The Egyptian-American Enterprise Fund (EAEF) was established by the US Congress in 2011 as a non-profit investment fund to support Egypt’s private sector.
The Congress authorised $300 million for the EAEF to provide direct investments, loans, technical assistance, and other forms of support to help stimulate private-sector investment in Egypt following the country’s 2011 Revolution.
The EAEF helps seed first-time investment managers in Egypt that invest in companies that can generate financial returns in alignment with the country’s development priorities such as education, healthcare, and financial inclusion.
It is committed to building strong and sustainable private equity and venture-capital markets in Egypt by supporting new fund managers that will continue to invest in businesses and attract foreign capital into Egypt long after the EAEF’s mandate ends in 2028, stressed James Harmon, chair of the EAEF since 2012, in an interview with Al-Ahram Weekly.
According to Harmon, early in its mission the EAEF had realised that to be successful it would have to be an Egyptian-led effort. To advance the fund’s mandate in Egypt, it was “Egyptianised” by seeding a team of talented Egyptian financial professionals to serve as its investment advisors in 2014.
In recent years, it has supported four additional first-time investment managers in Egypt. Today, all the EAEF’s portfolio managers are Egyptian, and almost all the members of the board of directors are Egyptian or Egyptian-American, speak Arabic, and have extensive private-sector experience in Egypt, Harmon said.
He said the EAEF was eager to support additional Egyptian fund managers, especially women-led funds, to build a sustainable investment ecosystem.
The enterprise fund model was originally created by the first Bush administration in the early 1990s to help build private sector-led economies in Central Asia and Eastern Europe following the collapse of the former Soviet Union. The EAEF is funded by the US Agency for International Development (USAID).
According to Harmon, EAEF investment managers have invested in over 70 companies in sectors ranging from healthcare, agriculture, and food manufacturing to financial services and pharmaceuticals.
Its total investments are $314.5 million, but the market value of its assets is close to $600 million. It has also helped to attract an additional $447 million in foreign capital to Egypt, he said, adding that “I expect the market value of our investments to exceed $1 billion at the time of our liquidation in 2028.”
As a long-term investor in Egypt, “we invest in companies that will generate healthy financial returns and have a strong development impact by contributing to job creation, support for micro, small and medium-sized enterprises (MSMEs), and the growth of a strong private sector,” he said.
The EAEF is not committed to any one sector, he stressed, but recently had focused on investing more in high-impact development sectors such as healthcare, education, and agriculture, and is now considering investments in new sectors, such as infrastructure.
Harmon, who also serves as co-chair of the World Resources Institute, a leading global environmental think tank, is hoping to leverage this expertise to help Egypt tackle climate change and urban transport problems.
He acknowledged Egypt’s success in completing a bold structural reform programme under IMF guidance from 2016 to 2019. These reforms had helped to stabilise the economy and boost investor confidence in Egypt, he said. They had also allowed Egypt to enter the Covid-19 pandemic with strong fiscal and external accounts that facilitated the government’s rapid response.
Looking forward, Harmon said, the government should continue efforts to help the private sector become the leading engine of growth in Egypt. These include, but are not limited to, reducing the bureaucratic red tape that discourages entrepreneurs from registering their businesses, supporting policies that encourage foreign direct investment (FDI) outside of the oil and gas sectors, and narrowing the gender gap in Egypt’s labour market, he stressed.
He also called for greater support for small and medium-sized enterprises (SMEs), as these are the backbone of Egypt’s economy, accounting for over 80 per cent of private-sector employment. He said the government had implemented a variety of policies to help SMEs, many of which are informal micro enterprises.
These policies include establishing the Micro, Small and Medium Enterprises Development Agency to coordinate efforts among government agencies to support the development of SMEs, improving access to finance for SMEs via Egypt’s Central Bank, and streamlining business license processes.
Concurrently, the government has launched initiatives to support start-ups and make Egypt a regional hub for entrepreneurship.
Harmon believes the government should continue efforts to support SMEs and start-ups by making it easier to register businesses, provide more incentives to join the formal economy, streamline government efforts to support SMEs, and increase educational resources for entrepreneurs to effectively manage and scale their businesses.
He is optimistic that the government will continue to build on the success of its IMF-supported reform programme by pursuing additional opportunities to grow the private sector, reduce the role of the state in the economy and debt-financing obligations, and attract new sources of non-oil FDI.
“We are bullish on Egypt,” Harmon said, adding that the country is one of the main cultural and political hubs of the Arab world, has one of the highest populations in Africa that represents a large domestic market, maintains a talented workforce, and occupies a strategic location as a gateway to Africa, Asia, and Europe.
Egypt is also becoming one of Africa’s leading hubs for tech entrepreneurship, he added. Egypt’s entrepreneurs are tackling tough societal challenges, such as financial services and mobility, with tech-enabled solutions that are attracting the interest of international investors, Harmon said. “These prospects bode well for the future of the economy, and we are excited to play a role supporting Egypt’s growth.”
The Covid-19 pandemic did not affect the work of the EAEF, which doubled efforts to support Egypt’s private sector. It loaned $10 million to the microfinance subsidiary of Fawry, the leading Egyptian e-payments platform and one of the EAEF’s portfolio companies, to support micro and small businesses during the pandemic.
“We agreed to take the first loss, if any, on the loan, which banks generally do not do, to expand additional financing to businesses impacted by the pandemic,” Harmon said.
To support Egypt’s private healthcare market, the EAEF co-invested in the Al-Tayseer Healthcare Group in Zagazig as the largest healthcare provider in the Nile Delta region, a historically underserved and heavily populated area north of Cairo.
It also committed $50 million to investment advisor Lorax Capital Partner’s closing of its first independent investment fund. “This was one of the only private equity closings in the Middle East and North Africa region in 2020 and helped demonstrate to investors that one could still do business in Egypt, even during a pandemic,” Harmon said.
This year, the EAEF is hoping to commit additional funding to Ezdehar Management and Algebra Ventures, two highly regarded private equity and venture-capital investors, he added. “We are eager to continue supporting the growth of the private sector, including Egypt’s exciting ecosystem of tech start-ups.”
*A version of this article appears in print in the 7 October, 2021 edition of Al-Ahram Weekly