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The State of Entrepreneurship in Egypt

Jonathan Ortmans on March 29, 2010 Source: Policy Dialogue on Entrepreneurship

Last June, President Obama announced in Cairo, Egypt that the U.S. government will host a Summit on Entrepreneurship to identify how we can deepen ties between leaders, foundations, and entrepreneurs in the U.S. and Muslim communities around the world.  Throughout April leading up to the April 26th summit, I will comment on the state of entrepreneurship in some of the nations participating which I will be attending in the hope of prompting further observations from readers.

Egypt is one the first countries that comes to mind when I think about entrepreneurship and the Muslim world. For the fourth time, Egypt ranked among the top 10 global reformers in the 2008/09 period, according World Bank’s Doing Business in the Arab World 2010 report. The report considers the country to be a comprehensive reformer; Egypt implemented at least 19 reforms, covering 8 or more of the 10 areas measured by Doing Business.

In its reform efforts, Egypt is inclusive, involving many relevant players of an entrepreneurial economy. This was evident at a very well attended launch of last year’s Global Entrepreneurship Week in Egypt, which included the Minister of Education, the President of the Financial Supervisory Authority and a wide array of business, cultural and academic leaders tapping the expertise of several organizations, such as the Middle East Council for Small Business and Entrepreneurship, the local universities, and the development agencies.  The event discussed how to build an entrepreneurial environment through education, cultural change and pro-entrepreneurship policies.

At events like this, Egyptian officials have been discussing the same issues we tackle on this blog weekly.  For example, financial policies to support young entrepreneurs are a major concern among government officials. The establishment of the Egyptian Financial Supervisory Authority (EFSA) represents an attempt to organize the regulations that support non-conventional financing mechanisms, and a new law is under study to introduce regulations that would allow micro-finance companies to operate in Egypt. Much more can be done in this area, such as exploring other methods and institutions to boost entrepreneurial financing, including venture capital and credit guarantee companies. Currently, there are only 3 or 4 major venture capital firms in Egypt, and they are heavily influenced by the government, distorting their management.

There are many other indications that although Egypt is moving at a quick pace, it has a lot of work to do to unleash its entrepreneurial potential. Many analyses, such as the Legatum Prosperity Index, still consider Egypt’s economic fundamentals to be unsound due to high unemployment and inflation rates and poor trade statistics. The country is far from being a top entrepreneurial economy; it ranks 106th among 183 economies in terms of the ease of doing business, and presents several regulation bottlenecks in the areas of enforcing contracts, paying taxes and closing a business. Most importantly, the young still hesitate to take the entrepreneurial path. Among those aged 15 to 29, only 30% say their governments make paperwork and permits easy enough to get for people who want to start a business, according to a 2009 Gallup poll.

Then there is the issue of culture. Hesham Wahby, Principal of Mercator XXI in Egypt & Middle East Over, told me on an email exchange today that over the last several decades, there has been a culture that discourages entrepreneurship in Egypt.  The most respected members of society have been those who work in academia, the government, or are affiliated with either one in some way. This is complicated by family pressures on sons and daughters to be successful by landing a stable position in a university or government organization. Fortunately, witnesses like Hesham argue that this is now changing as people increasingly recognize career success in the private sector, at least in larger corporations. However, most youth are still hesitant of venturing on their own. The solution to these cultural issues is closely related to public policy, particularly to changing laws that discourage entrepreneurship and limit innovation. For example, going bankrupt is still a crime that can potentially lead to imprisonment of the business owner, which of course represents a major deterrent to entrepreneurship. When young Egyptians do choose entrepreneurship as a career path, they usually opt for lower-risk traditional businesses. Encouraging them to build higher-growth business models will require removing policy barriers like the one mentioned.

Nevertheless, the high-level interest in youth entrepreneurship in Egypt can turn into a much-needed tool for economic expansion.  As Hesham pointed out, Egypt is very dependent on entrepreneurial businesses because there aren't that many successful larger companies and well-paying jobs are limited, which means there is an opportunity to do better through entrepreneurship for those willing to take the risk. Moreover, the increasing number of enthusiastic Egyptian youth participating in Global Entrepreneurship Week and continuously working to transfer their ideas and ideals into viable businesses (e.g., SIFE-Egypt started a project that uses animal waste in a Nile river island to produce biogas that is used as fuel for bakeries on the island) is unlikely to let policymakers to ever put entrepreneurship aside again.

No doubt Egypt will be well represented at the Summit.  The U.S. government has taken a great deal of interest in entrepreneurship in the country as have lifelong advocates of innovation and entrepreneurs like former IBM executive Chris Caine, who chose Egypt for the first overseas office for his start-up Mercatur XXI.  We look forward to seeing more attention to entrepreneurship in this country and to the formation this spring of an assortment of policy discussions and program collaborations that might further advance entrepreneurship in this part of the world.  Comments and ideas are most welcome.

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Jonathan Ortmans is president of the Public Forum Institute, a non-partisan organization dedicated to fostering dialogue on important policy issues. In this capacity, he leads the Policy Dialogue on Entrepreneurship, focused on public policies to promote entrepreneurship in the U.S. and around the world. In addition, he serves as a senior fellow at the Kauffman Foundation.

Category:  Global  Tags:  egypt, world bank, legatum, psoe

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