Tagaddod: A tale of a confused government
So far I have contributed 4 case studies to the Platform outlining different aspects of the ecosystem active in Cairo.
- Nafham, an incubator born startup that provides Peer-to-Peer online education in Egypt, with a a heavy emphasis on community organisation and contribution to materials.
- The Darb el-Labana Initiative, which documented the desired re-vitalisation of the Darb el-Labbana district and how a youth-run initiative started where an Investor-led company left off. (I had to delete the story off the platform due to heavy objections by a concerned party; proof of the difficult trust-environment of operating in Egypt)
- Ezelabs, a bootstrapped startup by 3 Mansoura youths and their ongoing plans to create Egypt’s first Fabrication Lab and Community Space outside of the major urbanised centres of Cairo & Alexandria.
- Megawra, and the spun-off Al-Khalifa community centre. This accounts how an architecture studio moved to the neglected al-Khalifa area in historic Cairo and its ongoing experiments in sustainably tackling community problems regarding Health, Education, Economic Empowerment and Knowledge Transfer through the reclamation and continued utilisation of a public space.
In this fifth case study we will go back to the starting point and examine another incubator born startup from the Greek Campus. Tagaddod is a prime example of the challenges and opportunities outlined in the Egypt mission report, and will draw heavily therefrom.
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Why Tagaddod?
My story with Tagaddod is a story of serendipity. It started before the Egypt country visit early June, when I first started brainstorming potential stories for the Future Makers Case Studies. Greek Campus owner and businessman Al-Alfy had pointed them out to me during our brief meeting in mid-June. An old friend recommended Tagaddod during a chance reunion. In all, the premise was the same: “Tagaddod is working on the hard real-world issue of sustainable energy, and is unique in Egypt for doing so!”
I arranged to meet with Tagaddod Chief Operating Officer Ahmed Raafat July 21st despite my original objection of outlining an all too traditional profit-oriented business. As our discussion dragged on long past our meeting time, I started seeing Tagaddod less as a poster child of what a successful graduate of Egypt’s buddying entrepreneurship scene might look like, and more as a cautionary tale of what challenges await an enterpriser in Egypt, and what it is like to live with a public sector as large and as involved as Egypt’s.
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The German University in Cairo (GUC) was founded in October 2003 with a heavy emphasis on scientific and technical education. Located in one of Cairo’s desert suburb’s, the university moved to be the largest Educational Institute in Egypt that covers research linked to industry. It was here that Raafat had first learned and applied the production process for Biodiesel as part of his Bachelor Graduation Project in 2011. Transesterification, as the process is called, concerns the transformation of vegetable oil into Biodiesel. Glycerol, a liquid commonly used in pharmaceutical formulation is created as a byproduct.
Then came the post-revolutionary Egyptian fuel crisis. Shortfalls in supply first started creeping in during Summer 2012, and became a regular occurrence for the next 12 consecutive months. Long lines formed at gas pumps: Some people bought their weekly groceries during the infamous pump waits. Electricity blackouts covered the country on a daily basis due to insufficient fuel to power the national gas-run energy plants. Financial reasons related to the rapidly deteriorating foreign exchange situation were cited as the primary reason. A catch-22: The Egyptian economy needs oil to function and earn its foreign reserves, while the same foreign reserves pay for the oil the economy badly needs.
Raafat and his team saw in their graduation project a potential solution for this crippling situation. Eyeing opportunity, they applied for incubation within the Flat6labs programme and got accepted in the Summer 2013 cycle. They started adopting regular working hours in pursuit of establishing a biodiesel company. In true Egyptian startup fashion, they branded their work with a one-word latin script interpretation of an arabic word: Tagaddod, meaning renewal. They delivered what Flat6labs required: A business plan, a working prototype and a first customer.
