Egypt’s Unfinished Revolution

Nine month’s after the Tahrir Square uprising, the Egyptian economy is tanking, and democracy remains a distant dream. How one group of entrepreneurs is trying to get its business off the ground—and why the Arab Spring depends on it

It’s around midnight in Cairo, and the four business partners are huddled around a sidewalk table in the upscale neighborhood of Zamalek, downing cappuccinos, smoking cigarettes, and debating the two issues that dominate their lives: the revolution and their startup. “You have to change the system from the bottom,” says Mohamed Ashour, 28. “The system is rotten from the inside.”

Ashour is one of the founders of Maybe Two, Egypt’s first frozen-yogurt chain, which launched last January, just before the overthrow of former President Hosni Mubarak. Ashour and his partners are about to open two new stores, and their frustration is palpable. Ashour thumps his fist on the table as he details the maze of red tape confronting entrepreneurs in the new Egypt. At one site, he says, workers toil from 2 a.m. until dawn because the managers of the shopping mall in which they are opening have banned them from doing construction work during business hours. At the second location, a local official angled for a bribe to approve the company’s plans. To avoid paying it, the founders installed a large storefront window in the dead of night, without the official’s approval, then covered it with cardboard so he wouldn’t spot it. “This experience is going to either break us or make us,” Ashour says. At that, Yomna Bakry, a petite 28-year-old in ripped jeans who oversees the company’s online marketing, interjects, “And we want to make it.”

Nearly nine months since the Tahrir Square revolution, the mood in Egypt continues to swing between hope and uncertainty. With 87 million people, Egypt is by far the most populous country in the Arab world. It is also Washington’s closest Arab ally, the recipient of billions in U.S. aid and, because of its 33-year peace agreement with Israel, the linchpin of regional stability. Egypt’s political and economic development is therefore crucial to the outcome of the Arab Spring. In the most optimistic scenario, the corrupt and parochial regimes of the past will give way to new Arab Tigers, similar to those that have emerged in Southeast Asia and Latin America in recent decades after dictatorships from Indonesia to Chile collapsed. Yet the Arab revolutions could just as easily produce governments dominated by military generals or radical Islamists who offer their people little improvement over the old despots.

In Egypt, the Supreme Council of the Armed Forces (SCAF), which has run the country since Feb. 11, appears to be carving out a lasting role in power. In September the military reintroduced Mubarak’s hated emergency laws; soon after, soldiers in Cairo conducted a bloody crackdown on Christian demonstrators, killing 24. Those hoping to succeed Mubarak will have to wait a long time, perhaps until 2013, before presidential elections take place. Although legislative elections will be held over the next two months, with a new Parliament convening next March, military officials say they will retain ultimate control. It’s little wonder that 48 percent of Egyptians say they are unhappy with the country and half say it is moving in the wrong direction, according to a September poll by Ipsos.

Pessimism about the revolution has been exacerbated by the state of the country’s economy. Egypt has lost more than $10 billion in foreign reserves, and foreign direct investment, which rose from $300 million in 2004 to $13 billion before the global financial crisis in 2008, has dried up since the revolution. The real gross domestic product growth rate slumped from 5.1 percent last year to 1.6 percent this year. The tourism industry, which accounts for more than 10 percent of revenues and roughly 1 in 10 Egyptian jobs, is down 41 percent since the revolution. Of equal concern to investors is the anticapitalist rhetoric voiced by some newly ascendant political players. The perception that members of the monied class colluded with the old regime has tarnished the image of Egypt’s business community and fueled calls for tighter regulation of the private sector, increased social-welfare spending, and more confiscatory tax policies. “Regionally, there is an enormous push by the youth for better jobs [and] opportunities,” says Egyptian billionaire Naguib Sawiris, who resigned last May as executive chairman of Wind Telecom and Orascom Telecom and founded a liberal, secular political party called Free Egyptians. The trouble, says Sawiris, 57, is that “many young people think that social justice means no free economy, no privatization.”

The entrepreneurs behind the Maybe Two frozen-yogurt venture are trying to buck that trend—and in the process show that it’s possible to succeed in business without selling out their democratic ideals. Yet even among the four of them there is disagreement about whether the revolution will improve the lives of young businesspeople like themselves. “We fight all the time,” says Mustafa el-Sherif, a lean 33-year-old engineer with a goatee and scuffed sneakers who is married to Bakry. El-Sherif and Bakry each own one-fourth of the business. Ashour owns another fourth, and the company’s final partner is Mohamed Farrag, 30, who currently shuttles between Cairo and his regular job at the National Bank of Kuwait, which he has kept in case the yogurt venture doesn’t make it. Not that the owners lack confidence. “In five years time,” Ashour says, “we want to be an international franchise.”

