Egypt has a growing population of more than 100 million, an increase of more than 7 million since the 2017 census. With this population growth, the country faces significant development challenges as its large and growing population is unbanked and underserved in financial services. Hence, Egypt exerts more efforts to promote and deliver affordable digital financial inclusion to expand its financial services outreach by encouraging private sector intervention.
The private sector could contribute effectively to financial technology adoption through smartphones and instant payment applications. The Central Bank of Egypt has established an online Fintech portal (Fintech Egypt) to promote financial inclusion through digitalising start-up businesses and investors’ financial corporations. The country’s primary goal is to put all the financial institutions, providers, and users in an effective Fintech ecosystem, make financial services available for the Egyptians and promote financial inclusion through digital financial access.
Another fintech initiative by the public sector is developing a new e-payments system for domestic use within the country’s territories. The central bank regulates this new e-payments system with the Egyptian national banks. To make the e-payments system effective, regulatory law number 18 was enacted in 2019. These public- and private-sector fintech initiatives are paving the way for Egypt’s adoption and implementation of financial technology. This technology adoption is expected to positively impact the life of the country’s unbanked and financially unreachable citizens by enhancing financial inclusion. This article elaborates on why digital financial inclusion is important for Egypt. Digital financial initiatives are expected to enable financial services to reach unreachable remote areas overcoming the physical and financial infrastructure barriers, particularly for 70% of disadvantaged citizens.
COVID-19 and Digitalization
The three years pre-COVID-19 pandemic period witnessed overall accelerated growth in Egypt due to the intensive macroeconomic and structural reforms that improved the country’s economy. However, like elsewhere, Egypt has been affected by the global COVID-19 crisis despite the previous improvement in its economy. The real growth of domestic products declined from 5.6 in 2018/19 to 3.6 during 2019-20. This decline might have resulted from the government’s strict measures due to the COVID-19 pandemic. The pandemic led to a contraction in private sector activities, reduced job creation, and reduced direct foreign investment, and the non-oil exports sector experienced significant underperformance. The unfavourable economic performance might also have led to an unfavourable budget structure with limited allocations to the health and education sectors.
Like elsewhere, international travel restrictions severely impacted many critical industries in Egypt, such as tourism, manufacturing, Suez Canal, and gas extractives. The growth improved in the second quarter of 2020/21 due to the lifting of the curfew and easing of the social distancing measures. The real economic growth remained positive, with 8.7 % growth in the last quarter of 2021, more than the previous year, before slowing down to less than 4% in 2022 for the same period due to Russia-Ukraine War. More than two million jobs have been lost as unemployment moved from 7.7% in 2018/19 to 9.6% in 2019/20, as shown in Figure 1.
This means that the recent efforts made by the Egyptian government to adopt financial technology are essential for the country’s real economic growth. The government’s current initiatives are characteristic of digitalisation and financial technology adoption, creating favourable financial inclusion conditions for individuals and small-medium enterprises while contributing to real economic growth. There are three main reasons, besides the economic condition, making digital financial inclusion essential for Egypt, namely unemployment, poverty, and the highly unbanked citizens.
Figure 1: Egypt’s Real Economic Growth & Unemployment
Rate of Unemployment
Like other North African Arab countries, Egypt’s unemployment is high, particularly among the youth and women. This high rate of unemployment is exacerbated by the outbreak of the COVID-19 pandemic. In addition to the COVID-19 measures such as lockdowns and curfews, Egypt’s unemployment is high among the youth due to the slowing economic growth and increasing demographic pressures.
Moreover, gender is one of the essential determinants of unemployment in Egypt. While unemployment is high among young men and women, the evidence showed higher figures among young women than young men. Figure 2 shows that in 2020 the Global Gender Gap Report ranks Egypt as number 134 out of 153 countries, and 140 in terms of economic participation and opportunity compared to 139 in the previous year. The enlargement of the gap in 2020 might be due to the impact of the COVID-19 measures. Economic growth decreased, available jobs dropped, and citizens lost jobs even more.
