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Ministry of Foreign Trade

MSME DEFINITION STUDY

(PHASE II)

FINAL REPORT

Prepared by the Economic Research Forum (ERF) For the SME Policy Development Project of the Ministry of Foreign Trade (MOFT)

Canadian International Development Agency (CIDA) and the International Development Research Center (IDRC)

January 2004

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MSME-DEFINITION STUDY PHASE II TABLE OF CONTENTS

List of Abbreviations List of Tables Abstract Chapter One: Introduction, Research Objective and Methodology Chapter Two: Other Countries’ Definitions and Multi-Definitions Chapter Three: Survey of MSME Service Providers First: Introduction Second: Survey Overview Third: Survey Findings and Data Analysis Fourth: Personal Interviews Fifth: Conclusions

Chapter Four: Formulation of a Multi-Sector Definition for MSMEs in Egypt First: Participatory Approach Second: Components of the Variables of the Definition Third: Advantages of the And /Or Option Fourth: Exclusion Rules Fifth: The Proposed Multi-Sector Definition for MSMEs in Egypt Sixth: Basis for the Proposed Definition Chapter Five: Analytic Assessment of Agreement between Definitions Chapter Six: Mechanisms for Evaluation, Updating & Verification of Definitions First: A Study of Other Countries’ Experiences Second: Proposed Mechanisms for Egypt Chapter Seven: MSME Definition for Specific Purpose or Policy Objective Chapter Eight: A Study on a Possible Law for the MSME Definition Bibliography and Consulted Websites Appendices: Appendix 1: Size Distribution of Establishments and Employment Appendix 2: Shares in Total Establishments & Employment by Economic Activity Appendix 3: Survey Questionnaire Appendix 4: List of Interviewees

--(Separate Annexed Papers)

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List of Abbreviations

ABA: Alexandria Business Association CAPMAS: Central Agency for Public Mobilization and Statistics Ca.$: Canadian Dollar CGAP: Consultative Group for Assisting the Poor CIDA: Canadain International Development Agency EPIC: Economic Policy Initiative Consortium ERF: Economic Research Forum ESMA: Egyptian Small and Micro-Enterprise Association EU: European Union FEI: Federation of Egyptian Industries GAFI: General Authority for Investment IDRC: International Development Research Center IDSC: Information and Decision Support Center ILO: International Labor Organization IMP: Industrial Modernization Program LE: Livre Egyptienne (Egyptian Pounds) MIS: Management Information System MIT: Ministry of Internal Trade MOF: Ministry of Finance MOFT: Ministry of Foreign Trade MOI: Ministry of Industry MLD: Ministry of Local Development MOSA: Ministry of Social Affairs MSMEs: micro, small and medium enterprises NGO: non-governmental organization OECD: Organization of Economic Cooperation and Development ORDEV: Organization for Rural Development PBDAC: Principal Bank for Development and Agricultural Credit PCU: The Productive Cooperative Unit (PCU) SBA: Small Business Administration (USA) SEC-NCW: Small Enterprise Center at the National Council for Women SEDO: Small Enterprise Development Organization (of SFD) SFD: Social Fund for Development US $: US dollar

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List of Tables

Chapter Two: Table 2-1: Capital (or Assets) per Unit of Labor Table 2-2: Sales per Unit of Labor Table 2-3: Ratio of Sales to Assets

Chapter Three: Table 3-1: Type of Organization Table 3-2: Date of Organization Establishment Table 3-3: Main Objectives of the Organization Table 3-4: Actual Activities of the Organization Table 3-5: Target Groups Table 3-6: Geographical Sphere of Operation Table 3-7: Criteria for MSME Definitions Table 3-8: Components of the Fixed Asset Criterion if Used Table 3-9: Components of the Labor Criterion if Used Table 3-10: Basis of the Definition Used Table 3-11: Financial Services Provided by the Organization Table 3-12: Non-Financial Services Provided by the Organization Table 3-13: Objective per Target Group Table 3-14: Do you Update your Definition on periodic basis? Table 3-15: How Frequent is the Update? Table 3-16: On what Basis do you update the definition? Table 3-17: Data Sources Used by the Organization Table 3-18: Is the Available Data Adequate for your Use Table 3-19: Suggestions for Improving the Data Table 3-20: Is there a Need to have a Law for the MSME Definition? Table 3-21: Why Have a Law for the Definition? Table 3-22: Why Not Have a Law for the Definition? Table 3-23: Who are the Partners in establishing a Definition? Table 3-24: Why these Partners in Particular? Table 3-25: Commodity Council Definitions of MSMEs Table 3-26: Definitions used by FEI for MSMEs Table 3-27: Definitions used by CGC for MSMEs Table 3-28: Definitions used by SEC-NCW for MSMEs Table 3-29: Definitions used by Ministry of Industry for MSMEs Chapter Four: Table 4-1 Proposed Multi-Sector Definition for MSMEs in Egypt Table 4-2: Distribution of Manufacturing Enterprises Registered at GAFI (Feb. 2002) Table 4-3: Ratios between Variables in the Manufacturing Sector Table 4-4: Ratio of Private Sector Production (Sales’ Revenue) to Labor Table 4-5.a: Distribution of Enterprises by Size of Labor Table 4-5.b: Percentage Distribution of Enterprises by Size of Labor Table 4-6 Percentage of Establishments and Workers Covered by the Proposed Definition Table 4-7 Average Number of Employees per Enterprise Chapter Five: Table 5-1 Distribution of Private Manufacturing Establishments by Number of Employees and Fixed Capital

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Abstract

The micro, small and medium enterprise sector (MSME) in Egypt constitutes a significant portion of total private enterprises and total employment. It has been growing during the last three decades at a phenomenal rate with almost no state support. Yet the sector is subject to numerous constraints. The government, the private sector, NGOs, business associations as well as researchers and academics have been studying and exploring ways of providing support to the sector in order to strengthen its contribution to income growth and employment generation. This necessitates the formulation of a uniform definition that would help determine eligibility to various incentives. The objective of this research is to develop, through participatory approach with key-stakeholders, a definition(s) for the MSME sector that takes into account the variations by purpose, sector and policy objective. This also involves suggestions for improvements in data sets, and proposal of mechanisms for evaluating the definition and verification and updating thereof, as well as a study of a possible law for the definition. A survey was conducted among organizations that provide services to MSMEs. Also specific data were obtained from CAPMAS to help conduct a statistical assessment of the level of agreement between different variables of the definition on the basis of empirical data. International experiences are reviewed insofar as having multi-purpose definitions for MSMEs and sector-sensitive definitions, and international mechanisms for evaluating and updating the definition.

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CHAPTER ONE

INTRODUCTION, RESEARCH OBJECTIVE AND METHODOLOGY

First: Introduction and Research Objective The micro, small and medium enterprise sector (MSME) is subject to numerous constraints in Egypt like in most developing countries. The government, the private sector, NGOs, business associations as well as researchers and academics have been studying and exploring ways of providing support to the sector. The purpose is to strengthen the sector’s contribution to income growth and employment generation. This necessitates the formulation of a uniform definition that would help determine eligibility to various incentives. Most organizations that are implementing MSME-related programs define their target groups in light of their specific purposes. Also various governmental bodies have been working on formulating a definition for the sector. The objective of this research is to develop, through participatory approach with key-stakeholders, a definition (s) for the MSME sector that takes into account the variations by purpose, sector and policy objective. This also involves suggestions for improvements in data sets, and proposal of mechanisms for evaluating the definition and verification and updating thereof, as well as a study of a possible law for the definition. Second: Methodology -There was a review of literature on MSME definition in Egypt, a review of the definitions used internationally. Practices in a number of countries were reviewed as regards having multi-purpose definitions for MSMEs and sector-sensitive definitions. -A study was conducted on international mechanisms for evaluating and updating the definition, in addition to methods of verification. -A questionnaire was designed and addressed to over 100 organizations that support MSMEs in Egypt. These included government bodies, NGOs, business associations, banks, universities, donor agencies and others. Interviews were held with a limited number of stakeholders including some Commodity Council representatives in various areas of specialization. -A list of stakeholders that are key players in the process of formulating a definition was identified in coordination with MOFT, thus setting the basis for having a participatory approach for the study through a series of stakeholder gatherings throughout the research progress. -A study and assessment of the available data sets were conducted.

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-Specific data were obtained from the Central Agency for Public Mobilization and statistics (CAPMAS) and an index was developed reflecting different criteria (number of employees, value of fixed assets, sales turnover, etc.) that can be used as a tool for classifying enterprises into micro, small and medium categories and defining the appropriate size classes for each sector. A statistical assessment of the level of agreement between different criteria was conducted on the basis of empirical data. -A study of a possible law for the MSME definition was implemented. NB. The present study is a continuation of the Phase One Definition Study conducted by ERF in 2001/021.

1 An overview of the Phase Study is in a separate annex, (Annex A).

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CHAPTER TWO

INTERNATIONAL DEFINITIONS AND MULTI-DEFINITIONS

A review of MSME definitions used by a number of developed and developing countries was conducted. Some countries use different criteria for different sectors, and some countries use multi-definitions for different purposes and policy objectives2. This chapter addresses certain aspects of the international definitions that could serve as background information in formulating the proposed definition for Egypt. While the size limits for advanced countries’ definitions are relatively high, their definitions are reviewed for the sake of computing the ratios between variables and for observing the multi-purpose definitions.

First: General Observations There appears to be some pattern as regards the most frequently used criteria in defining enterprises in each of the different economic sectors. For example, the ‘labor’ criterion is most common with the various sectors. But in case of sector differentiations, ‘capital /or assets’ is more often used with the manufacturing sector (e.g. South Korea); and ‘sales’ are more used with trade and services (e.g. South Korea and USA)3. As regards the multi-definitions used in Canada, it is said that ‘number of employees’ seems to be used to determine the level at which the enterprise has to fully comply with rules and regulations, and ‘gross sales or taxable income’ seem to be used to determine the eligibility for incentives, subsidies or financial concessions. Total assets are also used for tax purposes. It is said however that a definition that is based only on number of employees and annual sales does not help the government address the needs of the sectors that have more potential in creating the employment needed by the economy4. For example, the Business Development Bank of Canada has given highest priority in its loan and investment policies to SMEs in the Knowledge-Based Industries; otherwise general initiatives are diluted or have little impact.

2 For details on other countries’ definitions, see separate annex, Annex (B). 3 In fact, the definition proposed for Egypt in ERF’s Phase I Study used ‘labor’ and/or ‘fixed assets’ for all sectors, but used ‘sales’ for the non-manufacture sectors only. But in this present study, the sales criterion is also used for the manufacturing sector for two reasons. First, in the stakeholders’ meetings conducted throughout the progress of the study, the participant from the Ministry of Finance mentioned that in studying the regulation allowing a share for MSMEs in government procurements, one of the qualifications would be the volume of business that the enterprise has managed to achieve i.e. volume of implemented contracts. As such the volume of sales of an enterprise is taken into account. Second, The definition proposed for Egypt in this present study merges the ‘construction’ sector with the ‘manufacturing sector. For a contractor, the volume of revenues could be decisive in determining his size because all his fixed assets of machinery and equipment could be rented rather than owned. 4 Lerchs 2001, opcit.

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Second: Summary of Relations between Variables This section is concerned with the relations between the variables/criteria used in a single definition of a certain country. Thus ratios are computed, where possible, to find the relations between the maximum limits of the different variables e.g. the value of capital (or fixed assets) per unit of labor, the ratio of sales to assets (i.e. asset turnover), sales to labor ratio as a proxy for labor productivity, etc. Also observed was the fact that apart from ‘labor’ and ‘annual sales’, the most commonly used variable is ‘capital’, which is in the definitions of some countries replaced by specifically referring to ‘fixed assets’ or ‘total assets’; the latter sometimes referred to as ‘balance sheet total’. In the reviewed definitions of a number of countries, notwithstanding the fact that some use the labor criterion to refer to permanent labor only while some do not, and some refer to fixed assets only while some refer to ‘all assets’ or to ‘capital’ as a general term, yet it may be useful, where possible, to contrast between countries as regards the ratios between variables, as indicated by Tables 2-1, 2-2 and 2-3. Table 2-1: Capital (or Assets) per Unit of Labor

Micro

Small

Medium

South Korea: Manufacture Construction, transportation, mining

$ 22,333 $ 8,333

$ 22,333 $ 8,333

Japan: Manufacture Wholesale Retail Services

$ 8,333 $ 8,333 $ 8,333 $ 4,170

EU

Euro 100,000

Euro 108,000

South Africa: Manufacture Construction Retail and repair Wholesale Catering/accommodation

$ 2,400 $ 2,400 $ 2,400 $ 2,400 $ 2,400

$ 9,000 $ 2,400 $ 6,000 $ 9,600* $ 2,400

$ 9,000 $ 2,400 $ 6,000 $ 9,600* $ 2,400

* or $ 6,000 for ‘very small’ enterprises It was expected that the capital to labor ratio may increase as we move along from micro to small then to medium enterprises, reflecting more usage of capital for the relatively larger enterprises and more usage of capital intensive methods of production in manufacturing enterprises. But Table 2-1 indicates that this was not always the case. Table 2-2: Sales per Unit of Labor

10

Micro

Small

Medium

South Korea: Retail Wholesale Communication Sales Information Processing Communication

$ 53,000 $ 80,000 $ 80,000 $ 83,000 $ 80,000

$ 53,000 $ 80,000 $ 80,000 $ 83,000 $ 80,000

EU

Euro 140,000

Euro 160,000


$ 3,600 $ 3,600 $ 3,600 $ 3,600 $ 3,600

$ 24,000 $ 12,000 $ 36,000 $ 60,000 $ 12,000

$ 24,000 $ 12,000 $ 36,000 $ 60,000 $ 12,000

In the absence of information on production levels, the sales’ limits could be used as a proxy for computing labor productivity, as in Table 2-2. As regards Table 2-3, it shows the asset turnover. Table 2-3: Ratio of Sales to Assets

Micro

Small

Medium

China: Manufacture

1:1

1:1


1.5 : 1 1.5 : 1 1.5 : 1 1.5 : 1 1.5 : 1

2.7:1 5 : 1 6 : 1

6.25 : 1* 5 : 1

2.7:1 5 : 1 6 : 1

6.25 : 1 5 : 1

* or 10 : 1 for ‘very small’ enterprises

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CHAPTER THREE

SURVEY OF MSME SERVICE PROVIDERS

First: Introduction A survey of opinions of the entities that are MSME stakeholders is essential to the process of formulating a definition for this sector in Egypt. The basic instrument used for this survey is a questionnaire that was designed in a way to seek feedback from the various organizations that provide services to one or more categories of the MSME sector. This was supplemented by a limited number of personal interviews with key organizations in the field. As indicated below, both the questionnaire and the interviews inquired about the type of services provided by the organization, their target groups, the definition they use if any, the criteria used for defining one or more categories of the MSME sector, and other aspects related to the usage of definitions. Also addressed was the issue of the need, if any, to have a law for the definition. The respondents represented the various sectors: governmental organizations, non-governmental organizations, statistical agencies, research bodies, semi-governmental organizations, donors and financial institutions. Below is a presentation of the survey findings. Findings under the personal interview are summarized in a section to follow. Second: Survey Overview The questionnaire is divided into four sections as follows: --The first section provides background information on the organization, location and sphere of activity, objectives and major activities, and target group(s). --The second part addresses the issue of definitions of the MSME sector activities, basis of the definition, and the process of updating the definition if any. --The third section is about the sources of data used by the organizations. --The last section of the questionnaire deals with legislative issues. A pilot test was conducted on six cases, and based on the responses, the questionnaire was found to be clear and adequate for the purposes of the study. In total, the questionnaire had 23 questions, many of which were open-ended. Post-coding of responses was conducted when responses were received. A number of sources were used to access information on the organizations to which the questionnaire would be sent. These were as follows: -The Federation of Egyptian Industries (FEI) and Friedrich Ebert Directory of organizations operating in the MSME sector. -The NGO Service Center Directory of Donor Agencies, and -The NGO Service Center Directory of Associations.

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In addition, a number of questionnaires were sent to organizations that the research team knew to be involved in the sector. Over 100 organizations were approached by the questionnaire. Responses were received from 54 organizations. Third: Survey Findings and Data Analysis A primarily descriptive analysis of the data was conducted based on frequency distribution of the responses. As mentioned above the questionnaire is divided into four sections: background information, definitions of MSMEs, data sources, and the legislative framework. 1.1 Background Information of the Organizations Over half the respondents to the questionnaire are registered as NGOs (52%), inclusive of a number of business associations. Donor agencies (at 11%), financial institutions (11%), and governmental agencies (9%); (see Table 3-1 below). Table 3-1: Type of Organization

Code Item/Classification No. %age 1 Governmental Agency (Ministry, etc…) 5 92 Semi-Governmental Organization 1 23 NGO 28 524 Financial Institution/Bank 6 115 Private Corporation 2 46 Research Center 4 77 Donor Agency 6 118 Joint stock company 1 29 Unspecified 1 2

Total 54 100 Table 3-2 points out that most of the organizations were established over 10 years ago (48%); in fact some were established since several decades. About 31% of responding organizations were established from 3 to 10 years ago. About 11% were established in the past two years. Table 3-2: Date of Organization Establishment

Code Item/Classification No. %age 1 Below 3 years 6 112 From 3-10 years 17 313 More than 10 years 26 484 No response 5 9

Total 54 100 Concerning the stated objectives of the organization, half the respondents indicated social and economic development (26 cases out of a total of 54); this constituted about 31% of responses because multiple responses were provided to this question. The second most frequently stated objective was that of MSME development, at 23%, followed by provision of credit, at 13%. Other responses included job creation (8%), export promotion (6%), and the promotion of adequate environment for investment and trade (6%). A breakdown is provided in table 3-3.

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Table 3-3: Main Objectives of the Organisation Code Item/Classification No. %age

1 Credit 11 132 Credit guarantee/ facilitate access to bank credit 1 13 SME business development 19 234 Socio-economic development/ community development 26 315 Institutional development 5 66 Job creation 7 87 Research 1 18 Export promotion 5 69 Promote adequate environment for investment and trade 5 6

Total 83 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. Main activities were credit provision (20%), business development (20%), and socio-economic development (21%). Others were in promotion of adequate environment, research, export promotion and insurance, exchange of experiences, etc. (Table 3-4). Table 3-4: Actual Activities of the Organisation

Code Item/Classification No. %age 1 Credit 19 20 2 Credit guarantee /credit-related services 2 2 3 SME/Business development and support 19 20 4 Socio-economic development/ community development 20 21 5 Exchange experiences/ information exchange 7 7 6 Job creation 1 1 7 Research/ studies 6 6 8 Export promotion/ export insurance 5 5 9 Trade promotion & investment environment improvement 9 9

10 Institutional support 2 2 11 Other 5 5

Total 95 100 *The total exceeds the number of questionnaires as some respondents gave more than one reply. The identified target groups were MSMEs (combined at 33%), vulnerable groups (21%), and unemployed youth/graduates (17%), as depicted in table 3-5.

Table 3-5 : Target Groups

Code Item/Classification No. %age 1 Micro-enterprises 12 11 2 Small enterprises 17 15 3 Medium enterprises 7 6 4 Employees of MSMEs 1 1 5 Youth/ young graduates/ unemployed 19 17 6 Exporters 4 4 7 Investors 6 5 8 NGOs/ Civil Society Organizations 7 6 9 Governmental organizations 1 1 10 Vulnerable or disadvantaged groups 24 21 11 Local communities 4 4 12 Others 11 10

Total 113 100 *The total exceeds the number of questionnaires as some respondents gave more than one response.

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As depicted in Table 3-6 the geographic sphere of operation of about 42% of respondents covers all of Egypt, followed by 18% for both Upper and Lower Egypt. Only 7% of organizations target Cairo only, and a similar percentage for new cities. Some organizations operate internationally (7%). Table 3-6: Geographical Sphere of Operation

Code Item/Classification No. %age 1 Cairo only 4 72 Lower Egypt governorates including Suez canal cities 10 183 Upper Egypt governorates 10 184 New cities 4 75 All Egypt 24 426 Regional 1 27 International 4 7

Total 57 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. 1.2 Definitions The section on definitions is the most significant in the questionnaire. It addresses the MSME-definitions that the organizations use, the basis and periodicity of update as well as objectives identified for each. Table 3-7 below portrays the definitions used by the organizations and the underlying criteria. It is important to note that only those respondents who had an operational or working definition of MSMEs were included in table 3-7, totaling 35 cases. (A number of respondents did provide some definitions that may have been simply developed for replying to the questionnaire, as broad estimations of size limits, so the research team decided that it is best to include only those with an operational definition). Table 3-7 attempts to provide a schematic presentation of the criteria different organizations use for defining the micro, small, and medium sized enterprises based on five main items: labor, capital, loan size, fixed assets, and annual sales turnover. The categories used in the table are overlapping, however, this was done to present as clearly as possible the upper and lower ranges used by the different organizations. Organizations more often than not use more than one criterion for defining MSMEs. Thus, an examination of the labor criterion for micro-enterprises indicates that the many respondents (11 cases out of 35) use 1-5 workers size limit. The responses ranged from a 1-3/4 lower range to a high of 1-9/10 workers. For the small enterprises, the ranges covered from: up to 10 workers to a high of 5-100, with a concentration (9 cases) in the range of 5/6-15 workers. For medium-sized enterprises, the bulk of respondents (9 cases) used up to 50 workers in defining the sector. It is important to observe that the non-response and/or ‘not applicable responses’ are considerable for the question on criteria of definitions. Respondents also used the capital criterion almost as frequently as the labor criterion. In defining micro-enterprises, the ranges for the capital criterion extended from ‘up to LE 3,000’ to ‘up to LE 500,000’, with responses almost evenly split among all responses (see table 3-7). As for the small-sized enterprises the responses ranged from ‘up to LE 50,000’ to a high of ‘up to LE 7 million’, with most responses (8

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cases) in the lower end (up to LE 50,000). Medium sized enterprises are defined as those whose capital ranges from a low of ‘up to LE 100,000 to a high of ‘up to LE 50 million’. The boundaries between micro, small, and medium sized enterprises overlap. This feature emerges with all five criteria used for defining MSMEs. Concerning the loan size criterion, for micro-enterprises it ranged from ‘up to LE 1,500’ to ‘up to LE 50,000’, with the majority of responses concentrated between the LE 3 – 5,000 as a ceiling. The small enterprises ranged from ‘up to LE 25,000’ to ‘up to LE 1.4 million’, with most respondents (8 cases) in the category of up to LE 25,000. The range used for the medium sized enterprises started at up to ‘LE 100,000’ (used by 5 cases) to ‘up to LE 5 million’. Few respondents defined the fixed assets and annual sales turnover criteria; some said this differs by sector. Table 3-7 demonstrates the distribution of responses for these two criteria.

16

Tab

le 3

-7: C

rite

ria

for

Def

initi

ons U

sed

For

Mic

ro, S

mal

l, A

nd M

ediu

m E

nter

pris

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ased

On

5 C

rite

ria)

L

abor

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teri

on

Mic

ro-E

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es

Smal

l-Ent

erpr

ises

M

ediu

m-E

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pris

es

1-3

1-4

1-5

1-6

1- 9/10

N

A

T

o 10

5/

6-15

9/

10-5

05-

49

15-

80

5- 100

NA

15

+ T

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50

-100

80

-20

0 T

o 50

0T

o 10

00

NA

6 4

11

1 4

9

9 9

3 2

1 3

19

4 9

2 1

4 3

15

Cap

ital C

rite

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M

icro

-Ent

erpr

ises

Sm

all-E

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pris

es

Med

ium

-Ent

erpr

ises

T

o 3K

T

o 5K

T

o 10

KT

o 25

K

To

50K

To

500K

N

A

To

50K

To

100K

To

1MT

o 2M

To

5MT

o 7M

N

A

To

100K

To

250K

To

500K

1M+

To

10M

T

o 50

M

NA

3 3

3 4

2 4

17

8 2

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4 1

16

3 2

3 2

3 4

19

Loa

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25K

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N

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0KT

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NA

T

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0K

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500K

250K

+ T

o 1.

4MT

o 5M

NA

4 7

7 1

1 2

14

8 4

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1 1

17

5 3

1 1

1 25

Fixe

d A

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s Cri

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3K

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50K

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100K

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250K

NA

T

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KT

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0KT

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NA

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To

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2 1

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150K

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N

A

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50K

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20M

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50M

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A

T

o 10

0KT

o 10

0MT

o 25

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A

1 2

1 1

30

1 2

1 31

1 2

1 31

N =

35

case

s/res

pond

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K

= T

hous

ands

, M =

Mill

ions

, NA

= N

ot a

pplic

able

/No

resp

onse

17

In further probing the criteria for definitions, a question was added to address the issue of what the fixed assets criterion included. All respondents who answered the question indicated that the fixed assets included equipment and machinery (29%), some others considered that land is also to be counted in addition to machinery and equipment (10%) and some added the buildings as well (13%), (see table 3-8). Table 3-8: Components of the Fixed Asset Criterion if used

Code Item/Classification No. %age 1 Equipment and machinery 20 29 2 Land 7 10 3 Buildings 9 13 4 Unspecified 34 49

Total 70 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. For the labor criterion, respondents indicated that in defining this variable they used all labor both socially insured and uninsured (39%) and both permanent and temporary workers (29%). Only a few cases use socially insured labor only (6%), or permanent workers only (5%). Details are provided in table 3-9. Table 3-9: Components of the Labor Criterion if Used

Code Item/Classification No. %age 1 Only insured workers 4 6 2 All workers, insured or not 24 39 3 Only Permanent workers 3 5 4 Permanent and temporary workers 18 29 5 Unspecified 13 21

Total 62 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. In identifying the basis for the definition, most respondents cited internal regulations (25%), followed by practice (13%) and donor agreement or definition (10%). Table 3-10 outlines a number of other bases, including decrees and specific studies. Table 3-10: Basis of the Definition Used

Code Item/Classification No. %age 1 Internal regulation 15 25 2 Board decree /ministerial decree 2 3 3 Other decree (not board or ministerial decree) 5 8 4 Donor agreement/ donor definition 6 10 5 Practice/ customary 8 13 6 MOFT study 2 3 7 MOI 1 2 8 FEI 1 2 9 GAFI’s study 1 2 10 Other 3 5 11 Not applicable/No response 16 27

Total 60 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. On financial services that organizations provide to MSMEs, over half the respondents (52%) identified credit, while 32% did not provide financial services to MSMEs:

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Table 3-11: Financial Services Provided by the Organization

Code Item/Classification No. %age 1 Credit 29 522 Grants/ bearing cost of start up 2 43 Savings 1 24 Credit guarantee/ credit-related services 5 95 Export insurance 1 26 No financial services 18 32

Total 56 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. All respondents stated that they did provide some non-financial services to MSMEs. About 42% provided training, 23% provided technical support (inclusive of marketing), and 8% provided export promotion services. Details are in table 3-12. Table 3-12: Non-financial Services Provided by the Organization

Code Item/Classification No. %age 1 Training 47 42 2 Technical assistance (including marketing) 26 23 3 Export promotion services 9 8 4 Other 30 27

Total 112 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. A question was about the objectives that the organization sought to attain through supporting MSMEs. As table 3-13 highlights, in assisting micro-enterprises there is an emphasis on poverty alleviation (32%), followed by job creation (28%) and growth and income increase (28%). For small enterprises, there was a shift in focus from poverty alleviation (14%), to job creation (32%), growth and income increase (31%), and increasing emphasis on export promotion (17%). For medium enterprises, the objective of poverty alleviation decreases further (7%), and highest priority is given to growth and income increase (33%), then job creation (29%) and export increase (28%). The objective of export increase is highest for the medium enterprises, as compared to small and micro enterprises, which is only understandable. Table 3-13: Objective per Target Group (micro, small and medium)

Micro Small Medium Code Item/Classification No. %age No. %age No. %age

1 Poverty alleviation/ community development

33 32 17 14 6 7

2 Job creation 29 28 38 32 24 293 Growth/income increase 29 28 37 31 27 334 Export increase 9 9 20 17 23 285 SME development 3 3 4 3 2 26 Other 0 0 2 2 1 1

Total 103 100 118 100 83 100 *The total exceeds the number of questionnaires as some respondents gave more than one response. On the issue of updating the utilized definition, the periodicity of updating if any, and the basis upon which the definition is updated, Tables 3-14, 3-15 and 3-16 are self-explanatory.

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Table 3-14: Do you update your definition on periodic basis?

Code Item/Classification No. %age 1 Yes 14 26 2 No 34 63 3 Unspecified 6 11

Total 54 100 Table 3-15: How Frequent is the Update?

Code Item/Classification No. %age 1 Every Year 5 92 From 1-3 years 2 43 More than 3 years 2 44 Unspecified 45 83

Total 54 100 Table 3-16: On what basis do you update the definition?

Code Item/Classification No. %age 1 Market standards/ economic situation/ practice 7 132 According to legal framework (including agreements) 2 43 According to technological innovations 1 24 Unspecified/No response 44 81

Total 54 100 1.3 Data Sources The third section of the questionnaire addressed the issue of sources of data on MSMEs used by respondents. About 32% of respondents rely on data from CAPMAS, followed by governmental research and studies (24%) including a study by MOFT. Other sources of data include own research (12%), research centers (10%), and specialized agencies (11%) inclusive of trade chambers, (see table 3-17).

Table 3-17: Data Sources Used by the Organization

Code Item/Classification No. %age 1 CAPMAS 26 322 Own fieldwork or research/ market 10 123 International or donor agency studies 5 64 Government agency studies 20 245 Research bodies/ research organizations and centers 8 106 All sources 1 17 Associations/ NGOs/Chambers /SME-support institutions 9 118 Other 3 4

Total 82 100 *The total exceeds the number of questionnaires as some respondents gave more than one reply. However, most organizations found that the data available is not adequate for their use (59%), while 30% found the data adequate (table 3-18). Table 3-19 indicates their suggestions for improving the data. Most respondents requested availing of a national data base for MSMEs and availing it through a single source for compiling the data (36%), some proposed improving data dissemination and availability. Some suggested availing of training and technical support for data gathering activity (7%).

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Table 3-18: Is the Available Data Adequate for your Use?

Code Item/Classification No. %age 1 Yes 16 30 2 No 32 59 3 To some extent 2 4 4 Unspecified 4 7

Total 54 100 Table 3-19: Suggestions for Improving the Data

Code Item/Classification No. %age 1 Single compiling data source/ national data base 22 36 2 Dissemination/ data to be readily available 8 13 3 To unify definitions 1 2 4 To update data periodically 1 2 5 Training and technical assistance in data compilation/

use of best practices 4 7

6 Other 7 11 7 No response 18 30

Total 61 100 *The total exceeds the number of questionnaires as some respondents gave more than one reply. 1.4 Legislative Framework An important section of the questionnaire was that concerning the opinion of respondents on the need to have a law for the definitions of MSME sector. As pointed out in table 3-20, the majority of respondents affirmed that there is a need for such a legislative framework (74%). About 22% of respondents stated that there is no need for such a law, while 4% (2 cases) did not respond to the question. Table 3-20: Is there a Need to Have a Law for the MSME Definition?

Code Item/Classification No. %age 1 Yes 40 742 No 12 223 Unspecified 2 4

Total 54 100 Reasons in support of passing a law on the definition included a need to have a legal framework and support for MSMEs (43%), to establish a common language and unify the definitions (26%), a need to identify the concerned parties and establish accountability (11%), and to avoid having a multitude of laws (6%), (Table 3-21).

Table 3-21: Why have a Law for the Definition?

Code Item/Classification No. %age 1 To unify definitions/ to establish a common language 12 26 2 To identify legislative framework & support for MSMEs 20 43 3 To identify the concerned entities/ binding for those

concerned/ to hold concerned entities accountable by law 5 11

4 To avoid multitude of laws 3 6 5 Other 7 15

Total 47 100 *Some respondents gave more than one response to the question.

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Those that do not support the passing of the law reported that the definitions vary by objective and industry and thus a law that unifies the definition would not be able to cover all the variations (5 cases i.e. 63% of those who responded to the question), others indicated that the definition does not need a law as the definition per se is the purpose not the law (2 cases), while 1 case mentioned that there is a need to ensure flexibility and a law might not allow for enough flexibility (details in Table 3-22). Table 3-22: Why not have a Law for the definition?

Code Item/Classification No. %age 1 Definition does not need a law/ the definition is not the purpose

per se 2 25

2 To avoid formalization burdens/ flexibility is needed 1 133 Definitions vary by objective/ by industry/ by currency used 5 63

Total 8 100 One of the issues raised in the questionnaire was identification of key stakeholders /partners in formulating the definition. Table 3-23 shows the diversity of partners identified. Various governmental agencies were identified by 32% of respondents, followed by civil society organizations (CSOs) and NGOs (at 20%), specialized agencies (14%), financial institutions (11%), donor and international agencies (10%), and statistical agencies (9%). Only 4 cases (3%) identified MSMEs themselves as partners in this process. (The latter in our opinion does not ensure non-bias) Table 3-23: Who are the Partners in establishing a Definition?

Code Item/Classification No. %age 1 Government agencies 42 322 Donor /international agencies 13 103 NGOs/ CSOs 27 204 Financial institutions 14 115 Specialized agencies & practitioners 19 146 MSMEs themselves 4 37 Information & statistical agencies/ research centers 12 98 Other 2 2

Total 133 100 *The total exceeds the number of questionnaires as some respondents gave more than one reply. The reasons cited for identifying these partners were the experience that such proposed partners have in the MSME sector (68%), availability of data and ability to compile data (10%), and links to donor and international agencies (10%); table 3-24. Table 3-24: Why these Partners in Particular?

Code Item/Classification No. %age 1 Experienced/ well exposed & have technical capacity 28 682 Have data/ can compile data 4 103 Connected to donors/ to international agreements 4 104 Other 5 12

Total 41 100 *The total exceeds the number of questionnaires as some respondents gave more than one reply.

