In a bold move reflective of both ambition and resilience in turbulent economic times, Egypt’s leading private equity firm, Ezdehar, has announced plans to deploy between $50 million and $100 million in 2025. Spearheaded by Founder and Managing Director Emad Barsoum, the firm is setting its sights on agile, fast-growing businesses that can weather the country’s economic headwinds. As Egypt grapples with significant macroeconomic challenges—from high inflation and unstable foreign exchange rates to mounting public debt—Ezdehar’s targeted investments signal a strategic bet on sectors that promise stability and growth.

Navigating Uncertainty: The Investment Mandate

In an environment where economic volatility is the norm, Ezdehar is focusing on industries that exhibit both resilience and agility. According to Barsoum, the firm is particularly interested in:

• Tech Companies: With digital transformation sweeping across Africa and the Middle East, tech firms that innovate rapidly are poised to capture new markets.
• Consumer-Facing Businesses: Companies capable of passing on price increases without losing market share are seen as better equipped to deal with persistent inflation.
• Export-Oriented Enterprises: In a country where local market conditions are challenging, businesses with robust export strategies can diversify revenue streams and mitigate domestic risks.

Ezdehar’s approach is pragmatic: by targeting mid-cap companies with annual turnovers ranging from EGP 700 million (approximately $13.9 million) to over EGP 5 billion (around $99.44 million), the firm aims to secure either a majority stake or an influential minority position. This level of involvement allows Ezdehar to steer company management, ensuring that its portfolio companies are not only profitable but also strategically positioned to grow in an unstable market.

The Funds Behind the Strategy

Ezdehar currently manages a total of $300 million across two funds. The upcoming investments will be drawn from the firm’s latest $176 million fund, launched in 2021. This new tranche is already partially deployed, with nearly half of its capital invested in five companies, and the remaining funds expected to be deployed by the end of 2025. The firm’s seasoned track record includes its first fund, launched in 2016, which invested $84 million in seven companies across diverse sectors such as food, financial services, transportation, chemical manufacturing, and healthcare. Notably, Ezdehar has successfully exited three of these portfolio companies, achieving average annual returns between 20% and 25% per transaction.

However, Barsoum acknowledges that the turbulent economic landscape has delayed some of the originally anticipated exit strategies. “We were planning to exit all of the first fund’s companies between 2024 and 2026. Now, these exits will probably be completed between 2025 and 2027,” he explains, attributing the delays to unstable foreign exchange rates and persistently high interest rates that have adversely affected companies dependent on imported raw materials.

Economic Headwinds and Structural Challenges

Egypt is currently reeling from one of its most severe economic crises in decades. Last year, the government signed an $8 billion financial support agreement with the International Monetary Fund (IMF) as part of a comprehensive reform program. Although recent months have seen slight improvements in key macroeconomic indicators such as inflation rates and growth forecasts, the outlook for 2025 remains fraught with challenges. Barsoum himself is cautious: “I expect 2025 to be a difficult year and full of challenges. On the local level, the country is still struggling with huge debt and a problematic balance of trade. On the geopolitical level, we have not reached stability yet.”

Indeed, Egypt’s economic difficulties extend beyond domestic fiscal imbalances. Geopolitical uncertainties—ranging from regional conflicts to the ripple effects of unexpected international policies—continue to cast a long shadow over investor confidence. With ongoing tensions in the region and unpredictable global political maneuvers, such as those hinted at by remarks about policies from figures like Trump, the external environment remains as challenging as the internal one.

The State of Egypt’s Private Equity Landscape

Despite the significant potential for private capital to drive growth, Egypt’s private equity industry is still in its infancy. Out of 147 licensed investment funds in the country, only six private equity funds collectively account for a mere 1.2% of all funds’ net assets, according to the Central Bank of Egypt. In contrast, private investment contributes to only about 6% of Egypt’s GDP—well below the average for other middle-income countries, where the figure can be more than five times higher.

This underdevelopment is partly due to several entrenched issues:

• Slow Economic Growth: A sluggish economic expansion has hampered the overall appetite for risk among local investors.
• Unstable Forex Conditions: Fluctuations in the Egyptian pound create additional challenges for businesses that rely on imported inputs.
• Crowding Out Effect: The dominance of state assets and the high allocation of banking assets in government securities have left little room for more dynamic private investments.

These structural challenges not only limit the pool of available capital but also inhibit the development of a robust market for private equity investments.

Fundraising and Investment Hurdles

Ezdehar’s experiences mirror the broader challenges facing the Egyptian private equity sector. The firm recently had to abandon plans to launch an Egyptian pound fund after recognizing a significant reluctance among holders of local currency assets to invest in private equity. Government-affiliated institutions—including public banks, insurance companies, and the postal sector—are traditionally risk-averse, preferring to park their funds in safe government securities rather than venture into the more volatile realm of private investments.

