In July, many Egyptians awoke to the unexpected news that SWVL had become the first locally bred startup valued at more than $1 billion, becoming a “unicorn.” Its merger with Queen’s Gambit Growth Capital, a U.K.-based special purpose acquisition company (SPAC), values SWVL at $1.5 billion, becoming the 17th unicorn in the MENA region, according to a CNBC report in June, and the only one in Africa.
SWVL is the second startup in the region to use the SPAC model, after U.A.E.-based Anghami. “The way the economics of a SPAC works, you want a billion-dollar company and that’s a very short list in Africa,” Iyinoluwa Aboyeji, founder and general partner at Future Africa, an early-stage venture firm, told TechCrunch in May. “You can’t SPAC anything less than a billion dollars as you wouldn’t make enough money for it to be worth your while.”
The government aims to see more entrepreneurs find similar success by offering innovative solutions to Egypt’s existing problems. So far, the focus has been on educating university students and entrepreneurs on how to turn their “feasible and innovative” ideas into prosperous companies. However, the state needs to scale innovation across all economic sectors. “Innovation is more than science and technology [and] an innovation system is more than the elements directly related to the promotion of science and technology,” wrote Rob Atkinson, founder and president of the Information Technology and Innovation Foundation, in his November blog.
According to the 2020 International Innovation Index published by The Boston Consulting Group and National Association of Manufacturers, Egypt ranked 65th out of 110 surveyed nations. The 2020 Global Innovation Index placed Egypt 96th of 131 economies. Qatar, Israel, the U.A.E., Kuwait, Saudi Arabia, Jordan and Turkey all rank higher in both lists.
The rankings come despite the government’s recent infrastructure investments and initiatives to digitally transform the economy and support entrepreneurs. “The government aims to develop the country into a regional and global center for ICT, and efforts are being made to strengthen the regulatory framework, reduce the risk of cyberthreats and expand the telecommunications network,” noted the Oxford Business Group 2020 report.
The Technology Innovation and Entrepreneurship Center (TIEC), which operates under the Ministry of Communication and Information Technology (MCIT), spearheads the government’s efforts to promote innovation.
It starts with InnovEgypt Online, an entrepreneurship training program targeting students and fresh graduates. “The program broadens government support to provide widespread education and training on innovation and entrepreneurship,” said the TIEC website. “InnovEgypt also looks for prospective entrepreneurs with skill sets highly required by local and multinational companies.”
The next step for innovators with feasible ideas is qualifying for the TIEC Accelerator Program, which involves 10 days of training and mentorship sessions. Admission is open to anyone with a business idea that TIEC deems “feasible.” According to the center’s statistics at press time, beneficiaries dropped precipitously from 600 in 2017 to 104 in 2019. That includes graduates of the Women’s Entrepreneurship program, which aims to train 300 females this fiscal year.
Those graduating from the accelerator can enroll in Creativa Innovation Hubs, the TIEC’s coworking spaces where startups “test an idea and learn the skills,” said the program’s website blurb. It also is open to students, faculty members and anyone with “breakthrough ideas seeking to commercialize them.” According to Hossam Osman, who chairs the TIEC, it offers those enrolled an EGP 1 million seed fund and no-cost working space and mentoring. The center’s budget is EGP 40 million annually.
Creativa Innovation Hubs are located in universities in six governorates in the Delta, Suez Canal, and Upper Egypt. During a July press conference, Ossman said the plan is to have 17 hubs, up from the current 12, at a total cost of EGP 1 billion.
Creativa Innovation Hubs support entrepreneurs, from formulating ideas to sit-downs with mentors and trainers, and launching products. As of August, it had trained 116,000 innovators who represented 3,600 business ideas and 130 startups.
Additionally, the TIEC, in cooperation with the private sector, is building an innovation-support hub in the New Administrative Capital with a role similar to that of the Creativa Innovation hubs. According to Amr Mahfouz, CEO of the Information Technology Industry Development Authority, Creativa differs because it helps to integrate innovative ideas into existing manufacturing and factory designs.
The TIEC supports startups completing its programs with a “Breakfast With Investor by TIEC Incubation” option. “It is an intimate format to have breakfast and the opportunity to pitch startups to a world-class investor,” noted the center’s blurb. It is a monthly event held on TIEC premises. “The ultimate objective is for each breakfast to result in the initiation and closing of at least one investment deal.”
