The role of small and medium enterprises in improving the economic performance remains modest due to several problems, finds Mona El-Fiqi Experts believe that promoting small- and medium-size enterprises is key in reducing unemployment rates, decreasing poverty figures, providing job opportunities for women and raising the individual's average income. Moreover, small enterprises have played an effective role in the Egyptian economy since 2.3 million production units are currently operating in this sector, employing 8.5 million people which account for 40 per cent of the labour force. However, small enterprises are facing numerous problems such as financing, marketing, high fees and taxes rates, as well as the government's disregard for their views on policies related to their sector. Last week Al-Ahram Regional Institute for Press, in cooperation with the Freidrich Naumann Association and Liberal Forum Egypt, held a seminar to address these problems under the banner "Small Enterprises and Development Challenges in Egypt". Yomn El-Hamaaqi, chairman of the NGO Liberal Forum Egypt and professor of economics at Ain Shams University, explained that the seminar aims to assess efforts in support of small- and medium-size enterprises. It is also charged with finding out if these efforts fulfil President Hosni Mubarak's promises during last year's presidential campaign or not. During the seminar, small investors accused the government of dragging its feet in solving their problems, while officials asserted that much had been done and more is expected for small- and medium-size enterprises. Representing small investors, Chairman of the Federation of Economic Development Societies (FEDS) Fouad Thabet presented a paper outlining 15 vital issues that hinder the development of this sector. FEDS is an umbrella NGO the members of which members include 102 organisations and 1,000 small investors in 16 governorates. Topping these problems is the fact that small investors are unable to purchase land in industrial zones, because the Authority of New Urban Communities (ANC) is not committed to Law 141 which stipulates the allocation of 10 per cent of industrial zones land to small enterprises at reasonable prices. Secondly, in June, 2006, the Industrial Development Authority (IDA) decrees that each investor must furnish a letter of guarantee equivalent to five per cent of his total investment capital in the project. Thabet explained that five per cent is too high for small investors, and might hinder the establishment of many small enterprises. Minister of Economic Development Osman Mohamed Osman admitted that although all concerned ministries strongly believe in the importance of the role of small- and medium- size enterprises in improving the economy, the lack of coordination between relevant parties is a real problem. Osman suggested that a national body be created to be in charge of resolving obstacles facing these businesses, and serve as a link between ministries, institutions and the Social Fund for Development (SFD). According to experts, encouraging small- and medium-size enterprises would help bring down Egypt's high unemployment rate. "Small enterprises can offer good and low cost job opportunities since a job costs LE10,000 in this sector," noted Osman. Moreover, this sector should be promoted because it encourages the national savings of citizens. "Ten per cent of the total capital of small industries is funded by banks and institutions, such as the Social Fund for Development, while the rest are national savings," he added. According to Osman, in order to continue improving the economic growth rate -- which rose from 4.5 per cent in the fiscal year 2004/ 2005 to 6.8 per cent in 2005/2006 -- the share of small- and medium-size enterprises in total Growth Domestic Product (GDP) should increase from the current 30 per cent to 40 per cent. "The government is planning to help this sector grow by two per cent annually, in order to absorb 12 million workers instead of the current figure of 8.5 million workers," added Osman. Moreover, Mubarak's electoral programme earmarked around LE500 million in annual soft loans to small- and medium-size enterprises, in order to help create 100,000 new job opportunities. Osman further explained that although the government had already started institutional reform of this sector according to Law 141 of 2004, these problems are still deep-rooted. They include lack of technical assistance, poor financing, as well as low education and training standards of the labour force, which all hinder the progress of this sector. But the FEDS chairman blamed the government of differential treatment between small and big investors, citing that four big investors were allocated 60 million square metres in one of the industrial zones without letters of guarantee. "These 60 million square metres of land are enough to cover the needs of small enterprises for the coming 15 years," noted Thabet. Another hindrance highlighted by Thabet is the lack of transportation facilities between the new industrial zones and surrounding residential cities. "The result is that workers stay away from jobs in the new industrial zones since some of them spend more than 20 per cent of their salaries on transportation fees," he explained. "This problem is obvious in the industrial zones of 10th of Ramadan, Borg Al-Arab and Gamasa." In Qantara Sharq the story is even worse, according to Thabet, because the General Authority for Investment (GAI) refuses to sell land to small investors, and only authorises land use. Consequently, banks refrain from financing these projects since land ownership is an important guarantee for banks. The result is that small investors refused to launch new projects and the first stage of the Qantara Sharq industrial zone, covering 910 feddans, only houses 36 projects on 10 per cent of the land. Finally, the high fees imposed on small investors when expanding their factories are also prohibitive. They can sometimes reach 50 per cent of the land's market price, which is a high burden on investors, added Thabet. In response, the Chairman of the General Authority for Government Services at the Ministry of Finance Mohamed El-Far defended the government's position in support of small enterprises. El-Far told the seminar that to promote small- and medium-size enterprises, his ministry reached an agreement with the government that 10 per cent of all government purchases must come from this sector. Another positive move by the government, according to El-Far, is the simplification of taxes for small enterprises in addition to a five- year tax exemption for small projects funded by the SFD. But Thabet countered that all small enterprises should receive similar tax breaks, not just the SFD-funded ones. In conclusion, the seminar recommended coordination between the different players influencing this sector such as banks, the ministries of industry and trade, commercial and industrial federations and the SFD. This would aim to support the development and improvement of the vital sector of small- and medium- size enterprises.
