Aug 13 2012
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Doing well to do good
Forget charity. Invigorated since the revolution, Egyptian social entrepreneurs are redefining development by using free market principles to help the poor. Some of them are even turning a profit.
As an earnest young undergraduate at the American University in Cairo in 2002, Raghda El Ebrashi founded a service club to help uplift the poor. El Ebrashi, who was halfway through a business degree, began her endeavor like any good student. She talked to experts and read the relevant literature. Volunteering in poor communities since she was 12, El Ebrashi already knew her focus would be unemployment: The best way to break the cycle of poverty, she was convinced, was to help the poor find jobs. Her research said that the best strategy was teaching people things like English and workplace etiquette and other "soft skills." Things moved along, and three years later, her organization, Alashanek Ya Balady (For You my Beloved Country) officially registered as an NGO.
There was just one problem: AYB's clients weren't getting jobs. They spent months training in such topics as self presentation and leadership skills, only to learn that they hadn't been prepared for the kinds of jobs that were actually hiring - for things like seamstresses, mechanics and carpenters. Frustrated, AYB staff members began seeking out meetings with employers they had hoped would hire their trainees. The marketing director at a local telecom finally gave El Ebrashi some blunt advice: "You're wasting money, your money," he told her. "You're wasting our time. You're wasting the life of the beneficiary by training him on skills he does not need." He asked: Why would a salesman hawking mobile phone service in the poor neighborhood of Shubra, for example, need to know how to speak English? "I want a seller to know how to sell," he said.
El Ebrashi took his advice to heart. AYB made two changes: One, they would focus on teaching people relevant, vocational skills. Two, they would find companies who were hiring first and then train people to fill those open positions. Eventually, they discovered that if the training was sufficiently targeted to the needs of employers - who often bemoan the difficulties of finding adequately skilled workers - they would not only hire AYB trainees, they would even pay for the service. Most important to El Ebrashi, the bosses gradually stopped seeing these people as charity cases and started respecting them as employees. The shift in strategy spurred a sea change in AYB's results. The group now operates activities in nine governorates, and in 2010 alone, it placed 2,000 trainees in jobs that paid well enough to support a family of five.
El Ebrashi's lesson illustrates a truth that resonates increasingly with groups that aim to improve society in any lasting sense, especially in a bleak economy: Paying attention to the needs of the market - essentially, acting more like a business - gets much better results. Private sector companies, meanwhile, are learning in the 21st century that they can no longer afford to be seen as dinosaurs that care solely about their bottom lines. With concepts like corporate social responsibility, firms are borrowing a page from nonprofits as they explore ways apart from traditional philanthropy whereby development projects or other social initiatives can actually enhance profits - and help them sleep better at night.
At the center of these trends are Egyptian social entrepreneurs like El Ebrashi, who are breaking established conventions of development work and striving for independence from large institutional donors. Like the youth at the vanguard of Egypt's revolution, they are energetic, socially committed and not afraid to embrace risk and change. They seek to escape the limits imposed by conservative donors and development orthodoxies that too often hobble traditional nonprofits, but working for the good of the country remains at the heart of their enterprises. With so many problems and so many bright young minds looking for ways to fix them, Egypt could be on the cusp of a renaissance in which social entrepreneurs play a leading role - if they can overcome inflexible laws, harsh regulations and a stagnant economy.
If AYB's programs don't produce workers with the right skills, employers won't pay for them. "It is brutal, but it doesn't waste time. And it doesn't waste energy."
There is no universally agreed upon definition of what makes a social entreprise. Ashoka is an international NGO headquartered in the United States that funds social entrepreneurs around the world. It aims to support the Bill Gates and Steve Jobs of civil society, explains Iman Bibars, the Cairo-based regional director for Ashoka Arab World. To her, a social entrepreneur is someone with a brilliant new idea with the potential to create an impact far beyond his or her original product. She stresses that a truly entrepreneurial concept contains an element of originality and risk. This, explains Bibars, is where entrepreneurs differ from philanthropists. A foundation that distributes blankets to the poor has successfully carried out its mission when the blankets are delivered to the beneficiaries. If donors are happy, such an operation can continue indefinitely. Those that get blankets will sleep warmer at night, but the economic and social circumstances of their lives remain the same. By contrast, social enterprises, like businesses, can easily sink if they don't fulfill a market need. If AYB's training programs don't produce workers with the right skills at a reasonable cost, employers won't be willing to pay for them, and jobseekers won't keep coming back. It's as simple as that. "It is brutal, but it doesn't waste time. And it doesn't waste energy," says Bibars.
