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Problems come in all sizes
Published in Al-Ahram Weekly on 31 - 01 - 2008

Sherine Nasr finds out that policy amendments are not enough to enable SMEs to grow to their full potential
The small- and medium-sized enterprise (SME) sector seems to have an answer to most, if not all, of Egypt's economic problems. At least, this is what economists strongly advocate. According to experts, SMEs accommodate the largest bulk of the country's labour force, are among the biggest contributors to GDP, the largest providers of new job opportunities and the channel through which economic prosperity is fairly distributed among all social strata.
As a matter of fact, SMEs are considered the backbone of the Egyptian economy since they represent 94 per cent of the projects recorded in the Industrial Register, and 90 per cent of those recorded in the Commercial Register.
"There is no way we can sustain a 7.1 per cent growth rate except by encouraging the SME sector to take an active role in economic development," asserted Samiha Fawzi of the Ministry of Trade and Industry (MTI) at a recent conference. The gathering was held to celebrate the accomplishments of the Small, Medium and Micro Enterprise Policy Development Project (SMEPol) over the past seven years. SMEPol ends today, after its launch in 2000 as a partnership between the Ministry of Finance, the Canadian International Development Agency (CIDA) and the International Development Research Centre (IDRC) -- the Canadian executing agency of the project.
According to IDRC Regional Director Eglal Rashed, the project aimed at creating an enabling environment for SMEs through reducing financial and non-financial constraints facing the sector. "The ultimate goal is to support Egypt's transition towards a market economy, by assisting the government to improve the policy environment for SME development," noted Rashed.
Several concrete results have indeed been achieved, thanks to the cooperation between SMEPol and a number of Egyptian ministries and bodies concerned with the development of the sector. For example, studies made by MTI have shown that 65 per cent of the companies registered in the Qualified Industrial Zones (QIZ) are medium- and small-sized entities. According to Fawzi, the rate of industrial growth has exceeded that of commercial growth and, for the first time in years, non-petroleum exports have surpassed petroleum exports. "Of all development indicators, the volume of exports is perhaps the most accurate," she explained. "If products of these entities managed to penetrate international markets, this means that these are the projects of the future."
Mobilised to help create a strong SME sector in Egypt, the Social Fund for Development (SFD) has underlined five main challenges related to lack of finance, marketing, lack of skilled labour, project management and policy environment. "Over-regulation through complying with rules that make no sense and deliver little benefit, or struggling with complicated language to figure out compliance obligations, or filling out unnecessary paperwork represent the most typical challenges facing these entities," revealed Alf Monagham, team leader at the Technical Assistance for Policy Reform (TAPR II). TAPR II is a USAID-sponsored project which aims at boosting the role of the private sector. "A lot still needs to be done in different ministries concerned with the development of SMEs in Egypt."
One of the first initiatives to be taken by the SFD was to identify what is micro, small and medium as the basis from which other regulations, such as tax calculation, can build on. "Guided by the experience of other countries in the field, the Ministry of Finance issued a law in 2004 to simplify accounting procedures for small investors," stated SFD Director Hani Seif El-Nasr. By virtue of the law, small enterprise capital should not exceed LE1 million, while those of micro-enterprises should not exceed LE50,000.
"Meanwhile, registration fees were drastically cut to encourage the informal sector to enroll into the formal sector," added Seif El-Nasr. Thus, a micro-enterprise is charged a meagre LE22 instead of LE5,000, while small enterprises pay LE500 instead of the previous rate of LE22,000. Also, a one stop shop in which 21 different official bodies are represented is now operating in 27 governorates to help facilitate procedures and save time.
According to Nevine El-Shafie, vice- chairman of the General Authority of Investment and Free Zones (GAFI), the number of limited liability companies (LLC) has increased by 47 per cent during 2006-2007 after paid capital was reduced to LE532. "More than 40 per cent of LLCs in 2007 had capital less than LE50,000," continued El-Shafie, adding that registration fees were also reduced to a maximum of LE2,000.
Nevertheless, lack of information about the actual number of SMEs in Egypt still constitutes one of the biggest challenges when targeting groups for necessary services in the market. "Data is such a big issue in Egypt," said Nabil Rashdan, advisor to the minister of finance. Rashdan asserted that unless collective measures are taken to encourage the informal sector to comply by the laws, identifying the real number of operating SMEs will continue to be a problem.
He further noted that the majority of micro-enterprises shun growing into small entities because of the obstacles they anticipate once they open a commercial register and possess a tax file. "This is why the majority prefer to continue to work underground," believes Rashdan. "But this deprives them access to financial support and, in turn, the chance to grow into a bigger and more prosperous economic entity."
Although several bodies such as the chambers of commerce in governorates, GAFI and ministries concerned with SMEs are separately collecting information about their clients, much still needs to be done in order to render this information into meaningful data.

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