Entrepreneurship Emerges As Viable Alternative Amid Tough Job Market: Entlaq

October 22, 2024

 

Finding good-paying jobs with suitable promotion prospects is particularly difficult during tough times. “Complex economic conditions typically coupled with slow job creation cycles have turned entrepreneurship into a viable alternative” to a corporate position, said a September report from Entlaq, Egypt’s first entrepreneurship-specialized think tank.

The 200-page document details the state of the country’s entrepreneurship ecosystem in the first half of 2024. “Egypt has experienced notable developments, including a rise in venture capital investments in key sectors like fintech and health tech, alongside stronger public-private partnerships,” Mohamed Ehab, CEO of Entlaq, said in the report. “These advancements are encouraging signs of growth.”

The Entlaq report grades various aspects of the country’s entrepreneurship landscape, including social and financial inclusion, venture capital, cross-border capital flows,  and ease of operation. The document breaks down results by stakeholders, startup stage, and sectors.

Scoring system

Entlaq uses a zero-to-five points system to rate factors from “extreme inadequacy” to “extreme adequacy.” Scores between one and two indicate “poor performance with significant shortcomings”; two to less than three means “some areas meet expectations, but overall performance is lacking.”

Grades of three to less than four denote the parameter “meets basic expectations,” and four to 5 five indicates “good performance with notable strengths.”

The report scored Egypt’s overall entrepreneurship landscape at 2.94, 0.1 points higher than last year, signifying slow but steady improvements to ensure all parameters meet “basic expectations.”

Opportunities for all

A critical component in a thriving entrepreneurial ecosystem is ensuring everyone, regardless of gender or residence has equal opportunities to start a business.

Entlaq scored Egypt’s social inclusion 3.12 points using eight “key parameters.” Gender equality when seeking a job was among the best performers (3.23 points). Another is social participation (3.52 points), which assesses the “tolerance toward minority groups and facilitating membership in voluntary organizations.”

The worst performers were income inequality (2.55 points) and job inclusion for “persons with disabilities” (2.89 points) and “refugees and displaced persons” (2.94 points). That contrasts vastly with female inclusion (3.65 points).

Average performing parameters were “geographic-targeted policies” (3.14 points) and “social mobility” for females (3.05 points).

The report noted a discrepancy in “social equality” perception as “policymakers rated social inclusion higher [than] investors and startups, reflecting a greater emphasis on the effectiveness of policy implementation and support structure.”

Another breakdown shows “startups in the ‘Expansion’ stage perceive greater challenges in achieving social inclusion” compared to companies in “Growth” and “Early” stages. One stark example is area-based policies, where “Expansion” stage startups scored 2.55 points versus 2.97 for “Early” stage and 3.31 for “Growth” Stage startups. Another parameter is social mobility scoring 1.88 points by “Expansion” stage startups versus 3.36 and 2.72 for those in their “Early” and “Growth” stages.

By sector, social media and influencer marketing startups graded social inclusion the highest (4.5 points). Manufacturing-based startups scored it lowest (3.0) versus the 10 other sectors the report surveyed, including transport and logistics, software services, real estate, renewable energy, and finance and fintech.

Financial inclusion

Central Bank data shows 70.7% of the 66.4 million citizens eligible to open savings in banks, post offices, mobile wallets and prepaid cards, have and use one of those tools. Inclusion is growing fast, witnessing a 48.5% growth rate between 2020 and 2023.

The Entlaq report scored overall financial inclusion 3.16 points based on three parameters. The first, “access to financial services” (3.09 points), focuses on “financial literacy … by examining citizens’ knowledge and awareness of efficient and effective digital services.”

The second is “usage of financial services” (3.32 points) having surveyed individuals and enterprises. The third was, “other quality indicators” (3.06 points), which relates to market conduct, ensuring beneficiaries are treated fairly and in accordance with applicable laws.

Startups, policymakers, and investors have widely varying assessments of financial inclusion in Egypt. In the “Usage of Financial Services” and “Other Quality Indicators” parameters, policymakers score them higher (3.44 and 3.25 points) than the startups (3.3 and 3.08) and investors (3.23 and 2.07). Yet, in “Access to Financial Services,” policymakers gave a lower score (2.94) than startups (3,04) and investors (3.08).

“Growth” stage startups gave the most favorable scores for all three parameters (3.16 to 3.6 points). Meanwhile, “Early” stage startups had better scores (2.9 to 3.25) than those in the “Expansion” stage (2.67 to 2.83).

The Usage of Financial Services parameter had the highest scores across “Early,” “Growth” and “Expansion” stages while “Access to Financial Services” had the lowest grades.

Parameter scores in the same sector and across surveyed industries varied widely. Among the 12 main surveyed sectors, grades ranged from 2.0 to 4.0, which incidentally apeared in the same sector (Social Media and Influencer Marketing).