Like many NGOs in the social sector, Ashoka doesn't require that the projects it supports necessarily make money. A local initiative that trains people to use desert sand to make safe, environmentally-friendly building bricks, for example, earns no revenue. If it simply succeeds in shaking up conventional thinking about issues like poverty or education enough to disrupt the market, Bibars is happy. Others, such as Laila Iskander, chairwoman of development-minded CID Consulting, also based in Cairo, prefer to focus on projects that generate income, like a business. But unlike a business, the income benefits the organization and its clients - and ultimately the whole system, it is hoped - rather than private investors or shareholders. For Iskander, an ideal social enterprise is "a business that does good while doing well." But integrated in this concept, she adds, should be a mechanism whereby profits are earned for the community as well as the project. In the 1980s, Iskander, who has a doctorate in education from Columbia University, set up a rag recycling enterprise that raised money for garbage collectors in informal settlements in Moqattam. Today, through CID, she has helped establish and expand an array of businesses that combine education and empowerment to earn money for the people who collect Egypt's waste. After decades of experience in development work, she believes that generating income for participants is a "critical, essential, primary, principle" component of projects that affect true social change, because it allows people to take control of their own futures. Trying to help people by simply giving them money is "the worst thing in the whole wide world," says Iskander. "But earning money allows people to make decisions. To have to stop and explore options. To look at their lives long term. To assess tradeoffs. A whole bunch of things that are empowering."
While Bibar and Iskander have differing theories on what makes for successful social entrepreneurship, neither is bothered by the contradiction. In a field dedicated to unconventional new ideas, it's perhaps inevitable that projects - and viewpoints - are bound not to fit neatly into ideological boxes.
Mohamed El Hawary, managing director of Andalucia Financial Consultancy and Investment, seems equally unconcerned with deciding what exactly social entrepreneurship is. El Hawary is a local consultant for TechnoServe and Acumen Fund, both global, socially conscious venture funds that seek to reduce poverty by investing in innovative projects that yield returns both social and financial. He says he has yet to encounter "the quintessential social entrepreneur" - one who strikes a perfect balance between business acumen and social consciousness. "We call them unicorns," he jokes. In the real world, he says, most of the people he encounters tilt one way or the other. Either he meets a humanitarian who is seeking an innovative way to tackle a social problem or a businessperson who hopes to run a successful company while also doing something good for the community.
If AYB's Raghda El Ebrashi is a textbook example of the former, Mostafa Hemdan, CEO of the e-waste recycling initiative RecycloBekia, embodies the latter. A fresh faced 21-year-old from Egypt's industrial heartland who still has a year to go before he completes an engineering degree at Tanta University, he virtually crackles with enthusiasm for his company. RecycloBekia, which began as an entry in a nationwide business idea contest for students sponsored by the entrepreneurship incubator Injaz Egypt, buys throwaway electronics such as hard drives and cell phones and ships them by the container-load to recycling plants, which extract from them gold, silver and other precious minerals.
Hemdan arrived at the concept for RecyloBekia by chance, after stumbling across an online video on sensibly recycling electronics. If he, an engineering student, hadn't heard of e-waste recycling, he figured nobody else in Egypt had either. It seemed like a perfect idea for a startup. Hemdan has found that he feels better about being a budding entrepreneur who actually cares about his country's environment. He and his colleagues work only with certified recyling plants, and Hemdan has turned down offers from scrap dealers who offer better margins but extract the valuable components by burning the waste in the open air, with little regard for pollution or their workers' health. He's also trying to develop incentives for individuals and small-scale scrap collectors to dispose of their used electronics with him. He dreams of transforming the way hazardous electronic waste is handled in Egypt, making it less harmful to the environment as well as to garbage handlers. But Hemden, who first and foremost sees himself as a businessman, also has a less altruistic goal: "to build a huge company to control this new market." He also figures that his social agenda will ultimately be good PR.
So far, his strategy seems to be working. In 2011, Recyclobekia took home LE 60,000 in seed money from the Dubai-based private equity firm Abraaj Capital. It has since secured around LE 1 million in additional funds from two local angel investors. A year ago, RecycloBekia was storing its used hard drives at the Hemdan family home. Today, the company has 10 partners and 21 employees, and it will soon open a headquarters in a Nile-view office tower in Maadi.
In many ways, RecycloBekia demonstrates what's right about Egypt for local social entrepreneurs. From the beginning, the project benefited from support and mentoring from Injaz Egypt. In May, Hemdan and his colleagues also reached the finals of Google's Ebda2 start-up competition, which provided additional guidance in developing a business plan and helped raise the fledgling company's profile with potential investors. But even with this support system, RecyloBekia ran into the sort of government-imposed hurdles that tend to stifle all kinds of new businesses here. Just registering the company took three months, eating up valuable time and resources just as RecycloBekia raced to establish a foothold in the recycling market and fulfill its first order.
