial
body should oversee and coordinate the work of ministries, while a one-stop-shop arrangement for
assisting and informing SMEs should be rolled out across Egypt’s regions. The SME sector, dominated by
informal businesses, needs formalizing: A Ministry of Finance task force should take a comprehensive,
carefully coordinated approach towards the informal sector, one that combines incentives and
encourages formality, growth and innovation.
Egypt should also provide better services and financial support to innovative SMEs by establishing
linkages, promoting synergies between different support programs, and developing alternative
financing, guarantee schemes, and research and development funds. Comprehensive packages of
technical assistance, advisory services, and policy support are urgently needed to respond to the
increasing demand for generating job opportunities and attaining a level playing field in the context of
the Arab Spring upheavals.
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CHAPTER 2: UNDERSTANDING THE
ENTREPRENEURSHIP ECOSYSTEM IN EGYPT
1. Overview of the Current Entrepreneurship Ecosystem
A strong, sound and synergetic entrepreneurship ecosystem is essential to start a grassroots
entrepreneurial movement in Egypt and to show economic impact out of all the entrepreneurship
activities taking place. The Egyptian ecosystem has shown much progress since 2011, driven by a small
group of successful businessmen deploying their own resources to develop a successful
entrepreneurship ecosystem.
One of the major changes occurring in Egypt’s entrepreneurship ecosystem over the last four years is
the change in professional leadership of various entrepreneurship organizations. Several smart
entrepreneurship organizations learned that they need to find passionate managers who are
professional and transparent in their approach. This awareness is apparent among several organizations
including Flat 6 Labs, Endeavor, Middle East Council for Small Business and Entrepreneurship, and Nile
University. We have witnessed two major international nongovernmental organizations, Endeavor and
Injaz, continue to improve their programs as well. With the rise of these catalysts and leaders, some
traditional business associations and government agencies have pulled back on their support to
entrepreneurship, whereas others have tried to catch the rising stars. These polar tendencies are due
largely to the political instability and the resulting difficult business environment. Prior to 2011, the
typical entrepreneurship event in Egypt was a business plan competition hosted by a local business
association and partially financed by the government, which did not create or support many businesses.
Today new generations of Egyptian ecosystem players are changing the formula; they are self-financing
or receiving financing from the private sector. They rely on a multiple set of services—including
mentoring, shared workspace and training—and have expanded their targets from just students. More
recently, many organizations are shifting away from supporting entrepreneurs in the technology sectors
to supporting entrepreneurs in other growth sectors, including waste removal and alternative energy.
In 2013, over 30 organizations that support entrepreneurs in Egypt have been identified—and the list
continues to grow. The list includes nongovernmental organizations, universities, private-sector
accelerators/incubators, companies, business associations and government agencies (Annex A includes
a list of some of the most active organizations).
Although the number of entrepreneurship actors has grown, it is noticeable that not all organizations
are making the same impact. What has become apparent over the last four years is that organizational
and governance structures are key to the success of any entrepreneurship program. In addition to
infrastructure, other factors such as culture, education and training, access to markets, funding and
finance, skilled workforce and strong teams, and regulatory frameworks are strengthening the whole
entrepreneurship ecosystem.
23
According to the World Economic Forum in 2012, the entrepreneurial ecosystem includes several
components that affect the whole process, as represented in Figure (6) below.
As outlined in Figure 6, there are six main components needed for creating an effective entrepreneurial
ecosystem: markets, culture, education and training, funding and finance, human and workforce
availability, and regulatory framework and infrastructure.
Accessible markets. The presence of accessible markets is one of the main pillars for establishing an
entrepreneurial ecosystem in the region—but Egypt has been slow to capitalize on these opportunities.
The major problem in accessing markets in Egypt is structural. According to the Doing Business Report in
2013, Egypt is considered one of the weakest countries in the world in enforcing contracts, ranking 152
nd
out of 184 countries. In Egypt, companies are built based on personal relationships rather than
enforceable legal contracts, which inevitably limit the amount of new business opportunities that can
enter the market. Another obstacle is the major disconnect between supply and demand. Products are
developed—not based on actual customers’ needs—but rather on the contingency that they might
create the need, leading to a great discrepancy.
Culture really matters. Entrepreneurial activities are highly manipulated by the cultural environment of
the region. Before 2010, changing the mindset was considered a critical challenge but progress has been
made—attributable mainly to the media and social media that covered hundreds of inspirational stories
about entrepreneurship. According to the Global Entrepreneurship Monitor Report, (Figure 7 shows
some positive trends in 2008, 2010 and 2012 in the perception about entrepreneurship) more
individuals than previously find entrepreneurship to be a good career choice, have less fear of failing as
an entrepreneur, and see more opportunities to become entrepreneurs.
Education and training. Since 2011, Egypt has placed great emphasis on providing programs on
entrepreneurship to secondary schools and universities, which has continued to increase but with
diversification towards technology. According to the General Authority for Investment and Free Zones,
Figure 6: Entrepreneurship Ecosystem
24
the information communication and technology sector accounted for 4.28% of social entrepreneurship
20
and GDP in 2011, which grew at a rate of over 11.5% between 2011 and 2012.
Raising funds and access to finance. Before 2011, entrepreneurs had been depending on banks, families
and friends to finance their projects. In 2010, entrepreneurs faced difficulties in getting commercial
loans due to the high risks associated with their projects. However, in the last four years, other forms of
funding such as angel investments, crowdfunding, venture capitals and private equity have performed
strongly.
Human and workforce availability. One of the most important components for any successful
entrepreneur is their initial workforce. Egypt lacks skilled labor, which is a primary obstacle to upgrading
growth companies. In 2010, Egypt ranked last compared to other countries in the level and quality of
education of primary and secondary schools on encouraging creativity, self-sufficiency and personal
initiative.
Regulatory framework and infrastructure. In terms of government policies, Egyptian entrepreneurs still
face several obstacles related to bureaucracy, taxes being imposed on new and growing firms, and in
obtaining required permits and licenses. Thus, most early-stage businesses tend to be informal. The Ease
of Doing Business Index for 2012 shows that rates for starting a business in Egypt has receded, especially
in terms of paying taxes and dealing with permits.
A. Entrepreneurship Regions in Egypt
Entrepreneurs are located across different urban and rural regions in Egypt, yet highly dense within
Greater Cairo. Approximately 40% of early-stage entrepreneurs and established business owners are
based in Cairo.
21
The Delta region ranks the second-most active entrepreneurial area in Egypt in terms of
20
A Social entrepreneur is an individual with innovative solutions to society’s most pressing social problems. He/she is ambitious and persistent,
tackling major social issues and offering new ideas for wide-scale change. www.ashoka.org
21
United States Agency for International Development Entrepreneurship Report
Figure (7): Egypt Perception Change on Entrepreneurship
25
number of entrepreneurially active adults concentrated in one region. In contrast, Alexandria, compared
to other regions, has the lowest percentage of early-stage entrepreneurs and established business
owners, although it is one of Egypt’s major cities. Looking only at technology startups based in Cairo,
Egypt may seem incredibly entrepreneurial. However, against the backdrop of struggling souvenir
hawkers in Luxor or subsistence farmers in Sharqia or Assuit, this impression of local entrepreneurship
might differ. Entrepreneurship development is very local and usually needs a concentration of talented
people.
B. Entrepreneurial Gender Gap in Egypt
Despite efforts to encourage Egyptian women to start their own businesses, their participation in the
newly rising entrepreneurship ecosystem still remains lower than expected. The early-stage
entrepreneurial activity prevalence rate for men is 13.1% compared to 2.4% for women. Almost 86% of
early-stage entrepreneurs in Egypt are led or owned by men, while women comprise the remaining 14%.
Compared to the years 2010 and 2008 (with participation rates for women in total entrepreneurship in
Egypt having reached 35% and 20%, respectively), 2012 has recorded the lowest rates of participating
entrepreneurial women in Egypt. In contrast, the percentage of entrepreneurial men has increased from
65% in 2010 to 86% in 2012. Typically, the main motive for men to become entrepreneurs is to pursue a
market opportunity (5.4%) rather than out of necessity (4.5%). For women, there is no difference
between opportunity and necessity motives.
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C. Egyptian Entrepreneurship Ecosystem: Strengths, Weaknesses, Opportunities and Threats Analysis
In Egypt it is rare to find entrepreneurs who are taking advantage of change to create innovative,
valuable products or business models that will lead Egypt into new growth markets.
23
Most Egyptian
entrepreneurs show little desire to grow and thus are not pursuing new markets or products. There is no
concrete data that explains this lack of desire to grow, but the entrepreneurial mindset may be part of
the cause (as discussed previously in the chapter).
Still, there are some exciting areas of innovation and entrepreneurship in Egypt—in particular, the
information and communications technology sector—that have a promising number of growth
entrepreneurs. In other sectors, such as food processing and textiles, the majority of Egyptian
entrepreneurs are simply duplicating other pre-existing businesses run by family members, friends or
neighbors. These duplicating entrepreneurs reduce risk via letting others test markets, products and
business models. This form of entrepreneurship does not contribute much additional value to the
economy, especially unfortunate given there are so few innovations being introduced in Egypt. This type
of entrepreneurship is one possible reason for the interest in franchising among investors like the Social
Fund for Development. Egyptian financial organizations prefer franchising because it provides an easily
understood, live financial model that has been tested.
Meanwhile, there have been many entrepreneurship initiatives recently implemented. Several gaps still
exist, however, in the system. Two critical gaps are commercial opportunity recognition and private-
sector collaboration. As stated previously, it is critical for entrepreneurs to be able to identify and react
to change by creating new products, business models or processes. Entrepreneurs also need to
recognize that change will most often occur in the market place. This means entrepreneurs need to
22
Global Entrepreneurship Monitor Report, 2012
23
Egypt Entrepreneurship Final Report, Where are all the Egyptian Entrepreneurs?, Mike Ducker and Deloitte, TAPER II project,
http://www.academia.edu/5193052/EGYPT_ENTREPRENEURSHIP_FINAL_REPORT_WHERE_ARE_ALL_THE_EGYPTIAN_ENTREPRENEURS
26
engage with market players and test new ideas. They need to understand how to investigate the
unknown—namely, how to capture opportunities about markets when there is no existing market
analysis. To do so, entrepreneurs must engage with market players to identify problems and
opportunities. Table (1) shows the strengths, weaknesses, opportunities and threats of the Egyptian
ecosystem in light of what was mentioned above.
Table 1: Egyptian Entrepreneurship Ecosystem – Strengths, Weaknesses, Opportunities and Threats Analysis
S
t
r
e
n
g
t
h
s
? Egypt’s unique geographical location in the
center of the world
? Large and young population with multilingual
capabilities
? Existence of local initiatives that support
Egyptian entrepreneurs
? Existence of incubators and accelerators
? More comprehensive training programs
provided to entrepreneurs
? New entrepreneurship media
? Increased desire from multinationals to support
entrepreneurs in innovation
? An increasing number of public-private
partnerships in Egypt after the 2011 revolution
? Other means of funding such as crowdfunding,
angel investments and private equity
? Different initiative setup—such as accelerators,
incubators, co-working spaces, angel groups,
crowdfunding platforms, venture funds and
startup training
? The growth of startup competitions
? A change in the entrepreneurial mindset
? New models recently developed whereby
nongovernmental organizations, universities,
private-sector incubators and accelerators,
government agencies, and mentors collaborate
to implement cost-effective entrepreneurship
initiatives
O
p
p
o
r
t
u
n
i
t
i
e
s
W
e
a
k
n
e
s
s
e
s
? Insufficient number of qualified graduates
? Low quality of education regarding innovation,
creativity, leadership skills and management
? Immigration of talented Egyptian entrepreneurs
? Political instability
? Lack of talented and trained employees
? Centralization of services promoting
entrepreneurs
? Absence of coherent network of entrepreneurs
? Access to land
? Harsh competition (internally and externally)
? High speed of technology development that will
be difficult for some entrepreneurs to cope with
? Bureaucracy
? Restricted policies and regulations, especially for
taxes and licensing
T
h
r
e
a
t
s
2. Key Challenges, Potential Risks and Means of Mitigation
Over the last four years, the Egyptian entrepreneurship ecosystem has kept a watchful eye on the future
orientation of enterprise growth; the international, regional and local media have also covered the
incredible changes. Young Egyptians want to be entrepreneurs, and now many more than before show
respect to others who have chosen to take this path. There has been an implausible growth in
entrepreneurship programs and events over the last four years and in the number of organizations and
people providing early-stage technical support and financing to entrepreneurs. Many of the existing
27
Egyptian entrepreneurship programs have strengthened and expanded in tandem with other donors’
efforts in that regard. Yet, progress is mostly due to a select number of Egyptian private-sector
individuals who have made a concentrated effort to make a difference. These individuals include Ahmed
El-Alfi and Hany Sonbaty, founders of Flat 6 Labs and Sawari Capital; Dr. Khaled Ismali, Chairman of
Endeavor and founder of KiAngles; Ihab El-Fouly and Tarek Fahim of Tamkeen Capital; Hossam Allam
and Con O’Donnell from Cairo Angels; Mohammed Gawdat and Samer ElSahn from Tahrir Square; and
Shereen Allam of AWTAD, which supports women entrepreneurs. These individuals contributed
considerable financial resources—and time—to change the ecosystem in Egypt.
24
Despite the efforts exerted, several other new entrepreneurship initiatives are still facing many
challenges. In asking some early-stage investors for their top criteria for investing in an early-stage
company, in almost every case they cite wanting to back a leader with a strong team and a big market
opportunity. Entrepreneurs in Egypt, compared to their global and even regional counterparts, struggle
to gain access to key growth factors, including talent, markets, government decision makers and land. In
terms of access to markets, many Egyptian markets are blocked either by new firms that are controlled
by state-owned entities or by large corporations that do not outsource to other firms that may add
potential value. Other challenges facing early-stage entrepreneurs and startups include lack of adequate
primary and secondary education; conducive regulatory environment; efficiently structured financial
infrastructure; thriving financial institutions with more lending capacity; training and awareness on
enterprise-management skills and enterprises‘ creditworthiness; liquidity of the financial intermediaries;
access among early-stage businesses to affordable business advisory services; credible and trusted
advisers to turn to in their decision making; the availability of risk-sharing instruments; and finally,
adequate entrepreneurial culture and awareness (particularly for women and youth). With no voice
within the government, Egyptian entrepreneurs will continue to face such headwinds.
Fortunately, there is a wide range of entrepreneurship programs and initiatives that exist to support
entrepreneurs to grow and expand their businesses besides the insufficient access to international best
practices, innovations, and partnerships.
Business risks associated with any entrepreneurial activity entail heavy losses, debt payments,
employment problems, stiff competition, market and political instability, conflicts, enforcement of law,
slow processes and decision making.