One of the paradoxes of the Tahrir Square uprising is that it emerged in the midst of an economic boom. Aggressive privatization had transformed Egypt from Mubarak’s early years, when state-run industries dominated the economy, into a place where freewheeling capitalism could function—that is, so long as one accepted the bribe-paying and decrepit public services, and the avarice of the ruling clique. Over the past decade the gap between rich and poor grew dramatically, but so did the ranks of the country’s middle class. It was a good time, in other words, to launch a business.

Ashour, Farrag, el-Sherif, and Bakry—all well-educated and from professional families—began plotting their business in 2009, sampling varieties of frozen yogurt on trips to the U.S., Italy, Dubai, Singapore, and China. They opted to create a high-end product based on a unique recipe, figuring enough Egyptians would pay for luxuries they had experienced abroad. Because the historically risk-averse Egyptian banks offer no financing for startups, the friends pooled their savings of 1 million Egyptian pounds, or about $168,000. On an afternoon in early January they quietly opened the doors of their store in Zamalek, on the banks of the Nile River, sending mobile-phone messages to acquaintances. “It was a soft opening,” Ashour says. “We wanted to see what people thought.”

On the first day the line snaked out the door. The gleaming white storefront resembles a pocket-size version of Pinkberry (though they deny their concept is based on that U.S. chain), with three flavors of frozen yogurt on offer in three sizes and a wide choice of toppings, including American standards like M&M’s and granola. With small cups of yogurt selling for nearly $3, the friends didn’t bother to create an Arabic-language menu, knowing their clients would largely be tourists, business executives, diplomats, and English-speaking Cairo yuppies. Supplies ran out the first day, and Maybe Two did brisk business for two weeks straight.

Then came the revolution. On Jan. 24 police in Tahrir Square sprayed tear gas at protesters, bringing hundreds of thousands of Egyptians pouring into the square the following day. The protests divided the four friends, who until that time had avoided discussing politics. Farrag, who believes Mubarak did great things for Egypt, fretted that the protesters would trash the new store. He called his partners frequently from his job in Kuwait until Mubarak severed mobile-phone services in an effort to crush the revolution. Ashour, who still works as marketing manager for Orascom Development, one of Sawiris’s companies, rushed to the Zamalek store, a short walk from Tahrir Square, and hauled kitchen equipment home to protect it from looters. On Jan. 29, after security forces opened fire on protesters in Tahrir, killing 17 of them, Maybe Two’s staff barricaded the doors and shut the store, then slept inside at night, waiting for the tumult to subside. “We were saying, ‘What are these guys in Tahrir doing? Their demands are getting bigger and bigger, they are too arrogant,’ ” says Ashour. “Nobody ever imagined the revolution would bring down the government.”

While Ashour despaired of what the protests would bring, el-Sherif and Bakry joined the demonstrations. For 18 days the couple rose at dawn, left their 6-month-old baby with Bakry’s sister, and walked 20 minutes into Tahrir Square. Ashour ultimately joined the protests, too, swept up by the excitement. Late on Feb. 11, el-Sherif, Bakry, and Ashour were gathered at their usual perch outside Coffee Bean & Tea Leaf when Egypt TV announced that Mubarak had resigned. “It was incredible,” el-Sherif says. “Our presidents had always been killed or died in office.”

Yet for the Maybe Two business, the revolution has been a mixed blessing. Revenue is down 50 percent from before the protests. “If you really love Egypt, you would not be happy to see the country drop from 6 percent growth to bankruptcy,” says Farrag. Leaving aside the downturn, Farrag says he faces the same frustrations in doing business in Egypt, including the problem that helped spark the revolution: endemic corruption. The group’s desire to expand the yogurt business quickly has been complicated by a promise they made to each other not to pay bribes. The license to sell frozen yogurt at their original outlet, which they applied for last January, had not arrived by September, forcing them to operate without a permit and hope not to be fined. Yogurt cultures the company imported from Los Angeles languished in the Port of Alexandria for six weeks before being released without an explanation for the delay.

The electricity supply for the Zamalek store comes from a box on the next street corner; the owners connected the wires themselves in order to avoid paying off an electricity worker. And after local officials demanded regular payments to allow the store to have two sidewalk tables and eight chairs, Ashour finally folded up the furniture and took it home. “Having a store means you are very, very exposed,” he says. “Health people pass by, electricity people, water people, Cairo municipality [officials]. Approvals involve a very, very long procedure with a tremendous amount of effort, and even then it is up to the mood or the personal opinion of the individual in charge.”

