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Policy Recommendations to Propel Entrepreneurship in Egypt

Egypt’s entrepreneurship scene has been gaining momentum in recent years, attracting both local and international investors. However, a study commissioned by the African Development Bank highlights a significant challenge – the establishment of startups outside Egypt.

“Entrepreneurship is a powerful economic channel with tremendous potential for Egypt. To fully harness this potential, it is crucial to develop a startup-friendly legal and policy environment that can compete on a regional and international level,” says Dr. Martha Phiri, Director of Human Capital, Youth and Skills Development, African Development Bank.

This study delves into the legal and policy framework surrounding startup investments and offers valuable recommendations to reverse the trend. The recommendations outlined in the report advocate for a comprehensive review by relevant authorities such as General Authority for Investment and Free Zones and Financial Regulatory Authority.

Let’s explore key insights and takeaways from the study, shedding light on how Egypt can foster a thriving entrepreneurial ecosystem.

  1. The Growing Phenomenon:
    The study acknowledges that entrepreneurs often establish their ventures in their home countries initially. However, as startups seek substantial funds for growth, they tend to establish offshore holding companies in more startup-friendly jurisdictions. This practice raises concerns for Egypt, as it implies a loss of investment opportunities and potential benefits for the local economy.

    Endeavor, a global organization based in New York, is dedicated to supporting the growth and development of startups that have already gained traction and possess a clear market potential. While they do not invest as a network, they have established the Endeavor Catalyst Fund specifically to invest in startups within the Endeavor network worldwide.

    According to Mr. Amr Elabd, the CEO of Endeavor Egypt and former managing director of Egypt Ventures investment company, investors who require Egyptian startups to establish a holding company in a startup-friendly jurisdiction do so for several reasons:

    • It allows for easier investment through innovative financial instruments such as convertible notes, which may not be readily available or certain under Egyptian law.
    • It ensures efficiency and timeliness in the judicial process.
    • It enables the startups to benefit from the neutrality of capital gains taxes.
    • It facilitates the smooth repatriation of funds, particularly in cases where the funding serves multiple markets.
    • It helps to avoid complications in determining the valuation of the startup during capital increases.

    It provides investors with minority rights protections, ensuring their interests are safeguarded.

    2. The Importance of a Startup-Friendly Legal Environment:
    Egyptian laws and procedures currently lack specific provisions for startup structuring, investor protection, and incentives, making it more attractive for startups to incorporate in foreign jurisdictions. The study emphasizes the need to create a comprehensive and startup-friendly legal and policy environment to retain startups within Egypt’s borders.

    The study highlights the significant potential benefits of entrepreneurship for the Egyptian economy. It acknowledges that sporadic attempts by the government to prevent startups from seeking growth funding in other jurisdictions have not been successful.

    3. Policy Recommendations:
    The study provides valuable policy recommendations to reverse the establishment of startups outside Egypt, ensuring a conducive environment for entrepreneurs:

    (a) Updating Legal Frameworks:
    The study suggests reviewing and amending Egypt’s legal and policy framework to align it with international best practices. This includes addressing concerns related to company constitutions, valuation, innovative financing instruments, and shareholders’ agreements.

    (b) Bridging the Funding Gap:
    The study emphasizes the importance of addressing the funding gap that startups face during their growth stages. Recommendations include establishing additional guarantees for potential investors, creating special bank accounts for holdings, and implementing critical legislative changes where needed.

    (c) Enhanced Government Support:
    To foster a vibrant entrepreneurial ecosystem, the study recommends that the government establish a dedicated unit to review and improve policies and regulations for startups. This would provide startups with the necessary support and guidance to navigate legal complexities.

    As Egypt aims to position itself as a regional hub for entrepreneurship, addressing the establishment of startups outside the country is crucial. The study conducted by the African Development Bank provides valuable insights and policy recommendations to reverse this trend and create a more conducive ecosystem for startups. By implementing these recommendations, Egypt can unlock its entrepreneurial potential and drive economic growth for years to come.

    Lynn Brown
    Lynn Brown
    Lynn is a content marketer that focuses on brand storytelling through digital platforms. Skilled in a background of web development, search engine optimization and content production, Lynn is excited to utilize over 10 years’ experience in digital marketing to help grow the ecosystems that support Africa’s very young entrepreneurs to ensure their success.

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