15
To mitigate risks associated with entrepreneurial activities, early-
stage businesses and startups have to conduct research (e.g., business strategies and plans, feasibility
studies, etc.). In addition, entrepreneurs should choose business opportunities that match their skills,
experiences and interests; compile key information about sectors, success stories and best practices;
identify mentors to guide their path; adjust capital sources needed for their businesses with the
business risks that might incur pursuing creativity and innovation; and identify main markets and
competitors.
16
24
United States Agency for International Development, “Egypt Entrepreneurship: Success, Challenges and the Lessons of Supporting Job-
Generating Entrepreneurs in Egypt,” Cairo, 2013.
15
http://www.exforsys.com/career-center/entrepreneurship/entrepreneurship-associated-risks.html. Accesses on June 25, 2014.
16
http://blog-businessandeconomy.blogspot.com/2011/10/how-to-overcome-business-risk.html. Accessed on June 24, 2014.
28
3. Facilitating Access to Finance
Access to finance is still a significant bottleneck blocking the creation, growth and success of startups
and small and growing companies. High administrative costs of small-scale lending, inadequate banking
skills for dealing with early-stage businesses, and deficiencies in financial infrastructure due to the lack
of available information and outdated early-stage financing approaches are the problems threatening
any startup’s survival.
Most of the SMEs and microfinance programs, which focus primarily on subsidized financing, have not
shown a correlation between their program activities and economic/job growth. While there is demand
for commercial capital for high/fast-growth entrepreneurs, the largest gap exists for companies that
need financing between USD 200 thousand and USD 1 million. These companies, therefore, often rely on
capital provided by accelerators, angel investors, crowdfunding platforms and early-stage venture
capitalists.
For entrepreneurs focused on growth, 47% of them considered access to finance to be a major obstacle.
There are major financing gaps for high-growth businesses, as evidenced by the fact that 83% of the
fastest-growing companies, called gazelles, stated they self-financed their business growth. For these
high/fast growing entrepreneurs, bank and debt financing are mostly through government and
microfinance organizations that focus on lending to micro, small and medium enterprises (MSMEs) with
high-growth potential. Wherein lies the problem is that only a handful of these entrepreneurs who are
ready for investment from a major venture capital firm have reached that growth state that would
qualify them for financing. On another note, and moving up the finance chain, most private equity firms
have been proven to be very risk adverse towards further investing during political crises.
The real heroes in early-stage investment are those Egyptians who have built accelerators/incubators
and crowdfunding platforms, or who have invested as individual angels or through angel groups. A great
deal of the progress over the last four years has been driven by small, successful groups investing a
significant amount of their own financial resources and time to change the ecosystem in Egypt. These
include Flat 6 Labs, Sawari Capital, Endeavor, KiAngles, Tamkeen Capital, Cairo Angels, Tahrir Square,
AWTAD, Innoventures, Shekra, Beltone MidCap, Union Capital and many more.
A. Bank and Debt Financing
Bank and debt financing are usually cheaper than equity financing, yet it is still very difficult for any
early-stage entrepreneur to receive such funding in any country, especially in Egypt. Only 7% of new
investments and working capital in Egypt is financed externally through the banking sector, compared to
more than 13% in the Middle East and North Africa region, and 18% in the rest of the world. Egyptian
banks often prefer to extend credit to large corporate clients and connected individuals who
are considered less risky, while startup entrepreneurs remain financially constrained. After the
revolution it has become even more difficult for any type of SME to obtain commercial lending as banks
have been financing the growing demands of the government debt. Moreover, banks lend inefficiently
and are not able to expand lending to early-stage businesses significantly while also managing costs and
risks. Hence, equity financing for early-stage businesses, coupled with the necessary business
development services to ensure their growth and sustainability, are of utmost importance.
B. Venture Capitalists
Venture capitalists are an important source for providing the high-growth, entrepreneurial SME
community with much-needed financing. Types of venture capital include seed and startup financing
and early-, expansion- and mature-stage financing. In Egypt, the government has launched initiatives to
29
enhance the venture capital industry, such as the adoption of the law No. 8-1997 and the Capital
Markets Law No. 92-1995, which grants venture capital firms tax exemptions. According to the Middle
East and North Africa Venture Capital Report of 2013, published by the Middle East and North Africa
Private Equity Association, venture capitalists typically invest in startups and non-listed, early-stage
small businesses. The investment commitment over the life of the deal averages USD 3 to 5 million,
reaching in some cases up to USD 15 million. A typical exit plan is usually through initial public offerings,
mergers and acquisition, management buy-out or trade sale. Despite venture capital not being confined
solely to technology investments, technology is often a core factor that creates the level of scalability
required in a venture capital deal. According to the Global Venture Capital and Private Equity Country
Attractiveness Index Report produced by Ernest and Young, in 2009 Egypt ranked 67
th
globally in terms
of a venture capital ranking index, while in 2012 it ranked 56
th
—the country at that time still in the
midst of a fluctuating and turbulent environment. Index ranking is based on weighted average
assessment of key performance factors including (1) economic activity; (2) depth of capital markets; (3)
taxation; (4) investor protection and corporate governance; (5) human and social environment; and (6)
entrepreneurial culture and deal opportunities. Even with vacillating rankings across the last few years,
Egypt still occupies a midpoint position among major developing African and North African regions.
C. Angel Investors
Angel investors are unlike formal venture capitalists. They have different investment criteria, tending to
invest more on intuition rather than on the precise valuation of a company balance sheet. That angel
investors rely so heavily on their intuition is because they typically invest in the very early stages of a
company, when the entrepreneur may not yet have a well-articulated business plan. Angel investors
play a role in providing substantial managerial knowledge and access to a company’s personal networks.
In addition, business angel investments help mitigate information asymmetries by providing a positive
signal of the venture’s quality. Angel-investing activities are still considered new to the Egyptian
ecosystem.
D. Crowdfunding
Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new
business venture. Crowdfunding makes use of the easy accessibility of vast networks of friends, family
and colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word out
about a new business and attract investors.
Crowdfunding has the potential to increase entrepreneurship by expanding the pool of investors from
whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists. This
type of financing is beneficial to entrepreneurs as it provides access to capital, hedges risk, works as a
marketing tool, allows crowdsourcing and brainstorming, and introduces loyal customers easier than
any other source of traditional funding and provides the opportunity of pre-selling.
However, the concept in Egypt is still new and only a few companies are engaged in crowdfunding—
such as Shekra and Shariqty—which do not rely on their technology platforms but on their hard-working
management teams to help pipelines of entrepreneurs who deserve the investments.
30
4. Access to Nonfinancial Services to Entrepreneurs
A. Accelerators and Incubators
Accelerators and incubators are innovative investment vehicles and business service providers that have
made a novel contribution to advancing entrepreneurship around the globe, helping an entire
generation of young companies—and particularly high-tech startups—to grow and thrive. Business
incubators typically focus on attracting an array of pure startup companies and firms at an early stage of
development. The key distinguishing feature of an incubator is its ability to give startups preferential
access to a network of potential partners. Incubators contribute to economic development by creating
new, high-quality businesses, improving business competitiveness, generating job opportunities, and
developing new, innovative products and services.
In 2010, incubators in Egypt were driven by different government programs, which have shown limited
success. The Technology Innovation and Entrepreneurship Center and the Social Fund for Development
are the main government-led incubators. There are also six private-sector support accelerators and one
nongovernmental organization focused on social enterprises that have helped to launch 70 startups.
Three of the private organizations are focused on information and communication technology, and the
majority are in Cairo. All of them provide seed funding as well as a number of services including training,
mentoring, awareness, advisory and connections. While all of these private-sector accelerators and
incubators have received funding from a small, select group of successful business people, the majority
of their funding has come from their founders. Many of Egypt’s top startups owe their genesis to these
private-sector accelerator/incubator groups, with many of these enterprises receiving follow-on
investments.
A high number of seed deals were driven by Flat 6 Labs as they take in six to seven teams every cycle
and provide seed funding, mentoring and coaching, training and connections over a four-month period.
Initially Flat 6 began working in technology and slowly moved into other sectors, including alternative
energy and bottom-of-the pyramid products. Flat 6 Labs are considered the most active
accelerator/incubator in Egypt and one of the best in the Middle East and North Africa region.
B. Mentoring and Coaching
Mentors and coaches are typically individuals who volunteer their time and efforts to provide advice,
knowledge, connections and encouragement to entrepreneurs. Mentoring is critical for ensuring a
sound entrepreneurial ecosystem. In 2010, Injaz and Endeavor were utilizing volunteers from the private
sector to support entrepreneurship programs. Since 2013, mentoring and coaching have become two
important tools in the Egyptian entrepreneurship ecosystem. The new accelerators and incubators have
leveraged the need for mentors for the growing number of startup events like Startup Weekend and the
Startup Cup.
31
5. Stakeholders on the Map
According to the United States Agency for International Development’s Egypt Entrepreneurship Report
of 2013, some of the current and influential stakeholders in the Egyptian entrepreneurial ecosystem
include the following
17
:
Incubators/ Accelerators
? Flat 6 Labs
? Tamken Capital
? Innoventures
? Tahrir Square
? Inno101
? Nahdet El Mahrousa
Nongovernmental Organizations
? INJAZ
? Endeavor
? Middle East Council for Small Business and
Entrepreneurship
? AWTAD
Co- Working Spaces
? The District
? Al Maqqar
Government Entrepreneurship Initiatives
? GAFI Bedaya Center
? GAFI SME Clinic
? The Innovation and Entrepreneurship Center
? Industrial Modernization Center
? Social Fund for Development
Universities
? American University of Cairo’s Women’s
Entrepreneurship and Leadership Program
? Nile University
? British University in Egypt
? Enactus
18
Early-Stage Investors
? Cairo Angels
? Shekra
? Sawari capital
? Ideavelopers
? Vodafone Ventures
? KI Angels
? MC Egypt
? Abraaj Group
17
Egypt Entrepreneurship: Success, Challenges and the Lessons of Supporting Job-Generation Entrepreneurs in Egypt, 2013, USAID.
18
An annual student competition through which students develop social enterprises to solve problems in their community
32
6. Conclusion and Recommendations
Growth-focused entrepreneurs are major job creators. In many ways the 2011 revolution has marked
the beginning of a new Egyptian entrepreneurship ecosystem that now focuses on growth
entrepreneurs driven more by effective stakeholders than by government agencies or traditional
business associations. These stakeholders include a small group of individuals from the private sector
who have stepped in and spearheaded an entrepreneurship development movement in the country.
These individuals have set up accelerators, incubators, co-working spaces, angel groups, crowdfunding
platforms, venture capital funds and startup training initiatives. Egypt has also seen in the last four years
passionate and professional managers from various entrepreneurship NGOs and private universities
assume leadership roles to help accelerate their programs. Despite some universities being hindered by
their governance structures in their ability to support young entrepreneurs, most still manage to drive
their initiatives with the support of student groups. The majority of these initiatives are also supported
by hundreds of new private-sector volunteers who mentor, guide, advise, and teach—and sometimes
invest as an angel investor. Due to the growth of the Egyptian ecosystem and support from different
donors, there is now a greater positive perception of entrepreneurship in Egypt. These initiatives have
established Egypt as one of the major entrepreneurship hubs in the Middle East and North Africa region,
a distinction which has been highlighted in the international press. While these private-sector leaders,
nongovernmental organizations and youth groups led the new wave of entrepreneurship activities in the
ecosystem, traditional players have played a much smaller role. Government agencies and traditional
business associations that drove the entrepreneurship activities before 2010 have been hampered by
the political instability of the last three-and-a half years, a constraint that has led to new models being
developed whereby nongovernmental organizations, universities, private-sector
incubators/accelerators, government agencies and mentors collaborate to implement cost-effective
entrepreneurship initiatives.
While the growth of these new initiatives during a politically unstable time is inspiring, many new
initiatives are still narrowly focusing on startups, technology and social entrepreneurship. There is not
much support for pure growth-focused, nontechnology and nonsocial entrepreneurs.
Entrepreneurs are also facing many constraints such as finding the appropriate sources of finance and
the right talent or product/market to grow their company. The entrepreneurial culture is nonexistent
and Egypt’s education system ranks among the poorest in the world—two major impediments that
reduce the potential to start, expand or grow a business. Entrepreneurs have limited access to many of
the markets controlled by stated-owned entities, government joint ventures or large corporations that
tend not to outsource. Early-stage entrepreneurs struggle to get access to land and support services due
to layers of bureaucracy and a lack of voice to advocate for a better business environment. The
ecosystem emerged with a bang, but it’s only the beginning of a long and difficult journey.
Recommendations:
? Grow the ecosystem. Growing the ecosystem is much more important than growing a program.
It is important to reach out to different entrepreneurship initiatives and private-sector
volunteers. Expanding to secondary locations, which are still dependent on support from Cairo,
is also important. Networking and collaboration among all the ecosystem stakeholders should
be the top priority.
? Engage people. Women and young entrepreneurs need more attention. Egyptian women
represent 50% of the science and engineering graduates and should not be pigeonholed into
industries that represent less than 1% of global markets. Women-focused entrepreneurship
33
programs need to expand their targets away from crafts and home-based businesses and focus
more on how women can manage interpersonal relationships to overcome major cultural issues.
Moreover, mentors, coaches, angels and volunteers are the unsung heroes of the ecosystem
and should be treated as such.
? Recruit talent. The biggest determinant of an entrepreneur’s success in Egypt is the
entrepreneur’s characteristics, including his/her level of motivation and his/her team. Smart
policymakers understand that in the global world today retaining and recruiting talent
(especially entrepreneurs) in your country is a battle you must win to grow an economy. The
objective of any good ecosystem is to attract these people to leave their safe jobs and to start
their own businesses. In doing so, a country can extract incredible additional economic value out
of these individuals as founders of startups rather than as employees of large corporations or
government agencies.
? Support new initiatives to establish growth-focused entrepreneurs. The majority of ecosystem
players and initiatives have focused on early startups over the last four years that have, in turn,
helped to develop more startups. It is time now for new entrepreneurship initiatives to support
established growth entrepreneurs or those companies that are viable but need support to find
their next growth surge. The only ecosystem player who supports these growth entrepreneurs is
Endeavor, but there is a need for more of these activities, which include the following:
o Raise more capital: There is a need for programs that can help to support more capital
for growth-focused entrepreneurs.
o Improve access to land: The time, money and frustration involved in expanding a
physical business in Egypt are among the worst in the world. The development and
control of industrial lands needs to be rethought with early-stage entrepreneurs at the
table to hear their ideas.
o Provide specific expertise as advisers: Entrepreneurs at this stage of growth usually
have very specific needs, and only a few experts can provide this guidance. Programs
need to be more selective about the connections that should be made.
o Provide guidance on team building: When a company rapidly grows, it needs to bring in
experts to help manage and build the team. This transition often means the company
must give up some control on management decisions, and thus it needs mentors who
can provide guidance on this.
o Promote industry collaboration: The success of the Egyptian entrepreneurship in
information and communications technology is driven by the sector’s collaborative
nature. Other industries should follow the sector’s example to benefit from the constant
flow of innovation and new market value.
