Banking Sector

     Having recently emerged from a centrally-planned economy and one of the largest debt burdens of any developing country, Egypt’s financial sector is still heavily influenced by the large state-owned banks.  Accustomed to extending credit to the large, traditional industries, the banking system has yet to develop a systematic developing/small business credit program.  This further reinforces the small family-owned private business model that existed throughout the centralized economy phase.  In addition, the bank’s traditional “bricks and mortar” perspective is particularly detrimental to investment in the IT sector. 

    A possible long-term change in banking philosophy may be in the making.  A recent agreement was reached between the Egyptian government and the IMF to privatized one of the four state-owned banks; the Bank of Alexandria is the most likely candidate.

    The state-owned banks’ dominance is also being eroded through the divestment of their shares in joint venture banks (JVBs) – essentially vehicles used by international banks to gain a domestic presence.  Under new guidelines, ownership in these JVBs is no longer subject to the fifty-one percent domestic ownership requirement. (AmCham)  With fundamental restructuring in the banking industry producing a more private sector oriented perspective, new business undertakings may find increased opportunities available in the long-term.

Venture Capital

     The privatization and economic liberalization efforts have primarily focused on the larger state owned entities (SOEs) and in response both domestic and international private capital, that could be utilized in funding entrepreneurial efforts, is diverted to investments in the newly privatized companies or in creating competitors in newly opened markets.  An overriding concern of both of the above efforts is to encourage the return of private Egyptian capital from abroad and the most direct and attractive routes are in established business sectors where an established customer base and financing are readily available. The end result is that there does not appear to be a significant effort underway to create regulations or incentives to encourage venture or seed funding.  Currently, the only formal incentives available to startups are those based on strategic business sector and location incentives offered by the government.

Traditional Financing

    As discussed above, the continued pre-dominance of government ownership, particularly in the industrial and banking sectors provide for a nearly closed loop for traditional investment capital.  Venture capital formation is still in an embryonic state, in part due to the small, family-dominated nature of the private sector. Having thus limited the financing options available to IT companies, these startups must rely on the “small, family dominated nature of the private sector” and either self-finance or find individual or corporate investors.

International Development Agency Assistance

    An excellent example of development agency encouragement of IT is the Business Information Highway Project funded by the United States Agency for International Development (USAID).  It has provided the funding to the American Chamber of Commerce to become an e-intermediary for the dissemination of information and catalyst for business to business activity. (AmCham)

IT Financial Incentives

     Financially, the one factor working in favor of IT is the government’s incentive programs. The IT sector, in general, receives a tax reduction, while location in one of the high technology parks brings even more benefits.  These efforts, in combination with the continued determination of Egypt’s small entrepreneurs, may lead to a greater percentage of domestic and international capital flowing into this sector to exploit a number of the advantages available to IT in Egypt.