There is a clear ‘missing middle' gap in Egypt's SMEs, says an expert

Challenges to the small enterprise sector in Egypt and the MENA region are the focus of a two-day conference in Cairo that kicks-off today

There is a clear ‘missing middle' gap in Egypt`s SMEs, with only0.21% of private enterprises in Egypt having more than 50 employees. This reflects a clear ‘missing middle' in the enterprises structure, says Lois Stevenson, Director Economic Framework Policies with Industry Canada and author of various publications on private sector and enterprise development.
"MENA's 12 countries are particularly deficient in producing medium sized enterprises," Stevenson said during a press conference yesterday in Cairo during the launch of the IDRC Global Entrepreneurship Monitor – Middle East and North Africa Regional Report 2009. "This percentage is relatively higher in Turkey 0.6 and Jordan 0.7, but still a very low percentage."
Enterprises with fewer than 50 employees account for over 80% of private sector employment in Egypt, Stevenson said.
The report also showed Egypt records one of the greatest concentrations of microenterprises in the MENA-12 countries, with an average size firm of 2.7 employers compared to 6.1 in Syria, 4.2 in Jordan and 3.9 in Lebanon. The majority of large enterprises are owned either by foreign companies or prominent families who own groups of companies.
The SME sector in all MENA countries was assessed as large but fragile, built on informal microenterprises with little human and financial capital, limited access to technology, and an inability to compete on a regional and international basis, the report states. Estimates suggest that these informal enterprises make up 40% to 70% of all private enterprises and account for 40% to 80% of private sector employment.
The vast majority of SMEs have fewer than five employees, 89% of those in Jordan, 90% in the West Bank and Gaza, 91% in Syria and Yemen, over 92 percent in Egypt, and over 93 % in Lebanon.
Egypt has also recorded one of the lowest percentages in annual average growth in the number of SMEs over the past 7-10 years, with a 4.2% growth compared to 12.3% in Algeria, 7.7% in Turkey and 5.4% in Yemen.
The report points to the fact that nascent and young businesses have a potentially strong impact on unemployment reduction through their growth orientations. The employment growth expectations of early-stage entrepreneurs would result in a 25% growth in average firm size over the coming five years. However, only 11.4% of Egyptian entrepreneurs expect to create more than 10 jobs in five years, ranking Egypt in the bottom half of GEM countries.
"Over 70% of the early-stage enterprises are collectively generating millions of jobs in the overall MENA countries. However, many of these enterprises are nascent and may not survive through the start-up process due to any number of internal and external factors," Stevenson said. "If they survive the fragile start-up process and are able to realize even a fraction of the job growth expectations they have for the next five years, millions more jobs will be created and the average firm size in the region will be shifted upward."
Relative to other GEM countries, Egypt's angel prevalence rate compares with the average for EU GEM countries, but is low compared to the OECD GEM countries (average of 3.5%), the US (5.2%), and well below other developing countries.
Egypt has the second lowest rate for the percentage of the population that has received any exposure to entrepreneurship in the education and training system.Only 7.5% of Egyptians reported ever having taken any courses on starting a business as part of school-based activity, or participating in related training after leaving the formal education system.Of the non-entrepreneurially-active population, adults who have never received start-up training were much less likely to perceive that they had the skills, knowledge, and experience to start a business than those who had.
Weaknesses in the education system with respect to entrepreneurship were reinforced by the national experts and reflected in Egypt's poor comparative standing relative to other GEM countries on the Education and Training EFC. The education system in Egypt was assessed by national experts as being very weak in this area, at all levels of schooling, unlike the case in many other GEM countries where the government has made entrepreneurship education a priority.
A high gender gap was also recorded in all MENA countries, with Egypt showing 6% of adult females engaged in early-stage entrepreneurial activity versus 19% of adult males. The gap is largest in Syria and Palestine, where the difference in rates is over 4 to 1 in favor of men, and smallest in Yemen and Algeria, where the difference is 1.5 to 1.