? Establish a platform for entrepreneurs to voice their concerns and problems. Early-stage
entrepreneurs need a strong platform to advocate directly with the government. Thus, a
platform to voice concerns and problems should be created.
? Strengthen the regulatory framework and infrastructure. Formal legal and regulatory
structures should be made more accessible to most entrepreneurs so as to lower their
transaction cost, enabling them to grow. Regulatory institutions must be functional so as to
proactively move against monopolies and other predatory practices. Moreover, the state should
still be required to play a significant role in supplying basic infrastructure, investing in human
resources and narrowing the gaps between regions. State affirmative action is needed as well to
remove age- and gender-related discrimination against entrepreneurs.
? Increase access to information. Access to information lies at the very heart of reforming the
entrepreneurship ecosystem in Egypt. Most current problems experienced by entrepreneurs in
Egypt are rooted in their lack of information and their asymmetrical access to it. Information is
34
necessary for both market contenders and the state. On one hand, public information must be
made equally accessible to all market actors. This act requires a variety of legal and institutional
reforms that would collect data and make it available. On the other hand, information about
entrepreneurs and enterprises must be made available for state agencies. By doing so, the state
can gather and process information so as to set accurate plans and strategies. Moreover, making
this information public is the only way by which private-sector entrepreneurs can access
financial and nonfinancial resources across the board. However, informational problems and
solutions are not solely technical. They are social and political as well, requiring the building of
mutual trust between economic actors—who are themselves social actors—and the state.
? Foster awareness on the entrepreneurship culture in general. By promoting cultural awareness
among young people, as actors and users, Egypt will be enhancing their sense of initiative and
entrepreneurial spirit. Access to culture and active participation in cultural activities can
reinforce young people’s well-being and their awareness of sharing a common cultural heritage.
35
CHAPTER 3: STREAMLINING BUSINESS
PROCEDURES
1. General Authority for Investment and Free Zones
Between 2004 and 2005, the General Authority for Investment and Free Zones began setting up one-
stop shops in Cairo, Alexandria, Assuit and Ismailia. The Cairo One-Stop Shop began operating in late
2004 and moved into permanent headquarters in January 2005. The one-stop shops in Alexandria,
Assuit and Ismailia followed later that year.
The General Authority for Investment and Free Zones added a fifth one-stop shop in the Tenth of
Ramadan City in 2013 to primarily serve the Sharqia governorate. Currently, the one-stop shop in Cairo
is the central hub that serves the entire country (including Dakahlia, Damietta, Fayoum, Giza, Gharbiya
and Sharqia), and therefore has the highest volume of registrations. Like in Cairo, the one-stop shop in
Alexandia has its own building that services investors in the city and the northern coastal governorates.
Meanwhile, Assuit’s one-stop shop occupies a single floor in the governorate building and covers the
southern governorates of Aswan, Sohag and the New Valley. Finally, Ismailia deals with the Canal
governorates, Port Said and Suez. With guidance from an interministerial committee, the General
Authority for Investments and Free Zones took leadership of the startup reform efforts in Egypt. It
streamlined procedures, cut costs, eliminated the minimum capital requirement and reorganized the
one-stop shop several times to make the process of incorporation faster, cheaper and easier. Reforms
included integrating more agencies, such as tax authority, into the one-stop shops, introducing a flat fee
structure and eliminating the bar association fees.
For micro, small and medium enterprises (MSMEs) and entrepreneurs, formal incorporation has many
benefits. Legal entities outlive their founders. Resources are pooled as shareholders join forces. The
legal form under which the company is registered matters: Evidence shows that marketing business
incorporation had helped increase the number of businesses established. In 2005, the General Authority
for Investment and Free Zones registered 5,807 new companies. However, in 2012 the number of new
business established rose to
7,832. The increase was
significant for the limited
liability companies, the main
form for MSMEs.
In 2006, the International
Finance Corporation began
working with the General
Authority and five other
government agencies to
simplify key administrative
procedures for starting a business as part of a pilot program in Alexandria. The International Finance
Corporation noted in its post-operation comments that relations between the government agencies was
one of the most challenging project aspects—and one that took a meeting among executives to rectify.
36
Today, there is a strong presence of ministries and other government entities in the one-stop shop to
respond to investor inquiries and provide information and services. The key aspects are as follows:
? A high number of entities are represented in each branch (43 in the Cairo, 29 in Alexandria, 12 in
Ismailia and 7 in Assuit).
? Three of the most important delegated representatives (the public notary office, the commercial
registry and the tax authority office) are now electronically connected to the central database,
resulting in more efficient, integrated services with a high degree of reliability and accuracy.
? The General Authority for Investment and Free Zones applies an incentive system to the ministry
and other representatives, in addition to certain nonmonetary privileges, to ensure a motivating
work environment and loyalty.
? The one-stop shop fully involves other entities in developing workflow processes through the
automation of services.
? Affiliated governmental entities (the Ministry of Tourism, the Ministry of Defense and the
Industrial Development Association) hold regular meetings to tackle difficulties facing investors.
? The General Authority for Investment and Free Zones has memoranda of understanding with
various entities to guarantee effective cooperation for the investor (including with the
commercial attaché office to help in promotional efforts, with the Social Fund for Development,
and with other civil society groups such as business associations).
2. Social Fund for Development One?Stop?Shop Service
The Social Fund for Development’s one-stop-shop entities are service units where agency
representatives entrusted with issuing documents and licenses for small enterprises are grouped in one
place pursuant to the Law on the Development of Small Enterprises 141/2004 and its executive
regulations. These service units are part of the service complex that includes, in addition to the service
unit, an integrated loan center.
The unit comprises government representatives and Social Fund for Development staff to assist in
issuing the following:
? Tax card
? Commercial registry
? Temporary license for startup enterprises (valid for 30 days)
? Final license
? National number for startup and existing enterprises
3. Tamayouz Centers
A. CAIRO 2010
On Tuesday, April 13, 2010, the minister of Trade and Industry, the minister of Telecommunication, the
governor of Cairo, and the chair of Cairo Chamber of Commerce opened the groundbreaking public
service office called Tamayouz. This pilot Tamayouz center is the first service office in Cairo that provides
one-stop-shop services to individual traders and partnerships from different regional areas. The
Tamayouz center brings together the services of eight different agencies under one roof. These agencies
include Real Estate Publicity, Tax Authority, Insurance Authority, Commercial Registry, Import and
Export Control Organization, Customs Authority, Cairo District Licensing, and Chamber of Commerce.
37
In an area that exceeds 750 square meters of automated state-of-the-art office space, clients are met by
professional reception employees who provide them with information, enter their preliminary
identification data, and direct them to the appropriate agents in Tamayouz. To ensure full transparency
and efficiency, Tamayouz provides its services to clients through the front office, keeping the procedural
work to the back-office agency representatives who are connected to their respective agencies.
Required documents and fees are found on online advisory systems. Printed brochures, as well as
explanatory signboards, are located everywhere in the center.
Since its opening on March 28, 2010, Tamayouz has been attracting large numbers of customers. The
center has been providing around 350 services every day, in addition to responding to over 700
information requests. However, high customer traffic never meant the dilution of quality. “There is no
end for development. We also opt to enable provision of all these services through a single agent to
achieve a real single window model,” said Dr. Hassan El Gogary, the project manager.
The major advantage of Tamayouz is its focus on customer service and satisfaction. The young staff of
Tamayouz were very well selected and trained for an entire year by the consultants of the USAID-funded
Technical Assistance for Policy Reform Project and the Cairo Chamber of Commerce. The consultants
trained the staff on customer service, business etiquette, service quality, and computer and language
skills as well as provided a focused training on participating agencies’ business procedures. To achieve
even more integrity, Tamayouz awards incentives to its staff based on performance and customer
satisfaction.
Customers of Tamayouz no longer have to visit five or six different governmental authorities to establish
a business or add or change an activity. Furthermore, Tamayouz has managed to cut company
establishment time to one-third of the time consumed when services were obtained via individual
governmental agencies; in cases of tax and insurance services, procedural time was reduced from 30 to
three days.
B. ALEXANDRIA 2012
On June 28, 2012, Tamayouz Alexandria was officially opened by U.S. Ambassador Ann Patterson;
Minister of Supply and Internal Trade, HE Attya; and Federation of Egyptian Chambers of Commerce
Chair, Ahmed El Wakil. The center is the first of the planned national network. It will serve as a model
and as a center of excellence, a proving ground and training center for Tamayouz implementation
nationwide. The opening was a success and initial public response was excellent. In the first 10 days of
operation, the center helped 1,111 customers and provided 826 services, including 250 services to new
companies.
Tamayouz is a success but there are still challenges. The Egyptian Competiveness Program worked with
the Federation and the Alexandria Chamber to improve the service delivery further by reducing the
opportunities for corruption. The approach included (1) a baseline survey to quantify the improvement
and the impact of the center; (2) replacing the Tamayouz manager; and (3) increasing the marketing
campaign to inform potential customers about the center, as well as the services’ cost and estimated
time.
C. OTHERS
The United States Agency for International Development and the Egyptian Competiveness Program
supported the Tamayouz Center in Alexandria and developed and opened a new Tamayouz Center in
Qualyoubia in 2013. Due to the success of the Qualyoubia Tamayouz center, the Egyptian
Competiveness Program began work on similar centers in Port Said, Sohag and Assuit. The work on
38
these three new centers are well underway (the Port Said center has already been opened)—and under
the competiveness program’s Wind-Up Plan, these centers (once opened) will continue operating as
prior to the program’s closing.
4. Suggested Reforms and Recommendations
A. Reforms to Existing One-Stop Shops and Replications
Although the results indicate that the one-stop shop is generally satisfactory (i.e., excellent treatment,
relatively short time for issuing licenses, reasonable fees, delivery of services through a single window),
establishing a project on a wider scale would require a more thorough assessment of the following one-
stop-shop factors:
? effectiveness of its setup;
? achievements to date;
? service limitations;
? service management;
? appropriateness of its resources and the timelines of its service delivery;
? customer response, and;
? relationship with other local government entities
However, the following constraints, coupled with the center’s non-conducive operating environment,
reduce the center’s effectiveness and can undermine its role as a one-stop shop aiming at alleviating the
regulatory and paperwork burden to SMEs
? Lack of publicity on center’s role;
? Absence of an authority to issue licenses as per district rules and regulations;
? Local administration staff’s unfavorable attitude and their violation of the governor's
instructions;
? Lengthy and cumbersome procedures;
? Complicated, conflicting legal requirements and conditions;
? Entities’ regulations and directives are outside of the center’s control;
? Confinement of center’s role to facilitating the delivery of industrial licenses only (this limits the
number of licenses issued through the center as it is easier, less risky and less costly to start
commercial and service activities).
Such analysis would help in designing an effective SME policy. The policy design should evolve through a
transparent, participatory consultative process with stakeholders and beneficiaries. Policy architects
should be responsive to local and regional needs and coordinate at the local and national level with
different entities involved in SME development. The interactive consultation with local government and
institutions should take place through a direct link with enterprises to address their needs, problems
and concerns and provide them with realistic and factual inputs on policy design. Fine-tuning policies
through follow-up, assessment, and input during policy implementation phase is equally important. This
step would require conducting the necessary local and regional studies and surveys and then articulating
and implementing the appropriate support programs.
Reforming the regulatory framework for SMEs should entail an explicit understanding of the overall
economic importance of this sector within a broader strategy for creating an enabling environment for
SMEs. Central to this policy objective is the reforming of the financial-sector regulatory framework. The
39
reforms should encompass changes in banking regulations so as to allow banks to recognize the special
status of SMEs, provide needed financial services to this important sector, and enhance existing services.
Also, establishing specialized financial institutions should help foster competition in the SME lending
market. This act will require developing the standards governing the delivery of financial services.
Against this backdrop, the role of the one-stop shop must also to be reinforced and enhanced. To
achieve this goal, several actions must be carried out, taking into consideration the suggestions and
recommendations of the center's staff.
? Governorates should be carefully selected for replication. Considerations such as local density of
SMEs, the rate of their formation, the rate of closure, average per capita income, and the
availability and capability of existing delivery channels—and their selection—are all important
factors that must be carefully scrutinized and dealt with in advance in all potentially
participating governorates.
? The citizen requiring the licenses for activities that should be approved by the supplier should be
allowed temporarily to obtain water and electricity for his/her firm until approval of the
Inspection Committee is received.
? The Environmental Affairs Agency should have subsidiaries in the governorates to approve
industrial activities, as approvals of such activities have to be issued at the headquarters in
Cairo.
? Certain building regulations—such as those for bakeries and plastic factories—have to be
reconsidered and consistently enforced. For example, recent directives of the Environmental
Affairs Agency stipulate that plastic factories should not be built in places adjacent to residential
buildings—a condition that cannot be applied in Mansoura, for practical reasons. In addition,
bakeries were allowed to use natural gas although using natural gas is still generally prohibited.
? To face the difficulties associated with the social insurance for small firms, owners, and workers,
it is recommended to establish an electronic connection between the Social Insurance Authority
in Cairo and the Social Insurance Directorate in the governorates. This electronic connection
would help to process timely and accurate procedures and would give a true picture of each
subscriber's status.
? The representative of the industrial safety should be accorded the authority given to the
tripartite committee comprising representatives of the ministries of manpower, health and
housing.
? Representatives of the tax administration, health, defense and fire should be included in the
center's structure.
? Adequate staff should be available to reduce the representatives’ workload and to secure the
permanent availability of substitutes.
? Adequate and efficient means of communications between the center and its customers should
be provided.
? An awareness campaign and effective publicity should be organized to promote the center's
activities and gain support for its efforts.
B. General Recommendations
Other diverse but equally important steps that need to be taken include the following:
? Establishing an institutional mechanism to identify SMEs so as to entitle them to benefit from
the facilities (that will be) provided exclusively for the sector.
40
? Reviewing labor and social legislation to determine whether such legislations meet the needs of
SMEs and to ensure compliance with social security regulations.
? Updating data sets to develop a simple, unified definition for SMEs.
Availability/accuracy, accessibility and adequacy of data must be ensured as follows:
? Availability/Accuracy. Regularly updating the establishment census for SMEs is suggested. Such
regular updating will be extremely useful not only as a frame for sample surveys but also as a
system for follow-up and monitoring.
? Accessibility. The issue of accessibility of data sets collected through governmental and
nongovernmental agencies needs special attention. Integration data sets from different sources
should be considered. A database structure needs to be agreed upon by stakeholders.
