This chapter summarises the main findings and recommendations of the OECD SME and Entrepreneurship Policy Country Review of Egypt.
SME and Entrepreneurship Policy in Egypt
Abstract
1. The year is indicated in parenthesis if it deviates from 2022.
2. Where the OECD aggregate is not provided in the source database, a simple OECD average of latest available data is calculated where data exist for at least 80% of member countries.
3. The figures for expenditure and revenue relate to the Budget sector, which comprises central administrative units, local administrative units, and public service authorities. These figures are from the Ministry of Finance, Egypt. For the OECD countries, the figures relate to the general government.
Source: Calculations based on data extracted from databases of the following organisations: OECD, International Energy Agency, International Labour Organisation, International Monetary Fund, United Nations, World Bank, CEIC, Ministry of Economic Planning and Development, Ministry of Finance and Central Bank.
MSMEs play a key role in Egypt’s economy, with micro-enterprises accounting for the large majority of businesses
A total of 3.7 million business establishments were active in Egypt in 2017 (CAPMAS, 2018[1]). Approximately 99.7% of this total had less than 50 employees, while 91.7% were micro-enterprises. The share of businesses with less than 50 employees is high in Egypt compared with high-income economies such as the European Union (Figure 1.1).
Source: (CAPMAS, 2018[1]), (Eurostat, 2023[2])
MSMEs in Egypt are relatively concentrated in lower productivity sectors. For example, wholesale and retail SMEs represent 57% of the total business population in Egypt.1 Focusing just on the non-financial business economy, wholesale and retail businesses with less than 50 employees account for 60% of businesses in Egypt, compared with 23% on average in the OECD and 38% internationally (OECD, 2018[3]).
A priority for Egypt is to grow more medium-sized firms (above 50 employees) and to increase SMEs’ representation in sectors with higher productivity, exporting and innovation performance, including manufacturing.
SME productivity and innovation performance are improving
The productivity and innovation performance of Egyptian SMEs has improved over the last 10 years, and there is scope to maintain or accelerate this trend. In particular, benefits could be obtained from increasing the share of small businesses that introduce new products or services, which appears to be lower than in some other countries in the region (Figure 1.2) despite Egypt’s relatively high number of researchers per capita (Figure 3.4).
Note: Survey year indicated in parentheses. Data for Egypt were collected in 2020 and responses may therefore be impacted by the COVID-19 pandemic.
Exporting performance is still developing among Egyptian SMEs
Exporting can offer many benefits to businesses such as higher revenues, risk diversification, higher standards, and exposure to new technologies. Exporting performance is still developing among Egyptian MSMEs. In 2020, exports accounted for at least 10% of sales for approximately 4.7% of Egyptian businesses with 5-19 employees (World Bank Enterprise Surveys, 2023[4]). This is a higher share than in some countries in the region but below others, such as Tunisia.
Tackling informality is a challenge
An estimated 53% of establishments in Egypt were unregistered in 2017 (CAPMAS, 2018[1]), with this share varying by sector (Figure 1.3). Reducing informality would benefit the development of Egypt’s MSME sector, since it is well-documented that informal business face severe restrictions in accessing finance, due to lack of documentation, collateral, and regulatory constraints, and are less likely to invest in skills, training, and technology (OECD, 2021[5]).
Source: (CAPMAS, 2018[1])
Egypt’s has a culture conducive to entrepreneurship, with high rates of entrepreneurial intention
Egypt has a relatively high rate of productive entrepreneurship, as measured by the share of the working age population that are self-employed with employees (Figure 1.4).
There is also a strong entrepreneurial culture. In 2022, 47% of non-entrepreneur Egyptians expressed the intention to start a business within the next three years (Global Entrepreneurship Monitor, 2023[7]). This is the fifth highest share of the 49 countries for which data are available. In addition, 64% of adults saw good opportunities for starting a business, 78% agreed that successful entrepreneurs receive a high social status, and 71% agreed that most people consider starting a business to be a desirable career choice. These figures are all above the global average and point to a strong potential pipeline of entrepreneurs with the ambition and the motivation to start new business ventures.
There is scope to increase the conversion of these positive intentions into actual entrepreneurial activity. The total early-stage entrepreneurial activity (TEA) rate measures the share of adults (18–64-year-old) that have set up a business or were the owner-manager of a firm less than 3.5 years old. In 2022, Egypt’s TEA rate was 6.6%, lower than in most other countries covered by the GEM survey (Global Entrepreneurship Monitor, 2023[7]). Moreover, there is scope to increase the innovativeness of new entrepreneurs, with less than 1% of early-stage entrepreneurs in Egypt reporting offering products or services that were new to their area in 2022 (Global Entrepreneurship Monitor, 2023[7]).
Policy recommendations
Promote policy measures to:
Develop reliable and recurring statistics on MSME and entrepreneurship performance and characteristics, to be published on an annual basis. As a starting point, data should be collected on i). the number of enterprises, ii). the number of persons employed, and iii). the value added of micro, small, medium, and large-sized businesses. These data should ideally be disaggregated by industrial sector. The European Commission’s Annual Report on European SMEs is a good illustration of the scope of data on SMEs that should be aspired for (European Commission, 2024[8]).
Accelerate the formalisation of MSMEs and entrepreneurs through outreach activities to raise awareness and uptake of the formalisation incentives in the MSME Law. The uptake and impact of these incentives should also be closely monitored to determine whether adjustments or additions are needed.
Facilitate the transition of MSMEs towards higher productivity sectors and activities by taking steps to increase the role of the private enterprises in sectors of the economy and facilitating access to international markets (see Boxes 3.8 and 5.15).
Encourage innovation and technological adoption among MSMEs and entrepreneurs, for example through financial support programmes (digital vouchers) and tax incentives to support SME digitalisation and the establishment of digital innovation hubs in rural areas (see Box 7.14).
Address business creation bottlenecks that create gaps between entrepreneurial intention and action by introducing mandatory SME tests, ramping up regulatory impact assessments and simplifying business licensing systems (see Box 3.8).
Develop actions to further support opportunity-based entrepreneurship and innovation in start-ups, including through measures to enhance the incubation and acceleration system and create stronger incentives for private and venture capital investors (see Box 5.15).
The macroeconomic environment presents challenges for SMEs and entrepreneurs
Egypt’s economy grew by an annual average of 5.5% between 2015 and 2019, outperforming other middle-income economies in the MENA region. This growth was boosted by commodities exports and state-led investments. Even during the COVID-19 pandemic, real GDP growth surpassed 3% in 2020 and 2021 (International Monetary Fund, 2023[9]). However, a range of macroeconomic developments since 2022 – including currency depreciation, high inflation and increases in the Central Bank’s discount rate – have created more challenging conditions for SME and entrepreneurship development (International Monetary Fund, 2023[9]).
Recent policy developments are strengthening trade and FDI opportunities
Trade and investment opportunities for SMEs and entrepreneurs have been improved by a range of recent policy reforms, including the Prime Ministerial resolution to support SME exporters and the establishment of a new export department within MSMEDA. The Ministry of Investment and Foreign Trade’s Export Development Authority (EDA) has created an information portal where SMEs can access information about exporting opportunities. It has also simplified export and import procedures, including through digitalisation and automation. To attract foreign direct investment (FDI), Law No. 72 of 2017 on Investment Guarantees and Incentives has exempted projects in free zones from custom taxes, sales tax and other fees. This opens up new possibilities for the integration of SMEs into global supply chains.
