In the third installment of our #urbaneconomies series, we look at the role of culture and supports in growing tech and non-tech entrepreneurship in Cairo, using Daniel Isenberg’s Domains of the Entrepreneurship Ecosystem as a guide.
The 1996 hit Ramadan television serial Lan A’eesh Fi Gilbab Aby (I Will Not Live in My Father’s Robes) is the rags-to-riches story of Abdel Ghaffour El Bora’i – a man of modest means who makes his way up in the world of Wekalet El Balah’s cloth merchants to become a prominent Cairene businessman. But reality is harsher for entrepreneurs looking to make it in the Egyptian capital. In fact, ever since entrepreneurship became a buzzword, there has been a deliberate effort to differentiate between entrepreneurs and businesspeople.
Founder of the entrepreneurship education organization Injaz Dina El Mofty contrasts the perception of today’s entrepreneurs with the negative cultural perceptions of businessmen depicted in films and TV serials in the 2000s. She explains that the recurrent depiction of businessman-as-swindler has resulted in the absence of aspirational entrepreneurial stories from the public eye.
Hand-in-hand with the absence of entrepreneurs from the popular imagination comes the difficulty in placing entrepreneurs socially. And although the The Global Entrepreneurship Monitor (GEM) Report 2012 states that almost 85% of Egyptians believe that entrepreneurship is a desired career choice and 42% expressed their intentions to start a business in the future, one of the biggest challenges that entrepreneurs in Egypt report is not being socially understood.
Entrepreneur and investor Osman Ahmed Osman founded Akhbarak.net in 2003, which he sold a majority stake in to Vodafone Egypt in 2012 before co-founding Parlio, which was acquired by Quora earlier this year. From his experience, Osman has found that entrepreneurial attitudes are generally not encouraged in Egypt. Even when hiring for his own startup in Cairo, he found that people tended to shy away from taking risks, partially because of their financial responsibilities, but also because of “what their wife or their wife’s family would think.”
Founding Member of the Middle East Council for Small Businesses and Entrepreneurship in Egypt and lecturer in Business Administration and Entrepreneurship at The British University in Egypt (BUE), Hala Hattab has witnessed first-hand the uncertainty that entrepreneurship inspires in students. Although BUE introduced its Entrepreneurship and Sustainability program in 2012, she explains that students are still reluctant to enroll because of preconceived notions that are passed on to them by their parents. “We’re taking baby steps, but the impact is still limited. We still struggle under the influence of the larger culture, which is a real barrier,” she says.
Serial entrepreneur, investor and co-founder of RiseUp Egypt, Con O’Donnell – who laughingly defines youth as “under 50?” – notes that things are changing for entrepreneurs as well as for employees at startups. Still, he is clear that things are far from ideal for young entrepreneurs socially. “For me, the barometer [of social acceptance] is whether someone can approach his father-in-law and tell him that he’s an entrepreneur and not be rejected, and we are not there yet,” he adds.
Mohamed El Sawy, owner of The Courtyard and CEO of Misr Contracting Company, on the other hand, notes that using the term “entrepreneur” loosely has created negative connotations for some people. “We’ve seen a surge of people who hang out in coffee shops all day with their laptops and call themselves entrepreneurs. What they do may be a form of entrepreneurship, but many perceive them as people who just don’t want to work. But for people who actually start up their own companies and have an operating business, the image is not bad at all.”
But entrepreneurs also struggle with the very real possibility of failure. “What we don’t learn at school is how to deal with failure. If you look at the percentage of failure to success, the numbers are reflective, but socially, we don’t accept failure…We tell our kids that if you fail, you fail,” says Hashem El Dandarawy, agricultural developer and founder of K-9 Sense – a company that provides products and services for the training and care of canines.
Assistant Professor and Abdul Latif Jameel Endowed Chair of Entrepreneurship and Director of the American University in Cairo’s Venture Lab Ayman Ismail notes that, in addition to the social stigma associated with failure, it is rare for large companies to contract startups for jobs, making it even harder for young people starting out. And while the fear of failure may be in decline among younger generations – so is the willingness of young people to go out and start a new company. “According to our latest research, the number of people starting new companies is fewer today compared to five years ago,” he says.