He and his team also got no breaks for running an eco-friendly company. Unlike countries from China to the United Kingdom, which offer special financing or tax incentives to green businesses, Egypt's environmentally friendly entrepreneurs get little practical support. In fact, they are effectively discouraged: As Andalucia's El Hawary points out, Egypt's petroleum subsidies are a huge boon for fuel-guzzling, polluting industries. More environmentally sensitive companies have a hard time competing with their heavily subsidized rivals - thus, for example, the failure of alternative energy to really take off here. Loose environmental laws don't help either. It's actually easier to make a quick buck by simply burning electronic waste to extract precious metals than it is for RecycloBekia to process it responsibly. In sector after sector, says El Hawary, these structural barriers make it hard for innovative new companies to succeed.
Experts also point to weaknesses in Egypt's business legislation. In some places, such as the U.K. and several U.S. states, social enterprises that are not exactly for-profit businesses and not strictly non-profit foundations can register for some form of hybrid status. Thanks to their constructive social mission, they enjoy some of the tax benefits accorded to nonprofits while retaining the freedom to sell stock, form a wide variety of business relationships and occasionally make some money. In Egypt, entrepreneurs must choose one or the other.
Some, like RecycloBekia, go for-profit from day one. This can be a good way to grow and test the market viability of an idea, but it leaves little financial incentive to prioritize a social mission. The new company is often pushed to quickly turn a profit, and investors can often exert pressure to maximize revenues at the expense of core values, especially in an economy as cutthroat as this one. "Investors want a return on an investment straightaway," says Iskander of CID Consulting, and they don't take into account that ventures dedicated to serving the poor usually take awhile to make money. "You have to wait. It's a looong term investment," she says. Companies do, of course, manage to find ways around these barriers. Take Sekem Group, the agricultural enterprise that produces seven widely distributed brands including Isis organic vegetables and teas. It channels at least 10 percent of annual company profits into the Sekem Foundation, which sponsors education and healthcare for the firm's workers as well as residents of the surrounding community. Sekem integrates its foundation into all aspects of its activities. Sustaining this kind of structure, though, requires that both management and investors be strongly committed to a service ethos.
On the other hand, humanitarian groups in Egypt, especially those seeking international funding, are subject to complex, draconian laws left over from long rule by a military regime that essentially discouraged civil society. And last year's revolution seems only to have made matters worse. The high-profile criminal prosecution of Sam LaHood, the son of a high-ranking American official, and 42 other international NGO workers for allegedly improperly funding serves as a chilling reminder of what can happen to nonprofits who don't keep their paperwork in impeccable order. Even those who do manage to register face ongoing problems. For example, AYB was forced to spin off one particularly successful revenue-generating venture into a separate company. "What could we do?" asks El Ebrashi. "We have to survive until the laws change."
"The revolution, and the spirit of young people, put a lot of energy into the movement."
Efforts to address these challenges are underway. In cooperation with Ashoka and the Schwab foundation, another American-based nonprofit supporting social entrepreneurship, Hisham El Rouby, country director for the social justice NGO Synergos, is working on a set of recommendations for how the Egyptian state can define, support and regulate hybrid social businesses. El Rouby says that when it comes to social entrepreneurship, Egypt - and the Middle East - are far behind not just developed Western nations, but also places like India and sub-Saharan Africa, where enterprises such as agricultural cooperatives and microfinance banks have become high-profile success stories. He blames some of this lag on the fact that international organizations like Synergos and Ashoka have only recently turned their attention to the Middle East, while they've been supporting projects in other regions for much longer. This is partly due to the legal difficulties NGOs often face when trying to set up shop here. There is also a general trend among development organizations to focus on the world's most impoverished nations rather than "middle-income" countries like Egypt. Moreover, the country's humanitarian groups have been slow to evolve from a mindset of charity to one of development, and finally from development to social entrepreneurship. But El Rouby notes that this gap is closing fast: "The revolution and the spirit of young people put a lot of energy into the movement."
Others agree. "The revolution has given so much power and confidence, especially among young people," says Ashoka's Bibars. Unfortunately, that confidence has not always corresponded with solid market research. "Everybody has an idea now. But they don't go the extra mile of looking at who else has done this," she explains. "We have to convince people who are so bright and wonderful and young that, you know, it's great, but really, go and find out if 10 people did it before. This is what happened with the revolution...too many ideas, nobody wanting to work with the other."
Social upheaval may have led to disorganization, but this state of flux, says Iskander, has created a much-needed space for Egyptians to rethink the economy and how it connects to the quality of life in their country. If Egypt has learned anything in recent decades, it's that a rising GDP doesn't bring social harmony or long-term stability if the majority of the population is cut off from the fruits of economic growth. She stresses that striving for better opportunities for all Egyptians is not about charity. "It's not a conscience thing," she says. Rather, social entrepreneurship is about a collective rethinking in "where Egypt is going and how it's going to get there." Otherwise, it is not just the poor who will suffer, cautions Iskander. "We have seen, in a very tangible way, how leaving people behind has lead us to a bad place."
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