Egypt’s participation in the African Continental Free Trade Area (ACFTA) agreement is poised to create a larger market for continental trade and FDI. The agreement, ratified by 47 African countries as of February 2024, is set to significantly lower tariff and non-tariff barriers to intra-African trade for Egyptian businesses (World Bank Group, 2023[10]). The Common Market for Eastern and Southern Africa is also important in this respect. Going forwards, it is important that SMEs and entrepreneurs are made aware of these potential benefits to enable them to exploit fully the opportunities offered by these agreements.
With respect to international trade, further reductions in red-tape and tariffs would benefit SMEs and entrepreneurs going forwards (World Trade Organization, 2023[11]). Similarly, there is scope to further increase FDI-openness. According to the OECD’s FDI Restrictiveness Index, Egypt was less open to FDI in 2020 than the OECD average (OECD, 2020[12]). Only 1.3% of Egyptian businesses with 5-19 employees reported using technology licensed from foreign companies (World Bank Enterprise Surveys, 2023[4]). In this area, supplier development and matchmaking programmes could help to foster spillovers and linkages between foreign companies and domestic SMEs.
Egypt’s regulatory environment is improving
The Egyptian Regulatory Reform and Development Agency (ERRADA) has been active in improving the regulatory environment for business. This is a long-running reform process that needs to be maintained and intensified, given ongoing regulatory challenges in areas such as tax compliance and property registration (World Bank, 2020[13]).
The Egyptian government has also been active in introducing measures to encourage firms to formalise, and MSMEDA and the International Labor Organization are in the process of developing a formalisation strategy. The MSME Development Law No. 152 of 2020 offers temporary 5-year licenses to enterprises that were operating informally before the law. After receiving the temporary license, any judicial proceedings are stopped and the enterprise is exempted from payment of taxes for previous years. New enterprises that began operating after the introduction of the law can obtain a temporary license for one year, which can be renewed for another year prior to the issuing of the final license. These measures are accompanied by incentives such as reduced corporate tax rates, the allocation of 30% of available space in industrial zones, touristic areas, urban communities and reclaimed agricultural land to MSMEs, suspension of lawsuits and penalties for five years, and forgiveness of previous unpaid taxes. There is also a requirement for at least 40% of public entities’ contract allocations be made to MSMEs.
Law No. 19 of 2023 was issued regarding the regularisation of the status of unlicensed industrial facilities. The law allows, within a maximum period of 3 years from the date of its entry into force, the granting of temporary operating permits for a period of one year to existing unlicensed industrial facilities, after they submit a declaration of the facility’s commitment to environmental requirements, civil protection procedures, and all established controls.
Another important development is the establishment of the Permanent Unit in the Council of Ministers to propose policies, laws and regulations for Egyptian start-ups. The unit – which is headed by GAFI – is currently undergoing an internal review of policies, procedures and bottlenecks and is examining international practices in order to identify possible areas for intervention.
Access to financing has improved dramatically
Egyptian banks’ MSME lending portfolio has grown drastically, expanding by 394% between December 2015 and March 2024. However, there is still scope to improve SMEs’ access to traditional bank credit. In 2020, only 7.3% of investment in businesses with 5-19 employees was financed by banks in Egypt, lower than in Tunisia (12.9%) and Morocco (11.3% in 2019) (World Bank, 2020[14]). The low access to credit is explained by high transaction costs, a lack of bank tools and data to assess SMEs’ credit risks, and high collateral requirements (ADB, 2019[15]). In addition, limited financial literacy lowers demand for bank finance, particularly outside of urban centres and among female-headed households and businesses (IFC, 2022[16]).
The Central Bank of Egypt (CBE) has adopted several measures to address these issues and encourage financial inclusion by bolstering MSMEs and start-ups’ access to finance and non-financial services. These include a quota on the share of banks’ lending allocated towards SMEs (increasing from 20% to 25% in 2021); requirements for banks to create departments dedicated to SME lending; an amendment to banking regulations that waives audited financial statement requirements for lending to firms with annual sales lower than EGP 20 million; instructions to banks to develop alternative tools to assess the risks of lending to small and/or informal enterprises; a data hub that collects credit information on Egyptian businesses and consumers; and a credit guarantees scheme delivered through the CBE-participated Guarantee Company Company (CGC). These are all very positive developments.
In addition, the CBE has issued simplified Know-Your-Customer regulations, which use only the National ID as means of identification for professionals and very small businesses opening an account. The CBE has also taken measures to ease and accelerate access to various banking products and services, while the Financial Regulatory Authority (FRA) has launched a registry of moveable collateral assets, which allows capital equipment and intellectual property to be used as collateral to support SME lending.
New regulations in the microfinance space could also ease SMEs’ credit constraints. In 2014, Egypt passed its first law to regulate microfinance services. The lending ceiling for microloans was initially capped at EGP 100 000, although the FRA has since raised the cap to EGP 242 000. As a result, the value of the outstanding microfinance portfolio has increased dramatically, reaching EGP 93.4 billion in March 2024, across both banking and non-banking financial institutions. This growth was also supported by a 2017 CBE decision to allow banks’ microfinance lending (direct or indirect) to contribute to their requirement for 20% and later 25% of their lending to be directed to SMEs. Moreover, the microfinance law permits non-banking institutions to lend to SMEs upon licensing, speeding up the application and approval process for non-bank lending to SMEs.
As shown in Figure 1.5, the value of venture capital funding received by tech start-ups in Egypt has increased considerably since 2020. By 2022, venture capital funding to tech start-ups was the second highest in Africa both in terms of the number of tech start-ups funded (131) and the volume of funding received (USD 812 million) (Disrupt Africa, 2022[17]). Public programmes such as MSMEDA’s fund of funds scheme are helping to support this growth. Moreover, to encourage banks to support the capital of funds targeting SMEs and in particular start-ups, the CBE allows banks to include contributions to these funds as counting towards the 25% share of lending they are required to allocate to SMEs.
Other alternative sources of entrepreneurial finance are also developing in Egypt, including Rotating Saving and Credit Associations (ROSCAs), crowdfunding initiatives, leasing and factoring. In line with these developments, the Central Bank of Egypt, in co-operation with the Financial Regulatory Authority, are in the process of issuing a new law to regulate alternative finance activities that will cover areas such as peer to peer lending and crowdfunding platforms, ROSCAs, and digital savings. ROSCAs and lending-based crowdfunding are also currently within the scope of the CBE’s regulatory sandbox.
Growing research spending can be a trigger for more innovative start-ups
R&D expenditure in Egypt increased from 0.3% to 1% of GDP between 2008 and 2020, although this is still below the global average (2.6%) (Figure 1.6). The number of researchers nearly doubled from 2011 to 2021, reaching 854 per million inhabitants, a level above the average of middle-income countries. Furthermore, 8 of the 25 highest ranked universities in the MENA region in terms of citations are based in Egypt (Times Higher Education, 2022[19]), and in 2021, Egypt was ranked 26th in the world in the number of published documents and 25th in the number of citations (Scimago JR, 2021[20]).