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Fourth: Personal Interviews The following summarizes the results of ten personal interviews conducted with key organizations that are involved with the MSME sector (Interviewees’ names are in Appendix 4). Two of these interviews were held with the Ministry of Industry (MOI) and the Credit Guarantee Corporation (CGC) which were also part of the survey highlighted above (but it was useful to have a further interview being key organizations in the field). Interviews included Heads and/or Deputy Heads of four Commodity Councils listed in Table 3-25. Table 3-25: Commodity Council Definitions of MSMEs

Criteria Micro Small Medium CC for Leather and Leather Products

Labor n.a. 5-100 100-300 Capital n.a. Up-to LE 5 million LE 5-20 million Fixed Assets n.a. Up-to LE 2 million LE 2-10 million Annual sales n.a. Up-to10-15 million LE 15-40 million

CC for Food Industries Labor n.a. n.a. 100+ Capital n.a. n.a. LE 5 million+ Fixed Assets n.a. n.a. n.a. Annual sales n.a. n.a. n.a.

CC for Engineering and Electronics Industries

No specific criteria or size standards CC for Books and Arts

The only classification is for the movie industry, and it is by size of a ‘film’ rather than size of an enterprise. A film is classified according to the size of its budget as follows: Low Budget: average LE 2 million Medium Budget: average LE 4-5 million High Budget: average LE 8-12 million

n.a.: not applicable The interviews with CCs indicated industry-variations as regards MSME definitions. It was also noticed during the interviews that the size standards for the definitions were only approximate, depending to a great extent on the assessment of the individual interviewees. Additional comments by the interviewees were as follows:

a) The Leather Products CC interviewee indicated that the leather industry is labor-intensive. But he said that even within the industry the labor intensiveness would vary by sub-activity.

b) The Engineering and Electronics Industries CC interviewee noted that the criteria to be used would depend on the product type. For example, some of the engineering and electronics industry activities are capital-intensive, relying primarily on robots – thus labor component is low while fixed assets are substantial, while other activities are labor-intensive. The type of product would determine the classification of an activity as micro, small or medium.

c) The interview with the Head of the CC for Food Industries raised another important criterion: the extent to which an industry adopts quality standards

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and implements international standards for manufactured goods. The interviewee emphasized that the CC encourages larger scale industries.

d) The representative of CC for Books and Arts reported that it is difficult to establish criteria and size standards for definitions of the MSME sector. Their industries, he said, are primarily service-oriented.

In the case of CCs that use the labor criterion, they said this criterion covers both the insured and uninsured labor, as well as temporary and permanent labor. Among the issues raised with the interviewees was their opinion regarding the issuing of a law for the definition of the MSME sector. In spite of some variations in responses, there appeared to be a general acceptance for the need thereof. This was mainly due to the need to promote the industries and removing obstacles that currently confront them. The interviewees reflected the need to clarify the purpose of the law. In one instance, (CC for food industries), it was mentioned that there is no need to include the micro-enterprises in the proposed legislation. Another issue raised was that of the need to ensure flexibility in implementation of the proposed law. 4.5 The Federation of Egyptian Industries (FEI) FEI is one of the major stakeholders in the MSME sector. The organization primarily aims to promote the development of industry through provision of numerous support services to members, including information or databases on industry in Egypt, technical assistance, member-directories, communications facilities, research, and enhancing productivity of Egyptian workers. The FEI uses the guidelines set out by the WTO for developing countries in its definition, as indicated in Table 3-26. Table 3-26: Definitions used by FEI for MSMEs

Criteria Micro Small Medium Labor < 10 10-100 100-1000 Capital < LE 50,000 LE 50,000–LE 5 million LE 5 - 50 million Annual sales <LE 5 million LE 5 – 50 million LE 50 – 250 million 4.6 Credit Guarantee Corporation (CGC) CGC is a private sector company that provides credit guarantee to MSMEs to encourage banks to support the sector, and provides technical assistance to the sector (except in agriculture and animal husbandry for micro enterprises, and except commercial activities for small and medium enterprises). At the micro level, there are different definitions according to two projects: an Italian project and a US project. Table 3-27: Definitions used by CGC for MSMEs

Criteria Micro Small Medium Labor 1-5 (US project)

1-6 (Italian project) 6-15 (US project) n.a.

Capital Up-to LE 25,000 (US) LE 2,500–40,000 (Italy)

LE 40,000 – LE 7 million

Loan Size LE 1,000 – 25,000 (US) LE 5,000-40,000 (Italy)

LE 10,000 – 1.4 million (no upper limit for medical projects)

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In using the labor criterion, the CGC, as in the case of the commodity councils, covers all labor types (socially insured and uninsured, temporary and permanent). It is also important to note that the CGC explicitly excludes the value of land and building from the capital criterion due to problems associated with assessment of the value of land and buildings. During the interview with the CGC, they noted that the best approach to defining the MSME sector is to link between capital and labor criteria. However, the interviewee mentioned that the labor criterion varies by industry. The annual sales criterion was not utilized because it could be misleading. A significant issue raised during the interview with CGC was that it is best to exclude micro-enterprises from attempts at regulation of the SME sector, mainly because the bulk of micro-enterprises are in the informal sector. 4.7. Small Enterprise Center At The National Council For Women (SEC-NCW) The interview was conducted to get a perspective on criteria used by an organization that targets women entrepreneurs. The SEC-NCW is a semi-governmental organization that aims to provide technical assistance services to women entrepreneurs and to promote the participation of women in the labor market. The SMC-NCW provides training and consultancy services to women entrepreneurs, and has a database on SMEs. They target their interventions in the Greater Cairo region (Cairo, Giza, Qalyoubeya). Table 3-28 highlights their definitions. Table 3-28: Definitions used by SEC-NCW for MSMEs

Criteria Micro Small Medium Labor 1-4 5-10 10+ Capital < LE 5,000 LE 5,000 – 50,000 LE 50,000 – 500,000 While SEC-NCW defined the micro-enterprise sector, it only operated in the small and medium enterprise field. The labor criterion used by NCW covers both insured and uninsured labor. 4.8. Save the Children (SOS) SOS is a development organization providing provides support services to children that are in difficult circumstances, as well as credit services. The organization provides credit at the micro level only, through the solidarity program (Al-Tadhamun) that started in 1996. Beneficiaries are primarily women; the objective of the credit is income generation. The organization uses the loan size criterion to define the micro-credit enterprises, with a range of LE 300 to LE 3,000. As regards the proposed legislation, the interviewee noted that this would be a positive move that would legalize the status of micro-enterprises and establish guidelines for them. 4.9. The Ministry of Industry (MOI) MOI is one of the key stakeholders in defining the MSME sector. MOI sets the policy framework for Egyptian industry. Table 3-29 below outlines the definitions used by the ministry in defining the micro, small, and medium sized enterprises.

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However, during the interview with a senior expert at the MOI, he expressed reservations on using the labor criterion only as one of the basis for defining MSMEs. According to the interviewee, different sizes of enterprises are based on different utilization of technology. It is a common mistake, he mentioned, to base a definition on number of workers only. Table 3-29: Definitions used by Ministry of Industry for MSMEs

Criteria Micro Small Medium Labor 1-9 10-50 50-100 Capital Up to LE 500,000 LE 500,000 – 5 million LE 5 – 10 million The interviewee pointed out that the important issue was not so much the delineation of boundaries between SMEs, but rather it was the need to ensuring that the sector is well placed within an overall policy framework for industrial development in Egypt. This would enhance linkages and integration between sectors (small, medium, and large), and promote competitiveness in enterprises. Similarly, the interviewee mentioned that one of the most crucial issues to be addressed in the context of SMEs is that of identification of roles among the different organizations operating in the SME sector. 4.10 The Social fund for Development (SFD) SFD provides credit services and technical assistance to micro-, small, and medium enterprises, through various intermediary agencies e.g. banks and NGOs. The micro-credit services and the SMEs services are provided through different channels within the organization. Micro-credit is geared at poverty alleviation and income generation, and is provided through the General Projects sector (comprising community development and development of infrastructure through public works program). The SMEs sector is geared at employment generation and enterprise development and is channeled through the Small Enterprise Development Organization (SEDO). The definition used by SFD for the MSME sector is based on the study of the Ministry of Foreign Trade on MSMEs (i.e. ERF’s Definition Study Phase I of 2002). SFD provides non-financial services to beneficiaries such as assistance in doing feasibility studies and marketing assistance. In order to facilitate access to technical support services, the SFD in cooperation with the UNDP have set up one-stop shops to beneficiaries, thereby facilitating access to both credit and non-credit services. Fifth: Conclusions 5.1 Survey Conclusions The survey has been useful in a number of issues. First, it highlighted the fact that while a number of organizations have several years of experience in the MSME sector, it still remains the case that there is no consensus on the definition of the sector. The issue is a complex one and is more so when industry specifics are taken into account.

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Second, the survey opened up a number of considerations that should be taken into account in trying to set definitions for MSMEs and related support services. Among these issues are the concerns with addressing micro-enterprises on the one hand and SMEs on the other hand in one legislation. The objectives and scope of both are quite different and the mechanisms that are involved in the two render it a challenge to combine the two through single legislation. Another concern is with the criteria used for definition of MSMEs. A substantive effort is needed to identify which criteria are most relevant as well as the appropriate size limits for the three categories. The issue of having a law for the definition appears to be in debate and needs further study. Finally, another consideration is the need for improving MSME-data quality and availability. 5.2 Conclusions to the Personal Interviews The interviews conducted also indicated that definitions for MSMEs differ from one organization to another, and to a certain extent are industry specific. There is a felt need for some kind of regulation, but it is not clear how this is to be done. This feeling is coupled with a concern with the negative repercussions of inflexibility resulting from passing a law. Through the interviews it is evident that the criteria that are most frequently used for defining the sector are ‘labor size’ and ‘capital’, followed by ‘fixed assets’. It is thus a good starting point to work on the basis of these criteria. Some other criteria were mentioned in the interviews such as the adoption of quality standards and technology classification of industries.

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CHAPTER FOUR

FORMULATION OF A MULTI-SECTOR DEFINITION FOR MSMEs IN EGYPT

First: Participatory Approach The study used a participatory approach for the formulation of a multi-sector definition for MSMEs in Egypt. A list of key stakeholders in the area of MSMEs was developed in coordination with MOFT, with focus on key partners in the process of formulating a definition. Gatherings among stakeholders were conducted throughout the progress of the research, for the purpose of presenting the findings under the various stages of the research and obtaining stakeholder feedback thereon. The stakeholders that were represented in the gatherings were as follows5: -CAPMAS -SFD -Ministry of Foreign Trade (MOFT) -Ministry of Finance (MOF) -Ministry of Industry (MOI) -General Authority for Investment (GAFI) -Ministry of Local Development (MLD) -National Council for Women -Egyptian Association for Incubators -The Cooperative Insurance Company (under SFD) -Alexandria Business Association (ABA) -The Productive Cooperative Union (PCU) -Ministry of Social Affairs (MOSA) -National Bank of Egypt -Researchers (Faculty of Economics, Cairo University) -Faculty of Economics, American University in Cairo -SME Consultants (e.g. associated with ‘Consultative Group for Assisting the Poor’) -The Egyptian Small and Micro-Enterprise Association (ESMA) Second: Components of the Variables of the Definition The proposed definition of MSMEs relies on a number of variables each of which could have different components, thus the importance of clarifying what is meant by each variable and what components are included, with a suitable justification: --Rather than using ‘total assets’ or ‘total investment’, only ‘fixed assets’ are counted i.e. ‘current assets’ are excluded. The rationale is the frequent and wide fluctuations in value of current assets6. 5 List of attendees on behalf of the various stakeholders is indicated in a separate annex, Annex (E)

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--Also with regard to ‘fixed assets’, ERF initially proposed that the value of land and buildings be counted i.e. not only the value of machinery and equipment. This was because land and buildings constitute the area of operation of the enterprise and thus affect the production capacity; they could also be used as a way of estimating earnings of micro-enterprises. However in one of the conferences where this was presented, both the discussant and the voting process preferred to exclude value of land and buildings due to difficulties of valuation, due to the fact that most micro and small enterprises operate in rented premises, due to the possibility of common ownership, and also because the entrepreneur’s activity is sometimes undertaken in his house in case of micro-enterprises7. Finally, it is proposed that valuation of fixed assets is to be based on book value or market value whichever is lower. This would avoid depriving some of the small and medium enterprises from belonging to the MSME-sector and enjoying any related incentives. (This valuation is similar to the accounting principle in inventory valuation, LOCOM ‘lower of cost or market’ that is used for purposes of conservatism).

--As to the ‘labor’ criterion, while ERF initially proposed counting both ‘permanent/official’ and ‘casual’ labor, most participants in the conference preferred to use only the labor that is under social security, because of the difficulty in counting the others. ERF thus went along with the participants’ preference8. If only official labor is counted (i.e. labor under social security), it is expected that if better incentives are offered to the ‘small’ versus ‘micro’ category, then entrepreneurs that have more than four employees would compare the benefits of belonging to the small category through providing their employees with social security against the costs of social security payments and the risks of official labor-hiring thus being stuck with excess labor at times of slack business. As such, there may be cases where the entrepreneurs are encouraged to register their employees under social security.

6 It is noted that this rationale was approved by the discussant in the conference of April 2002, but not by the voting process where the majority preferred to consider that the criterion is ‘all invested capital’ rather than fixed assets alone. ERF continues to prefer using ‘fixed assets’ only in view of the rationale referred to. Some participants said the value of ‘current assets’ could be directly obtained from the year-end balance sheet of the enterprise; but we note that many small (and almost all micro) enterprises do not have balance sheets, and the year-round average value of the current assets could be very different from the year-end stock. 7 ERF had no problem in going along with this modification (and thus reduced the fixed asset limit for the micro category from an initial LE 100,000 to LE 25,000 covering machinery and equipment only). 8 ERF’s initial rationale for counting casual labor was based on MSMEs’ heavy reliance thereon to a) to avoid social security costs, b) because labor-layoffs are difficult under present labor laws while slack market conditions at times seriously affect business and makes it impossible to incur the labor wages, and c) labor-firing is difficult under present labor laws in a way that the business owner may be stuck with inefficient workers. It is noted that SBA definition counts all laborers regardless of their temporary status and regardless of number of hours worked. (Also in the conference ERF presented as an alternative to totally excluding the casual labor, a suggestion for study whereby a weight of one third can be applied in converting the number of casual laborers into the equivalent of official/permanent labor –a ratio that is used by some specialized organizations in calculating the full-time equivalent of temporary/seasonal labor).

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Third: Advantages of the And/Or Option The proposed MSME-definition relied on size classes for labor, fixed assets and sales turnover on ‘and/or’ basis i.e. fulfillment of only one size-limit entitles the enterprise to be a member of micro, small or medium enterprise-group regardless of the size limit of the other variable (s). This has some advantages such as: a. Flexibility and applicability, where there may be available information on only one of the variables but not the other, b. It is an approach in favor of MSMEs where any one condition being fulfilled can entitle the enterprise to benefit from any incentives for the sector, also noting cases where the size of two or more of the criteria is not consistent with each other, c. It is useful to have ‘and/or’ option so that an entrepreneur that already reached the labor limit ceiling could shift to another variable and still remain within size limits rather than be reluctant to add new labor as mentioned earlier. This would be the case when the entrepreneur is in the highest category i.e. medium and/or if incentives decrease for larger categories of the three ones under the sector in a way that the graduation from one category to the higher one reduces incentives. In the absence of and/or option, and if only official labor is counted rather than casual labor, MSMEs may be discouraged to legalize their workers’ status. By the same token, vis-à-vis the fixed asset criterion, MSMEs may be discouraged to undertake new capital formation. d. Using the fixed asset criterion alone ignores the idle capacity of fixed assets. The idle capacity could be significant at times of slow market conditions. e. While it is sometimes argued that labor and asset criteria should be used on a ‘combined’ basis rather than ‘and/or’ so as to set a limit on value of assets per employee thus excluding capital-intensive enterprises from eligibility to incentives for the sector, it is noted on the other hand that a) in cases where certain capital/labor ratios determine the most efficient methods of production, we would not want job-creation to take place at the cost of reduced productivity. At the macroeconomic level, monetary policies (e.g. on rates of exchange, interest rate) affect business owners’ selection of methods of production that secure efficiency. The rise in investment leads to more growth, which in itself would lead to job creation, b) job creation could better be fostered by removing the barriers inherent in labor laws and social security requirements and c) as most MSMEs are by nature labor-intensive (even examples like machine-production, tool making, and chemicals) then by merely introducing policies that support the MSME-sector, job-creation could be enhanced. Fourth: Exclusion Rules The following exclusion rules were recommended by ERF, some of which were also in line with certain international MSME definitions. A number of specific subgroups should be excluded from the suggested classification for purposes of any incentives:

a) Professionals: these enjoy the full benefits of scale economies and other positive attributes of size. They should therefore abide by the rules of the large and/or formal universe. The same is true of specialized services such as tourist-related services.

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b) Affiliates of large establishments: they can obtain the necessary support from the large establishment to which they are affiliated, in the form of technical assistance, credit, etc. Under the EU definition of SMEs, no more than 25% of the voting shares may be owned by a large corporation. Some experts also recommend excluding franchises of large national or multinational corporations.

c) Location: certain advantaged locations are to be subject to taxes regardless of size e.g. micro establishments located in privileged tourist zones should not be eligible for tax exemptions since their location advantage compensates for their size related diseconomies of scale and hence profit margins.

d) Market dominance: if an enterprise belongs to the MSME sector according to the definition proposed, but has a significant share in the market of the good or service that it produces or trades, then it is not to be eligible to any incentives in support of the sector. This is applied by the US Small Business Administration (SBA), particularly with regard to bid-preferences9.

Fifth: The Proposed Multi-Sector Definition In Table 4-1 below, the proposed definition is presented, together with an indication of the ratios between variables (in italics, in the last 3 columns of the table) according to the proposed limits for each variable. The latter serves for comparison with other sources of data that will be highlighted in the sections to follow. Table 4-1 Proposed Multi-Sector Definition for MSMEs in Egypt*

Labor

Fixed Assets

in LE

Sales

in LE

Fixed Assets (LE) per unit of

labor (Approx.)

Sales (LE) per unit of

labor

(Approx.)

Ratio of Sales

to Fixed Assets

Ceilings for the range:

Manufacture & Construction Micro Small Medium

1-4 5-49 50-99

25,000 5,000,000 10,000,000

100,000 10,000,000 20,000,000

6,000 100,000 100,000

25,000 200,000 200,000

4 : 1 2 : 1 2 : 1

Services & Trade Micro Small Medium

1-4 5-9 10-19

25,000 500,000 2,000,000

100,000 1,000,000 4,000,000

6,000 50,000 100,000

25,000 100,000 200,000

4 : 1 2 : 1 2 : 1

9 Analysts propose introducing a qualifier that states that if an MSME controls 25% or more of the production of a particular good or service it should not be considered part of the sector.

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Sixth: Basis for the Proposed Definition The study took into consideration the information obtained from a number of sources:

a) from MOI, b) from the economic census of 2001/02, c) from the census of establishments of 1996, d) from the relations between variables computed for other countries’

definitions earlier in Chapter 2, Tables 2-1, 2-2 and 2-3 (with special reference to South Korea and South Africa),

e) survey-findings and discussions during stakeholders’ gatherings. 5.1 MOI’s Definition of MSMEs in the Manufacturing Sector

The Ministry of Industry (MOI)’s definition for MSMEs focuses on manufacturing enterprises. MOI uses ‘labor’ and ‘investment costs’ criteria. Micro, small and medium enterprises are defined as those having 1-9, 10-49 and 50-99 workers respectively. As to the ceilings for investment costs, they are set at LE 500,000, LE 5 million and LE 10 million for the three groups of enterprises respectively. MOI provided a database of the manufacturing enterprises that are registered with the General Organization for Industrialization (GOFI). The database has a list of 25,056 enterprises registered with GOFI of which 23,864 have investment costs up-to LE 10 million, which is MOI’s ceiling for the medium enterprise category. The information in Table 4-2 is extracted from the database referred to. Table 4-2 Distribution of Manufacturing Enterprises Registered at GOFI (Feb. 2002)

Categories distributed by Investment (LE)

# Enterprises

Production

LE 000

Investments

LE 000

# Workers

Up-to 500,000 19,155 6,622,983 1,593,189 167,863 500,000--1 million 1,456 3,213,865 1,023,198 38,127 1 million--2 million 1,233 5,350,386 1,826,438 58,586 2 million--5 million 1,244 11,507,257 4,092,803 92,332 5 million--10 million 776 13,566,244 5,618,802 91,482 Source: Ministry of Industry, Data on Economic Establishments Registered with GOFI, 2002 MOI’s definition for the manufacturing sector is not fully adopted by the definition proposed in this study (especially for the micro category). However, a number of ratios are computed and indicated in Table 4-3 below, based on the information in MOI’s data. To a certain extent, the ratios justify the proposed definition for the manufacture sector that was indicated in Table 4-1.

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Table 4-3 Ratios between Variables in Manufacturing Sector (rounded to nearest 000)

Categories distributed by Investment

LE

Average Investment per Unit

of Labor

(as a proxy for fixed assets per unit of labor)

Average Production per Unit

of Labor

(as a proxy for sales per unit of

labor)

Ratio of Production to Investment

(as a proxy to

ratio of sales to fixed assets)

Up-to 500,000 LE 9,000 LE 39,000 4.1 : 1 500,000--1 million LE 27,000 LE 84,000 3.1 : 1 1 million--2 million LE 31,000 LE 91,000 2.9 : 1 2 million--5 million LE 44,000 LE 125,000 2.8 : 1 3 categories combined: 500,000-5 million

LE 37,000

LE 106,000

2.9 : 1

5 million--10 million LE 61,000 LE 148,000 2.4 : 1 5.2 The Economic Census of 2001 /02 The data in Table 4-4 was extracted from the economic census as it was found useful insofar as checking the appropriateness of the proposed definition (Table 4-1) vis-à-vis the ratio of sales per unit of labor.

Table 4-4 Ratio of Private Sector Production (Sales’ Revenue) to Labor

SECTOR

Production (Sales’

Revenue) LE million

(a)

Labor

(b)

Production (Sales’ Revenue) per Unit of Labor

LE (a / b)

Retail < 5 employees

41,732

1,566,160

26,646

Retail 5+ employees 1,583 18,073 87,580 Total Retail 43,315 1,584,233 27,341 Wholesale 5,916 36,151 163,646

Manufacturing: <10 employees 17,105 573,171 29,842 Manufacturing: 10+ employees 55,096 570,133 96,637

Total Manufacturing 72,200 1,143,304 63,150

Repair: Up-to 9 employees 2,647 247,527 10,700 Hotel/Tourism 6,769 67,213 100,700 Construction 8,187 340,203 24,000

5.3 The Census of Establishments of 1996 As in a number of other countries, especially in East Asia, MSMEs in Egypt constitute well above 90% of total number of enterprises and around two thirds of the labor force. This varies by sector, especially with regard to labor force, as indicated by the percentage distributions in Table 4-5.b below. The percentages were calculated by using the data in the census of establishments of 1996. The distribution in the

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construction sector is more similar to the manufacture sector than to the service sector; thus the grouping of construction and manufacture in the proposed definition. This grouping was also suggested in light of the treatment of the construction sector in other countries’ definitions, which was closer to the manufacturing than other sectors. Also due to size distribution dissimilarities, the wholesale sector could have been separated off from retail (to propose higher ‘sales’ limits in wholesale than in retail), but this was not done to avoid complicating the definition by using too many variations and sub-categories, also noting that the total number of enterprises in the wholesale sector constitutes less than 10% of the trade sector (Tables 4-5.a and 4-5.b). Table 4-5.a Distribution of Enterprises by Size of Labor

(a) Retail

(b) Wholesale

(a+b) Trade

Services

Manufacture

Construction

1-4: enterprises workers

786,235 1,141,855

70,317 136,995

856,552 1,278,850

390,706 712,032

232,840 484,890

8,308 16,466


16,917 100,791

7,513 45,684

24,430 146,475

21,039 126,254

32,958 202,576

1,519 9,524


1,845 20,818

1,156 13,204

3,001 34,022

3,215 36,735

5,193 59,352

410 4,732


536 8,783

383 6,313

919 15,096

1,243 20,482

1,956 32,289

160 2,644


622 17,436

568 16,315

1,190 33,751

2,183 63,991

2,996 88,383

230 6,750


108 7,262

86 5,642

194 12,904

558 36,933

839 55,936

80 5,469

100+: enterprises workers

64 17,513

67 17,279

131 34,792

398 96,143

720 219,607

46 14,048

Total: enterprises Workers

806,327 1,314,458

80,090 241,432

886,417 1,555,890

419,342 1,092,570

277,502 1,143,033

10,753 59,633

* In extracting the data, ‘repair’ was deducted from the trade sector and added to the service sector. NB. The above totals add up to 1,574,014 enterprises and 3,851,156 workers. But the totals in the census are 1,640,366 and 3,974,810 respectively. The difference of 3-4% is ‘others’. Table 4-5.b Percentage Distribution of Enterprises by Size of Labor

(a) Retail

(b) Wholesale

(a+b) Trade

Services

Manufacture

Construction


97.5% 86.9%

87.8% 56.7%

96.6% 82.2%

93.2% 65.2%

83.9% 42.4%

77.3% 27.6%


2.1% 7.7%

9.4% 18.9%

2.8% 9.4%

5.0% 11.6%

11.9% 17.7%

14.1% 16.0%


0.2% 1.6%

1.4% 5.5%

0.3% 2.2%

0.8% 3.4%

1.9% 5.2%

3.8% 7.9%


0.1% 0.7%

0.5% 2.6%

0.1% 1.0%

0.3% 1.9%

0.7% 2.8%

1.5% 4.4%


0.1% 1.3%

0.7% 6.8%

0.1% 2.2%

0.5% 5.9%

1.1% 7.7%

2.1% 11.3%


0.0 0.6%

0.1% 2.3%

0.0 0.8%

0.1% 3.4%

0.3% 4.9%

0.7% 9.2%

100+: enterprises workers

0.0 1.3%

0.1% 7.2%

0.0 2.2%

0.1% 8.8%

0.3% 19.2%

0.4% 23.6%

Total: enterprises Workers

806,327 1,314,458

80,090 241,432

866,417 1,555,890

419,342 1,092,570

277,502 1,143,033

10,753 59,663

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The data in the census of establishments were also used for computing the level of coverage by the proposed definition’s maximum limits for labor i.e. 19 under trade and services and 99 under manufacture and construction respectively. This is calculated for both the number of establishments as well as the number of workers. The percentages are indicated in Table 4-6. Table 4-6 Percentage of Establishments and Workers Covered by the Proposed Definition

Establishments

Workers

Retail 99.9% 96.9% Wholesale 99.1% 83.7% Services 99.3% 82.0% Manufacture 99.7% 80.7% Construction 99.5% 76.4% The data in the census of establishments were similarly used for calculating the average number of employees per enterprise, as shown in Table 4-7, for the purpose of considering the variations by sector. Table 4-7 Average Number of Employees per Enterprise

Average Number of Employees

Retail 1.6 Wholesale 3.0 Services 2.6* Manufacture 4.1 Construction 5.5 * In a later chapter this ratio is reported as 2.2 only; the difference is due to different sources used i.e. census of establishments of 1996 versus economic census of 2001. In summary, the proposed definition is based on a number of considerations:

1. For the micro category no distinction by sector was assumed. It is a survival group of special nature and in need of special type of support. Findings under the survey of organizations, highlighted in Chapter 3, do not refute the proposed size limits for this category (see Table 3-7 in Chapter 3).

2. As regards small and medium categories:

2.a. Under the manufacture sector, the proposed size limits now comply with MOI’s definition, for both ‘labor’ and ‘fixed assets’ criteria. The ratios between variables that were computed in light of GOFI’s database largely fit with ratios from the census (see Tables 4-3 and 4-4 for the ratio of ‘sales or production’ to ‘labor’). MOI’s limits are higher than those used by other entities in Egypt, but MOI has a key role in the manufacturing sector; also the involvement with the

35

Industrial Modernization Program justifies the adoption of higher level size limits that are closer to international standards. 2.b. The construction sector constitutes a small portion of total enterprises; it is found to be more similar to manufacture than to service sector enterprises with regard to average number of employees per establishment (Table 4-7) and percent size distribution (Table 4-5.b). Some other countries’ use same size limits for construction as for manufacture, especially as regards to ‘labor’. Higher size limits were used by other countries in ‘capital or fixed assets’ criterion for manufacture than for construction, but in our proposed definition this sort of differentiation was not made for purposes of reducing the variations as much as possible and the number of different classifications i.e. the creation of sub-categories is minimized where possible, for simplicity. 2.c. By the same token, that is attempting to reduce the number of different classifications under the proposed definition, the trade and service sectors are combined. They are similar in some aspects: e.g. with regard to size distribution (Table 4-5.b): by excluding the micro category of 1-4 workers the remaining number of enterprises in the whole sector constitutes only 4% and 7% in trade and service respectively. (By contrast, the corresponding percentages are 16% and 23% in manufacture and construction sectors respectively). Some countries’ definitions use same labor size limits for trade and services as opposed to manufacture e.g. South Africa and Hong Kong (but some use higher limits for services). We preferred to reduce the variations as noted above. Further, considering the proposed ‘sales’ size limits for trade and services, the resulting ratio of ‘sales per unit of labor’ could be supported by the ratios computed from the data of the economic census (Table 4-4).

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CHAPTER FIVE

AGREEMENT BETWEEN DIFFERENT DEFINITIONS OF MSMEs IN EGYPT: AN ANALYTIC STUDY BASED ON THE ECONOMIC CENSUS

First: Introduction on Data Sources on MSMEs in Egypt10 A review of data sets on MSMEs in Egypt has been conducted11; main findings were as follows: a) There is a large number of data collection activities related to MSMEs. Four data sets have been collected by CAPMAS on a full enumeration basis between 1996 and 2001 (the census of establishments, the 2nd and 3rd economic censuses and the Industrial and Handicraft study). It is recommended to use the latest economic census as a source of information on policy issues related to MSMEs since this data set is the most recent and has a considerable level of coverage. b) However, the data sets collected through CAPMAS have limited accessibility. A valuable data set (on small private industrial enterprises) that has been recently collected by CAPMAS and sponsored by SFD is almost non-accessible. c) Requests for special tabulations from the economic census can be addressed to CAPMAS; but the cost of such services is expensive and usually not justified. The computer center is not depending on standard statistical packages and is producing tables on a mainframe computer using COBOL language (that is not an up-to-date language), thus an obstacle to data accessibility and portability (i.e. transferability). d) Data sets on credit beneficiaries are more accessible, especially in case of NGOs and business associations. But these data sets are not representative of MSMEs12. e) Registration systems such as social security and commercial registration are designed for other purposes but may have valuable information. Social security database includes records for the whole nation and are establishment-based, but are less likely to include micro enterprises and enterprises from the informal sector. Commercial registration has a lower level of coverage. Support is needed for better use of these two sources in research purposes. f) There is a need to improve data collection activities. Lack of data-set

compatibility and non-accessibility are two major problems. g) A gap that needs to be addressed is the lack of coordination between data collection activities. Traditional and non-traditional ways of networking are needed. 10 A detailed paper on the review of data sets is in a separate annex, Annex (c). 11 A comparison between data sets is in a separate annex, Annex (F). 12 The prevailing use of credit among MSMEs varies from one study to the other: it is found to be less than 5% in CAPMAS & SFD study versus16% in Al-Mahdi and Osman study, 1999.

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h) Another gap is the absence of any electronic media for users with need for direct or indirect access to data on MSMEs. i) With few exceptions, the level of data accuracy and coverage are adequate.