? Networking. Networking among SMEs stakeholders is urgently needed; it can be achieved by
launching a website that provides information relevant to SMEs in Egypt, a blog space to
exchange ideas, and/or an interactive communication space for SME users.
? Policy issues should be discussed among government officials, credit providers, donor investors,
involved institutions, business associations, SME experts—and before all entrepreneurs and
borrowers.
? Resources should be allocated to contend with relevant environmental conditions.
41
CHAPTER 4: VALUE CHAIN ANALYSIS
1. Textile Sector in Egypt:
A. Sector Overview:
The Egyptian economy witnessed a noticeable turnaround after the Jan 25 revolution toward a more
inspiring economy premised on more equity for the masses, less tolerance of monopolistic practices,
and greater shared value of economic outcomes. However, Egypt’s ranking in the world competitiveness
report has deteriorated, its ranking in 2011 having fallen twenty places down to the 94
th
position (out of
142 countries). Its best sub-ranking is in market size (27
th
), whereas its worst sub-ranking is in labor
market efficiency (141
st
). Also, technology and innovation pillars continue to worsen. If this economic
downturn continues and no drastic changes are made, Egypt may lose its competitive position in many
sectors through the coming years.
Despite setbacks in the Egyptian economy during the last four years, still one of the main sectors that
enhances the Egyptian export position around the world and is considered to be a main pillar for growth
is the textiles sector. It is one of Egypt’s most important industrial sectors, accounting for 25% of the
country’s total industry and nearly 30% of all industrial labor employment. Cotton and textile fabrication
ranked third in Egyptian exports and accounted for 25% of all Egyptian cumulative exports in 2010.
19
Before 1973, the textiles industry—especially cotton—was a leading and competitive industry for the
Egyptian economy. However, after the establishment of the Open Door polices, and especially during
the 1980s, textiles started to lag behind. In 1993, the total shares in the textiles industry was falling
behind that of oil, petroleum and tourism. In 2003, the industry's total production reached around 27%
of the total industrial production in Egypt. Between the years 2005-2008, the sector had experienced an
average growth of 10% due to the Qualified Industrial Zone Protocol with the United States. It is highly
significant that Egypt’s textile garment industry is one of the very few manufacturing processes that
have the complete supply chain within the country’s resources. Although the public sector has
historically dominated most of the activities in this sector, the private sector is now playing a major role.
It is worth mentioning that the Egyptian agreements with the European Union, the United States and
the Qualified Industrial Zone all had shifted the sector to a state of continuing growth. The industry has
since then been unceasingly working on enhancing its productivity and its competitiveness by trying to
adopt the latest technology. As a result, the textiles industry has become a major contributor to the
local economy and the international market as well—despite major challenges facing the sector such as
lack of qualified trained labor (according to international standards). This lack of skilled labor is due
primarily to a weak research and development and technology framework. However, Egyptian unskilled
labor is very cheap, which yields a comparative advantage for the whole sector among its rivals. Yet,
achieving a competitive advantage is the major challenge ahead.
B. Sector Positioning
Today, the textiles industry contains more than 3,000 companies, with both private and public
enterprises ranging between companies that employ only two laborers to those employing as many as
19
http://www.alexbank.com/Uploads/documents/research/Towards%20A%20New%20Egyptian%20Economic%20Reform.pdf
42
20,000 laborers. The textiles industry employs around 8% of the total industrial workers and 2% of the
whole labor force, including government and agriculture labor. In terms of exports, the industry
accounted for 13% of total exports in 2002. Between 2006-2010, the government increased the annual
textile exports by 3 billion EGP. Although there is stiff competition internationally from the United
States, China, Turkey, India and Israel, the Egyptian economy shares around 35% of the world market.
Today the textiles industry is attracting foreign direct investments from around the globe. Total
investments (foreign and local) have risen by an average of 9.5% per year over the past four years.
20
The industry’s main export products are fibers, yarns, cotton and blended fabrics, carpets and floor
coverings, apparel and tailoring, and knitted apparel. The main governorates that produce textiles in
Egypt are Alexandria, Qualyoubia, Gharbiya and Cairo.
The textiles industry is characterized by the existence of both public and private enterprises. Despite the
dominance of the public enterprises in the sector, private companies operate in the industry, which
includes SMEs and informal workers. Egyptian law No. (141/2004) differentiates SMEs based on two
criteria: the enterprise’s capital and the number of employees. Small enterprises have capital between
EGP 50,000 and EGP 1 million and less than 50 employees. Medium enterprises have capital between
EGP 1 and 50 million and more than 50 employees. The General Authority for Investment and Free
Zones’ data on the textile sector for small enterprises is shown in Table (2).
Table 2: Number and Capital of Newly Established Small Companies in Textile Sector (Values in EGP Million)
Source: General Authority for Investment and Free Zones, 2014
The number of established small companies in the textiles sector increased steadily from 2009 to 2013,
despite political instability in Egypt after 2011. Egyptians, compared to Arabs and foreigners,
contributed the most capital to these established small companies, which shows that Egyptians have
access to various sources of funding.
The General Authority for Investment and Free Zones’ data for newly established medium enterprises in
the textile sector is shown in Table (3).
20
20
“High Financial Profitability and Low Economic Returns,” Selim Tarek and Wissa Yasmine, April 2012, The American University in Cairo.
Textile Sector (Small Enterprises) 2009 2010 2011 2012 2013
Number of Companies Established 82 141 111 200 321
Total capital 30.64 60.25 44.25 56.13 71.65
Group
Contribution
in Capital
Egyptians 18.71 50.70 30.59 32.25 55.40
Arabs 2.47 4.46 6.85 20.81 13.00
Foreigners 9.46 5.09 6.81 3.07 3.25
43
Table.3 Number and Capital of Newly Established Medium Companies in Textile Sector (Value in EGP Million)
Source: General Authority for Investment and Free Zones, 2014
The number of medium companies established in this sector was not big compared to the small
companies. These lower numbers imply that there is a need to support owners of these medium-sized
companies as they are key players in the supply and the value chain of this sector. The major
contributions in capital were from Egyptians and Arabs, while foreigners’ contribution decreased
considerably due to the political and economic instability following 2011.
The significant discrepancy in the number of small and medium companies established and Egyptians’
greater contributions in capital to small companies indicates the willingness of many domestic
entrepreneurs to invest in and start small companies in the textile sector.
Therefore, it is imperative that the textile industry capitalize on this opportunity for development. It
constitutes a major contributor to the nation's exports, as it is ranked second after food processing in its
share of exports by the manufacturing sector. High domestic and international demands for the sector’s
different products such as yarn, cotton, and carpets represent a major opportunity for the entire
country. Woven apparel represents the largest category of the textiles sector that assisted Egypt to
become the second largest exporter to the Middle East and North Africa region.
21
Sector opportunities: Cheap labor and low energy cost are the two most important factors that give the
country a competitive advantage for this sector. Moreover, the whole supply chain for the textiles
industry is present within the Egyptian economy.
Sector challenges: That the entire production process is inside Egypt constitutes an asset and a liability,
particularly after the Free Trade Agreements that have exposed Egypt to the fluctuations and
competitiveness of the international market. If any of the stages of production fail to adapt to the
international manufacturing and trading patterns, the entire industry will be under high risk. The weak
technological base of the textiles sector and the poor quality of textiles produced in Egypt over the past
30 years, excluding the apparel industry, has made it difficult to compete with the higher-quality and
lower-priced textile products imported from China.
21
High financial profitability and low Economic Returns, Selim Tarek and Wissa Yasmine, April 2012, The American University In Cairo.
Textile Sector ( Medium Enterprises) 2009 2010 2011 2012 2013
Number of Companies Established 21 38 23 64 101
Total capital 74.08 248.23 156.77 333.02 435.04
Group’s
Contribution
in Capital
Egyptians 45.75 125.13 89.56 57.45 112.23
Arabs 8.50 28.16 7.00 223.19 303.38
Foreigners 19.83 94.94 60.21 52.38 19.43
44
C. Sector Value Chain and Linkages
Egypt has the only fully vertically integrated textile industry in the region, with the entire production
process—from the cultivation of cotton to the production of yarns, fabrics, and ready-made garments—
carried out domestically. However, there is a need to establish textile clusters to enable the firms to
operate more optimally.
The major players in the Egyptian textile value chain can be divided into three segments: growers
(cotton farmers); processors (ginning factories, weavers/clothmakers and ready-made textile
producers); and sellers (exporters and retailers).
22
See Figure (8).
Figure 8: Egyptian Textile Value Chain
Source: (Abdallah, 2012)
Growers:
The Egyptian government is the sole buyer of the replanting seeds in Egypt. Egyptian farmers are free to
plant any crop they choose, but if they are planting cotton, the government specifies the areas for
planting each variety of cotton.
Processors:
The processing segment includes the production of intermediate goods like lint, yarn and fabric, as well
as finished goods like ready-to-wear clothing. Cotton ginning in Egypt is dominated by five firms, four of
which are publicly-owned.
22
The textile cluster in Egypt, Abdallah rawiah et al, 2012, Micro economics of competitiveness.
45
For textile commodities, spinning and weaving are the main feeding sectors for the textiles industry.
Most spinners export because they produce fine counts—an expensive product for the local market—
and fabrics from imported yarn mainly target the local market.
The Egyptian textile and apparel industry consists of 40 public-sector companies that are organized into
three large holding companies and an estimated 3,500 private- and investment-sector companies
ranging in size from over 10,000 workers to fewer than 10. The public sector dominates the early stages
of production, with a 90% share of spinning and 60% share of weaving in Egypt, but performs much
weaker in apparel production, with only a 30% share. In looking at the age of machinery used at various
stages of the value chain, the reasons for the production weaknesses of Egypt’s public sector are clear—
public companies are saddled with aging equipment (almost all of it is older than 15 years) that hurts
their overall operational efficiency. Overemployment, inferior technology, and low levels of capital
utilization are other major contributors. In the apparel industry, where public companies face greater
competition from the private sector, the picture is somewhat better, showing a greater share of newer
equipment.
23
Dyeing and finishing are the weakest points in the value chain, with the least amount of investments.
Therefore, the Egyptian government is looking to attract new private investments into upstream
segments of the textile industry to sharpen Egypt’s competitiveness edge in the global market.
24
For the ginning cluster, privatization initiatives have been under way since the mid-‘90s but have been
unsuccessful for two overarching reasons. First, the antiquated equipment would require large private-
sector capital expenditures since there is no local loom machinery industry and the government
maintains high import taxes on foreign machinery, thereby diminishing the attractiveness of any such
investment. Second, many Egyptian officials saw privatization as a threat to social peace as it would
make thousands of public-sector employees redundant; however, the foreign investment in private-
sector firms is common, majority-foreign ownership is legal, and most spinners target the export
markets.
In 2008, an Industrial Development Strategy was developed by Egypt’s Ministry of Industry; it identified
the most important industrial sectors that contribute to manufacturing value added. The strategy’s
focus is closely aligned with the objectives of developing exports and deepening Egypt’s integration into
the global economy. Rather than designing a unified strategy for the textile sector, Egypt may benefit
strategically by directing investments in fine weaving and dyeing to produce larger quantities of high-
quality fabrics for the export market. Structural problems in the spinning and weaving sectors include
the high cost of initial investment and the long time for break-even and return on investment. Many
investors are more interested in ready-made garments because the initial cost of investment is lower
and the return on investment is usually faster. There are no clear policies or strategies that address
increasing local value addition in terms of local content or local processing.
Exporters:
The largest textile producers manage exports themselves, but most processors rely on exporters to
reach international markets. Textile and finished-goods producers generally affiliate with the Egyptian
Exporters Association (ExpoLink), a less-focused trade association that promotes the development of
trade in all Egyptian manufactured goods.
23
http://www.piie.com/publications/wp/wp05-8.pdf
24
http://www.uneca.org/sites/default/files/uploaded-documents/era2013_casestudy_eng_egypt.pdf
46
D. Sector Linkages:
Linkages opportunities in the textile sector are limited and lie in backward linkages (high-quality cotton
fabrics) and forward linkages (finished new products). However, a number of factors affect these
linkages, as shown in Figure (9) below.
Figure 9: Factors Affecting Egyptian Textile-Sector Linkages
Source: Economic Report on Africa, 2013
E. Sector Recommendations:
? Policy leaders must define a vision for cluster improvement that can endure across business cycles
and political administrations.
? Investment in the ginning mills must be spurred through privatization of the spinning segment.
? The key bottleneck—an uncompetitive ginning sector—must be removed if Egypt is to become
the leading producer of long-staple yarn and fabric in the world and the leading supplier of textile
expertise to the Middle East and North Africa.
? Subsidies to state-owned mills should be eliminated to force these enterprises to compete on
their own merits. By purchasing commodities at artificially-inflated prices, government-owned
factories gain an unfair competitive advantage over private-sector players, causing inefficient
resource allocation and discouraging private investment that might upgrade competitiveness.
? Either permit growers to diversify their crops and increase production of short-stem cotton at
competitive prices or reduce the non-tariff transaction barriers to importing raw products.
47
2. Information and Communications Technology Sector
1.A. Sector Overview
Egypt is one of the highest-growth potential information and communications technology markets in the
Middle East, receiving much attention from tier-one vendors and distributors, most of whom are already
very familiar with the market. Given its huge population, rising economy and relatively low personal
computer concentrations, the country will continue to be an important market player over the forecast
period.
The Egyptian government has made big strides in the last couple of decades towards establishing the
country as a potential information and communications technology hub in the region. Major
infrastructure developments have upgraded the sector’s capacities in Egypt. In addition to laying a
modern communication infrastructure, the Egyptian government is promoting the use of computers and
the internet for economic growth. With its proactive policy and clear, long-term vision, the Egyptian
government, in partnership with the private sector, seeks to make the information and communications
technology sector a major leader in the country’s economy.
Alongside the Government of Egypt’s reform efforts, there has been a significant and ongoing
deregulation of the business environment. As a result, there was a 11.04% increase in the number of
companies operating in the information and communications technology sector in Egypt between
December 2012 and December 2013, with 5,644 companies operating in December 2013 compared to
5,083 operating companies in Dec 2012—of which 77.36% were information and communication
technology companies, 15.15% value-added services, and 7.49% communication companies.
25
In 2012/2013, the information and communications technology sector sustained an annual growth rate
of 2.31%, and had received, up until September 2013, about EGP 46.76 billion in government funding.
Moreover, in FY 2012/2013, the sector generated revenues of EGP 41.72 billion, contributing 2.77% to
real gross national product (GDP). The total number of direct employees in this sector (Information and
Communication Technology, Telecom, Post, Smart Village and Maadi Technology Park) reached 217.78
thousand employees in Q1 2013.
