By Nasser Youssef
Almost three years of turmoil in Egypt has had a devastating effect on small and medium businesses which are also now struggling through a lack of government support.
Successive governments have failed to find innovative ways to support the sector which, according to experts and specialists, is the only one capable of extricating the Egyptian economy from its current bottleneck and addressing the problem of rising youth unemployment.
Ismail Hassan, president of the Misr Iran Development Bank, believes small and medium sized enterprises (SMEs) in Egypt and the Arab world in general, face three obstacles to growth and prosperity. These are finance, business development services and access to trade markets and capital. Despite some effort from the successive governments since the January 25 revolution to solve the finance problem, they were not interested in developing objective solutions for the second and third items, he said.
Banks also became much more selective, making it harder for SMEs to secure finance.
According to those working in the banking sector, market risk increased very sharply during the last period, which pushed a number of banks to pursue more cautious policies in financing different economic sectors, including SMEs, for which the element of risk is relatively high.
The financing portfolio for SMEs at the National Bank of Egypt, the largest Egyptian bank, stand at approximately EGP 8 billion, which represents 8% of the bank’s loan portfolio. The Ministry of Investment also launched this year a fund for investment in SMEs with EGP 250 million in capital.
But Said Zaki, a member of the Board of Directors of the Egyptian Gulf Bank, said the banking sector’s interest in SMEs was still there and many banks had specialized divisions for this sector.
The sector needed a huge package of measures developed by experts, including ways to join the informal and formal sectors to help grow SMEs and make them more stable.
El-Sayed El-Kosayer, president of the Industrial Development and Workers Bank of Egypt, confirmed the lack of financing given to the sector despite many banks establishing specialized departments.
Despite the initiatives undertaken by the central bank to support the sector, including an exemption from the compulsory reserve and launching a database of nearly 36,000 enterprises, the financing given was still small in comparison with what the sector needed.
He emphasized, however, that banks alone would not be able to support the sector. It needed the efforts of all society’s institutions, especially the government, which had to provide major concessions and incentives to increase these enterprises in the market.
El-Kosayer demanded that businessmen assume more social responsibility, aid the owners of SMEs by linking them with their mega-projects, and help young people by encouraging them and giving them the experience to help them reach their potential.
The success of SMEs in Egypt required an integrated approach, including a quick transformation of the informal sector to the formal sector, the development of a uniform definition of control of the sector, insurance for enterprise owners, more research and the designating of a portion of government tenders for the owners of these enterprises.
He pointed to the fact that many countries had achieved tremendous economic growth as a result of their interest in the sector, including Japan, which does not enjoy mineral resource or raw material wealth, and India, which gave the sector careful attention and established a national bureau for small and medium industries.
The recent political unrest caused the central bank to delay the launch of a new initiative that aimed to support the sector here, he said. The bank was scheduled to launch, in cooperation with the National Bank of Egypt, a partnership to guarantee SME loans.
Dr. Mohamed Zakaria, director of the SME unit at the Egyptian Banking Institute, has said in previous press statements that the central bank reached a final agreement with National Bank of Egypt officials to launch a partnership scheduled for the middle of this year.