Ezdehar, a leading Egyptian private equity firm, plans to deploy at least $50 million and up to $100 million in 2025, focusing on resilient businesses capable of navigating the country’s economic uncertainties, according to its founder and managing director, Emad Barsoum.

“We are focusing on fast-growing businesses such as tech companies as well as consumer-facing companies, which can handle inflation by passing on price increases easily, and exporting businesses,” Barsoum told Zawya.

With two funds under its belt, Ezdehar currently manages $300 million. The prospective deployments are to be disbursed from the firm’s latest $176 million fund, launched in 2021.

“Today, we are exploring four opportunities: one in higher education, another in grocery retail, the third in apparel retail and the fourth in information technology,” Barsoum said.

With a ticket size ranging from $15 million to $40 million, the nine-year-old firm is mandated to deploy investments in mid-cap companies with annual turnovers of at least EGP 700 million  ($13.9 million) and up to over EGP 5 billion ($99.44 million).

“In our deployments, we aim to secure either a majority stake or an influential minority so that we can be involved in the company’s management,” Barsoum said.

So far, Ezdehar’s second fund has deployed almost half its capital in five companies and plans to deploy the other half by the end of 2025, he added. 

Derailed plans

The firm’s first fund, launched in 2016, invested a total of $84 million in seven companies across various sectors including food, financial services, transportation, chemical manufacturing and healthcare. So far, Ezdehar’s first fund has exited three of its portfolio companies, securing an average annual return between 20% and 25% per transaction, according to Barsoum.

Nevertheless, the country’s tumultuous economy has derailed some of Ezdehar’s other exit plans. “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 said, explaining that unstable forex and high interest rates in recent years have undermined the performance of some of Ezdehar’s portfolio companies, namely the ones that rely on importing raw materials.

Egypt is reeling from one of its worst economic crises in decades. Last year, the government signed an $8 billion financial support agreement with the IMF after committing to a comprehensive reform program. In recent months, some macroeconomic indicators, namely inflation rates and growth forecasts, have slightly improved, suggesting potential economic recovery. However, Barsoum voiced skepticism that businesses will have a respite any time soon. 

“I expect 2025 to be a difficult year and full of challenges,” he said. “On the local level, the country is still struggling with a huge debt and a problematic balance of trade. On the geopolitical level, we have not reached stability yet. Even if the war in Gaza subsides, we still have Trump and his unexpected policies that might affect us.”

Fundraising hurdles

Egypt’s private equity industry is widely believed to still be in a stage of infancy. Of the country’s 147 licensed investment funds, only six private equity funds hold 1.2% of all funds’ net assets, according to the Central Bank of Egypt.

“The situation of the private equity market in Egypt is very sad,” Barsoum said, “The main reason behind that is the slow growth rate of the Egyptian economy, the unstable forex as well as the crowding out effect.”

Over the past decade, private investment has represented close to 6% of Egypt’s GDP, less than a fifth of the average level in other middle-income countries.

Last year, Ezdehar had to abort plans to launch an Egyptian pound fund after realizing the reluctance of key holders of local currency assets to invest in private equity. The firm was initially eying assets of government-affiliated entities including public banks, insurance companies and the postal sector.

Unexploited assets

“All those institutions have a lot of assets, but those assets are trapped in treasury bills and government debt,” he said, adding that the private equity industry will not flourish unless these entities, which hold billions of Egyptian pounds, allocate some of their assets to private equity funds.

Over 30% of the Egyptian banking sector’s assets are invested in government bills and bonds. Domestic credit to the private sector by banks accounted for less than 30% of the GDP in 2021, while the average level in middle-income countries is estimated at 129%, according to the World Bank.

In 2023, the state-run Egypt Post’s assets reached EGP 323 billion, accounting for nearly 27% of the total assets of the non-banking financial sector. Meanwhile, the state-dominated insurance sector accounted for another 20%, with total assets of EGP 242 billion, according to the Central Bank of Egypt’s latest financial stability report. These institutions have always been risk-averse, preferring to invest in safe government securities.

By investing in private equity funds, these state-affiliated entities would send a positive signal to commercial foreign investors, encouraging them to tap into the Egyptian market, he argued.

“It is mainly development financial institutions that invest in most of Egypt’s private equity funds,” he said. “Very few typical commercial investors such as foreign pension funds, family offices or endowment funds invest in Egypt’s private equity.”

Ezdehar’s foreign limited partners include 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, the Belgian Investment Company for Developing Countries (BIO) and its SDG Frontier Fund.

The government has taken pride in the three-fold surge in FDIs in 2024. However, the leap was driven by the $35 billion deal signed with the UAE to develop the Mediterranean Ras el-Hikmah resort, widely seen as a bailout by the Emirati government to rescue Egypt from sovereign default.

Murky exits

The lack of solid exit routes is another key challenge facing private equity firms, Barsoum added. “To exit a business, we need either to sell to a private investor or to launch an IPO,” he said “On the one hand, private investors are not quite interested in Egypt’s private equity because of the fogginess of the economic situation, and on the other, the Egyptian stock market is very weak and has a very low volume of trading.”

Market capitalization of listed companies accounted for almost 8% of Egypt’s GDP in 2022, while the average level for middle-income countries stood at 66%, according to the World Bank. 

Since 2023, the Egyptian government has reiterated its commitment to selling stakes in dozens of government-owned enterprises to strategic and public investors as part of a larger privatization program. However, little has materialized so far. 

“The government is seeking the highest price for these IPOs. However, this should not be the ultimate goal,” Barsoum said. “The government should be aiming to reinvigorate the stock market and to create liquidity there. Hence, it should launch as many IPOs as possible in the coming period.”

(Reporting by Noha El Hennawy; editing by Seban Scaria seban.scaria@lseg.com)