26
In addition, with its unique location at the crossroads of Europe, Africa and the Middle East, Egypt is well
situated to offer easy access to markets in the Arabian Gulf, the Levant, North Africa and Sub-Saharan
Africa, as well as Europe. As such, it started to position itself as a potential information and
communications technology hub in the Middle East region and as one of the top five major outsourcing
and off-shoring destinations. Moreover—and as a reflection of Egypt’s competitiveness in this sector—a
multitude of international companies are using Egypt as a base for software development, technical-
support contact centers, and research facilities such as IBM, Intel, Microsoft, Cisco, Oracle, Satyam,
Wipro, Orange, Alcatel, Tele-performance and Vodafone. Egypt is also a key communications node,
notably hosting SEA-ME-WE2, the world’s first submarine cable linking Southeast Asia, the Middle East
and Europe. Hence, Egypt is an ideal location to base a business with regional – and even global –
ambitions.
25
Ministry of Communications and Information Technology, “ICT Indicators in Brief,” Monthly Issue, January 2014.
26
General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
48
1.B. Information and Communications Technology Sector: Current Developments and
Potential Growth
A conducive regulatory environment is critical for boosting the information and communications
technology sector and its growth. Since the late 1990s, the Egyptian government has made deregulation
and development of the telecommunications sector a top priority. One of the main steps in deregulating
the sector was creating the National Telecommunications Regulatory Authority in 1998. The key
responsibilities of this regulatory body are to increase private investment in the sector; to oversee
telecommunications technical aspects such as monitoring frequencies and their spectrum; to issue
service licenses; and to approve all sector-related tariffs. In October 1999, the Ministry of
Communications and Information Technology was launched as the policy authority for the information
and communications technology sector. This ministry’s mandate is to develop and improve the
telecommunications infrastructure and promote the development of Egypt’s information society.
As success under current global conditions has become linked to the country’s ability to overcome the
challenges of globalization, the Government of Egypt has implemented several action plans that were
instrumental in developing the information and communications technology industry’s opportunities
and maintaining its position in the world markets.
1.B.1. Information and Communications Technology Infrastructure Development
Egypt has three advanced mobile phone networks (Mobinil, Vodafone Egypt and Etisalat Egypt); all
three have 3G and 3.75 G infrastructure. They serve over 99.70 million subscriptions till December
2013—the number of subscriptions growing by 3% since December 2012 and hitting a penetration rate
of 118.9%. Internet subscriptions show an annual growth rate of 17.4%—there are more than 38.75
million regular internet subscribers till December 2013 and over 2.63 million ADSL subscribers till
December 2013. Fixed-line subscriptions reached about 6.82 million till December 2013. The country’s
network of postal outlets is being reconfigured to be a business communications network, as well as
points of contact for government services. WiFi networks are provided countrywide by businesses,
restaurants and cafes for their customers. In 2013, the number of citizens acquiring the International
Computer Driver License (ICDL) certification in Egypt reached 8,000.
27
27
General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
49
The following table of indicators shows the information and communications technology infrastructure
developments from December 2007 to December 2013:
Table 4: Information and Communications Technology Infrastructure Developments (Dec2007-Dec2013)
Source: Ministry of Communications and Information Technology, Cairo, Egypt.
1.B.2. Information and Communications Technology Value Added in the Egyptian Economy
The information and communications technology value added GDP at current prices reached EGP 30.9
billion (USD 5.6 billion) in 2008/2009, while its value added at fixed prices reached EGP 30.3 billion (USD
5.5 billion), with an annual growth rate 14.5%. The private sector played a leading role in generating the
total information and communications technology value added as it contributed about 69 % of the total
value added generated in 2008/2009. The below figure shows the growth rates of some of the fastest-
growing sectors in the Egyptian economy in 2008/2009.
Figure 10: Information and Communications Technology Sector’s Contribution in the Egyptian Economy (2008/09)
Source: Nagwa El Shenawy, “Statistical Compilation of the ICT sector and Policy Analysis in Egypt,” WSIS Forum,
Geneva, 2011
50
1.B.3. Number of Information and Communications Technology Companies, Issued Capital
and Revenues
There was a 43.46% increase in the number of companies operating in the information and
communications sector in Egypt between 2010 and 2013, with 5,644 companies in December 2013
compared to 3,934 companies in 2010, of which 77.96% were information and communications
technology companies, 14.22% value-added services and 7.78% communication companies.
28
At 16.1%,
the increase in the number of small and medium companies operating in this sector for that same
period was much lower, recording a total number of 1,387 companies by 2013. Table (5) shows the
increase in the number of total information and communications technology companies in Egypt
between 2010 and 2013, while Table (6) shows the (trivial) increase in the number of small and medium
companies for that sector for the same period.
Table 5: Number of Companies in the Information and Communications Technology (ICT) Sector (2010-2013)
2010 2011 2012 2013
Total No. of ICT
Companies in Egypt
(2010-2013)
Growth Rate%
(2010-2013)
Total No. of ICT Companies in
Egypt
3934 4428 5083 5644 19089 43.46
ICT 3078 3457 3982 4366 14883 41.84
Value-Added Services 532 621 707 855 2715 60.7
Communications 324 350 390 423 1487 30.5
Source: Ministry of Communication and Information Technology, Cairo, Egypt.
Table 6: Number of Small and Medium Companies in the Information and Communications
Technology (ICT) Sector (2010-2013)
2010 2011 2012 2013
Total No. of ICT SMEs
in Egypt (2010-3013)
Growth Rate%
(2010-2013)
Total No. of Small and Medium
ICT Companies in Egypt
291 321 430 338 1387 16.1
Small
29
Companies (EGP 50000-1
million)
277 302 409 321 1309 15.8
Medium
30
Companies (EGP 1
million-50 million)
14 19 21 17 71 21.4
Source: General Authority for Investment and Free Zones, Cairo, Egypt.
28
Ministry of Communications and Information Technology
29
According to the General Authority for Investment and Free Zones, small enterprises have an issued capital of ?50000 ?1 million EGP.
30
According to the General Authority for Investment and Free Zones, medium enterprises have an issued capital of ? 1 million ? 50 million EGP.
51
According to data provided by the Ministry of Communications and Information Technology and the
General Authority for Investment and Free Zones, small and medium information and communications
technology companies constituted only 7% of the total number of information and communications
technology companies in Egypt from 2010 to 2013—the growth rate of these companies having
fluctuated quite a bit between 2010 and 2013. Despite the number of SMEs in this sector having grown
only 9% in 2011, there was a surge in the number of companies established in 2012, reaching a high
growth rate of 35%; by 2013, however, the number of established SMEs had declined by 21.5%. The
sharp fluctuations in the new small and medium companies’ growth rates in this sector have been
attributed to the political and economic imbalances that Egypt has witnessed in the past four years.
As shown in the Table (7) below, there was a surge in the amount of issued capital for all information
and communications technology companies, from 35.75 billion EGP in 2007 to 46.47 billion EGP in
2013—an almost 30% increase. Yet, if we compare the total issued capital for all information and
communications technology companies in December 2012 with the total issued capital in December
2013, we will find that the amount was almost stagnant, increasing by only 0.3%.
31
Table 7: Information and Communications Technology (ICT) Issued Capital (2010-2013)
2010 2013
Growth Rate %
(2007-2013)
ICT Companies Total
Issued Capital (Billion
EGP)
35.7 46.47 0.30
Source: Ministry of Communications and Information Technology, Cairo, Egypt.
Over the last decade Egypt’s information and communications technology sector was transformed from
one dependent on subsidies and grants to a revenue-generating sector and a net contributor to the
treasury, adding over USD 7.8 billion to the treasury between the years 2005 to 2008—hence enabling
the government to enhance and widen its provision of social services and developmental plans.
32
In
2013, this sector’s contribution to the treasury was EGP 13.20 billion (USD 1.846 billion).
33
31
The General Authority for Investment and Free Zones (GAFI) and Ministry of Communications and Information (MCIT), 2014.
32
The Organization for Economic Cooperation and Development, “Egypt Information and Communications Technology Sector: Competitiveness,
Growth and Key Challenges,” 2010.
33
Ministry of Telecommunications and Information Technology (MCIT), Cairo, Egypt.
52
1.B.4. Employment in the Information and Communications Technology Sector
The total number of direct employees in the information and communications technology sector had
climbed to 217, 780 employees in Q1 2013, up from 182,000 in 2009 and 175,000 in 2008. These figures
include Information Technology (IT), Telecom, Post, Smart village and Maadi Technology Park employees
but do not include employees from the outsourcing industry (e.g., call centers, which reached 50,000
employees during the period 2006-2009). Also, they do not include indirect employees in information
and communications technology clubs, internet cafés and private communication stores, which was
estimated to be at 500,000 in 2009.
In this context, Egypt’s information and communications technology sector was expected to create
around 40,000 new direct jobs within the years 2011-2013—in line with the launch of the second
investment information and communications technology zone in Maadi. Yet due to the political
uncertainty facing Egypt since 2011, the number of jobs created in this sector in 2013 fell far short of
expectations.
However, the information and communications technology sector has many drivers that could help
boost job creation, such as the following:
? Talented and educated pool of potential employees. More than 300,000 Egyptians obtain
university degrees every year, of whom 70,000 are in commerce, 18,000 are in engineering and
over 3,000 are in information and communications technology, thus producing a large potential
talent supply with the skill sets necessary to succeed in this sector;
? Bilingual/multilingual population. Egyptians speak European languages with a neutral, easily
understood accent. Annually, more than 22,000 students graduate who are fluent in various
European languages including English, French, and German, many of whom have been studying
their second language since primary school. Thus, a large potential supply of talent with the
language skills to succeed at all levels of the value chain—from call-center operators to senior
researchers at offshore development centers for multinational corporations—is available;
? Already existing information and communications technology infrastructure. The existing
information and communications technology infrastructure in Egypt greatly eases start-up costs
and enhances day-to-day productivity. Its competitive infrastructure includes submarine fiber-
optic cables that link Egypt to Southeast Asia, the Middle East and Europe; landlines that have
dial-up access; and high-speed broadband and wireless networks that are already in place in
major urban areas throughout the country;
? Affordable skilled labor. In Egypt, skilled labor is readily available at reasonable prices.
Programmers, for example, are paid, on average, USD 10-20 per hour. Since wages are stable,
growing only 5% annually, employers can afford to hire—and keep—skilled laborers at a rate
that is cost-effective for their companies.
? Tech-oriented consumer base. Egypt’s technology-savvy consumer base (comparable to the
entire populations of many European countries) is hungry for new products and services. Thus,
scaling up demand for more products and services to be supplied by current or new information
and communications technology companies is a very viable possibility.
53
1.B.5. Investments, Exports and Value Chain Linkages
I. Investments
Investments in information and communications technology in Egypt grew considerably from 2001/02
to 2009/2010. During 2005-2007, the sector had succeeded in attracting local and foreign investments
of more than USD 8 billion. Consequently, seventeen international companies are now operating in
Egypt and exporting IT-enabled services (e.g., call centers). Implemented investments by the
communications private sector grew sharply in the past few years, reaching EGP 17.3 billion in
2009/2010. Public-sector investments represented only 12.2% of total implemented investments in the
communications sector in 2009/2010, proving the dominance of the private sector, both locally and
multi-nationally, in the communications sector. This is evidence of the successful privatization and
deregulation trend the government has supported to improve the sector.
34
As of February 2014, the
information and communications technology industry consisted of 5,686 companies operating inland
with total investments of USD 10.75 billion and 38 companies operating in free zones with total
investments of USD 100.98 million.
35
The Egyptian national vision is mainly focused on attracting more foreign direct investments—especially
in business process outsourcing activities—particularly in view of their positive spillover on employment
rates. To achieve this goal, a comprehensive framework—one aimed at attracting more multinational
corporations that are interested in business process outsourcing, at encouraging technology and know-
how transfer, and at building qualified yet cost-effective human capital—was put in place. The
government’s Information Technology Industry Development Agency supports the information
technology and business process outsourcing industries in Egypt.
The Information Technology Industry Development Agency provides end-to-end support for foreign
direct investors seeking to enhance their global offerings using Egypt’s competitive advantages. The
agency helps overseas investors explore and apply for incentives covering all strata of the information
technology industry, and especially in the business process outsourcing/information technology
outsourcing fields. The agency’s full-fledged support to investors includes backing all activities required
by investors, including information gathering, site visits, case studies and others. It also provides
incentives that support the company’s needs as well as facilitates the setup and establishment of
procedures in Egypt. The agency also worked on reducing companies’ startup costs, including the
telecommunication costs of running circuits to link Egypt with the Gulf and other Arab countries. The
General Authority for Investment and Free Zones operates a one-stop shop that streamlines and
expedites investor services that most businesses can incorporate in 72 hours.
Egypt has been undertaking many other initiatives with the objective of creating an attractive and
conducive business environment for international multinational organizations, such as offering different
types of business lines that include research and development/engineering activities, knowledge
process outsourcing services, localization and Arabic content services, business process outsourcing
services, technical support activities, contact centers, and IT products and services. In addition, Smart
Village Egypt was launched in 2003 to be the first, fully operational technology cluster and business park
in Egypt. It was established to accommodate local and multinational companies, government and
financial authorities, educational institutions, and research and development centers, all of which share
state-of-the-art infrastructure, modern facility management and a broad range of business and
34
Alex Bank, “Information and Communication Technology Industry: Boosting Industry in Egypt,” Sector Survey, January 2011.
35
The General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
54
recreation services. In 2010, the government announced the launch of a new business-delivery hub,
called Maadi Investment Park, which is specifically aimed at attracting business process outsourcing
companies. This park is centrally located in Cairo and easily accessible by public transportation.
Moreover, a United Kingdom-based company has signed a deal to establish a business center in
Alexandria, while several other leading multinational corporations are also actively considering
Alexandria as a business hub.
The Government of Egypt also provides incentive packages catering to investor needs via 1) offering tax
exemptions and reductions for the information and communications technology sector, 2) reducing land
prices for investors in this sector, 3) easing export and import regulations, 4) providing demand-driven
training programs for sector professionals at the government’s expense, and 5) assigning Government of
Egypt officials to facilitate interaction with government organizations.
II. Small and Medium Enterprises Value Chain/Business Linkages
Broadly speaking, the definition of value chain/business linkages refers to any program aimed at linking
purchasers with potential suppliers. Purchasers are usually identified as multinational corporations
interested in investing or already operating in a host economy, perhaps a developing one, wherein
suppliers are local businesses trying to enhance their competitiveness and to capture opportunities for
increased trade. The four types of linkages are described below:
1. Backward linkages occur when multinational corporations buy parts, components, materials and
services from local suppliers;
2. The second type of linkage forms when these corporations engage in joint ventures, licensing
agreements, or strategic alliances with local partners—offering them access to technological and
managerial know-how—or when they offer foreign companies access to local authorities, institutions
and markets;
3. Forward linkages with customers occur when multinational corporations outsource the distribution of
their brand-name products through marketing outlets; when they produce machinery, equipment or
other inputs; or when they offer after-sales services to industrial buyers beyond the usual advice on
usage and maintenance of the purchased good;
4. The last type includes demonstration effects and human capital spillovers. This term refers to the
uncontrolled, not channeled, ways of transferring technology or know-how as opposed to the second
type of linkage that occurs through formal, contractual channels.