The low labor participation and high-unemployment among the youth, particularly young women, can be addressed through financial technology adoption and related capacity building because Egypt needs more citizens to be trained in technology-related aspects. Technology adoption can provide family-friendly employment and flexible work and bypass poor infrastructure, even in remote areas. Moreover, the Egyptian government can solve job concentration in the public sector through technology adoption and encouraging the private sector.
Figure 2: Egypt Global Gender Gap Index 2020
Figure 2 shows the low labor force participation, high unemployment, and concentration, particularly among the youth. These issues are closely interrelated and can be addressed through policies that promote family-friendly employment conditions and the formalization of the private sector. The recent encouragement of technology adoption by the government of Egypt might overcome most of the above challenges, including the negative impact of COVID-19 measures. The application of information technology can help improve the challenges of job matching and labor market friction due to information deficiencies. Moreover, if the youth are exposed to more capacity-building programs, this will also help employ those who lack employment opportunities.
Rate of Poverty
Figure 3 shows that poverty in Egypt was relatively high before the outbreak of COVID-19. Poverty reached 32.5% in 2017/18. This percentage of poverty did not improve during 2020/21 due to COVID-19 measures such as curfews and lockdowns. Even though the Egyptian government made considerable efforts to reduce the severe impact of COVID-19 by taking measures such as targeted cash transfer programs, Takaful Karama, and food subsidies allowance, poverty has increased from 29.2% in 2019 to 31.9% in 2020. Poverty in Egypt is projected to come down in the following years after financial technology adoption; as digital financial technology expands financial outreach, reducing the unbanked population as more of them have access to finance.
Figure 3: Poverty in Egypt
Unbanked Segment of the Population
Egypt is the largest country in the Middle East, with a population of more than 100 million. A recent report shows that Egypt is the world’s second most banknote-based country and has the third-highest number of unbanked citizens, with around 67% (as shown in Figure 4) of Egyptian adults having no bank account and relying entirely on cash-based transactions.
Moreover, Egypt is the third country with low credit penetration, scarce ATMs per capita, and lower cashless transactions. Egypt historically claimed to be cash-based. This evidence, which reflects the high number of unbanked citizens, severely impacts Egypt‘s financial inclusion. Recently the government has exerted more efforts by approving policies meant to push further the adoption of financial technology and increase the expansion of usage of wireless payments. These current policies led by the Egyptian Central Bank are expected to boost cashless payments and increase the number of banked citizens.
Figure 4: Unbanked People in Egypt pre-COVID-19
This article has commented on the importance of innovation and digital technology to Egypt in boosting economic growth, creating more jobs, reducing unemployment, and increasing the number of banked people through improving access to affordable finance. The Egyptian government has recently given more attention to the importance of adopting financial technology through government financial policies, improving the financial regulatory environment, and involving local and international players to pave the road for effectively attaining this vital goal. Moreover, the measures taken to overcome the COVID-19 pandemic since 2020 might accelerate the government’s strategy to adopt financial technology to face the new challenges. Adopting technology might enable the country to bypass more challenges hindering Egypt’s prosperity. For example, through wireless technology, financial institutions can quickly expand their financial services to remote areas despite weak basic infrastructures without establishing costly physical branches.
In addition, adoption of technology might also help solve the challenges of the demographical barriers. It can make life easy for those who are financially excluded, and settled in remote rural areas and the outskirts of cities. Given the importance of technology adoption for the country, the private sector’s involvement is essential to assist in the country’s recent financial inclusion strategy. Moreover, given the limited physical outreach of the Islamic financial institutions, digital financial technology might help Islamic banks in Egypt to expand their outreach to rural areas. Hence, technology adoption and the involvement of all citizens through financial technology awareness and capacity building is significant for achieving the final goal, which is the welfare of all Egyptians without exclusion.