Source: (UNESCO, 2023[21])
The rise in research activity provides an opportunity to strengthen innovation-based entrepreneurship and transfer knowledge to SMEs. A key challenge for Egypt’s innovation system is to direct research being conducted in higher education institutions (HEIs) towards the market. The level of patent applications submitted by Egyptian residents was 37th globally in 2021, behind Egypt’s global ranking in the number of published documents (26th) and citations (25th) (Scimago JR, 2021[20]). Egypt’s Strategy for Science, Technology and Innovation 2030 sets out a number of priority areas for better converting R&D capabilities into innovation outcomes through the actions of the Ministry of Higher Education and Scientific Research (MHESR), the Academy of Scientific Research and Technology (ASRT), and the Science and Technology Development Fund (STDF). They include: i). building linkages between academia and industry and creating mechanisms for marketing scientific research outputs to the private sector; ii). supporting researchers to gain the skills needed to commercialise their inventions and access programmes to help them create a start-up; iii). strengthening intellectual property policies in universities; iv). increasing co-ordination among public entities responsible for supporting innovation and entrepreneurship and building awareness among researchers of available support; and v). addressing legal impediments that limit universities in conducting research commercialisation activities. Another important scheme is the NilePreneurs initiative, which is led by Nile University with funding from the Central Bank of Egypt, a number of banks, the Ministry of Planning, and others.
Educational attainment has increased
Educational outcomes have been improving dramatically in Egypt. Between 1971 and 2018, secondary gross enrolment rates rose from 26% to 83%, while between 2011 and 2018 tertiary enrolment rates increased from 27% to 39%. Efforts are now focusing on improving the quality of education, including by reducing classroom density and increasing mathematical attainment. Skills overall are not reported as a major constraint to SME development. On the other hand, there are some specific gaps. In particular, SMEs report gaps in digital skills and foreign language skills (World Bank Enterprise Surveys, 2023[4]).
Tax has been perceived as burdensome, although the MSME Development Law No. 152 of 2020 has introduced a simplified tax system
At 22.5%, the corporate tax rate in Egypt is broadly in line with the MENA average. However, the corporate tax regime is often perceived as burdensome by MSMEs. Indeed, in 2020, 26% of Egyptian businesses with 5-19 employees stated that tax rates were the biggest obstacle they faced (World Bank Enterprise Surveys, 2023[4]), with back taxes for newly formalising enterprises being a particularly challenging issue. In addition, 8.5% of businesses with 5-19 employees reported that tax administration was their greatest obstacle, a share higher than the average for MENA countries (2.7%) (World Bank Enterprise Surveys, 2023[4]). However, the MSME Law 152 of 2020 includes a number of provisions to address these issues and reduce the burden of taxation for MSMEs.
The government is reducing the impact of state-owned enterprises on competition in markets
State-owned enterprises (SOEs) play a major role in the Egyptian economy. In 2019, the total value of Egyptian SOEs’ assets represented almost half of Egypt’s GDP. SOEs receive considerable public support in the form of subsidies and exemptions from public procurement rules. As a result, SMEs and entrepreneurs can find it difficult to compete in sectors where SOEs operate.
To open up more markets to private sector development, in 2022 the government created a Supreme Committee for the Promotion of Competition Policy and Competitive Neutrality and a new department within the Consumer Protection Agency (CPA) dedicated to the promotion of competitive neutrality. These bodies are active in identifying sectors from which the state will exit in the next 3-5 years and in improving transparency by providing open access to SOEs’ financial data as well as data on the subsidies received.
The transport and energy systems are relatively strong
Transport infrastructure in Egypt is better developed than in many other middle-income economies. Egypt ranked 28th out of 141 countries in the WEF’s 2019 Global Competitiveness Index in terms of the quality of road infrastructure, 40th in terms of airport connectivity and 18th in terms of liner shipping connectivity (World Economic Forum, 2019[22]). Moreover, the share of businesses with 5-19 employees that raise concerns about access to transport is much lower in Egypt (12.5%) than in most other MENA countries (World Bank Enterprise Surveys, 2023[23]).
Fuel subsidies amounted to approximately 10% of GDP in 2021, but there has been a gradual phase out since 2014 that should lead to a complete elimination of these subsidies by 2025 (IEA, 2023[24]). This energy transition is a double-edged sword for SMEs and entrepreneurs. On the one hand, subsidies have lowered energy costs for them, but, on the other hand, they have discouraged investments in energy efficiency that could improve their long-run competitiveness. As subsidies are phased out, the government could create initiatives that support SMEs and entrepreneurs in reducing their energy consumption.
Access to commercial premises can be a constraint for MSME and entrepreneurship development in Egypt. To help address this problem, the MSME Law stipulates that 30% of available space in industrial zones, touristic areas, urban communities and reclaimed agricultural land should be allocated to MSMEs. In addition, the Industrial Development Authority has established 13 industrial complexes, spread across 12 governorates, designed specifically for SMEs and providing them with working spaces and utilities.
Policy recommendations
Reduce the regulatory burden on SMEs and entrepreneurs
Introduce a mandatory SME Test to determine the impacts of proposed regulatory or legislative changes that could impact SMEs and entrepreneurs.
Reinstate the regulatory guillotine to review, eliminate and streamline the existing stock of business regulations.
Increase the capacity of ERRADA to support public entities in conducting SME tests and regulatory simplification, drawing from OECD Best Practice Principles for Regulatory Policy (OECD, 2020[25]).
Streamline the business registration process, including by allowing companies to register without having a commercial address, providing model articles of incorporation and removing the need to use a lawyer. Consolidate the existing pool of business licenses into a smaller number of broader licenses, with a co-ordinating body acting as a single point of contact for license applicants and a centralised online platform for MSMEs to submit and track multiple applications for different licenses.
Expand access to and eligibility criteria for the incentives in the MSME Law to ensure that start-ups can also benefit. Intensify outreach activities to raise awareness and uptake of the MSME Law incentives, including through the use of trusted entities as implementation partners.
Alleviate financing challenges
Increase the provision of capacity building and training to commercial banks to better understand and serve the needs of SMEs, building on the initiatives of the Egyptian Banking Institute.
Launch the e-Know-Your-Customer platform (currently under development by the CBE) in order to streamline banking procedures.
Strengthen R&D exploitation through SMEs and entrepreneurship.
Establish an entity responsible for evaluating universities and research institutions, with “third mission” activities integrated into evaluation criteria and incentives, including promotion of entrepreneurship and knowledge transfer to SMEs.
Remove legal obstacles faced by researchers in commercialising research, including restrictions on enterprise creation and the lack of a clear intellectual property framework.
Address skill shortages
Expand mentoring and advice to SMEs and entrepreneurs to support them in identifying skills gaps and appropriate training offers to address these gaps., building on the entrepreneurship training, mentoring, and consulting services offered by MSMEDA as well as other initiatives such as the CBE’s NilePreneurs programme.
Level the competitive playing field
Implement a comprehensive competitive neutrality framework, with concrete methodologies and mechanisms to calculate and fully offset the regulatory, tax, pricing and financing advantages that SOEs benefit from. The provisions in the framework should regulate all commercial activities conducted by government entities, including those conducted by government entities that are not registered as enterprises.