Second: Recommendations Regarding the Data Sets 2.1 Updating the data sets: A periodical updating of information of the census of establishments is suggested, (every two years). This is especially important with the economic recession resulting in a large proportion of establishments going out of business or changing their type of activity. Such regular updating will be extremely useful not only as a frame for sample surveys but also as a system for follow-up and monitoring. The effective way to implement such updating needs further investigation. A brainstorming workshop for stakeholders is suggested to discuss cost-effective ways that benefit from different activities. 2.2 Accessibility: The issue of accessibility of data sets collected through governmental and non-governmental agencies needs special attention. A protocol needs to be developed and agreed upon by different stakeholders to outline a more flexible approach. (A valuable data set on small private industrial establishments was conducted by CAPMAS and SFD, but is almost non-accessible. CAPMAS is not using the data for any further analysis since it is considered a property of SFD. The latter does not have the channels to provide researchers and/or planners with data to conduct any further analysis. An effort should be done to make the data more accessible. Donors investing in data collection activities can play a role in requesting accessibility possibly throughout the Internet). 2.3 Data compatibility and integration of data from different sources: Integrating data sets of different sources should be considered. A database structure needs to be agreed upon by stakeholders, and to be applied by different parties. Even though information vary from one user to another, it should not be difficult to agree among stakeholders upon a common minimum structure. Holding coordination meetings between data providers to discuss ways of data compatibility (hardware and software) may help in reaching this goal. Putting all NGOs and business associations on a common ground may be a good starting point that should be followed in coordination with governmental agencies. Some NGOs and business associations may be in need of capacity building in the area of information technology. 2.4 Networking: Networking among MSMEs stakeholders is urgently needed. This can be achieved through launching a WEB page that provides information relevant to MSMEs in Egypt. The home page can provide links to data sets providers, description of different data sets in terms of methodology, ways of accessibility, limitations and coverage. The page can also be a media for dissemination of results. Another concept for consideration, that is more optimistic, is a data warehouse for MSMEs. A data warehouse can be used to store data from different sources in one or

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more servers. Users of a data warehouse have the opportunity to download data files and to analyze any of the data files. Such full accessibility to data may not be accepted by several agencies that prefer to withhold information. On the other hand, NGOs may see in this warehouse a way to reduce the costs of maintaining their databases. A less limited use of a data warehouse that may be acceptable by all data providers and owners is to provide tabulations without access to data files. However, the concept of data warehouse is flexible enough to suit all preferences. Even if the amount of information provided is limited at the beginning, introducing the concept in itself will activate a snowball process that will result in a continuous growth of data availability. To establish a data warehouse, a sponsor should invest in hosting and maintaining it. The amount of investment needed depends on the amount of data stored and processed. It also depends on the scope of services provided for users. The establishment of a discussion group for MSMEs in Egypt may also improve the level of networking among stakeholders. 2.5 Benefiting from non-traditional data sets: Several agencies have data sets that are built to serve their own objectives. Such data sets may include valuable information if properly extracted from data files. At least two data sets should be considered: commercial registration and social security registration. It is evident that a large amount of effort is needed to cooperate with the agencies maintaining these databases, but this effort may result in improving and updating the information on MSMEs with minimal cost. Third: Assessment of Level of Agreement between Definitions

3.1 Methodology Data from the third economic census (2001/2002) were tabulated to provide the frequency distribution of the following variables: number of employees, fixed capital, annual sales and commercial registration. Data were stratified according to two variables: residence (urban/rural) and economic sector (agriculture / manufacture / wholesale / retail / service). The data related to public sector were excluded from the analysis as this segment is not considered when defining MSMEs. 3.2 Profile of Egyptian Establishments 3.2.1 Number of Employees The structure of Egyptian establishments indicates that the majority of establishments have less than 5 employees. Nearly 57% have only one employee, 41% have 2 to 4 employees and only 2% have 5 employees and above. Establishments located in rural areas tend to be smaller in terms of number of employees. Establishments with only one employee represent about two in every three establishments in rural areas versus about half of the establishments in urban areas. The structure differs across sectors, with larger number of employees per establishment in manufacture. Establishments with 5 employees and above constitute 8% in the manufacture sector but are less prevalent in other sectors especially among

39

retailers. Within each sector, the establishments located in rural areas have smaller number of employees. Urban-rural differentials are more obvious in the service sector where 60% of establishments working in the rural sector have only one employee, versus 31% in urban areas. 3.2.2 Fixed Capital The majority of establishments (73%) reported having a fixed capital of less than LE 10,000, and 23% reported having a fixed capital between LE 10,000-50,000. As regards fixed capital ranging from LE 50,000-100,000, and fixed capital of LE 100,000 and above, these were reported by only 3% and 1% of the establishments respectively. 3.2.3 Annual Sales Nearly one in two establishments reported annual sales ranging from LE 10,000-50,000. The percentage of establishments reporting annual sales ranging from LE 50,000-100,000 was 22%. (Smaller annual sales were reported among establishments operating in rural areas). Higher annual sales were reported in agriculture sector with 29% reporting LE 100,000 and above. The manufacture sector ranks second with 21% reporting annual sales of LE 100,000 and above. The percentage is lower in other sectors: 17% in the retail sector, 5% in the wholesale sector and 3% in the service sector13. 3.2.4 Commercial Registration Only 16% of Egyptian establishments have a commercial registration. The availability of commercial registration varies across sectors. Most establishments in the agriculture sector (94%) are registered. Registration is less prevalent in the manufacture sector (72%) and in the wholesale sector (41%) and is uncommon in the retail sector (4%) and the service sector (2%). 3.3 Agreement between Different Possible Definitions To test the usefulness of a multi-definition for MSMEs, the association between the dimensions considered in the definitions will be measured by means of empirical data using the economic census data. When defining micro enterprises, it is suggested for this exercise to apply a definition that is based on two dimensions: ‘number of employees’ and ‘fixed capital’, (then the same checking was done for ‘number of employees’ and ‘annual sales’). Cross tables from the economic census were used for that purpose.

13 Data on annual sales seems to suffer from underreporting especially in wholesale sector where reported sales are exceptionally low. Comparing wholesale annual sales to retail annual sales indicates clear inconsistency. Contrary to expectations, retailers have higher annual sales, and the total sales of the two sectors are far from being comparable.

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Table 5-1 Distribution of private establishments in the manufacture sector by number of employees, fixed capital and residence, Egypt 2000-2001

Fixed capital < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 23.6 5.3 0.4 0.2 0.0 0.0 29.6

2 - 4 39.8 17.4 2.5 1.0 0.0 0.0 60.7

5+ 2.9 4.4 1.3 0.9 0.0 0.1 9.7 Urban

Total 66.3 27.1 4.2 2.1 0.1 0.1 100.0

1 26.1 7.5 0.3 0.1 0.0 0.0 34.0

2 - 4 31.7 25.1 2.1 0.5 0.0 0.0 59.4

5+ 1.6 3.5 1.0 0.5 0.0 0.0 6.6 Rural

Total 59.4 36.1 3.3 1.1 0.0 0.0 100.0

1 24.6 6.2 0.4 0.1 0.0 0.0 31.4

2 - 4 36.5 20.5 2.3 0.8 0.0 0.0 60.2

5+ 2.3 4.1 1.2 0.8 0.0 0.1 8.4 Total

Total 63.5 30.8 3.9 1.7 0.1 0.1 100.0 The analysis indicates that among establishments with 1 to 4 employees in the manufacturing sector (Table 5-1), 96%14 have fixed capital less than LE 50,00015. This suggests that, when defining micro enterprises, using the number of workers criteria (< 5) is equivalent to using the fixed capital criteria (< LE 50,000). In other words, one of the criteria can be replaced by the other. With practical problems related to the evaluation of fixed capital and the lack of accuracy in reporting, it seems that we can depend on the number of workers only to identify micro establishments in the manufacturing sector. However, other considerations might suggest keeping a multi-dimensional definition to allow for more flexibility. The same exercise was done for non-manufacturing sectors as well as for small and medium enterprises16. Fourth: Conclusions

14 This percent was calculated as: the number of establishments with 1 to 4 employees and fixed capital less than L.E. 50,000 divided by the number of establishments with 1 to 4 employees. 15 The size limit for the micro enterprise category in the definition proposed in this study is LE 25,000 in fixed assets. But the brackets used by the economic census do not have this limit; it has LE 10,000 and LE 50,000 only. So LE 50,000 was used as a proxy for analyzing the level of agreement with the labor size limit i.e. with 1-4 employees for the micro enterprise category. 16 A detailed study on the assessment of level of agreement between definitions is in a separate annex, (Annex D).

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In this study, an attempt was made to use the economic census data to test the applicability of different possible definitions. The analysis indicates the following: 1.1 For Micro-enterprises in the manufacturing sector, there is agreement between the

number of workers and fixed capital. Thus, depending on empirical data the two criteria are equivalent which suggests that using one of the two criteria (‘less than five workers’ or ‘less than LE 50,000 fixed assets’) will successfully target micro-enterprises. However, the multi-dimension definition might add more flexibility to allow enterprises to move between categories to benefit from incentives, if any, that are associated to particular categories. Similarly, there is agreement between using the ‘labor criterion’ and the ‘sales criterion’.

1.2 For micro-enterprises in non-manufacturing sectors, there is agreement between

the size of establishments (less than five workers) and fixed capital ( <LE 50,000) as well as between the size of establishments (less than five workers) and annual sales ( <LE 100,000).

1.3 For Small and Medium enterprises in the manufacturing sector, there is no

agreement between the ‘number of workers’ and ‘fixed capital’, or between the ‘number of workers’ and ‘annual sales’. Thus, it is appropriate to use a multi-dimension using the three criteria to identify small and medium establishments.

1.4 For Small and Medium enterprises in the non-manufacturing sector, there is no

agreement between the size of establishments (number of workers) and fixed capital; or between size of establishments (number of workers) and annual sales. Thus, it is appropriate to use a multi-dimension using number of workers, fixed capital and annual sales to identify small and medium establishments.

Fifth: Recommendations for Additional Data Collections It is recommended to publish tabulated data derived from Economic Census according to the proposed definitions of micro, small and medium enterprises, as follows: 1.1 When tabulating establishments by number of employees, it is recommended to

use the following intervals: 1, 2-4, 5-9, 10-19, 20-49, 50-99 and 100+ 5.2 When tabulating establishments by fixed capital, it is recommended to use the following intervals (in LE): < 25,000, 25,000 –, 50,000 –, 500,000 –, 1,000,000 –, 2,000,000 –, 5,000,000 –, 10,000,000 + 5.3 When tabulating establishments by annual sales, it is recommended to use the following intervals (in LE): < 100,000, 100,000 –, 1,000,000–, 4,000,000 –, 10,000,000-, and 20,000,000 + 5.4 It is also recommended to publish cross tabulations for number of workers and fixed capital, for number of workers and annual sales and for fixed capital and annual sales.

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Sixth: Limitations The results of the analytical study have the following limitations: 1.1 Data of the economic census are based on enumerating establishments while the

definition of MSMEs is concerned with enterprises. Enterprises such as mobile units, vendors or economic activities operating from a household are not included in an economic census. The narrower eligibility criteria for the economic census are due to practicality factors. To guarantee complete coverage, an economic census conducts a building enumeration and classifies each building (or part of a building) as either housing unit or establishment, then targets the establishments only for the economic census.

1.2 The census data on employment take into account all employees while the

proposed definition takes into account the employees registered under social insurance only. There was no way to avoid this discrepancy due to the difficulty in counting the casual labor that is unofficially hired i.e. the only reliable records for counting the employees are those of the social insurance documents held at the enterprise.

1.3 Data on annual sales seem to suffer from under-reporting, this is obvious when

comparing sales in the retail sector to sales in the wholesale sector. The latter turned out to be much lower than the figure reported in the retail sector.

1.4 Data on the construction sector were grouped in the economic census within the

service sector. But the proposed definition handles the construction sector differently than the other service sector activities. It was found more appropriate to apply to the construction sector the same size limits as the manufacturing sector (especially for labor), due to a similar size-distribution as indicated earlier.

1.5 There is a considerable heterogeneity within each sector in terms of number of

employees, fixed capital and annual sales. As an example, the average number of employees per establishment in the service sector is 2.2 only, while in the hotel sub-sector alone, which is part of the service sector, the average is 48.

CHAPTER SIX

MECHANISMS FOR EVALUATION, UPDATING AND

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VERIFICATION OF MSME DEFINITIONS First: A Study of Other Countries’ Experiences 1.1 Introduction This study was based on conducting a current internet survey of institutional mechanisms existing in other countries for the evaluation of MSME definitions with respect to their applicability and how those countries verify the applicability of the definitions and change or update them as necessary. Results of that survey show that few countries have such a mechanism or else information is available for a very few. Instead, the study looks at countries that have recently changed or are in the process of changing their definition, thus illustrating the mechanisms in action rather than those hypothetically described. The European Union has been engaged in the process of altering its definition, giving some insight of how one process works. Japan and Taiwan have recently altered their definitions through somewhat different processes. The US mechanism is one of continuous evaluation and change, permitting change to take place without recourse to a large consultative process. The four countries that have recently revised their definitions provide examples of the full range of possibilities for mechanisms to accomplish this task, ranging from massive institutional mechanisms and complex and extensive consultation processes to simple, top-down decrees based on ad hoc advice and analysis. The most extensive, inclusive, and scientifically based mechanisms appear hopelessly bureaucratic while some of the top-down methods run the risk of making uninformed changes in policies and definitions. The majority of the economies of the world operate without a unified definition, have no institutionalized process for coming up with or changing a definition and do not consider the topic a priority. Canada and Australia, to name two such, consider the highest priority for the SME sector to be deregulation, reduction of administrative burden, and removal of distorting structural impediments and subsidies. Neither country seems to be concerned with coming up with a definition of the sector that is acceptable to everyone, much less an institutionalized process for altering the definition. The study deals in detail with the mechanisms in the European Union, to a lesser extent with the US process, and provides a simple overview of the situation in selected other countries. 1.2 European Union (EU) EU recently proposed changes to the definition adopted by the member states in 1996. This process was complex and included many layers. The European Commission takes the lead in developing recommendations to the European Council and its sub-councils, Research and Industry. There is a legal obligation to consult and at the European level, this includes around forty private sector organizations, including UNICE (Union of Industrial and Employers Federation of Europe), UEAPME (European Association of Craft and SMEs), CEEP (European Center of Enterprises with Public Participation), ETUC (European Trade Union Confederation), Euro-

44

Commerce (Association of Commerce of the European Community), and COPA (Committee of Agricultural Organizations in the EU), just to name a few. Moreover, each of the member states has consultative mechanisms in place at their own country-level. Recommendations are developed over time with policy documents, discussion papers and drafts presented to the European Council for feedback. What finally comes forward for adoption represents a consensus of opinion of all stakeholders. In any event, there is a clear mechanism for providing association and interest group input into the policy development process so that, if a problem related to the definition should arise (as apparently happened between 1996 and 2001) concerns can be raised through an institutionalized process. The recommendation is not put into law before being published for at least one further round of public consultation. EU established the ‘Enterprise Directorate General’ in charge of gathering pertinent information, performing appropriate analysis and formulating SME policy recommendations. ‘The Observatory of European SMEs’ monitors the economic performance of SMEs and provides this information to policy-makers, researchers, economists, and SMEs themselves. In addition, a survey of 7,600 SMEs in 19 European countries was carried out by the European Network for SME Research (ENSR), to provide information on how the SMEs themselves view such things as administrative burdens and taxation rather than only having information from the viewpoint of the government organizations and private business associations. By these mechanisms the European Commission became aware of imperfections in the applicability and operations of the 1996 definition. The Directorate-General started in summer 2001 a three step consultative process to reach consensus for a new definition: it prepared a draft recommendation based on input from the formal consultative bodies noted above, then placed the recommendation on its website and solicited comments to be made by November, 2001. This was ‘the first external consultation’ to which there were extensive comments from the public and resulted in a discussion paper titled "Modification of the SME Definition. Results of the first external consultation and envisaged follow-up", that was published so as to ensure commentators that their views had been considered, and was the basis for the preparation of a revised draft recommendation (June 25, 2002) which was put out in a second external consultation for which comments were sought by Sept. 200217. One of the results was the inclusion of Article 2 of the recommendation that gives the Commission the mandate to "amend the ceilings chosen for the turnover and balance sheet total as the need arises and normally every four years from the adoption of this recommendation, to take account of the changing economic circumstances in the Community."18. The need for redefining the sector came from a recognition that the financial ceilings, seemingly appropriate in 1996, have become too low and could thus be a disincentive to invest. Also from concern that there was unfairness in application of the definition between member states and/or circumvention by certain types of enterprises because of a lack of clarity on certain points relating to independence of the establishment. As a result of the consultations, they wound up making the following recommended changes or reinforcements to the definition: 17 It was expected Dec. 2002 but was not yet issued until last checking for the website of the European Commission, by Dr. George Lerchs, in April 2003. 18 European Commission, "Draft Commission Recommendation amending Recommendation 96/280/EC…." Brussels, (2001).

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--Definition of an enterprise: enlarged to include all economic activities, whatever their legal form. --Number of occupied persons: introduces the concept of counting all people working at the enterprise whether or not receiving a salary. --Financial thresholds for small and medium-sized enterprises: increases in financial thresholds to take account of increases in prices and productivity. --Financial thresholds for micro-enterprises: introduces financial thresholds for micro-enterprises, an anti-circumvention measure. --Concept of a group of linked enterprises and the method for calculating thresholds: clarification of the logic and verification structure for linked enterprises and provision of a recital concerning franchises. --Exemption for investment funds and the equivalent: clarification of situations where an investment fund, which is not an SME, acquires more than 25% of the ownership of an SME. --Public Control: clarification of the circumstances in which ownership of 25% or more by a public body does not exclude the enterprise from the definition of an SME. --Temporary excess and date of assessment: clarifies that firms must fall below or exceed thresholds for two accounting periods before they change classes. Clarifies accounting periods. --Concept of occupied persons: Clarifies the position of unpaid family workers, part-time workers, apprentices and students in calculating the employment thresholds. --Statistical classes: reestablishes the statistical class for one occupied person.19 For the second consultation, these clarifications were restated in a new draft recommendation. An accompanying article summarized the important changes to the definition as follows: "The key ideas to emerge from the first consultations set out in a new draft recommendation are: --Including all types of enterprises, whatever their legal status. Family businesses and artisans especially should benefit from this change, --Clearly defining micro-enterprises. This will favor national measures for this category, and --Introducing a clear method to calculate the ceilings. This will increase legal certainty and guarantee equal treatment across Europe. We need to ensure that enterprises that are part of a larger company structure and thus not genuine SMEs do not benefit from SME support schemes. The data needed to establish that a firm is an SME are routinely available from existing (principally accounting) sources, so that no new data need be calculated by the business. To establish a clearer picture of the real economic position of an enterprise wishing to avail itself of these advantages, distinctions must be made. A company may be:

√ autonomous, in that no more than 25% of the capital or voting rights is owned by another business which itself is not an SME. Nor should it have more than a 25% stake in another company,

√ linked to other enterprises, in that it is a parent or subsidiary of another company -a status defined by the ownership of the majority of the board's

19 European Commission, "Modification of the SME Definition. Results of the first external consultation and envisaged follow-up." Brussels, 2002.

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voting rights. Here, ceilings will be determined by the consolidated accounts or simple addition of the data of a group's different members, or

√ a 'partner' enterprise, in that it holds between 25% and 50% of another firm’s capital or voting rights (downstream or upstream). In this case, employees, turnover and annual balance sheet of the partner(s) are proportionally taken into account to calculate the thresholds.

Proportional calculations will ensure more favorable treatment for partner enterprises than under the present definition and should encourage innovation, cooperation and the development of SME clusters. To promote the equity financing of SMEs, the Commission may decide to extend the conditions allowing enterprises to be considered autonomous even if between 25% and 50% of their capital is held by certain categories of investors. The draft recommendation would allow public investment corporations, companies or persons investing in venture capital and institutional investors, including regional development funds or universities, to exceed the threshold provided they are not linked to the enterprise. Modernizing procedures: Until now, Commission approval has been required for any state aid given to SMEs. Under the new recommendation, this could, in most cases, be decentralized. Administrative processes will also be accelerated by unambiguous definitions for calculating ceilings. The most important criterion - the number of employees used to determine whether an SME is a micro, small or medium enterprise - should not be modified. Owners and their families will be counted as employees. However, to promote training schemes and 'sandwich' courses, apprentices and students with vocational training contracts will not be considered part of the workforce. The proposal to raise financial ceilings is for avoiding penalizing enterprises that invest. The increase is significant in percentage terms but will not lead to a marked rise in the number of SMEs. It is economically neutral compared with the situation in 1996 since it takes account of subsequent price and productivity increases. Finally, the Commission may recommend that national or regional administrations accept a simple declaration form from enterprises wishing to benefit from the advantages granted to SMEs. This would considerably speed up examination of their SME status when applying for various schemes."20 1.3 United States The US federal government has established the Small Business Administration (SBA) under the Small Business Act; it has a specialized bureau called the Office of Size Standards (OSS). The Office is tasked with establishing and modifying the

20 European Commission, "Enterprise Europe 8, July - September, 2002." Brussels, 2002.

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definitions of small businesses for purposes of federal government programs. Only the Administrator can approve creating or changing size standards according to recommendations made by OSS and concurred by SBA's Size Policy Board. In establishing or reviewing size standards, OSS conducts various economic studies including industry structure analysis, degree of competition, average firm size, startup cost, entry barriers, distribution of sales and employment by firm size, impact of different size standard levels on the objectives of SBA programs, comments from the public on notices of proposed rulemaking, and all other factors that may distinguish a small business in an industry.21 The Size Policy Board does not include any non-government members. This is a rarity in the literature as even the most government-led committees and boards in other countries have at least token representation from the industry through its associations. "The Size Policy Board considers and makes recommendations to the Administrator on small business size eligibility regulations, including size standards. The Deputy Administrator chairs the Board which consists of six voting members: the Deputy Administrator, Office of Financial Assistance, Office of Government Contracting, Office of Minority Enterprise Development, Office of Technology, Office of Advocacy, and four nonvoting members: Office of General Counsel, Office of Hearings and Appeals, Office of Size Standards, and one Regional Administrator."22 The OSS may consider comments from the public but is under no legal obligation to do so. In practice, most requests for a change would probably originate as a request or complaint from industry, either directly by a company or association or through one of the many lobbying groups approaching congress. A notable exception was the full-scale review of small business size standards undertaken after the implementation of the North American Free Trade Agreement that required the old Standard Industrial Classification (SIC) system to be changed, for harmonization purposes, to the North American Industry Classification System. This review was carried out between January 1, 1997, when NAICS came into force, and October 1, 2000 when the new table of small business size standards was published. Most small businesses defined under SIC remained small businesses under NAICS. However, NAICS classifies 350 more industries than SIC, particularly new and emerging industries, service industries and industries that produce advanced technology23. This is described as a bureaucratic approach even though taken by a country that otherwise considers itself to be un-bureaucratic and to be in favor of de-regulation and economic liberalization. The SBA has lists and entire websites of hundreds of down-loadable forms, even including one called an "Application for Small Business Size Determination". It seems that no other country in the world has devoted as much effort to the development, evaluation and modification of definitions as has the US. In terms of policy development, however, it is likely that the US has proceeded down a dead end: the definitions of SBA, while exact, have thresholds that are too high for

21 SBA, Office of Size Standards, FAQs. http://www.sba.gov/size 22 ibid 23 The SBA had to undertake this massive exercise because the US definition of a small business is based on classification and inclusion in a detailed list of industries unlike all other countries that state certain criteria or principles as the basis of the definition and do not prepare and maintain these extensive lists.

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policy purposes. In other words, large numbers of businesses that have many of the characteristics of large enterprises are included in the definition of small businesses, which leads to the necessity of developing numerous qualifiers to the definition in order to produce workable policies and interventions. The US is an example of a permanent, institutionalized process that is entirely handled by un-elected government officials with no legal obligation to consult anyone. Clearly, USA considers SME definitions to be a purely technical matter. 1.4 Japan Japan has recently amended its laws and definition of SMEs and has established an institutional mechanism for doing so in the future. The Japanese system is similar to the mechanism used in a large number of countries around the world, in that it uses a permanent advisory group that examines issues related to the SME sector at regular intervals and makes recommendations to the government at the Cabinet level. In the Japanese case, The Small and Medium Enterprise Council, established by the Ministry of Economy, Trade and Industry, consists of no more than 30 members appointed by the Minister "…among persons of learning and experience with respect to such matters provided for…"24. The council is empowered to handle all matters covered under the Basic Law and under 12 other laws related to SMEs. The Council has to prepare a White Paper on the sector each year addressing issues of concern and making recommendations. In 1999, the White Paper dealt with a number of recommended reforms to the Basic Law, including the following changes to the SME-definition: (1) Raising the capitalization ceiling:

a. Consumer Price levels are currently more than double what they were in 1973, the last time the SME definition was significantly revised, and average corporate capitalization and like indices are 3-5 times what they were then.

b. Even companies that are capitalized well in excess of the SME ceiling often still need to have management personally co-sign loans or otherwise often have trouble raising fund.

(2) Number of Employees: This should stay the same (except for services, which should be separated off from retailing and the number increased). a. The overall tendency, especially at big companies, is to trim personnel rolls.

a. As service firms have started dealing more business-to-business, they have become less and less like retail operations. Yet their average number of employees has increased, and companies with more employees than the current definitions are a large and growing share of the market.

(3) Corporate Independence to be considered, but the rigidly prescriptive definition should be changed to be more accommodating of the SMEs range of diversity.

24 Small and Medium Enterprise Basic Law in http://www.sme.jp/policies

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(4) Start-ups: There should be a new stipulation relating to start-ups." 25 The White Paper was presented in Sept. 1999; then in Dec. 1999 the Small and Medium Enterprise Basic Law was amended to incorporate nearly all of the recommendations put forward by the Council. It is doubtful that there was time for the wide-ranging consultation undertaken by EU to take place in the intervening period. It is not mentioned that consultation was part of the process. Japan is an example of an economy in which the authority to evaluate the definition and recommend updating is vested in a permanent, government appointed advisory group and where there is no requirement for wider consultation other than the agencies represented by the members of the advisory group. 1.5 Taiwan Taiwan revised its definition of SMEs in 2000. The government consulted with an advisory group including the Ministry of Finance, the Industrial Development Bureau, the Commerce Department, Medium and Business Credit Guarantee Fund and the Chinese National Federation of Industries. Though these groups were consulted, it is clear from the language of the news release that the Ministry of Economic Affairs, which has jurisdiction over matters related to SMEs, made the decision, not the group. The effect of the decision was to increase the number of SMEs in the country by roughly four percent by including "… firms engaged in agriculture, forestry, fishery, livestock, utilities, commercial, transportation, warehousing, telecom, insurance, banking, real estate, industrial and business service, social service, individual service operation…as long as their annual sales revenue is under NT$100 Million…"26. All other enterprises are SMEs if they have paid up capital of a maximum of NT$80Million, or annual revenue of less than NT$100 Million or whose workforce is under 200 people. There is no evidence of any analysis being presented to stakeholders or any extensive consultation with them. The initiative to change the definition arose with the government based on input or environmental scans related to APEC and WTO demands and the government acted promptly to change the definition accordingly. As such, this process is an example of a top-down, authoritarian methodology, less and less common in other countries. The creation of an ad hoc largely governmental group to meet and comment on a proposed government initiative is how Thailand revised its SME definition in 1998 and 1999. 1.6 Other Countries In spite of the complex mechanisms described above, the literature reveals that the majority of countries have implemented only ad hoc and haphazard mechanisms for

25 !999 White Paper, http://www.meti.go.jp/english/report 26 Taiwan Headlines, www.taiwanheadlines.gov.tw

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dealing with SME policy development issues, the definition included. This includes most Asian economies, most sub-Saharan African economies, Canada, Mexico, Central and South America, and Europe outside the European Union. Most of these countries are unrepentant of their shortcomings in this regard. There is little to be learned from them about the topic except that it is possible to have a strong economy without a complex policy environment and that sometimes fewer laws and regulations are just as good as a multitude. On the other hand, one can see that the list also includes some of the weakest economies. 1.7 Conclusion The above was a survey of mechanisms used in selected countries for evaluating and modifying SME definitions. There seems to be a continuum of mechanisms ranging from the use of relatively unstructured ad hoc committees of government officials with token representation from industry making recommendations to government at one end to complex information gathering and analysis coupled with extensive and inclusive public consultations at the other. The US system, which is analytical and complex, but which does not involve the industry in an institutionalized way, is yet another methodology. Second: Proposed Mechanisms for Egypt 1.1 Proposed Mechanism for Verification

In the first place, there is a need to establish a council or advisory group for MSME affairs. It is recommended that its members would be the same group of stakeholders whose representatives have been participating in this research (through attending the periodical gatherings throughout the research work progress). These constitute a variety of key entities: government, SFD, associations, statistical bodies, academics, etc. Additional concerned bodies could be added as the need may be. The Council is to be recognized as the entity in concern of the matters relating to the sector. To verify that an enterprise belongs to the MSME sector, and to one of its three categories in specific, a simple mechanism is proposed in light of other countries’ experiences, and an interview with a senior expert in investment and legal affairs27: 2.1.a. The Council is to devise a simple declaration form to provide adequate information about an enterprise as regards its location, age, sector and sub-sector, number of employees, value of fixed assets, and value of sales turnover. The information for the three latter variables is to be provided for the last two years of operation. Once the definition is announced to the public, enterprises that seek to benefit from the advantages/incentives granted to MSMEs, if any, would fill the form and submit it to the local administration available in each city or village. The decentralization is important for simplification and speed purposes. In the local

27 Mr. Mahmoud Fahmy, Investment and Legal Councilor, Ex-Head of Capital Market Authority (interview conducted in 2002 while preparing the Phase One Definition study).

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administration, the officer in charge would be in contact with an officer at the governorate level for any queries or consultations if needed28. 2.1.b. The officer in the local administration would conduct site visits to the applicant enterprises to verify the entrepreneur’s self-identification. He would make use of field observation as well as review of documents, if any, relating to the machinery purchase invoices and/or financial books as well as social security registers for workers. 2.1.c. Alternatively, the forms currently used for Social Security Registration could be used for verifying the number of employees, rather than devising new forms, given that only those employees that are registered under social security are counted under the definition. As to ‘fixed assets’, it is said that the form used for applying for a business license, contains a description of the machinery and equipment that will be used by the entrepreneur and information on the electricity horse-power i.e. to obtain the appropriate electricity level. As such, to verify the enterprise’s category, it may be recommended to supplement this application by information on ‘value of machinery and equipment’ (also noting that our proposed definition does not include the other main fixed assets such as ‘land and buildings’). 2.1.d. The definition, and variable-components, should be unambiguous, to minimize misunderstandings by the entrepreneur and the officer, and any devious behavior by the latter taking advantage of his authority in this regard. Where possible, the information needed should be routinely available from the firm’s documents with minimal need for personal judgment. Thus the benefit, at this preliminary stage of formulating a definition, to use the following qualifiers as noted earlier: -Number of employees refers to those under social security only, (which may also in itself be a motive for some entrepreneurs to legalize the status of their employees in cases of better incentives for higher MSME categories e.g. small versus micro, or medium versus small). -Value of land and buildings is not counted given the ambiguity in valuation thereof. 2.1.e. No financial books are expected to be found at the enterprise for sales’ reporting for the micro category and some of the small-sized firms. Thus the benefit of having the option of using one of the two other criteria (labor and fixed assets) in cases of unavailable data on sales. 2.1.f. An enterprise can apply for a change or graduation from one MSME category to another i.e. from micro to small or from small to medium. But it is suggested in this regard, like in EU’s mechanism, not to count the temporary excess of thresholds i.e. no change of categories before two years of excess.

1.2 Proposed Mechanism for Evaluation 28 This proposed procedure, including the declaration form, was also subject to further consultation for the purpose of this study, with the sponsors of one-stop shop offices for MSME registration, such as CIDA’s pilot one-stop shop in Daqahleya: Mr. Gamal Mossallem advised of the formats already used for employee social security and for applying for business license. Thus the alternative approach proposed under item 2.1.c. above.

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Some of the main characteristics of a useful definition are simplicity, ease of understanding, applicability and link to the available data sets. Some of the other criteria for evaluating the size standards used in the definition are29: average firm size, distribution of firms by size, industry competition, and impact of size standard revisions. Simplicity purposes necessitated minimizing the sub-categories in the proposed definition for Egypt, and combining certain sectors where possible in spite of some difference in their characteristics. This may be the case during the initial stage of using the definition. After a certain period of testing, say one year, it is suggested that the proposed council or advisory group conducts an evaluation to be supported by the following: 2.2.a. Supplemented CAPMAS data in a way that reflects the size standards used in the proposed definition, for the various dimensions, as mentioned earlier. For example, there is a need for collecting data on enterprises whose fixed assets are valued at LE 25,000 which is the proposed ceiling for the micro-enterprise category in all sectors. The analysis of data presented in Chapter 5 used LE 50,000 as a proxy30. Other examples are the need for data on the proposed labor limits of 5-9 and 10-19 for small and medium enterprises respectively in non-manufacturing sectors, and 5-49 and 50-99 respectively in manufacturing and construction sectors. These categories are obtainable from the census of establishments which is done only once every 10 years and has no information on sales and fixed assets. On the other hand, the economic census has the latter information and is conducted quite frequently but has no detailed labor limits: it has mere broad categories of <5 and 5+ employees for retail, <10 and 10+ for manufacturing, as well as <9 employees for repair, etc. Further, the economic census provides one category lumping all firms with LE 1,000,000+ for the in fixed asset criterion and sales’ criterion, but the proposed definition has specific size limits that necessitate data collection for fixed assets and sales for limits of LE 2 million, 4 million, 5 million, etc. 2.2.b. A permanent consultative mechanism to be established whereby the proposed MSME council /advisory group obtains feedback from entities that are more involved with the individual sub-sectors, say the Commodity Council representatives. They could provide their comments with regard to the applicability of the proposed definition to their respective sub-sectors. As noted earlier there is significant heterogeneity within the economic sectors. The definition would be evaluated insofar as it reflects this heterogeneity where needed. For example, within the manufacturing sector there are wide differences in average firm size between the various manufacturing sub-sectors31: it varies from a low 2.6 workers in furniture and in clothing to 3.9 in leather, 5.6 in food processing and beverages, 9 in textiles, 10.6 in paper manufacturing and so on with a highest average of 15.8 workers in chemical

29 Federal Register/ Vol. 68, No. 22/ February 3, 2003/ Proposed Rules. (SBA) 30 The economic census of 2001 has data on fixed assets values of LE 10,000 and LE 50,000. By using the latter limit, there was almost perfect consistency with the proposed limit for labor as mentioned in Chapter 5, (with the bulk of firms falling within the LE 10,000 limit). We still preferred to stick to LE 25,000 in the proposed definition rather than LE 10,000 because the latter would result in an unrealistic ‘sales to assets ratio’ of 10:1 given the sales limit of LE 100,000. 31 The percentages are calculated on the basis of the data given in the census of establishments of 1996.

