The Egyptian Nexus

Perched astride two continents, sandwiched between two seas, and watered by a river that feeds ten countries, Egypt is a nation destined to have extensive contact with the outside world.”

Nabil Fahmy, the former Egyptian ambassador to the USA, spoke these words at the turn of the century and they couldn’t be more true today. Egypt simultaneously belongs to two of the world’s most promising regions, one of which holds the world’s biggest energy reserves and the other, its fastest-growing economies.

Having diversified industries and a massive labour force bolster Egypt’s strategic positioning. With over 87 million inhabitants, Egypt is the most populous country in the Arab world and the third-largest in Africa. A massive young population and low GDP per capita enable relatively low labour costs.  Meanwhile, the global Egyptian diaspora pours in large remittance flows and new ideas, all favorable to commerce. With all this, Egypt seems to become a leading economy in the 21st century.

Prior to the financial crisis, Egypt’s potential as a regional nexus was drawing attention from national and international investors. Among both the Middle East and Africa, it was a top FDI destination. However, these economic gains were not well-distributed and unemployment and inequality were among the driving factors behind the 2011 revolution.

Today, Egypt’s economy is beginning to grow again. To avoid repeating the past, full employment and socio-economic inclusion are vital.

Egypt’s small and medium enterprises hold the key to re-positioning Egypt as a trans-continental player and creating more inclusive development. According to Majdi Abu-Arja, SME Expert at the National Bank of Egypt, “Once they are built up, and organised, they can take advantage of their geo-strategic location and play a connecting role between Africa, Asia, and the Middle East. But this can’t happen until the SMEs are trained and have the resources.”

Whereas half of Egypt’s SMEs specialise in manufacturing, this know-how and cost advantages are often lacking in Africa and the Middle East. Filling this gap could create an immense number of high and low-skilled jobs very quickly. As illustrated by Cairo University’s research on Egyptian SMEs, employment numbers are positively correlated with exporting and internationalisation. [1]

Blog post Egypt Nexus 2

Since SMEs comprise 90% of all companies and 75% of jobs in Egypt, the implications of expanding exports could be transformative. However, 90% of Egyptian exporters leverage bank credit to expand overseas and in Egypt, nearly 80% of SMEs lack credit facilities. Abu-Arja notes that “The government is trying to encourage all banks to work with SMEs, but there is still a lack of risk appetite. Banking staff are often not capable of working with SMEs because of lack of familiarity with their processes and solid cash-flow based lending.”

In 2014, GroFin Egypt established its Cairo Office to fill some of these gaps. In 2015, they had already invested in two Egyptian SME clients and provided support to 26 entrepreneurs of small businesses connecting them with counterparts in Jordan, Oman, Nigeria, and Kenya. Through finance, support, and business linkages, they hope to facilitate the 21st century Egyptian growth story.

[1] SME Landscape in Egypt. Journal of Business & Economics, 2014.