Egypt’s policy framework for SME and entrepreneurship development is guided by Egypt Vision 2030 and the MSMEs Development Law of 2020
SME and entrepreneurship policy in Egypt is guided by the Egypt Vision 2030 National Development and Sustainability Plan and the Micro, Small and Medium Enterprises (MSMEs) Development Law Number 152 of 2020 (the MSME Law).
The Egypt Vision 2030 plan presents the key objectives and strategies for the development of the national economy. It includes several actions for SME and entrepreneurship policy, such as encouraging innovation and entrepreneurship, promoting e-commerce and export activity among SMEs and developing SME-inclusive industrial clusters. These actions are to be implemented through a range of activities by different ministries and agencies of government and other partners in co-ordination with MSMEDA. The vision is a very effective document in setting the high-level strategy into which SME and entrepreneurship policy fits.
The MSMEs Development Law entered into force in July 2020, replacing Law No. 141 of 2004. It improves the legal framework along multiple lines. This includes tightening the definition of micro, small, and medium enterprises, newly established enterprises (start-ups), entrepreneurial enterprises, and informal economy enterprises. This clarifies eligibility for various policy supports. In addition, the Law mandates that the public budget allocated to SME and entrepreneurship policy support should be between EGP 1.5 billion and 0.3% of GDP. This sets a clear guideline for the overall policy effort that should be devoted to this area. In addition, the MSMEs Development Law provides a set of tax and non-tax incentives for micro enterprises and SMEs, simplified licensing procedures for new-established MSMEs, quotas and financial incentives for land allocation for MSMEs, quotas and procedures for government procurement from micro, small and medium enterprises, and temporary licensing for formalising enterprises.
The Law advances SME and entrepreneurship policy on many fronts, yet some aspects could be further strengthened. For instance, the source of funding to be allocated to SME support could be specified more explicitly, and a monitoring or tracking system could be established. Better definitions of the governance mechanisms to enforce the Law’s implementation and an annual reporting system could also be included.
Building on Egypt Vision 2030 and aligning with the sustainable development goals, MSMEDA is currently working with all concerned parties on developing a new National MSME Strategy (replacing the 2017-2022 national strategy), which will provide a road map for the healthy development of the sector.
It is important to finalise and implement this new strategy and in doing so to take account of key new issues that have emerged since the previous strategy, such as changes in the domestic and international context, the updated Egypt 2030 plan. This strategy should also have an expanded thematic focus, including a stronger emphasis on the twin green and digital transitions, innovative start-ups and SMEs’ export activity. It should also align policy measures with the various identified target groups, and outline the specific mechanisms for co-ordinating implementation of the strategy and operational plan.
Policy co-ordination can be further reinforced
MSMEDA is the designated entity responsible for MSME development in Egypt and plays a key role in the co-ordination of SME policies across government. Established in 2017 (replacing the Social Fund for Development established in 1992), MSMEDA is under the direct supervision of the Prime Minister with the mandate to design, execute and co-ordinate SME and entrepreneurship support programmes, monitor and evaluate the MSME sector’s performance, and implement the MSME Law 152/2020. It also has oversight of regulations affecting MSMEs and entrepreneurship. MSMEDA is not funded by the government budget. Its operational funding is based on the revenue from its one-stop-shop services and interest earned from its lending activity. Its programme funding is dependent on grants and credit lines from international co-operation partners.
A Permanent Entrepreneurship and Start-ups Unit, established in the Prime Minister’s Office in 2023 to improve conditions for start-up companies and their growth, also has important responsibilities for SME and entrepreneurship policy. The Permanent Unit, led by the General Authority for Investment and Free Zones (GAFI), and involving representatives from a range of ministries and agencies, including MSMEDA, is tasked with proposing appropriate policies, laws, and regulations to create a conducive environment for start-ups in Egypt.
The horizontal nature of the MSME and entrepreneurship policy, however, implies that multiple other institutions also take part in at least some aspects of policy design or implementation. In Egypt, these include the Ministry of Communications and Information Technology (MCIT), the Ministry of Higher Education and Scientific Research (MHESR), the Ministry of Education and Technical Education, the Ministry of Planning, Economic Development and International Co-operation, the Ministry of Manpower, the Ministry of Social Solidarity, the Central Bank of Egypt (CBE), the Financial Regulatory Authority, the Ministry of Finance, the Egyptian Regulatory Reform and Development Activity (ERRADA), the National Council for Women (NCW), the Ministry of Industry, the Ministry of Investment and Foreign Trade, GAFI, the Ministry of Local Development, and also the private sector. The activities of the Egypt Entrepreneurship and Innovation Centre (EEIC), within the Ministry of Planning, Economic Development and International Cooperation, which work towards building an integrated and inclusive entrepreneurial ecosystem in the national economy through education and training, entrepreneurship awareness campaigns, business incubators, and capacity building for government officials, must also be considered.
Given the large number of entities involved in MSME and entrepreneurship development, cross-government co-ordination is necessary. It is also important to strengthen consultation with private sector and non-government sector stakeholders for policy development purposes. MSMEDA has a dual role of both policy delivery and policy co-ordination in the Egyptian SME policy system. However, to date, its organisational structure reflects a much stronger emphasis on the former than on the latter. MSMEDA Head Office is well-structured for delivering its own corporate strategy and implementing policy measures over which it has organisational control (e.g. programmes and services of the MSMEDA Regional Offices and one-stop shops). However, its capacity to fulfil a policy co-ordination role is still developing, and it is currently limited by resource constraints. The leadership and co-ordination of SME and entrepreneurship policy in Egypt can be further strengthened by reinforcing MSMEDA’s policy co-ordination and policy monitoring functions.
SMEs need guidance in identifying relevant programmes
Different agencies are responsible for the delivery of SME and entrepreneurship support programmes in Egypt:
Business support services are delivered by the MSMEDA regional offices and one-stop shops, the CBE’s network of Business Development Support Hubs, the Women Business Development Centres, GAFI’s Investor Services Centre and one-stop shops, and the Industrial Modernization Centre (IMC).
Innovation and technology supports are delivered by the Technology and Innovation Centres of the Ministry of Industry, the Technology Innovation and Entrepreneurship Centres of the Ministry of Communications and Information Technology, and the Academy of Scientific Research and Technology, the Science, Technology and Innovation Funding Authority and the Innovators Support Fund of the Ministry of Higher Education and Scientific Research.
Support for SME exporters is delivered by the Export Development Authority. This is complemented by the activities of the Egyptian Exporters Association (EEA), the Foreign Trade Training Centre of the Ministry of Investment and Foreign Trade and MSMEDA, which has recently established an Export Department.
Financial supports to SMEs and entrepreneurs are delivered by the Credit Guarantee Company, MSMEDA, Egypt Ventures (an investment arm of the Ministry of Planning, Economic Development and International Cooperation), the NCLUDE Venture Fund, and other venture capital funding initiatives such as the MSMEDA Fund-of-Funds programme.
Support for incubators and accelerators is mainly delivered through the Technology Innovation and Entrepreneurship Centres (MCIT) and the Academy of Scientific Research and Technology (ASRT) under the Ministry of Higher Education and Scientific Research (MHESR), which supports a number of university-based incubator programmes. There is scope to expand their coverage across the country and increase their networking.