The next step is moving those startups from incubators and coworking spaces into Innovation Clusters based on their business or technology sector. That allows them to grow fast, benefiting from advanced digital infrastructure. Clusters must include at least one university, private companies and entrepreneurship centers. One such cluster is in Borg El Arab, serving startups from Alexandria, Behira and Marsa Matrouh governorates. Another is in New Assiut Tech Park, helping startups in Upper Egypt and the Red Sea region.
To ensure startups continue to innovate, the TIEC offers a subsidized Business & Entrepreneurship Support Training Program “designed to play the role of a post-incubation service.” There also is free Next Technology Leaders training, where participants pay fines if they fail. It is open to entrepreneurs, ICT employees, academics and unemployed youth seeking career direction.
Meanwhile, TIEC Innovation Ambassadors, an initiative for graduates of its programs, promotes innovation nationwide. Their job is to engage university students and fresh graduates to stress the importance of innovation and TIEC support. So far, 188 ambassadors operate in 23 governorates, mainly from those municipal universities.
Lastly, TIEC organizes two competitions for innovators to address existing problems. The IbTEICar, under MCIT, is a yearly event where final-year university students compete to develop innovative solutions. The other is Ideathon, which targets InnovEgypt graduates with projects that link to sustainable development goals outlined by Egypt Vision 2030.
To ensure Egypt’s innovation system is robust and sustainable over the long term, the government needs to be more involved. “One way to conceptually organize all the factors determining innovation in a nation is to think of an innovation success triangle,” wrote Atkinson of the Information Technology and Innovation Foundation in November in his blog. “Success requires correctly structuring all three sides.”
The first side relates to creating an innovation-friendly environment for businesses. That includes high-quality executive management skill development, IT adoption, strong entrepreneurship and vibrant capital markets to fund risky, innovative startups. “Broader factors include public acceptance and embrace of innovation, even if it is disruptive,” wrote Atkinson. Also, various organizations must collaborate, while the legal framework must tolerate failure, especially with new businesses.
The second side of the triangle that Atkinson proposes is “an effective trade, tax and regulatory environment [that] features a competitive and open trade regime.” That includes the government protecting businesses against unfair practices by trade partners and lowering barriers to market entry, particularly for innovative business models.
Other policies include legislative exemptions for startups, effective patent laws to protect new ideas and “consistent, transparent and performance-based regulatory requirements,” said Atkinson.
He stressed that such legislation must be balanced, especially laws regulating the digital economy, data privacy and emerging technologies, including facial recognition surveillance. “A good regulatory climate does not mean simply the absence of regulations,” said Atkinson. “Nations need a regulatory climate that supports rather than blocks innovators.”
The third side of the innovation triangle is for the government to have a broad innovation policy framework. “While markets and businesses are the keys to innovation, without effective innovation policies, markets will underperform,” said Atkinson. “That includes generous support for public investments in innovation infrastructure, including science, technology and technology transfer systems.”
Additionally, governments need to increase funding to industry-university-government research partnerships and develop laws to promote research and development. Meanwhile, vocational schools must include innovation and tech training to boost manufacturing, as well as encourage private and public corporations to adopt and implement those new ideas and technologies.
“The nation that can put together all three sides of the innovation success triangle most effectively is likely to be the nation that wins the race and reaps the rewards in greater economic vitality and prosperity,” said Atkinson.
With countries such as GCC members, the United States, and European and Asian nations all focused on promoting innovation, a key challenge for Egypt will be to retain its best entrepreneurs. A case in point is SWVL relocating its headquarters to Dubai in November 2019, yet keeping day-to-day operations in Egypt.
Caleb Watney, a technology and innovation resident fellow at the R Street Institute, a nonprofit research organization, noted in a July 2020 blog on The Atlantic website, “Highly skilled people are most attracted to regions with many other highly skilled people.” That is possible in countries that are lowering entry barriers for innovative startups, said a June 2020 report by the U.S.-based Center for Security and Emerging Technology (CSET).
Another factor in attracting entrepreneurs, particularly local ones, is to have “high-productivity metropolitan regions,” the CSET report noted, such as Silicon Valley, New York, Boston, Seattle and Austin “where knowledge-based clusters have sprouted up typically around universities.”
Those clusters attract a portion of a country’s innovators, yet they account for a disproportionately high number of patents, according to a 2020 research paper published in Nature Human Behaviour, an online monthly journal. “Engineers, academics, investors, designers, computer scientists and supply-chain managers mingle across firms, share ideas and push one another in a way that makes the entire group more … creative,” wrote Watney.
Thirdly, cities that want to attract innovators must have abundant, affordable housing near their businesses. “Housing shortages [in] high-demand locations had become a major barrier to innovation and economic growth,” said Watney.
