Start-Ups in Egypt

Dominik Peters and Daniel Gerlach

Young entrepreneurs with fresh ideas have tasted success in the midst of political chaos and believe the Internet provides them with the best opportunity for outwitting the established elite who have been controlling the Egyptian economy for half a century.

He’s wearing three jumpers – beige, green and grey, but Bassem al-Hadi is still feeling the cold. And he’s tired. For the last week, he’s been sitting, standing and shouting in Tahrir Square in the centre of Cairo. »To defend our holy revolution,« he says. But as a business owner, he has plenty else to do. Why isn’t he out drumming up business?

Hadi has become convinced that there are two ways to tackle survival in business – the tactical route and the strategic route. Showering, shaving and going to the office brings short-term results. A tenacious presence in Tahrir Square is the strategic approach. »You really can smell change in the air,« he says hoarsely, flaring his nostrils and imitating a hunting dog scenting its prey. Hadi’s opponent, Field Marshall Hussein al-Tantawi, Chairman of the Supreme Council of the Armed Forces and the strongest man in Egypt since the fall of the Mubarak regime, once seemed invulnerable. Lately, he has been looking more like an animal on the run.

Hadi is a young man. The army would be pleased to have him – if he didn’t have such a big mouth. A computer scientist, he belongs to the new generation of entrepreneurs whose bright ideas have made them successful in business, even in the midst of the political chaos since Mubarak was overthrown. In April last year, he founded Kijamii, a marketing company specialising in social media.

Apart from a table tennis table, Hadi has very few tangible possessions. He inhabits a digital world. »We’re natives of Facebook. We’re Generation X,« is how he describes himself and his peers. With like-minded colleagues, he founded TedXCairo, the Egyptian offshoot of the Internet platform Ted, the home of video conferences at which scientists, billionaires and political activists invite others into their world of ideas. As he stretches his tired, aching limbs, Hadi explains how important it is to him for those in power in Egypt »to realise that we are a generation that is changing the present and that we have an unprecedented will to win.«

However, the army, which has been in power since Mubarak was overthrown, is not even contemplating backing down – and many Egyptians are quite okay with that. The army is the country’s largest employer and probably generates between 4 and 40 per cent of its GDP. »The exact figures are a state secret,« says Robert Springborg, Professor of National Security Affairs at the Naval Postgraduate School in Monterey, California, who teaches Egyptian military and economic affairs. Springborg is certain that Tantawi will try, at all costs, »to prevent a civilian from becoming President, because the army leadership could then be forced to open the books and allow transparency.«

»Not all the generals are corrupt sharks who just want to line their own pockets«

The army’s economic empire, which has a cheap workforce at its disposal in the form of an estimated 100,000 young men doing compulsory military service, is convoluted, to say the least. There is even a Ministry of Military Production, which includes two manufacturing agencies, the National Service Products Organization and the Arab Organization for Industrialization. Together these three bodies administer almost 30 factories throughout the country. When the »Maadi Company for Engineering Industries« – or Factory 54 in military-speak – is not manufacturing machine guns, it churns out meat grinders, kitchen knives and wooden furniture. Factory 100 in Heliopolis makes both dynamite and cosmetics. Factory 27 in Schubra, one of Cairo’s poorer districts, supplies not only rocket launchers but also screws. Factory 999 in Helwan stocks grenade launchers alongside power drills. The military also controls industrial bakeries and dairy factories, vegetable plantations, fish farms and hospitals.

It was the 1979 peace agreement with Israel that enabled the army to become so entwined with the Egyptian economy. As a result of the agreement, then President Anwar al-Sadat made radical cuts to the military budget and dismissed almost half of the country’s one million soldiers. Many of them found new jobs with their old employer. Field Marshall Abdel Halim Abu Ghazala, who served as Minister of Defence under both Sadat and Mubarak, decided to sell the territory on the Sinai Peninsula which Egypt had won back in the war to foreign tourism investors. This was made possible by Sadat’s »open door policy«, which had allowed foreign investors into the Egyptian economy in 1977.

Abu Ghazala acquired majority shareholdings in former state-owned enterprises and appointed former generals as their new directors. Generals still go straight into top positions in the business world when they retire from the army. Abd al-Aziz, for example, manages International Cairo Stadium, while Ahmed Ali Fadel, a former admiral, controls the government’s biggest source of revenue in his role as chairman of the Suez Canal Authority.

