Automation threatening jobs at Egypt’s first Nasdaq listed unicorn

Tuesday 21 June 202203:20 pm
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In early June, twenty-something year old Mohammad Ra’fat joined the ranks of the unemployed in the country after he lost his job. But he won’t be replaced by some other employee in the same company who’s more competent or efficient. Rather, a “computer program” will carry out all his tasks and duties “with higher efficiency, and lower costs and less error.”

Ra’fat is one of 323 SWVL employees that were laid off in late May.  Under the company’s plan, at least 70 others are set to join them in the coming weeks, with the intent to lay off 32% of its employees within the countries that it operates in, in order to compensate for its operating losses and shift faster towards profitability.

“Automation”, or switching to smart software and smart machines that would perform human tasks, was not the main reason that Ra’fat and his colleagues were laid off from SWVL’s offices in Cairo, Pakistan, and Dubai, as the company's head office moved to Dubai. However, according to its officials, SWVL does not have the luxury of sacrificing the $100 million US dollars that the company believes it would have lost next year if it had kept on its employees, at a time when the company is seeking to list on the Nasdaq Stock Exchange, after they lost more than half of their value since they began trading in early April. This comes at a time when the stock exchanges across the world are being hit hard by the stagflation crisis, most notably the US stock exchanges, while the shares of technology-driven companies are suffering from a sharp decline in their shares, led by Tesla, Facebook, and Amazon.

A few months separated listing SWVL on NASDAQ from announcing — and beginning — the implementation of its latest plan, under which it intends to lay off about a third of its employees to stop the continuation of its losses. How did this happen? And what does its future entail? What is the state of emerging companies in the field of technology, and especially the workforce within them?

A few months following the listing of SWVL on Nasdaq, the company began implementing a plan to lay off a third of its employees, most of whom are in Egypt, to stop its losses, announcing their replacement with “automated aides”

The rise of SWVL

A few months ago, SWVL attracted attention as an inspiring success story for young entrepreneurs in Egypt, after it was listed on the Nasdaq as the first company in the Middle East firm worth more than a billion dollars, just a few years after it was established.

The news of its  Nasdaq listing not only showed how impressive the founders of the company were, but also represented a blow to the investment of start-ups in Cairo in favor of Dubai

SWVL was founded  in early 2017 by three young Egyptians, led by founder Mostafa Kandil, a former employee of Uber, with the aim of changing the format of mass transportation in Egypt. Their concept depends on certain social groups whose income ranges between 4,000 and 23,000 Egyptian pounds using tourist buses that provide comfort and convenience in and around the capital. The company soon expanded and invaded markets outside Egypt, after obtaining grant financing that contributed to the consolidation of its name as a leading brand in the Middle East.

SWVL is currently active in 40 cities in 18 different countries. Its largest market is Egypt, the country of incorporation, and its second main market is Pakistan. Despite the operational burdens that led to the decision to lay off about a third of its workforce, the company continues its acquisitions and expansion operations in the markets, as it has begun expanding in Mexico in the beginning of June.

From Cairo to Nasdaq

The news of its listing on Nasdaq Stock Exchange not only showed how impressive the founders of the company were, but also represented a blow to the investment of start-ups in Cairo in favor of Dubai, as SWVL did not expand its acquisitions and begin its plan to list its shares on American technology stock exchanges. The expansion took off in Dubai, even though the idea had grown and achieved success in Egypt.

The listing opened the gateway for it to extend its activities and conquer new markets in different countries, including Argentina and Turkey, in addition to the markets that it had been active in before its listing, such as Gulf and Middle Eastern countries like Pakistan and African countries such as Kenya, as it acquired companies, some small and others large with huge capital like the British “Zello”.

SWVL’s acquisitions began before its successful listing on the Nasdaq Stock Exchange, which began trading in early April 2022, and this is the most common pattern within the field of startup companies to increase the volume of investments.

SWVL employees are baffled by the link between recent layoffs and the shift to automation, since there are no announced plans or technical modifications and no new systems were implemented

Youssef Salem, the chief financial officer of Swvl, tells Raseef22, “We had not been planning for this now, but due to the rapidly deteriorating conditions of the market and the overall environment that make access to capital more costly, we began several proceedings, including eliminating unprofitable business lines in Egypt and Pakistan,”

Salem believes that the company has “greatly expanded in recruitment”, and this has made it carry “additional burdens”, so it began to address this by stopping recruitments as well as “getting rid of excess employment and lowering the wages of those in leadership positions”. He stresses his confidence in overcoming this current crisis and moving quickly to the stage of profitability, thanks to the company’s recent acquisitions.