Another policy strategy is to secure funding for those high-risk ventures. “The innovation base needs public and private investment capital, scaled to the risk and importance of the invention,” wrote Mir Sadat, a nonresident senior fellow in the Forward Defense practice of the Atlantic Council’s Scowcroft Center for Strategy and Security. That would “level the playing field for startups and scale-up to increase competitiveness,” he added.
Sadat also stressed the importance of creating councils and full-time committees focusing on “What’s next? And how do we maneuver so that we can be first to arrive at the next stage. This requires mapping, aligning and streamlining disparate yet interdependent policies, strategies and practices across the public and private sectors.”
Whether the government supported innovative startups or not, the market has seen a slew of new products and services capitalizing on the changing daily lives of people amid the pandemic. “Necessity and urgency spur ideas and dissipate inertia,” wrote Laura Furstenthal, a senior partner at McKinsey in a September blog. And none more so than lockdowns and precautionary measures still taken to curb COVID-19. “Our research suggests organizations that innovate through crises by focusing on generating new growth versus simply weathering the storm outperform significantly over time,” Furstenthal wrote.
However, the pandemic also exaggerated and accelerated some of the problems that have been hindering innovation for years. “The flow of talented people from overseas is slowing, the university hubs … are in financial turmoil, and the circulation of people and ideas in high-productivity industrial clusters … has been impeded,” said Watney.
That could benefit or hurt nations, depending on their readiness to accommodate the entrepreneurs’ demands and need to grow quickly. “How organizations innovate and their location when pursuing new projects have both changed significantly in recent decades due to convergence and disruption,” Raymond Khouryp, artner and technology and innovation management practice lead at Arthur D. Little Middle East, told MENAFN in September.
Being on the right side of innovation momentum is vital given the uncertain future. “We cannot be caught flat-footed again, either in the face of a new crisis or international threat,” wrote Deborah Wince-Smith, president and CEO of the Council on Competitiveness, in a July blog on Forbes. Investing is not about the here and now, but the opportunity to position ourselves more completely and effectively tomorrow.”
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Once a leader, U.S. lags
The United States was the world’s innovation leader. Now it is suffering an “innovation shortage crisis.”
America is home to the first smartphone, computers and the five most capitalized companies in the world, all of which are tech firms. Yet, it was not in the top 10 in the 2020 Bloomberg Innovation Index. “The fact that the United States was the clear leader in IT, including the emerging internet economy, led many to believe all was well,” wrote Rob Atkinson, founder and president of the Information Technology and Innovation Foundation, in November in his blog.
The reality couldn’t be further from the truth. “The U.S. national innovation system is in crisis and in need of thorough rejuvenation,” said Atkinson.
America’s innovation ethos started with government investments after World War II. However, there was never a unified “national innovation system,” he said. Policies and R&D investments focused on “maintaining a technological and military advantage over the Soviet Union. But [its] fall … meant policymakers no longer felt the urgency and presided over the gradual and inexorable shrinking of this once preeminent system.”
According to research from the National Foundation for American Policy, the favorable ecosystem helped over half of its innovative startups to become “unicorns” with valuations of at least $1 billion. That business environment included “a long list of alphabet-soup programs to boost innovation, including SBIR (Smart Business Innovation Co.) and NTIS [National Technology Information Service,” noted Atkinson.
However, for most startups that innovation drive wasn’t sustainable beyond the first new products and services. “Other priorities, such as balancing the budget and increasing spending on social services soon trumped innovation,” said Atkinson in November.
That hurt innovation in bioenergy research, materials, chemical science and technology, climate, and biological systems, since they don’t yield immediate sales profits as tech gadgets and services.
Meanwhile, America’s increasingly crowded tech startup scene is further complicating the process of making ideas stand out. “There are a lot of new ideas from many startups,” said Sung Won Sohn, an economist at Loyola Marymount University in Los Angeles. “It will take time for the ideas to be translated into marketable products.”
As a result, the “U.S. went from running a trade surplus in high-technology products in 2000 to around a $100 billion deficit a decade later,” said Atkinson.
Maintaining that downward trend for the long term could cause problems. “If the nation’s capacity for economic and technological innovation is diminished, Americans will feel the loss for decades to come,” said Caleb Watney, a resident fellow of technology and innovation at the R Street Institute, a nonprofit public policy research organization, in The Atlantic magazine.
That loss will not cause slower GDP growth, but it will impact the American ability to find concrete solutions to existing and future crises, such as climate change. Said Deborah Wince-Smith, president and CEO of the Council of Competitiveness: “The very foundation of our economic prosperity is at stake and crumbling on our watch.”