This represents a relatively fragmented system of support. MSMEDA is therefore in the process of expanding its online portal (www.msme.eg) beyond its own services and programmes to include information on all authorities offering financial and technical assistance to SMEs, including government bodies, banks, and NGOs. This is an important first step, yet more must be done to increase awareness among SMEs and entrepreneurs and to improve the targeting of existing programmes.
MSMEDA’s policy monitoring capacity of its programmes is well developed but more impact evaluations are needed
MSMEDA undertakes relatively sound and systematic monitoring of its own SME and entrepreneurship programmes, especially when conducted through its regional offices. It collects output performance indicators regularly, such as the number of programme participants and budget expenditures. Programme-level results are also reported to the central office of MSMEDA on a weekly, monthly and quarterly basis, depending on the programme. Findings are also communicated to the MSMEDA Board of Directors and to the Prime Minister by way of summarised annual achievement reports.
There is, however, less centralised information available on SME and entrepreneurship policy expenditures and activities across the different ministries and government agencies. A portfolio analysis of policy expenditures and activities, which shows the policy effort across different types of firms and types of policy intervention would be very useful in helping to steer policy towards national strategic objectives.
Furthermore, policy impact evaluations have so far taken place on a limited scale, and have been put in place mainly for programmes delivered by international donors. Impact evaluations are rare for interventions managed by the Egyptian government.
Policy recommendations
SME and entrepreneurship policy framework
Establish a mechanism for monitoring the implementation of the MSMEs Law and the take-up of its various incentives.
Finalise and implement the new National MSME Strategy, with full consultation and input from other ministries and agencies on policy objectives and targets and reflecting new challenges and priorities including digitalisation and greening, and evolving developments in innovation, trade, and technological opportunities for start-up entrepreneurs and growth-oriented MSMEs.
Policy co-ordination and monitoring mechanisms
Ensure appropriate staffing and resources within MSMEDA’s new Central Sector for Policies and Legislation for policy co-ordination, policy monitoring, and annual reporting on implementation of the new MSME strategy.
Establish a system in MSMEDA for ensuring full co-operation of ministries and agencies in the implementation and monitoring of the new MSME strategy, such as formation of a Technical Working Group, or assignment of SME and entrepreneurship “focal points” in each of the implicated ministries and agencies.
Policy dialogue with the private sector and stakeholders
Establish an MSME Advocacy Group that is inclusive of SME associations, such as the Young Entrepreneurs Network, the Federation of Egyptian Chambers of Commerce and the Federation of Egyptian Industries, in order to formalise and regularise dialogue with the private sector.
Policy portfolio analysis
Adopt a policy portfolio analysis approach in budgeting and monitoring of MSME and entrepreneurship policy measures and actions.
Policy delivery arrangements
Achieve complementarities and synergies in delivery of business support by co-locating BDS Hubs in the MSMEDA Regional Office locations.
Develop a national business incubator and accelerator policy that seeks to provide guidance on government-operated or supported incubator programmes and encourage the establishment of incubators in Egypt’s regions.
MSMEDA to continue to work co-operatively with other ministries and agencies to fully develop a comprehensive and all-inclusive MSME policy and programme web portal.
Monitoring and evaluation
Undertake monitoring and evaluation of the SME and entrepreneurship policy agenda.
Implement a data collection system with harmonised definitions, indicators and reporting mechanisms, in order to improve data availability for monitoring and impact evaluations.
Prepare an annual report on the implementation of the MSMEs Law, with inputs from the relevant ministries and programme administrators.
Financing programmes
The banking sector is a key source of financing for MSMEs. The ongoing regulatory efforts of the Central Bank of Egypt to induce Egyptian banks to lend more to MSMEs, as well as the influx of credit lines to banks from international financial institutions for on-lending to MSMEs, has led to increases in bank lending to MSMEs. Despite this, less than 10% of all Egyptian SMEs currently receive loans from banks and many MSMEs are not able to satisfy the requirements for bank financing (CGC Egypt, 2022[26]).
The main government initiative to increase MSMEs’ access to credit is the loan guarantee programmes offered by the national Credit Guarantee Company (CGC). Medium-sized enterprises are currently in receipt of approximately 70% of the outstanding CGC guarantees. To further support access to credit for smaller firms, the CGC has developed two programmes specifically targeting micro and small enterprises. First, the Small and Emerging Businesses programme offers wholesale guarantees to microfinance institutions (MFIs). The wholesale model provides a guarantee-umbrella for financial institutions lending to MFIs. This, in turns, enables MFIs to create a portfolio of microloans together with technical assistance. Second, the Small and Medium Enterprises (SME) programme provides loan guarantees to new and existing SMEs and uses a digital platform to connect SME borrowers with banks.
The microfinance sector has seen substantial growth in recent years. However, the vast majority of the microfinance entities lack operational efficiency, scale and sustainability. Upgrading of the Category C NGOs (the smallest microfinance entities) is underway, supported through a CBE programme that has been developed in collaboration with the IFC, the FRA and MSMEDA and delivered by the Egyptian Microfinance Federation (EMF). This aims to improve the capacities of Category C microfinance institutions by offering training and follow up support to improve their professionalism and governance structures.
MSMEDA is a source of lending to MFIs for relending to micro and small enterprises. MSMEDA also provides direct lending to unbanked and/or underserved formal MSMEs and start-ups, offering loans of up to EGP 30 million. As of 31 December 2022, MSMEDA reported an outstanding direct lending portfolio of EGP 2.1 billion, spread across 9 719 borrowers.
Egypt is home to a developing venture capital sector, the growth of which has been supported by government initiatives including the launch of Egypt Ventures in 2017 – a firm which invests in accelerators and co-invests in high-growth potential start-ups and smaller enterprises. In addition, a Fund of Funds scheme, launched by MSMEDA and sponsored by the World Bank, is attracting significant volumes of private venture capital investment to support start-ups and early-stage enterprises.
Angel investment is also present in the country, led by private initiatives or networks such as Cairo Angels, AUC Business Angels, Alexandria Business Angels and Hult Alumni Angels. There are currently no government programmes focused on this segment. However, MSMEDA is currently working on a set of programmes to support the scaling up of business angel investing in Egypt.
Access to leasing and factoring is also developing, and MSMEDA is providing credit lines to leasing and factoring companies to encourage them to expand their offer to MSMEs and entrepreneurs.
Innovation programmes
One of the main types of government programme to support SME innovation and innovative start-ups in Egypt is the development of innovation hubs and clusters, which offer a range of services in a single location. The Technology Innovation and Entrepreneurship Centre (TIEC) has been active in this space mainly through the Innovation Cluster Initiative (ICI) and the Community Innovation Hubs (CIH). The ICI aims to create a network of universities, private companies and entrepreneurship centres across technology parks in second tier cities. Two clusters have been created using this model so far: the Alexandria Innovation Cluster (Borg Al Arab Tech Park) and the Assiut Innovation Cluster (Assiut Tech Park). The CIH offers co-working spaces to test ideas and commercial potential, as well as mentoring, networking, workshops, venture demos, and product launch services.
Egypt also has a set of innovation funding programmes, which are delivered by three entities in the Ministry of Higher Education and Scientific Research (MHESR). The Academy of Scientific Research and Technology (ASRT) provides grants to support early-stage research up to Technological Readiness Level 3. The Science and Technology Development Fund (STDF) finances scientific research and technology development. The Innovators Support Fund (ISF) invests in scaling promising enterprises, with a special focus on supporting the commercialisation of R&D output and improving the entrepreneurship skills of researchers. It also works with universities’ technology transfers offices to establish licensing or royalty agreements with researchers.