As a result of these linkages, many internal and external benefits are reaped. Internal benefits include
helping to develop domestic industry; deepening the involvement of the foreign direct investor in the
host country; maximizing the purchasing of foreign direct investments and companies to the benefit of
the host country; assisting the host country’s general economic growth through a multiplier effect;
facilitating import substitution; and promoting corporate social responsibility. External benefits include
attracting more foreign direct investments via the development of useful selling tools (which allows
domestic companies to grow and move into export markets) and improving the general profile of the
country’s industrial capacity.
Many multinational corporations have started to use Egypt as an offshore destination, and Egyptian
outsourcers have started to serve international companies. In the past few years, the country has
55
developed a promising contact center industry that serves technology multinational corporations and
that continues to grow at a rapid pace.
As a matter of fact, Egypt is well positioned as the Middle East's prime winner to take advantage of the
boom in global outsourcing, already worth an estimated USD 300 in 2009, according to international
research centers. Egypt was assessed as having the strongest position based on its young population and
its sustainable and abundant talent pool of technologically skilled and multilingual university graduates.
Its geographical location—adjacent to Europe and Asia—coupled with strong government support are
also factors that contribute to Egypt being a potential outsourcing hotspot. A multitude of international
companies are using Egypt as a base for software development, technical-support contact centers and
research facilities. Examples of which include IBM, Intel, Microsoft, Cisco, Oracle, Satyam, Wipro,
Orange, Alcatel, Tele-performance and Vodafone, among others.
In Egypt, for example, small-scale enterprises supplying Microsoft Egypt have been able to leverage the
reputation of their lead partner through the lighthouse effect of having credibility bestowed upon them
by a global player. SME suppliers that are certified Microsoft Gold Partners have used the Microsoft
network for projects both in Egypt and in the region. On the other end, the supplier network assists
Microsoft with new-market entry and local credibility.
The case of Microsoft Egypt gives insights into the relationship between multinational corporations in
Egypt and local partners (suppliers). Various companies in the Egyptian market joined Microsoft’s global
value chain such as Arabize, Bayanet, IT Worx, MNS, OMS, and Xceed. Based on Microsoft’s
classification, companies were split into two categories:
1- Companies providing a service that complements an existing Microsoft product, thus vertically
integrating into Microsoft’s value chain. A typical example of such companies is a systems
integrator. These companies’ customers are the end users of Microsoft’s products; and
2- Companies providing the support functions for Microsoft, thus helping it deliver its final
product. These companies’ customer is Microsoft. It is worth noting that companies in this
category tend to serve Microsoft on a global scale (as opposed to the first category of
companies who serve Microsoft’s local or regional customers) as the services they provide are
largely location independent. Table (8) below shows the profile of these firms.
36
36
United Nations Conference on Trade and Development, “Integrating Developing Countries SMEs into the Global Value Chain,” 2010.
56
Table 8: Local Suppliers’ Profiles
The above companies have been part of Microsoft’s global value chain for four-and-a half years. A large
percentage of them have international competitors located mainly in the Gulf region or in India. Bayanet
and OMS have a relatively low degree of transformation of their incoming Microsoft services (about
52%) compared to IT Worx and MNS.
The Microsoft partnership has been instrumental in enabling local companies to access regional-growth
opportunities and therefore to become more integrated into the global value chain, as opposed to being
just a local implementer. Many partners that have developed a successful relationship with Microsoft
Egypt have used that network to implement Microsoft projects in other neighboring countries.
Microsoft has encouraged this expansion and has provided its trusted Egyptian partners with the
necessary support (technical and commercial) to succeed in the regional markets. Microsoft benefits
from this expansion when serving its customers in other Arab markets, where resources are less readily
available and technical know-how is less developed. Companies such as Xceed are proud of such a
strong tie with Microsoft and often leverage it to impress other multinational corporations.
However, local partners (suppliers) voiced their concerns over the challenges they face that might
threaten their symbiotic relation with these corporations (namely Microsoft, as Microsoft Egypt relies
100% on its partners) and their role in the multinational corporations’ global value chains.
Challenges facing local suppliers as reflected by Microsoft Egypt’s local suppliers:
- None of the companies belonged to a cluster. Stiff competition amongst the Microsoft partners
leads to them overcommitting to end customers. Very few firms belong to an industry
association, making clustering a difficult (e.g., Arabize had no partners, whereas Xceed
57
partnered with human resource companies, training companies, Telecom Egypt, and the
Information Technology Industry Development Agency).
- Lack of qualified, skilled labor human resources. All of the companies confirmed that the lack of
qualified and skilled human resources posed a threat to their firm’s position in Microsoft’s
global value chain. Generally speaking, the lack of capable and available skilled human resources
is a prevalent in Egypt.
- Stronger enforcement of intellectual property rights. In Egypt, new laws are being
implemented to protect intellectual property rights related to software, database designs and
layouts of integrated circuits. However, the laws needs to be better enforced. The Government
of Egypt, in cooperation with multinational donors, has started educating judges and district
attorneys on the specific issues related to intellectual property rights. The penalties imposed by
the government on intellectual property violations are in certain cases too harsh, so harsh that
untrained judges find it difficult to implement them.
- Lack of creativity. There is a lack of originality among these firms and a relatively low
percentage of product transformation. Most information technology firms tend to be service-
oriented companies that offer add-ons to existing Microsoft products rather than provide their
own innovative solutions.
The Microsoft case incorporates a concept of quality that ought to include not only job creation and
technology transfer, but more importantly, the long-term commitment of a multinational corporation
and the extent to which it establishes mutually beneficial linkages with local suppliers. In such a
qualitative approach, value is imputed through the interaction and networking with domestic
enterprises and the opportunities that arise as a result, as in the case of Microsoft Egypt.
58
Box 1: Microsoft Global Supply Chain and Standard Partner Program for Local Suppliers in Egypt
Microsoft was founded in 1975 and is today the world’s largest software company with global annual revenues of USD
44.28 billion, a market capitalization of USD 283 billion, and a workforce of 76,000 employees in 102 countries. Created in
1993, Microsoft Egypt is a wholly owned subsidiary of Microsoft Corporation. Microsoft Egypt has been very successful in
growing business in Egypt, especially in the last decade. It now employs over 100 professionals and occupies a large building
in the Smart Village, Egypt’s premier information technology park. Microsoft Egypt was awarded the Best Microsoft
Subsidiary in Europe, Africa and the Middle East in 2004. Bill Gates presented the award in person to the Microsoft team in
Cairo in July 2004.
To deliver the final product to the end user, Microsoft has to ensure that the following six consecutive phases of the value
chain are completed:
Microsoft has a standard Partner Program for local companies. Microsoft Egypt follows the global model with its local
partners. A local company’s level of expertise and level of engagement are what determines the level at which it joins the
Partner Program. A company advances in such a program by earning Partner Points, which it accumulates through
upgraded capabilities and an established track record. The Partner Program is divided into three membership levels:
Microsoft Registered Members (Level 3), Microsoft Certified Partners (Level 2), and Microsoft Gold Certified Partners
(Level 1).
Microsoft Egypt offers quite a few training programs to its partners such as Website: Microsoft has a website through
which partners can request and register for training; Partner Academy: the Microsoft Partner Academy offers training every
year on soft skills and technical tracks; Online Web Courses: Microsoft Egypt provides online readiness using webcasts and
online courses; IT Pro: Microsoft Egypt also offers IT Pro seminars quite often in its subsidiary where partners are invited to
attend sessions; and Training on New Products: Microsoft Egypt provides in-depth training on the launch of new products
and the aftercare as well.
Microsoft offers a wide array of products in Egypt that could be classified into 1) operating systems such as Windows NT
and Windows Vista; (2) software development tools and database products such as SQL server; (3) office automation tools
such as Office 2007; and (4) business applications (mainly enterprise resource planning applications) such as Dynamics
(previously known as Axapta and Great Planes).
Microsoft Egypt does not sell its products directly to customers, preferring instead to reach end customers through various
partners. These partners can be classified as follows: original equipment manufacturer, distributors, direct-sale
representatives, and system integrators.
59
III. Exports
The Information Technology Industry Development Agency remained committed in 2013 to support and
promote information and communications technology exports through several initiatives and programs.
The agency ventured to recognize new funding sources and cooperatives for this sector’s projects. As
Egypt has a significant information technology and business process outsourcing industry already in
place, several international customers and major multinational corporations (including Intel and France
Telecom’s Orange) are developing products in Egypt for export to the global marketplace. Local players
(including ITWorx, ITsoft, Sakhr, Harf and Arabize) export software ranging from Arabic-language
solutions to plug-ins and modules for popular software packages globally. Major multinational
corporations including Microsoft, Adobe and Corel develop their products in Egypt for global export.
New research and development centers in niche areas of data mining and wireless technologies are
exporting to major markets as well. In 2013, Egypt's total exports from the information and
communications technology sector reached USD 1.3 billion. The Ministry of Communications and
Information Technology aims to reach USD 2.5 billion in sector exports in 2017.
37
1.B.6. Projected Information and Communications Technology Sector Growth
To support the democratic transition and grow the information community and digital citizenship, the
aims are to raise the number of high-speed internet subscribers in Egypt to USD 13 million by 2015; to
raise revenues generated from outsourcing services to USD 2.5 billion and from intellectual property to
USD 1 billion; to have personal computers in at least 40% of Egyptian households within five years,
including establishing a national network of 1,000 technology homes; and to boost exports of software
and embedded software within two years to USD 500 million.
According to Egypt’s 2012-2017 information and communications technology strategy to strengthen the
economy, Egypt is targeting to maintain sector growth rates of 7-10% over the next five years while
increasing the sector’s contribution to national income to 5%. It also aims at the expansion of the
national network of technology parks to 20 and the growth of Egypt Post as a primary savings facility by
a yearly average of about 15%.
38
During the EGX Initial Public Offering Summit 2014, the Egyptian Minister of Communications and
Information Technology, Eng. Atef Helmy said that by 2020, the volume of investments are expected to
reach EGP 130 billion (USD 18.5 billion), out of which only 1.5% will have been contributed by the
government, with the private sector providing the rest. These investments, Helmy said, will lead to a
19% growth in the sector, while its contribution to Egypt’s gross domestic product (GDP) will rise to 7%
in 2020.
In line with Egypt’s information and communications technology strategy for 2020, the government will
create a digital society that would allow Egyptians to use information and communications technology
services and maintain communications growth by attracting global companies. As part of this plan, the
government is working on installing maritime cables in the Suez Canal (within the framework of the Suez
Canal National Project with EGP 12 billion/USD 1.7 billion) with the aim of making Egypt a global hub of
internet services, which would further qualifying the country to become an attraction area for global
investments.
37
The General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
38
Ministry of Communications and Information Technology, “ICT Strategy 2012-2017,” 2012.
60
The Egyptian government also hopes to increase the number of professionals working in outsourcing to
75,000; in information technology to 30,000; and in innovation and entrepreneurship to 10,000. Egypt’s
vision, as well, is to create in a total of one million jobs in the information and communications
technology sector by 2020, including 200,000 direct job opportunities.
39
1.B.7. Policy Support for Small and Medium Enterprises and Entrepreneurship Development
in the Information and Communications Technology Sector in Egypt
The Government, with the help of the Ministry of Communications and Information Technology, has
actively supported the information technology industry through various initiatives, as listed below.
40
- High- tech business parks (e.g., The Smart Village) have been established to facilitate companies’
operations by providing them with world-class infrastructure at a very reasonable cost.
- Partnerships have been made with major information and communications technology firms
such as Siemens, Alcatel and Cisco to train information technology engineering graduates.
- The lack of venture capital triggered the creation of Techdevfund and Ideavelopers. The
Technology Development Fund was created to bring together investors and startups. It is
managed by EFG-Hermes and has investments from various sources such as the Government of
Egypt, Telecom Egypt and various banks. At the initial stage, a sum of EGP 50 million was
dedicated to fund information technology incubators. Ideavelopers is a separate but related
organization that provides expert consultation services to help businesses increase their
productivity.
- Along with the private sector, the government has started a plan to improve the workforce’s
information technology skills. From 2000 to 2006, the Ministry of Communication and
Information Technology supported the training of 133,737 students in basic IT skills and 23,999
in professional IT training skills. In 2004, the ministry, along with Cisco, has formed a public-
private partnership to create the E-Learning Competence Center. This center provides e-learning
solutions for individuals and SMEs ranging from beginners’ courses to networking and advanced
troubleshooting computer skills. In 2001, the Egyptian Technology University was approved by
the Prime Minister of Egypt. The university offers advanced graduate courses and currently has
22 executive MBA students.
- The first research and development center was opened in 2005 and other centers followed. The
Ministry of Communications and Information Technology, the center’s initial investor, hopes
that these centers will be self-sufficient in three years. Four research and development centers
have been established in to increase innovation in Egyptian data mining and computer
modeling, wireless technologies, mobile and e-services, and electronic design.
- The Information Technology Industry Development Agency provides training programs,
capacity- building programs for local information technology companies, and image-building
programs for Egypt. It is also responsible for promoting legal reforms, including those related to
cybercrimes and intellectual property rights. In addition, the agency functions as a mediator
39
Ibid.
40
United Nations Conference on Trade and Development, “Integrating Developing Countries SMEs into the Global Value Chain,” 2010.
61
dealing with IT disputes and offers technical counseling and help related to the use of e-
signatures and electronic transaction. Various information and communications technology
projects have already been allocated financial resources by the agency through the
establishment of support programs and funds with the main aim of stimulating the local
market’s capacity to grow exports. It has also sponsored various visits to international events,
trade shows and marketing campaigns.
- The Technology Innovation and Entrepreneurship Center was established in 2010 and formed as
a catalyst between the government, private sector and academia. The Information Technology
Industry Development Agency encourages the entrepreneurial spirit of Egypt’s youth with a
variety of educational, technological and financial support. Already the agency has managed to
conduct specialized programs, form strategic partnerships with leading multinational companies
in the information and communications technology sector, and attract greater venture capital
investment.
The Ministry of Communications and Information Technology seeks to support micro, small and medium
enterprises (MSMEs) by means of raising their performance and competitiveness through helping them
identify new marketing and production opportunities. It also seeks to support MSMEs located outside
Egypt’s main cities to create job opportunities in these communities.
The Information Technology Industry Development Agency adopts various initiatives to boost MSMEs by
injecting them with direct and indirect financial support through a set of programs. In May 2014, this
development agency organized the MicroCom Exhibition and Forum to support small businesses and
microenterprises in information and communications technology to develop and market their products.
