One of the most beautiful residential properties of the American University in Cairo is villa 48 on road 19 in the quiet suburb of Maadi on the east bank of the Nile around 12km to the south of downtown Cairo. The villa was built in the late 1940s and had a large and exotic garden. In the 1960s, AUC President Thomas Bartlett bought the villa, which was initially used as faculty housing, then became the residence of several AUC Provosts and Presidents.
Throughout the years, numerous university meetings, receptions, retreats, and gatherings were held there, making use of the relaxing setting, space, and greenery. In September 2012, on one of those breezy summer nights in Cairo, I was invited to a dinner party by AUC President Lisa Anderson. She had remodeled the villa using a fine Islamic art and architecture style, a theme that is close to my heart which made the dinner even more enjoyable. Guests included a group of colleagues from the university, several members of the business community, and others. During dinner, I was seated at the same table with James Harmon, a veteran investment banker, founder, and chairman of Caravel Management and the 18th chairman and president of the Export-Import Bank in the United States.
Jim was visiting Egypt for the first time. He was looking at investment opportunities in this mega and promising market despite Egypt’s socioeconomic situation post-2011. We had a long and interesting conversation about the challenges facing the economy, the prospects lying ahead, the deterioration in foreign direct investment (FDI) compared to pre-2011 levels, the growing entrepreneurial ecosystem, the impact of small and medium-sized enterprises (SMEs), and what innovative startups can offer as a potential engine for economic growth and prosperity.
A few months later, I received a communication from Jim inviting me to join the board of directors of the Egyptian American Enterprise Fund (EAEF), where he served as chairman. In May 2011, President Barack Obama had initiated the process to authorize the creation of an enterprise fund to promote the development of the private sector in Egypt and catalyze investment in promising SMEs; a sector that generates over 80 percent of private sector employment and accounts for over 20 percent of Egypt’s GDP. In December 2011, the United States Congress passed the legislation to establish the EAEF to stimulate and strengthen the private sector in Egypt following the decline in the tourism industry and FDI among other challenges during that time.
The idea of the enterprise fund reintroduced a concept pioneered by the administration of President G. H. W. Bush in the early 1990s. Back then, private sector-led investment funds used public funding to help build market-based economies in Central and Eastern Europe and the former Soviet Union. The funding model provided flexible equity and debt financing to private enterprises in undersupplied capital markets to help attract foreign investments and grow the economy. Accordingly, the United States Congress authorized around $1.2 billion for the United States Agency for International Development (USAID) to establish 10 investment (enterprise) funds.
As someone who very much believes in the potential role and impact of the private sector and how it can help transform and grow the economy in Egypt, I accepted the invitation. I joined a group of distinguished board of directors with diverse backgrounds and experiences that Jim had smartly selected from Egypt and the United States. I had the pleasure of knowing some of them well from before, including a couple of friends with whom I had the opportunity to work in various endeavors. Others I was privileged to know and work with supporting the macro-level overarching mission of the fund, and that is to help unleash the massive untapped potential of the private sector in Egypt.
In January 2013, we had our first meeting in New York. Shortly after, in March 2013, the United States announced the launch of the fund: a private corporation seeded with U.S. government funds to help promote the development of Egypt’s private sector. Accordingly, the USAID executed a grant agreement worth $300 million which effectively indicated that the fund became operational. My tenure as a member of the board of directors lasted for three and a half years before deciding to step down in June 2016. I have always believed that it would be a good strategy for boards to change their guards from time to time and inject new faces with fresh ideas and innovative approaches. However, to date, I continue to assist the fund whenever possible and in any way I can, given its multifaceted and significant role in supporting the private sector in Egypt.
The last eight and a half years of the fund have been quite a journey. It witnessed a rough and slow start at the beginning for various reasons –some were out of the fund’s control given the continuous developments that took place in Egypt during those difficult years. However, with a more established setting and fostering several trusted relationships, the journey started moving with a higher tempo while seamlessly exploring different investment opportunities and working closely with various partners in the government and the private sector. A few years following its launch, the fund gradually became an active player in promoting the private sector and a key stakeholder in the entrepreneurial ecosystem in Egypt through a portfolio of investments and support mechanisms to tech-enabled startups and SMEs in a variety of economic sectors, including but not limited to financial inclusion, healthcare, agriculture, retailing and education. One thing was evident throughout the journey; the fund was always driven by its primary mandate: to identify and address gaps in financing markets for entrepreneurs and enterprises alike while promoting financial inclusion, job creation and help increase foreign and domestic investments in Egypt for the long-term inclusive and sustainable economic growth.
