SMEs may be better key for Egypt’s economy, but does the government care?

Big 5

Small- and medium-sized enterprises (SME) may be the best solution for Egypt’s poor economic state. SMEs have the ability to provide a large number of jobs to subdue unemployment and produce important products.

In May, the executive manager of the Egyptian Banking Institute (EBI) Mona El-Baradei said that the number of SMEs in Egypt constitutes approximately 2.5m projects, representing 99% of non-agricultural private sector projects. Moreover, these projects provide about 75% of jobs.

SME productions account for about 80% of the GDP and contribute to 75% of exports, El-Baradei said, adding that small businesses contribute to more than 10% of industrial production in Egypt, while medium enterprises provide 40%.

The government always says that increasing the number of SMEs is important, yet it has not quite changed its approach in providing grounds for entrepreneurs to start their own companies.

The Egyptian economy is facing many challenges: the high unemployment rate of 13%, the declining growth rates of 4%, and the domestic investment rates that stand at only 14.4% of GDP, next to the limited flow of foreign currency into Egypt.

SMEs could be the solution for the Egyptian economy, but that would require the government to pay attention.

Government does not want to apply reforms within its ability: chairperson of SME forum

On 13 and 14 August, Badr University in Cairo (BUC) held the First International Forum for the Development of Small Enterprises, addressing challenges that face small and medium-sized enterprises (SMEs).

The conference brought about recommendations that the participants thought might help solve problems standing in the way of an SME’s success.

Hassan Al-Kalla, chairperson of the board of trustees of BUC, said that SMEs need to operate in accordance with an integrated system. There must be an institution that systematically operates SMEs while helping entrepreneurs with the problems they face, he noted.

Al-Kalla said that such an institution must establish a one-stop-shop that would facilitate the licence acquisition of small investors, and would propose suggestions and ideas to improve the SME investment climate. Those suggestions and ideas must include supporting startups, starting with financing and eradicating obstacles, and continuing to marketing its products and guaranteeing its sustainability, he stated.

He believes that the institution responsible for SMEs must be included in a strategy of attracting investors to Egypt in the short, medium, and long terms. This strategy should be a national plan, aiming to develop Egypt and decrease unemployment by providing jobs, he added.

Al-Kalla also suggested that the government create a general federation for SME investors to act as a supportive entity for them against the government’s different institutions as needed.

The conference also recommended enacting a law that includes all legislations and regulations affecting the organisation of SME work with financial and administrative bodies in the government or private sector. Creating a database that includes all the SMEs’ data in Egypt, from investors to products, was also among the suggestions.

“I believe that the government has the ability to apply all these suggestions, but it really does not want to,” Al-Kalla said, explaining that the government knows all the problems but does not really want to reform.

He added that the government did not succeed in solving any problem since it took office, emphasising that its performance did not result in anything other than failure—something that is not acceptable in a country as great as Egypt, Al-Kalla affirmed.

There is administrative corruption in every governmental entity, there are no attempts to fix this problem, and the people are paying for that, he noted.

He believes that Egypt will not develop unless it eliminates corruption in its institutions and ministries—a problem that the government has not done anything about to the present.

Marketing, needless bureaucracy, licensing procedures are biggest problems for SMEs

No country can become developed without counting on small- and medium-sized enterprises (SMEs) and micro-enterprises. The Egyptian government says that increasing the number of SMEs is a priority, and that the obstacles that prevent entrepreneurs from starting new businesses will be removed as soon as possible.

Alaa El-Sakty, head of the SMEs association, said that the problems small investors face in Egypt are different from industrial obstacles that hamper any new big investments.

Marketing, unnecessary bureaucracy, and licensing procedures are the most significant setbacks for SMEs, Al-Sakty noted. The government must understand entrepreneurs’ problems in order to promote SMEs, as these seemingly superfluous procedures can be difficult for small enterprises to navigate without the government guiding them through, he explained.

Al-Sakty believes that SMEs cannot absorb the unpredictable economic fluctuations in the Egyptian market nowadays.

Almost 60% of SMEs are not recognised in formal economy—this is the most important problem for the government to fix so as to increase tax sources, according to Al-Sakty.

The only way to attract informal SMEs is to provide economic advantages for them, said Al-Sakty adding that cancelling trade and taxpayer registrations would push these enterprises into the market with the registration making entrepreneurs uncomfortable—they think the government will take their money even if they don’t make a profit.

