* Revolution prompts new interest in starting ventures
* Entrepreneurs cite both push and pull factors
* Much activity focused on IT sector
* Legal, financial obstacles are large
* Egypt could become innovation centre for region
By Andrew Torchia
CAIRO, Jan 18 (Reuters) - Two months after mass protests ousted Egyptian president Hosni Mubarak last February, Ahmed Essam resigned from his job at a well-established software company to set up a six-person venture developing applications for smart phones.
The economic turmoil which engulfed the country after Mubarak was overthrown played a part in his decision, says Essam, 28. With many firms freezing investments and shedding jobs, his salaried post no longer looked as stable.
“I felt the current situation might not continue after the Revolution. Most of the old companies will not make it in the new era,” he said.
But the euphoria of the Revolution was also a factor. With the end of 30 years of rule by Mubarak, during which much of Egypt’s economy was dominated by state-run companies and businessmen linked to the Mubarak regime, Essam thinks hard work and commercial vision have a greater chance of succeeding.
“People had lost hope — you would walk along the street and nothing was yours, nothing was under your control. The Revolution created a feeling that people can change the world for the better.”
In a 1920s apartment building across the street from the Giza Zoo outside Cairo, Essam now works 15-hour days to develop an application which rearranges social network feeds such as Facebook and Twitter according to their relevance to the user. He hopes the application will be used not just in Egypt or other Arab countries but around the world.
A year after Mubarak’s ouster, economic conditions in Egypt remain grim. The risk of a currency devaluation, and continued uncertainty over how much power the military is willing to hand over to a democratic government, are deterring new projects by many large businesses, including foreign investors.
Unemployment officially stands at 11.8 percent, according to the latest data from the second quarter of 2011, but this figure understates the problem as it does not include people struggling in part-time jobs outside the formal economy. Economists estimate unemployment among young people at around 25 percent.
At the same time, the new political landscape is encouraging a flowering of entrepreneurial activity among some Egyptians. Around the country, thousands of young people are developing ventures based on original business ideas or laying plans to do so — efforts that could, if they prove successful, eventually help to solve Egypt’s unemployment problem.
There are no comprehensive statistics for the number of new ventures but Abdelrahman Magdy, chief executive of Egypreneur, which helps entrepreneurs find the contacts and services they need, promotes their ideas and provides training, says the change in the past 12 months has been dramatic.
Before the Revolution, Egypreneur had between 2,000 and 3,000 followers on Twitter; now it has about 20,000, Magdy said. The number of public conferences for entrepreneurs in Egypt’s big cities has increased eightfold, he estimated.
As in Essam’s case, there is a push factor behind the growth of entrepreneurship: seeking a long-term job in a government bureaucracy or a big corporation, traditional avenues for educated Egyptian youths, no longer seems as possible or as attractive with the government in disarray and the economy sagging.
But many entrepreneurs say the Revolution has also been a pull factor for young people: the protests in Cairo’s Tahrir Square showed how, through cooperation and planning, it was possible to beat the established system.
Egypt had entrepreneurs and a growing information technology industry well before the Revolution, noted Ramez Mohamed, chief executive of Flat6Labs, a U.S.-style “startup accelerator” that was established last year to provide starting capital and support to ventures in their initial stage. But people’s new sense of political empowerment is providing a boost, he said.
“The Revolution has affected the scene,” he said. “People learned that they could set their hopes higher. They feel they can make it on their own, that anything is possible.”
Many of the new entrepreneurs are focusing on software and information technology because those areas require relatively little capital, and in some cases because the anti-Mubarak protests, organised with the help of Facebook and Twitter, raised the profile of social media in Egypt.
But Magdy said he saw entrepreneurs operating in other areas too. One example is Mashaweer, a service which helps customers avoid the traffic in Egypt’s gridlocked cities by running errands for them, from shopping and paying bills to arranging replacements for lost IDs.
With an average age of 26 among its staff, Mashaweer started in Alexandria in 2010 with three scooters and investment of 30,000 Egyptian pounds ($5,000). It launched in Cairo last month and now boasts 130 of its distinctive orange scooters, 15 cars and a speedboat. It aims eventually to operate airplanes.
Gilan Kamal, digital marketing manager at Mashaweer, said poor business conditions did not deter the firm’s expansion as its cost base was lower in a sluggish economy. The political turmoil “motivates us because we want people in our generation to see how it is possible to increase productivity”, she said.
There are big obstacles for entrepreneurs in Egypt. In the World Bank’s annual 2012 rankings for ease of doing business, Egypt came 110th out of 183 economies: 21st for ease of starting a business, such as registering with the government and signing up to pay taxes, but 101st for obtaining electricity, 147th for enforcing contracts and 154th for handling construction permits.
“The pieces for the chess game are there. The board is not there yet,” said Scott Gerber, a U.S.-based author who founded the Young Entrepreneur Council, a global group of entrepreneurs. He visited Egypt last year to meet businessmen and investors.
Egypt badly needs legal reforms — “the tax laws are all over the place” — as well as government support for entrepreneurs in areas such as public-private partnerships; “the banking system needs a complete overhaul” to prepare it to lend to smaller enterprises, Gerber said.
With Egypt’s new, democratically elected parliament likely to remain distracted for months by political manoeuvring and macroeconomic challenges such as coping with the state’s budget deficit, the obstacles to new ventures may not be removed any time soon.
Ahmed El Alfi, chairman of Sawari Ventures, which invests Egyptian and foreign money in local start-ups and helped to fund Flat6Labs, acknowledges the difficulties. But he says the strong tradition of teaching engineering and computer science skills at universities gives Egypt huge potential.
According to the Ministry of Communications and Information Technology, Egypt’s exports in that sector grew at an average annual rate of 37 percent between 2007 and 2010, hitting $1.1 billion in 2010. It aims for $2 billion in 2013.
El Alfi said Egypt, with a population of over 80 million, by far the largest in the Arab world, had a chance to become the main source of innovation in information technology for the region. Israel’s IT industry took off after a few globally recognised successes with start-ups in the 1990s, he noted.
“Over 50 percent of the good tech services guys in the Arab world are in Egypt,” said El Alfi, who left the country in 1966 and returned from the United States in 2006 to pursue business opportunities. “They just need a chance to do their stuff.”