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SMEs don't grow on trees
Published in Al-Ahram Weekly on 09 - 12 - 2010

TWO publications launched this week are a reminder of the challenges facing private sector development, particularly small and medium enterprises (SMEs) and entrepreneurial activity in the Middle East and North Africa (MENA) region. The two publications are a report by the Global Entrepreneurship Monitor titled GEM- MENA Regional Report 2009, and a book titled Private Sector and Enterprise Development: Fostering growth in the Middle East and North Africa. They are supported by Canada's International Development Research Centre (IDRC). Al-Ahram Weekly publishes a selection of their findings.
The two publications analyse 12 MENA countries, namely Algeria, Egypt, Iraq, Jordan, Lebanon, Morocco, Sudan, Syria, Tunisia, Turkey, Palestine and Yemen. The book on the private sector sums up the situation as follows: "The focus on entrepreneurship as a policy issue is not well developed in any of the MENA-12 countries. It is difficult to obtain start up financing for new enterprises, starts up procedures are often cumbersome, the appropriate level of business development services is not widely available and the overall culture of entrepreneurship is still weak after decades of government controlled economies in which there was limited scope for entrepreneurial activity except on the margins."
Lois Stevenson, the author, highlights that the issue of fostering entrepreneurship is critical because "none of the MENA-12 countries has a substantial enough base of formal domestic SMEs."
According to Stevenson, the private sector in MENA-12 countries is made up of a very large number of micro-enterprises which employ fewer than five workers, a very small number of small and medium enterprises and a tiny number of large enterprises. "Enterprises with fewer than 50 workers account for at least 95 per cent of private sector enterprises in the MENA-12 countries." That figure reaches over 99 per cent in Egypt. And the book said that only 0.21 per cent of private enterprises in Egypt have more than 50 employees, at 5,000 firms out of 2.34 million.
The emphasis on private sector growth comes at a time when as the book cites 40 million new jobs will be needed during the decade to 2020 to absorb new job seekers. Exacerbating the situation further is the fact that the median age of the MENA-12 population is 23.6 years. "The number of people under 15 in the 12 countries is around 117 million, an average of 32.5 per cent of the total estimated 2009 population."
According to Stevenson, the official unemployment rate in the MENA-12 averages 14 per cent. "Unemployment situation is severe among women and youth." While youth aged 15 to 24 years make up 20 to 35 per cent of the labour force, they represent 35 to 80 per cent of the unemployed. And in Egypt for example, the unemployment rate for women is more than three times the rate for men.
The MENA-12 countries also suffer a prevalence of the informal economy where it is estimated that the informal sector accounts for between 40 to 70 per cent of all private sector enterprises and a large share of employed workers. In Egypt, this figure reaches 80 per cent.
In the meantime, SMEs that do exist suffer a variety of challenges including "a low level of education and training, lack of management skills and systems required to compete effectively in today's markets, obsolete production systems and a lack of access to external sources of debt and equity finance, inadequate access to information, business development services and training and a lack of the knowledge and experience required for exporting."
According to Stevenson, "Stronger SMEs and more competent entrepreneurs do not just automatically spill out from regulatory and structural reforms. Their capacity has to be built within the context of a supportive culture." To Stevenson, "SME and entrepreneurship policy needs to be given priority in government and donor policy agendas, in order to achieve a more inclusive approach to development and growth in the MENA-12 countries."

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