An initial licence would help entrepreneurs formally begin the production process, after which the government can apply taxes on them. It is also vital that SMEs find a workplace, such as Al-Salam and El-Roubiky cities, according to the association head.

Regarding developments so far, the Central Bank of Egypt (CBE) provided an initiative for any SME to obtain a loan with a 5% interest rate. Al-Sakty approved this move, saying that previously complicated procedures have prevented SMEs from receiving loans.

Of almost 600 investors listed in the association, only five received loans that they had applied for, Al-Sakty said. Banks’ rules must be changed to allow SMEs to borrow more easily, he added.

As of June, the National Bank of Egypt (NBE) has financed 47,000 SMEs, as well as some micro businesses, with EGP 28bn. This amount excludes the value of funds provided for projects that had grown to become similar to major companies, according to statements by NBE chairperson Hisham Okasha in early August.

The bank injected funds amounting to EGP 12.3bn into 18,000 projects in fiscal year (FY) 2015/2016, with a growth rate of 71% in the value of provided facilities. This amounts to a 32% growth in financed projects, compared to FY 2014/2015, Okasha added.

He emphasised that SMEs are a key pillar of the bank’s strategy, aiming to provide more sustained support to this vital activity and enlarge the size of the bank’s portfolio directed at this sector to EGP 72bn over four years.

These statistics are a result of the bank’s interest in developing SMEs, Okasha said. “SMEs are direct job creators. They solve the unemployment problem, improve the standard of living, and achieve targeted development,” said the chairperson.

Following the launch of the Central Bank of Egypt’s (CBE) initiative to support SMEs, Okasha said that the bank continues to achieve good results in a number of projects that are financed as part of the initiative.

He explained that the bank provided funds amounting to EGP 950m for 1,100 projects during June, with a growth rate of 30% in the financed projects, and 40% in the value of the facilities provided to the projects, compared to May.

Another promise: government to eliminate obstacles for 1,000 factories project

The Association of Investors for Small and Medium Enterprises (AISME) in Cairo held a meeting with representatives of the cabinet and the Ministry of Industry and Foreign Trade on Sunday to discuss the obstacles that are preventing production in the 1,000 factories project in New Cairo.

Head of the association, Hesham Kamal, said that more than 80 investors participated in the meeting, adding that they discussed what obstacles they are facing in their production process.

Kamal explained that investors can barely afford applying the expensive procedures of the Civil Defence and Firefighting Authority, and on top of that, it takes an unacceptably long time to acquire licenses.

The 1,000 factories project is suffering from not being able to obtain licenses from the Civil Defence and Firefighting Authority. Civil protection requirements are the same for both large and small projects, he stated.

On the other hand, the deadline for the investors to get their operating license ends on 18 October, which they cannot meet due to governmental routine.

Government representatives promised investors to hold another meeting after three weeks to announce what the government had fixed, he said. Kamal added that the government promised that investors will not lose their factories, even if they could not meet the deadline. The government must solve the problems of the 1,000 factories project in New Cairo quickly, in order to enable the enterprises in the area to begin production, Kamal said.

Kamal stated that there are 200 out of 908 factories operating, adding that investments for construction amount to approximately EGP 3bn, while 87% of these investments are not working or operating.

Officials in the association held a meeting on 9 August with the parliament’s Small and Medium-Sized Enterprises (SMEs) Committee, and presented a report on the problems in the area, such as periodic water outages due to incomplete infrastructure, as well as a 10-year tax exemption.

Kamal said that the committee assured it would send a report to Prime Minister Sherif Ismail to find solutions for the project’s hardships.

In another meeting with the committee in June, deputy of the parliamentary SMEs Committee Hala Abou El-Saad said that the committee will not tolerate any banks’ violation of President Abdel Fattah Al-Sisi’s initiative. The president’s plan aims to support young people to eliminate unemployment. He allocated EGP 200bn to this initiative, with a declining interest rate over five years.

This area falls within the EGP 200bn initiative launched by Al-Sisi to support SMEs, and gives investors a 300 sqm plot of land to establish their factories on an area of 180 sqm.

The total loans coming from the initiative are estimated at EGP 1.3bn, most of which went to giant projects outside the initiative. Abou El-Saad had said that they “will not be silent on this matter”, yet nothing happened.

Source: Daily News Egypt