Egypt facing worst financial crisis due to geopolitical tensions

Egypt is passing through one of its worst financial crisis, which is a fall-out of the ongoing war in Ukraine. Like in other emerging economies, the impact of stagflation is being felt in the Arab world’s most populous country.

Recently, Egypt has been hit by a shortage of foreign exchange restricting the imports by the local companies. Most of the small and medium enterprises have already suspended their operations, resorted to lay-offs and other cost-cutting measures to stay afloat in the business.

A standing example is the Egyptian e-commerce marketplace for toys Tasala, which suspended its operations. The decision was made in the wake of the recent import restrictions put in place regarding a number of products including “non-essential products” such as toys that took effect last March.

In a media interview, Ahmed Atif, co-founder of Tasala, said: “Egypt relies on imports for almost 95% of its domestic consumption; the locally produced toys account for a small portion of the total sales. We were faced with a triple whammy of challenges: the global shipping crisis, import restrictions as well as currency depreciation. This made it impossible for us to keep up and running. Add to that, our business model was already challenging.”

The start-up was founded in 2019 by Ahmed Atif and Mahmoud Khalil, the pair managed to raise an initial $135,000 from friends and family and then $107,000 in a pre-seed round.

The online toy market turnover is said to be around $1 billion and is expected to grow by 50% in the next three years. But the prospects appear bleak due to the present geopolitical tensions, changing market environment and challenging economic outlook. As retailers struggle with limited stock amid a spike in the customs dollar exchange rate, prices of the toys have already gone up by 20% to 40% in Egypt.

E-commerce Grows

As the COVID-19 pandemic increased the demand for digital services in the country, Egypt’s e-commerce sector has grown considerably with toys being among the most popular segments.

Keeping this in view, Atif and Khalil started Tasala and offered a variety of products to the customers and became a popular e-commerce store for toys.

Atif said that most parents were struggling while buying toys for their children based on their interests and age. Tasala was also designed to guide them through the purchasing process, so our greatest focus was to get parents to trust the online shopping experience.

“We found out that 14% of the shoppers were willing to buy toys online, with the vast majority of toy sales happening in brick-and-mortar stores. From the retailer perspective, online selling is still largely viewed as secondary sales channels,” he said.

Khalil said that large retailers, those who cater to high income brackets, have high pricing power, and eventually can weather the storm but still, they are hit with costs. Smaller rivals will struggle to find sufficient supplies.

“That’s why many of them have already diversified their product offerings to other kids-related products such as clothes and baby essentials. Truth is, nobody can accurately expect what lies ahead. The situation can change on a dime,” Khalil added.