supporting smes in egypt ministry of finance rabat 10-12 march 2008

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Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

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Page 1: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Supporting SMEs in EgyptMinistry of Finance

Rabat 10-12 March 2008

Page 2: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Outline

• MSMEs in Egypt– Macro-economic outlook– Structural characteristics– Constraints

• Making a Distinction (The focus)• MSMEs and Competitiveness• Policy Formulation Process• Policies Adopted• Vision for the future

Page 3: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Macro-Economic Outlook

• The government has announced very aggressive growth targets for its 2007-2012 economic development plan. (an annual GDP growth of 8 percent and the creation of 2.8 million job opportunities-an average of 750,000 job opportunities per year).

• Most of the macro economic indicators have shown great improvements over the past nine years (e.g., GDP, GDP per capita, exports…etc.). However, much remains to be done with regards to income inequality, poverty and unemployment.

Page 4: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Private Sector Share of GDP

Private sector share of GDP

565860626466687072

1997

/98

1998

/99

1999

/200

0

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

2005

/06

Per

cent

age

Page 5: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Unemployment and the Role of PSD

• Between 1999 and 2005, the absolute number of the unemployed has actually witnessed an average annual increase of approximately 4%, climbing from 1.6 million to almost 2.2 million. So far, the private sector has been unable to absorb the country’s growing labor force.

• In order for the private sector to expand, which is a necessary component of Egypt’s future growth, several improvements are needed in the business environment, including in the system of laws, property rights, competition frameworks, public services and infrastructure, the depth of financial markets, trade liberalization regime, and so on.

Page 6: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

MSMEs

• The SME sector has effectively rarely been considered as part of the private sector, even though it accounts for 99.7 percent of the private sector enterprises, about 75 percent of private sector non-agricultural employment.

• From a political economy viewpoint, reforms aimed at fostering entrepreneurship and MSE development are particularly desirable because they create clear winners from reform and a broad social coalition in support of change.

• From a social viewpoint, MSEs secure livelihood for a large and ever expanding sector of the population. Almost three-quarters of Egypt’s labor force are employed in the MSE sector

Page 7: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

MSMEs in Egypt

71 %

19 %

10 %

Micro Small Medium

99.70%

0.30%

SMEs Large Enterprise

Figure 2: Distribution of Non-Agricultural Economic Activities Between SMEs and Large Enterprises

Figure 1: Distribution of Employment of SMEs in Private Non-Agriculture Economic Activities

Page 8: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Structural Features

• The markedly skewed size-based distribution of businesses in Egypt towards micro enterprises.

• MSMEs tend to have very small amounts of capital. Fifty-nine percent of MSEs with 1-4 workers have capital of less than 5,000 LE (defined as microenterprises) and only 6 percent of enterprises have invested capital of more than 50,000 LE (defined as small enterprises

Page 9: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Missing Middle

0% 20% 40% 60% 80% 100%

Egypt

MENA

Italy

Spain

Japan

UK

< 10

10 to 99

100 to 499

500+

Page 10: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Structural Features

• Skewed Geographical Distribution, almost half of the private sector in the country is concentrated in the five governorates of Cairo, Giza, Dakahliya, Alexandria and Sharqiya.

• Skewed Activity Distribution, MSEs are predominantly concentrated in the trade sector, owing to the low entry barriers in terms of capital, skill and technology characteristic of the trade sector. Within the manufacturing sector, more than eighty percent of enterprises are concentrated in five activities.

Page 11: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Sectoral Distribution

Sectoral Distribution of MSEs (CAPMAS, 2000-2001)

16%

69%

15%

Manufacture

Trade

Service

Page 12: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Other Structural Features

• Low Share of MSMEs in Value Added• High levels of informality• Women in the MSME sector

Page 13: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Constraints• Demand Related Constraints

– Weak Effective Demand– Exports– Lack of Linkages with Larger Firms– Limited, Non-structured, and Uncoordinated Marketing Channels

• Input Constraints– Technology– Lack of Access to Finance – Limited Access to Adequately Priced Inputs– Lack of Access to Information – Lack of Access to Business Development Services

• Process Constraints• Legal and Regulatory Constraints• Entrepreneurship Constraints

Page 14: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

The Process

• Socio-Economic focus Vs. only Social • PSD Vs. MSME Development• Micro Vs. Small and Medium• High Road Vs. Low Road• Income Generation Activities Vs. Growth

Generation Activities• Necessity Entrepreneurs Vs. Opportunity

Entrepreneurs • Existing Enterprises Vs. Start-ups

Distinctions

Page 15: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Competitiveness, is demonstrated by "the ability to meet the test of free international markets while expanding real income."