Tagaddod reclaims used vegetable oils and produces biodiesel. The resulting product can be used in standard diesel engines, or be blended with other petrodiesels. The original team of five relied on blueprints and knowledge from the burgeoning online open source biodiesel community to design their first Transesterification machine. It was capable of outputting some 100 litres of biofuel every 8 hours at a consistent quality; even if not yet entirely up to certification standards. It arranged to collect used restaurant waste oil from Tavco - one of Egypt’s largest tourism companies - in exchange for use-ready biodiesel for the companies buses.
Yet the company faced certain death in light of its dwindling financial resources. The first partners quit. Their experience largely mirrored Alberto’s Egypt Mission Report: Post-incubation funding is rare, and the private entrepreneurship scenes’ inability to move past the first stage.
Tagaddod applied for a competition hosted by the Small and Medium Enterprise Investment Fund Bedaya, which in turn was established by the General Authority for Investment, or GAFI. The 50’000 EGP public prize money awarded allowed the startup to rent itself a tiny workshop in the Cairo suburb of Maadi, buy necessary input materials and perfect their transesterification process to finally reach the consistent quality mandated by the international biodiesel specification ATSM, and certification by the Ministry of Trade and Industry. The government supplied the budding startup with a lifeline at the critical point. Tagaddod was saved for the time being, and had a theoretical capacity of 9 tonnes per month.
Biofuel: Persona non-grata?
Biofuel is a burgeoning international market, and has seen tremendous growth since the early noughts. Increased production of biofuel is cited as a root cause of the world food price crises of 2008; then the United States was devoting some 25% of its agricultural land for corn destined to biodiesel production. Competition between fuel and food for agricultural capacity, as well increasingly proven environmental effects caused biofuel to quickly fall out favor as a green energy solution.
Unlike the aforementioned traditional biofuel, Tagaddod relies on waste vegetable oil as its primary input material. Recycling what is essentially used cooking oil has benefits beyond the immediate biodiesel: A 2008 study from Cairo university reported Egyptians to consume in excess of 1 million tonnes of vegetable oil every year, which mostly end in the countries’ sewage system. Oil discharge into sewers causes a serious filtration problem, a litre of oil could contaminate up to one million litres of water if unfiltered. Poured oil builds up in sewer systems and constricts water flow. The same Cairo University study argues a unit of vegetable oil to roughly produce a unit of biodiesel. Roughly calculated, recycling used cooking oil could cover 10% of national diesel consumption.
The real world
Getting the Oil
Trash collection in Cairo is largely handled by a large informal community of garbage collectors known as the Zabaleen. Extensive research was conducted on the system, with a consensus emerging to its remarkable efficiency in terms of percentage of trash collected and recycled. Tagaddod launched with the idea to collect cooking oil from larger producers such as restaurants and hotels. They had missed the Cairo oil traders, as Rafaat calls them, who had been collecting used cooking oil informally for a long time, in a similar fashion to the Zabaleen. According to Raafat, the Cairo oil traders cluster around the Mosque of Amr ibn al-As area in historic Cairo. They are a largely unstudied phenomena.
The Cairo oil traders have a wide network of suppliers that covering metropolitan Cairo. Workers, who might otherwise have been homeless and without employment, collect and transport the waste cooking oil for sale to the Cairo oil traders. They in turn sell to export clients; primarily in Germany, Spain and Italy. Some oil is used as greasing materials in shipping and heavy machinery. None of it recycled or processed; the simple act of trading is quite profitable on its own. Like the Zabaleen, the informal system of organising the collection is too complex and entrenched in tradition for the western firm to emulate. It just works.
The first brushes with this invisible but mature system were a real-life lesson for Tagaddod. Restaurants and food carts would refuse to hand over their used oil. Over-eager oil-collectors would pick fights. The only rational decision was to cooperate with the Oil traders rather than try to compete with it. A ban on the export of used mineral oils enacted by the Egyptian Trade Federation in 2013 (Unverified) pushed prices down and allowed Tagaddod to source their Oil from the Cairo oil traders cheaply. In fact, the presence of a well0-functioning system is a boon for Tagaddod, as it guarantees a steady supply of input material at low costs and with no need for a costly collection infrastructure.