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products manufacturing. Also average firm size in the service sector is in general 2.2 employees but in the particular sub-sector of hotels it is 48 employees. This heterogeneity between sectors also applies to the percentage distribution of firms by size of labor, as indicated in Table 4-5.b of Chapter 4. The concentration of relatively more enterprises of certain sub-sectors in higher labor brackets than the rest of the sector could justify higher size standards for some sub-sectors than for others. 2.2.c. There seems to be a trade-off between ‘applicability’ versus ‘link with the available data’ that lies in the discrepancy in defining ‘labor’ in the proposed definition as opposed to the census. As noted earlier the census provides data on number of employees whether or not working for a contract, which implies that casual labor is not counted. By contrast, the proposed definition relies on labor that is socially secured only i.e. official labor only. The latter suggestion was for the sake of ease of counting (since it is very difficult to count and/or verify the number of casual laborers). But this will have to be evaluated by the proposed council after some period of testing the proposed definition, especially in light of MSMEs heavy reliance on casual labor. 2.2.d. As regards allowing for the assessment of ‘impact of changes in size standards’, the additional needed data-collection (mentioned in 2.2.a above) is necessary for determining the additional number of firms eligible to a particular preferential treatment/incentive that is applicable to certain categories but not others. This is an important characteristic of a useful definition. (This also allows for estimating the costs of a suggested policy/incentive). In general, the impact of size standard revisions refers to their possible impact on the level of small business assistance. For example, in case of allocating some of the government procurements to the MSME sector, then as highlighted in some of the literature32, the lower the share of procurements allocated to small businesses in an industry the greater is the justification for a size standard that is higher than the existing one. 2.2.e. As to the industry-competition criterion for evaluating a definition, this refers to the need for increasing the size standards when a significant proportion of economic activity (or market share) is concentrated among a few relatively large producers. The purpose of increasing the size standards in such case would be to assist firms in a broader size range to compete with the dominant firms in the industry33. 1.3 Proposed Mechanism for Updating Apart from the need for revising the definition for reasons related to the evaluations thereof and the comments thereto, there is a need for updating in view of changes through time in one or more of the factors highlighted below (the interval for updating could be 3-4 years):

32 Opcit, Federal Register, Vol. 68 (SBA) 33 Ibid.

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2.3.a. Price increases are among the main factors that should entail an upward revision of the thresholds for fixed assets and sales. The increase in cost of fixed assets leads in turn to an increase in start-up costs for new firms: this should be acknowledged rather than left o cause an entry barrier. 2.3.b. Even more prominent in the case of Egypt, is the increase in cost of foreign exchange. This is expected to largely affect the prices of imported machinery and equipment. With the exception of the micro category, firms may be heavily relying on imported machinery. Thus the need for revising the size standards for the fixed asset dimension upwards. 2.3.c. Increase in labor productivity, that may be associated with technological innovations and/or more efficient methods of production, could be traced through time for the purpose of revising the sales’ thresholds upwards if needed. Again, the definition update and size revisions is to be studied by the proposed council /advisory group, in coordination with the entities that represent the various specific sub-sectors, such as the Commodity Councils, the Federation of Egyptian Industries, and Chambers of Commerce, should also be involved in the process.

CHAPTER SEVEN

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MSME DEFINITIONS FOR SPECIFIC PURPOSE OR POLICY OBJECTIVE First: Introduction While the proposed definition could serve as a broad identification for MSMEs, mainly for eligibility to envisaged support for this sector, some changes could apply for the sake of particular policy objectives. Similarly, certain purposes and/or policy objectives would be more appropriate in case of one of the three categories of MSMEs but not the others. For example, it is generally accepted that small and medium enterprises have higher potential for growth and employment generation than micro-enterprises. In broad terms, poverty alleviation is the main purpose of assisting the micro-enterprises while for small and medium categories the purpose of assistance or support relates to business development and income growth, job creation and export promotion if any. This was also confirmed by the results of the survey of organizations that provide services to one or more of the three MSME categories (Table 3-13 of Chapter 3). Second: Policy Objectives for the Different Size Categories 2.1 Export Promotion Exporters can be targeted for assistance through various types of support such as the provision of information on the foreign market needs and their product specification requirements, information on export opportunities as well as on sources of input supply, management development, technological upgrading, etc. It is proposed to have no bias against non-manufacturing exporters: traders constitute strong support to manufacturers and should also be eligible to support. Unfortunately no data is available on size distribution of exporters by annual volume of exports. For purposes of providing support to exporters, which is mainly expected to benefit medium-sized enterprises and those at the higher end of the small enterprise category, it is recommended not to use the ceilings set in the proposed definition, to avoid having any penalties/disincentives on business growth. Given the priority currently given by the government to the export activity, all exporters should be eligible to the support mentioned above in the form of information-provision, regardless of any size limits34. 2.2. Government Procurements 34 Exporters with ‘market dominance’ were suggested to be excluded, but some participants in stakeholder gatherings (Dr. Adel Beshai, Shura-Council Member and Chairman of Faculty of Economics in the American University in Cairo) pointed out that all exporters ought to supported especially that other countries provide subsidies to their exporters.

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The Ministry of Finance (MOF) is working on issuing a decree for the allocation of a 10% quota of the annual government procurements to the MSME sector 35: eligibility conditions include a) the existence of a commercial register for the enterprise and b) a statement of the enterprise’s executed volume of contracts. In fact this latter eligibility condition is one of the reasons why the ‘sales’ criterion is important in formulating a definition for the MSME sector36. Price preferential treatment of 10% is also proposed by the Draft SME Law37. It is expected that the non-micro-enterprises will be the main beneficiaries of the government procurement decree. This is because of the needed ability to meet the specification requirements and the needed capacity to produce or deliver large-scale government supply orders. Also noting the eligibility conditions stated above as regards the availability of ‘commercial register’ and ‘sales records’ -both not characteristics of micro-enterprises. It is recommended to separate between agencies undertaking the task of awarding a contract to an enterprise and the task of verifying that the enterprise belongs to the MSME sector thus eligible to the contract38. This is to avoid the possibilities of pressures and devious behavior. For the same reason, some countries apply a system where awards are ‘published’, and auditors are used, to avoid bribery39. (NB. It was also recommended that the supplied goods should not be produced by non-MSMEs or non-local enterprises, but a participant in the stakeholder gatherings pointed out that traders are not eligible to government procurement contracts in the first place)40. 2.3. Linkages SFD has an important experience in the area of ‘incubators’41: as a result of the environment-related regulations that necessitated that workshops re-locate to the outskirts as an anti-pollution measure, their business was negatively affected due to moving away from the market as well as input supply sources. The Association of Incubators resorted to inviting large entrepreneurs to their premises and introducing them to the owners of the small workshops to discuss potential linkages. Alexandria Business Association (ABA) implemented successful similar linkages between large factories and small producers of components42. 35 As advised by Mr. Nasser Tonsi, Government Procurement Researcher, The General Authority for Government Services, MOF, in the stakeholders’ gatherings for this study as an MOF representative. 36 Note that the manufacturing sector definition did not use the ‘sales criterion’ in the Phase One Definition Study. (Another reason for the introduction of the sales criterion to the manufacturing sector definition is that the construction sector has been combined therewith as noted earlier, for which the fixed asset and labor criteria would not suffice in cases of contractors that are sizeable but do not own significant fixed assets). 37 Al Ahram Al Ektessadi, August 18, 2003 “Proposed Draft SME Law”. 38 Opcit., Lerchs, 2001 39 Ibid., (this is applied by the US SBA.) 40 General Ibrahim El Shayeb, Under Secretary, Ministry of Local Development. 41 Mr. Ahmed Youness Darwish, General Manager of the Egyptian Association of Incubators and SFD Advisor. 42 As advised by Mr. Yosri Hammouda, General Manger of Operations, ABA, who attended the stakeholder gatherings for this study on behalf of ABA.

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MOF is currently studying a regulation that supports linkages by way of 20% tax exemptions for the medium enterprises that use small and/or micro enterprises for supplying them with the feeding industries43. (Opposing views consider that there is no need for the exemption because it is usually more profitable for the medium enterprises to use the products and services of small and micro enterprises anyway). As far as the proposed definition is concerned, it seems appropriate for the micro-enterprises, and the lower end of small enterprises, given the size standards proposed for each category, to be linked to medium enterprises as proposed by MOF above, rather than to large enterprises and government bodies. In some countries, sub-contractors that provide indispensable goods or services to an enterprise are classified as ‘affiliates’ in the sense that their number of employees (and/or value of fixed assets or sales) have to be counted as well, thus negatively affecting the classification of an enterprise as it may accordingly exceed the thresholds of the MSME sector. This is not suggested for Egypt, to avoid discouraging of linkages. (The rule for exclusion from the MSME sector is when more than 25% of capital is owned by a non-MSME as mentioned earlier). 2.4. Skill Upgrading and Business Development Services (BDS) The small enterprise category appears to be the most appropriate category for targeting with skill upgrading schemes and business development services. On the one hand, the micro-enterprises are too numerous in a way that it becomes difficult to target them with a policy objective in this area (except in cases of any donor-funded organizations that have this specific purpose among their objectives, usually in specific geographic location). On the other hand, small enterprises are much less in number: in Table 4-5.a in Chapter 4, according to the definition proposed by this study the small enterprise category constitute 24,430 and 21,039 in the trade and service sectors respectively (5-9 workers) and 43,103 and 2,319 in the manufacture and construction sectors respectively (5-49 workers). Small enterprises are also said to have higher potential for growth and employment generation than micro enterprises. Medium enterprises, especially those at the higher end of the proposed size standards, may not be in dire need of this sort of assistance (but could be targeted if resources allow). Nevertheless it is not proposed to exclude medium enterprises from eligibility to skill upgrading and other BDS schemes. Rather, it is proposed to use an additional criterion whereby enterprises that have ‘market dominance’ (whose definition would differ by industry) are not to be eligible. 2.5. Formalization

43 Mentioned by Mr. Nasser Tonsy, MOF, in the stakeholder gathering of March 02, 2003.

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There has always been the suggestion of finding ways for reducing the formalization burden for micro and small enterprises, as well as opposing views on tax exemptions and social security exemptions thereto. One-stop shops for formalization procedures have been introduced in two governorates so far44. As regards social insurance exemptions, this would be beneficial to micro-enterprises as they rely heavily on casual labor for fear of being stuck with excess labor at times of slack business. There was a testing of a process of bearing the employer’s share in social insurance payments by a government body (say MLD) in return for the employer’s hiring unemployed youth. But apparently this did not appeal to the employers because of excessive field inspections by the authority in concern as advised by one of the participants in stakeholders’ gatherings45. (NB. SME Draft Law suggests reductions in social insurance payments by 50% for micro and small enterprises and 30% for the medium ones as defined in the Draft Law)46. As to tax exemptions, the advocates refer to poverty alleviation considerations (i.e. for micro-enterprises) as well as the fact that the share of micro-enterprise tax payments in total tax proceeds is so tiny while their number is huge: thus a great relief of the tax administrative burden in case of exempting the sector. The Incubators Association protect their enterprises from the administrative burdens such as taxes and social security during this start-up stage. Also raised was the issue of tax exemptions for SFD borrowers (for 5-10 years varying by economic sector), which is a discrimination against those who rely on own means of finance. On the other hand, the opponents to tax exemptions noted that the tax-holiday period of five years presently granted in some cases is misused as some entrepreneurs resort to changing their activity at the end of the holiday thus benefiting from a new tax-exemption period for five additional years. Insofar as the proposed definition is concerned, the sales size limit for micro-enterprises, i.e. LE 100,000 in all sectors, appears to be a reasonable justification for tax exemptions for this category. Assuming an average profit margin of 10% then the monthly income is about LE 800 only, which is too low for tax deduction given the general cost of living and average family size. As regards the formalization burdens in general including social security payments, it is expected that by targeting ‘small enterprises’ with the above mentioned skill upgrading and BDS schemes, will in turn encourage micro-entrepreneurs to weigh the costs of formalizing against the benefits of graduating to the ‘small enterprise category’ to be eligible to such schemes. 2.6. Finance

44 First in Daqahleya through CIDA, on pilot basis. Then in Giza by the Minstry of Local Development (MLD) as advised by Ms. Amna Sharaf El Din, General Manager of the Handicraft Industries Authority, MLD, in the stakeholder meetings for this study. 45 Mr. Yossri Hammouda, General Manager of Operations, ABA. 46 “SME Draft Law”, Al Ahram Al Ektessadi, August 18, 2003. (Micro and small enterprises are lumped in one category with up-to 49 workers and/or LE 500,000 in paid capital. Medium enterprises are defined as those having up-to 99 workers and/or LE 1 million in paid in capital).

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The terms and conditions of MSME finance constitute a controversial issue. While many advocate subsidized interest rates in support of the sector, the best practices stipulate using market interest rates to avoid distortions and misallocation of resources and to ensure financial sustainability and cost-recovery by the institutions that operate the credit programs. Micro-enterprises are not suitable customer for banks given the relatively high overheads of granting tiny loans, except in cases of special micro-credit units within the bank, with special procedures, as in some banks47. But there are numerous micro-finance intermediaries (mostly NGOs and business associations) in the various governorates most of which are operating quite efficiently. At the other end, medium enterprises are not expected to be size-discriminated by banks (especially the public sector banks as opposed to joint venture banks) given the large thresholds in the proposed definition. The ‘small’ category may not be suitable to neither NGOs nor banks; SFD loans do address the needs of some the enterprises in this category, but they are said to be not very welcomed by some bank managers in view of the subsidized interest rates applied and relatively poor rates of loan repayment. A loan-size criterion could have been proposed for this purpose, but this could be circumvented by entrepreneurs who can split the finance they need into more than one loan in different names. Rather what is proposed is to provide incentives to banks for providing credit to the small enterprises as defined in this study, at the regular market interest rates. As such, there is no need for the enterprises to misidentify themselves since no interest subsidy is involved; the issue is improved access.

CHAPTER EIGHT

47 Examples are the National Bank for Development (NBD) and recently, Banque du Caire.

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A STUDY ON A POSSIBLE LAW FOR THE MSME DEFINITION

There is a need to study whether it would be appropriate to propose legislation that defines MSMEs. This issue was addressed earlier in Chapter 3 as part of the survey of opinions of the organizations that provide services to MSMEs (Tables 3-21 and 3-22). It was also broadly addressed in some of the personal interviews conducted with MSME stakeholders (Chapter 3). It is herein investigated in more detail from the legal point of view. This legal study concludes that it is not possible to issue legislation that merely introduces a certain definition, no matter how important or overarching it is. A definition has to be in the context of a substantive law for the reasons mentioned below. Accordingly, this opinion concludes that it would indeed be possible for a law to define MSMEs, but only within the context of providing substantive provisions concerning such entities. The chain of reasoning that led to the above conclusion is as follows: 1. Different schools of law adopt different attitudes and approaches in

drafting legislation. The largest two families of law are the French/Continental European school of law, and the Anglo/Saxon one. The French/Continental school of law – to which Egyptian Law belongs – will on the whole avoid giving definitions where it is possible. The reason here is that a law is considered as a means for expressing philosophy and policy and not specifics. The Egyptian school of law in general follows that trend which considers that definitions are for courts and for academic writings but not for legislators. Having described the general approach of Egyptian law, it should also be pointed that in the last few years, there has been a growing tendency in Egyptian law to use definitions, perhaps as a sign of the growing influence of the Anglo/Saxon school of law.

2. Nowhere in Egyptian Law – to our knowledge – has a law been issued for

the only purpose of defining a term, and doing so would in our opinion be grossly contradictory with the principles of legislation in Egypt. The reason is that a law can never purport to explain or define a term in an eternal or universal way. A law, when it does define, will necessarily do so within a specific context. This context is invariably the context of the law itself. In other words, the law will define the term for the purposes of the subject matter of the law itself and for that subject alone. Thus a law, if well drafted, will clearly state that each definition stated in it is provided for the purposes of that law alone. This is also to say that a legal definition can never be provided in vacuum, but always has to be in the context of the subject matter of the law.

3. Applying the above to the issue at hand – i.e. the definition of MSMEs –

means that no law can be issued for the sole purpose of providing such definition. It also follows that it is not enough for such law to be acceptable that it includes other minor or even major issues. What matters is that the law may only define a term in the context of providing some

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substantive provisions concerning that term. Thus a law that defines micro, small or medium enterprises can only do so in the context of providing substantive rules which will apply to entities falling within the definition of each of them.

4. Accordingly, the starting point for defining MSMEs is actually to answer a

much more important question: what is the law saying about those MSMEs after it defines them? What benefits, rules, provisions, penalties or other substantive terms will apply to them that warrant defining them? Hence before deciding whether or not MSMEs should be defined in the law or not, and how such definition will be worded, it is important – purely from a legal and legislative point of view – to know ahead what the definition is going to be used for.

5. It is our understanding that the definition of MSMEs may be used for a

variety of reasons: establishment procedures, tax treatment, access to credit, etc. The point here is not that all of the provisions concerning MSMEs must be determined beforehand, but that at least some of them must be, and that the law that defines them must do so in the context of providing some of those provisions, i.e. in the context of using the definition.

6. One of the issues raised by this study (by a number of the surveyed MSME

organizations) is that a definition in law is needed because there are already too many competing definitions used by various state entities and organs. While this may be an uncomfortable situation, but from a purely legislative perspective such variety of definitions is acceptable precisely because the assumption here is that each definition has a context and a field of operation that it does not transgress. It is still, in our opinion, necessary to provide a unified definition, but it has to be in the context of usage. Thus whereas it would be ideal if the same definition could apply for taxation, establishment and access to credit, it is more important that each definition suits its purpose than for the unification of definitions to become a target in its own right.

7. As regards the proposed definition and the issue of using three criteria for

a project to be considered part of the MSME category, on the basis of “and/or”. Thus any entity that fulfills any one of the three criteria will be considered for the purposes of the law either a micro, small or medium enterprise. While this is a possible choice, it depends on the context and on the provisions and benefits that will be granted to MSMEs under the law. Thus if we were dealing with ease of procedures for establishment of a firm, there would be no harm in extending the definition to its wider extent by using the “and/or” option thus benefiting a large number of enterprises. If, however, the benefits accorded to MSMEs include tax benefits and privileges, then such widening of the meaning will have important consequences such as the decrease in tax proceeds. One legislative solution

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could be to state that the entity must meet at least two of the three requirements48.

8. It remains now to be seen whether a definition is best included in a law or

in some other form of secondary legislation such as ministerial decree. Egyptian law operates on the basis and principle of hierarchy of rules. A provision in the Constitution supersedes any other law. A law supersedes an administrative decision. And administrative decisions have their own hierarchy. Moreover, each level of legislation may not contradict a higher level and may not amend it in any manner. A law is issued by Parliament, or in certain cases by Presidential Decree, whereas executive regulations are issued by the Prime Minister and the various ministers, whereas other decrees are issued by various government officials.

9. The obvious advantage of including an MSME definition in a law would

be that it would apply to all other usages in the manner that is intended by the whole exercise. It would also guarantee certain continuity to the definition. However, the obvious disadvantage here is that it would perhaps be too stable and not allow for flexibility and responsiveness to change as each such change would have to be approved by Parliament. It would, therefore, be perhaps obvious to propose that the definition be included in a prime ministerial or ministerial decision for purposes of flexibility. There are, however, two reasons for preventing such solution: the first is that a definition that is included in a ministerial decision will not have the power to amend already existing definitions in laws in application of the principle of legislative hierarchy. Thus an all-encompassing definition would have to be in a law, even at the risk of sacrificing some flexibility. The second reason is that one of the constitutional principles in Egypt is that certain important matters must be determined in a law and not in an administrative decree. These include primarily crimes, penalties and taxes. Thus a law that determines a certain tax treatment and leaves the actual tax rate to the determination of the Minister of Finance would be unconstitutional. This is relevant to our case because again it depends on the context of the proposed definition. If the definition of MSMEs will have any consequence on their taxation then the definition itself must be in the law because otherwise it would mean that whoever defines MSMEs can determine and change the tax treatment of such entities, which must remain the prerogative of Parliament.

48 This solution could be proposed for tax exemption purposes only.

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Bibliography and Consulted Websites BSEC, "Declaration on Small and Medium-sized Enterprises at the Dawn of the 21st Century, Joint Ministerial Statement of the Organization of the Black Sea Economic Cooperation, 27 Sept, 2001, Istanbul. “Commission Recommendation of 3 April 1996 concerning the definition of small and medium-sized enterprises”, Office for Official Publications of the European Communities, Luxembourg; in Lerchs, The Study of an Operational Definition for Micro, Small and Medium Sized Enterprises in Egypt, August 2001. El Mahdi, A. and M. Osman (1999), “An Assessment of the Effectiveness of Small and Micro-enterprise Finance Projects in Employment Creation”. In Proceedings of Labor Market and Human Resource Development in Egypt, Cairo, Egypt, Economic Policy Initiative Consortium. European Commission, "Directory of measures in favour of entrepreneurship and competitiveness in Candidate Countries", http://europa.eu.int/comm/enterprise_policy European Commission, "Enterprise Europe 8, July-September, 2002.", Brussels, 2002. European Commission, "Modification of the SME Definition. Results of the first external consultation and envisaged follow-up.", Brussels, 2002. Federal Register/ Vol. 68, No. 22/ February 3, 2003/ Proposed Rules. (SBA) Lerchs, George, ‘The Study of an Operational Definition for Micro, Small and Medium Enterprises in Egypt, IDRC Contract SMEPOL/100168, August 2001. Ministry of Industry, Data on Economic Establishments Registered with GAFI, 2002 “Plans to Update SME Definition”, Enterprise Europe 8: July-September, 2002. http://europa.eu.int/comm./enterprise/library/enterprise-europe/issue8 “Definition of Small and Medium-sized Enterprises,” European Commission, Enterprise, 10 July 2002. http://europa.eu.int/comm/enterprise/consultations/sme_definitions/index “Consultation on the definition of SMEs”, European Commission, Enterprise, September 11, 2002. http://europa.eu.int.comm/enterprise/consultations/sme_definition/consultation2 “Modification of the SME Definition: Results of the first external consultation and envisaged follow-up.” European Commission, Enterprise Directorate-General, Brussels, 2002. “Draft Commission Recommendation of […] amending Recommendation 96/280/EC concerning the definition of small and medium-sized enterprises.” European Commission, Brussels, 2001.

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“SME Definition.” Small Business Europe, Issue Tracker, www.smallbusinesseurope.org 27 September, 2002. “The Observatory of European SMEs.” European Commission, 16 Oct 2002. http://europa.eu.int/comm/enterprise/enterprise_policy “Report from the Commission to the Council, the European Parliament, the Economic and Social Committee and the Committee of the Regions: Creating an entrepreneurial Europe, The activities of the European Union for small and medium-sized enterprises (SMEs). European Commission, Brussels, 2001. “Strategy for SME Development,” UN-ECE, Geneva, n.d. “Business Service Institutions for the Development of Small and Medium-Sized Enterprises.” UN-ECE, Geneva, 1 Nov 2000. “Frequently Asked Questions”, U.S. Small Business Administration, Office of Size Standards, www.sba.gov/size/indexfaqs/ “What We Do”, U.S. Small Business Administration, Office of Size Standards, www.sba.gov.size.section04a “HUBZone Empowerment Contracting Program,” U.S. Small Business Administration, Office of Size Standards, https://eweb1.sba.gov.hubzone/internet/general “Small Disadvantaged Business (SDB),” U.S. Small Business Administration, Office of Size Standards, www.sba.gov.sdb/indexsdbapply Small and Medium Enterprise Basic Law – Japan, www.sme.ne.jp/policies “Outline of Recommendations from the Small and Medium Enterprise Making Council”, Small and Medium Enterprise Agency, Ministry of International Trade and Industry, Japan, Sept 22, 1999. “Government revises definition of SMEs”, Taiwan Headlines, www.taiwanheadlines.gov.tw Feb 1, 2000. Hall, Chris “Profile of SMEs and SME issues in APEC.” Pacific Economic Cooperation Council on behalf of Chinese Taipei, Clareville, Australia, Aug 2001 “Improve public administration – Latvia. Directory of measures in favour of entrepreneurship and competitiveness in Candidate Countries.” European Commisssion, 11Jan 2002. http://europa.eu.int/comm/enterprise/enterprise_policy “Improve public administration – Good practices. Directory of measures in favour of entrepreneurship and competitiveness in Candidate Countries.” European Commission, 11 Jan 2002. http://europa.eu.int/comm/enterprise/enterprise_policy/ enlargement/cc-best_directory

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“Draft Terms of Reference of the Working Group on Small and Medium Sized Enterprises (SMEs).” Working Group on SMEs, Organization of the Black Sea Economic Cooperation, Istanbul, 27 Sept 2001. “SMEs in Europe, including a first glance at EU Candidate Countries,” Observatory of European SMEs, European Commission, Brussels, 2002. Szabo, Antal “The Role of Governments in the Promoting Small and Medium-sized enterprises in countries in transition.” UN-ECE, Geneva, 1996. “Small and Medium-Sized Enterprises in Countries in Transition in 1996-1997.” Un-ECE, Geneva, 30 April 1999. 1999 White Paper, http://www.meti.go.jp/english/report www.asem-focalpoint-cp.org/ www.asem-focalpoint-cp.org/pdf/ Chapter 3 www.tid.gov.hk/English/aboutus/ publications/smes/smes04_summary.html www.sme.ne.jp/policies/02_kaiseigaiyo/index/html www.polity.org.za/html/govdocs/legislation/1996/act96-102.html www.sba.gov/size/guide-for-printing.html www.sba.gov/size/indexhazmat.html www.exim.gov/inssb.html (revised Dec. 07, 2001). Attar.ncat.org/guide/sbic.htm www.unece.org/indust/sme/tr-study.htm

APPENDICES

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Appendix 1

Size Distribution of Establishments and Employment, Private Sector, 1976, 1986 and 1996 (figures in parentheses are the shares in total)

Size Establishments Workers 1976 1986 1996 1976 1986 1996

1-4 704,566 (95.1 %)

1,049,508 (91.1%)

1,531,212 (93.3%)

992,107 (70.2%)

1,585,971 (66.7%)

2,571,688 (64.7%)

5-9 25,995 (3.5%)

41,005 (3.6%)

82,646 (5%)

160,377 (11.3%)

252,778 (10.6%)

500,893 (12.6%)

10-49 9,526 (1.3%)

15,073 (1.3%)

23,454 (1.4%)

163,242 (11.5%)

267,560 (11.3%)

410,961 (10.3%)

50-99 518 (0.1%)

1,149 (0.1%)

1,730 (0.1%)

33,655 (2.4%)

74,567 (3.1%)

115,049 (2.9%)

100-499 269 -

511 -

1,174 (0.1%)

48,093 (3.4%)

91,969 (3.9%)

227,028 (5.7%)

500-999 17 -

53 -

102 -

12,400 (0.9%)

35,915 (1.5%)

64,891 (1.6%)

1000+ 2 -

16 -

48 -

4,191 (0.3%)

68,930 (2.9%)

84,300 (2.1%)

Total 740,893 1,142,315 1,640,366 1,414,065 2,377,690 3,974,810 Prepared by ERF, based on the last three Census of establishments 1976, 1986 and 1996, CAPMAS

Appendix 2 Shares in Total Establishments & Employment by Economic Activity (private sector) Economic Activity 1-4 workers 5-49 workers 50-99 workers 1-99 workers

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Micro Small Medium MSME Sector a) Agriculture Enterprises 2.52 0.17 0.00 2.69 Workers 1.93 0.54 0.05 2.52 b) Fishing Enterprises 0.03 0.00 0.00 0.03 Workers 0.02 0.00 0.00 0.03 c) Mining Enterprises 0.01 0.02 0.00 0.03 Workers 0.01 0.09 0.03 0.12 d) Manufacturing Enterprises 14.19 2.63 0.05 16.87 Workers 12.20 9.63 1.41 23.23 e) Electricity, Gas and Water Enterprises 0.01 0.00 0.00 0.01 Workers 0.00 0.01 0.00 0.02 f) Construction Enterprises 0.51 0.14 0.00 0.65 Workers 0.41 0.59 0.14 1.15 g) Whole Sale and Retail Trading Enterprises 58.40 2.06 0.01 60.47 Workers 36.96 6.45 0.35 43.76 h) Hotels and Restaurants Enterprises 4.56 0.46 0.01 5.03 Workers 3.66 1.56 0.18 5.40 i) Transportation and Communication Enterprises 2.11 0.23 0.00 2.34 Workers 1.31 0.88 0.10 2.29 j) Financial Intermediation Enterprises 0.02 0.04 0.00 0.07 Workers 0.02 0.27 0.10 0.40 k) Real Estate, Leasing and Business Services Enterprises 2.98 0.27 0.00 3.25 Workers 2.38 0.94 0.11 3.43 l) Education Enterprises 0.24 0.11 0.01 0.37 Workers 0.19 0.72 0.29 1.20 m) Health and Social Work Enterprises 2.63 0.19 0.00 2.83 Workers 2.28 0.74 0.09 3.11 n) Community Services and Social and Personal Services Enterprises 5.08 0.13 0.00 5.22 Workers 3.16 0.43 0.04 3.62 o) Organizations, International and Regional Committees and Embassies Enterprises 0.00 0.01 0.00 0.02 Workers 0.00 0.07 0.00 0.08 Total Enterprises 93.35 6.47 0.11 99.92 Workers 64.70 22.94 2.89 90.53 Prepared by ERF, based on the 1996 Census of Establishments, CAPMAS

Appendix 3

Questionnaire

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Survey of Organizations that Provide Services to MSMEs

MSME Definition

Question

#

First: Background about the Organization 1

Name and Address

2

Starting Date

3

Classification of the Organization

1. Governmental 2. Semi-governmental 3. NGO 4. Bank 5. Private Establishment 6. Studies/Research Center 7. Donor Agency 8. Other

4

Major Objectives of the Organization

5

Main actual activities

6

Target Groups

7

Geographical Sphere

Second: Definitions of the MSME Sector 8

What are the Criteria that you use for Defining each of the three categories of MSMEs, and what are the maximum limits for each category?

Micro

Small

Medium

Target groups

# of employees

Capital

Loan size

Fixed assets

Annual sales

other

8.a.

In question # 8 above: if you use the ‘fixed asset’ criterion, what does it include:

You can choose more than one reply:

1. Machinery and equipment 2. Land

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3. Buildings 8.b.

In question # 8 above: if you use the ‘labor’ criterion, what does it include:


1. Labor that is under social insurance only

2. All labor whether socially insured or not

3. Permanent labor only 4. Permanent and temporary labor

9

What is your definition based on?

1. Internal Regulations 2. Decree (specify) 3. Other (specify)

10

What are the Financial Services provided by the Organization to MSMEs?


1. Credit 2. Credit Guarantee 3. Other (specify) 4. None

11

What are the Non-Financial Services provided by the Organization to MSMEs?


1. Technical Training 2. Marketing Training 3. Bookkeeping Training 4. Management Training 5. Other Training (specify) 6. Marketing Services 7. Export Promotion 8. Streamlining the procedures for

licensing and dealing with government rules and regulations

9. Input Supply 10. Supply of machinery 11. Modern Technology 12. Incubators 13. Site (other than incubator) 14. Other (specify) 15. None

12

What are the objectives of the Organization for each of the target groups? (you can choose more than one reply)

Micro

Small

Medium

Poverty alleviation

Job creation

Income growth

Export increase

Other

13

Do you update your definition periodically?

1. Yes 2. No (if not go to

Question 16)

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14

How frequently do you update the definition?

15

On what basis is the definition updated?

Third: Data Sources 16

What are your main sources of data on MSMEs?


1. CAPMAS 2. Other (specify)

17

What are the major studies/surveys you use in the framework of MSMEs?

18

In your judgment, are the available adequate for your work?

1. Yes 2. No

19

What are your suggestions for data improvement?

Fourth: Legislative Framework 20

In your opinion, is a law needed for the MSME definition?

1. Yes 2. No

21

And Why?

22

In your opinion, what are the most important bodies that can be considered as main partners in formulating a definition for MSMEs?

23

And Why?

