The summer of 2021 was an exciting time for Yodawy, a digital pharmacy marketplace, since it raised $7.5 million in investment to grow the business.

It was the second round of funding for the business, indicating that it was beyond the initial development stage and was targeting to expand market reach. The platform serves customers, insurance companies, pharmacies, doctors, and pharmaceutical and fast-moving consumer goods (FMCG) companies in Egypt, and the idea behind it, according to Yasser AbdelGawad, the co-founder, is to simplify healthcare through digital transformation.

However, “change is often challenging, and digitising healthcare is no different,” AbdelGawad said. The company’s recipe is to solve tangible problems for each stakeholder.

For patients and consumers, this has meant untangling sometimes cumbersome processes in meeting healthcare needs. For pharmacies, it means giving them access to a wider market base and exclusive deals from FMCG and pharmaceutical brands. For health insurance companies, it means offering digital solutions to process claims and approvals more efficiently.

Yodawy is only one of dozens of digital startups — young companies built on technology — that have taken the Egyptian market by storm in the past couple of years and offer everything from grocery deliveries to medical checkups.

The sectors that are likely to thrive in the new industry are ones related to the digital transformation of the economy, said Ayman Ismail, an associate prof essor at the American University in Cairo (AUC) School of Business and founding director of the AUC Venture Lab that supports early-stage, high growth, and innovative startups from different industries.

Besides health-tech, which is digitising parts of healthcare services, including access to medications or medical consultations, he said the boom was also in fintech, which is digitising financial transactions, starting from payments and going through consumer credit and small and medium-sized (SME) business lending.

Noor Sweid, founder and a partner in Global Ventures, an international venture capital firm and one of the investors in Yodawy, agreed, saying that Egypt’s young population, often unbanked and working in a cash-dominated economy, offers strong opportunities for fintech companies and investors.

Mobility solutions allowing for better coordination of transportation and trucking services are another sector that could benefit from digitisation, Ismail added. Sweid said that logistics and mobility were demonstrating great potential, as logistics expenditure in Egypt is set to exceed $50 billion by 2024.

Egypt’s Vision 2030 development plans includes the development of transportation infrastructure.

Moreover, Sweid said, there is increasing demand for education in Egypt driven by a largely young demographic with steady population growth in a culture that has long valued it as a means to socio-economic mobility.

Over 60 per cent of Egypt’s public-school students, according to Sweid, complement their formal education with extracurricular tutoring services. This presents immense opportunities in the supplemental learning market, she said.

Tech-enabled startups enable access to such services to broader segments of the population that currently do not have access, with higher affordability and a better user experience, Ismail said.

They have an edge in their ability to grow at exponential rates, due to their use of technology and mobile connectivity.

COVID-19 IMPACT

The Covid-19 pandemic has been instrumental in the growth of these tech startups.

It acted as a catalyst for digital transformation, Ismail said, explaining that with limitations on movement, people started using digital solutions for ecommerce, transportation, financial services, healthcare services, and other areas. “This push in user behaviour accelerated the growth of these startups, and it is likely to create a broader transformation in the economy at large over the next decade,” he added.

AbdelGawad agreed, saying that the pandemic has “pushed the digital economy light years into the future.” While it has shaped consumer adoption and expectations, it has also been instrumental for his line of business because it “impacted the priorities of all the players in the healthcare   ecosystem.”

The increased demand for digital ordering and contactless e-commerce helped push forward his company’s agenda to help small and medium-sized pharmacies expand their sales reach and reinforce their online presence.

Digital startups offer many opportunities for investment in Egypt, especially with a population of more than 100 million and high mobile penetration, an important precondition for digital business models, said Andreas Ruepp, head of project access to financial services for SMEs (PAFSME) at the German Agency for International Cooperation (GIZ).

More importantly, he said, there is lots of talent in Egypt and strong startup teams with good knowledge of the market. “Investors are looking for big challenges to solve, and we have many challenges in Egypt, including transportation, the distribution of goods, access to finance, e-commerce, education, and waste,” Ruepp said.

“It is exciting to see how many young and talented people are trying to solve critical problems with smart solutions.”

Investors are always on the lookout for innovators, or what Sweid called “disrupters and first movers”. She said there was an emergence of exciting concepts and startups boasting transformative and impactful potential. Her company was out to identify these companies, she said, “those creating and building new technologies, driving innovation and fostering new ways of working, thinking and doing business, while creating meaningful impact in their respective communities and globally.”

The year 2020 saw $190 million invested in Egyptian startups. In first half of 2021, that record was already set to be broken, as fundraising reached $109 million, Sweid said. The ecosystem is growing tremendously, quarter on quarter, with more investments originating internationally, she added.

According to Sweid, Covid-19 restrictions and global lockdowns not only highlighted the importance of technology and digitisation, and the central role they play in economic recovery and today’s modern society, but also opened up access to funding for startups as parts of the investment process.

Investors are now more open to investing abroad, and the playing field has been levelled for startups that now have increasing access to a global pool of potential capital, she pointed out.