Technology instead of humans

The shift towards automation technology played a minor role in the lay-off process, as the company said in its statement that those who were laid-off from their jobs were from the engineering, product, and support sectors, which can all be easily compensated with this technology. Youssef Salem said that automation technology was not the main reason, which means that automation was used as an excuse to save Swvl even if the company actually intends to reduce its human workforce to improve its operations.

Swvl employees are baffled by the link between the recent layoffs and the shift to automation, because there are no announced plans or technical modifications, and the company has been unable to implement any new systems in its operational processes, according to Ahmed Ra’fat, who spent 13 months in the technical support department responsible for organizing transportation in the capital Cairo and the governorates.

“I became unemployed overnight, and I was shocked that the company had suddenly suspended all my accounts and informed us of the decision for this termination without warning and without any preparation for the company’s new plan,” says Ra’fat while talking about his last day in SWVL. He denies their knowledge of the existence of a new operating system based on the digitization system that the company intends to implement in the coming days.

Ra'fat’s journey ended faster than he had ever imagined. The young man, who had envisioned and prepared himself to make great leaps in his career, suddenly found his future in the unknown, amidst the expansion of technology companies in replacing humans with software and digital machines.

Egypt expands into “automation”

Automation technology is not new to Ra’fat, who has previously suffered from its effects in another company that works in the field of food home delivery. He says, “Even if there is a new work system with the aim of reducing costs, this happens systematically, in other words, the transformation is done gradually over a period of no less than six months. This is what happened to me in a technology company four months before that,” Ra’fat continues.

Ra'fat’s concerns seem logical in light of multinational companies and Egyptian companies with large capital heading towards relying on the automation of their factories and production complexes, even though the adoption of automation technology in Egypt is expected to take place much slower compared to Kuwait, Saudi Arabia, the Emirates, Bahrain, and the Sultanate of Oman.

Ra’fat, who lived most of his life in Saudi Arabia, graduated from the Faculty of Law in Egypt, but chose to take the technical field which would allow him to work in technical support services and data entry jobs. SWVL was his latest station in this field following the three years he spent at Otlob (now known as “Talabat”) company that specializes in the delivery of restaurant food orders to homes.

Ra’fat worked in the department that organizes trips and receives complaints from tour leaders, whom the company calls “captains”. His job from inside one of its offices in the Maadi neighborhood, south of Cairo, provides a good salary for a young man who has not yet reached the age of thirty. But the most important thing that distinguishes this job is the stability of his work hours, starting from ten in the morning until seven in the evening, which is something that is not usually available in other companies that follow a rotation system of shifts between employees.

Ra’fat’s situation is better off than that of other employees in the company who have families they must support and have now lost their only source of income, despite having spent longer periods — more than three years — in the company, while the company has laid off other employees who, according to Ra’fat, haven’t been under employment in the sales department longer than a month.

Automation bills and profitability

Those who are interested in entrepreneurship in Egypt adopt another narrative regarding the concepts of operational capabilities. Hani Naguib, an innovation consultant within the field of entrepreneurship, tells Raseef22 that the strategy that SWVL has adopted is “not wrong” in light of the company’s acquisitions. “This is what has led to recurring roles within the company, such as those in customer service, technical support, and data entry, forcing it to reduce costs and any additional burdens.”

But at the same time, Naguib sees that there had been a hastiness in the process of laying off employees. This same method had been much more organized within companies that chose to take this path during the COVID pandemic.

For Naguib, Swvl is no exception in view of the current economic situation that has imposed a heavy burden on all the emerging companies that are facing great challenges during this period. This all comes against a backdrop of attempts to recover from the COVID pandemic and the crises accompanying the Russian war on Ukraine, which explains the reports indicating that about 15 thousand employees in startup companies — particularly in America — have been laid off.

The rapid transition to automation technology will rake in even more victims, and that is why entrepreneurs do not see that what happened in SWVL is a necessarily bad thing, “Companies are paying special attention to digitization and are trying to take proactive steps to absorb any shocks,” says Hani Naguib.

Saber Helal, an e-marketing researcher, defends the concept of ​​switching to automation as the core of the work of the entrepreneurship community, which is based on technological innovation. Thus, those involved should know that the duration of their careers would be short if they do not work on self-development and furthering their talents. While speaking to Raseef22, he goes on to say, “Any idea in a startup that has to do with innovative technology and serves the public in trade through digital software, is the nature of the business.”

Despite what the journey of the rise of SWVL and the uncertainty it is currently going through indicates, amidst the negative assessments of the state of companies that work in the technology field, there are positive indications that these companies are spreading in Egypt faster than in previous times. Egypt ranked first in the African continent in terms of the number of investment and financing deals among the emerging companies of 2021. Its ranking came as a result of the company successfully collecting financing agreements worth $491 million dollars through 147 deals that were concluded during the past year.

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