There are also technical support, training and capacity building programmes for innovation development. InnovEgypt is a 30-hour training programme initiated by the TIEC, directed at university students and graduates in ICT specialisations with aspirations of becoming future innovators and entrepreneurs. In addition, the Huawei Spark Programme was launched by the Information Technology Industry Development Agency (ITIDA) and offers opportunities for tech-driven start-ups to enter new markets and widen their client reach, providing training and knowledge in fields such as artificial intelligence, data management, gaming, and e-commerce. Another example is the MHESR’s Researcher to Entrepreneur programme, which trains researchers in universities on the skills needed to turn their scientific and technical research into viable ventures. In addition, the NilePreneurs initiative has launched the “Innovation & Design Technologies” programme, which is an innovation consultancy and R&D as a Service entity that is supported by a consortium of sponsors. Through three different programmes, it provides a range of services, including consultancy, new product development, product re-engineering, prototyping, and production.
Overall, there is a range of different actors and programmes supporting SME innovation and innovative start-ups. More co-ordination could increase coherence and accessibility across the system. There is also scope to increase the emphasis on programmes to support innovation among typical SMEs, alongside the programmes directed more towards innovative start-ups.
Incubator and accelerator programmes
There are several government-sponsored incubators and accelerators. The largest system is the ASRT’s National Programme for Technological Incubators (INTILAC). Launched in 2013, it provides financial support for the establishment of incubators and seed funding for start-ups working on a technological idea or innovation in incubators. The start-ups that are accepted onto the programme receive working spaces, entrepreneurship training, technology validation, prototype financing, technical support, ecosystem networking, and seed funding of up to EGP 200 000 per project. There are various other public-led incubators, for example those supported by the Technology Incubators Programme, under the STDF and those supported by the Ministry of Planning, Economic Development and International Cooperation. Meanwhile, the NilePreneurs Incubate Programme seeks to tap into the potential of young people to start innovative enterprises through pre-incubation programmes and full-scale business incubators in targeted areas of technology and innovation development.
There is also an important set of private sector accelerators and incubators targeting the technology sectors and a growing base of university incubators in Egypt. Some of the university incubators are quite strong, such as the Venture Lab (V-Lab) at the American University in Cairo’s (AUC) School of Business, while many others lack know-how and are in need of capacity building to improve their performance and impact. To further stimulate the university and research incubator sector, Law No. 23/2018 enables universities, research centres and other public entities to obtain support to establish incubators or companies that promote innovation-based research. Under the Law, incubators are exempt from VAT, customs duties on the purchase of equipment and other taxes.
There are important potential benefits from increasing co-ordination in the incubator system. This can be achieved through the introduction of measures for sharing good practices across incubators, as well as capacity building supports to help develop the competencies, services and management methods of incubators and their staff.
Internationalisation programmes
The Ministry of Industry, the Ministry of Investment and Foreign Trade, the Export Development Authority (EDA), the IMC, MSMEDA, the Ministry of Finance, the NilePreneurs Initiative and sector Export Councils all contribute to the provision of export development and internationalisation support to Egyptian SMEs. A notable example is the Ministry of Finance’s Export Support (Rebate) Programme, which incentivises exporting by reimbursing certain expenses of exporting firms and offering an additional 1% to 2% rebate to SMEs that have signed commercial deals abroad.
A recent agreement between the Ministry of Planning, Economic Development and International Cooperation, the Egyptian Exporters Association, and the Foreign Trade Training Centre (FTTC) is strengthening cross-governmental co-ordination in this area. This agreement established the creation of the Export Academy, a unified entity for training exporters and providing export advisory services. However, there is still scope for further steps to strengthen co-ordination in this policy area.
Another recent development is the formalisation of a co-operation protocol agreement between the IMC and the Export Development Bank of Egypt (Ebank). Under the agreement, Ebank will support industrial exporters through financing programmes, with special attention to SMEs and green economy projects. Also important is the establishment of the Egyptian Export and Investment Guarantee Agency, under the Central Bank of Egypt, which will co-operate with banks and financial institutions to provide financial services and financing for Egyptian exports and investments abroad.
Business development services programmes
The delivery of business development services (BDS), including information, advice, consultancy and mentoring, is distributed across many public institutions in Egypt, each one targeting subgroups of the SME and start-up population, according to their particular mandate and objectives.
MSMEDA is a major BDS provider, leveraging its large network of regional offices to provide information, basic guidance and advice, entrepreneurship training, and technical support to SMEs and start-ups. In addition, the CBE supports a network of 116 NilePreneur BDS Hubs, which provide a wide range of information, advisory and counselling services. TIEC provides one-to-one consultancy services to registered start-ups and SMEs in the IT sector, while the IMC is a major BDS service provider to manufacturing enterprises.
Other prominent entities offering mentoring or advice include the Rowad 2030 Start-up and Business Clinics, GAFI’s Entrepreneurship Development Unit, the IMC, the Ministry of Trade and Industry’s Technology and Innovation Centres, and the NCW’s Women Business Development Centres.
Digital platforms are increasingly offering online BDS. Although not yet fully developed in Egypt, online platforms can enable SMEs to match with and access remotely an appropriate advisory or training service. This helps to overcome problems of remoteness and strengthens the density of the support available. MSMEDA is taking the lead in enhancing the supply of digital BDS by creating an electronic platform that gathers information on all available SME support services and programmes provided by government agencies, institutions and supporting bodies.
The organic approach to developing the BDS system offers a large variety of alternatives, but comes at the expense of coherence, transparency, and inter-connectedness. It also reduces the visibility and therefore take-up of the BDS offer to SMEs. MSMEDA’s new digital platform may help with bridging this awareness gap.
Entrepreneurship education and training programmes
The promotion of an entrepreneurial culture in Egypt is not yet well integrated in the school curricula. However, several new large-scale initiatives are starting to address this. The “Ebdaa Mustakbalak” (Start Your Future) project (which was part of the Rowad 2030 initiative) is one of the largest entrepreneurship awareness-raising campaigns. It has reached more than 300 000 school students in 27 governorates and trained around 1 250 teachers and public mentors in entrepreneurship.
Technical secondary education is also contributing to developing entrepreneurial mindsets and skills by exposing students to knowledge on starting an enterprise and by offering training to instructors in delivering the ILO’s Know About Business (KAB) curriculum and providing career guidance for students.
At the higher education level, the MHESR’s new strategy steers all universities to establish an entrepreneurship and innovation centre. Several universities have already integrated entrepreneurship courses as part of their curricula in certain faculties, and entrepreneurship-related extracurricular activities such as entrepreneurship clubs exist in most universities.
Progress has also been made on entrepreneurship training outside of formal education. NilePreneurs offers the Professionals programme, which is a technical and non-technical upskilling capacity building solution for university students, recent graduates, postgraduates, career builders and entrepreneurs. Meanwhile, programmes offered by international organisations such as the ILO and Egyptian public entities such as MSMEDA and the TIEC have reached tens of thousands of Egyptians over the years. The use of online platforms and Massive Open Online Courses (MOOCs), some of which are free, are further expanding the availability of training and entrepreneurship-related educational content.
