Last month, Egyptian business tycoon Samih Sawiris announced that he would halt all new investments in Egypt and will instead shift his focus to Saudi Arabia. The news prompted a flurry of criticism from his compatriots, prompting his brother Naguib Sawiris to come to his defence saying: "We are a family that loves the country, Egypt, more than ourselves”.

Sawiris’ decision to halt investments was a result of the instability of Egypt’s economy and currency, which plunged 40 per cent against the dollar in 2022. The global economic contraction has hit Egypt hard, crashing its economy into debts that have reached 92 per cent of its gross domestic product (GDP), with the inflation rate standing at 30.7 per cent.

Investment activity in the startup space has also slowed. In the first quarter of this year, just 25 startups raised investment compared to 65 last year. While the amount invested has risen this year in Q1 from $195 million in 2022 to  $427 million in 2023, $400 million of that is thanks to MNT-Halan’s debt and equity raise alone. Last month, Egyptian startups raised $1.2 million across four deals,, down from $81.25 million across 17 deals in May 2022; a 98 per cent decline.

This economic environment has driven entrepreneurs to seek strategies to salvage their companies before it is too late. And the most feasible answer seems to be to shift their headquarters to another country, namely one of the Gulf Cooperation Council (GCC) countries.

Up until recently, the UAE was the main destination for entrepreneurs looking to establish their enterprises while taking advantage of the plethora of VCs based in Dubai, but increasingly, Dubai is being overlooked for Riyadh.  

Six months into the year, at least three Egyptian startups have announced the relocation of their headquarters to Riyadh while maintaining their back office in Cairo, with more startups expected to follow soon. 

Changing tides

“It is a matter of expanding our business, not a matter of fleeing Egypt,” says Abdelrahman Sherif, the co-founder of Taager, a social e-commerce platform which relocated to Saudi Arabia in February this year. 

Sherif asserted that the decision to relocate Taager's HQ to Riyadh was motivated by the desire to get exposure to stronger investment options as they pursue a second investment round. Taager raised a $6.4 million Seed round last year from a combination of US and Saudi venture capital companies.

For Nour Taher, the co-founder of Intella, a research-driven deeptech company that relocated to Saudi Arabia in May 2023, the main reason behind the decision is to be closer to its wider base of customers.

"When it comes to our sector, the Saudi purchasing power is quite high; nearly 70 per cent of our clients are based in Saudi Arabia, so it makes sense to get closer to our main market," Taher tells Wamda, giving the same rationale as Taager, to be close to where capital is concentrated.

Incentives

Saudi Arabia is the largest market in the GCC with a GDP per capita of almost $30,000. The country has also worked hard to position itself as a regional and global destination for innovators and ambitious entrepreneurs from all over the world, stemming from its desire to diversify the non-oil economy, with SMEs expected to contribute 35 per cent to its GDP by 2030.

The desire to embrace the region's unicorns has spurred the kingdom to establish a number of initiatives and programmes aimed at attracting the world's top tech firms. One of these efforts is the National Technology Development Programme (NTDP), which was launched in 2016 with a budget estimate of $67 million (SAR 2.5 billion) to give support mechanisms to both local and foreign investors and entrepreneurs.

When considering relocation to Saudi Arabia, entrepreneurs are aided with a plethora of incentives including partial subsidy of employee salaries depending on the size of the startup, free-of-charge consultation from the Ministry of Investment (MISA), rent-free offices, tax relief, and a one-stop shop for all governmental papers and licences to streamline the registration process.

A temporary blip?

Egypt's stumbling economic conditions have left many feeling cautious and hesitant with little hope for an improvement in the investment landscape. The country has been far more affected by the war in Ukraine compared to the GCC and unlike Dubai, it has not benefited from the economic boost of the influx of wealthy Russians and Ukrainians. 

“We cannot call the Egyptian ecosystem repellent; Egypt is clearly going through hardships, especially on the macroeconomic level, but one sector’s problem can be an opportunity for another,” Taager’s Sherif points out, adding: “We still see Egypt's positive signals and solid figures; the Egyptian market is still stable and the purchasing power is increasing, despite all the economic turbulences.”

According to Wael Amin, partner at VC firm Sawari Ventures, the present funding climate in Egypt is simply "a rainy day for startups".

“A startup’s lifespan from foundation to exit can extend from 10-20 years. They will inevitably go through three or four economic cycles, and they will move from a high-growth economy to depression, from capital abundance to capital scarcity, therefore, they should show the resilience and agility to adapt and survive,” says Amin, explaining that in the past 12 months, the ecosystem in Egypt has gone from cash-abundant environment to scarcity, however, he does not believe that it will last for long.

Amin believes that entrepreneurs will need to change their business strategy to adapt to the financial climate in which they operate.

"Everyone is a good driver when it is sunny and clear; only a rainy day can determine how skilled a driver you are," he adds.

Ahmed Shalaby, an angel investor and co-founder and CEO of real estate developer Tatweer Misr, has likewise dismissed the significance of Egyptian businesses migrating to Saudi Arabia, saying: "This HQ location feud is meaningless. Egypt has never aspired to become the region's tech hub to be threatened by this regional shift,” adding that this transition may have a greater impact on the UAE.

The real estate developer believes that this shift is the best situation for Egyptian entrepreneurs and the economy as a whole as startups will benefit from the incentives offered by Saudi Arabia. The labour market will thrive as all of these startups will hire additional talent, and revenue will find its way into Egypt.

“It is a win-win situation for all parties,” Shalaby concludes.