Entrepreneurs

Egypt’s currency slump deters startup investors

July 11, 2023

Egypt startup funding — Many Egyptian startups are seeking opportunities in Saudi Arabia and elsewhere

Egyptian pound has slumped 40% against the dollar
Founders seeking opportunities in Saudi Arabia and elsewhere
Value of smaller funding deals has plummeted 90% in a year

Egypt’s economic woes have led to a 70 percent decline in the number of startup funding deals in the first half of the year.

The country’s currency devaluation and other ongoing economic challenges are deterring investors, industry experts said.

Funding for startups across the Middle East and North Africa (Mena) fell 21 percent year-on-year to $1.6 billion in the first half of 2023.

The number of deals was down by about half, according to data compiled by Wamda, the Middle East’s largest early stage investment fund.

But Egypt was hit even harder, with the number of deals down 70 percent in the first six months of 2023.

The value of funds for Egyptian startups was down 9 percent year-on-year. However, this was dominated by the fintech MNT-Halan, which raised $400 million in securitisation bonds and equity in 2023.

Removing MNT-Halan’s debt deal, the total value of Egyptian funding dropped by 90 percent over the same period. It plummeted from $324 million in H1 2022 to just $31.8 million between January and June 2023.

The Egyptian pound has dropped nearly 40 percent in the last year.

The Wamda report said Egyptian-founded startups are seeking out better opportunities in Saudi Arabia and elsewhere.

Flat6Labs, which is headquartered in Cairo and manages assets worth $135 million for 25 Mena-based institutions, was the most active investor in the region with 39 deals in H1.

Mohamed El Ghannam, principal at Flat6Labs in Egypt said the continued devaluation of the Egyptian pound, coupled with rising inflation, which has doubled in the last year to about 33 percent in May, has impacted funding available to startups valued in US dollars.

“Their operating revenues are in pounds, which caused a decrease in investors’ appetite and a drop in the inflows from regional VCs [venture capitalists],” he said.

El Ghannam said another factor has been the fact that some Egyptian VCs are coming to the end of their own investment period, so don’t have the funds to deploy and will soon be returning to the market themselves to raise funds.

Economic growth in Egypt dropped from 4.4 percent in Q3 2022 to 3.9 percent in Q4. The Central Bank of Egypt last month told Reuters the numbers for Q1 this year look to have slowed further.

The International Monetary Fund has forecast economic growth in Egypt will fall to 3.7 percent in 2023.

Wamda’s data also showed a marked increase in grant funding across the region, especially in other North African countries such as Tunisia and Morocco.

Walid Triki, managing partner at Flat6Labs in Tunisia, said the growth in grant funding for startups in Morocco and Tunisia was likely to continue, as their governments look to develop the North African entrepreneurial ecosystem.

The UAE’s H1 2023 deal count dropped 47 percent, with the funding value down 21 percent.

Yousef Albarqawi, is CEO and co-founder of Dubai-based HR workflow startup Alfii alongside Becky Jefferies. Last week Alfii announced it had raised pre-seed funding of $2.5 million.

Albarqawi said the drop in funding regional was the market returning to pre-2018 levels.

“VC market has reverted back to the 'norm' — whereas 2020/2021 were anomalies in terms of local and regional funding. Pre-2018 founders would probably tell you just how difficult it was back then to fundraise locally,” he said.

“The boom we had was not so much an indicator of change or maturity as it was a flash in the pan."