For instance, over 30% of the Egyptian banking sector’s assets are tied up in government bills and bonds, while domestic credit to the private sector represented less than 30% of GDP in 2021—a stark contrast to the roughly 129% seen in other middle-income countries, according to World Bank figures. This risk-averse behavior is further underscored by the asset compositions of state institutions. In 2023, state-run Egypt Post’s assets reached EGP 323 billion, which accounts for nearly 27% of the total assets in the non-banking financial sector, and the state-dominated insurance sector held assets totaling EGP 242 billion. Such large pools of capital remain largely untapped by private equity funds, creating a significant gap in the market.

Barsoum argues that if these state-affiliated entities were to allocate even a fraction of their assets to private equity funds, it could send a strong positive signal to commercial foreign investors. This would not only boost the market’s credibility but also help stimulate a more vibrant investment ecosystem. Currently, foreign limited partners in Ezdehar’s funds include prominent institutions such as the International Financial Institution, the European Bank for Reconstruction and Development, British International Investment, the Egyptian American Enterprise Fund, the European Investment Bank, the Entrepreneurial Development Bank, and the Belgian Investment Company for Developing Countries (BIO) along with its SDG Frontier Fund.

Unexploited Assets: The Hidden Potential

A critical aspect that Barsoum highlights is the vast reservoir of assets held by state institutions, which remain largely untapped due to traditional risk aversion. Many of these entities have substantial holdings in treasury bills and government debt, effectively trapping billions of Egyptian pounds in low-yield, low-risk instruments. The concentration of assets in safe government securities has, until now, stifled the growth of the private equity market. However, shifting a portion of these funds into private equity could not only diversify investment portfolios but also catalyze growth in the broader economy.

For example, if state-affiliated entities such as public banks and insurance companies begin investing in private equity, this could help develop a more vibrant secondary market. A more liquid market would, in turn, enhance the appeal of Egypt as an investment destination, potentially attracting further foreign capital and spurring economic reform. In this light, the successful deployment of Ezdehar’s funds could serve as a model for integrating state and private capital to create a more dynamic financial ecosystem.

The Exit Conundrum: Navigating Murky Waters

One of the most significant challenges facing private equity firms in Egypt is the lack of clear exit routes. Barsoum explains that successful exits typically require either selling to a private investor or launching an initial public offering (IPO). However, the current economic climate makes both options less attractive. On one hand, potential buyers are wary of the opaque and volatile market conditions. On the other, the Egyptian stock market is characterized by low trading volumes and weak market capitalization—accounting for only about 8% of GDP compared to the 66% average in other middle-income countries, according to World Bank data.

In recent years, the government has expressed a commitment to privatizing stakes in dozens of government-owned enterprises as part of a broader program aimed at reinvigorating the market. Despite these efforts, progress has been slow. Barsoum emphasizes that while the government is keen on achieving high valuations for IPOs, the priority should be to create liquidity in the stock market. A more active and liquid market would benefit all stakeholders, including private equity investors who need reliable exit strategies to realize returns on their investments.

International Investments and Geopolitical Dynamics

Egypt’s economic landscape is not insulated from global trends and geopolitical shifts. The recent surge in foreign direct investment (FDI) in 2024, marked by a landmark $35 billion deal with the United Arab Emirates to develop the Mediterranean Ras el-Hikmah resort, underscores the strategic importance of international partnerships. While this deal has been hailed as a lifeline to avert sovereign default, it also highlights the complex interplay between domestic challenges and global capital flows.

Geopolitical uncertainties continue to pose risks. Despite regional hopes that tensions in places like Gaza might subside, lingering geopolitical instability and unexpected policy shifts—sometimes influenced by external actors—remain significant concerns. Barsoum’s reference to “Trump and his unexpected policies” serves as a reminder that international political dynamics can have immediate and far-reaching impacts on Egypt’s investment climate. In this context, the ability of private equity firms like Ezdehar to secure and effectively deploy capital becomes even more critical.

Reinvigorating the Market: Policy and Reform

The long-term growth of Egypt’s private equity market hinges on comprehensive policy reforms and a more proactive approach by state institutions. Analysts argue that the government should not only focus on achieving high valuations in its privatization efforts but also on creating a robust, liquid secondary market. Enhanced liquidity would make private equity investments more attractive by providing clearer and more reliable exit routes for investors.

Efforts to stabilize the foreign exchange market, reduce the crowding out of private capital, and promote financial innovation are essential for sustained economic recovery. Recent reforms under the IMF program have already led to some improvements in key macroeconomic indicators. However, Barsoum remains skeptical that these gains will translate into a near-term reprieve for investors. “Even if the war in Gaza subsides, we still face significant internal and external challenges,” he notes.