Ninety-five exhibitors participated and more than 200 applications and products were developed to help
provide integrated solutions for all economic sectors in a variety of fields, including industry, education,
health and tourism. A cooperation protocol was signed in June 2014 with the Financial Services Institute
to provide SMEs with training and consulting services related to nonbank financial areas, helping these
businesses in information and communications technology fields to get acquainted with the suitable
funds, counter challenges, and find solutions to improve their productivity. In September 2014, the
agency signed a cooperation protocol with Bedaya Center for Entrepreneurship and SMEs Development
to encourage financial institutions to pump investments into information and communications
technology projects, especially those designed for small and medium-sized companies.
41
41
The General Authority for Investment and Free Zones, “Invest in Egypt Report: Communication and Information Technology,” Cairo, 2014.
62
1.B.8 Women in the Information and Communications Technology Sector and Related Sectors
I. Female Employment Characteristics in the Information and Communications Technology Sector
In the information and communications technology sector, females accounted for around 30-40% of the
total workforce in 2008. Females’ participation is higher in the fixed telecommunications sector reaching
35%, while females in mobile communications services accounted for 27% of the total employees within
the sector. Total female employees accounted for 34% —compared to 66% for males—of the overall
total employment in Egypt telecoms. Despite the lower percentage of females in Egypt’s total telecom
workforce, the number of female trainees in the Information Technology Institute and the National
Telecommunication Institute (both provide specialized and professional information and
communications technology training) account for 58% and 42% respectively. In addition, females
constitute 49% of the International Computer Driving License certificate holders in Egypt—a statistical
fact that prompted the Ministry of Communications and Information Technology to adopt an initiative
to enhance the computer skills of this particular segment of society.
42
Figure (11) below figure shows the percentage of female to male trainees enrolled at the Information
Technology Institute and at the National Telecommunication Institute in 2008-2009.
Figure 11: Percentage of Female and Male Trainees in Information Technology and National
Telecommunication Institutes
42
Nagwa El Shenawy, “Statistical Compilation of the ICT Sector and Policy Analysis in Egypt,” WSIS Forum, Geneva, 2011.
63
II. Empowering Women in the Information and Communications Technology-Related Sectors
A number of projects aim to enhance the role of women in the labor market by introducing the
implementation of e-commerce and making use of it to increase sales for female SME owners, as well as
to improve women's job qualifications in general. Other projects focus on empowering women
politically by increasing their awareness of their legal rights and providing technical assistance in
learning how to use e-government services. Moreover, women appeared to be important beneficiaries
of other general projects aiming at illiteracy eradication and integrating information and
communications technology into the Egyptian education system. Recently, gender has gradually risen as
one of the important issues that needs to be tackled by the Ministry of Communications and
Information Technology. The ministry has started to publish information and communications
technology indicators classified by gender, though still on a very limited scale.
The National Council for Women and the USAID have financed the establishment of the Support Center
for Women in SMEs. The center—whose target groups are university graduates and SME owners and
employees—aims at developing management, research, marketing, and accounting skills for women
entrepreneurs. The National Council for Women also signed an agreement, funded by the USAID,
supporting e-commerce and information technology. In cooperation with the Scientific Authority for
Egyptian Women, the council is carrying out a project to help equip female SME owners with the
necessary skills to run a business. In addition, the project offers guidance to help women entrepreneurs
utilize e-commerce to increase their local and international sales. Under an agreement signed by the
National Council for Women and IBM in early 2004, IBM Occupational Training Centers were formed to
establish a regional center for women’s occupational training. The project helped to provide technical
assistance to women in shifting to use e-government services and to develop the National Council for
Women's website to offer technical advice, electronic translations, and a security system—along with
other services.
43
The government, the private sector, international organizations and the civil society were also active in
enhancing interlinkages between women and the information and communications technology sector.
Several of the initiatives adopted by these groups focused on areas such as disseminating awareness
regarding the use of information and communications technology in improving women's job
qualifications, intensifying the role of female-owned SMEs, eradicating illiteracy and enhancing legal
awareness.
1.C. Conclusion and Recommendations
The Government of Egypt recognizes information and communications technology as a critical
component of the national economy, not only due to its substantial contribution to value added,
employment, exports and diversification of the economy, but for its dynamic, innovative potential and
its broader role in providing enabling technologies, products and services that underpin the
development of Egypt as a knowledge economy in the global market.
In 2013, there was an 11.04% increase in the total number of companies operating in the information
and communications technology sector in Egypt, reaching 5,644 companies, of which 77.36% were
information technology companies, 15.15% value-added services and 7.49% communication companies.
Yet, indicators show that the number of newly established SMEs in that sector declined by 21.5% that
43
Dina Atef Mandour, “Impact of ICT on Gender Gap in Egypt,” The American University in Cairo: Social Research Center and the Canadian
International Development Agency, Working Paper no. 004, November 2009.
64
year, a downturn mostly attributed to the political and economic unbalances facing Egypt in the last four
years. In general, there was a surge in the amount of issued capital by all information and
communications technology companies between 2007 and 2013—an almost 30% increase. In
2012/2013, the information and communications technology sector had sustained an annual growth
rate of 2.31% and generated revenues of EGP 41.72 billion, contributing 2.77% to real GDP. In 2013,
Egypt's total exports from this sector had reached USD 1.3 billion—and by 2017, Egypt hopes to increase
that number to USD 2.5 billion. The information and communications technology sector in Egypt has
managed to attract local and foreign investments, with total investments reaching USD 10.75 billion in
February 2014.
Egypt was also assessed as being the strongest economic competitor in the Middle East and North Africa
region based on its young population and its sustainable and abundant talent pool of technologically
skilled, multilingual university graduates. Its prime geographical location—close to Europe and Asia—
and it strong government backing has positioned Egypt to be an outsourcing hotspot in the years ahead.
A multitude of international companies are using Egypt as a base for software development, technical-
support contact centers and research facilities.
Women’s employment in the information and communications technology sector is still minimal. There
is no available data on women-owned SMEs for this sector. However, there’s great potential to
empower women in the information and communications technology-related sectors to advance their
involvement in entrepreneurship and enhance SME growth.
While Egypt has witnessed huge developments in information and communications technology lately,
the sector is still facing some challenges in the midst of changing global conditions, where trade borders
are vanishing and competition is increasing in every sector. Despite government efforts, great industry
potential and incentive packages that support information and communications technology in general,
and SMEs in particular, SMEs are still facing stagnant growth rates.
Recommendations
- The government of Egypt, to realize its vision to create more jobs and boost the economy, must
design policies that are more demand?driven and inclusive, strengthen its partnership with the
private sector, move towards higher-value added services, leverage foreign skills and expertise,
strengthen coordination among various government entities, make use of the latest technology,
and set quantifiable targets and monitor progress.
- The information technology industry in Egypt is in great need of qualified experts. Therefore,
training in the different information technology enabled service and information technology
enabled service sectors should be the key priority.
- Many Egyptian companies are small and lack the maturity to compete globally. Capacity-building
activities for SMEs to strengthen their management and technical capabilities is needed and will
help equip them to compete more effectively in the regional and international markets.
- There is a clear lack of information and communications technology associations and clusters—
thus there is a need to strengthen existing associations, as well as create new ones, and
encourage clusters.
65
- The general business environment needs to be improved through faster and more efficient
government service delivery, lower taxes for startups, and the enforcement of stronger anti-
piracy regulations.
- Further incubation-related services for potential information and communications technology
entrepreneurs are needed, and more partnership agreements need to be secured (under the
auspices of the Government of Egypt) between multinational corporations based in Egypt and
local suppliers/partners.
66
ANNEX 1: Egyptian Micro, Small and Medium Enterprise
Stakeholders, Partners, and Service Providers
Donor Agency PROJECT/PROGRAM PERIOD AMOUNT
USAID ? Small Enterprise Credit Project
? Bank Credit Guarantee Fund
? Small and Emerging Business Project; for Institutional development of banks and NGOs in
MSE finance and business services. Includes Banque du Caire, Alexandria Business
Association, LEAD (Lend, Empower, Advance, and Develop) Foundation and through the
Egyptian Banking Institute.
? Technical Assistance for Policy Reform Project II: USAID has been the primary funder of
microfinance since 1989 providing over US$150 million to date including banking sector
reform, doing business and legal reforms. However it now plans to end its microfinance
support in Egypt.
? Training of state-owned banks and provision of advisory services to develop new or existing
MSME portfolios
? Issuance of the microfinance law, its executive regulation and support to microfinance NGOs
to transform into microfinance institutions (MFIs)
? Develop comprehensive training program materials for the SFD to train MSMEs
? Capacity building of tier II and tier III MFIs in the areas of financial management, information
sharing and governance.
? Egyptian Competitiveness Program (ECP)
? ALROWAD (Economic Growth APS recipient)
? Zaytun (Economic Growth APS recipient)
2006
2007
2007
2005-2010
2011-2014
2012-Dec
2013
2011-2013
US $ 35 M
LE 150 M
US $ 86.6 M
US $86 M
US $1.8
67
CIDA ? SME Policy Development
? Business Development Services Project (BDSSP)
? Technology and Knowledge Transfer – gas
? Participatory Development Program
? Employment and Labor Market Support
? Provides non-financial business service through capacity strengthening of existing BDS
facilitators and providers. Examples of BDS include technology transfer, business
management, access to existing credit facilities, quality improvement, export readiness,
franchising, trading houses, brokerage mechanisms.
2006
2004-10
2003-06
2003-08
2002-06
CAD$ 9.2 M
CAD$ 18 M
CAD$ 4.5 M
CAD$ 14.7 M
CAD$ 9.3 M
EU ? Industrial Modernization Program
? Trade and Export Promotion
? FISC Rural (agricultural)
? FISC - SFD*
? Access to EU Research Frameworks and Networks
? EBRD- Small Business Support Program
1999-06
2004-06
2004-06
2004-06
2006-08
2011
2014
Euro 250 M
Euro 20 M
Euro 18 M
Euro 17M
Euro 12 M
Euro 2.4 M
US$ 120 million
GTZ ? SME Promotion Project
? Technical and Vocational Education (Mubarak-Kohl Initiative)
2003-06 Euro 2 M
68
1993-04 DM 39.9 M
JICA ? Technical Support – Export Training Center
? Job Opportunity Study*
2005-08
2005-06
JPY 200 M
JPY 100 M
JBIC ? SFD – Small Enterprise Dev* 2002-08 JPY 5,194 M
KfW ? Microfinance Best Practice Project – Social Fund*
? Dakahleya Rural Finance Program
2005-08
1999-05
Euro 5 M
Euro 22 M
Italian Cooperation ? Poverty Alleviation and Employment Generation
? Integrated Support to Egyptian SMEs
? Italian Invest Promotion Unit
? Relocation of Tanneries from Old Cairo
1998-03
1998-03
1998-04
2003-06
Euro 7 M
Euro 16 M
Euro 1.5 M
Euro 24 M
DANIDA ? Achieving Compliance in Industry 2002-07 Yearly allocation
Danish Budget
AECI (Spanish
Agency for
International
Cooperation)
? Agro Food Technology Center
? Leather and Shoe Technology Center
? Credit Line to Commercial International Bank
2002-04
2002-05
2001-03
Euro 0.8 M
Euro 1.2 M
Euro 12 M
IFC - WB ? Private Sector Development
? Support for secured lending framework
? Support for improving leasing environment
? Integration of MFIs in to credit bureau
? Advisory services to private banks
? Advisory services to MFIs
2004-07
US$ 100 M
69
? Rolling out of business edge for MSME training
? MSMEs Technical Assistance Facility
2014
US $30 M
UNDP ? Institutional Support to SFD*
? Business Enterprise Support Tools (BEST) – MicroStart
2004-07
2002-06
US$ 0.2 M
US$ 0.27 M
United Nation
Industrial
Development
Organization
? 1) Footwear and Leather Industry Service Center – SFD*
? 2) Upgrading Selected Industries in Borg El Arab
? 3) Cluster and Networking Development
? 4) Establishment of National Cleaner Production Center
? 5) Traceability of Agro-Industrial Products for EU Market
? 6) Upgrading the Medicinal and Aromatic Plants value chain: Access to export markets
? Project background and rationale
? 7) Interregional project to promote SME origin and export consortia
? 8) Human security through inclusive socio-economic development in Upper Egypt
? 9) Support to the Development of Culture and Creative Industries and Clusters in the
Southern Mediterranean
1) 2003-06
2) 2003-05
3) 2006
4) 2004-07
5) 2004-07
6) 2011 –
2014
7)2012 –
2014
US$ 0.97 M
Euro 5.8 M
US$ 0.6 M
US$ 2.1 M
LE 18 M
US$ 2,870,000
EUR 140,000
US$ 5,372,791
70
? 10) EPALM: Upgrading date palm value chain in Egypt
? 11) Industrial energy efficiency
? 12) Strategic demonstration project for accelerated conversion of CFC chillers in 6 African
countries (Cameroon, Egypt, Namibia, Nigeria, Senegal and Sudan), AFROC
? 13) Phase-out of chlorofluorocarbons consumption in the manufacture of Aerosol Metered
Dose Inhalers
? 14) National CFC chlorofluorocarbons phase-out plan for Egypt
? 15) Phase-out of Hydrochlorofluorocarbons-141B from the manufacturing of polyurethane
foam
? 16) Hydrochlorofluorocarbons phase-out management plan: enabling activities in the
refrigeration and air-conditioning sector
? 17) National phase-out of methyl bromide in horticulture/commodities fumigation
? 18) Promoting low-carbon technologies for heating and cooling applications
? 19) Upgrading Medicinal and Aromatic Plants value chain: Access to export markets
? Green Trade Initiative
? 20) Inter-regional project to promote SME origin and export consortia
8) 2013-
20169) 2013
– 2016
10) 4 years
11) 2013 –
2018
12) 2008 –
2014
13) 2011-
2014
14) 2010-
201415)
2011-
201416)
2011-2014
17) 2011-
2014
18) 2014-
2019
19) 2011-
2014 20)
2012-2014
EUR 5,500,000
US$ 10,000,000
US$ 3,950,000
US$ 1,000,000
US$ 5,889,000
US$ 900,000US$
1,440,498US$
502,0000US$
1,934,994
US$ 6,500,000
US$
2,870,000EUR
140,000
71
World Bank ? Enhancing Access to Finance for Micro and Small Enterprises Project
? Third Financial Sector Development Policy Loan
US$ 300 M
US$ 500 M
African
Development Bank
? SME Franchising Loan: A line of credit to encourage local franchising to SMEs. Grant
allocation covers TA aspect of project
? Agri-business Development Operation (with 1.93 in grant money): A line of credit to SFD for
the development of the SME agricultural sector with a 1.5 million USD technical assistance
component.
