<h3 dir="ltr">Introduction</h3>
Egypt&rsquo;s startup ecosystem has roughly 677 companies (Entelaq, 2023). To better support them and encourage Egyptian expat businessmen to invest in these companies, the Ministry of State of Immigration launched the Egyptians Abroad Corporation (State Information Service, September 2023). This raised multiple questions regarding whether this could be a move to stop the rising phenomenon of Egyptian startups migration along with their talents and investments since they look for more stable and supportive ecosystem.&nbsp; Khazna, the fintech startup, is the latest to announce the transfer of its HQ to Saudi Arabia (Wamda, 2024), who, in turn,&nbsp; does not allow a company to do internal operations without the physical existance of corporate headquarters on its territories (Muslim, 2023).
The article seeks to examine this phenomenon globally, with a focus on Egypt and its policies in dealing with startups. It also provides policy and procedural solutions that may contribute to improving the business environment and restoring the confidence of investors and entrepreneurs in Egypt.
<h3 dir="ltr">Corporate migration momentum</h3>
Similar to human migration, the term &ldquo;business migration&rdquo; refers to the permanent movement of an organization, its business, and its team from one country to another. The term &ldquo;offshoring&rdquo; also indicates the movement and registration of a business in another country. Over the past decade, business migration has gained momentum, after a report issued by the National Foundation for American Policy (NFAP) revealed that the total number of unicorns, whose capital estimates at&nbsp; $1 billion, reached 87 in the US.
The report stated that 44 of these companies were founded by migrants, 20 of whom came to America as international students. The leadership and management roles of 62 &nbsp; companies (70%) were held by immigrants. Uber is a prime example of the job creation by expat entrepreneurs. The company provided freelance job opportunities for over 162,000 drivers in 2014 only (2016). This highlighted the importance of immigration of businesses and entrepreneurs who wish to grow their companies and benefit from flexible economies that seek to diversify income sources. It also demonstrated the migrants&rsquo; ability to address gaps that the indigenous population cannot discover.
<h3 dir="ltr">Looking for motives</h3>
Startups generally prefer ecosystems that include technology &amp; innovation hubs, low-cost qualified labor, and science and engineering nascent talents (Manning et al. 2008). These factors are not considered independently from the broader economic and political conditions of the country.&nbsp; Economic stability and growth, increasing purchasing power, and flexibility of entry and exit from the direct market in addition to political and legislative support all serve as key factors in attracting investments.&nbsp; Consequently, startups that wish to benefit from these funds are magnitized to thrive and showcase the value of their innovations and services (Kerr &amp; Kerr, 2016).
Countries such as KSA and UAE have been able to create attractive investment ecosystems for foreign companies including offering services of online statups registration, providing incentives and financial programs to support tech-starupts, as well as unrestricted financial transfers to and from homelands. They also created a corporate friendly tax system. In 2022, the UAE announced that it would maintain a 9% tax rate on companies whose income exceeds AED 375,000&nbsp; ($102,000). Any company with a taxable income below that threshold would be exempt from corporate tax altogether (UAE, 2024). The government has also established free zones for foreign investors that provide various incentives and services, including the permission of 100% foreign ownership, exemption from import and export taxes, and exemption from corporate and income taxes (Liang, 2023). This allows entrepreneurs and investors to solely focus on their businesses without worrying about bureaucratic complexities.
Saudi Arabia launched an initiative to encourage businesses to relocate their HQs to the Kingdom. The initiative provides unprecedented financial packages ranging from SAR 1.2 - 3.6 million, in addition to financial grants ranging from SAR 225,000 - 900,000, and administrative offices valued SAR 264,000 - 880,000 depending on the size of the business and the number of staff employed by the startup (NTDP, n.d.).
<h3 dir="ltr">In older gernerations footsteps&nbsp;</h3>
Similar to what happened in the 1960s, when individuals left Egypt in search of better economic and educational opportunities, Egyptian startups are currently expanding into new markets or relocating to other countries. Over the past ten years, startups such as Vezeeta, Yaoota, Crowd Analyzer, Eventtus, InstaBug, and Integreight shifted to other markets. In 2019, Swvl - the first Egyptian unicorn - relocated its headquarters to Dubai, followed by&nbsp; several other startups such as Capiter in 2021 and Paymob in 2022. In addition, Taager, Intella, and Sideup announced they would relocate their headquarters from Egypt to Riyadh in 2023 (Abdel Azim, 2023). This migration of Egyptian startups has never been seen before; since most of these startups were largely focused on solving problems in the local market of the largest population mass in the Middle East (Williamson, 2017).
