The ongoing war in Ukraine and the ensuing economic fallout have sent shockwaves across the financial global markets amid rising inflationary pressure. With stagflation hitting global markets, emerging economies across the world are starting to feel the impact. 

Against this backdrop of worry and uncertainty, Egypt has been caught in the throes of one of the worst economic plunges on record, as rising consumer prices feed into global inflation. Recently, the country has been hit by a shortage of foreign exchange that has put a drag on imports. Small businesses are feeling the heat of the crisis, with some already suspending operations, changing their core business focus or going for preventive measures such as salary reductions and layoffs to escape the axe. 

Small businesses tend to be the primary target of startups in the country. As such, the entire startup ecosystem is suffering the knock-on effect arising from the current market downturn; but, the intensity of its impact varies. Unlike startups in the consumer services sector such as F&B as well as fintech, startups in retail and e-commerce are the ones that are impacted the most by economic headwinds.

Back in April, Egyptian e-commerce marketplace for toys Tasala, suspended its operations, giving its employees the pink slip. 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.

"Egypt relies on imports for almost 95 per cent 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," says Ahmed Atif, co-founder of Tasala.

The startup was founded in 2019 by 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. 

Turbulent situation 

The Covid pandemic increased the demand for digital services in the country. The local e-commerce sector in particular, has grown substantially, with toys being among the most popular segments.

Tasala was founded with the view of fast-tracking the digitisation of the toy selling process by providing a larger assortment of products as well as enabling parents to make informed decisions when buying toys for their children.

“Most parents struggle when 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 per cent of the shoppers are willing to buy toys online, with the vast majority of toy sales happening in brick-and-mortar stores,” says Atif. “From the retailer perspective, online selling is still largely viewed as secondary sales channels.”

The online toy market is worth $1 billion and is expected to reach $1.5 billion by 2025. The growth in the market might weaken due to the 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 jumped 20-40 per cent in Egypt. 

"Large retailers [those that 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 noted.