It is based on generating more value through improved productivity, quality, service and innovation.

Competitiveness

Page 16: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

(Characteristics)• Fracturing value chain among several

countries.• Quality management.• Standardization.• Just-in-time (JIT) production.• Networking of firms and suppliers.• Highly and multi-skills workforce.

Global Trends

Page 17: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

• Developing a competitive SME sector able to compete in local and global markets and deliver its socio-economic and developmental benefits in the years to come, and thus improving the country’s trade balance.

• Separation in targeting policies Income generation Vs. Growth generation

The Vision

Page 18: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

The Process

Draft National Policy 1998

Priority Policies 2000

Done by the Ministry of Economy

Listed and divided constraints into Financial and Non-Financial

Proposed general Policy Actions

Accepted by Stakeholders in a National Conference

Prioritized Policies that were recommended in the 1998 Draft

Was done through a consultative process

Five policy areas were tackled (Update of Policy Framework, Definition, Access to Finance, Procurement, and Legal and Regulatory)

Page 19: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Priority Policies

• Updating draft national policy (competitiveness)• Definition• Access to finance• Procurement• Legal and regulatory environment

Page 20: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Policy Process

Problem & Issues Identification

Stakeholders Mapping

& Involvement

Research & Assessment

Policy Formulation

Publicizing Results

&Proposals

Consultation with Stakeholders

Finalization of Recommendation

Formalization

Implementation

Monitoring & Evaluation

Revisions

Policy

Process

SME Focus GroupsIdentifying problems

Research committeeSynergy group

Sub-donor group

Discussion Paper

7 PoliciesMinister’s recom .

March 2003Workshop

Consultation onAction Plan

Finalization of Action Plan (Nov. 2004)

National Conference

Policy Committee

Monitoring & Evaluation

Revisions

CompetitivenessProcess

Page 21: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Competitiveness Strategy

• Policies:• Export Promotion• Innovation and Technology• Access to finance• Organic Clusters• Legal and regulatory environment• FDI and inter-firm linkages• Business Development Services

• Implementation mechanism:• SME Policy Committees

Page 22: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Government Procurement

• The 10% in the MSE Law• Inter-Ministerial committee on Procurement was

established between the MoF and SFD to discuss methods of implementing the 10%

• Country Procurement Assessment Review• M/SME procurement allocation system

Page 23: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Tax Law/Real state registration

• Special Accounting Standards for M/SMEs• Tax exemption for M/SMEs acquiring loans from

the SFD• Review of the current real state registration,

which will affect the use of assets as collateral for SMEs

Page 24: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Venture Capital

• Establishment of committee that includes key governmental stakeholders on the decision making level

• The purpose of the committee is to streamline regulations governing VC establishment in addition to creating a VC fund

• Recommendations to establish Private Equity, and Turnaround funds

Page 25: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Leasing

• Leasing roundtable that brought together US Expert Volunteers and the leasing companies currently active in Egypt to prioritize and agree on reform measures needed to activate the leasing industry.

Page 26: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Vision for the future

Market Access for SMEs through streamlining

government procurement procedures

Page 27: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Vision for the future

SME accounting standards in place

Page 28: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Vision for the future

Streamlining laws and regulations of the sales tax

Page 29: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Vision for the future

Access to finance for SMEs through creating a favorable

environment for non-traditional financial mechanisms

Page 30: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Vision for the future

More cooperation and collaboration between different

stakeholders

Page 31: Supporting SMEs in Egypt Ministry of Finance Rabat 10-12 March 2008

Vision for the future

Strategic interventions