SME skills upgrading programmes
Workplace-based training is limited in Egypt’s SMEs and the government focuses mainly on supporting the employability of unemployed and marginally employable individuals. As a result, programmes for SME employees are confined to some forms of information and guidance and partial incentives to SMEs for training of their workers (provided for by the MSME Law). A national programme that supports SMEs in upgrading the skills of their workers is not in place. Only some narrower initiatives exist, such as the IMC’s Creative Egypt Programme, which focuses on developing the skills of Egyptian artisans.
Public procurement programmes targeting MSMEs
Egypt’s government expenditure on goods and services is a large market representing about 18% of GDP (Open Contracting Partnership, 2020[27]). It is, however, a market that MSMEs struggle to access. Some of their main challenges include difficulties in obtaining timely information about opportunities, high administrative costs for bid applications, large contract sizes, high standards requirements, and a bias in selection towards established large suppliers.
To help overcome some of these barriers, Egypt’s New Public Procurement Law 182/2018 seeks to provide better conditions for SMEs to compete in the procurement process. It states that at least 20% of the value of procuring entities’ purchases must be awarded to SMEs, and in addition, provides that local tenders below EGP 2 million are reserved for SMEs located in the governorate. The MSME Law 152/2020 builds on this by stating that 40% of public procurement contracts are to be awarded to SMEs (20% to micro and small enterprises and 20% to medium enterprises). However, experiences in other countries reveal that establishing targets for awarding procurement contracts tends to fall short of expectations. Better results can be achieved by making public procurement opportunities more accessible for SMEs, including by providing instructions for SMEs on how to access and prepare proposals for tender bids and by building the capabilities of SMEs to meet the requirements for becoming qualified bidders.
Inclusive entrepreneurship programmes
In general, business regulations and support programmes are gender-neutral in Egypt. However, the government has recently introduced specific programmes that support women entrepreneurs, sometimes in collaboration with international donors. One example is NilePreneurs, which offers a bundle of financial and non-financial supports for women entrepreneurs. Several ministries and agencies also support women entrepreneurs, notably MSMEDA, the National Council for Women (NCW), the Ministry of Communications and Information Technology and the Central Bank of Egypt. These supports include training schemes, financial support, matchmaking with angel investors, and exhibitions to showcase products and services. To meet the objectives on gender and inclusion of the Egypt Vision 2030, these initiatives could be reinforced by introducing an overarching women entrepreneurship strategy and by strengthening the role of MSMEDA in monitoring gender equality in entrepreneurship and entrepreneurship programmes. Moreover, support for other under-represented groups of entrepreneurs could be strengthened by, for example, building a network of youth and women’s entrepreneurship champions to raise awareness and create a more positive perception of entrepreneurship.
Green entrepreneurship and SME greening programmes
To contribute to the strategic objectives of the Egypt National Climate Change Strategy (NCCS) 2050, MSMEDA is supporting young people to establish environmentally-friendly enterprises in innovative sectors through its Environmental and Social Conservation Strategy. The strategy promotes MSMEs that contribute to mitigating or adapting to climate change impacts in the industrial, commercial, water conservation, energy efficiency and agriculture sectors.
While there are important ongoing efforts to improve SME regulations in Egypt, there remain certain regulatory barriers that hinder the development of green enterprises. For instance, it can be challenging for SMEs to obtain licenses to operate in the recycling or biofertilizer sectors. Moreover, an inadequate enforcement of environmental regulations tends to reduce the competitive advantage of green SMEs and entrepreneurs vis-à-vis other, less sustainable firms operating in the market (Euro-Mediterranean Economists Association, 2023[28]). Regulations in this area need to be developed in a way that is sensitive to MSMEs.
There is not yet a systematic policy in Egypt that supports and incentivises SME greening and green entrepreneurship, although some programmes are in place. For instance, the Inclusive Green Growth in Egypt (IGGE) initiative provides technical assistance to service providers and financial institutions that support green SMEs in agriculture, food production, waste management, and sustainable energy sectors in the governorates of Luxor and Qena. In the financial sector, some of the largest banks in Egypt offer green financing facilities to all firms, including SMEs and entrepreneurs. The reach of these types of initiatives needs to be expanded across the country. New measures such as a digital diagnostic tool for SMEs on their greening and energy efficiency should also be implemented.
Policy recommendations
Financing programmes
Review the capitalisation base of the Egyptian Credit Guarantee Company (CGC) with a view to considering how an increase could increase the supply of credit among micro and small enterprises.
The CGC to hold consultations with MSMEDA, GAFI, the banking institutions and other relevant stakeholders to discuss diversification of its guarantee product offerings to better align with the special financing needs of innovative start-ups and SMEs and better match government priorities to stimulate innovative start-ups, SMEs in priority sectors, e-commerce/digitalisation, SME greening etc.
The CBE to advance its work on studying the issuance of licensing of Tier II banks as MSME Banks and to deliberate further with the FRA to deliberate on the merits of allowing conversion of microfinance companies to deposit-taking MicroBanks.
MSMEDA to create more awareness among SMEs of the merits of leasing options for the purchase of capital equipment and of factoring services to improve their cashflow, and create awareness among leasing and factoring companies of the growth potential from targeting SME clients.
The CBE and FRA to continue with the next phase of improving efficiencies of more of the Category C microfinance NGOs through capacity building and oversight on their ability to meet regulatory requirements.
Introduce tax incentives to private investors and venture capital firms to reduce their risks in investing in new start-ups and early-stage enterprises.
Support the establishment of a network platform to create linkages between angel investors and venture capital firms to foster the flow-through of investee enterprises from the seed stage (angel investment) to the next stage of investments from venture capital funds. These actions would aid in addressing gaps in access to equity financing and the ability of start-ups and young firms to move more readily to the larger rounds of financing.
Innovation programmes
Improve cross-government co-ordination of innovation support programmes.
Increase the focus on the innovation activities of existing SMEs.
Establish comprehensive support to spin-offs in universities and research centres, including entrepreneurship training and mentoring and support in the areas of IP, legal procedures, accounting, and market research, potentially drawing inspiration from the Leuven R&D programme in Belgium (OECD, 2025[29]).
Incubation and acceleration programmes
MSMEDA to collaborate with the ASRT, the CBE, the Ministry of Planning, Economic Development and International Cooperation, the MCIT, NilePreneurs, and the AUC Venture Lab on the formation of an Egyptian Business and Technology Incubator and Accelerator Association/Network.
MSMEDA to partner with the key ministries and agencies to begin the process of mapping the various incubator programmes and making this information publicly available in order to create more transparency about the availability of these programmes to aspiring entrepreneurs.
Improve the competency levels of Egyptian incubators by working with experienced incubators to develop a set of standards and certification processes for incubators at different levels of development that ensures quality while still facilitating innovation within incubators.
Promote greater awareness of the NilePreneurs Incubator Management Bootcamp programme as a vehicle for building the capacity of incubator managers and staff.
SME internationalisation programmes
Improve the level of co-ordination between the numerous entities supporting export development activity and the focus on SME exporters by creating an integrated Support Centre for SME Exports with an online presence and links to the programmes and services of all export support agencies.