$40 million
$70 million
AFD ? Line of credit to the National Bank of Egypt in order to develop its SME lending activity, and
extend the maturity of the loans it grants to SMEs. The loan will include a TA component
dedicated to train SME department to develop the expertise on the SME market, and to
develop the capacities of SMEs in their relation with banks
? Support the creation and development of micro and small enterprises/SFD
15 million Euros
Arab Fund for
Economic and
Social
Development
? SME credit line for MSMEs
US $ 77 M
Kuwaiti Fund ? SME credit line for MSMEs US $ 85 M
International Fund
for Agricultural
Development
(IFAD)
? On-Farm Irrigation Development Project in the Old Land Operation: To reduce rural poverty
by substantially increasing agricultural productivity and income of the targeted households
in the project area. SFD will support for employment and income generation SMEs through
better access to rural financial and capacity building. It was approved by the IFAD Board in
November, 2009, pending Agreement signature and ratification
US$ 9.9 million
0.3 million (grant)
GIZ ? Policy development on labor market, employment and youth issues, Regional cooperative
support structures to improve employability of youth, Environment for vocational guidance,
skills training, vocational education and job placement
$10.4 million
KfW ? Technical support, training and capacity building of NGOs, banks, MFIs and beneficiaries --
72
CIDA ? Decent Employment for Youth/ILO: provides non-financial business service through capacity
strengthening of existing BDS facilitators and providers. Examples of BDS include technology
transfer, business management, access to existing credit facilities, quality improvement,
export readiness, franchising, trading houses, brokerage mechanisms.
Multi-year
award for
fiscal years
2010-11 to
2016-17
$10,000,000.00
KHALIFA FUND ? To catalyze the start-up of SMEs with the overarching goal for these businesses to achieve
significant socio-economic impact throughout Egypt.
2014 $200 MILLION
International
Finance
Corporation (IFC)
? Support for secured lending framework
? Support for improving leasing environment
? Integration of MFIs in to credit bureau
? Advisory services to private banks
? Advisory services to MFIs
? Rolling out of business edge for MSME training
73
ANNEX 2: Stakeholders Summarized Database
Private Sector Initiatives Type Category of Support Contacts
Union Capital Private Equity
Investment Fund
Minoush Abdel-Meguid, Managing Director
Credit Guarantee Company
Cairo Angels Angel Investors
Shekra Crowd funding Shehab Marzaban
[email protected]
Adel Bosili
[email protected]
[email protected]
Facebook: SharekFekra
Beltone Capital Holding
Financial
Investment
Mr Hazem Barakat
Chairman of the Board of Directors
Tel. +202 2461 0300
Fax +202 2461 9851
E-mail: [email protected]
74
Beltone MidCap Fund Beltone Private Equity
S.A.E.
Mr Abdel-Monem Omran
Chairman of the General Partner
Tel. +202 2461 0300
Fax +202 2461 9851
E-mail: [email protected]
Sphinx Turnaround Fund Sphinx Private Equity
Management
International
Ms Marianne Ghali
Managing Director
Tel. +202 279 267 81/2
Fax +202 279 267 83
E-mail: [email protected]
AIESEC Student-Run
Organization
International Exchange
opportunity provider with global
SMEs
Conferences
Meeting space
Webinars
Think tanks
[email protected]
http://www.aiesec-eg.org/
Facebook: aiesecegypt
ALROWAD/
Accelerate
Consulting/ Support
Services
Training Weekends
Conferences
Blogs/Bloggers
[email protected]
http://alrowad-egypt.org/
Facebook:ALROWAD.EGYPT
75
Creativity stimulant
Alliance Magazine Newsletters Blogs/Bloggers [email protected]
http://www.alliancemagazine.org/
https://www.facebook.com/alliancemagazine
Arabnet Community Networker Blogs/bloggers
Competitions/contests
Newsletters
Conferences Startup toolkits
Employee recruitment needs
provider Workshops
[email protected]
https://arabnet.me/
Facebook: arabnetme
Beit Al Karma Consulting Consulting/ Support
Services
Impact Evaluator of case-by-case
entrepreneur service providers
Standard and Tailored Training
Services
Business Advisory Counseling
Services
Alaa Shahein
[email protected]
http://www.bk-eg.com/
Facebook: /Pages/ Beit-Al-Karma/289651933954
Cilantro Central Media Showcasing entrepreneurs [email protected]
Facebook: cilantrocentral
The District Workspace/Co-Working
Space/ Meeting Space
-- Mazen Helmy
Founder and Managing Director
[email protected]
76
http://district-egypt.com/
Facebook: DistrictEgypt
EBDA2 by Google Competitions/
Contests
Mentorship
Networking
[email protected]
http://www.startwithgoogle.com/
Facebook: StartWithGoogle
Egypreneur Networker Media and showcasing
entrepreneurs Community
Information
provider/newsletters Conference
Positivity stimulant Creativity
stimulant
Culture
Abdelrahman Magdy [email protected]
http://egypreneur.com/
https://www.facebook.com/Egypreneur
Egypt Business Directory Media And Showcasing
Entrepreneurs
Webinars
News
Event coverage
[email protected]
http://www.egypt-business.com/
Facebook: Egypt.Business
El MASHROU3 TV Show Media and Showcasing
Entrepreneurs
Competitions/Contests
Fair/Exhibiting/Tradeshows
Networkers
Community
[email protected]
http://elmashrou3.tv/
Facebook: ElMashrou3
77
El Raseef’s Flash Hub Wamda Networking -- [email protected]
https://www.facebook.com/ElRaseef
Fab Lab Egypt Maker Space -- [email protected]
http://fablab-egypt.com/
https://www.facebook.com/fablab.egypt
Flat6labs Accelerator -- [email protected]
http://flat6labs.com/
https://www.facebook.com/Flat6Labs
Ideavelopers FUNDERS: Venture
Capital
--
[email protected]
http://www.ideavelopers.com/
Microsoft Imagine Cup Awards/
Contests
Advocacy
Grants
Creativity stimulant Startup
toolkits
[email protected]
http://www.imaginecup.com/
https://www.facebook.com/microsoftimaginecup
Innoventures Llc Incubator/
Accelerator
Workspace/co-workspace
Networkers
Consulting/support Services
Mentorship programs
FUNDERS: Angel investors,
Venture capital and Zero stage
venture capital
Hesham Wahby
[email protected]
http://www.innoventures.me/
Facebook: innoventures.egypt
78
Culture
Invenst Llc Accelerator -- [email protected]
https://www.facebook.com/pages/InveNst-Ventures-
Boutique/231962590203619
Mena-Oecd Investment
Programme
Competitions/ Contests Volunteer provider for
entrepreneurs Networkers
Mentorship programs
Government connected
Report producer / Annual
Publications Conferences
[email protected]
http://www.oecd.org/mena/investment/
Mesaha Co-Working Space /
Meeting Space
Youth-led initiatives hub [email protected]
http://www.mesaha.org/
Middle East Angel
Investment Network
Angel Investors Funders: zero stage venture
capital Funders: venture capital
Entrepreneurship education
provider Newsletters (virtual)
Media and showcasing
entrepreneurs Blogs/bloggers
Fair/exhibiting/tradeshows
[email protected]
http://www.middleeastinvestmentnetwork.com/
https://www.facebook.com/pages/Angel-Investment-
Network/132382673486552
O Desk Employee Recruitment
For Entrepreneurs
Alternative income provider (for
entrepreneurs not working in a
full time paying job)
[email protected]
https://www.odesk.com/
https://www.facebook.com/odesk
79
Open Space EGYPT Consulting/ Support
Services
[email protected]
http://www.openspaceegypt.com/
https://www.facebook.com/OSTEgypt
Al Maqarr Coworking Space /
Meeting Space
-- [email protected]
Facebook: AlMaqarr
Rasheed22 Workspace/Co-Working
Space/ Meeting Space
Networkers Positivity stimulant
Community Creativity stimulant
Alternative income provider
Culture Stimulant
[email protected]
https://www.facebook.com/Rasheed22
Sawari Ventures Venture Capitalist -- [email protected]
http://www.sawariventures.com/
Silatech Policy Funder: Microloans Angel
Investors
Venture Capital Private Equity
[email protected]
http://www.silatech.com/
https://www.facebook.com/SilatechPage
Startup Weekend Training Weekends -- [email protected]
http://cairo.startupweekend.org/
Vodafone Ventures Venture Capital Funders: venture capital
Consulting/support services
http://www.vodafone.com.eg/vodafoneportalWeb/en/my
World_mainPage
80
Infrastructure support Customer-
entrepreneur link
Egyptian entrepreneurial
initiatives abroad
Employee recruitment needs
provider for entrepreneurs
Sales/distribution/export
services
http://www.vodafone.com.eg/vodafoneportalWeb/en/my
World_mainPage
Wamda Media and Showcasing
Entrepreneurs
Showcasing Entrepreneurs
Funding
[email protected]
http://www.wamda.com/
https://www.facebook.com/WamdaME
81
ANNEX 3: NGOs Supporting Micro, Small and Medium
Enterprises and Entrepreneurs
NGOs Type Category of Support Contacts
Egyptian Private
Equity Association
Private Equity
Association
-- Dalia Tadros
[email protected]
www.epea-eg.org
Alexandria
Business
Association
Funders:
Microloans
MFI
NGO
Non-financial service
Grant offering
Business development skills
[email protected]
http://www.aba-sme.com/
Taleeda Incubator Legal umbrella
Web space
Training services
[email protected]
http://www.taleeda.org/
Nahdet El
Mahrousa
Incubator Space Networkers
Community Entrepreneurship Education
provider
[email protected]
http://www.nahdetelmahrousa.org/
https://www.facebook.com/nahdetelmahrousa
82
Impact evaluator Volunteer provider for
entrepreneurs
Mentorship programs Researcher
MENA Private
Equity
Association
Infrastructure
Support
Researcher
Report producer / Annual Publications
Advocacy
Think Tank
http://www.menapea.com/home.php
Middle East
Council for Small
Business and
Entrepreneurship
Networkers Entrepreneurship Education provider
Conferences
Books
[email protected]
https://www.facebook.com/groups/mcsbe/
INJAZ Egypt Entrepreneurship
Education Provider
Competitions/Contests
Fair/Exhibiting/Tradeshows
Training Weekends Positivity stimulant
Mentorship programs Government connected
Startup Toolkits
[email protected]
http://www.injaz-egypt.org/
https://www.facebook.com/InjazEgypt
Endeavor Accelerator Networkers Entrepreneurship Education
provider
Conferences Annual Publications
Fellowships Consulting/support Services
Mentorship programs Media and Showcasing
Entrepreneurs
[email protected]
http://www.endeavoreg.org/
https://www.facebook.com/EndeavorEG
83
AWTAD Accelerator Customer-Entrepreneur link Consulting and
support services
Mentorship programs Networker
Creativity Stimulant Entrepreneurship
Education Provider
[email protected]
http://www.awtad-egypt.org/
https://www.facebook.com/pages/AWTAD/95094669293
Ashoka Arab World Fellowship Networkers
Community
Entrepreneurship education provider
Report producer/annual publications
Competitions
[email protected]
http://ashokaarabworld.wordpress.com/
https://www.facebook.com/AshokaArabWorld
Art Of Hosting
Meaningful
Conversations
Networkers
Learning community Conferences
Culture stimulant Consulting
http://www.artofhosting.org/home/
http://artofhosting.ning.com/
https://www.facebook.com/groups/aohegypt
https://www.facebook.com/artofhosting
Arab Development
Initiative
Conferences Entrepreneurship Education Provider
Creativity Stimulant
Startup Toolkits
Policy
[email protected]
http://www.arabdevelopment.com/
https://www.facebook.com/ADInitiative
The American
Chamber Of
Networker http://www.amcham.org.eg/
https://www.facebook.com/amcham.egypt.entrepreneurship
84
Commerce
Al -Mubadara Network Community Creativity stimulant
Consulting/support Services Volunteer
provider for entrepreneurs
Mentorship programs Fellowships
Employee recruitment for entrepreneurs
International exchange opportunity provider
with global SMEs
[email protected]
http://www.almubadarah.org
Facebook: arabempowerment
Egyptian National
Competitiveness
Council
Advocacy Events
Projects
Publications
[email protected]
Facebook: ENCCNGO
85
ANNEX 4: Universities with Entrepreneurship Initiatives
UNIVERSITIES Type Category of support Contacts
Nile University Entrepreneurship
Education Provider
Researcher Fellowships
Creativity stimulant Networkers
Positivity stimulant
[email protected]
http://www.nileu.edu.eg/
https://www.facebook.com/NileUniversity
Entrepreneurs’ Society Student-Run
Organization
Competition/Contest
TV Show
Co-working Space
Mentorship
[email protected]
https://www.facebook.com/pages/Entrepreneurs-
Society/35718649783?sk=timeline
El-Khazindar Business
Research and Case Center
Business Research
and Case Study
Provider
[email protected] --
Cairo University Innovation
Support Office
Innovation Training/
Technology Transfer
Provider
Consultancy and Support Services
Innovation Support and Training
Tech Development, Protection
Business Planning and Development
Tech Licensing
[email protected]
Facebook: Innovation.Cairo
86
The British University
In Egypt
Entrepreneurship
Education Provider
Research in different areas pertinent to
Entrepreneurship, i.e. education, finance,
women entrepreneurs, etc.
[email protected]
http://www.bue.edu.eg/
American University Of
Cairo Entrepreneurship
And Innovation Program
Entrepreneurship
Education Provider
Incubator Entrepreneurship Education
provider
Networkers Competitions/Contests
Training Weekends Media and
Showcasing Entrepreneurs
Mentorship programs Volunteer provider
for entrepreneurs
[email protected]
http://www.aucegypt.edu/Business/eip/Pages/AboutEIP.
aspx
Facebook: AUC.Business
87
ANNEX 5: Government Organizations Supporting
Entrepreneurship
Government Organization Type Category of support Contacts
Research Development and
Innovation Program
Government Support (Specialized
In Driving A
Culture For Innovation)
Funders: Grants
Fair/Exhibiting/Tradeshows
[email protected]
http://www.rdi.eg.net/
Industrial Development Agency Policy and Industrial Support -- www.ida.gov,eg
Industrial Training Council Skills Development Training
Capacity Building
www.itcegypt.eg
Industrial Modernization Center Policy and SME Competitiveness
Support
BDS
Consultancies
www.ims-egypt.org
Technology Innovation and
Entrepreneurship Center
Incubator/ Accelerator
Incubation Department”
[email protected]
www.tiec.gov.eg
Facebook: tiec.egypt
Bedaya Center for Entrepreneurship
and SME development (GAFI)
Investment Support BDS
Entrepreneurship support
Access to Finance
www.gafisme-bedaya.com
www.CreativeAssociatesInternational.com
doc_784466210.pdf