These days, the army even enters into joint ventures with foreign companies: it manufactures »Wrangler« and »Cherokee« SUVs under licence to US carmaker Chrysler and contracts Dutch brewery giant Heineken to distribute Safi mineral water from the springs it owns at Siwa oasis near the Libyan border.

»Not all the generals are corrupt sharks who just want to line their own pockets,« says Ahmed Sedki, a successful entrepreneur who sports a crew cut, blue shirt and a friendly smile. He was born into the ranks of the powerful in 1961 and his father, Atef Sedki, was Prime Minister from 1986 to 1996. The family albums in Sedki junior’s office in the posh Cairo suburb of Heliopolis are packed with photos of important politicians and other members of the Arab elite.

»It will be at least 10 to 15 years before we can get rid of corruption«

»What hurt Egypt’s economy far more was the corrupt clique that hung around the President’s son, Gamal Mubarak, over the last ten years,« says Sedki, settling in on a comfortable leather sofa. »Men like Ahmed Ezz and the tycoons Mohammed Mansour and Ahmed el-Maghrabi ruined our country.« Under Sadat, the Mansour family, already the largest cotton producer in the country by 1960, acquired an exclusive licence to distribute General Motors vehicles and expanded its portfolio in the 1990s to include the financial services and foodstuffs sectors. By the time Mubarak was overthrown, the Mansours were generating two percent of Egypt’s GDP. Steel magnate Ezz, who was never reticent about his close ties to the Mubarak dynasty, became equally successful.

»It will be at least 10 to 15 years before we can get rid of corruption,« says Sedki. »There’s no ›democracy app‹ I could just download. But the genie is out of the bottle now and can’t be squeezed back in. I can tell by the many startups that have sprung up since the revolution.«

The creative people at »bey2ollak« weren’t able to come up with a democracy app, but they’ve excelled on a smartphone application that tackles the equally pressing problems of Cairo’s constant traffic jams. The app provides users with status updates in real time, telling them where traffic has ground to a halt and where it is flowing freely. Five cousins – Gamal Eldin Sadek, Ali Rafea, Mohamed Rafea, Mostafa Beltagy and Yehia Ismail – began their project just a few weeks before the protests in Tahrir Square paralysed the city’s most important crossroads for many weeks.

»After only a few hours, we had more than 5,000 registered users and three weeks later, we did a deal with Vodafone,« Gamal Eldin Sadek tells us in a street café in the embassy quarter of Zamalek. »The revolution has changed my life,« says the 23year-old with a five o’clock shadow, scratching his head and smiling. A computer science graduate, he spent the summer attending seminars for young entrepreneurs in New York and Mexico City. The application he and his cousins invented now has 120,000 registered users, as well as many more who just read the status updates.

There is an inescapable irony in the fact that Sadek now has an office of his own in »Smart Village Cairo«, a business park seeking to become an Egyptian Silicon Valley. Smart Village is a Mubarak legacy – part of his plan to grow the services industry in Egypt, based on its ideal location for call centres, between the Asian and European time zones.

»bey2ollak«’s success is not based on transferring word-of-mouth marketing to the Internet. Rather, »we managed to transform an uncomfortable situation into an event,« explains Sadek. He scrolls over his app to show us: a green button labelled »helwa« (sweet) means »flowing freely«, a yellow button labelled »mashi« (just okay) signals slow-moving traffic and when a bright red »mafich amal« (hopeless) lights up, there is nothing but congestion.

Sadek holds the military responsible for the fact that the Egyptian economy was closed to young entrepreneurs for so many decades. He refers to the generals as a »cancerous ulcer«, even though his grandfather was the Minister of Defence from 1970 to 1972.

»For fear of losing their cushy positions and privileges, they stifled even the slightest sign of entrepreneurial spirit!« Sadek says it so loudly that the rest of the people in the café turn around. He goes on to say that instead of encouraging the business world, all the army did was to teach the people to consume its products. »There was absolutely no ingenuity or creativity at all.«

Now, however, says Sadek, »we’re starting to find our own solutions.« One of his two cellphones rings, and he speaks to the caller. »I have to go now,« he tells us. »My friends are already at Tahrir Square. They’re waiting for me.« Before setting off, he glances at his app. He will not be alone on the trip in to the centre of the city. »Mafish amal – hopeless« reports a user.