When I describe the company’s challenges to Hisham A. Fahmy, executive director of the American Chamber of Commerce in Egypt, he doesn’t need to hear the details. “These are the heroes. I give them gold stars, because they are being badgered daily by many, many people.” Fahmy believes that for the revolution to work, the new government will have to drastically overhaul business practices and streamline Egypt’s arcane bureaucracy, so entrepreneurs like the founders of Maybe Two can flourish. That’s one of the best ways, he says, to expand the economy. “I’m not sure it is going to happen,” he says. “But I am sure a lot more people will try.”

Whether small businesses can succeed may depend on who next runs Egypt. After decades without political organizations, there are now more than 100 parties, ranging from Sawiris’s Free Egyptians to the conservative Muslim Brotherhood’s Freedom and Justice Party, to militant Salafi organizations committed to governing under Sharia law. In some ways, the dominant themes of the campaign for Parliament will sound familiar to Americans: how to solve massive unemployment—the overall jobless rate has hit 12 percent, and is almost 60 percent among Egyptians under 25—and close the growing gap between rich and poor.

What makes Egypt strikingly different from the U.S. is the thin layer of economic brainpower among politicians, thanks largely to decades of migration by Egypt’s brightest graduates. At Sawiris’s party office, campaign volunteers undergo a training session run by Ehab Samir, a 40-year-old pharmacist from North Bergen, N.J., who moved back to Cairo last year after emigrating with his parents when he was 10. The economic program for the party, which claims to have more than 125,000 members, was drafted by Karim Abadir, an Egyptian émigré who is on leave from his job as an economics professor at Imperial College London. Abadir believes that electing a secular government in Egypt will bolster the viability of the Arab Spring. “If we succeed with a private sector and a liberal ideology, it will set an example for the rest of the region,” he says.

Polls suggest that secular parties will face tough competition from the better-organized Muslim Brotherhood. Abdel Hafez el-Sawy, 48, head of the economic committee for the Brotherhood’s Freedom and Justice Party, met me one morning in the party’s cramped offices, up a narrow staircase in a crumbling building. As the call to prayer sounds from a nearby mosque, prayer rugs are rolled out in the reception area and the party members kneel to pray. Afterwards, el-Sawy explains that he has never worked in private business, having twice been jailed during Mubarak’s rule and excluded from many job opportunities. “My economic research was self-generated,” he says, before outlining his proposals for Egypt. They include some that Western economists would likely support, including cutting government subsidies on food and fuel, which gobble up 25 percent of Egypt’s budget, and introducing progressive taxes to replace Egypt’s 20 percent flat tax. In the next breath, el-Sawy offers a rambling critique of capitalists who would “give the only glass of milk to a dog rather than a human if its owner paid him money.” He also believes multinationals have undermined Egypt’s economy by taking loans from Egyptian banks and then undercutting local competitors. “GM, Nestlé, Procter & Gamble, they have added nothing to the Egyptian economy,” he says.

That sort of talk spooks executives such as Sawiris, who says he is increasingly worried about the outcome of the vote for Parliament. In Tunisia, the cradle of the Arab Spring, an Islamic party triumphed over secular groups in the Oct. 23 elections, and Sawiris warns that radical religious politicians could rise to power in Egypt. “The next elections could be in favor of these religious extreme forces that could lead Egypt back into the dark ages—something like an Iranian regime,” Sawiris says. Part of the problem, he says, is that secular parties, unlike their Islamic rivals, “are very lazy, not united, and they are very passive.”

The proprietors of Maybe Two say they are too busy trying to keep their business on track to devote much time to politics. Like Sawiris, they worry that a government dominated by religious parties might scare away tourists and foreign businesses, which represent important parts of their clientele. “The Western world will think a hundred times before coming to Egypt,” says Farrag. “It will certainly affect our business.” Even if that happens, they say they will dig deeper into their savings and open three more frozen-yogurt outlets by New Year’s.

On a sweltering September night, I met el-Sherif at the company’s second outlet, which was scheduled to open two days later in Cairo’s upmarket Heliopolis district. It was near midnight and el-Sherif was racing to install the refrigerators and finish painting the walls. There is reason to hurry: Pinkberry is expected to open its first store in Cairo later this year. El-Sherif says he and his partners are confident that their business can withstand the foreign competition. “The fact that we are Egyptian will be to our advantage,” he says. Then he whips out his iPad to show me his designs for bumper stickers, including one with the company’s heart-shaped logo that says, “I ♥ EGYPT.” Despite the country’s uncertain future, Egypt’s revolution is still a marketable brand, with millions rooting for its success.

    Before it's here, it's on the Bloomberg Terminal.