Transcript Paul Vandenberg

Impact of the financial and
economic crisis on SMEs
Paul Vandenberg
International Management Institute
New Delhi
UNESCWA Conference on
‘Innovative sources to finance SMEs’
16-17 Feb. 2010
Dubai
Impact of U.S. sub-prime crisis
on global economy

Centre of the storm: U.S.
financial institutions and wider
U.S. economy drastically
affected
– major but short-term credit
crunch


non-U.S. financial institutions
(mostly European) with
exposure to mortgage backed
securities (MBS) also affected
Emerging stock markets
impacted as U.S. and
European investors shore up
positions at home
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Reduction in U.S. demand
causes reduction in global
demand
Results in decline in export
demand for developing and
emerging economies
Large increase, then decrease
in oil price
– Good for oil importers
– Not so good for oil exporters

Decline in remittances flowing
from Gulf and other states
with large expatriate workforce
W. Asia impact: overall

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‘Heard about it before it
was felt’: like much of the
world outside of America
Impact on much of W.
Asia not as severe as
U.S., Japan and Europe
Most countries will have
avoided recession
– i.e. two successive quarters
of negative growth

Mostly export sectors

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Drastic downturn was
avoided in many W. Asian
countries
Global and regional
revival is expected in
2010
May have longer-term
affect on fiscal position
for countries with large
stimulus packages
(Egypt, Saudi Arabia)
Oil exporters: GDP growth (%)
IMF Outlook, Oct. 2009
2009-2010 are projections
20
15
Bahrain
10
Iraq
Kuwait
Oman
5
Qatar
Saudi Arabia
0
2006
2007
2008
2009
2010
UAE
Yemen
-5
GDP growth (%): Oil importers
IMF Outlook, Oct. 2009
2009-10 are projections
10
8
Egypt
6
Jordan
4
Lebanon
Syrian A.R.
2
0
2006
2007
2008
2009
2010
Enterprise affect

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Large firms (with export
exposure) appear to be
more affected
SME affected if exporting
or linked in supply chain
to exporting producers
May have been some
credit squeeze for SMEs
– but extent is unknown in
W. Asia

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Banking sector in Middle
East remained stable and
liquid
Other initiatives in the
region to improve finance
and the business
environment moving
ahead irrespective of the
crisis
Bank lending impact
Domestic bankers more
wary of lending to SMEs,
notably those with inter’l
exposure
 In times of uncertainty,
bankers will be cautious
and take fewer risks,
which can mean less
lending to SMEs
 Limit exposure to certain
sectors

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Consumer confidence
impacted: delaying
purchases (stifles
demand further), selffulfilling downturn
Dumping from Asia:
importers offered sweet
credit terms
Crisis measures - Egypt
SME specific
 Waived reserve requirement on
deposits equal to lending to
SMEs
All enterprises
 Reduced tariffs on capital
goods and production
components w/o local
substitutes
 50% increase in finance to
export programs (benefiting
1,300 companies)
 Subsidizing cost and increasing
number of companies
participating in inter’l trade
fairs

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Waiving sales tax on capital
goods for one year
Rescheduling debt, providing
loans in tourism sector
Increased marketing of Egypt
as tourist destination
1-year postponement for
payment of 75% of
installments on industrial land
Reducing by 50% contributions
for use of technology centers
(11,500 companies, 1 million
workers affected)
Other initiatives - Egypt

New investment fund for
SME
– Sponsored by Industrial
Modernization Centre
(gov’t) and Arab African
Inter’l Bank
– LE 500 m. fund set up in
late 2009
– for start-up or expansion
equity investment
– Mostly for medium-sized
firms

Mashrou’y
(launched by Baclay’s Bank
during the crisis)
– Daily interest bank
accounts
– Free chequebooks and
statements
– Advice on specific SMEs
projects
Also: Latitude Club
– Linking/networking with
SMEs through Barclay’s
branches worldwide
– Club Rooms, Seminars
Measures - Lebanon
Crisis/On-going
 Expand beneficiary base of
interest rate subsidy scheme
(2/3 of loans go to SMEs)
 Strengthening ‘Kafalat’ which
guarantees loans for SMEs (up
to $400,000)
 Exempt employers from NSSF
fees on new jobs created in
2009-10
 Exempt banks from setting
aside reserves on credit for
new projects (or extension of
existing projects) in 2009
– To help reduce lending rates
from 10% to 7.5%
On-going
 Improving business
environment:
– eliminating unnecessary fees
– improving legal framework

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Inception of new Economic
and Industrial Zones
EU-funded SME Project
– Business Development Center
(4 opened, 2 proposed)

Lebanon Recovery Fund
– Including support for SMEs
affected by 2006 conflict
Saudi Arabia
Massive $49.6 b
stimulus package
 Equal to 9.4% of GDP
(highest in the world)

Education, training,
health, infrastructure,
social services
 Funding/restructuring
specialized develop.
finance institutions
 No specific measures
for SMEs

Kuwait
Government
guarantees up to
50% of banking
lending in next two
years
 Willing to buy
unsubscribed shares
in capital raisings

Only Gulf state that
was forced to save a
big bank (Gulf Bank)
 No specific measures
for SMEs

Other W. Asia countries
Little evidence of specific measures –
financial or otherwise – in stimulus
packages to assist SMEs
 Mostly directed to infrastructure,
education and existing initiatives
 Money infused into banking system
 But several countries will continue with
new efforts to support SMEs

Ideas from other regions

Tax cuts
– temporary lowering of corporate and personal (affects
sole proprietors) income tax rates
– reduce taxes on consumer durables to increase
demand
– reduction in excise, VAT/sales tax, tariffs on inputs
Increase government procurement from SMEs
 Employment subsidy: hiring or retention
 Shorter workweek supplemented with UI

Ideas from other regions: financial

Replenish or refinance
specialized financial institutions
– development banks
– SME credit programs (India)
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For loan guarantees: establish
such scheme, expand % of
loan covered, expand coverage
available and increase subsidy
(UK)
Convert an enterprise’s
overdrafts to a loan to free up
the overdraft (UK)
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Free advice to SMEs on how to
make a proper loan application
(Singapore)
Increase funds for SME export
credit
Instruct government
departments to pay SMEs
promptly (India)
Easier credit to SMEs in
vulnerable sectors such as
textiles (China)
Policy recommendations
Economies are reviving, thus:
Is there still a need for special SME measures
to counter the crisis?
or
 Should countries continue with pre-crisis efforts
to expand finance to SMEs, support innovation
and reduce regulatory burden?
or
3. Are crisis experiences/experiments usefully
carried over to non-crisis period?
1.