Appendix 4

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List of Interviewees

First: MSME Stakeholder Survey 1. Mr. Mamdouh Thabet Mekky, Head of the Commodity Council for Leather Products 2. Dr. Mounir Massoud, Head of the Commodity Council for Foodstuff Industries. 3. Mr. Mohamed Hassan Ramzy, Deputy Head of the Commodity Council for Books and Arts. 4. Mr. Mohamed Hussein Gueneidy, Head of the Commodity Council for Electronic and Engineering Industries. 5. Ms. Hanan Abul Azm, Manager of the SEC Center, National Council for Women. 6. Dr. Amr Hosny, Advisor to the Minister, Ministry of Industry. 7. Mr. Wael Fawqy, Information Systems Officer, Federation of Egyptian Industries. 8. Mr. Mohamed Abdel Hamid, Chairman, Credit Guarantee Corporation. 9. Ms. Reeham Farouk, Mobadra Project Officer, SOS. 10. Mr. Raafat Abbas, SEDO Senior Officer, SFD. 11. Ms. Nivine Abdel Wehab, Micro-Credit Officer, General Projects Sector, SFD. Second: For the Study on Mechanism of Verification of the Definition 1. Mr. Mahmoud Fahmy, Investment and Legal Councilor, Ex-Head of Capital Market Authority, 2002. 2. Mr. Gamal Mossalem, CIDA’s One Stop Shop in Mansoura. Third: The Study of Data Sets 1. Mr. Hosni Soliman, Vice Chairman, CAPMAS 2. Mr. Refaat Al-Donshary, (Executive Director of the Economic Census), Census Department, CAPMAS 3. Mr. Abd-El-Magid Rady, (Executive Director of the Industrial and Handicraft Study), Department of Mobilization, CAPMAS

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4. Mr. Mohamed Nour-El-Dine, Director, Information Center, Commercial Registration, Ministry of Internal Trade 5. Mr. Mohamed El-Kordi, Director, Information Center, Fund for Private Sector, Ministry of Social Security 6. Mr. Ashraf Badr, Director, Technical Office, CAPMAS

ANNEX (A)

73

OVERVIEW ON ERF’s PHASE ONE DEFINITON STUDY

First: Objective The main objective of Phase One study was to provide a background document to the Ministry of Finance (MOF) and the Ministry of Foreign Trade (MOFT) to help them reach a unified operational MSME-definition in association with the design of incentives/special tax treatment to MSMEs. It is argued that tax incentives help MSME establishment and growth, and strengthen their contribution to job creation. Also noting with regard to fiscal impact that the contribution of micro and small firms is marginal in terms of their share in total tax revenue. The operational definition would also serve MOF when looking into the amendment of Law 89 of 1998 on government bids and tenders, for providing preferential treatment to MSMEs. Second: Criteria and Size Classes ERF proposed a definition for the MSME sector based on specific criteria and size limits; this was presented and discussed in two Conferences held by MOFT in April and May 2002. In light of the conference-discussions, also including informal voting among participants, the proposal was slightly amended to be as shown in Table A-1. Table A-1 MSME-Definition Proposed in Phase I Study

2. Non-Manufacturing Activity

Micro Small Medium

Number of workers 1 - 4 5 - 49 50 - 99 Fixed assets <LE25,000 LE 25,000 to < 1 million LE 1 to <10 million Annual turnover <LE100,000 LE 100,000 to < 2 million LE 2 to <10 million

3. Manufacturing Activity

Micro Small Medium

Number of workers 1 - 4 5 - 49 50 - 99 Fixed assets <LE 25,000 LE 25,000 to < 2 million LE 2 to <10 million

Third: Rationale 3.1 The division into the above three size categories aims at linking the attributes of specific size categories with the suitable policy interventions. As regards the micro category, it is often dominated by dead-end and survival groups; some argue that only few micro-enterprises are likely to be growth engines. The prime objective of identifying the constituency of that size category is to draft the appropriate policy assistance measures; this is a sub-set that deserves an incentive package of special nature, mostly aiming at poverty alleviation. The small enterprise size category is often characterized by falling in-between modern and traditional mode of operation. For each activity where small enterprises are abundant, there is a modern counterpart that takes advantage of economies of scale or modern technology. The need here is for an incentive framework to assist this size category move towards modernity and graduation towards the medium size

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group. Some specialists report a relatively high potential for growth and employment generation in the small as opposed to the micro-enterprise category. The medium size group operates along fairly modern/formal lines of management and production technology, but may still fall short of withstanding competition in local and export markets. The prime objective of targeting them for support is to assist this size category in becoming fully competitive on both domestic and export fronts. 3.2 The micro category labor limit is preferred to be at ‘4’ rather than ‘5’ because the CAPMAS main data set (1996 Census of Establishments) lumps together the information on enterprises having 5-9 employees. The labor limit for the small category was expanded to 49 employees to pre-empt small firms from deliberately stunting their own employment-growth to remain eligible to incentives that would be provided to this category. Also noting that clause 120 of Law 157 of 1981 on Income Tax provides five-year exemption for projects that have 50 employees and above. (NB. another discrimination in tax treatment lies within the MSME sector where borrowers of the Social Fund for Development (SFD) have tax holidays of five and ten years varying by sector and/or location while non-borrowers do not). The labor limit for the medium category was set at 99; many of the larger firms have enjoyed incentives by being incorporated under Investment Law 8 of 1997. 3.3 Fixed-asset ceiling for the small category was enlarged under manufacturing sector up to LE 2 million as opposed to LE 1 million for non-manufacturing sector, to account for the heavier use of machinery and equipment by industrial enterprises. The ceiling for the medium category was enlarged for the non-manufacturing enterprises up to LE 10 million, i.e. as large as the manufacturing sector, so as to encompass as many enterprises as possible for eligibility to incentives to this category. 3.4 As regards labor limits, no distinction between sectors was made in Phase I Definition-Study. (This was to build on feedback obtained from most interviewees in a previous survey49: their preference was to keep it uniform for simplicity at that early stage then). 3.5 The ‘sales turnover’ criterion was used as an additional alternative in defining non-manufacturing enterprises (rather than labor and fixed assets only in case of manufacturing activities) based on the fact that non-manufacturing businesses may not have significant fixed assets, particularly that the value of land and buildings is excluded as mentioned in later sections. On the other hand, the manufacturing sector has heavy use of machinery and equipment whereby we can rely on it as a criterion and avoid the risk of sales under-reporting. (As indicated later, US SBA uses the sales criterion for services and retail trade only, while it uses the labor criterion for manufacture and wholesale trade businesses).

49 MOFT conducted a survey in mid-2000 among a number of SME-stakeholders seeking opinions about a proposed definition for SMEs. Feedback was obtained from 12 entities including government bodies, development banks, foreign development programs and other stakeholders.

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3.6 Size limits for ‘fixed assets’ and ‘sales’ criteria were proposed in a way to be compatible to the ‘labor limit’ as well as to each other insofar as the resulting ratios are concerned, such as ‘fixed asset to labor ratio’, ‘sales to labor ratio (as a proxy to labor-productivity’, and ‘sales to fixed assets ratio i.e. asset turnover’. Noting that while moving from micro to small then to medium size enterprises the value of ‘fixed assets per worker’ could be rising due to progressively more usage of capital intensive methods of production: it was LE 6,250 for the micro-category, LE 20,000 and LE 40,000 for small-category non-manufacturing and manufacturing activity respectively, and LE 100,000 for the medium-category. As to ‘fixed asset turnover i.e. ratio of sales to fixed assets’ it came out to be 4:1 and 2:1 for micro and small groups respectively; both ratios are within reasonable limits. For the medium size category the ratio was only 1:1 because a ceiling of LE 10 million was set for the whole MSME sector under both sales and fixed assets criteria. The ratio of sales to labor was found to be LE 25,000, LE 40,000 and LE 100,000 respectively for the three size groups. Fourth: The Definition’s Usefulness to Various Stakeholders

For each stakeholder there is a briefing about their concern with the MSME sector, and a description of how the definition would help them. 4.1 Statistical Organizations: The agreement on a uniform definition would guide the statistical organization in designing the data-collection formats. The census would thus indicate classifications based on the criteria set by the definition (e.g. fixed assets, sales, labor) and the size-range under each criterion for the three MSME-groups. This additional information on the value of capital and sales turnover would be valuable to the other stakeholders. 4.2.Associations and Federations: Organized business groupings seek to advocate on behalf of different segments of the business community including small businesses, and to voice the needs and interests of each sectoral interest; thus a need for an identification of each association’s constituency of enterprises. The proposed definition should provide the classification that is closest to the needs for representation for Egypt’s small business associations and for making relevant distinctions when enterprises deal with government bodies, banks, donors, and other entities. With clearly delineated boundaries, groups of enterprises would be more responsive when guided towards organizing into appropriate functional sub-groups within any association or advocacy group. Associations could explore new possibilities such as supporting some SMEs to act as subcontractors for large firms, or micro-enterprises to act as subcontractors for small ones. 4.3.Donors: Donors use different definitions according to their target segments and sectors. Four main types of donor support to MSMEs in Egypt are the provision of credit, technical assistance, financial grants and in-kind grants. Most donors use existing NGOs to channel their aid to MSMEs. In future, donors would be guided by the proposed uniform definition, and the census based thereon, in targeting their assistance. They would be in a better position to identify members of the sector, for

76

the purpose of undertaking specific interventions. The definition would also serve as a reference in case two or more donors wish to coordinate their work. 4.4.Business Development NGOs and Business Associations: These organizations currently support the MSME-sector by providing various sorts of non-financial services e.g. training, technical assistance, provision of market information, marketing assistance, formalization assistance, etc. A uniform definition would help create a distinction between MSME-categories with a focus on NGO services particularly useful to a category targeted by the service provider. Practical application of the proposed definition will show over time that certain sub-sectors of activity cluster in particular size ranges such that targeted support is further streamlined within the three size bands of micro, small and medium. For example, technological upgrading would be more directed to small and medium rather than micro-enterprises, and the same is true for training in business-management. Export promotion assistance would be prioritized for medium rather than small enterprises. 4.5.Research Community: Researchers are interested in linking micro and small enterprise operations with issues of poverty alleviation, productivity enhancement, income generation, job creation and gender empowerment. The currently available coverage of variables and regularity of data collection is short of the needs of analysts and researchers. The proposed uniform definition would help researchers study and compare between the three MSME-categories, as well as between MSMEs and large enterprises, with regard to the dynamics of growth in production and sales, employment generation, capital formation, enterprise birth and death rates, growth in exports, etc. Comparisons with similar categories in other countries would also be made possible. 4.6 Banks: Micro-enterprises are not targeted by commercial banks because of relatively high overheads compared to small return from small loans, unless the bank has a separate unit for micro lending with specific procedures. Micro-enterprises have no significant fixed assets that could be mortgaged to a creditor, also taking into account the lengthy bureaucratic procedures for executing mortgage on fixed assets and the difficulty of foreclosure. Specialized development banks are more involved with micro-enterprises, but they are still not their most attractive clienteles. The proposed definition and a census that relies thereon would help banks estimate the number of their potential borrowers. Some of the small-enterprises, as defined in this proposal, may also be too small to attract commercial banks, especially joint venture banks where staff-number is limited and man-hour is expensive, as opposed to public sector banks. As to medium enterprises, they maintain financial statements and loan-assessment is based on reviewing borrower’s income statement and balance sheet; the value of fixed assets is indicated in the latter. According to the definition proposed, the category of medium-size enterprises may not require attention in designing special credit programs: they have access to commercial bank loans. 4.7 SFD and MSME-Lending NGOs and Associations: In case of micro lending, the NGOs and Business Associations use continuous field-inspection by the loan officer as a collateral-substitute because there are no significant fixed assets. At the very lower end of micro-enterprises, some programs in Egypt use ‘group-guarantee’ lending for very small loans e.g. up to LE 300. As to SFD-loans channeled through

77

public sector banks to small enterprises, the collateral is in many cases a guarantee by two employees through assigning their salaries in guarantee of the loan. SFD does not use labor or capital cutoff points for defining MSMEs. The proposed definition, and a census based thereon, would guide these credit institutions in estimating the size of their potential clientele, thus better focus and planning. 4.8.Government Bodies: In developing policies that represent special treatment of the MSME-sector, government bodies would be assisted by the existence of a uniform definition insofar as eligibility to the special treatment in concern. The proposed definition helps the concerned ministries identify target groups for the purpose of special interventions in the law and policy frameworks. The various government bodies would be also supported by the definition in analyzing the impact of any intervention in favor of some or all MSME-categories. Exercises that monitor group performance as well as sub-sector cost/benefit analyses could similarly be conducted periodically.

ANNEX (B)

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OTHER COUNTRIES’ DEFINITIONS AND MULTI-DEFINITIONS Some international definitions that are used by a number of developed countries and a number of developing and transition economies are highlighted below. There is focus on the following aspects: --The relations between the different variables or criteria that constitute a definition used by a certain country. --The fact that some variables are used for specific economic sectors but not others. --The fact that some variables are used for specific purposes and/or policy objectives. --The updated size limits, if any, since last study (e.g. USA had an updated definition effective Oct. 2002). For each of the countries referred to below, the following is indicated: --the used variables --the size limits for each variable --differentiation by sector if any --differentiation by specific purpose or policy objective if any (there is one example in Japan, as well as in the countries indicated under # 8 through # 11 below i.e. Malaysia, Canada, USA and Turkey). --whether the different variables are used on ‘combined’ basis or with ‘and/or option’ --ratios that we computed, where possible, to find the relations between the maximum limits of the different variables e.g. the value of capital per unit of labor, the ratio of sales to assets (i.e. asset turnover), sales to labor ratio as a proxy for labor productivity, etc. --additional conditions, if any, stipulated by the definition NB. Apart from ‘labor’ and ‘annual sales’, the most commonly used variable is ‘capital’, which is in the definitions of some countries replaced by specifically referring to ‘fixed assets’ or ‘total assets’; the latter sometimes referred to as ‘balance sheet total’. First: South Korea As described in Table B-1, the definition applied by South Korea uses ‘labor’ and ‘capital’ variables, with ‘and/or option’, for the sectors of manufacturing, construction, transportation and mining. Meanwhile, ‘labor’ and ‘annual sales’ variables are used for the trade sectors (i.e. retail, wholesale and communication sales) as well as for the services sectors (information processing and communications), also on ‘and/or’ basis. There is no distinction between small and medium categories size limits; the micro category is not addressed. Table B-1: Definition Used by South Korea (Small and Medium)

Labor

Capital

Sales

Capital per unit of Labor

Sales per unit of Labor

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Manufacture <300 Or $6.7 million

$ 22,333

Construction, transportation, mining

<300

Or

$2.5 million

$ 8,333

Retail <30 Or $1.6million $53,000 Wholesale <50 Or $ 4 million $80,000 Communication sales

<100

Or

$ 8 million

$80,000

Information Processing

<300

Or

$25 million

$83,000

Small and Medium

Communication <200 Or $16 million $80,000 In US$ -Source: www. smba.gov.kr Additional Condition: The enterprise is not to be subsidiary to one of the largest 30 firms. Second: People’s Republic of China (PRC) The available definition for the PRC is for the manufacturing sector only, Table B-2. The variables are ‘fixed assets’ and ‘annual sales’, combined, and at same values. Table B-2: Definition Used by PRC for Industrial Enterprises (Small and Medium)

Labor

Fixed Assets

Sales

Sales to Fixed Assets

Small Manufacture Euro 6.4 million And Euro 6.4 million 1:1 Medium Manufacture Euro 641 million And Euro 641 million 1:1 -Rate: Yuan 5 billion = Euro 641 million -Source: www. asem-focalpoint-cp.org/ NB. Starting point for the medium category is above the ceiling of the small category i.e. above Euro 6.4 million. (This exclusivity applies to all countries’ definitions) Third: Philippines Available information on MSME-definition used by the Philippines has the ‘labor’ criterion only, as indicated in Table B-3, with no differentiation between sectors. Table B-3: Definition Used by Philippines (Micro, Small and Medium)

Labor Fixed Assets Sales Micro 1-9 Small 10-99 Medium 100-199 Source: www. asem-focalpoint-cp.org/pdf/ Chapter 3

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Fourth: Hong Kong The definition used by Hong Kong uses the labor criterion only, differentiates between industrial and service sectors but not between small and medium firms. Table B-4: Definition Used by Hong Kong (Small and Medium)

Labor

Fixed Assets

Sales

Manufacture < 100 Non-manufacture < 50 Source:www. tid.gov.hk/English/aboutus/ publications/smes/smes04_summary.html Fifth: Japan Japan uses the ‘labor’ and ‘equity capital’ criteria with an option of and/or. This is for the ‘small’ category’. For the micro-enterprise category only the ‘labor’ criterion’ is used. No medium category is specified. It is noted that the capital criterion size limits indicated in Table B-5 below represent large increases of 3 to 5 times over a previously used definition by Japan. Ceilings for the manufacturing, wholesale and retail sectors were previously 100, 30 and 10 million yen respectively. As to labor, the only limit that was increased was that associated to the services sector: it was previously 50 employees maximum rather than 100 at present. NB. Only permanent labor is counted in Japan’s definition Table B-5: Definition Used by Japan (Micro and Small)

Labor

Equity Capital

Sales

Capital per unit of Labor

Micro

Manufacture

20

Non-Manufacture 5 Small Manufacture 300 Or Yen 300 million ($2.5million) $8,333 Service 100 Or Yen 50 million ($ 417,000) $ 4,170 Wholesale 100 Or Yen 100 million ($ 833,333) $8,333 Retail 50 Or Yen 50 million ($ 417,000) $ 8,333 -Source: www. sme.ne.jp/policies/02_kaiseigaiyo/index/html As regards specific purpose definitions, an example is that of the Japan Bank for International Cooperation. They provide long-term loans for overseas investment, up-to 60% of the required capital. As a special treatment for small and medium enterprises, this limit is raised to 70%, and preferential interest rates are charged. In this context, SMEs are defined as companies capitalized at Yen 800 million maximum or having less than 300 employees.

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Sixth: European Union (EU) The EU definition relates to the European Commission Recommendation in 1996, which in turn arose out of a European Council decision to implement an integrated program in favor of small and medium sized enterprises and the craft sector in 199450. As shown in Table B-6, the EU definition uses the ‘labor’ criterion combined with either ‘total assets’ or ‘the annual sales turnover’. Table B-6: Definition Used by EU (Micro, Small and Medium)

Labor

Total

Assets

Sales

Assets per unit of Labor

Sales to

Fixed Assets

Sales per unit of Labor

Micro 9 Small 49 And

Either: Euro 5 million

Or:

Euro 7 million

Euro 100,000

1.4:1 Euro 140,000

Medium 249 And Either:

Euro 27 million

Or: Euro 40 million

Euro 108,000

1.5:1

Euro 160,000

Source: Lerchs, The Study of an Operational Definition for Micro, Small and Medium Sized Enterprises in Egypt, August 2001: “Commission Recommendation of 3 April 1996 concerning the definition of small and medium-sized enterprises”, Office for Official Publications of the European Communities, Luxembourg. Additional Condition: Independence of the enterprise i.e. no more of 25% of capital ownership or the voting rights is held by non-SME. Most Member States adopted the definition recommended by the Commission, with modifications. For example, the United Kingdom uses the ‘labor’ criterion only, in size limits consistent with the Commission’s. Italy distinguishes the labor-thresholds for service enterprises51: ‘20 and 21-95 employees for small and medium respectively. Some non-EU countries also adopted this definition either as an alternative to developing their own, or because the bulk of their trade is with the EU, or because they wish to eventually join the EU52. There is no obligation to follow the definition for getting into partnership agreement with EU (Lerchs, 2003). Seventh: South Africa According to their National Small Business Act of 1996, four types of business sizes are classified: micro, very small, small and medium, using labor, annual sales and assets (not clear whether combined or on and/or basis). The following is noted: -Number of employees is the ‘total full-time equivalent’ of ‘paid’ employees. (But the definition did not clarify at what weight is the part-time employment converted to full-time employment equivalent; so it could be by simply counting the number of hours worked and dividing it by the usual number of hours for a full working day). -The ‘asset’ criterion refers to total gross asset value excluding fixed property. (It is our understanding that fixed property refers to land and buildings).

50 Lerchs, ‘The Study of an Operational Definition for Micro, Small and Medium Sized Enterprises in Egypt, IDRC Contract SMEPOL/100168, August 2001. 51 Ibid. 52 Ibid.

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Table B-7: Definition Used by South Africa (Micro, Very Small, Small and Medium)

Labor

Assets

(in US$)

Sales

(in US$)

Assets per unit of Labor (in US$)

Sales to

Assets

Sales per unit

of Labor (in US$)

Micro 5 12,000 18,000 2,400 1.5:1 3,600 V. Small 20 180,000 480,000 9,000 2.7:1 24,000 Small 50 450,000 1,200,000 9,000 2.7:1 24,000

Manufacture

Medium 200 1,800,000 4,800,000 9,000 2.7:1 24,000

Micro 5 12,000 18,000 2,400 1.5:1 3,600 V. Small 20 48,000 240,000 2,400 5:1 12,000 Small 50 120,000 600,000 2,400 5:1 12,000

Construction

Medium 200 480,000 2,400,000 2,400 5:1 12,000

Micro 5 12,000 18,000 2,400 1.5:1 3,600 V. Small 10 60,000 360,000 6,000 6:1 36,000 Small 50 300,000 1,800,000 6,000 6:1 36,000

Retail / Repair

Medium 100 600,000 3,600,000 6,000 6:1 36,000

Micro 5 12,000 18,000 2,400 1.5:1 3,600 V. Small 10 60,000 600,000 6,000 10:1 60,000 Small 50 480,000 3,000,000 9,600 6.2:1 60,000

Wholesale

Medium 100 960,000 6,000,000 9,600 6.2:1 60,000

Micro 5 12,000 18,000 2,400 1.5:1 3,600 V. Small 10 24,000 120,000 2,400 5:1 12,000 Small 50 120,000 600,000 2,400 5:1 12,000

Catering / accommodation

Medium 100 240,000 1,200,000 2,400 5:1 12,000 -One South African Rand= $0.1172; conversion was done at a rounded rate of 0.12 -Source:www. polity.org.za/html/govdocs/legislation/1996/act96-102.html Availed to ERF by Dr. Mohamed Saad, Consultative Group for Assisting the Poor (CGAP) Additional Condition: Separate ownership i.e. the enterprise is not part of a group of companies. Eighth: Malaysia The available definition for Malaysia is an example of a definition that is formulated for a specific purpose53. The registered SMEs in Malaysia, 25,000 in number, are major sub-contractors to multinational corporations. They are of particular interest to the Ministry of International Trade and Industry in its attempt to reduce the imports of materials by the multinationals corporations. Currently, SMEs largely rely on technologies from abroad e.g. Japan, Taiwan and China. The Ministry has the Industrial Technology Assistance Fund for the purpose of ISO 9000 certification. For purposes of determining eligibility to the fund, the Ministry defines SMEs as those enterprises with annual sales below US $ 1 million.

53 Souce: www. asem-focalpoint-cp.org/pdf/ chapter 3.

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Only 20% of the SMEs in Malaysia actually export their products. The major contribution to growth in added value per employee was from the sub-sectors where SMEs acted as sub-contractors to the large sized industry e.g. automotive, electrical and electronic products. Ninth: Canada Canada has two distinct definitions stated in Table B-8 below54. Both are used to describe the small enterprise sector, with no other micro and medium enterprise classifications. The first definition relies on the ‘labor’ criterion’; it is the standard government definition and is communicated to the trading partners in G8/OECD, but it is not used. The second definition relies on ‘sales revenue’; it is contained in the Small Business Financing Act and it is the one that is legislated. The second definition has no sector differentiation; it does not include the business of farming. Table B-8: Canada’s two Different Main Definitions (Small)

1st definition

Labor

Capital

2nd definition

Sales

Ratios

Manufacture: 499

Services: 49

Ca.$ 5 million gross revenues for the year in which a loan is approved (or expected revenues -at time of loan approval- for a business that is about to be carried on)

No ratios are

calculated as these are two distinct definitions

As indicated in Table B-8, the second definition relates to the purpose of obtaining a loan for the business, under the Small Business Financing Act (SBFA -a federal government loan guarantee program). A number of other definitions are used for specific purposes and/or policy objectives; examples are highlighted below55: 8.a) The Canadian federal census and statistical information agency, uses ‘number of employees’ for data gathering, and categorizes the data as: less than 5, 5-9, 10-19, 20-49, 50-499 and 500+; and names them as follows ‘Small businesses <50 employees’, ‘Medium-sized businesses 50-499’ and ‘Large businesses 500+’. 8.b) Under the Export Market Development Program of the Department of Foreign Affairs and International Trade, priority is given to firms with annual sales of Ca.$ 250,000 to 10 million and/or less than 100 and 50 employees in manufacturing and services sectors respectively. Further, the Export Development Corporation considers an SME to be an exporter of capital goods with annual sales below Ca.$ 25 million. 8.c) The main financial intermediary for SMEs in Canada, Community Future Development Corporations (NGOs) provide financial products that are generally 54 Lerchs, ‘The Study of an Operational Definition for Micro, Small and Medium Sized Enterprises in Egypt, IDRC Contract SMEPOL/100168, August 2001. 55 Ibid.

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priced above the chartered bank market, which means that only the businesses that cannot get conventional financing will apply. There is no incentive for larger companies to attempt to incorrectly identify themselves as SMEs as would be the case if subsidies were involved. Thus no need for formulating a definition for SMEs. But the banking community in Canada considers as ‘small businesses’ those with credit facilities of below Ca.$ 250,000. 8.d) The Competition Bureau of Industry Canada introduces the notion of market dominance or relative market power as the key criterion for purposes of competition analysis (no limits specified in the literature). 8.e) The ‘number of employees’ criterion is often used to develop provincial regulatory thresholds for Occupational Health and Safety Legislation. For example in Ontario: -enterprises with less than five employees do not have to have a formal health and safety committee or employee representatives, -enterprises with 5-20 employees must have an employee representative, -enterprises with 20+ employees must have a full-blown committee, Also Pay Equity Legislation only applies to employers with more than 10 employees, posting a formal plan is optional in case of 10-99 employees, mandatory if 100+. 8.f) The Canadian Federation of Independent Business, a private sector advocacy group, defines small and medium businesses as those having below 50 and 500 employees respectively. 8.g) For purposes of investment eligibility by one labor-sponsored venture capital fund, SMEs are defined as those with less than Ca.$ 35 million in total assets. 8.h) Finally, for tax purposes, the following distinctions are made: -For the Goods and Services Tax, a federal value added tax, enterprises with taxable sales below Ca.$ 30,000 per annum do not have to register with the government or collect the tax. -For purposes of federal and provincial corporate income taxes, a ‘Small Business low tax rate’ is applied to the first Ca.$200,000 to 400,000 (varying by province) of taxable income (for private sector only). Some countries have used similar thresholds for developing SME-definitions. -The threshold for ‘large corporations capital tax’ on total assets is Ca.$ 10 million. From the above examples, ‘number of employees’ seems to be used to determine the level at which the enterprise has to fully conform with rules and regulations, and gross sales or taxable income seem to be used to determine the eligibility for incentives, subsidies or financial concessions. Total assets are also used for tax purposes56. It is said however that a definition that is based only on number of employees and annual sales does not help the government address the needs of the sectors that have more potential in creating the employment needed by the economy57. For example, the Business Development Bank of Canada has given highest priority in its loan and

56 Ibid. 57 Ibid.

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investment policies to SMEs in the Knowledge-Based Industries; otherwise general initiatives are diluted or have little impact. Tenth: USA US federal government has established the Small Business Administration (SBA) under the Small Business Act. SBA defines the enterprises according to the North American Industry Classification System (NAICS). For each sector or sub-sector only one criterion is used, labor or gross receipts. Thresholds are said to be too high for policy purposes as they include large number of businesses having characteristics of large enterprises, thus a need to develop qualifiers to the definition to produce workable policies and interventions58. Table B-9: Definition used by USA (Small) for eligibility to most SBA Programs

Labor*

Assets

Sales (‘gross receipts’**)

Ratios

Manufacture 500 (some sub-sectors have higher limits)

Wholesale -500 for gov’t procurements -100 for loans

Retail

$ 6 million (some subsectors have higher limits)

Services

$ 6 million (some subsectors have higher limits)

Construction

-$ 28.5 million for heavy construction (& $ 12 million for special trade construction)

No ratios are calculated as each sector

uses one criterion only

-Source: www. sba.gov/size/guide-for-printing.html *Labor is calculated as the average employment of a business during the last 12 months. Each employee is counted as ‘one’ regardless of the number of hours worked59. **Annual receipts are averaged over a firm’s latest 3 fiscal years; it is calculated as ‘gross or total income’ plus ‘the cost of goods sold’. Additional conditions: -A small business concern is ‘independently owned and operated and is not dominant in its field of operation’. These criteria are important for procurement and competition policy, a main purpose for which the definitions are intended60. -Affiliates’ employees or receipts are counted, (affiliation defined as 50% ownership and above, or contractual arrangement for control). -For the purpose of government procurement contracting, firms under ‘wholesale sector’ must deliver the product of a small domestic manufacturer (unless the delivery is below $25,000, or this condition waived). With regard to government procurements, there is a target of 23% of all federal procurements to be awarded to small businesses. While federal agencies are not obliged to use the SBA-definition, they must use its size standards to define small

58 Ibid. 59 Source: www. sba.gov/size/indexhazmat.html 60 Ibid.

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businesses for procurement purposes. Apart from the definitions used for special purposes highlighted in the table (such as the different labor limits in case of ‘government procurement contracting’ as opposed to ‘obtaining an SBA loan’), other examples of specific purpose definitions are as follows: 10.a) A small business in California is eligible to “5% bid preference” if it is a has 100 employees maximum (plus average annual receipts up-to $10 million in last three years in case of non-manufacturing firms). 10.b) US Export-Import Bank (US-EXIM) offers to exporters a Small Business Policy for insurance covering 100% of political risks and up-to 95% of commercial risks61. For purposes of eligibility to this insurance policy, US-EXIM defines a small export business as ‘one whose annual export credit sales –including those of its affiliates if any- averages $ 5 million or below in two preceding years’. This only relates to export ‘credit sales’ i.e. excluding goods sold in cash or against confirmed irrevocable letter of credit. It should also meet US SBA guidelines for defining small businesses. 10.c) For eligibility to finance from Small Business Investment Companies (SBICs, a program that is licensed and regulated by SBA), a business is to have a maximum net worth of $ 18 million and an average net income (after-tax) of $ 6 million in the preceding two years (parent company, subsidiaries and affiliates, if any, included). Eleventh: Turkey There is no unified SME definition in Turkey although there is a coherent policy approach to the sector and strong industry advocacy groups (‘Tradesmen & Craftsmen Confederation’ and ‘Union of Chambers & Commodity Exchanges’) with an advisory role to government62. Various definitions are as follows63: --The Chamber of Industry defines small and medium enterprises as those having 1-9 and 20-99 workers respectively. --KOSGEB (Small-Sized Industrial enterprises) defines small and medium enterprises as those having 1-49 and 50-150 workers respectively. --For eligibility to it loans, HALK Bank defines small enterprises as those with below 100 workers and US$ 25,000 total assets, and medium enterprises as those with below 250 workers and US$ 125,000 in total assets. The asset limit has been revised several times, last of which was in 1995, due to high inflation rates. --To generate statistics, the State Institute of Statistics (DIE) defines micro, small and medium enterprises as those having 1-9, 10-49 and 50-199 workers respectively. --To qualify for state aid, SMEs are defined by the Under-secretariat of Treasury as those having up-to 150 workers and net value of total assets recorded in their books up-to Turkish Lira 50 billion excluding land and buildings. --To qualify for a variety of export development and promotion programs, and to be part of a decree related to state aids for exporting enterprises, the Under-secretariat of Foreign Trade defines SMEs as those having 200 workers and net value of total assets recorded in their books up-to US$ 2 million excluding land and buildings.

61 www. exim.gov/inssb.html (revised Dec. 07, 2001). 62 Lerchs, 2001, opcit. 63 www. unece.org/indust/sme/tr-study.htm

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ANNEX (C)

REVIEW OF DATA SOURCES ON MSMEs IN EGYPT

This review is an update of an earlier study conducted in August 2000 as part of the start up phase of the SME Development Policy Project. The focus will be on data sources that can be relied on for formulating the MSME-definition. First: Methodology Several data collection activities are conducted through governmental and non-governmental agencies. But according to Egyptian law, data collection activities are controlled by CAPMAS. The approval of CAPMAS is necessary before collecting data even if a governmental agency is sponsoring research activities. Any governmental or non-governmental agencies should submit a request to CAPMAS, along with the questionnaire to be used. The official approval is usually published in a special official newspaper (الوقائع المصرية). The list of data collection permits issued since 1996 was reviewed and the relevant data collection activities were identified. Household based data collection activities are not considered appropriate for the purpose of this study since there is usually no link between household and enterprises. In-depth interviews with CAPMAS executives were conducted to fully understand the limitations and problems with different data sets (see Appendix 4 for list of interviewees). Interviews were also useful in getting internal reports and unpublished methodological papers related to the different data sets. Apart from CAPMAS which is the main supplier of data in Egypt, the databases available in other organizations were identified (governmental, semi-governmental and non-governmental). Interviews were held with managers of information centers in governmental organizations to examine the content of databases. The databases were reviewed to assess utility in developing time series, analysis, reporting, accuracy, coverage, accessibility, and outside linkage. Second: Sources of Data on MSMEs A review of activities in the area of MSMEs points out to the following agencies as potential sources of data: 3.1 CAPMAS As mentioned, this is the governmental agency responsible for data collection, processing and dissemination. Major data collection activities are conducted by it. 3.2 Social Fund for Development (SFD) It is a semi-governmental organization. Its main objective is to provide loans for supporting MSMEs. It is also running other programs for poverty alleviation.

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3.3 Business Associations and NGOs Several business associations and NGOs are managing funds provided from various donors. The funds are directed to the provision of credit (and non-financial services) to MSMEs. The number of NGOs providing credit to MSMEs is growing; almost each governorate has a business association, (a list of these organizations is included in a directory compiled by Friedrich Ebert). Each business association or NGO has a computerized database of the assisted MSMEs. 3.4 Banks Commercial banks are usually not eager to provide credit to micro and small enterprises. However, a number of banks are dealing with small enterprises such as Nasser Bank, the Principal Bank for Development and Agricultural Credit (PBDAC), National Bank for Development and the Industrial Development Bank. These banks maintain databases for their clients. 3.5 Ministry of Internal Trade The Commercial Registry ( سجل التجاري is a department of the Ministry of Internal (الTrade. It is responsible for registering private enterprises and issuing permits that allow them to practice the business. The commercial registration should include all private enterprises regardless of number of employees or legal status. 3.6 Ministry of Social Insurance and Social Affairs (MOSA) MOSA is responsible for collecting the monthly amounts of money that employers pay for each of their employees as a contribution to the social security system. The database should include all private enterprises operating in the country regardless of the number of employees or legal status. 3.7 Research Agencies Several agencies are doing research in the area of MSMEs that requires data collection. Examples are the National Center for Social and Criminological Research, The Social Research Center of the American University in Cairo, the Economic Policy Initiative Consortium (EPIC) and the Economic Research Forum. Third: Results of the Review This section is a review of several sources of data; it is divided into four parts as follows: --Data sets that are based on a full enumeration of establishments and are nationally representative. --Data sets where target loan beneficiaries (a subset of MSMEs) are listed. --The registration systems. --Other sources of data that are usually limited in terms of coverage are listed.