Reaching Consumers
At present, Tagaddod has built a new facility in the industrial zone of 6th of October with a total production capacity of 100 tonnes per month. While the cooperation with the Cairo oil traders now feeds most of this new plants capacity needs; Raafat described to me how his team wished to be more proactive in combatting low consumer environmental awareness levels in Egypt. Hence the Green-pan campaign.
Green-pan is a community outreach effort by Tagaddod, where consumers are asked to collect their own cooking oil waste and donate it to Tagaddod; who in turn collect it from the city for their own recycling operations. In practice, collecting from consumers is an unprofitable enterprise that the Cairo oil traders stay away from. Collected amounts are too small to cover the associated collection costs. At current; the campaign covers just 1% of the firms total capacity. Cooperation attempts with corporate CSR departments generally failed due to Tagaddod’s registration status as a for-profit company. Negotiations with environmental NGO’s reach a critical point discussing who will cover the cost burden.
The state
Raafat described how the market for recycled Biodiesel in Egypt is still open. He welcomed the new entrant on the block; another startup called Biodiesel Misr. The real challenge are not potential future competitors but the state. First, restrictive and clashing rules follow his business like minefields waiting to explode at every new turn. Raafat described how the aforementioned 2013 ban on the export of used mineral oils caused a lot of the Cairo oil traders to cease collecting oil temporarily in light of the problem of whom to sell it to. Tagaddod itself faces a continuing problem in that it is not allowed to sell its production-ready biodiesel locally. In Egypt, all oil is acquired by the state-run General Authority for Petroleum at market price, subsidised by the state and distributed to Points of Sale. The current charter of the General Authority for Petroleum only deals with fossil-based petrochemicals and does not acknowledge recycled biodiesel; in plain words Raafat can’t sell his produce locally.
I remembered how Tagaddod started out from the fuel shortages of 2012/2013 with the aim of selling locally produced Biodiesel at the pump and escaping the foreign reserves trap. Now, the team had to turn to export the finished product as a solution. The aforementioned ban on exports of oil, once a boon for Tagaddod was now a menace. A third attempt was to set up shop in the export-oriented Free Zone of Suez, which is exempt from the regulations of the Egyptian Trade Chamber. This application was in turn denied on the premise that oil is a national good that should not be allowed to be exported out of the country. As Rafaat described his Kafkaesque conundrum to what should be a simple transaction, I wondered at how big the opportunity and potential rewards had to be to keep him devoted to this project, and new investors coming on board.
A new biodiesel law regulating sales to the General Authority of Petroleum is allegedly in the making, and will await ratification as soon as a new parliament is elected. This law would be a boon for Tagaddod. Interestingly, state actors see the same opportunity and are already preparing for the state’s entrance into this lucrative market: A protocol on recycling cooking oil has been signed by the Ministry of Supply this June. Alberto had referred to the “state’s obvious delivery ability”. As I contemplated these developments I realised how the same state that enabled Tagaddod to live to see another day through the Bedaya entrepreneurship competition was now in the business of hollowing Tagaddod’s out.
As I re-read Alberto’s Egypt mission report, I thought about his recommendations “for the full potential of entrepreneurship to bear fruit”: Fixing the regulatory environment is key. University research is actually quite developed in the engineering disciplines, as demonstrated by Tagaddod’s origin as a university project. Yet, research into the Cairo oil traders and their methods is non-existence and proof of the weakness of social science in Egypt. Tagaddod is a rare example of a company started by an incubator, sustained by a business competition and now on its way to secure additional investing to scale forward. In light of the macabre regulatory environment they operate in; their current success should be a testament to the ability of entrepreneurship to allow youth to take matters into their own hands.