Nile City Towers in Cairo
Nurturing innovation
By Peter Guest | Published: 28 July, 2010
The Nile Exchange is one of a number of initiatives designed to provide a boost to Egypt’s small- and medium-sized enterprises but these are just a small step on the difficult path towards creating a culture of entrepreneurship in the region
After almost three years in the pipeline, “Egypt’s Nasdaq” has begun trading. The Nile Exchange, or “Nilex”, is designed to provide a new financing mechanism for small- and medium-sized enterprises in the country, as well as to provide an exit route for potential investors into an underserved market segment.
The exchange framework was developed after examining examples from around the world, including South Africa’s Altx and South Korea’s KRX. Nilex will share many characteristics with the latter, says Mahmoud Mohieldin, Egypt’s investment minister and the main architect of the initiative. Ten enterprises are currently listed on the exchange, ranging from Masria Card, which produces plastic ATM cards, to Utopia, a real estate and tourist investment company. Mr Mohieldin anticipates this number to grow by over 100 percent in the coming year.
The market itself would only be considered viable by the ministry if its total market capitalisation reaches 5 percent of GDP and if it garners sufficient liquidity. The phone calls from interested participants are coming in, he says, and the ministry has held discussions with potential investors from the Middle East and Far East.
Nilex is one of a number of initiatives taking place across the region to try to energise local small- and medium-sized enterprises. Across North Africa, SMEs – and the entrepreneurs that build them – face many challenges that are common to the rest of the emerging world.
The economies of the region have continued to show impressive GDP growth and attract significant amounts of foreign direct investment. A slowdown in European growth has not dramatically reduced the flow of businesses into the region, although persistent debt worries in the Eurozone are causing some jitters. However, unemployment rates remain high, ranging from 9.7 percent in Egypt to 14.7 percent in Tunisia. Recent figures from Libya are unavailable, but estimates from 2004 suggest rates as high as 30 percent. While FDI creates jobs directly and indirectly, foreign companies are not the principal employers in these markets.
Notwithstanding the developmental and economic potential of the SME class, preventing the build up of a large pool of unemployed and potentially disaffected youth is a concern for governments worldwide. As part of its aid programme, the US Government has begun a push to fund and train entrepreneurs in the Arab world, in part to improve relations and in part, analysts say, to reduce the sense of economic disenfranchisement amongst Arab youth that Washington believes could spill over into security threats.
Egypt has overseen a significant expansion in the number of corporate entities, which have doubled in number since 2004 to around 69,000, according to the ministry of investment. More than 90 percent of these companies have issued capital of less than $2m, putting them firmly in the SME bracket. This is, Mr Mohieldin says, a major achievement in itself given the country’s recent history. “There were only two options in the country at one stage – either to be a civil servant or a farmer,” he says.