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3.1 Data sets based on full enumeration of enterprises: 3.1.1. Census of Establishments Egypt has a long history of establishment censuses. The first census was done in 1942; and since then, 12 other censuses were conducted. On average, one establishment census is conducted every four years. The last census of establishments was part of the Population Census of 1996. Data were collected in October 1996 by CAPMAS who was also responsible for data processing, analyzing and maintaining. The objective of the census is to provide information on the economic activity in the country. It gives an accurate picture on the characteristics of establishments. Procedure of data collection: The census of establishments is a full enumeration of all establishments located in all administrative units of Egypt, both urban and rural. The census covered all units regardless of the number of employees. It also covered units temporarily closed and units under construction. Coverage: All sectors are covered by the census including the government, the public sector, the private sector and the foreign sector. Definitions: An establishment is defined as a place in a part of a building, in a whole building or in several connected buildings where one of the following economic activities is practiced:

a) Agriculture, fishing and hunting b) Mining c) Manufacturing d) Electricity, gas and water e) Construction f) Trade, restaurants and hotels g) Transportation and storage h) Finance, insurance, real estate and business services i) Community services, social services, personal services and maintenance

Employees include the establishments’ owners whether or not they are working for cash, individuals working in the establishment whether or not they are working for cash and whether or not they have a written contract. Economic activity is classified according to the “Unified Arab Classification of Economic Activity” published by CAPMAS in 1996. Borders of administrative units are published in the census. Data collected: Data were collected on more than 3 million establishments. One third of the establishments were located in rural areas. One fourth of all establishments were located in Cairo and Alexandria. The number of operating establishments nationwide was over 1.8 million establishments. The total number of employees working in non-governmental establishments (1.7 million establishments) was around 5 million employees.

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Where applicable, data on geographical location including full address and characteristics of establishment were collected for all establishments whether operating, temporally closed or under construction. Information on characteristics of the employees was collected for non-governmental agencies only. Dissemination:

a. A volume that includes tables on the national level b. A volume that includes tables on the governorate level (i.e. twenty six

volumes, one for each governorate) Published information:

a. Distribution of establishments by operating status (operating, temporarily closed, permanently closed, under construction, empty), governorate and residence (urban / rural).

b. Distribution of operating and temporarily closed establishments by sector, operating status, governorate and residence (urban / rural).

c. Distribution of operating establishments by type (single establishment / head quarter / branch), year of starting operation (before 1986 / 1986 and onwards), governorate, residence (urban / rural) and total number of employees. Governmental agencies not included.

d. Distribution of operating establishments by type (single establishment, head quarter, branch), governorate, residence (urban / rural) and total number of employees by contractual relationship with owner (owner working for cash / owner not working for cash / employee). Governmental agencies not included.

e. Distribution of operating and temporarily closed establishments by year of starting operation, governorate, residence (urban / rural). Governmental agencies not included.

f. Distribution of operating and temporarily closed establishments by nationality of manager, governorate, residence (urban / rural). Governmental agencies not included.

g. Distribution of operating and temporarily closed establishments by legal status, governorate, residence (urban / rural). Governmental agencies not included.

h. Distribution of all establishments by type of building, governorate, residence (urban / rural).

i. Distribution of operating establishments by economic activity, governorate and total number of employees. Governmental agencies not included.

j. Distribution of operating establishments by economic activity, number of employees (1, 2, 3, 4, 5-, 10-, 15-, 20-, 25-, 30-, 40-, 50-, 100-, 500-, 1000+) and total number of employees. Governmental agencies not included.

k. Distribution of operating establishments in the business public sector by economic activity, number of employees (1, 2, 3, 4, 5-, 10-, 15-, 20-, 25-, 30-, 40-, 50-, 100-, 500-, 1000+) and total number of employees. Governmental agencies not included.

l. Distribution of operating establishments in the private sector by economic activity, number of employees ((1, 2, 3, 4, 5-, 10-, 15-, 20-, 25-, 30-, 40-, 50-, 100-, 500-, 1000+) and total number of employees. Governmental agencies not included.

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m. Distribution of operating establishments in other sectors by economic activity, number of employees (1, 2, 3, 4, 5-, 10-, 15-, 20-, 25-, 30-, 40-, 50-, 100-, 500- 1000+) and total number of employees. Governmental agencies not included.

n. Distribution of operating establishments by economic activity, legal status and total number of employees. Governmental agencies not included.

o. Distribution of operating establishments by economic activity, sector and total number of employees by gender. Governmental agencies not included.

Comments: The census of establishments of 1996 is the best database available for MSMEs in Egypt. Its main advantage over other sources is in the way the data were stored. For the first time in Egypt data on full address of establishment and owner’s name are integrated in the data set; this allows for extracting identification information for any selected record directly from the computer. This is not the case with other data sets where a serial number is assigned to each establishment but the identification information is not entered into the file. Obtaining the name of owner or address of establishment requires pulling the information from the questionnaires, which is time consuming, costly and could be nearly impossible when dealing with large data sets. 3.1.2. Economic Censuses 3.1.2.a. The First Economic Census: Conducted in 1993 using a sample of 140 thousand establishments to cover data on fiscal year 1991/92. The second economic census was conducted five years later to collect data on the fiscal year 1996/97. It is based on the frame of the establishment census of 1996. The third economic census took place in 2002 to cover data on fiscal year 2001/2002. The objective of the economic census is to provide data on employment and financial information on establishments including fixed assets, wages, social security, taxes, depreciation, production, gross and net revenues. 3.1.2.b. The Second Economic Census: It was sponsored by CAPMAS. Data was collected during March through May 1998. Procedure of data collection: The economic census is a full enumeration of all non-governmental establishments located in all administrative units of Egypt (urban and rural). Seven different questionnaires were developed for seven sectors: Mining, Trade (less than 4 employees), Restaurants, Transportation and service in the informal sector, Private education, Transportation and storage, and Agricultural activities. Coverage: The census covered all non-governmental establishments operating at the time of census listing. The following economic activities were targeted: Agriculture, fishing and hunting, Mining, Manufacturing, Construction, Production and distribution of electricity and gas, Purification and distribution of water, Wholesale trade, Trade, Maintenance, Hotels, Restaurants, Transportation and storage, Post offices, Telecommunications, Banks and insurance, Service, Private education, Health facilities, Newspapers, Museums and cultural facilities, Non-governmental organizations and business associations, Cinema, Social services and Sports activities

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Data collected:

a) Characteristics of establishment b) Financial data, and, c) Number of employees

Dissemination: A summary report was published in June 1999. Detailed reports followed.

Published information, all classified by economic activity:

a) Distribution of establishments b) Employment c) Fixed assets d) Total production e) Total revenues f) Net production g) Net revenues h) Total wages i) Social security payments j) Depreciation

3.1.2.c. The Third Economic Census: It was sponsored by CAPMAS. Data was collected in April through December 2001. Procedure of data collection: It was a full enumeration of all governmental, public sector and private establishments located in all administrative units of Egypt (urban and rural). Data collection was conducted in two phases. In the first phase, informal private sector was targeted using nine different questionnaires covering the following sectors64: Mining (less than 10 workers), Manufacturing (less than 10 workers), Repair and maintenance (less than 10 workers), Trade (less than 5 employees), Restaurants, Transportation, Service, Private education, and Agriculture and fishing. Data were collected by using personal interviews. Nearly eight thousand interviewers were recruited to conduct the interviews. The second phase was confined to government, public sector and formal private establishments. Forty-one different questionnaires were used in the second phase. Questionnaires were delivered to the establishments than collected later by two hundred representatives from CAPMAS. Coverage: The 1996 frame was updated in 2001; all establishments operating at the time of the listing were included. The following economic activities were targeted: Agriculture, fishing and hunting, Mining, Manufacturing, Construction, Production and distribution of electricity and gas, Purification and distribution of water, Wholesale trade, Retail trade, Maintenance, Restaurants, Hotels, Transportation and storage, Post offices, Telecommunications, Banks and insurance, Money exchange, 64 According to CAPMAS the informal sector includes all private companies with less than 5 workers in the trade sector and with less than 10 workers in other sectors.

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Service, Private education, Health and veteran services, Newspapers, Museums and cultural facilities, Non-governmental organizations and business associations, Cinema, Social services and Sports activities. Data collected:

a) Characteristics of establishment b) Financial data, and, c) Characteristics of employees

Dissemination:

a) A summary report was published in June 2002. b) Detailed report was published in October 2002.

Published information: Distribution of establishments by economic activity, Distribution of establishments by sector, Employment by economic activity, Employment by age, Employment by educational level, Employment by type of job, Fixed capital by economic activity, Working capital by economic activity, Total revenues by economic activity, Net production by economic activity, Net revenues by economic activity, Total wages by economic activity, Social security payments by economic activity, and, Depreciation by economic activity.

Comments: Economic censuses can provide a good frame for samples of MSMEs. Data on balance sheet is collected. But large companies’ balance sheets may take long time to be prepared/approved, which affects data quality and accuracy. 3.1.3. The Small Industries Study The study is a full-enumeration of private enterprises in the manufacturing sector as well as repair and maintenance workshops, with less than 10 employees. The objective of the study is to build a database that can provide information on small private industrial enterprises especially with regard to inputs and outputs. Data collected include employment, fixed and working capital, source of finance, access to credit, assets, wages, social security, taxes, depreciation, production, idle capacity, level of technology, gross and net revenues. Additional objectives of the study include developing policies for linking MSMEs to larger industrial companies, assessing the training needs and determining the problems facing MSMEs. The Study was sponsored by both CAPMAS and SFD. Data was collected in April to July 1997. Procedure of data collection: It is a full enumeration of all private enterprises located in all administrative units of Egypt (urban and rural). The census covered all private industrial (including maintenance) and handicraft enterprises. A frame based on the population census was prepared covering all administrative units (urban and rural). Definitions: The study adopted an operational definition of ‘small’ enterprises based on a number of workers below 10. This cut-off-point is selected to match with other data collection activities conducted by CAPMAS which is collecting a yearly survey for private enterprises with 10 or more workers. In addition to industrial activities,

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enterprises working in maintenance and repair were included in the study. Skilled workers are defined as workers who got training for at least three months, workers with at least five years practical experience or workers holding a professional degree. Data collected:

a) Characteristics of establishment, b) Characteristics of workers, c) Data on inputs and outputs, d) Financial data, e) Access to credit, f) Plans for expansions, and, g) Problems facing enterprises

Dissemination:

a) A volume that includes tables on the national level b) A volume that includes tables on the governorate level (twenty six

volumes, one for each governorate)

Published information: The following information is published at national level and governorate level: a) Distribution of enterprises by economic activity, residence (urban / rural)

and number of employees (1, 2-4, 5-9) b) Distribution of workers by economic activity and skills c) Distribution of workers by economic activity and need for training d) Distribution of workers by economic activity, gender and position e) Distribution of workers by economic activity and educational status f) Distribution of workers by economic activity, gender and position g) Distribution of workers by economic activity, gender and age (<15, 15-, 25-

35-, 45-, 60+) h) Wages by economic activity i) Inputs by economic activity j) Production by economic activity k) Sales (local / exports) by economic activity l) Reasons for idle capacity by economic activity m) Level of technology by economic activity n) Reason for introducing new technology by economic activity o) Plans for extensions by economic activity p) Problems in getting new materials by economic activity q) Type of customers by economic activity r) Problems in marketing by economic activity s) Source of finance by economic activity t) Loan providers by economic activity u) Net value added by economic activity v) Rents by economic activity w) Interest by economic activity x) Taxes by economic activity

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y) Depreciation by economic activity The following information is published on the district level: a) Distribution of enterprises by residence (urban / rural) and number of

employees (1, 2-4, 5-9) b) Distribution of workers by skill c) Distribution of workers by need for training d) Distribution of workers by gender and position e) Distribution of workers by educational status f) Distribution of workers by gender and position g) Distribution of workers by gender and age (<15, 15-, 25-, 35-, 45-, 60+) h) Total wages i) Inputs j) Production k) Sales (local / exports) l) Reasons for idle capacity m) Level of technology n) Reason for introducing new technology o) Plans for extensions p) Problems in getting new materials q) Type of customers r) Problems in marketing s) Source of finance t) Loan providers u) Net value added v) Rents w) Interest x) Taxes y) Depreciation Comments: The Industrial and handcraft study is a good database for small industrial enterprises. It should be noted that service enterprises (except maintenance) are not included. The definition adopted in the study is based on number of workers (<10) which may not correspond to definition of SMEs. 3.2. Data Sets of Credit Providers: Credit providers such as SFD, NGOs and business associations, are maintaining databases for their beneficiaries for follow-up purposes. The collection of records in these sources is not exhaustive of the MSME sector, but is a subset of the universe of MSMEs. Furthermore, there is no non-overlapping “catchement” areas (geographic or sectoral) for credit providers; the records are hence not necessarily exclusive since some enterprises appear as beneficiaries in more than one list. These databases are also not compatible from an MIS aspect, despite the fact that they have a similar purpose. Unifying databases across credit providers is an easy task that can be easily achieved. This is certainly an area that needs coordination. Such an

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effort if associated with networking among providers will have many benefits including linking the records of beneficiaries that are common to more than one provider (i.e. credit bureau system). Another major problem with some of these databases is the inadequate level of accuracy in some variables and the lack of using proper definitions (for example unclear classification by sector). A list of governmental and non-governmental organizations supporting small and medium enterprises is compiled in a directory prepared by the Federation of Egyptian Industries and Friedrich Ebert Stiftung. In addition, the following two organizations (not included in the list) have good databases for MSMEs: a) Ministry of Local Development, ORDEV b) Agency for the Employment of Youth (at governorate level) Several banks are providing credit to MSMEs. As mentioned earlier, Nasser Bank, PBDAC, National Bank for Development, and Industrial Development Bank are active in this area. Also some commercial banks provide SME loans under the SFD Program. Banks have databases for their beneficiaries. Their databases are more focussing on financial aspects related to credit. Variables such as number of employees are usually not included in the database. Another important issue that is particular to banks is confidentiality. By law banks are not supposed to reveal information related to their clients without their consent or a permit from the Central Bank. Due to confidentiality, access to banks’ databases is nearly impossible. 3.3. Data Sets based on Registration Systems: 3.3.1. Commercial Registration The commercial registration system is maintained by the Ministry of Internal Trade (MIT). The sytem was set up in Egypt in 1935. The number of regional offices is expanding; at present there are 66 offices operating in different areas. Registration is a pre-requisite for operating any private business activity. The system is not computerized yet and is not inter-connected on the national level. The number of registered establishments is around 2 millions. MIT is currently working on computerizing the system. A grant from the Italian government is used for that purpose with technical support from IDSC. This includes the transfer of hard copy files to electronic ones, then connecting the system on the national level. The communication media between different geographic locations is an important factor that affects the system performance. One important issue under consideration in MIT and the Office of the Prime Minister is the development of a “national identification number” for establishments ( ومي رقم قشأة .Such idea will be of great help to the development of databases on MSMEs .(للمنA pre-fact input from stakeholders, regarding the variables used in defining MSMEs, is needed to assure that the project will serve multi-purposes.

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The commercial registration is continuously updated, sponsored by MIT as mentioned. Data is collected through the registration of all new businesses. Coverage: The regional offices have a countrywide coverage. Registration is needed if the enterprises is sub-contracting, is sub-contracted or is having business with governmental (or semi-governmental) agencies. Small enterprises, informal enterprises, businesses located in rural areas or remote areas are less likely to register. Data collected: a) Name of the enterprise b) Legal status c) Address d) Name, date of birth, place of birth and nationality of owner(s) e) Name, date of birth, place of birth and nationality of board members if any f) Name, date of birth, place of birth and nationality of manager g) Objective of the enterprise h) Address of the branches i) Capital

Comments: The forms for data collection need to be modified. Such modification should be integrated with computerization of the system. Information on the characteristics of enterprises (such as economic activity) and characteristics of the owner (such as education and occupation) should be added if a new system for registration is under development. The system has the following limitations: a) The system cannot be considered as a source of information for MSMEs

before being fully computerized. b) The database is more likely to cover large and medium enterprises. Relying

on it for targeting micro and small enterprises will result in a serious bias. 3.3.2. Social Insurance Database The social insurance database is maintained by the Ministry of Social Affairs (MOSA). The purpose of this data set is to monitor the compliance of enterprises with the law with respect to regular payment of insurance on employees working in the enterprise. The system is fully computerized and very well developed with a network of 380 local computer centers spread over the country. Records can be accessed through any local point. The system (DL1) is flexible enough in terms of data manipulation. Records within the database can be sorted either by enterprise or by employee, which makes it of potential use in identifying enterprises. However, several segments will not be included in the database such as a) small enterprises with no employees eligible for paying social insurance (this occurs if the employees are simultaneosuly employed elsawhere e.g. government or other establishment, thus covered under social

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insurance by other establishments) and b) informal sector units, especially the mobile units. On the other hand, workers in non-economic units (such as drivers, construction workers, and guardians of residential buildings) are included in the data set. The social insurance database is continuously updated, sponsored by MOSA. Data is collected through the registration of all currently operating businesses. Coverage: The regional offices cover all areas of the country. Periodical checking on buildings is done to ensure that establishments are complying with the law of insurance on private sector employees. Most rural areas are covered with local centers in large villages. However, informal enterprises, or enterprises operating in remote areas are less likely to register. Data collected: a) Name and date of birth of employee b) Insurance number c) Date first employed d) Name of enterprise e) Legal status f) Address g) Detailed information on payments record for the shares of employee and

employer including dates of payments, amount paid and receipt numbers Comments: The system is well developed but suffers from the following limitations: a) The level of coverage in rural areas is lower than in urban areas. b) The database does not include important information related to the

characteristics of the enterprise such as economic activity. c) The computer system is facing hardware difficulties. Even though computers

allow for high-speed transmission of data, communication lines -especially with remote areas- are not compatible which affects the performance of the system.

3.4. Other Sources Several small-scale sample surveys have been conducted on SMEs. These surveys are designed to test specific hypotheses and are efficient –if properly conducted– in supporting policy formulation related to SMEs. However, these surveys have different objectives, may adopt different definitions and are dissimilar in terms of coverage. Hence, they cannot be used in developing informative and accurate time series data set on the MSME sector. Another source of data with excellent level of coverage is electricity records. However, the decentralization and possible future privatization of facilities is posing an obstacle on using the database for research purposes (because the data will not be centralized, and the different sets of data may be incompatible from an MIS aspect). Furthermore, the database does not include information on stratifying variables such

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as number of employees, economic activity or legal status. But the database can be used as a truly up-dated frame for simple random samples of enterprises. Fourth: Conclusions The following conclusions can be derived from the review of data sets: a) There is a large number of data collection activities related to MSMEs. Four data sets have been collected on a full enumeration basis between 1996 and 2001 by CAPMAS (the census of establishments, the 2nd and 3rd economic censuses and the industrial and handicraft study). These data sets should be considered as the backbone to any future activities aiming at building a structural database that allows for the development of an informative and accurate system supporting MSME policy. b) It is recommended to use the latest economic census as a source of information on policy issues related to MSMEs since this data set is the most recent and has a considerable level of coverage. c) However, the data sets collected through CAPMAS have limited accessibility. A valuable data set (on small private industrial enterprises) that has been recently collected by CAPMAS and sponsored by SFD is almost non-accessible. d) Request for special tabulations from the economic census can be addressed to CAPMAS; the cost of such services is expensive and usually not justified. The computer center is not depending on standard statistical packages and is producing tables on a mainframe computer using COBOL language (that is not an up-to-date language). This represents an obstacle to data accessibility and portability (i.e. transferability). e) Data sets on credit beneficiaries are more accessible especially in the case of NGOs and business associations. However, these data sets are not representative of MSMEs. The prevailing use of credit among MSMEs varies from one study to the other (e.g. less than 5% in CAPMAS & SFD study versus16% in Al-Mahdi and Osman study, 1999). f) Registration systems such as social security and commercial registration are

designed for other purposes but may have valuable information. Social security database includes records for the whole nation and are establishment-based, but are less likely to include micro enterprises and enterprises from the informal sector. Commercial registration has a lower level of coverage. Support is needed for better use of these two sources in research purposes. g) There is a need to improve data collection activities. Lack of data-set compatibility and non-accessibility are two major problems. h) A gap that needs to be addressed is the lack of coordination between data collection activities. Traditional and non-traditional ways of networking are needed. i) Another gap is the absence of any electronic media for users with need for direct

or indirect access to data on MSMEs.

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j) With few exceptions, the level of data accuracy and coverage are adequate.

Fifth: Recommendations 5.1 Updating the data sets: A periodical updating of information of the census of establishments is suggested, (every two years). This is especially important with the economic recession resulting in a large proportion of establishments going out of business or changing their type of activity. Such regular updating will be extremely useful not only as a frame for sample surveys but also as a system for follow-up and monitoring. The effective way to implement such updating needs further investigation. A brainstorming workshop for stakeholders is suggested to discuss cost-effective ways that benefit from different activities. 5.2 Accessibility: The issue of accessibility of data sets collected through governmental and non-governmental agencies needs special attention. A protocol needs to be developed and agreed upon by different stakeholders to outline a more flexible approach. (A valuable data set on small private industrial establishments was conducted by CAPMAS and SFD, but is almost non-accessible. CAPMAS is not using the data for any further analysis since it is considered a property of SFD. The latter does not have the channels to provide researchers and/or planners with data to conduct any further analysis. An effort should be done to make the data more accessible. Donors investing in data collection activities can play a role in requesting accessibility possibly throughout the Internet). 5.3 Data compatibility and integration of data from different sources: Integrating data sets of different sources should be considered. A database structure needs to be agreed upon by stakeholders, and to be applied by different parties. Even though information vary from one user to another, it should not be difficult to agree among stakeholders upon a common minimum structure. Holding coordination meetings between data providers to discuss ways of data compatibility (hardware and software) may help in reaching this goal. Putting all NGOs and business associations on a common ground may be a good starting point that should be followed in coordination with governmental agencies. Some NGOs and business associations may be in need of capacity building in the area of information technology. 5.4 Networking: Networking among MSMEs stakeholders is urgently needed. This can be achieved through launching a WEB page that provides information relevant to MSMEs in Egypt. The home page can provide links to data sets providers, description of different data sets in terms of methodology, ways of accessibility, limitations and coverage. The page can also be a media for dissemination of results. Another concept for consideration, that is more optimistic, is a data warehouse for MSMEs. A data warehouse can be used to store data from different sources in one or more servers. Users of a data warehouse have the opportunity to download data files and to analyze any of the data files. Such full accessibility to

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data may not be accepted by several agencies that prefer to withhold information. On the other hand, NGOs may see in this warehouse a way to reduce the costs of maintaining their databases. A less limited use of a data warehouse that may be acceptable by all data providers and owners is to provide tabulations without access to data files. However, the concept of data warehouse is flexible enough to suit all preferences. Even if the amount of information provided is limited at the beginning, introducing the concept in itself will activate a snowball process that will result in a continuous growth of data availability. To establish a data warehouse, a sponsor should invest in hosting and maintaining it. The amount of investment needed depends on the amount of data stored and processed. It also depends heavily on the scope of services provided for users. The establishment of a discussion group for MSMEs in Egypt may also improve the level of networking among stakeholders. 5.5 Benefiting from non-traditional data sets: Several agencies have data sets that are built to serve their own objectives. Such data sets may include valuable information if properly extracted from data files. At least two data sets should be considered: commercial registration and social security registration. It is evident that a large amount of effort is needed to cooperate with the agencies maintaining these databases, but this effort may result in improving and updating the information on MSMEs with minimal cost.

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ANNEX (D)

AGREEMENT BETWEEN DIFFERENT DEFINITIONS OF MSMEs IN EGYPT: AN ANALYTIC STUDY BASED ON THE ECONOMIC CENSUS

First: Introduction The objective of this analysis is to present the characteristics of Egyptian establishments according to variables considered in the different definitions adopted for distinguishing between micro, small, medium and large enterprises. The study uses recent data to illustrate the level of agreement between different definitions. Second: Methodology Data from the third economic census (2001/2002) were tabulated to provide the frequency distribution of the following variables: number of employees, fixed capital, annual sales and commercial registration. Data were stratified according to two variables: residence (urban/rural) and economic sector (agriculture / manufacture / wholesale / retail / service). The data related to public sector were excluded from the analysis as this segment is not considered when defining MSMEs. Third: Profile of Egyptian Establishments 3.1 Number of Employees The structure of Egyptian establishments indicates that the majority of establishments have less than 5 employees. As shown in Table D-1, nearly 57% have only one employee, 41% have 2 to 4 employees and 2% have 5 employees and above. Establishments located in rural areas tend to be smaller in terms of number of employees. The establishments with only one employee represent about two in every three establishments in rural areas versus about half of the establishments in urban areas. (NB. The tables indicate percentages only; but absolute figures are indicated by tables D-23 through D-26). The structure of establishments differs across sectors with larger number of employees per establishment in manufacture. Nearly 8% of establishments in the manufacture sector have 5 employees and above. Establishments with 5 employees and above are less prevalent in other sectors especially among retailers. Within each sector, the establishments located in rural areas have smaller number of employees. Urban-rural differentials are more obvious in the service sector where 60% of establishments working in the rural sector have only one employee, versus 31% in urban areas.

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Table D-1 Percent distribution of private establishments by number of employees and

residence, Egypt 2000-2001.

# employees Agriculture65 Manufacture Wholesale Retail Service66 Total

Urban 1 24.4 29.6 30.3 59.9 30.8 50.4

2 - 4 69.1 60.7 64.4 40.0 65.5 47.5

5+ 6.5 9.7 5.3 0.0 3.7 2.1

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rural 1 29.0 34.0 33.1 78.6 60.2 67.3

2 - 4 67.7 59.4 64.5 21.3 38.8 31.4

5+ 3.3 6.6 2.4 0.0 1.0 1.3

Total 100.0 100.0 100.0 100.0 100.0 100.0

Total 1 28.0 31.4 30.4 67.3 38.4 56.9

2 - 4 68.0 60.2 64.4 32.7 58.6 41.3

5+ 4.0 8.4 5.2 0.0 3.0 1.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 3.2 Fixed capital The majority of establishments (73%) reported having a fixed capital of less LE 10,000, and 23% reported having a fixed capital between LE 10,000-50,000. Three percent reported a fixed capital ranging from LE 50,000-100,000, and only 1% reported a fixed capital of more than LE 100,000. Surprisingly, the percentage of establishments that reported having a fixed capital of less than LE 10,000 was higher in urban areas (75%) than in rural areas (71%). Meanwhile, more establishments in urban areas (5% versus 3% in rural areas) reported a fixed capital of more than LE 50,000. On the other hand, a higher concentration of establishments operating in rural areas is reported to have a fixed capital range of LE 10,000-50,000. Establishments in the agriculture sector and the wholesale sector reported a higher fixed capital. As illustrated in Table D-2, the percentage of establishments with fixed capital of more than LE 100,000 in the two sectors is 7% and 6% respectively while it is below 2% in other sectors. 3.3 Annual Sales

65 Includes breeding livestock and cattle and do not include farming. 66 Includes construction.

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Nearly one in two establishments reported annual sales ranging from LE 10,000-50,000. The percentage of establishments reporting annual sales ranging from LE 50,000-100,000 was 22%. Smaller annual sales are reported among establishments operating in rural areas. As indicated in table D-3, among establishments operating in rural areas 29% reported annual sales of LE 50,000 and above; and 42% in urban areas. Higher annual sales are reported in agriculture sector with 29% reporting annual sales of LE 100,000 and above. The manufacture sector ranks second with 21% reporting annual sales of LE 100,000 and above. The percentage is lower in other sectors: 17% in the retail sector, 5% in the wholesale sector and 3% in the service sector. Data on annual sales seems to suffer from underreporting especially in wholesale sector where reported sales are exceptionally low. Comparing wholesale annual sales to retail annual sales indicates clear inconsistency. Contrary to expectations, retailers have higher annual sales, and the total sales of the two sectors are far from being comparable. Table D-2 Percent distribution of private establishments by fixed capital and residence, Egypt 2000-2001.

Fixed

Capital (LE) Agriculture Manufacture Wholesale Retail Service Total

Urban < 10.000 23.8 66.3 71.3 78.8 70.6 74.7

10.000 - 50.8 27.1 17.7 17.5 24.1 20.5

50.000 - 16.5 4.2 4.9 2.6 3.5 3.2

100.000 - 8.0 2.1 4.2 1.1 1.7 1.5

500.000 - 0.8 0.1 0.7 0.0 0.1 0.1

Million + 0.2 0.1 1.2 0.0 0.0 0.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rural < 10.000 31.0 59.4 54.6 76.4 75.8 71.2

10.000 - 50.0 36.1 36.2 22.4 22.0 26.0

50.000 - 13.1 3.3 5.8 0.9 1.7 2.0

100.000 - 5.5 1.1 2.4 0.3 0.5 0.7

500.000 - 0.4 0.0 0.7 0.0 0.0 0.0

Million + 0.1 0.0 0.3 0.0 0.0 0.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

Total < 10.000 29.4 63.5 70.5 77.7 71.9 73.3 10.000 - 50.2 30.8 18.6 19.6 23.6 22.8

50.000 - 13.9 3.9 5.0 1.9 3.0 2.7

100.000 - 6.0 1.7 4.1 0.8 1.4 1.2

500.000 - 0.5 0.1 0.7 0.0 0.0 0.1

Million + 0.1 0.1 1.2 0.0 0.0 0.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

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Table D-3 Percent distribution of private establishments by annual sales and residence, Egypt 2000-2001

Annual

Sales (LE) Agriculture Manufacture Wholesale Retail Service Total

Urban < 10.000 13.7 8.0 89.6 3.6 19.4 7.6

10.000 - 37.8 44.1 2.8 47.1 67.3 50.2

50.000 - 22.1 25.2 2.8 27.8 10.1 24.0

100.000 - 24.1 20.2 2.6 19.1 3.0 16.1

500.000 - 1.8 1.6 0.3 1.6 0.1 1.3

Million + 0.5 0.9 1.9 0.8 0.1 0.7

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rural < 10.000 17.4 11.8 84.0 6.4 48.5 11.3

10.000 - 35.3 44.7 4.8 63.8 48.8 59.5

50.000 - 17.7 26.5 4.8 19.1 2.0 18.0

100.000 - 27.0 15.1 5.5 9.5 0.6 10.0

500.000 - 1.9 1.1 0.7 0.9 0.0 0.9

Million + 0.6 0.7 0.3 0.4 0.0 0.4

Total 100.0 100.0 100.0 100.0 100.0 100.0

Total < 10.000 16.6 9.4 89.3 4.8 26.9 9.2 10.000 - 35.9 44.3 2.9 54.5 62.5 54.1

50.000 - 18.7 25.7 2.8 23.9 8.0 21.5

100.000 - 26.4 18.3 2.8 14.9 2.4 13.6

500.000 - 1.9 1.4 0.3 1.3 0.1 1.1

Million + 0.6 0.8 1.8 0.6 0.0 0.6

Total 100.0 100.0 100.0 100.0 100.0 100.0 3.4 Commercial Registration Only 16% of Egyptian establishments have a commercial registration. The availability of commercial registration varies across sectors. Most establishments in the agriculture sector (94%) are registered. Registration is less prevalent in the manufacture sector (72%) and in the wholesale sector (41%) and is uncommon in the retail sector (4%) and the service sector (2%). Even though it seems that there is no urban-rural differentials in commercial registration (17% in urban areas and 15% in rural areas), data in table D-4 indicate

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that such differentials exist within each sector. With the exception of the agriculture sector, registration is more prevalent in urban areas especially in manufacture (80% in urban areas and 59% in rural areas) and in wholesale (42% in urban areas and 17% in rural areas).

Table D-4 Percent distribution of private establishments by availability of commercial

registration and residence, Egypt 2000-2001

Commercial registration

Agriculture

Manufacture

Wholesale

Retail

Service

Total

Urban Yes 91.8 80.0 42.4 4.6 2.3 17.0 No 8.2 20.0 57.6 95.4 97.7 83.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rural Yes 95.1 59.2 16.7 2.1 1.1 15.0

No 4.9 40.8 83.3 97.9 98.9 85.0

Total 100.0 100.0 100.0 100.0 100.0 100.0

Total Yes 94.4 71.6 41.2 3.5 2.0 16.2 No 5.6 28.4 58.8 96.5 98.0 83.8 Total 100.0 100.0 100.0 100.0 100.0 100.0

Fourth: Agreement between Different Possible Definitions 4.1 Number of Employees and Fixed Capital Table D-5 indicates that among all establishments operating in Egypt, 95% have less than 5 employees and have fixed capital below LE 50,00067. Nearly half of those establishments have only one employee and fixed capital below LE 10,000. The structure does not differ from urban to rural areas. The distribution of establishments by ‘number of employees’ and ‘fixed capital’ differs across sectors. The percentage of establishments with ‘one employee’ and ‘fixed capital less than LE 10,000’ is 12% in the agriculture sector, 25% in the manufacture sector, 24% in the wholesale sector, 54% in the retail sector and 32% in the service sector (Tables D-6 to D-11). Similarly, the percent of establishments with ‘less than 5 employees’ and with ‘fixed capital less than LE 50,000’ is 78% in the agriculture sector, 88% in the manufacture sector, 87% in the wholesale sector, 97% in the retail sector and 93% in the service sector.

To test the usefulness of a multi-definition for MSMEs, the association between the dimensions considered in the definitions will be measured by means of empirical data using the economic census data. When defining micro enterprises, it is suggested to

67 The size limit for the micro enterprise category in the definition proposed in this study is LE 25,000 in fixed assets. But the brackets used by the economic census do not have this limit; it has LE 10,000 and LE 50,000 only. So LE 50,000 was used as a proxy for analyzing the level of agreement with the labor size limit i.e. with 1-4 employees for the micro enterprise category.

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apply a definition that is based on two dimensions: number of workers and fixed capital. Cross tables from the economic census (Tables D-6 to D-11) were used for that purpose. The analysis indicates that among establishments with 1 to 4 employees in the manufacturing sector (Table D-7) 96%68 have fixed capital less than 50,000 L.E. This suggests that, when defining micro enterprises, using the number of workers criteria (< 5) is equivalent to using the fixed capital criteria (< LE 50,000). In other words, one of the criteria can be replaced by the other. With practical problems related to the evaluation of fixed capital and the lack of accuracy in reporting, it seems that we can depend on the number of workers only to identify micro establishments in the manufacturing sector. However, other considerations might suggest keeping a multi-dimensional definition to allow for more flexibility.