<h3 dir="ltr">Challenges facing Egyptian startups</h3>
This mass startup migration is attributed to unprecedented Egyptian economic fluctuations&nbsp; over the past couple of years after the Russian-Ukrainian war due to the instability of the service sector. Revenues of the Suez Canal declined by 51% during the first two months of 2024 (Nasr, 2024). Similarly, the Egyptian remittances dipped 29.9% in Q1 of FY&nbsp; 2023-2024 (CBE, 2024). Moreover,&nbsp; the instability of the exchange rate, high inflation rates hitting 35.5% on an annual basis in 2024 (CBE, 2024) and raising interest rates to 27.25% (Trading Economics, n.d.) have increased increased the desire among entrepreneur to relocate out of Egypt.
Building on the aforementioned points, startups face several challenges from their early beginnings.&nbsp; The instability of the exchange rate over the past two years has prevented entrepreneurs from developing real feasibility studies and evaluations of their activities. This resulted in diminishing their chances to obtain the much-needed funds that would allow them to either resume or expand their business activities. in 2023, funds volume directed to the Egyptian startups decreased by 70%, despite the increase in the number of statups on the level of MENA region by 32% (Khafaga, 2024).
Moreover,&nbsp; no unified legislative system is applied to startups/. there are four different laws apply to the Egyptian startups: Egyptian Companies Law No. 159 / 1981, Intellectual Property Law No. 82 / 2002, Egyptian Labor Law No. 12 / 2003, and Investment Law No. 72 / 2017. (Andersen, 2023) This confuses entrepreneurs and leaves them unable to navigate legal procedures easily.
The biggest challenge for entrepreneurs and investors is the tax treatment. Startups face arbitrary estimates by tax officials and delays in the tax examination for several years, resulting in startups to bear additional financial burdens in the form of penalties. Furthermore, some tax offices do not permit startups to pay their taxes in installments and insist on collecting the full sum in one payment, that could place extraburdens on these startups (Egyptian Tax Authority, n.d.).&nbsp;
<h3 dir="ltr">Alternative solutions</h3>
Despite all the economic headwinds, there is cause to be optimistic about a potential recovery of the Egyptian economy, if the government instates a number of measures that guarantee the agility of the economy, thereby maintaining its attractiveness for foreign investment and keeping on the companies operating in it, which will encourage the return of migrant companies. Those procedures might include:
- Reconsidering the laws and legislations applied to startups by issuing a unified law to serve as a legal reference for startups that cover all points related to IPR registration, data protection, the Egyptian labor law, and the tax system.
- Digitizing the company registration system: replacing the current system with an online&nbsp; system that is accessible from anywhere in the world and for any nationality. Moreover, the system should issue e-licenses in a single day and allow for startups to have virtual headquarters instead of regular offices. Many businesses currently rely on remote work instead of renting physical headquarters.
<ul>
<li dir="ltr" style="text-align: justify;">Reviewing the tax system imposed on startups. Startups with an income below EGP 5 million can be exempted. Likewise, VCs, that support R&amp;D-based startups and priority tech-statups: manufacturing, agritech, healthtech and energy tech, are to be exempeted during their first five years of operations.</li>
<li dir="ltr" style="text-align: justify;">Tax exemption can be also given to Egyptian startups operating in the local market provided that they expand their activities internationally without relocating their headquarters.</li>
</ul>
<h3>Conclusion</h3>
It can be said that the launch of the Egyptians Abroad Corporation may be a significant initiative that encourages the reshoring of startups and foreign investments through out networking between Egyptian entrepreneurs and expat experts to enable them to expand their activities internationally without the need to move their headquarters outside Egypt.
