What does it mean when a company ‘exits’ a country? In recent news, Vodafone and Glovo announced ‘exiting the Egyptian market’ in late January. Although many have been using the aforementioned terms interchangeably in both Vodafone and Glovo’s case, it is not quite the same situation nor is it an economically dramatic decision for Egypt.
As per an article published by Al Ahram Online, Glovo announced that it is “exiting four markets including Egypt” to push for profitability in 2021. Other than Egypt, Glovo, an originally Spanish start-up founded in 2015, shut down in Turkey, Uruguay and Puerto Rico.
Vodafone, on the other hand, is selling 55% of its holdings to the Saudi Telecom Company (STC) for $2.39 billion according to Nile FM. Although the original company still owns a portion, 55% being sold means STC is the leading shareholder as Telecom Egypt is left with 45%. For context, Vodafone is originally a British telecommunications company founded in London, England in 1991.
With Glovo exiting the Egyptian market, users won’t feel much of a difference as customers can resort to other delivery applications. The question of what will happen to Vodafone is also up in the air as more details have not officially been announced. But in all cases, change doesn’t happen overnight.
The bigger question on the table is; what does this mean for the Egyptian market? Although both Glovo and Vodafone are completely different industries, it struck the attention of newspapers and social media users that this need not be a positive change in Egypt’s economy.
What Does This Mean For The Market in Egypt?
Photo by Nina R from Flickr
925Egypt sat with Adel Beshai, professor and director of Graduate Studies in Economics at the American University in Cairo, who shared his thoughts on how Vodafone and Glovo’s situation in the Egyptian economy is not reflective of anything serious in particular. Beshai also shared his opinions on the startup community in Egypt.
Beshai began by explaining that exiting an economy is not necessarily a negative thing and for Egypt, the market is attractive. This means that when a company leaves, a new one can quickly replace it.
“I spoke to a previous Vodafone manager, and he told me the deal was sold for $2.4 billion. This is fantastic, and it has to do with England not us. In Egypt, if we want to be smart, we can tax Saudi Arabia [when it takes this share of the company],” he shared.
Because startups operate differently compared to big companies, a distinction between both needs to be made. “When it comes to startups, they are small as they begin. What we’ve seen in the past year and a half, dare I say, startups are doing very well indeed,” Beshai said.
However, Glovo and Vodafone are not startups, they are considered ‘big companies’ and as Beshai explained, “big companies live on selling [shares]. These are big companies. By big, I also mean middle-sized. They live on ‘I did well, so let’s sell’.”
“This is the norm,” he emphasized.
Beshai explained that, in terms of Egypt, a company exiting is not a loss for the country in any way. He added that countries abroad are fighting for a spot in Egypt because of its “big market.”
“The number of companies that ‘pack and go’ is normal in any country… Other things come in their place. This is dynamic behavior,” he shared.
Looking Into The Story’s Depth: Vodafone and Glovo
Associate Professor of Practice at AUC’s Economics Department, Ahmed El Safty, who currently teaches a class on the ‘Economics of Egypt’ also expressed his opinions on the subject matter. El Safty explained that Glovo and Vodafone, although very different, do not concern Egypt specifically. Very simply, they have new business strategies that need a different market.
“This is a reflection of the companies themselves. If they need to focus more on different markets accordingly, they exit Egypt,” El Safty said.
Vodafone at Smart Village in Egypt
In the case of Vodafone, El Safty explained that this is not foreign investment exiting. “From what I know, the Saudi Telecom Company is buying 55%. At the same time, they have a long term contract with Vodafone to use the name and work with the license. It does not mean that Vodafone is leaving Egypt. The service is still here because the new company has a long term deal to keep the service. Now, it’s more like a franchise,” he analyzed.
El Safty pointed out that before selling 55%, Vodafone was working to consolidate their activities in Egypt by downsizing costs; this included cutting jobs. However, now there is a new, foreign investor in this market that sees Egypt as a regional hub. Had the this new investor been working to enter the market by getting a fifth license next to Orange, We, Etisalat and Vodafone, it may have been unattainable.
“So for them, buying an existing one [license] with a huge market share is the best option. In the announcement, they said that they are trying to expand…Instead of cutting jobs as Vodafone was planning, they want to create a thousand new jobs in the coming year,” said El Safty.
The Competitive Market Arena
When it comes to something like Glovo, there are many other delivery systems in Egypt. This creates a highly competitive market, as per El Safty’s explanation. To name a few, Egypt has Uber Eats, El Menus and Otlob.
Photo from TechCrunch
“In Egypt, with all the new developments and new startups that came out, such as El Menus and Otlob, there are fierce competitors. These competitors know the market and are more efficient. It’s not about the Egyptian economy, as much as it is about being able to compete in the economy,” he said.
In Economics, when a company does not evolve in a market, it becomes inefficient. If something is inefficient, it exits.
“Nokia used to be a dominant company in phones. But where is Nokia now? They did not evolve with the market. There is fierce competition, new developments and innovations. New changes in the market may often force you to exit the market to focus on other activities, or other markets where you have an advantage,” El Safty said.
The Bigger Scheme of Things
In economies around the world, when companies do exit a market, there are various reasons as to why. Beshai said that some of the reasons could be greed, bureaucracy or taxation.
When it comes to startups emerging in the Egyptian scene, Beshai sees that young Egyptians are talented, original and creative. “I am hearing from friends who grew up in other countries that their children came back to Egypt to do startups,” he added.
But their success, and as startups grow into becoming big companies, Egyptian policy must be supportive.
“If new decisions are constantly being made in government; in terms of taxes and causing change, then startups will suffer. We need predictability and consistency for success in startups. Because of these two things, Egypt is a hub for startups,” Beshai explained.
For Beshai, and according to his beliefs in Economics, productivity is the key to success. And hence, he sees that the informal market cannot be ignored despite the strength of big companies and emerging startups.
Does this look impossible? Photo from Al Arabiya & Reuters
“If you want to look at how creative Egyptians are, look at the informal sector. Look at the guy who rides a bike and carries a whole rack of bread while he talks on the phone. Mechanically, I don’t know how this works without a piece of bread falling. In economics, I care about productivity. So, has anyone measured his productivity? Can anyone else do what he does? Isn’t he productive? Productivity is the key to progress,” he expressed.