Table D-5 Distribution of private establishments by number of employees, fixed capital and residence, Egypt 2000-2001

Fixed capital < 10,000 10,000- 50,000- 100,000- 500,000- Million+ total

1 40.1 8.1 0.8 0.2 0.0 0.0 49.3

2 - 4 33.9 11.3 2.0 1.0 0.0 0.0 48.3

5+ 0.8 1.1 0.3 0.3 0.0 0.0 2.5 Urban

Total 74.7 20.5 3.2 1.5 0.1 0.0 100.0

1 52.6 14.1 0.4 0.1 0.0 0.0 67.2

2 - 4 18.3 11.2 1.4 0.4 0.0 0.0 31.3

5+ 0.3 0.7 0.2 0.2 0.0 0.0 1.5 Rural

Total 71.2 26.0 2.0 0.7 0.0 0.0 100.0

1 45.2 10.6 0.7 0.2 0.0 0.0 56.6

2 - 4 27.5 11.3 1.8 0.7 0.0 0.0 41.3

5+ 0.6 0.9 0.3 0.2 0.0 0.0 2.1 Total

Total 73.3 22.8 2.7 1.2 0.1 0.0 100.0 The same conclusions can be drawn for non-manufacturing sectors (Tables D-8, D-9 and D-10). The percentage of establishments having fixed capital less than LE 50,000 is 97% among establishments with 1-4 employees. The percentage is 95% in the service sector, 92% in the wholesale sector, and 96% in the retail sector. This high level of agreement suggests, as for the manufacturing sector, that depending on the number of employees criterion only is equivalent to using the fixed capital criterion. As regards the definition of small and medium enterprises in manufacturing sector, the association between number of employees and fixed capital does not seem to suggest depending on a single dimension definition. To illustrate this, establishments with fixed capital ranging from LE 50,000-1,000,000 are classified by number of 68 This percent was calculated as: the number of establishments with 1 to 4 employees and fixed capital less than L.E. 50,000 divided by the number of establishments with 1 to 4 employees.

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employees. The analysis indicates that among those establishments nearly 64% have less than 5 employees which is below the labor size limits for small enterprises (5-49 employees as per the proposed definition). Therefore, depending on the fixed capital criterion would classify a large number of establishments as small while they should be classified as micro. This suggests that establishments with 'small' number of employees (5 to 49) do not necessarily identify establishments with fixed capital between LE 50,000-1,000,000. Similarly, in non-manufacturing sectors number of workers is not a good predictor for fixed capital when targeting small or medium establishments. Among establishments with fixed capital ranging from LE 50,000-500,000 the percentage of establishments having less than 5 employees in non-manufacturing sectors is quite high (93%). Regarding the retail sector and the service sector, among establishments with fixed capital ranging from LE 50,000-500,000, (the latter being the proposed limit for small enterprises in services and retail sectors), the percentage of establishments having less than 5 employees is 98% and 85% respectively. For the wholesale sector, among establishments having fixed capital ranging from LE 50,000-1,000,000 (the latter being the proposed limit for small enterprises in the wholesale sector), 73% have less than 5 employees. Therefore, it is recommended to depend on a multi-dimensional definition to properly target small and medium enterprises. Table D-6 Distribution of private establishments in the agriculture sector by number

of employees, fixed capital and residence, Egypt 2000-2001 Fixed capital < 10,000 10,000- 50,000- 100,000- 500000- Million+ Total

1 8.9 11.1 3.0 1.1 0.2 0.0 24.4

2 - 4 14.5 36.1 12.7 5.5 0.3 0.1 69.1

5+ 0.4 3.6 0.8 1.4 0.3 0.1 6.5 Urban

Total 23.8 50.8 16.5 8.0 0.8 0.2 100.0

1 13.1 13.7 1.8 0.4 0.0 0.0 29.0

2 - 4 17.6 35.1 10.7 4.0 0.3 0.0 67.7

5+ 0.3 1.2 0.7 1.0 0.1 0.0 3.3 Rural

Total 31.0 50.0 13.1 5.5 0.4 0.1 100.0

1 12.2 13.2 2.0 0.6 0.0 0.0 28.0

2 - 4 16.9 35.3 11.1 4.3 0.3 0.0 68.0

5+ 0.3 1.7 0.7 1.1 0.1 0.0 4.0 Total

Total 29.4 50.2 13.9 6.0 0.5 0.1 100.0

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Table D-7 Distribution of private establishments in the manufacture sector by number

of employees, fixed capital and residence, Egypt 2000-2001 Fixed capital < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 23.6 5.3 0.4 0.2 0.0 0.0 29.6

2 - 4 39.8 17.4 2.5 1.0 0.0 0.0 60.7

5+ 2.9 4.4 1.3 0.9 0.0 0.1 9.7 Urban

Total 66.3 27.1 4.2 2.1 0.1 0.1 100.0

1 26.1 7.5 0.3 0.1 0.0 0.0 34.0

2 - 4 31.7 25.1 2.1 0.5 0.0 0.0 59.4

5+ 1.6 3.5 1.0 0.5 0.0 0.0 6.6 Rural

Total 59.4 36.1 3.3 1.1 0.0 0.0 100.0

1 24.6 6.2 0.4 0.1 0.0 0.0 31.4

2 - 4 36.5 20.5 2.3 0.8 0.0 0.0 60.2

5+ 2.3 4.1 1.2 0.8 0.0 0.1 8.4 Total

Total 63.5 30.8 3.9 1.7 0.1 0.1 100.0

Table D-8 Distribution of private establishments in the wholesale sector by number of

employees, fixed capital and residence, Egypt 2000-2001 Fixed capital < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 24.2 5.0 0.6 0.4 0.0 0.0 30.3

2 - 4 46.4 11.4 3.5 2.3 0.3 0.4 64.4

5+ 0.8 1.3 0.8 1.5 0.4 0.6 5.3 Urban

Total 71.4 17.7 4.9 4.2 0.7 1.0 100.0

1 21.2 11.6 0.0 0.3 0.0 0.0 33.1

2 - 4 33.1 24.2 5.5 1.7 0.0 0.0 64.5

5+ 0.3 0.3 0.3 0.3 0.7 0.3 2.4 Rural

Total 54.6 36.2 5.8 2.4 0.7 0.3 100.0

1 24.1 5.3 0.6 0.4 0.0 0.0 30.4

2 - 4 45.8 12.0 3.6 2.3 0.3 0.4 64.4

5+ 0.8 1.2 0.8 1.4 0.4 0.6 5.2 Total

Total 70.6 18.6 5.0 4.1 0.7 1.0 100.0

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Table D-9 Distribution of private establishments in the retail sector by number of


1 48.7 9.8 1.0 0.3 0.0 0.0 59.8

2 - 4 29.9 7.6 1.6 0.8 0.0 0.0 40.0

5+ 0.1 0.1 0.0 0.0 0.0 0.0 0.3 Urban

Total 78.8 17.5 2.6 1.1 0.0 0.0 100.0

1 61.9 16.1 0.4 0.1 0.0 0.0 78.5

2 - 4 14.4 6.2 0.5 0.2 0.0 0.0 21.3

5+ 0.0 0.1 0.0 0.0 0.0 0.0 0.2 Rural

Total 76.4 22.4 0.9 0.3 0.0 0.0 100.0

1 54.4 12.5 0.7 0.2 0.0 0.0 67.8

2 - 4 23.3 7.0 1.1 0.5 0.0 0.0 31.9

5+ 0.1 0.1 0.0 0.0 0.0 0.0 0.3 Total

Total 77.7 19.6 1.9 0.8 0.0 0.0 100.0

Table D-10 Distribution of private establishments in the service sector by number of


1 25.8 4.5 0.3 0.1 0.0 0.0 30.8

2 - 4 43.4 18.1 2.8 1.2 0.0 0.0 65.5

5+ 1.3 1.5 0.4 0.4 0.0 0.0 3.7 Urban

Total 70.6 24.1 3.5 1.7 0.1 0.0 100.0

1 49.9 9.9 0.4 0.1 0.0 0.0 60.2

2 - 4 25.7 11.7 1.1 0.3 0.0 0.0 38.8

5+ 0.2 0.5 0.2 0.1 0.0 0.0 1.0 Rural

Total 75.8 22.0 1.7 0.5 0.0 0.0 100.0

1 32.0 5.9 0.4 0.1 0.0 0.0 38.4

2 - 4 38.8 16.4 2.3 0.9 0.0 0.0 58.6

5+ 1.1 1.3 0.3 0.3 0.0 0.0 3.0 Total

Total 71.9 23.6 3.0 1.4 0.0 0.0 100.0

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4.2 Number of Employees and Annual Sales Table D-11 indicates that among all establishments operating in Egypt, 84% have less than 5 employees and have annual sales below LE 100,000 (the latter being the proposed limit for sales in the micro-enterprise category in trade and service sectors). The structure differs from urban to rural areas. The percentage of establishments having with less than 5 employees and annual sales below LE 100,000 was 81% in urban areas and 88% in rural areas. The distribution of establishments by number of employees and annual sales differs across sectors. The percentage of establishments with less than 5 employees and with annual sales less than LE 100,000 is 70% in the agriculture sector, 73% in the manufacture sector, 91% in the wholesale sector, 83% in the retail sector and 95% in the service sector (Table D-12 to D-16). As regards small and medium enterprises in the manufacturing sector, there seems to be no agreement between ‘number of employees’ and ‘annual sales’ limits in the proposed definition. To illustrate this, the establishments with ‘annual sales’ of LE 100,000 and above, are classified by number of employees (Table D-12). The analysis indicates that about 66% of these establishments have below 5 employees i.e. below the labor limit proposed for small and medium enterprises. This means that if the ‘sales’ criterion is used solely, many enterprises would be classified as small while they would be classified as micro if the labor limit is used solely. Also among establishments with 1-4 employees in the manufacturing sector (Table D-12), 84% have annual sales less than LE 100,000 which is the proposed limit for sales for the micro category. This means that using the labor limit of 1-4 employees for micro enterprises in the manufacturing sector is a good predictor for the enterprises that have annual sales below LE 100,000 in the manufacturing sector. We could almost rely on the labor criterion solely for identifying the micro category in the manufacturing sector. As regards the non-manufacturing sectors (Tables D-14, D-15 and D-16), among establishments with annual sales less than LE 100,000, 99.5% have less than 5 employees. This suggests that incorporating the annual sales criterion when defining micro enterprises in the non-manufacturing sectors is not adding up to correctly classifying an establishment as 'micro'. The universality of low number of employees among establishments with annual sales less than LE 100,000 was found in the wholesale sector, the retail sector and the service sector as well. Regarding the definition of small and medium enterprises in the non-manufacturing sectors, a low level of association between number of employees and annual sales suggests depending on a multi-dimension definition. To illustrate this, establishments with annual sales ranging from LE 100,000 to LE 1,000,000 are classified by number of employees. The analysis indicates that among those establishments nearly 95% have less than 5 employees. Therefore, depending on the annual sales criterion will classify a large number of establishments as small while they should be classified as micro. This suggests that establishments with annual sales between LE 100,000-1,000,000 do not necessarily identify establishments with 'small' number of

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employees (which is 5 to 9 employees as per the proposed limits for trade and service sectors).

Table D-11 Distribution of private establishments by number of employees, annual

sales and residence, Egypt 2000-2001 Annual sales < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 4.8 28.1 11.3 5.6 0.5 0.2 50.5

2 - 4 2.7 21.5 12.2 9.7 0.7 0.4 47.2

5+ 0.1 0.6 0.6 0.9 0.1 0.1 2.3 Urban

Total 7.6 50.2 24.0 16.1 1.3 0.7 100.0

1 8.9 45.1 10.8 4.8 0.4 0.2 70.2

2 - 4 2.3 14.1 6.9 4.9 0.4 0.1 28.7

5+ 0.0 0.2 0.3 0.4 0.1 0.0 1.1 Rural

Total 11.3 59.5 18.0 10.0 0.9 0.4 100.0

1 6.5 35.2 11.1 5.3 0.5 0.2 58.7

2 - 4 2.6 18.4 10.0 7.6 0.6 0.3 39.4

5+ 0.1 0.4 0.5 0.7 0.1 0.1 1.8 Total

Total 9.2 54.1 21.5 13.6 1.1 0.6 100.0

Table D-12 Distribution of private establishments in the manufacture sector by number of employees, annual sales and residence, Egypt 2000-2001

Annual sales < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 3.4 10.4 3.5 2.2 0.2 0.1 19.7

2 - 4 4.2 30.8 17.8 11.2 0.8 0.3 65.0

5+ 0.4 2.9 3.9 6.9 0.6 0.5 15.3 Urban

Total 8.0 44.1 25.2 20.2 1.6 0.9 100.0

1 5.3 9.7 2.4 0.9 0.0 0.1 18.4

2 - 4 6.1 32.9 20.2 9.8 0.6 0.3 69.9

5+ 0.4 2.1 3.9 4.4 0.5 0.4 11.7 Rural

Total 11.8 44.7 26.5 15.1 1.1 0.7 100.0

1 4.1 10.2 3.1 1.7 0.1 0.1 19.2

2 - 4 4.9 31.6 18.7 10.7 0.7 0.3 66.8

5+ 0.4 2.6 3.9 6.0 0.6 0.4 13.9 Total

Total 9.4 44.3 25.7 18.3 1.4 0.8 100.0

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Table D-13 Distribution of private establishments in the agriculture sector by number

of employees, annual sales and residence, Egypt 2000-2001 Annual sales < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 7.1 10.2 4.2 2.4 0.2 0.1 24.4

2 - 4 6.2 26.6 16.6 18.1 1.3 0.3 69.1

5+ 0.4 1.0 1.3 3.6 0.3 0.1 6.5 Urban

Total 13.7 37.8 22.1 24.1 1.8 0.5 100.0

1 9.6 13.6 3.1 2.4 0.2 0.0 29.0

2 - 4 7.6 21.2 14.0 23.1 1.4 0.4 67.7

5+ 0.1 0.5 0.6 1.5 0.4 0.2 3.3 Rural

Total 17.4 35.3 17.7 27.0 1.9 0.6 100.0

1 9.1 12.9 3.4 2.4 0.2 0.1 28.0

2 - 4 7.3 22.4 14.5 22.0 1.4 0.4 68.0

5+ 0.2 0.6 0.8 1.9 0.4 0.1 4.0 Total

Total 16.6 35.9 18.7 26.4 1.9 0.6 100.0

Table D-14 Distribution of private establishments in the wholesale sector by number of employees, annual sales and residence, Egypt 2000-2001

Annual sales < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 27.5 1.2 0.6 0.4 0.0 0.4 30.3

2 - 4 57.7 1.5 1.9 1.9 0.2 1.1 64.4

5+ 4.3 0.0 0.2 0.3 0.1 0.4 5.3 Urban

Total 89.6 2.8 2.8 2.6 0.3 1.9 100.0

1 28.7 0.7 1.7 2.0 0.0 0.0 33.1

2 - 4 53.6 3.8 3.1 3.1 0.7 0.3 64.5

5+ 1.7 0.3 0.0 0.3 0.0 0.0 2.4 Rural

Total 84.0 4.8 4.8 5.5 0.7 0.3 100.0

1 27.6 1.2 0.7 0.5 0.0 0.4 30.4

2 - 4 57.5 1.6 2.0 2.0 0.2 1.1 64.4

5+ 4.2 0.1 0.2 0.3 0.1 0.3 5.2 Total

Total 89.3 2.9 2.8 2.8 0.3 1.8 100.0

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Table D-15 Distribution of private establishments in the retail sector by number of

employees, annual sales and residence, Egypt 2000-2001 Annual sales < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 2.9 33.6 15.2 7.5 0.6 0.3 60.1

2 - 4 0.6 13.5 12.6 11.5 0.9 0.5 39.6

5+ 0.0 0.0 0.0 0.1 0.0 0.1 0.3 Urban

Total 3.6 47.1 27.8 19.1 1.6 0.8 100.0

1 5.8 53.3 13.3 5.8 0.5 0.2 79.0

2 - 4 0.6 10.5 5.8 3.7 0.3 0.1 21.0

5+ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rural

Total 6.4 63.8 19.1 9.5 0.9 0.4 100.0

1 4.2 42.3 14.3 6.8 0.6 0.2 68.5

2 - 4 0.6 12.2 9.6 8.0 0.6 0.3 31.4

5+ 0.0 0.0 0.0 0.1 0.0 0.0 0.1 Total

Total 4.8 54.5 23.9 14.9 1.3 0.6 100.0

Table D-16 Distribution of private establishments in the service sector by number of

employees, annual sales and residence, Egypt 2000-2001 Annual sales < 10,000 10,000- 50,000- 100000- 500000- Million+ Total

1 11.5 17.9 1.1 0.3 0.0 0.0 30.8

2 - 4 7.6 47.8 8.0 1.9 0.1 0.0 65.5

5+ 0.2 1.6 1.1 0.8 0.1 0.0 3.7 Urban

Total 19.4 67.3 10.1 3.0 0.1 0.1 100.0

1 37.8 21.9 0.5 0.1 0.0 0.0 60.2

2 - 4 10.7 26.4 1.4 0.4 0.0 0.0 38.8

5+ 0.1 0.6 0.2 0.1 0.0 0.0 1.0 Rural

Total 48.5 48.8 2.0 0.6 0.0 0.0 100.0

1 18.3 18.9 0.9 0.3 0.0 0.0 38.4

2 - 4 8.4 42.3 6.3 1.5 0.1 0.0 58.6

5+ 0.2 1.3 0.8 0.6 0.0 0.0 3.0 Total

Total 26.9 62.5 8.0 2.4 0.1 0.0 100.0

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4.3 Number of Employees and Commercial Registration Table D-17 indicates that among all establishments operating in Egypt, 83% have less than 5 employees and do not have a commercial registration. The structure does not differ from urban to rural areas. The prevalence of commercial registration in Egypt varies by sector: the percentage of establishments having less than 5 employees and having no commercial registration is high in the retail (97%) and the service (95%) sectors. The percentage is 57% in the wholesale sector, 27% in the manufacturing sector and only 5% in the agriculture sector (Tables D-18 to D-22). The absence of commercial registration is a good predictor for micro establishments. Among establishments with no commercial registration, 99% have less than 5 employees. The percent ranges from 94% in the manufacturing sector to 100% in the retail sector. Table D-17 Distribution of private establishments by number of employees, availability of commercial registration and residence, Egypt 2000-2001

Yes No Total

1 5.5 44.2 49.7

2 - 4 10.1 37.8 47.9

5+ 1.5 1.0 2.5 Urban

Total 17.0 83.0 100.0

1 5.7 62.7 68.3

2 - 4 8.5 22.0 30.5

5+ 0.8 0.4 1.2 Rural

Total 15.0 85.0 100.0

1 5.6 51.9 57.5

2 - 4 9.4 31.2 40.6

5+ 1.2 0.7 1.9 Total

Total 16.2 83.8 100.0

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Table D-18 Distribution of private establishments in the manufacture sector by

number of employees, availability of commercial registration and residence, Egypt 2000-2001

Yes No Total

1 23.9 5.4 29.3

2 – 4 47.9 12.9 60.8

5+ 8.2 1.6 9.8 Urban

Total 80.0 20.0 100.0

1 22.1 11.9 34.0

2 - 4 32.7 26.8 59.4

5+ 4.4 2.2 6.6 Rural

Total 59.2 40.8 100.0

1 23.2 8.0 31.2

2 - 4 41.8 18.5 60.3

5+ 6.7 1.8 8.5 Total

Total 71.6 28.4 100.0

Table D-19 Distribution of private establishments in the agriculture sector by number of employees, availability of commercial registration and residence, Egypt 2000-2001

Yes No Total

1 22.8 1.5 24.4

2 - 4 62.9 6.2 69.1

5+ 6.1 0.5 6.5 Urban

Total 91.8 8.2 100.0

1 26.6 2.4 29.0

2 - 4 65.3 2.4 67.7

5+ 3.2 0.1 3.3 Rural

Total 95.1 4.9 100.0

1 25.8 2.2 28.0

2 - 4 64.8 3.2 68.0

5+ 3.8 0.2 4.0 Total

Total 94.4 5.6 100.0

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Table D-20 Distribution of private establishments in the wholesale sector by number

of employees, availability of commercial registration and residence, Egypt 2000-2001

Yes No Total

1 12.1 18.1 30.3

2 - 4 27.1 37.3 64.4

5+ 3.2 2.2 5.3 Urban

Total 42.4 57.6 100.0

1 3.8 29.4 33.1

2 - 4 11.6 52.9 64.5

5+ 1.4 1.0 2.4 Rural

Total 16.7 83.3 100.0

1 11.7 18.7 30.4

2 - 4 26.4 38.0 64.4

5+ 3.1 2.1 5.2 Total

Total 41.2 58.8 100.0

Table D-21 Distribution of private establishments in the retail sector by number of employees, availability of commercial registration and residence, Egypt 2000-2001

Yes No Total

1 2.1 58.1 60.1

2 - 4 2.3 37.3 39.6

5+ 0.1 0.1 0.3 Urban

Total 4.6 95.4 100.0

1 1.5 77.5 79.0

2 - 4 0.6 20.4 21.0

5+ 0.0 0.0 0.0 Rural

Total 2.1 97.9 100.0

1 1.8 66.7 68.5

2 - 4 1.6 29.8 31.4

5+ 0.1 0.1 0.1 Total

Total 3.5 96.5 100.0

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Table D-22 Distribution of private establishments in the service sector by number of employees, availability of commercial registration and residence, Egypt 2000-2001

Yes No Total

1 0.6 30.2 30.8

2 - 4 1.6 63.9 65.5

5+ 0.1 3.6 3.7 Urban

Total 2.3 97.7 100.0

1 0.7 59.6 60.2

2 - 4 0.4 38.4 38.8

5+ 0.0 1.0 1.0 Rural

Total 1.1 98.9 100.0

1 0.6 37.8 38.4

2 - 4 1.2 57.3 58.6

5+ 0.1 2.9 3.0 Total

Total 2.0 98.0 100.0 Fifth: Limitations The results of the analytical study have the following limitations: 5.1 Data of the economic census are based on enumerating establishments while the

definition of MSMEs is concerned with enterprises. Enterprises such as mobile units, vendors or economic activities operating from a household are not included in an economic census. The narrower eligibility criteria for the economic census are due to practicality factors. To guarantee complete coverage, an economic census conducts a building enumeration and classifies each building (or part of a building) as either housing unit or establishment, then targets the establishments only for the economic census.

5.2 The census data on employment take into account all employees while the

proposed definition takes into account the employees registered under social insurance only. There was no way to avoid this discrepancy due to the difficulty in counting the casual labor that is unofficially hired i.e. the only reliable records for counting the employees are those of the social insurance documents held at the enterprise.

5.3 Data on annual sales seem to suffer from under-reporting, this is obvious when

comparing sales in the retail sector to sales in the wholesale sector. The latter turned out to be much lower than the figure reported in the retail sector.

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5.4 Data on the construction sector were grouped in the economic census within the service sector. But the proposed definition handles the construction sector differently than the other service sector activities. It was found more appropriate to apply to the construction sector the same size limits as the manufacturing sector (especially for labor), due to a similar size-distribution as indicated earlier.

5.5 There is a considerable heterogeneity within each sector in terms of number of

employees, fixed capital and annual sales. As an example, the average number of employees per establishment in the service sector is 2.2 only, while in the hotel sub-sector alone, which is part of the service sector, the average is 48.

Sixth: Conclusions and Recommendations In this study, an attempt was made to use the economic census data to test the applicability of different possible definitions. The analysis indicates the following: 6.1 Micro enterprises: 6.1.1 In the manufacturing sector, there is agreement between the size of

establishments (number of workers) and fixed capital. Thus, depending on empirical data the two criteria are equivalent which suggests that using one of the two criteria (‘less than five workers’ or ‘less than LE 50,000 fixed assets’) will successfully target micro-enterprises. However, the multi-dimension definition might add more flexibility to allow enterprises to move between categories to benefit from incentives, if any, that are associated to particular categories. Similarly, there is agreement between using the ‘labor criterion’ and the ‘sales criterion’.

6.1.2 In non-manufacturing sectors, there is agreement between the size of

establishments (less than five workers) and fixed capital ( <LE 50,000) as well as between the size of establishments (less than five workers) and annual sales ( <LE 100,000).

6.2 Small and Medium enterprises: 6.2.1 In the manufacturing sector, there is no agreement between the ‘number of

workers’ and ‘fixed capital’, or between the ‘number of workers’ and ‘annual sales’. Thus, it is appropriate to use a multi-dimension using the three criteria to identify small and medium establishments.

6.2.2 In the non-manufacturing sectors, there is no agreement between the size of

establishments (number of workers) and fixed capital; or between size of establishments (number of workers) and annual sales. Thus, it is appropriate to use a multi-dimension using number of workers, fixed capital and annual sales to identify small and medium establishments.

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6.3 Additional Data Collections It is recommended to publish tabulated data derived from Economic Census according to the proposed definitions of micro, small and medium enterprises, as follows: 6.3.1 Number of workers: When tabulating establishments by number of employees,

it is recommended to use the following intervals: 1, 2-4, 5-9, 10-19, 20-49, 50-99 and 100+

6.3.2: Fixed capital: When tabulating establishments by fixed capital, it is recommended to use the following intervals (in LE): < 25,000, 25,000 –, 50,000 –, 500,000 –, 1,000,000 –, 2,000,000 –, 5,000,000 –, 10,000,000 + 6.3.3: Annual sales: When tabulating establishments by annual sales, it is recommended to use the following intervals (in LE): < 100,000, 100,000 –, 1,000,000–, 4,000,000 –, 10, 000, 000-, and 20,000,000 + 6.3.4: It is also recommended to publish cross tabulations for number of workers and fixed capital, for number of workers and annual sales and for fixed capital and annual sales. Seventh: Additional Tables

Table D-23 Distribution of private establishments by number of employees and

residence, Egypt 2000-2001

#

employees Agriculture Manufacture Wholesale Retail Service Total

Urban 1 2,192 40,863 1,826 401,663 49,081 495,625

2 - 4 6,209 83,936 3,884 268,182 104,212 466,423

5+ 588 13,470 322 206 5,929 20,515

Total 8,989 138,269 6,032 670,051 159,222 982,563

Rural 1 9,575 32,652 97 337,888 33,424 413,636 2 - 4 22,328 57,053 189 91,714 21,521 192,805

5+ 1,089 6,325 7 20 548 7,989

Total 32,992 96,030 293 429,622 55,493 614,430

Total 1 11,767 73,515 1,923 739,551 82,505 909,261

2 - 4 28,537 140,989 4,073 359,896 125,733 659,228

5+ 1,677 19,795 329 226 6,477 28,504

Total 41,981 234,299 6,325 1,099,673 214,715 1,596,993

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Table D-24 Distribution of private establishments by fixed capital and residence,

Egypt 2000-2001

Fixed Capital (LE)

Agriculture

Manufacture

Wholesale

Retail

Service

Total

Urban < 10.000 2,136 91,735 4,308 450,028 112,393 660,600

10.000 - 4,569 37,478 1,070 99,888 38,379 181,384

50.000 - 1,484 5,834 297 14,761 5,628 28,004

100.000 - 717 2,934 251 6,399 2,659 12,960

500.000 - 69 127 43 204 97 540

Million + 14 161 73 120 66 434

Total 8,989 138,269 6,042 571,400 159,222 883,922

Rural < 10.000 10,213 57,044 160 328,799 42,076 438,292 10.000 - 16,492 34,713 106 96,445 12,216 159,972

50.000 - 4,332 3,209 17 4,022 920 12,500

100.000 - 1,810 1,024 7 1,197 267 4,305

500.000 - 123 31 2 73 9 238

Million + 22 9 1 35 5 72

Total 32,992 96,030 293 430,571 55,493 615,379

Total < 10.000 12,349 148,779 4,468 778,827 154,469 1,098,892

10.000 - 21,061 72,191 1,176 196,333 50,595 341,356

50.000 - 5,816 9,043 314 18,783 6,548 40,504

100.000 - 2,527 3,958 258 7,596 2,926 17,265

500.000 - 192 158 45 277 106 778

Million + 36 170 74 155 71 506

Total 41,981 234,299 6,335 1,001,971 214,715 1,499,301

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Table D-25 Distribution of private establishments by annual sales and residence, Egypt 2000-2001

Annual Sales (LE)

Agriculture

Manufacture

Wholesale

Retail

Service

Total

Urban < 10.000 1,231 5,897 5,403 21,205 30,852 64,588 10.000 - 3,394 32,558 170 281,174 107,126 424,422

50.000 - 1,991 18,592 166 166,003 16,123 202,875

100.000 - 2,162 14,937 159 114,275 4,808 136,341

500.000 - 166 1,147 19 9,493 220 11,045

Million + 45 639 115 4,933 93 5,825

Total 8,989 73,770 6,032 597,083 159,222 845,096

Rural < 10.000 5,749 5,165 246 30,659 26,937 68,756 10.000 - 11,657 19,554 14 303,489 27,083 361,797

50.000 - 5,847 11,599 14 90,847 1,113 109,420

100.000 - 8,906 6,618 16 45,175 342 61,057

500.000 - 642 485 2 4,068 11 5,208

Million + 191 324 1 1,687 7 2,210

Total 32,992 43,745 293 475,925 55,493 608,448

Total < 10.000 6,980 11,062 5,649 51,864 57,789 133,344

10.000 - 15,051 52,112 184 584,663 134,209 786,219

50.000 - 7,838 30,191 180 256,850 17,236 312,295

100.000 - 11,068 21,555 175 159,450 5,150 197,398

500.000 - 808 1,632 21 13,561 231 16,253

Million + 236 963 116 6,620 100 8,035

Total 41,981 117,515 6,325 1,073,008 214,715 1,453,544

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Table D-26 Distribution of private establishments by availability of commercial

registration and residence, Egypt 2000-2001

Commercial registration

Agriculture

Manufacture

Wholesale

Retail

Service

Total

Urban Yes 8,254 114,094 2,558 27,204 3,631 155,741 No 735 28,478 3,474 569,881 155,591 758,159 Total 8,989 142,572 6,032 597,085 159,222 913,900

Rural Yes 31,368 56,926 49 9,959 586 98,888 No 1,624 39,300 244 465,966 54,907 562,041 Total 32,992 96,226 293 475,925 55,493 660,929

Total Yes 39,622 171,020 2,607 37,163 4,217 254,629 No 2,359 67,778 3,718 1,035,847 210,498 1,320,200

Total 41,981 238,798 6,325 1,073,010 214,715 1,574,829

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ANNEX (E)

STAKEHOLDERS’ GATHERINGS

LIST OF ATTENDEES AND MINUTES OF MEETINGS

The First Meeting dated January 13, 2003 Attendants: -Mr. El Sayed Ahmed Nawwara, CAPMAS -Mr. Mohamed Balah, General Manager, Industrial Projects Sector, GAFI -Dr. Ahmed Nassar, General Manager, SEDO, SFD -Mr. Mohamed Saad, SEDO, SFD -Dr. Milad Kamel, Head of Cooperative Insurance Association (of SFD) -Dr. Amr Hosny, Advisor to the Minister, IMP, MOI -Mr. Yossri Hammouda, Operations General Manager, ABA -Mr. Bas Auer, Executive Director, Egyptian Small Enterprise Association (ESMA) -Mr. Mohamed Shouman, Project Coordinator, ESMA -Dr. Ahmed Darwish, Head of Egyptian Association of Incubators & SFD Consultant -Mr. Nasser Tonsy Abdel Moneim, Procurements Unit, MOI -Dr. Alia El Mahdi, Faculty of Economics, Cairo University -Ms. Hadil Abdel Qader, Small Enterprise Center, National Council for Women -Dr. Mohamed Saad, Consultant, Consultative Group for Assisting the Poor (CGAP) MOFT SME Specialists: Messrs. Mohamed Abdel Aziz, Yehia Khedr, Nabil Rashdan ERF Research Team:Dr. Heba Handoussa, Maged Osman, Laila Gad, Nivine ElOraby Minutes of meeting: Presentations were given in the following order: : Heba Handoussa: Introduction of study objectives, wherein HH emphasized that there are multiple roles and the aim of the project is to bridge the distances/narrow the gaps between the different stakeholders and participants in the field of MSMEs, simplify procedures, and identify ways of cooperation among stakeholders. Nivine El Oraby: Presentation on MSMEs Part I, based on a matrix identifying definitions for micro, small and medium enterprises using the following criteria: number of workers, fixed assets, and sales turnover (ات -for both manufacturing sector and non ,(المبيعmanufacturing sector. NE also highlighted the correlation between the different criteria. Maged Osman: Presentation on databases and sources of information for MSMEs. MO referred to the third economic survey (2001) for the following reasons: it is recent and for

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its precision of data collected. MO also mentioned that it is possible to make projections up to 2003 using that survey. MO mentioned other surveys (SFD survey 1998; establishments survey which was part of recent census; and other sample surveys). Laila Gad: Presentation of survey used for MSMEs Definitions Part II (present study). LG provided an overview of the questionnaire sections and questions, pilot study conducted, sources of information used for the addresses of organizations to whom questionnaire sent, and an overview of number of responses by sector. Discussions: Dr. Ahmed Nassar (AS), SFD: -Definition used for MSMEs Definition Part I is excellent; it was forwarded to SFD by MOFT for our feedback. We agreed to it and used it for SFD’s proposed Law except for one change: we combined together the manufacturing and non-manufacturing sectors. There must be flexibility for the enterprise to use either criterion to encourage employment generation. - the more criteria there are in the law, the more difficult it becomes to implement law, thus it is best to make definition based on one criterion only – based on objective of law. -Some countries, e.g. India, use the labor criterion only; other countries use those same three criteria. -The issue of random estimation of taxes has to be restricted if we are to use the sales turnover criterion. -We need to know the number of enterprises under each of the specified size categories. Nivine El Oraby (NE): It is 1,640,000 total, of which 1,530,000 under 1-4 employees (93%), about 100,000 in 5-49 employees (5%), and 1,730 in 50-99 employees. Maged Osman (MO): -For purposes of our study, we consider that the best data set is the economic census 2000/2001. It is the most up-to-date as well has comprehensive coverage. It has 3 stages: first a census of the premises and enterprises, then the informal sector, then the formal and government sector. It reports 3.2 million enterprises, of which one third is closed i.e. 2 million operating. Then by deducting the government and public sector there is a net of 1.9 million enterprises. We requested from CAPMAS additional data on sales, capital, fixed assets, availability of commercial registration card and tax card, etc. Alia El Mahdi (AM): My reservations are: -If the definition is linked to numbers (i.e. the size limits), then if the definition becomes part of a Law, it will be then very difficult to change the numbers because laws do not change easily and remain for many years. -Laws are handled by employees who may be rigid: they may consider that all criteria have to be fulfilled even if the Law said only one criteria suffices on and/or basis.