Compounded with the uncertainty of starting out a company and the fear of failure is the absence of bankruptcy laws to protect business owners from the very real threat of jail time should their businesses falter. Egypt ranked 119 out of 189 countries surveyed when it came to resolving insolvency in the World Bank’s Doing Business 2016 report, which, when compared to a score of 73 when it comes to starting up a business, indicates that if starting up is difficult, exiting is doubly so. And while the Investment Ministry has announced its plan to issue a new bankruptcy act, the actual bill has yet to materialize.
In spite of the difficulties that entrepreneurs report, the numbers tell a different story; according to Oxford Business Group, SMEs represented 70% of the national economy in 2013. And whereas SMEs have “…traditionally been most prevalent at the lower end of the income spectrum and among blue-collar households…that has begun to change.”
Managing Partner at the Cairo-based VC firm Ideavelopers Tarek Assaad notes that things are in fact changing for entrepreneurs. “When I first started out at Ideavelopers, people would say that their parents want them to get a real job. Now you see people who have very strong management capabilities leaving high-paying prestigious jobs because they want to become entrepreneurs, and I think they’re blazing the trail for everyone else,” he says. “I think it’s getting easier to socially justify that you’re leaving a job at a big multinational to join a startup.”
One of the factors that all ecosystem players agree is lacking is prominent success stories – real-life characters like Lan A’eesh Fi Gilbab Aby’s Abdel Ghaffour El Bora’i. Con O’Donnell notes that, although Egypt has developed a strong English language media around entrepreneurship and attracted the interest of regional media like Wamda and international media like TechCrunch, Arabic media coverage lags behind.
And then there are the missed opportunities. Last year, electronic payment network Fawry’s US $100mn acquisition by a consortium of investors did make it to the Arabic business media – although not as a startup story. Fawry, which has been hugely successful in growing a user base and facilitating payments of bills online through ATMs and via retail points, already has more than 50 thousand locations nationwide. “The Fawry story was not positioned as a seven-year-old company that rose to US $100 million, so that’s a startup story that was missed,” says O’Donnell.
According to Mohamed El Sawy, while real-life success stories – particularly of non-tech entrepreneurs – are largely non-existent, he is wary of local English-language media that focuses on a select few. “I met a guy who started up a small factory to manufacture a refrigerator hinge – something that we used to import. He designed the machine, quit his job, opened a small factory and eventually began exporting to other Arab countries and expanded into other products. For me, this is a phenomenal entrepreneurial success story, but the media doesn’t care about this. What we see in the media is that so-and-so started their own design firm, and I’m sorry, but that’s not entrepreneurship,” he says.
According to Dina El Mofty, the most potent success stories are the ones that are hyper-local. She explains that the impact that Mostafa Hemdan – founder of Recyclobekia, an electronic waste recycling company based in Egypt and serving the Middle East – had on his hometown in Tanta is incomparable to anything that could have been portrayed in the media. “Nobody in [Mostafa’s] family or community understood why an engineer would throw everything away to start his own business, but when his business became successful, everybody wanted to be like him. You can raise awareness forever, but the fastest change will come when someone [from the community] makes it despite the odds and becomes a role model,” she says.
Institutions & Infrastructure
Fear of failure and social acceptance are just two difficulties that, when compounded with other challenges, put entrepreneurs at a disadvantage. The underdevelopment of infrastructure for communication and transportation and the absence of strong support professionals servicing SMEs – not to mention confusing and often-contradictory regulations – means that entrepreneurs have to be in it for the long haul if they want to succeed. “I think all businessmen and entrepreneurs will agree that, in Egypt, you spend 80% of your time fighting against bureaucracy and 20% innovating, which kills our innovation,” says Mohamed El Sawy.
