Transcript Supporting SMEs in Egypt

Supporting SMEs in Egypt
Ministry of Finance
Rabat 10-12 March 2008
Outline
• MSMEs in Egypt
– Macro-economic outlook
– Structural characteristics
– Constraints
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Making a Distinction (The focus)
MSMEs and Competitiveness
Policy Formulation Process
Policies Adopted
Vision for the future
Macro-Economic Outlook
• The government has announced very aggressive growth
targets for its 2007-2012 economic development plan.
(an annual GDP growth of 8 percent and the creation of
2.8 million job opportunities-an average of 750,000 job
opportunities per year).
• Most of the macro economic indicators have shown
great improvements over the past nine years (e.g., GDP,
GDP per capita, exports…etc.). However, much remains
to be done with regards to income inequality, poverty
and unemployment.
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Percentage
Private Sector Share of GDP
Private sector share of GDP
72
70
68
66
64
62
60
58
56
Unemployment and the Role of PSD
• Between 1999 and 2005, the absolute number of the
unemployed has actually witnessed an average annual
increase of approximately 4%, climbing from 1.6 million
to almost 2.2 million. So far, the private sector has been
unable to absorb the country’s growing labor force.
• In order for the private sector to expand, which is a
necessary component of Egypt’s future growth, several
improvements are needed in the business environment,
including in the system of laws, property rights,
competition frameworks, public services and
infrastructure, the depth of financial markets, trade
liberalization regime, and so on.
MSMEs
• The SME sector has effectively rarely been considered
as part of the private sector, even though it accounts for
99.7 percent of the private sector enterprises, about 75
percent of private sector non-agricultural employment.
• From a political economy viewpoint, reforms aimed at
fostering entrepreneurship and MSE development are
particularly desirable because they create clear winners
from reform and a broad social coalition in support of
change.
• From a social viewpoint, MSEs secure livelihood for a
large and ever expanding sector of the population.
Almost three-quarters of Egypt’s labor force are
employed in the MSE sector
MSMEs in Egypt
10 %
0.30%
19 %
71 %
99.70%
Micro
Small
Medium
Figure 1: Distribution of Employment
of SMEs in Private Non-Agriculture
Economic Activities
SMEs
Large Enterprise
Figure 2: Distribution of Non-Agricultural
Economic Activities Between SMEs and
Large Enterprises
Structural Features
• The markedly skewed size-based distribution of
businesses in Egypt towards micro enterprises.
• MSMEs tend to have very small amounts of
capital. Fifty-nine percent of MSEs with 1-4
workers have capital of less than 5,000 LE
(defined as microenterprises) and only 6 percent
of enterprises have invested capital of more than
50,000 LE (defined as small enterprises
Missing Middle
UK
Japan
< 10
Spain
10 to 99
Italy
100 to 499
500+
MENA
Egypt
0%
20%
40%
60%
80%
100%
Structural Features
• Skewed Geographical Distribution, almost half of the
private sector in the country is concentrated in the five
governorates of Cairo, Giza, Dakahliya, Alexandria and
Sharqiya.
• Skewed Activity Distribution, MSEs are predominantly
concentrated in the trade sector, owing to the low entry
barriers in terms of capital, skill and technology
characteristic of the trade sector. Within the
manufacturing sector, more than eighty percent of
enterprises are concentrated in five activities.
Sectoral Distribution
Sectoral Distribution of MSEs (CAPMAS, 20002001)
15%
16%
Manufacture
69%
Trade
Service
Other Structural Features
• Low Share of MSMEs in Value Added
• High levels of informality
• Women in the MSME sector
Constraints
• Demand Related Constraints
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Weak Effective Demand
Exports
Lack of Linkages with Larger Firms
Limited, Non-structured, and Uncoordinated Marketing Channels
• Input Constraints
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Technology
Lack of Access to Finance
Limited Access to Adequately Priced Inputs
Lack of Access to Information
Lack of Access to Business Development Services
• Process Constraints
• Legal and Regulatory Constraints
• Entrepreneurship Constraints
The Process
Distinctions
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Socio-Economic focus Vs. only Social
PSD Vs. MSME Development
Micro Vs. Small and Medium
High Road Vs. Low Road
Income Generation Activities Vs. Growth
Generation Activities
• Necessity Entrepreneurs Vs. Opportunity
Entrepreneurs
• Existing Enterprises Vs. Start-ups
Competitiveness
Competitiveness, is demonstrated by "the
ability to meet the test of free
international markets while expanding
real income."