From the outset, the fund has been optimistic about Egypt’s economic prospects and advocated the country’s long‐term economic positive outlook. The fund model had at its core and was driven by impact investment. It used public-private sector partnerships as the lead approach. The mission of the fund was defined as to invest in private enterprises that can help contribute to inclusive and sustainable economic growth with two fundamental strategic objectives in mind (a) generating healthy financial returns and (b) promoting socioeconomic development by creating jobs to help improve the lives and livelihoods of Egyptians.
In July 2015, the fund seeded Lorax Capital Partners –a first-time Egyptian fund manager– to help source new investment prospects, create employment opportunities and broaden access to financial services, especially among the large unbanked segment of the society, which represents around 68 percent of the adult population while supporting gender equality by empowering women. In September 2015, almost two years after it was officially launched, the fund made its first investment by bringing in a consortium of international investors to acquire a majority stake in Fawry –Egypt’s leading electronic payments company established in 2008– for $100 million. In 2020, Fawry became the first local fintech company to hit a market cap of $1 billion, making it Egypt’s first unicorn, and in 2021, its market capitalization reached $2 billion.
This powerful move was shortly followed in November 2015 by another investment decision that led to acquiring a majority stake in Sarwa Capital –the largest non-banking consumer financing enterprise in Egypt. These investments marked the beginning of a series of investment decisions in a variety of promising enterprises and startups across key economic sectors, including in 2017 Orchidia Pharmaceutical Industries (pharmaceuticals); in 2018 Dawi Clinics (healthcare); and in 2019 Nermien Ismail Schools (education) and Misr Hytech Seed International (agriculture) in addition to other investment opportunities that are in the pipeline.
Furthermore, in 2020, despite all the challenges caused by the Covid-19 pandemic, the EAEF doubled down on its mission to develop and strengthen the private sector and expanded its investment strategy across Egypt through a $10 million loan to Fawry’s subsidiary –Fawry Microfinance– to provide financial assistance to SMEs and help them sustain their businesses during these unprecedented times as well as pursue further investments in healthcare as the pandemic highlighted the need for more adequate facilities.
In 2021, the fund reached halfway through its journey and remains committed and focused on its strategy to boost private sector development and attract foreign investments into Egypt, aiming to create a sustainable investment climate that can support economic growth after the fund liquidates in 2028.
Today, the fund has invested over $224 million in more than 75 promising enterprises. In addition to partnering, supporting, and investing in fund managers such as Tanmeya Capital Ventures, Ezdehar, Algebra Capital, and accelerators such as Flat6Labs. The EAEF’s impact investment journey has collectively led to creating over 15,000 full-time jobs –one-third of which are held by women and attracting an additional $447 million in FDI to Egypt. The internal rate of return of the fund is approximately 20 percent; as for the support to the continuous development of the entrepreneurial ecosystem, the fund’s effort extends to mentorship, technical assistance, training, development, exposure, and more. Currently, the market value of the fund portfolio exceeds $600 million, an accomplishment that exceeds any of the returns of the 10 enterprise funds launched by the United States since the 1990s, demonstrating the potential growth and opportunities in the market in Egypt. The experience of the EAEF is a model for other emerging markets and especially in Africa to follow.
It is worth noting that the fund constantly monitors and evaluates the progress of the impact of its investment portfolio and various outreach activities, including analyzing key indicators such as (a) the return on investment for U.S. capital invested by the fund; (b) the number of enterprises benefiting from the fund’s activities; (c) the number of SMEs-supported jobs including the percentage of women in leading positions, and (d) the amount of capital invested by both foreign and domestic investors. Besides, and more importantly, the fund aligns with the guidelines of the impact investment industry’s best practices, including the environmental, sustainability, governance (ESG) goals and the United Nations’ sustainable development goals (SDGs) and standards.
The fund’s impact on attracting new investments, creating jobs, and promoting gender equality continues to grow year on year. Based on the solid financial and impact returns generated over the last few years, the fund plans to begin promoting Egypt to U.S. investors as a catalyst to foreign investments given the country’s economic prospects, the diversity of untapped opportunities, and the openings created through the acceleration in digital transformation paving the way for the EAEF’s impact investment journey to continue.
About the authors: James Harmon is Chairman of the Egyptian American Enterprise Fund, and Sherif Kamel is a Professor of Management and Dean of the School of Business at The American University in Cairo.
20 July 2021
Issue #15
Very impressive thank you for sharing. How can we contact the fund for more information.
Wishing you -- and the Fund! -- continued success. Very important for Egypt!!!