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North African startups are not using their advantage

by Ozva Admin

A strong diaspora and the opportunity to penetrate North African non-digitized industry are two advantages that tech and tech-adjacent startups north of the Sahara are not fully exploiting.

Last year, North African startups attracted investor attention and cash thanks to a favorable narrative comprising a large and relatively young population, growing digital consumption, economic tailwinds and a wealth of tech talent. , especially in Egypt. In the Middle East and North Africa (MENA), the use of digital technologies has also increased. According to MAGNiTT, startups in the MENA region raised a record $1 billion in 2020. Further narrowing our reach to just North Africa, for briter Intelligence, the number of transactions in the region more than doubled between 2019 and 2021, and the total amount invested more than quadrupled.

Egypt, the most mature ecosystem in North Africa rivals the ecosystems of the Gulf | Fikyao Idowu Chart – TechCabal Insights

In this space, Egypt is the clear leader, even rivaling the tech ecosystems in the Gulf Cooperation Council (GCC). Between 2020 and 2021, for example, UAE startups led the venture investment chart, closing 44 deals. That was just two deals more than those closed by startups based in Egypt and Saudi Arabia. In North Africa, Egyptian tech companies alone capture more than three-quarters of total investment in the region. It is the most developed startup ecosystem in the region, and while it is not a perfect method, Egypt’s startup world shares much of the potential and challenges of its peers in neighboring countries.

But the region has not been spared this year’s defeat in entrepreneurship. | Fikyao Idowu Chart – TechCabal Insights

This remarkable growth has also been severely impacted by the slowdown in venture funding, the sell-off in tech stocks, and the slow macro burn from inflation and sovereign debt chaos. Swvl, for example, one of the region’s top stories, which was listed on the NASDAQ earlier this year through a SPACE it is down nearly 88% from its $10 listing price.

Given this abrupt wake-up call, and how small and nascent the space is, it is conceivable that stakeholders in North African tech and venture companies will begin to reassess the opportunity as they brace for a bigger impact. The thing is, North Africa has a lot going for it. Some are subtle, while others, like relatively better urban infrastructure and a large population, are obvious. One of the more subtle advantages is the region’s strong diaspora links.

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A diaspora beyond remittances

The conversation about the North African diaspora very often focuses on remittances. It’s not unreasonable too. Remittances represented around 6% of North Africa’s GDP in 2020, according to the German market research firm Statista. Even governments have come to rely on the annual inflow to prop up currencies. “There are more than 20 million people from the Middle East and North Africa who live abroad, but we don’t think of them beyond remittances,” said Hafez Ghanem, World Bank vice president for the Middle East and North Africa.

Remittances are a passive way of engaging the North African diaspora. Instead of thinking of the diaspora only as the source of annual dollars (a perfectly legitimate perspective given that remittance payments in MENA are relatively untouched by digitization), the North African diaspora can function more deeply as a source of trade. , investment and technology transfer to and within the region.

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This is already happening on one level. Some of the region’s tech founders had built successful careers in the GCC, Western Europe and the US before setting up a local company. The tech ecosystem also employs operators with experience in other jobs outside North Africa. What is needed, however, is to recognize the diaspora, not just returnees, as strategic assets to deepen two assets that the ecosystem has not fully developed: a deeper pool of local capital and a buying market that is relatively impermeable. to local economic downturns.

To better capitalize on its diaspora, the North African ecosystem will need to better sell its potential for success to North Africans residing outside of North Africa.

Deeper connection to the industry

Like most of Africa, startups north of the Sahara have yet to penetrate the industrial spaces that exist in their markets. It’s probably easier to build and sell a consumer app to your first 1,000 users than it is to break into industry networks with all the baggage that normally comes with B2B marketplaces.

Furthermore, B2B technology demands a more technical type of VC. The type of investor who is willing to invest in research to search under a diverse selection of industry bells. Hasan Haider, managing partner at +VC, agrees: “Another area for improvement is not with founders, but rather the lack of experience that many new VCs and investors have,” he told me.

The good news is that the region has a significantly more developed industrial sector. I use “industry” broadly to include any aspect of the economy that is non-technological and relatively under-digitalized. As Eslam Darwish, founding general partner of Nclude, a Cairo-based venture firm, wrote recently on LinkedIn, “Startups do not operate in a vacuum nor are they an independent industry. They are a natural extension of existing industries.” Embracing this perspective means building an ecosystem that looks beyond reaching consumers directly, to building the technology and systems that drive industrial value chains. I admit this is significantly more difficult compared to building consumer apps.

To realize the full potential of this prospect, North African startups will need to build on their geographical advantage, not only to expand their market coverage, but also to create cardinal links with strong GCC industry players and different industries registering growth in sub-Saharan Africa. Africa. This may not be a consumer market move, but it helps North African tech talent find a quick outlet for deep tech solutions that may struggle to find a local market.

Indeed, the failure of the Gulf countries to provide leadership in the digital economy is one of the biggest opportunities for North African startups, especially Egyptian companies, to strategically become a digital hub that can compete with Dubai, obsessed with commerce and real estate.

Deepening North African technology penetration into industries may also give start-ups from the region a stronger path to sub-Saharan Africa. One area where we see this dynamic showing signs of life is in Amazon’s Egyptian play. Cairo Angel CEO Aly El Shalakany believes that African startups, in general, can do better if they can expand into more African markets.

“We are starting to see the convergence of the MENA, African and South Asian economies. North Africa is starting to turn more towards sub-Saharan Africa, Egypt is starting to see its sub-Saharan trade and investment ties as more important, and the Gulf Cooperation Council countries are increasingly using diplomacy to position themselves for the future growth of Africa. Wesley Schwalje, COO of Tahseen Consulting, a Dubai-based consulting firm, told me.

Startups in North Africa just have to acknowledge these trade winds and sail away.

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Avraham Augustine,

Senior Writer, TechCabal.

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