Egypt's Startup Ecosystem Hit Hard Times in 2023, Here's What's Happening
2023 was a tough year for many startups and a quiet year for many investors.
To illustrate the point, out of the list of the 10 most active investors in Egypt over the course of the past five years, half did not fund a single Egyptian startup in the 2023 calendar year. Out of the other five investors that did fund Egyptian startups in the past year, all but two significantly decreased their investments in Egypt.
Though 2023 brought about a major correction across the world of tech, across geographies and sectors around the world; it was felt particularly acutely in Egypt – where run-away inflation and a plummeting currency brought a triple blow. When we stop to consider how tough the macroeconomics are in Egypt today, it’s unquestionably challenging. Inflation ‘dropped’ to 29.8% in January 2024 from a high of 39.7% in August 2023, but is still unsustainably high.
After having a relatively strong currency performance after floating the Egyptian Pound in late 2016, recent inflationary pressures began to impact the local currency, which saw it lose half its value in a short 9 month period between March 2022 and January 2023.
Egypt’s currency was one of the worst performing currencies in the world last year. This of course meant that not only did Egyptian startups have to put up with a global VC winter, which dried up capital to sustain them through a global correction; this also meant that Egyptian startups were given a crash course in resiliency and doing business in trying times.
Valuations weren’t just being corrected, they were being hit hard because Egyptian businesses had half the purchasing power they had experienced a year prior, just because of the devaluation of the Egyptian Pound.
Suddenly, Egyptian startups that had strong nationally-focused businesses were scrambling to get international revenues. Many have moved headquarters to other GCC countries, where they can get access to capital and networks to expand across other Arab nations. Some are considering slow and steady expansions into other African geographies. Others are tightening their belts, and waiting out the storm as best they can.
Of course, currency risk still exists, but it largely seems to have bottomed-out. What this means for the scrupulous investor is that there are opportunities in Egypt; many startups in Egypt are lean and resilient, have walked through fire and continue to cut fat, while they innovate – not just their products – but their go-to-market strategies as well.
They are finding new ways to reduce their operating costs, while seeking out new revenue streams. Many of these startups are operating products and solutions comparable to regional players, but have valuations that are 1/5th that which you would find across Riyadh or Dubai, for example.
Corrections alone can feel turbulent in the moment – but many say they welcome it, especially looking at the ecosystem with a long-term lens. Egyptian VCs seem to be bullish for the large part in 2024. Many investors who’ve been around to see enough down-cycles say that even the current conditions can be overcome with diligence and time. Some even point out to the fact that Fawry, Egypt’s first startup to achieve a billion-dollar valuation, was born out of the last financial crisis.
Related: Fawry: Egypt’s Leading E-payments Player, and First Fintech IPO Success Story
What stands out most, perhaps, is that despite the challenges Egypt faced in 2022 and 2023, the country’s tech ecosystem consistently ranked 3rd most funded tech ecosystem in MENA (excluding Israel). Egypt also consistently ranks as a top 3 African tech ecosystem, and continues to do so. Though MNTHalan’s mega-rounds of fundraising had bolstered Egypt’s capital raising in 2023, the same could be said of the mega-rounds that have helped carry other markets fundraising figures through the VC winter in first place Saudi Arabia and second placed United Arab Emirates.
The truth is, despite Egypt moving through the storm, the data says its weathering the storm relatively well. Though the number of deals signed in 2023 dropped by 70%, the amount fundraised has only dropped 38%. And while the rest of the MENA region was plummeting in deals and fundraising during the VC winter kicking in in 2022, Egypt set records.
In 2022, Egypt signed a record 212 fundraising deals amounting to US $810 million. Meanwhile, average deal sizes in Egypt increased year on year for the past four years. As Thomas Edison once wrote, “A diamond is a piece of coal that stuck to the job.”
The data doesn’t lie: Egypt is doing well. Perhaps, the current macroeconomic challenges will only add the pressures necessary to create some of the most innovative startups the region has yet to see.
Next Read: The Drivers to Egypt Becoming the Next Big Tech Hub