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-Simplification should be our goal in proposing the definition. -Not agreeable to using the sales criterion; its data are not reliable. -Not agreeable to 25,000 as a ceiling for micro category fixed asset criterion: we conducted a study with ERF in 1998 (with Ragui Assad) and 66% of the sample had fixed assts below LE 10,000. -Dr. Amr Hosny, Ministry of Industry (MOI): -Simplicity of the definition is advocated. -For the sake of industrial competitiveness and industrial modernization: World Bank definition (WB): Micro is up-to 10 employees and fixed assets $100,000 i.e. LE 500,000 approx. Small is up-to 50 employees and fixed assets $ 3 million. EU definition: Micro is up-to 10 employees. Small is up-to 50 employees and fixed assets Euro 25 million. EU also used sales turnover criterion, but we do not advocate this because of inaccuracy. -LE 25,000 limit for fixed assets for micro is too low: we suggest LE 500,000. - Definitions used for manufacturing sector are too low. We try to increase the number of workers in the definition to promote employment generation, and try to use labor intensive policy in ratio for man/machine because we must keep in mind the specifications of Egyptian case. - We suggest increasing labor limit for micro to 10 to give incentives for more enterprises. -EU uses 500 employees for medium category -Dr. Nassar (SFD): -It is now reduced to 250 employees. -LE 500,000 fixed asset limit for micro is too high. -Dr. Amr Hosny (MOI): -18,360 enterprises registered with GAFI (General Authority for Industrialization) with capital above LE 500,000, having a total of 150,000 employees i.e. 9 employees on the average per enterprise. -Dr. Heba Handoussa (HH): -We need to consider the objective. Two key players in this area are MOI for the purpose of industrial modernization, and SFD for the purpose of poverty alleviation. These are two different categories that require totally different interventions. - Must identify a definition that is easily implemented. -Damietta has about 100,000 furniture enterprises of which only 1% has more than 10 employees. - Need for cooperation to provide services to beneficiaries, and need to make limits open/flexible to ensure that no beneficiary is excluded from services due to definition. - Important to know what is the total percentage for each category by number of workers, eg how much % do the under 5 workers constitute? -Industrial modernization is not possible with enterprises with below 5 employees; only poverty alleviation assistance.

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-Dr. Ahmed Nassar (SFD): - There is an overlap between the definitions used by modernization of industry (MOI) program and SME definitions – so that the MOI criteria are setting the framework for SME definitions. The MSME-definition issue is separate from industrial modernization: the latter can select its own target group. -The assistance needed for micro enterprises is so specific. - There is a need to clarify and distinguish roles. -Ms Hadil (National Council for Women): -Simplicity of the definition is advocated: i.e. only one criterion, or two including one that is basic, as main objective of beneficiaries is income generation. -LE 25,000 fixed asset limit for micro is too high from my experience with women whom we serve. -we could divide into manufacturing and non-manufacturing sectors for the sake of allowing more incentives for the manufacturing sector. -HH: -I discussed a number of issues with IMC with regard to their to-be-established Business Resource Centers (BRCs). They were agreeable to a) the idea of being sub-sector focused, b) to cover services like tourism (not only manufacturing), and c) to coordinate with extension service bodies. -Mr. Ahmed Darwish (Incubators Assoc. and SFD Advisor): -We need to address the issue of the various objectives of both MSME Definitions Part 2 and of the law? Is one of the objectives the streamlining of registration procedures and reducing the inherent administrative burden? -Dr. Heba Handoussa: -Need to coordinate policies, since this sector (SMEs) did not have a policy framework until recently, and need to provide services to promote this important sector, and hence need to have clear definitions for this sector. -We need to define the gaps in our thinking, and work towards some sort of consensus. -Must know the profile of the market. -Mr. Ahmed Darwish (Incubators Assoc. and SFD Advisor): -We need to know about the companies that were formed during the last five years: which sectors did they belong to? -There is an experience of tax exemptions provided to SFD borrowers: we need to know what was the outcome, did these enterprises succeed? -Mr. Nawara (CAPMAS): -It is difficult to use more than one criterion. The labor criterion is more reliable. -For manufacturing, we developed categories as follows: 10-24 employees, 25-49, 50-99, 100-499, 500+ -Mr. Milad (Cooperative Insurance Co.):

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-Do we aim at amending the structure in a way that enterprises move from one category to another? -HH: -The dynamics aspect is important; the issue of ‘graduation’ is addressed by a study that ERF is now conducting using panel data. Certain aspects can be traced like increases in productivity, change from informal to formal status, etc. Mr. Mohamed Saad (CGAP): -Suggest splitting the micro category into survival category and micro category. -Mr. Nabil (MOFT): -Simplicity of the definition is advocated. -If MSMEs constitute 99% of the private sector enterprises, there appears to be no difference between SME-policies and private sector policies. -HH: -MSMEs constitute 99% of enterprises but only 65% of labor and even smaller percentages of GDP and of exports. -We need to know the MSME contribution to total tax proceeds. -Dr. Nassar (SFD): -Market interest rate for MSMEs is doable, with close field monitor. -Tax exemptions for micro enterprises should be linked to certain factors rather than hand-outs: e.g. factors like increase of labor, moving to industrial cities, exports, etc -HH: -The Ministry of Local Development introduced a scheme whereby the government bears part of the social insurance cost. -Mr. Yosri Hammouda (ABA): -The Production Cooperation tried this and provided loans to enterprises that hire employees and agreed to bear the employer’s share in cost of social insurance. But the inspection (on the presence of the hired employees) was too strict and caused trouble to the enterprises to the extent that some enterprises closed down. -With regard to interest rate levels, the issue of sustainability is to be taken into consideration. -HH: We want Dr. Amr Hosny (MOI) to tell us about the points of view of authorities like GAFI, FEI, etc. -NE: -There is large discrepancy between the limits proposed today for micro category fixed assets. Rather than LE25,000 limit in ERF’s Part One study, some participants propose LE 10,000 while others propose LE500,000. (This limit to be considered in conjunction with limits for other criteria). -Mr. Tonsy (MOF):

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-For the sake of procurements law whereby MSMEs have a quota in government procurements, the sales criterion is important because we need to know the size of the enterprises’ sales and the size of contractual agreements. I suggest using a similar classification approach like that of the Egyptian Union for Contractors.

Second Stakeholder Gathering –March 02, 2003

Attendants: -Ms. Samia Fahmy Amin, Manager, Industrial Statistics Department, CAPMAS -Ms. Amna Sharaf El Din, General Manager, Handicrafts Authority, Ministry of Local Development -Mr. Mohamed Balah, General Manager, Industrial Projects Sector, GAFI -Mr. Tamer El Sayed, SME Unit Assistant Manager, Techniacl Office of the Minister, MOI -Mr. Yossri Hammouda, Operations General Manager, ABA -Mr. Mohamed Shouman, Executive Director of Italian Project Movimondo/SECDA, and Member of ESMA -Mr. Nasser Tonsy Abdel Moneim, Procurements Unit, MOF -Mr. Hassan El Sebaei, Head of Productive Cooperation Unit (PCU) -Mr. Hussein Helmy Mobarak, Deputy Minister, Ministry of Social Security -Dr. Alia El Mahdi, Faculty of Economics, Cairo University -Mr. Mostafa Mohamed Hamed, Manager of Small Loans Unit, National Bank of Egypt. -Dr. Mohamed Saad, Consultant, Consultative Group for Assisting the Poor (CGAP) -MOFT SME Specialists: Messrs. Mohamed Abdel Aziz, Yehia Khedr, Nabil Rasdan ERF Research Team: Dr. Heba Handoussa, Maged Osman, Laila Gad, Azza El Shinnawy, Nivine El Oraby Minutes of Meeting: The following presentations were made: Dr. Laila Gad (LG) Presented findings of the survey of organizations that provide assistance to the MSME sector. Fifty-four organizations replied to a questionnaire that inquired about the different organizations’ target groups, activities, purpose of assisting their target groups, definition of the target group, basis to the definition, and frequency of updating it if any. A matrix of organizations was presented consolidating the different definitions’ size limits and criteria. Also inquired about were the organizations’ views as regards the need, if any, for having a law for the definition of MSMEs, and their justification for those views. Respondents also named the entities that are considered to be key partners in the process of formulating a definition, from their point of view. The respondents included government bodies, NGOs, business associations, banks, research centers, and foreign donors. Dr. Nivine El Oraby (NE)

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The definitions used by the survey-respondents’ had very diverse ratios between variables. These include ratios of capital to labor, sales to capital, and sales to labor as a proxy for labor productivity. Ratios under international definitions were presented. CAPMAS 1996 census of establishments was used to segregate the relative shares of establishments and workers by economic sector. Total number of workers in all three MSME categories constituted 80% of all labor in the manufacturing sector, but in the trade and service sector it constituted as much as 98% and 90% respectively (with construction included here under service sector). So it is suggested to amend ERF’s definition proposed under the first study in a way that only the manufacturing sector remains under the said size limits (99) while limits for trade and service sectors could go as down as 1-4, 5-9 and 10-14 for micro, small and medium categories. Dr. Magued Osman (MO) An up-to-date study of the various data sets was presented. Mobile projects are not counted among enterprises under CAPMAS census of establishments; this conceals the numbers of peddlers as well as taxis and mobile units used by youth for trade in fruit and vegetables. Data is collected by use of a questionnaire as well as a personal interview. -Only 1% of the enterprises has over 5 workers as well as has a commercial register. -Another 1% has over 5 workers but no commercial register. -95% of the enterprises have below 5 workers and has fixed capital below LE50,000. -84% of the enterprises have below 5 workers and fixed capital below LE 100,000. -The huge majority of enterprises have annual sales of below LE 10,000. Discussion: Dr. Heba Handoussa (HH): -We note from the survey findings that most organizations that target micro enterprises aim at poverty alleviation. By contrast, most organizations with medium enterprises among their target groups aim at export promotion. This makes sense. - Some respondents suggested that MSMEs themselves participate in formulating the definition, but this does not guarantee arbitrariness. -The proposed reduction in labor size limits for trade and service sectors, while a large reduction, but OK since it relies on the realistic situation. The construction sector is to be separate from services. -The number of closed and empty establishments as indicated in the study of data sets is huge, about one third of the total number of establishments. Mr. Nasser Tonsy, Ministry of Finance (MoF): -The commercial register is essential for participating in government tenders. Mr. Hassan El Sebai, Head of Productive Cooperation Union (PCU): PCU and SFD have significant contributions to the area of MSMEs and a definition thereto. Today’s survey findings constitute a step in the right direction. A number of respondents did not address many questions. LG:

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This is because some respondents did not have a definition of their own; they only estimated what they considered as reasonable size limits and criteria while responding to the questionnaire. This will be mitigated through a number of personal interviews. Dr. Alia El Mahdi -Cairo University (AE): The matrix that was presented reflects some pattern vis-à-vis the size limits used by the respondents in defining their target groups (micro, small or medium enterprises). More attention is paid by the respondents to labor, capital and loan size than to other criteria that can be used for defining the sector. HH: We would like to go around the table and get your views on the proposed definition with today’s amendments. NT, MoF: -The fixed asset size limit for micro enterprises could be reduced to LE 10,000 rather than LE 25,000, given the results of the data sets study. NE: LE 10,000 fixed assets would not be compatible with the proposed LE 100,000 limit for sales for the same category. Ms. Amna, Ministry of Local Development: We are agreeable to the proposed definition by ERF with regard to labor and capital size limits for micro enterprises; as to the sales criterion we did not address it. Also we are not involved with the small and medium categories. There is a project concerned with workshops in particular, where someone is proposing tax exemptions for workshops linked to employing the youth. MO: MSMEs prefer to hire government employees on part time basis since they are already registered under social security thus relieving the MSME owner from the obligation to register them. Mr. Hussein Helmy, Ministry of Social Security: The issue of huge number of enterprises having a commercial register in the agriculture sector, as found out by the study of data sets, is mostly because farmers are entitled to a pension if they are registered. AE: Korea uses size limits of 10 and 20 workers for small enterprises in trade and manufacturing sectors respectively; services sector has the same limit like trade. HH: It is interesting to know what would be the reduction in tax proceeds of MoF if micro enterprises were exempted from tax payments. It is known that most taxes on profits of trade and manufacturing activities are paid by the public sector.

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NT, MoF: We are studying the tax exemption for micro enterprises. HH: Also the issue of difficulty of ‘exit’. This appears to be one of the prohibitive factors to formalization of enterprises. NT, MoF: As regards the proposed definition, we agree to the issue of having three categories; we look at the micro category from a social point of view, and to the small and medium categories from an economic point of view. The ministry has a proposed law for MSMEs with the following aspects under study: -Tax exemptions for micro enterprises. -Exemption from social security payments for the micro enterprises. -For the small enterprises, 40% cuts in taxes and social security payments. -Medium to be exempted upto 20% if they make use of the products of micro and small enterprises as feeding industries. -One stop-shop for registration and licensing. -Creation of a bank for small enterprises. 10% quota in government procurements. HH: We will have our next gathering in about a month. Also in about two or three weeks we’ll have a session where Dr. Alia El Mahdi will present the MSME law proposed to MSMEs, for an open discussion. NB. Dr. Amr Hosny from the Ministry of Industry (MoF) -Office of the Minister, who attended the first stakeholder gathering, delegated Mr. Tamer El Sayed to this gathering and sent to Dr. Heba Handoussa a study and data base on the manufacturing firms that are registered with the General Authority for Industrialization (GAFI). The study is valuable and will be reviewed by ERF team in the process of revising/formulating the size limits for the MSME categories under the manufacturing sector.

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Last Stakeholder Meeting September 27, 2003

Attendants: --Dr. Adel Beshai, Chairman of the Faculty of Economics and Political Sciences, AUC, and Member of the Shura Council --Eng. Mohamed Mazen Hassan, The Egyptian Society of Incubators, SFD --Mr. Nasser Tonsi Abdel Moneim, Government Procurement Researcher, the General Authority for Government Services, Ministry of Finance --Mr. Magdy Sayed Gad, Government Procurement Researcher, Ministry of Finance --Ms. Shahira Abbas Morad, Information and Consultations Specialist, The National Council for Women --Mr. El Sayed Ahmed Nawwara, Advisor, CAPMAS --Gen. Ibrahim El Shayeb, First Prime Minister, Ministry of Local Development (MLD), and Head of the Handicraft Authority --Mr. Ahmed Omar Abdallah, General Manager of Social Insurance Legislation, Ministry of Social Insurance (MOSA) --Mr. Youssry Hammouda, Operations General Manager, Alexandria Business Association --Mr. Mohamed Abdel Aziz, SME Specialist, MOFT --Dr. Nivine El Oraby, Consultant, ERF Minutes of Meeting The developments during the last two meetings were briefed by Nivine El Oraby, covering the proposed definition, the used criteria, the relation between variables, the survey, the agreement between definitions insofar as actual data is concerned, and recommendations for supplementations to the economic census. Then she presented the last part of the study including the following: --The issue of having a law for the definition, and the entailed inflexibility if any. --The mechanisms for setting and updating SME definitions in other countries like EU, USA and Japan. --The proposed mechanisms for verification and updating of the definition in Egypt. --The criteria for evaluating a definition and where the proposed definition stands in this regard. Finally she referred to the issue of multi-definitions for the different purposes and/or policy objectives and requested feedback from participants as regards a number specific policy objectives such as export promotion, government procurements’ share

134

for SMEs, linkages, skill upgrading and business development services (BDS), finance, etc. She also referred briefly to the recent draft SME Law and the definition used therein. Discussion --Mr. Ahmed Omar Abdallah (MOSA): We reviewed the new Draft SME Law, it stipulates exemption of social insurance during the first year of operation as a way to reduce costs for the entrepreneur. But MOSA has reservations on this because of the risk of having any accidents, death or other force majeure during this first year where the employee is not covered. We suggested to have some other party, say SFD, bear about 75% of the social insurance cost during the first year as a support to start-up entrepreneurs. --Dr. Adel Beshai (AB): The tables in the presented study are quite appropriate; they confirm my concept concerning the small enterprises and their high productivity: the table on manufacturing enterprises registered with GAFI shows highest ratio of ‘production to investment’ for the smallest category. NB. The figures in that table should rather be rounded. --Nivine (NE): In case a simple declaration form is used for the entrepreneur to fill with information on his enterprise that indicate that it does belong to the MSME sector, and if field inspection would be conducted to verify this information, where at the decentralized level could this be undertaken. --Mr. Nawwara, CAPMAS: The MSME sector has a wide coverage all over the country; not easy to out reach. --Gen. Ibrahim El Shayeb (IS), MLD: In the various governorates and towns there are sub-units of the Department of Productive Cooperation, under MLD, headed by General Managers. But these need to be strengthened with technical expertise. --NE: Specific definitions for specific policy objectives are addressed in the study: would we remove the size limits in some cases -e.g. export promotion-o and consider that ‘market dominance’ is the only restriction to eligibility to support. --AB: Exporters should get all support even if they have large market share. USA provides their exporters with subsidies. --IS: Exporters need information about foreign markets; the Commercial Representation should have larger role. --NE: On government procurements, it is suggested that those eligible to benefit from the government quota for SMEs should not be supplying the products of non-SMEs. --IS: Traders are not eligible to participate to government procurements. --Eng. Mohamed Mazen Hassen, Incubators Society, SFD, (MM): The process of subcontracting to SMEs as feeding industries is to be provided with support.

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--AB: There may be no need to provide incentives for large enterprises for subcontracting to SMEs; it is already more profitable for them to do so. Japan and Italy have excellent experiences in this regard. --IS: what is needed is a database on the feeding industries. --NE: The study suggest providing business development services (BDS) and skill upgrading to the non-micro SMEs as the micro are too numerous and do not have high potential for growth and employment. AB: The ‘Small’ category should be the target, then if the resources allow, the ‘Medium’ category could be targeted. The ‘Female Village Leaders’ project used to be a very successful initiative; they provided advice to the villagers and excellent products of embroiderie were exported to Europe produced at a very micro level. The Sherouk Project was also a success story. --IS: Vocational training as plumbing and carpentry is an essential part of regular education in countries like Japan and UK. We need more technical education. --NE: On the issue of finance, the study does not advocate subsidized interest. --AB: This sector has survived for the past decades and increased their employment without support from the government and did not add to any domestic or foreign government debt. This is similar to the farmers sector that has always been burdened. The policies of Grameen bank of Bangladesh are suitable to this sector. --Mr. Yousry Hammouda, ABA: As regards finance, we provide micro credit through banks but according to our pricing policy, i.e. no subsidized interest. Some entities provide finance on condition that the borrower hires additional labor even if he does not need them. What happens in reality is that the entrepreneur hires new labor on temporary basis only till he gets the loan then lays them off. --(MM): Providing the borrower with advice when he encounters business problems should be part of the business process. --IS: I took part in a committee in charge of distinguishing between borrowers who do not want to repay and borrowers who actually face conditions beyond their control. Out of about 5,000 delinquents, about 3,000 did not have force majeure. --Ms. Shahira Morad, National Council for Women: We have a credit program for small businesses and we do get funding from SFD for our clients. But sometimes some restrictions prevent them from growing (e.g. in one of the case of an excellent exporter, administrative problems on the pricing of electricity consumption). --IS: We would like to have a copy of the study. --Mr. Mohamed Abdel Aziz, MOFT: We will be publishing it and circulating it to all Ministries and other stakeholders upon completion.

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in d

evel

opin

g an

info

rmat

ive

and

accu

rate

tim

e se

ries d

ata

set o

n th

e M

SME

sect

or.

13

8

Ann

ex (G

) M

atri

x fo

r O

rgan

izat

ions

with

Ope

ratio

nal D

efin

ition

s of M

SME

s

C

urre

ncy:

LE

unl

ess o

ther

wis

e st

ated

M

: in

000;

MM

: in

mill

ions

Mic

ro

Smal

l M

ediu

m

Nam

e of

Org

aniz

atio

n Pu

rpos

e

Bas

is o

f D

efin

it’n

Serv

ices

pr

ovid

ed

for

MSM

Es

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s la

bor

Cap

ital

Loa

n Si

ze

Fixe

d A

sset

s Sa

les

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s

1. A

. Cre

dit G

uara

ntee

C

orpo

ratio

n U

S Pr

ojec

t

-Cre

dit

guar

ante

e -te

chni

cal

& a

dmin

. su

ppor

t

Boa

rd

decr

ee &

D

onor

-Cre

dit

guar

ante

e-n

on-

finan

cial

-s

tart-

up

cost

s

1 - 5

U

pto

25 M

1

M-

25 M

--

--

6 –

1540

M-

7 M

M10

M-

1.4M

M

--

--

6 –

1540

M-

7 M

M10

M-

1.4M

M

-- --

1.B

. Cre

dit G

uara

ntee

C

orpo

ratio

n Ita

lian

Proj

ect

-Cre

dit

guar

ante

e -te

chni

cal

& a

dmin

. su

ppor

t

Boa

rd

decr

ee &

D

onor

-Cre

dit

guar

ante

e-n

on-

finan

cial

-s

tart-

up

cost

s

1 - 6

2.

5M-

40M

5M

- 40

M

--

-- --

--

-- --

--

--

-- --

--

--

2. A

lexa

ndria

B

usin

essm

en’s

A

ssoc

iatio

n

-pro

visi

on

of m

icro

- an

d sm

all

cred

it

Inte

rnal

re

gula

-tio

ns

-Cre

dit

& n

on-

finan

cial

1 - 5

--

10

0-3M

--

--

6-15

--

4M

-25

M

--

-- --

--

--

-- --

3. A

ssoc

. for

Dev

. of

SMEs

in N

ew

Com

mun

ties

-job

crea

tion

-SM

E su

ppor

t in

new

co

mm

uniti

es

Dec

ree

-Cre

dit

& n

on-

finan

acia

l

-- --

--

--

-- 15

-80

50M

- 1M

M

50M

- 10

0M

250M

- 50

0M

--

80-

200

1MM

- 50

MM

10

0M-

500M

50

0M

-4M

M

4. E

nviro

nmen

tal Q

ualit

y In

tern

atio

nal (

EQI)

-te

chni

cal

assi

stan

ce

to d

onor

s &

to re

cipi

ent

inst

itutio

ns

SME

char

acte

r-is

tics &

U

SAID

de

finiti

on

-Cre

dit &

no

n-fin

anci

al

-cos

ts o

f op

erat

ion

1 –

5 U

pto

25 M

1M

- 10

M

--

-- 6

– 15

Upt

o 40

M

? --

--

15

-25

Up

to

75M

--

--

--

13

9

Mic

ro

Smal

l M

ediu

m

Nam

e of

Org

aniz

atio

n Pu

rpos

e

Bas

is o

f D

efin

it’n

Serv

ices

pr

ovid

ed

for

MSM

Es

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s la

bor

Cap

ital

Loa

n Si

ze

Fixe

d A

sset

s Sa

les

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s

5. C

ente

r for

Dev

elop

men

t Se

rvic

es (C

DS)

-s

uppo

rt fo

r de

velo

p’t

inst

itutio

ns

Labo

r cr

iterio

n co

mm

on/

othe

r cr

iteria

di

ffic

ult

to u

se

Cre

dit &

no

n-fin

anci

al/

med

iato

r of

fin

anci

al

serv

ices

1 –

5 --

--

--

-- 6-

15

--

--

--

--

15+

--

--

--

--

6. E

gypt

ian

Smal

l En

terp

rises

Dev

elop

men

t Fo

unda

tion

Cre

dit

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

1 –

5 --

50

0-3M

--

--

6-15

--

3M

-50

M

--

-- --

--

--

-- --

7. D

aqah

leya

Bus

ines

smen

&

Inve

stor

s Ass

ocia

tion

Cre

dit

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

1 –

5 --

50

0-

2.5M

?

--

-- 6-

15

--

500-

25

M

?

--

-- --

--

--

-- --

8. In

tern

atio

nal F

ree

Trad

e Po

int

-Tra

de &

in

vest

men

t op

portu

nitie

s -E

xpor

t pr

omot

ion

- Info

rmat

ion

-- N

on-

finan

cial

1 –

4 U

pto

10M

-- --

--

5-49

U

pto

1MM

-- --

--

50-9

9 1M

M-

10M

M

--

-- --

9. E

xpor

t Dev

elop

men

t B

ank

of E

gypt

Ex

port

Prom

otio

n G

ener

al

unde

r-st

andi

ng

Cre

dit &

ex

port

prom

otio

n

1 –

4 5M

- 19

M

-- --

--

5-49

20

M-

100M

-- --

--

50-

500

100M

- 50

0M

--

-- --

10. E

gypt

ian

Ass

oc. f

or

SME

Esta

blis

hmen

t &

Supp

ort

Job

crea

tion

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

-- --

--

--

--

5 +

--

50M

- 20

0M

--

-- --

--

--

-- --

11. N

asse

r Soc

ial B

ank

So

cial

co

hesi

on

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

2 - 3

50

0-

3M

500-

1M

2M

-- 5

- 7

5M-

50M

5M

-50M

6M –

8M

-- 7-

20

50M

- 10

0M

50M

- 10

0M

18M

-20

M

--

12. F

acul

ty o

f En

gine

erin

g, C

airo

U

nive

rsity

Equi

pmen

t de

sign

&

mai

nten

ance

Prac

tice

Non

-fin

anci

al

1 –

5 U

pto

500M

U

pto

50M

U

pto

250M

Upt

o 1M

M

5-10

0 U

pto

2MM

U

pto

500M

U

pto

1MM

U

pto

20M

M10

0-50

0 U

pto

20M

M

Upt

o 5M

M

Upt

o 15

MM

U

pto

100

MM

14

0

Mic

ro

Smal

l M

ediu

m

Nam

e of

Org

aniz

atio

n Pu

rpos

e

Bas

is o

f D

efin

it’n

Serv

ices

pr

ovid

ed

for

MSM

Es

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s la

bor

Cap

ital

Loa

n Si

ze

Fixe

d A

sset

s Sa

les

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s

13

. Cop

tical

Eva

ngel

ical

O

rgan

izat

ion

for S

ocia

l Se

rvic

es (C

EOSS

)

Impr

ovem

ent

of li

ving

st

anda

rds

Empo

wer

-m

ent

Fede

ratio

n of

Ec

onom

ic

Dev

elop

-m

ent

Ass

oc.

Cre

dit &

no

n-fin

anci

al

1 –

3 10

0-10

M

100-

3M

--

-- 4

-10

10M

-10

0M

3M-

20M

--

-- --

--

--

-- --

14. S

ohag

Bus

inee

ssm

en

and

Com

mun

ity

Dev

elop

men

t Ass

oc.

SME

deve

lopm

ent

-- C

redi

t, cr

edit

guar

ante

e &

non

-fin

anci

al

1 –

9 1M

-50

0M

1M-

5M

--

-- 9-

50

500M

-5M

M

5M-

15M

--

-- --

--

--

-- --

15. P

lan

Inte

rnat

iona

l In

tegr

ated

C

hild

D

evel

opm

ent

-- N

on-

finan

cial

1 –

2 1M

-5M

1M-

5M

--

-- --

--

-- --

--

--

-- --

--

--

16. M

obad

ra A

ssoc

iatio

n

-Eco

nom

ic

deve

lopm

ent

& In

com

e G

ener

atio

n - C

omm

unity

D

evel

opm

ent

Don

or

term

s

Cre

dit &

no

n-fin

anci

al

1 –

5 U

pto

10M

Upt

o 5M

Upt

o 3M

-- 5-

15

Upt

o 1M

M

Upt

o 25

0M

Upt

o 15

0M

-- 15

+ 1M

M+

250M

+

150M

+

--

17. H

ope

Proj

ect o

f Egy

pt

Cre

dit

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

1and

fa

mily

Upt

o 3M

500-

1.5M

--

Upt

o 5M

-- --

--

--

-- --

--

--

-- --

18. M

inis

try o

f Loc

al

Dev

elop

men

t Jo

b cr

eatio

n fo

r you

th

Min

iste

rial

decr

ee #

93

/ 199

1

Cre

dit &

no

n-fin

anci

al

-- --

--

--

-- 1

– 3

Upt

o 1M

10M

-14

M

1M-

9M

-- --

--

--

-- --

19. G

loba

l Env

ironm

enta

l Fa

cilit

y (G

EF)—

Smal

l G

rant

s Pro

gram

(SG

F)

-- SG

P &

U

ND

P C

redi

t &

non-

finan

cial

-- --

--

--

-- --

--

G

rant

si

ze:

Upt

o U

S $

--

-- --

--

--

-- --

14

1

Mic

ro

Smal

l M

ediu

m

Nam

e of

Org

aniz

atio

n Pu

rpos

e

Bas

is o

f D

efin

it’n

Serv

ices

pr

ovid

ed

for

MSM

Es

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s la

bor

Cap

ital

Loa

n Si

ze

Fixe

d A

sset

s Sa

les

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s

50M

20

. Nat

iona

l Ban

k fo

r D

evel

opm

ent

Cre

dit

Inte

rnal

re

gula

-tio

ns

Cre

dit,

savi

ngs,

& n

on-

finan

cial

1 –

5 --

250-

3M

< 50

M

5M-

150M

-- --

--

--

-- --

--

--

-- --

21. M

inis

try o

f Ind

ustry

Pr

oduc

tivity

&

skill

En

ham

cem

ent

Mgm

t D

evel

opm

ent

Inte

rnal

re

gula

-tio

ns

Non

-fin

anci

al

1 –

9 U

pto

500M

-- --

--

10-5

0 50

0M-5

MM

-- --

--

50-

100

5MM

-10

MM

--

-- --

22. C

AR

E Eg

ypt

Pove

rty

alle

viat

ion

Inst

itutio

nal

deve

lopm

ent

for f

inan

cial

in

term

edia

ries

-- N

on-

finan

cial

1 –

4 --

--

--

-- 5

–15

--

-- --

--

15+

-- --

--

--

23. P

BD

AC

C

redi

t &

tech

nica

l as

sist

ance

fo

r en

hanc

emen

t of

ag

ricul

tura

l pr

oduc

tivity

-- C

redi

t &

non-

finan

cial

1 –

5 --

25

0-5M

--

-- 6-

15

--

5M-

100M

--

-- 15

+ --

100M

-500

M

-- --

24. T

erre

des

Hom

mes

O

rgan

izat

ion

Cre

dit,

inco

me

incr

ease

, ch

ild

supp

ort

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

-- --

50

0-4M

--

-- --

--

-- --

--

--

-- --

--

--

14

2

Mic

ro

Smal

l M

ediu

m

Nam

e of

Org

aniz

atio

n Pu

rpos

e

Bas

is o

f D

efin

it’n

Serv

ices

pr

ovid

ed

for

MSM

Es

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s la

bor

Cap

ital

Loa

n Si

ze

Fixe

d A

sset

s Sa

les

labo

r C

apita

l L

oan

Size

Fi

xed

Ass

ets

Sale

s

25. B

anqu

e du

Cai

re

Soft

loan

s to

you

th

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

1 –

2 1M

- 25

M

1M-

3M

--

20M

2

- 3

25M

-40

M

3M-

10M

--

50M

3

– 6

40M

-75

M

10M

-10

0M

-- 10

0M

26. I

ndus

trial

D

evel

opm

ent B

ank

of

Egyp

t

Fina

ncin

g in

dust

rial

activ

ities

Wor

ld

Ban

k D

efin

it’n

Cre

dit &

no

n-fin

anci

al

--

--

-- U

p to

10

0M

--

--

--

-- 40

0M-

700M

--

--

--

--

700M

- 1.

1MM

--

27. E

gypt

ian

Ass

ocia

tion

for C

ompr

ehen

sive

D

evel

opm

ent

Inte

grat

ed

rura

l de

velo

pm’t

Prac

tice

Cre

dit &

no

n-fin

anci

al

1-5

100-

5M

100-

5M

--

--

6-10

5M

-50

M

5M-

50M

--

--

11

-50

50M

-25

0M

50M

-10

0M

--

--

28. Q

ena

Bus

ines

smen

’s

Ass

ocia

tion

for E

cono

mic

an

d So

cial

Dev

elop

men

t

SME

deve

lopm

’t &

impr

ove

livin

g st

anda

rds

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

1 1.

5M-

3M

Up

to

1M

--

--

2-3

7M-

15M

1M

-15

M

--

-- --

--

--

-- --

29. C

omm

unity

D

evel

opm

ent A

ssoc

iatio

n fo

r Rur

al a

nd U

rban

w

omen

Com

mun

ity

deve

lopm

’t In

tern

al

regu

la-

tions

Cre

dit &

no

n-fin

anci

al

1 --

20

0-3M

--

--

--

--

--

--

--

3-30

--

5M

-40

M

-- --

30. A

swan

Bus

ines

smen

’s

Ass

ocia

tion

Com

mun

ity

Dev

elop

m’t

Inte

rnal

re

gula

-tio

ns

Cre

dit &

no

n-fin

anci

al

-- --

U

p to

1M

--

--

1-5

Up

to

40M

1M

-10

M

--

--

6+

40M

-25

0M

10M

-15

M

-- --

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