Venture money

For entrepreneurs, venture capital is a critical lifeline. “Venture capital is widely recognized as a driver of innovation and new company formation,” Matt Waller, Dean Emeritus of the Sam M. Walton College of Business, wrote on LinkedIn in February. “By providing early-stage funding and guidance, venture investors help entrepreneurs transform promising ideas into groundbreaking new technologies, industries, and markets.”

The Entlaq report scored “venture capital financing” a relatively low 2.81 points based on “the adequacy of the amount of dollars invested and the number of closed deals.”

One factor looks solely at venture capital “Figures” (2.88 points). The second is “Performance” (2.73 points) based on “the presence of investments across various ecosystem industries and the adequacy of regional investment within the Egyptian ecosystem.”

A breakdown shows that startup owners, policymakers, and investors have diverging perceptions of how good Egypt’s venture capital scene is performing. Policymakers ranked the “venture capital performance” parameter (2.54 points) lower than startups and investors (2.71 and 2.92 points). In the “Figures” parameter, policymakers have a favorable view (2.94 points), closely followed by investors (2.92 points). Startups were more distant (2.86 points).

The Entlaq report found “Early” stage startups held middle ground when grading Egypt’ venture capital landscape (2.74 and 2.86 points for performance and figures). The top scores came from the “Growth” stage (2.89 and 2.96 points). Startups in the “Expansion” phase graded venture capital the lowest (2.17 and 2.42 points).

The report noted venture capitalists prefer to finance local startups operating in social and influencer marketing (3.5 points) and edtech (3.44 points). That sharply contrasts with renewable energy and cleantech (2.0 points) and AI and machine learning sectors (2.17 points).

Cross-border access

The Entlaq report scored cross-border capital flows the lowest (2.62 points). Its focus was on flows (2.5 points), performance (2.84), and operations (2.55).

Policymakers and investors scored all three parameters the lowest (2.22 to 2.69 points). Startups themselves gave higher scores (2.54 to 2.85). Across all three stakeholders, cross-border performance was the top scorer, while flows were the lowest.

Startups in the “Growth” stage gave the highest scores (2.7 for operations, 3.02 for performance, and 2.84 for flows). Those in the “Startup” phase gave less favorable grades (2.46, 2.84, and 2.5), while firms in the “Expansion” phase scored the worst grades (2.13, 1.92, and 1.83 points).

By sector, social media and influence marketing, along with healthcare and biotechnology, graded cross-border capital flows the highest at 4.00 and 3.17 points. The lowest scores (2.25 and 2.5) came from renewable energy and cleantech startups, and fintech.

Running the business

The Entlaq report showed low scores in “ease of doing business” (2.74 points). Among 11 parameters. The top-ranked were starting a business, payment of taxes, enforcing contracts, and property registration – All got between 2.8 and 3.12 points.

The least performing parameters were trading across borders and attaining credit, both getting only 2.6 points. Dealing with permits, electricity, resolving contracts and insolvency, and protecting minority investors were middle ground.

Investors scored the ease of doing business the lowest (2.52 points), while startups graded it the highest (2.74).

“Early” stage startups scored the ease of doing business the lowest (2.56 points), with those in the “Growth” and “Expansion” stages have near similar grades (2.97 and 2.83 points).

From a sectoral perspective, social media and influencer marketing ranked the ease of doing business the highest (3.64). Next were healthcare and biotechnology, and edtech (Both 3.43 points). The lowest grades came from software and technology service and transport and logistics with 2.23 and 2.27 points.

The other factor Entlaq highlighted was “policy and government” (3.09 points). It scored the government’s effectiveness (2.94 points), regulatory quality (2.99 points), and rule of law (3.35 points).

Investors gave all three parameters the lowest scores (2.69 to 3.04 points) compared to policymakers (3.18 to 3.38) and startups (2.96 to 3.4).

“Early” stage startups gave the lowest scores across all three parameters (all under 3 points) compared to startups in the “Growth” and “Expansion” stages – All parameters, except regulatory authority by startups in the “Expansion” phase, scored over 3 points).

Edtech, real estate and technology, and eCommerce and retail ranked policies and government the highest (3.36, 3.3, and 3.15 points, respectively). Meanwhile, renewable energy and cleantech, as well as manufacturing and industrial technology, scored overall policies and government the lowest (2.3 and 2.33, respectively).

Moving forward

The Entlaq report stressed the need for “setting a unified government strategy … that allows for stronger linkages between [state] entities.” The document also noted the need to improve the processes by which policies and regulations are developed, as well as governance frameworks.

To ensure social inclusion, cross-border capital flows, and access to venture capital, the Entlaq report stressed the need for targeted, tailored, and customizable programs, incentives, and initiatives.

Meanwhile, new “regulated financial instruments … to ease accessibility of local and foreign capital” are essential for social inclusion and ease of doing business.

“Success hinges on collective efforts and consolidation across various sectors.,” said Ehab of Entlaq. “True progress demands close collaboration [among] the government, private sector, and international partners [to] ensure Egypt not only remains competitive but also emerges as a leader in innovation and entrepreneurship in the region.”

This article first appeared in October’s print edition of Business Monthly.