<hr>
Arabic readings
<ul>
<li dir="ltr">Central Bank of Egypt (January 2024): Press release regarding the performance of the balance of payments during the first quarter of the fiscal year 2023-2024. https://shorturl.at/ovMR1</li>
<li dir="ltr">Central Bank of Egypt, (March 10, 2024): Press release on inflation for February 2024. https://shorturl.at/ghyOQ</li>
<li dir="ltr">General Information Authority (September 23, 2023): The Minister of Immigration holds a meeting with members of the founding council of the &ldquo;Egyptians Abroad Investment Corporation.&rdquo; https://shorturl.at/nqryQ</li>
<li dir="ltr">Khafaja, Amina (February 26, 2024). &ldquo;Egyptian startups in light of the global investment slowdown.&rdquo; Egyptian Center for Thought and Strategic Studies https://ecss.com.eg/43921/</li>
<li dir="ltr">Muslim, Bandar (December 31, 2023). &ldquo;Saudi Arabia...contracting with foreign companies is linked to a &lsquo;regional headquarters&rsquo; as of today.&rdquo; Middle East https://shorturl.at/grwHM</li>
<li dir="ltr">Nasr, Aya (March 2024): Suez Canal revenues decline by 51% in the first two months of 2024, Al Borsa Newspaper <a href="https://www.alborsaanews.com/2024/03/03/1771561">https://www.alborsaanews.com/2024/03/03/1771561</a></li>
</ul>
&nbsp;
English readings&nbsp;
<ul>
<li dir="ltr">Abdel Azim, Nesma (Jun 15th, 2023). &ldquo;Saudi Arabia&rsquo;s Magnetic Pull: Should Egypt be Concerned about startup migration?&rdquo; Wamda, retrieved from:</li>
<li dir="ltr"><a href="https://shorturl.at/ciyX0">https://shorturl.at/ciyX0</a></li>
<li dir="ltr">Andersen global (December 21st, 2023). &ldquo;Startups in Egypt: Tackling Legal Challenges for Business Innovation. Retrieved from <a href="https://eg.andersen.com/startups-in-egypt/">https://eg.andersen.com/startups-in-egypt/</a>&nbsp;&nbsp;</li>
<li dir="ltr">Anderson, Stuart.&nbsp;(2016).&nbsp;&ldquo;Immigrants and Billion Dollar Startups&rdquo;.&nbsp;National Foundation for American Policy. Arlington: retrieved from <a href="about:blank">Immigrants-and-Billion-Dollar-Startups.NFAP-Policy-Brief.March-2016.pdf</a>&nbsp;</li>
<li dir="ltr">Entelaq (2023). The Egyptian Entrepreneurship Sector Diagnostics report&rsquo; 23. Retrieved from <a href="https://entlaq.com/report/">https://entlaq.com/report/</a>&nbsp;&nbsp;</li>
<li dir="ltr">Kerr, Sari Pekkala &amp; Kerr, William R. (June 2016): Immigrant Entrepreneurship -Harvard Business School Working Paper, No. 17-011. Retrieved from <a href="https://www.hbs.edu/ris/Publication%20Files/17-011_da2c1cf4-a999-4159-ab95-457c783e3fff.pdf">https://www.hbs.edu/ris/Publication%20Files/17-011_da2c1cf4-a999-4159-ab95-457c783e3fff.pdf</a>&nbsp;</li>
<li dir="ltr">Liang, Wayne (Jun 12th, 2023). &ldquo;What Entrepreneurs Should Consider When Expanding to Dubai.&rdquo; Forbes. Retrieved from: <a href="https://shorturl.at/DLN45">https://shorturl.at/DLN45</a></li>
<li dir="ltr">Manning, Stephan; Massini, Silvia; &amp; Lewin, Arie (October 20, 2008). "A Dynamic Perspective on Next-Generation Offshoring: The Global Sourcing of Science and Engineering Talent". <a href="https://en.wikipedia.org/wiki/Academy_of_Management_Perspectives">Academy of Management Perspectives</a>.&nbsp;22&nbsp;(3): 35&ndash;54.&nbsp;Retrieved from:<a href="https://shorturl.at/inoV7">https://shorturl.at/inoV7</a></li>
<li dir="ltr">National Technology Development Program (NTDP), (n.d). Relocate initiative. Retrieved from&nbsp;<a href="https://ntdp.gov.sa/en/initiative/relocate">https://ntdp.gov.sa/en/initiative/relocate</a>&nbsp;&nbsp;</li>
<li dir="ltr">Trading Economics, (n.d). Interest rates, Egypt. Retrieved from&nbsp;<a href="https://ar.tradingeconomics.com/egypt/interest-rate">https://ar.tradingeconomics.com/egypt/interest-rate</a>&nbsp;</li>
<li dir="ltr">U.AE (Jan 25th, 2024), Corporate Tax. Retrieved from&nbsp;<a href="https://u.ae/en/information-and-services/finance-and-investment/taxation/corporate-tax">https://u.ae/en/information-and-services/finance-and-investment/taxation/corporate-tax</a>&nbsp;</li>
<li dir="ltr"><a href="https://www.wamda.com/author/rachel-williamson">Williamson</a>, Rachel (April 2nd, 2017). &ldquo;Out of Africa: the Egyptians are coming&rdquo;. Wamda. Retrieved from <a href="https://www.wamda.com/2017/04/egypt-comes-out-of-africa">https://www.wamda.com/2017/04/egypt-comes-out-of-africa</a>&nbsp;&nbsp;</li>
<li dir="ltr">Wamda (February 28th, 2024). &ldquo;Egypt&rsquo;s Khazna expands into Saudi Arabia&rdquo;. Retrieved from&nbsp;<a href="https://www.wamda.com/2024/02/egypt-khazna-expands-saudi-arabia">https://www.wamda.com/2024/02/egypt-khazna-expands-saudi-arabia</a>&nbsp;</li>
</ul>

آراء

Commentaries

العمل والتوظيف

Read Also