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“ SMEs in the Arab Region: A Focus on 7 MENA Countries”

“ SMEs in the Arab Region: A Focus on 7 MENA Countries”. ESCWA Conference on “Innovative Sources to Finance Small and Medium-Sized Enterprises” Dubai, February 16-17, 2010 Presented by: Lois Stevenson, IDRC, Cairo. Context in MENA Region .

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“ SMEs in the Arab Region: A Focus on 7 MENA Countries”

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  1. “SMEs in the Arab Region: A Focus on 7 MENA Countries” ESCWA Conference on “Innovative Sources to Finance Small and Medium-Sized Enterprises” Dubai, February 16-17, 2010 Presented by: Lois Stevenson, IDRC, Cairo

  2. Context in MENA Region • Employment creation, esp. for youth, is major challenge • Private sector not large enough to absorb growing number of job seekers • SMEsare major driver of private sector, but • Very small (over 90% are under 5-worker enterprises) • High level of informality (40%-70% of enterprises & 40%-80% employment) • Concentrated in low-growth sectors • Most only have capacity to serve local markets (low exports) • Low use of modern technologies • Low level of product quality and competitiveness • Low innovation • Few women participating in entrepreneurial /SME ownership activity • Need pipeline of more, and higher quality, entrepreneurs • Need for more growth-potential SMEs

  3. SME/entrepreneur challenges • Regulatory burden to start-ups • Complex and costly administrative procedures affecting entry, operation and exit of enterprises • Low access to formal debt & equity financing • Inadequate access to BDS, entrepreneurship/ management training, business & market information • High social security & non-wage labour costs(affects hiring practices) • High input costs due to low economies of scale & weak bargaining power • Constrained access to some markets

  4. A look at the seven MENA countries: Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia and Turkey

  5. Size and growth dimensions 236 m people, growing at average of 1.6% a year Average 2008 GDP growth of 5.2%; 7% (LE & EG), 1.5% (TR)

  6. Varying sector distribution

  7. Labour and business environment context • Low employment rate (43%) – due to low participation of women • Double-digit unemployment, > twice as high for young people (& higher for educated youth) • Mismatch between demands of labour market and skills of labour force • Better business environments in TN and TR • JO and TR have highest degree of economic freedom • Labour market rigidities common competitiveness barrier

  8. The SME sector • Inconsistent SME definitions • Lack of timely, comprehensive and comparable data on the SME sector • > 95% of private enterprises are SMEs • Estimated 6.5 million SMEs in total, many informal • Less than 1% have more than 50 workers • Average enterprise size – 6.7 (SY), 2.7 (EG) • Low SME ownership by women; very few women with growth-firms

  9. Density of entrepreneurs Self-employment rate of 28% (12.5% for women), but few employers Density of entrepreneurs= 15.6% of adult population; 5.2% of the adult population trying to start a business

  10. Institutional and policy support for SMEs and entrepreneurship

  11. Institutional and policy support for SMEs • Focus on SME policy is recent in most countries (since 2000) • Variety of institutional supports – SME laws, SME policy units, SME agencies, SME delivery organizations (OSSs, BDCs, incubators, MFIs, NGOs) • Similar SME policy frameworks (where they exist) • Reforms to reduce the time & cost of starting & operating businesses, regulate MF sector, venture capital industries • Measures to overcome deficiencies in formal lending and risk capital markets • Programs to upgrade the management & production capacity & standards of SMEs • Advancement of technology & innovation infrastructure & support for technology start-ups • Targeted young entrepreneurs programs • Entrepreneurship education initiatives • Strategies to reduce informality

  12. Promising sectors

  13. The way forward for SMEs & entrepreneurship • MENA economies need a more vibrant and robust private sector & more & stronger SMEsto drive private sector growth, deal with youth employment challenge, reduce poverty, produce sustainable growth • SME sector is fragile, uncompetitive in global markets and underdeveloped (high degree of informality) • Limited access to financing, business development services, information on opportunities, technology and markets • Entrepreneurs of young enterprises, most SME owners do not have sophisticated management, production & marketing skills - exposed to very limited opportunities to gain knowledge on how to start, manage & grow an enterprise • Many business opportunities exist in developing economies with growing GDP and populations, plus access to new markets through FTAs • To capture these opportunities, potential & existing entrepreneurs need entrepreneurial ability & knowledge, access to the necessary resources and information, business friendly environments • Base of entrepreneurs exist – with proper support can produce growth in the economy and other economic and social returns

  14. Recommendations

  15. …to strengthen the SME sector • Target tailored SME and entrepreneurship development programs to foster the entrepreneurial potential of women and young people, especially among post-secondary graduates • Support integration of entrepreneurship at all levels of the education system with links to the private sector entrepreneurs. • Offer more diverse types and sources of SME financing • Provide more widespread, comprehensive and sustainable access to mentoring, training, and business advice directed to entrepreneurs and SMEs • Remove regulatory and procedural barriers to the entry and growth of SMEs and to dissolution of an enterprise • Reduce the costs of registering businesses and enforcing contracts • Implement strategies to encourage the formalization of enterprises • Reform rules regarding property rights.

  16. …to pursue SME-related opportunities for investment • Pool funds to invest in the R&D stage of emerging technologies identified by governments as promising sectors • Pool funds to invest in promising new start-ups and spin-off enterprises that are seeking to commercialize new or innovative technologies • Invest in microcredit funds that are flexibly structured to increase loan amounts commensurate with the financing needs of client enterprises as they grow • Support programs to develop the potential of young educated entrepreneurs and their enterprises • Invest in women entrepreneurs with growth-potential enterprises (with financing, mentoring and market linkages)

  17. …to inform public policy and foster exchange • Improve the quantity, quality and timeliness of data on SMEs, the growth &development of the SME sector, & the level & nature of entrepreneurial activity, an evidence base needed to formulate effective tailored policies & measure the impact of business environment reforms and support programs and initiatives • Publish this analysis in annual reports for wide dissemination among stakeholders (e.g. regional SME Observatory and Entrepreneurship Monitor involving country-level partnerships) • Create regional forum for sharing knowledge & experiences of what has worked well and what has not in the various areas such as SME access to financing, OSSs, young entrepreneur programs, SME upgrading schemes, business and technology incubators, developing women’s entrepreneurship, etc

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