A change in the government's mechanism in dealing with small and medium enterprises (SMEs) is needed to boost investment, Mona El-Fiqi reports Fayza Abul-Naga, minister of planning and international cooperation, met this week with representatives of investors to discuss the problems they are currently facing. The aim of the meeting was to listen to the investors' vision about what they need the government to do in order to boost investments in general and SMEs in particular. Abul- Naga asserted: "The government is serious about doing its best to facilitate measures to encourage local investment." Abul-Naga said that a recent study revealed that bureaucracy and the lack of finance, qualified labour and security are the main problems currently facing investors. Since the role of the private sector is important in Egypt's development, the government is keen to provide a friendly investment environment to refresh local investments. The target of private sector investments in the country's budget for the fiscal year 2011/2012 is estimated at LE128 billion. Abul-Naga asserted that boosting local investments is the best way to attract foreign direct investment (FDI). Although FDI flow is important, Abul-Naga explained that in any country when a crisis happens, FDI runs away but national investments remain to face the crisis. During the third quarter of fiscal year 2010/2011, FDIs in Egypt dropped from $1.7 billion to $1.64 billion compared to the same period in 2009/ 2010. Moharam Helal, the chairman of Egyptian Investors Federation representing 43 investor associations, agreed that Egypt is facing a real crisis and added that officials, including some ministers, are unable to take decisions which will lead to an escalation in problems. To boost investment, Helal asserted that the government should give priority to the small and medium enterprises (SMEs). Abul-Naga emphasised the important role SMEs have played in other countries. For example, 70 per cent of China's total exports and 65 per cent of India's exports are SME products. According to Abul-Naga, a clear strategy for SMEs is needed and the role of the Social Fund for Development (SFD) after 20 years of its establishment should be reconsidered. "It is time to discuss its weaknesses and to find out if it is better to change it to an authority like other countries did," Abul-Naga explained. She added that the government made a big mistake when it helped to establish SMEs without connecting them to larger companies that can help them develop. SFD Chairman Hani Seif El-Nasr admitted that the target of the SFD during the past years was to provide job opportunities to help reduce the unemployment rate without caring to connect SMEs with large factories that could help in marketing their production. The SFD was committed to apply Law 141/2004 that encouraged the establishment of SMEs with a capital of less than LE1 million and hiring less than 50 workers, according to Seif El-Nasr. Since the SFD mechanism included financing industrial, agricultural, commercial, tourism, and services sectors, an investment map is needed to decide the needs and potentials of each sector to help develop the SFD job in supporting SMEs. Finance is no longer a problem for SMEs, according to Seif El-Nasr, since it is available in both the SFD and the banking sector. The SFD provides finance to new investors who are not able to get banking loans since the Central Bank of Egypt's regulations prohibit providing finance to new investors. An investor should have a company that has operated for three years to be allowed to get a banking loan. One more finance channel was added when Osama Saleh, chairman of the General Authority for Investment (GAFI), declared that the authority established an Assistance Support Fund with a total capital of LE1 billion to finance SMEs, and that the fund is expected to be officially announced within one month. Mohamed Kafafi, the chairman of Banque du Caire, said that the recent figure of loans provided by the banking sector is LE475 billion of which 75 per cent go to the private sector. Banque du Caire's own SMEs portfolio, according to Kafafi, reached LE1.3 billion of which LE453 million are provided to very small enterprises. The ceiling for financing a small enterprise rose from LE1,000 to LE25,000, reaching LE50,000. Moreover, Kafafi added that an agreement between the SFD and Banque du Caire to finance SMEs with total capital of LE100 million will soon be concluded. Abul-Naga said that Banque du Caire was recently chosen to be the right hand in financing SMEs during the coming period. A LE200 million grant provided to Egypt from Saudi Arabia was allocated to Banque du Caire to support financing SMEs. For his part, Saleh said that there are positive indicators that can give hope to investors. After the 25 January Revolution, 2,668 companies were established with total capital of LE4.4 billion of which 85 per cent are local investments, while 15 per cent are foreign investments.