Improving regulatory frameworks and incentivizing domestic institutional investors to diversify their portfolios could also play a pivotal role in transforming the private equity landscape. By encouraging public sector entities to allocate a portion of their vast asset bases to private investments, the government could help bridge the funding gap that currently hampers the growth of more dynamic, risk-adjusted investments.

Sectoral Opportunities: Technology, Education, and Retail

Ezdehar’s current pipeline is diversified across four promising sectors:

• Higher Education: With a growing demand for quality education and skills training, investments in higher education are seen as a long-term catalyst for economic growth. Modernizing educational infrastructure and introducing innovative models can create a skilled workforce that meets the demands of a rapidly changing global economy.
• Grocery Retail: Consumer-facing businesses, especially in grocery retail, have shown resilience amid inflationary pressures. As households adjust to rising prices, businesses that can effectively pass on these increases without sacrificing customer loyalty are positioned for steady growth.
• Apparel Retail: The retail fashion sector, particularly apparel, is evolving rapidly. Brands that manage to balance affordability with quality are likely to thrive, especially as consumer tastes shift and the middle class expands.
• Information Technology: As digital transformation continues to reshape business operations, investments in IT solutions—from software development to cybersecurity—are becoming increasingly crucial. These technologies not only improve operational efficiency but also provide scalable solutions that can drive exponential growth.

By targeting these sectors, Ezdehar is not only aiming for attractive financial returns but also contributing to broader economic diversification—a key element in mitigating the risks associated with economic uncertainty.

A Broader Vision: Catalyzing Egypt’s Economic Transformation

Ezdehar’s investment strategy should be viewed in the context of a larger vision for Egypt’s economic transformation. The firm’s efforts are emblematic of a growing recognition that private capital can play a transformative role in emerging markets. With Egypt at a crossroads—balancing the pressures of economic reform, debt management, and the need for sustainable growth—strategic investments in resilient sectors are more important than ever.

Moreover, Ezdehar’s focus on securing management influence in its portfolio companies underscores a broader trend in private equity: the need for active involvement. In an unpredictable economic environment, investors are increasingly seeking not just financial returns, but also the ability to steer companies through turbulent times. This hands-on approach is seen as essential for fostering innovation, driving operational improvements, and ultimately ensuring long-term success.

Looking Ahead: Optimism Amid Challenges

While 2025 is anticipated to be a challenging year, there are reasons for cautious optimism. The recent improvement in some macroeconomic indicators, combined with ambitious international investments like the UAE-backed resort project, suggests that Egypt may be laying the groundwork for a more stable economic future. If the government can successfully implement reforms to boost market liquidity and reduce reliance on traditional, low-yield investments, the private equity landscape could experience a significant transformation.

For Ezdehar, the coming year represents both a challenge and an opportunity. By strategically deploying up to $100 million into sectors that are positioned to thrive despite economic headwinds, the firm is betting on the resilience and ingenuity of Egyptian businesses. In doing so, Ezdehar is not only pursuing profitable investments but also contributing to a broader narrative of economic renewal and transformation.

Conclusion: A New Chapter for Egyptian Private Equity

The announcement by Emad Barsoum and Ezdehar to deploy between $50 million and $100 million in 2025 is a significant milestone for Egypt’s private equity sector. At a time when the nation faces daunting economic challenges—ranging from currency instability and high debt to limited domestic credit—the firm’s focus on agile, resilient businesses offers a beacon of hope for investors and policymakers alike.

By targeting sectors such as technology, higher education, retail, and IT, Ezdehar is positioning itself at the forefront of Egypt’s economic transformation. The firm’s strategic investments are not only expected to yield attractive financial returns but also to catalyze broader changes in how capital is allocated and managed in the country. As state institutions and private investors begin to bridge the gap between safe government securities and risk-adjusted, high-growth opportunities, Egypt’s investment landscape could undergo a profound transformation.

While challenges remain—particularly in the areas of exit strategy and market liquidity—the proactive steps taken by firms like Ezdehar and the supportive measures from international partners provide a foundation for optimism. The coming years will be critical in determining whether these strategic investments can help stabilize the economy and unlock the vast potential of Egypt’s dynamic market.

As the nation navigates its path through economic uncertainty, the efforts of private equity pioneers such as Ezdehar will likely play a pivotal role in shaping the future of Egyptian business. Their focus on resilient, agile sectors not only addresses immediate challenges but also lays the groundwork for sustainable growth and innovation—a new chapter in Egypt’s ongoing economic journey.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

28th February, 2025