SMEs are the Engine for Future Economic Growth in Egypt

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Large businesses that are capable of mass production of goods and services were once viewed as the driver of Egypt’s economic growth. However, small and medium-sized enterprises (SMEs) are getting to the forefront of the country’s economy and creating much-needed jobs in Egypt.

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Image by Raduasandei, used under Creative Comms license.

SMEs face many obstacles, including lack of finances, new technologies, and marketing channels. However, major steps are being undertaken to improve the status of SMEs and help them to overcome these obstacles. The Nile Stock Exchange (Nilex) was introduced as the market for small and mid-cap stock to provide access to finance for SMEs. The Egyptian government has also revised the laws and regulations and is working with various partners to support and promote the growth of local and foreign SMEs.

Government efforts make things easy for SME

The Egyptian government has introduced the Small and Medium Enterprise Policy and Development Project (SMEPol) initiative, with the support of Canada’s International Development Research Centre (IDRC) and the Canadian International Development Agency (CIDA). Under this scheme, researchers and consultants analyzed Egypt’s business environment and existing policies in order to identify how policies, regulations and legislations could be changed to create favourable business environment for SMEs.

Researchers undertook a range of studies to investigate how to establish a general framework to support SME development, improve SMEs access to business financing, increase government procurement from SMEs, and reform regulations to make compliance easier and less expensive. The research results informed the Egyptian government’s efforts in bringing about significant policy changes, including revisions to the income tax regime, a thorough assessment of the informal sector, and changes to the Tender Law. In addition, the Minister of Finance has been tasked to develop additional venture capital opportunities for SMEs. SMEPol also produced the Enhancing Competitiveness of SMEs in Egypt: General Framework and Action Plan which set out the broad parameters, along with concrete measures and timelines, to promote the growth of SMEs.

Financial assistance

The Small Business Support (SBS) scheme, with funding from the European Union, provides well-designed advisory services for SMEs in Egypt. Under this scheme, the SBS team first raises awareness about the benefits of accessing advisory services to priority sectors such as agribusiness, engineering, textiles and apparel, ICT and furniture manufacturing. The team also identifies factors that can hinder economic growth. Limited access to finance is a major issue facing SMEs due to the lack of dedicated SMEs products available in the financial market and the financial illiteracy on the SMEs side. Excessive centralization of management and lack of corporate governance are some common issues in family-run businesses. To address these issues, the SBS scheme focuses on strengthening organisation, management operations, sales, marketing and finance through increasing efficiency and productivity, improving management practices, promoting corporate governance and transparency, and developing consultancy market in the rural regions.

Positive partnerships

USAID partnered with HSBC Egypt to offer US$34 million in financial assistance to SMEs in 2012. The nine-year programme will facilitate the flow of credit to SMEs by enhancing their access to the capital market, making borrowing easier and available to creditworthy and underserved SMEs. The loan breaks barriers for HSBC to venture into a market that might otherwise be considered risky due to the higher level of default. HSBC also cooperates with Financial Services Volunteers Corps to launch YallaBusiness.com. This website offers services and useful resources such as starting and managing a business, dealing with banks and international trade tools for SMEs in Egypt.

Egypt offers an attractive business environment for foreign investors looking to set up SMEs. Under the new legal framework, the Egyptian government allows 100% ownership, 100% foreign representation on board of directors, full rights of profit and dividend repatriation, and protection against double taxation, compulsory pricing and expropriation. The Egyptian government has also cut the personal income tax and simplified and reduced the tariff. Setting up a company in Egypt has been greatly simplified and looks set to remain so, for the future of Egypt’s economy.

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