Sliver of Hope

The Cabinet has approved the establishment of a new body on April 25 to support small and medium enterprises (SMEs) in challenges they face and finally provide SMEs and start-ups with a single, dedicated governmental agency to take the lead in putting forward relevant policies and strategies.

The body will have a legal personality and will be managed by a board of trustees under the presidency of the prime minister and a number of ministers as members. The board of directors will be headed by the Minister of Industry Tarek Kabil, a group of experts in the area of SMEs and the chief executive officer.

Some of the challenges the body aims to address are registration, obtainment licenses and access to finance, especially for start-ups. The entity will be working on developing the skills of human resources working in these projects, and connecting them to supply chains. It will additionally improve their marketing skills to market the products inside and outside Egypt and will help the projects prepare feasibility studies. The body will work on providing SMEs with high quality raw materials at affordable prices, encouraging startups to export their products by providing financial incentives and facilitating access to finance for increasing capital in case of expansions. The institution will further facilitate the obtainment of the needed permits to start businesses and will establish a database for the industrial small, medium and micro projects.
Other entities that pertain to SMEs will come under the administration of the new body, including the Industrial Training Council, the Industrial Modernization Centre and the technology and innovation centers, the Ministry of Industry announced in an official statement.

Drivers of growth

Egypt’s options for development are quite limited: prospects for industrialization face numerous challenges, agricultural development faces immense environmental obstacles; topped by threats to Egypt’s share of the Nile’s water; and staple foreign currency revenue generators (tourism and the Suez Canal) are not seeing their best of days. It is in this context that SMEs are seen as a feasible diver for growth.

Indeed, even globally SMEs are considered the engine that powers prosperous economies. For instance, the latest Department for Business figures for Britain suggests that SMEs account for 99.9  percent of all private sector businesses in Britain, employing an estimated 14.4 million people and making up 59.3 percent of private sector employment.

“Micro, small and medium sized enterprises are a dynamic force for sustained economic growth and job creation. They are a valid an crucial component of vibrant industrial societies,” chairman of the Egyptian Junior Businessmen association, Ahmed Mashhour, tells bt.
“SMEs also stimulate private ownership and entrepreneurial skills. They are flexible and can adapt quickly to changing market demand and supply conditions. They also help generate employment and diversify economic activity and significantly contribute to export and trade,” Mashhour adds.

On his part, Alaa el-Sakty, Head of Egypt’s SMEs Association, tells bt, “Supporting SMEs is the best solution for Egypt’s economy as they have the ability to provide a large number of jobs, which helps reduce unemployment and produce important products,” adding that “no country can develop without depending on SMEs. Marketing, unnecessary bureaucracy and licensing procedures are the most significant setbacks for SMEs.”

Giant problems

In 2016, American University in Cairo researcher Ismail Yousef conducted a study on SMEs in Egypt.

The study found that a majority of SMEs have never used formal financial institutions due to lack of knowledge about how to deal with banks and banks’ complicated procedures.
A minority of those surveyed did use bank loans, but suffered great difficulty in repaying loans and dealing with high interest rates. Many of the study’s interviewees expressed their frustration at the complex and seemingly redundant documentation required to obtain loans.

SMEs in Egypt also face complex regulations and tough legal procedures when they want to obtain operating licenses, issued by local districts. When SME owners want to establish small business, they must follow a long string of bureaucratic procedures and red tape to obtain an operating license.

Experts estimate that the majority of SMEs in Egypt are informal, and include small workshops, market stalls, cleaning services, and other small-scale enterprises that usually do not have permits, legal status, and receive no economic support. Such entities are also usually not taxed or monitored, and do not receive support or assistance from government institutions.

Aside from the creation of the new entity, Egypt’s Central Bank also introduced measures to facilitate SME financing. Indeed, in January 2016, the Central Bank of Egypt (CBE) launched an initiative allocating LE 200 billion for SME financing. The CBE instructed banks to allocate at least 20% of their total loan portfolio for such projects within four years of the initiative’s launching date. By March, CBE Governor Tarek Amer revealed that banks’ financing of SMEs had reached LE 101 billion.

The CBE also provided specific definitions for what exactly micro, small and medium sized companies are. Small companies are those with sales ranging from LE 1 million to LE 50 million and less than 200 employees. Meanwhile, medium companies are those with sales ranging from LE 50 million to LE 200 million while micro enterprises are those with sales of less than LE 50,000 and less than 10 workers. bt