Besides bureaucracy, Internet infrastructure is perhaps the most openly voiced grievance. “We are competing with the world at a maximum of 4MB/second, whereas our cousins across the water are on 40, so we’re 10 times slower than them. And then there’s Asia, which is 20 times faster, so how can we compete?” asks O’Donnell. In 2015, Egypt ranked among the 15 slowest countries worldwide for Internet speed, and ranked 52 out of 62 countries for pricing.
But connectivity is hardly the only infrastructural challenge that entrepreneurs face in Cairo; the bustling megalopolis, which is home to more than one fifth of the country’s population – an estimated 20 million people – is a logistical nightmare. Published by the World Bank in May 2014, the Cairo Traffic Congestion Study put the economic costs of congestion in the Greater Cairo Metropolitan Area at EGP 47 billion (USD $8 billion). This amounts to 3.6% of Egypt’s total GDP, which, when distributed across a population of 19.6 million people living in the city, results in a per capita cost of about EGP 2,400 (USD $400) annually. And while New York loses an average of USD $10 billion on traffic annually, and Jakarta loses USD $5 billion, those losses represent 0.07% and 0.6% of the U.S. and Indonesian national GDPs, respectively – paling in comparison to the whopping 3.6% lost on Cairo traffic.
Perhaps it is for these reasons that so many entrepreneurs turn to tech when they want to do business; in spite of the infrastructural challenges associated with tech, business owners have to wade through fewer logistics and rely on fewer externalities to get stuff done. According to Hashem El Dandarawy, one of the appeals of tech entrepreneurship is the low barrier of entry: “If I tell you to create a company that will transport products from one area to another in Upper Egypt, you’ll think about all the obstacles that you have in terms of getting the cars, etc., but if I tell you to create an application to find the first car passing on the road to transport a product, you’ll tell me it’s simple, so the infrastructure of accomplishment is different,” he explains.
But it is precisely these kinds of challenges that entrepreneurs need to highlight and regulators need to address if entrepreneurship is to have any meaningful impact on people’s lives. “To really have development, you have to talk to the masses, and the masses are not tech savvy. This country needs both the IT person who preps the country to be on the forefront and the entrepreneur who is looking at the physical aspect of the economy,” adds Dandarawy.
An Entrepreneurial Ecosystem
But while citywide infrastructure affects all businesses equally, an infrastructure specifically tailored for SMEs and entrepreneurs has cropped up over the past 15 years, developing a community of entrepreneurs and their supporters around it. And while conferences, business plan competitions and Startup Weekends abound, they remain largely focused around a young, educated middle class.
“Some people say that we are an ego-system not an ecosystem, and I hear this frequently. Yes, you see the same faces at different events, and this is partially because it’s the same people inviting the same pool of people…discussing the same points. This makes people feel that it is a clique, but let’s look at it this way – we are maturing, learning and experiencing, and that’s not a bad thing.,” says Hala Hattab.
When compared to other industries, the interconnectedness of the tech ecosystem is highly appealing. Third generation entrepreneur and CEO of Lotfy footwear, Bassem Lofty describes his experience in the footwear industry, which he perceives as competitive without purpose and lacking in foresight. “We’re in a market where no one helps the other. In Egypt, when someone falls, nobody helps him, which is not the case in other markets,” he says.
But even those who have traditionally operated in the tech space see the merits of engaging a larger group of entrepreneurs. “We could be a bubble in a bubble, but we don’t want that,” says O’Donnell of RiseUp’s annual summit. “This year, we’re looking very closely at the creative economy, for example. The other group we’re looking to bring in is the clean tech, so all of the renewable energy and recyclables. This is a group of people who have a lot of underlying tech, but they’re not high tech…These people are going to transform the world,” he adds.
In the next and final installment of our series, we will look at how markets and human capital impact tech and non-tech entrepreneurs.
The #urbaneconomies Cairo series is commissioned by district coworking space.
District pioneered the MENA coworking concept in 2011, building a vibrant community to support change-making entrepreneurs. By combining the right people with substantial knowledge and creating inspirational spaces, District continues to build coworking communities across MENA.