There’s a growing school of thought that promotion of entrepreneurship is an effective solution to the socio-economic problems facing many Arab countries, especially Egypt. In Jobs@Arabia.com Thomas Friedman heaped praise on Oassis500, a high-tech accelerator in Jordan that provides startup money and training to budding internet companies. A prominent American investor recently profiled FlatLabs6, a similar effort in Cairo. And the pilot version of the State Department’s Global Entrepreneurship program offers mentorship to young Egyptian entrepreneurs, mostly in the tech and IT space.
The case for promoting entrepreneurship as a solution in Egypt is strong, especially if one accepts the premise that the main underlying cause of the Revolution was economic – or, in other words, lack of economic opportunities.
There are more Egyptian university graduates than ever before, with higher aspirations than any previous generation, yet, in an increasingly competitive and liberal global economy, the government has to this point been unable to generate anywhere near enough jobs that meet their expectations.
In February 2011, that discontent — probably exacerbated by the effects of the post-2008 global financial crisis — caused the ranks of Egypt’s previously passionate but relatively small opposition to reach a critical mass, and sweep away the Mubarak regime.
Friedman and company’s approach is sound. However, what should not be overdone is the implicit assumption that “startup” means (or should mean) “tech” and especially “internet company.” Certainly, they have a place, but an equal, if not greater focus should be on the development of new lower-tech, labor-intensive firms, because they are more likely to make an impact in addressing Egypt’s under- and unemployment problems.
The primary issue with internet-based “startups” in this context is that they rarely produce significant numbers of jobs. For all the media attention they receive, the combined workforce of Facebook, Linkedin, Twitter and Groupon, for example, is less than 20,000 people so it is unlikely that Egyptian web-based companies, especially those based on the development of computer apps, would make a major impact on the job creation front.
Moreover, just as Facebook’s IPO created a few hundred new super-rich, if any of the profiled Arab internet companies make it big – and some probably will – the financial rewards will go to a few already wealthy investors, or the generally high-skilled computer programmers, who already have plenty of employment opportunities. This is not a value judgment – they would deserve it, for sure, since they took the initiative and the risks. But the question here is what does Egypt need more: millions of “middle class” jobs or perhaps in a best-case scenario a few dozen tech millionaires?
Secondly, while developing computer apps to address social problems is noble and should be encouraged, only the relatively affluent will be able to use them. Egypt is a country where less than 50% of the population uses the internet ever, and only 10-15% can afford access to smartphones where they would use these apps.
To the extent that promoting the development of new “startup” companies is a solution to the country’s problems, at least as much focus, perhaps more, should be on the development of traditional, low-tech, labor intensive firms, because they are much more likely to create new jobs.
And in a country as large as Egypt, there is no shortage of areas where smart and resourceful entrepreneurs could set up profitable firms, that provides good “middle class” jobs at all skill levels, from MBA types, to mid-level project managers, to unskilled laborers. Three immediately come to mind:
1) Garbage collection and disposal is one opportunity.
Cairo, a city of over twenty million people, has at best, mediocre trash collection services. Part of the problem seems to be a lack of competition. Introducing more alternatives would not only improve quality of life, it is labor intensive, so it would require lots of manpower, nor does it need huge amounts of startup capital, and in a city this size, there will always be demand for great trash collection services.
2) Facilities maintenance is another potential niche.
In general, standards in this area in Egypt are not great and many building are in terrible condition because of decades of systematic neglect. But building maintenance is not exactly a luxury – it’s a necessity – and like trash collection there will never be a shortage of potential clients. If someone could step in with a company that develops a reputation for high quality and responsiveness they could feasibly build up a decent sized business fairly quickly.
3) The biggest opportunity, however, might be in the education sphere.
A major cause of socio-economic disparity in Egypt is the winner-takes-all university entrance exam. Since – and this is not an exaggeration – a young student’s entire life trajectory depends on their test score, families feel forced to pay huge fees to tutors (at rates that would be high even in the United States). As success on the test is often directly related to the quality of one’s tutor, those who can afford it, get good instruction, get into the good schools etc, whereas those who can not, are simply unable to compete.
An Egyptian entrepreneur that could recruit the right group of teachers could probably find a way to set up high-quality group instruction that charge students half the price they are currently paying, but has virtually unlimited potential for scaling up given that there are several million test takers each year.
4) Finally, at the state level, the new government could have an impact by promoting more of an entrepreneurial mindset in the development of some form of manufacturing.
As Thomas Friedman pointed out, correctly, there is no reason why Egypt should be importing Ramadan Lamps or tourist souvenirs from China, where the cost of labor is much more expensive.
To be sure, in a brutally competitive global economy, it will be difficult for Egypt to make manufacturing inroads against China or Europe, but with a serious focus, there is no reason why it couldn’t match Saudi Arabia’s efforts to develop car manufacturing facilities.
At the very least, even if not profitable, it would be a good investment. After all, what is a better use of money? Increasing social welfare spending as a response to the Revolution, which, aside from being unaffordable, will further increase dependence on the government? Or to use that same money to build up lower level manufacturing facilities, which will at least create jobs and improve the skill level and confidence of the younger generations (if proper training is involved)?
Even in a best-case scenario, the new government will have a hard time doing better than the Mubarak regime in creating additional jobs and opportunity. Therefore, the single most important thing it can do is to develop a stronger culture of entrepreneurship, and promote a new generation of “startup” companies, because, as the history of modern business suggests, private initiative is almost always more effective at creating opportunity than government bureaucracies.
At the same time, the linkage between “startup” companies and internet companies should not be overdone. The biggest impact on the jobs creation front will come from lower-tech, labor intensive firms, and these deserve equal focus in any program that aims to promote entrepreneurship as a solution to Egypt’s problems.
Nathan Field is the co-founder of Industry Arabic. Contact him at Nathan@IndustryArabic.com