It is based on generating more value
through improved productivity, quality,
service and innovation.
Global Trends
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(Characteristics)
Fracturing value chain among several
countries.
Quality management.
Standardization.
Just-in-time (JIT) production.
Networking of firms and suppliers.
Highly and multi-skills workforce.
The Vision
• Developing a competitive SME sector able
to compete in local and global markets
and deliver its socio-economic and
developmental benefits in the years to
come, and thus improving the country’s
trade balance.
• Separation in targeting policies Income
generation Vs. Growth generation
The Process
Done by the
Ministry
of were
Prioritized
Policies
that
Economy
recommended
in the 1998 Draft
Listeddone
and through
divided constraints
Was
a
into Financialprocess
and Nonconsultative
Financial
Five policy areas were tackled
Proposedofgeneral
(Update
PolicyPolicy
Framework,
Actions Access to Finance,
Definition,
Procurement,
and Legal and
Accepted by Stakeholders
in a
Regulatory)
National Conference
Draft National
Policy
Priority
Policies
2000
1998
Priority Policies
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Updating draft national policy (competitiveness)
Definition
Access to finance
Procurement
Legal and regulatory environment
Policy Process
7Policy
Policies
Minister’s
recom.
Formulation
Research &
Discussion Paper
Assessment
Publicizing
March 2003
Results
Workshop
& Proposals
Policy
Consultation
Consultationwith
on
Action Plan
Stakeholders
Finalization
of
Finalization of
Action
Plan (Nov. 2004)
Recommendation
Competitiveness
Process
Process
National
Conference
Formalization
Stakeholders
Research
committee
Synergy
group
Mapping
Sub-donor
group
& Involvement
Problem
& Issues
SME Focus
Groups
Identifying
problems
Identification
Policy
Committee
Implementation
Revisions
Revisions
Monitoring
&
Monitoring &
Evaluation
Evaluation
Competitiveness Strategy
• Policies:
• Export Promotion
• Innovation and Technology
• Access to finance
• Organic Clusters
• Legal and regulatory environment
• FDI and inter-firm linkages
• Business Development Services
• Implementation mechanism:
• SME Policy Committees
Government Procurement
• The 10% in the MSE Law
• Inter-Ministerial committee on Procurement was
established between the MoF and SFD to
discuss methods of implementing the 10%
• Country Procurement Assessment Review
• M/SME procurement allocation system
Tax Law/Real state registration
• Special Accounting Standards for M/SMEs
• Tax exemption for M/SMEs acquiring loans from
the SFD
• Review of the current real state registration,
which will affect the use of assets as collateral
for SMEs
Venture Capital
• Establishment of committee that includes key
governmental stakeholders on the decision
making level
• The purpose of the committee is to streamline
regulations governing VC establishment in
addition to creating a VC fund
• Recommendations to establish Private Equity,
and Turnaround funds
Leasing
• Leasing roundtable that brought together US
Expert Volunteers and the leasing companies
currently active in Egypt to prioritize and agree
on reform measures needed to activate the
leasing industry.
Vision for the future
Market Access for SMEs
through streamlining
government procurement
procedures
Vision for the future
SME accounting standards in
place
Vision for the future
Streamlining laws and
regulations of the sales tax
Vision for the future
Access to finance for SMEs
through creating a favorable
environment for non-traditional
financial mechanisms
Vision for the future
More cooperation and
collaboration between different
stakeholders
Vision for the future
Strategic interventions