Ruepp said that at the beginning of the pandemic he had been concerned about funding for startups because of uncertainty. Nobody knew in which direction the world was heading. To help support access to funding, together with his team he came up with a training programme for venture capital fund managers to improve the skills and knowledge of future managers.

The programme, Venture Capital University, coordinate closely with the Egyptian Micro, Small and Medium Enterprises Development Agency (MSMEDA). Moreover, Ruepp said there was more support from the donor community, which was also good news.

Tools to share or partially reduce the risk of investments in startups could also encourage greater investment, he suggested.

THE STARTUP ECOSYSTEM

“The tech-startup ecosystem in Egypt has expanded a lot over the past five years, with more support organisations and venture investors,” Ismail said.

“Government policy is becoming more aware of this space and interested in supporting our startups,” he added.

Egypt is the first country in the Middle East and North Africa (MENA) region to have a strategy for digital transformation as a key component of its socio-economic development, Sweid said.

The country’s Vision 2030 agenda is built along three key pillars, economy, society and environment, with several initiatives specifically designed to boost Egypt’s economy across sectors. As these initiatives materialise over the next few years, there will be increased interest and investment in the Egyptian tech ecosystem, Sweid said.

The Central Bank of Egypt (CBE) also has a vision to make Egypt the fintech innovation hub of the MENA region, she added. It launched its fintech and innovation integrated strategy in March 2019 to promote Egypt’s fintech ecosystem and position Egypt as the regionally recognised fintech hub.

A fintech hub in the heritage building of the CBE in Cairo is also in the works to assist all relevant players.

Several state-owned banks recently also announced that they will join forces to launch a fund to support fintech startups. The fund, which will start out with LE1 billion in capital, is being established by the National Bank of Egypt, Banque Misr, and Banque du Caire.

The government is giving the new ecosystem much-needed support, and this is having a positive impact on the economy and the rise in startups in Egypt, Ruepp said.

He said he liked the “regulatory sandbox” approach that regulators are taking. Startups can operate in the “sandbox” and test their business models without the need to be compliant with all the regulatory requirements, he said.

“We know that there are always lots of complaints about regulation and red-tape, and for sure much can be done better… but our legislators, regulators, and supervisors have a difficult job. They have to allow for innovation while keeping the whole system safe for consumers, for example, and this is really a difficult job,” he said.

Sweid praised the fact that Egypt has initiated legislation to develop SMEs and entrepreneurship, including tax, customs, and non-tax incentives to enterprises and projects operational in Egypt for less than seven years, plus monetary incentives for corporations, investment funds, incubators, accelerators and entities supporting startups and SMEs.

The Africa App Launchpad is another initiative that has helped, she said. It aims to build the capacity of 100,000 young people in Egypt and Africa and to establish 100 startups in application and game development.

Similarly, the joining of forces of the AUC Venture Lab and the Information Technology Industry Development Agency (ITIDA) to build the Startup Launchpad, has come as a boost for the start-up environment.

Another factor, Sweid said, was the banking act and other legislation passed by the Egyptian government in September 2020, which was designed to solidify Egypt’s position as the fintech and entrepreneurial hub of the MENA region. “The act removed many regulatory uncertainties in the sector, allowed fintech firms to obtain licences, and provided the framework for the licensing of digital banks,” she said.

Moreover, new licensing and supervisory powers for non-banking fintech businesses, such as nano-finance, consumer tech, and insurance tech, firms are in the works, and these will potentially have huge implications for the startup ecosystem in Egypt.

THE FUTURE

Going forward, we will see startup investments with bigger ticket prices. The fintech scene will be busy, and the transition to a cashless society will accelerate, Ruepp said.

While the most successful startups offer business-to-customer solutions, he expects to see more business-to-business solutions in the future.

2022 could be a good year for the digital health sector, Sweid said, as there was a need for accessible, low-cost solutions in healthcare, and the government looks set to move in the right direction in terms of supporting the industry.

AbdelGawad is hoping the government will enable startups to take part in national initiatives such as the universal healthcare coverage as well as the 100 Million Health Initiative on healthcare.

“Such national initiatives would enable us to serve a wider population and further benefit the entire healthcare ecosystem,” he said. Egypt is implementing a new universal healthcare coverage system that aims to make healthcare accessible to everyone, regardless of means or location.

In 2022, Sweid also expects to see the continuation of the acceptance and integration of educational technology (edtech) as a permanent fixture of syllabuses and extracurricular activities. Similarly, with Egypt’s Vision 2030 incorporating the development of transportation infrastructure, logistics and mobility space is a significant growth area, she pointed out.

Sweid expects to see the digitisation of the banking sector continue. “It is no longer optional for banks to go all-in on digital. Those seeking to lead the way will have to do more than simply embrace digital banking,” she said.

She added that she expects to see the banks accelerate their involvement in fintech by launching innovative products, acquiring existing fintech companies complementing their existing offerings, and partnering with startups looking to enter the heavily regulated market.

There is likely to be a continued surge in mobile and online banking. Changes in the legal framework may well encourage investors to invest more in Egyptian fintech, Sweid said.

*A version of this article appears in print in the 21 October, 2021 edition of Al-Ahram Weekly