Improve the hand-off of SMEs participating in export training programmes to other programmes to assist them in achieving their export goals.
Design and implement special export and supply chain financing schemes for SMEs to be delivered through the banking system.
Business development services programmes
MSMEDA to adopt and implement a BDS Strategic Action Framework, with specific priority given to:
Conducting a demand survey of MSMEs regarding their use of business advisory and training services to foster a better understanding of the demand for and use of BDS services and the barriers to access.
Implementing an initiative to increase the supply of qualified consultants/advisors who are able to deliver basic consulting services to MSMEs and to otherwise build the capacity of BDS providers, such as a training and certification programme.
Implementing a national BDS platform to promote matching of BDS providers and MSMEs (to include a locational map of BDS providers and the services offered).
Promoting the use of an online diagnostic tool, such as the Business Lens, to help MSMEs identify their critical BDS needs and areas for improvement.
Establishing a cost-shared voucher scheme to augment MSME demand for consultancy services.
Creating an organisational structure within MSMEDA to carry out its functions as a facilitator and co-ordinator of quality BDS services.
MSMEDA to work with Regional Offices to design and implement a roster of qualified business advisors and trainers for use in the provision of local BDS services.
Expand the CBE qualification of business advisors beyond its use for the BDS Hubs, in co-operation with the Egyptian Banking Institute and the ILO.
MSMEDA to work co-operatively with the CBE BDS Hubs to encourage the formation of a national association of MSME business advisors and consultants.
Entrepreneurship education and training programmes
Give due consideration to integrating an entrepreneurship curriculum as a component of all TVET programmes.
The MHESR to commission a baseline study of the state of entrepreneurship education in all universities in Egypt.
Expand opportunities for Egyptians to gain entrepreneurship skills through availability of online training programmes, with appropriate follow-up support to persons completing the training.
SME skills upgrading programmes
Implement a skills training network addressing the training needs of SMEs and their workers.
Introduce a training voucher to be used by SMEs to secure training to upgrade the skills of their workers from training providers.
MSMEDA to negotiate a partnership with the ILO to implement the SCORE Programme to larger small and medium enterprises through co-operation with other government entities, such as the Industrial Modernization Centre.
Public procurement for SMEs
Apply the Public Procurement Law regarding SME procurement to state-owned enterprises.
The General Authority for Government Services (GAGS) to implement more conducive procurement rules to facilitate the participation of MSMEs in the procurement process, such as dividing contracts into smaller lots to make tenders more accessible to MSMEs, implementing an advance payment system for a certain percentage of the contract value, negotiating partnerships with public banks to provide loans to MSMEs so they are more able to fulfil the contract requirements, and meeting with MSMEs on a regular basis to provide information on public procurement opportunities and how to comply with the tendering and bidding processes.
MSMEDA to adopt more proactive approaches to prepare SMEs for the public procurement process, which could include a programme to build their capacity to compete as qualified suppliers.
Inclusive entrepreneurship programmes
Develop a women’s entrepreneurship strategy within the renewed national MSME development strategy that is under development, outlining the related targeted actions under each pillar of the strategy. The targeted actions should include the digitalisation of women-owned/led MSMEs and the greening of their businesses. This should be done jointly by MSMEDA and NCW.
Provide training to MSMEDA senior managers, policy officers and programme managers on gender issues so that all new initiatives are designed to be gender-sensitive.
Introduce more business development support for high-potential women entrepreneurs as the current support system is predominantly aimed at lower-income businesses. This should include, for example, leadership training and networking.
Build networks of women’s and youth entrepreneurship champions to help increase awareness about the potential of entrepreneurship to shift social attitudes, notably among important role models such as teachers and parents.
Green entrepreneurship and SME greening programmes
Introduce a digital diagnostic tool for SME greening as part of MSMEDA’s supporting offering, and added to the MSMEDA online platform. The tool should allow SMEs to benchmark their environmental performance against peers and identify concrete actions that can be taken to improve performance, with links to available supports.
Include specific policy measures (with objectives, targets, KPIs and responsible entities) relating to the promotion of SME greening and green entrepreneurship in the new National MSME Strategy (potentially including the green transition as a separate thematic pillar of the strategy).
MSMEDA to work with ERRADA to map i) regulations that inhibit SMEs’ and entrepreneurs’ activities in the green economy, and ii) environmental regulations where more effective enforcement is needed, identifying actions for facilitating more green activities and achieving greater enforcement of environmental regulations.
Conditions for MSME and entrepreneurship development vary spatially within Egypt
There are significant differences in conditions for MSME and entrepreneurship development across the governorates of Egypt. Some 46% of business establishments are in the five most populous governorates (Cairo, Giza, Dakahliya, Alexandria and Sharqeia), while the five least densely populated regions (South Sinai, North Sinai, New Valley, the Red Sea and Matrouh) host only 2% of Egypt’s establishments.
Among the urban centres, Greater Cairo accounts for over 42% of Egypt’s GDP. There is a high degree of variation in economic structure within Egypt. Cairo and Giza are the only governorates where the services sector makes up more than half of the economy (Ministry of Planning and Economic Development, 2023[30]). In the Suez governorate, the manufacturing sector makes up 33% of economic output, while in North Sinai and Matrouh, 77% and 72% of local GDP are related to the extraction and refinement of petroleum. Meanwhile, in Kafr El Sheikh, the New Valley and Beheira, the agriculture sector accounts for about 50% of local GDP.
Standards of living also vary significantly between governorates, ranging from EGP 530 779 per capita in South Sinai to EGP 19 416 in Sohag. There are also marked economic disparities within governorates. For instance, in the prosperous South Sinai, the oil production and coastal tourism activities benefit only a relatively small share of the population, while 34% of residents are unemployed and 52% live below the poverty line. Even in the capital, Cairo, the unemployment rate is 13.7%, almost twice the national average of 7.4%.
The availability and costs of sites and premises also vary. In some Industrial Zones (IZ), such as Dakahliya, limited space and rises prices prevent existing SMEs from expanding and new companies from locating in the IZs. Business development services are also unevenly distributed across the country, with Cairo being one of the better served areas with respect to business development services for SMEs (Mansour et al., 2018[31]). In terms of available data, the three areas with the most conducive regulatory conditions for starting a business are Alexandria, Cairo and Giza (World Bank, 2014[32]). MSMEDA has also signed protocols to support MSMEs within some of the economic zones, for example the Suez Canal.
MSME and entrepreneurship development policies should be sensitive to local differences
The differences between the governorates imply different barriers to MSME and entrepreneurship development and a need for differentiated priorities in policy interventions.
One of the issues is the distribution of the effect of inflation, interest rates, currency devaluation, and other macroeconomic factors across regions. For example, rising energy costs are problematic for all SMEs, but the impacts are greater for industrial SMEs. The impacts of these macroeconomic changes therefore tend to be greater in governorates where the industrial sector constitutes a larger share of the economy.
Informality also affects regions unevenly. The incidence of informality is greater in sectors such as agricultural and food products or handicrafts, which also tend to be geographically dispersed. At the same time, the strength of local entrepreneurial culture varies across regions. In some places, such as agricultural regions, people prefer to work for a relatively large public sector employer that provides stable incomes, rather than being self-employed or working in the riskier private sector. There are also important skills divides between regions. In low skilled regions, these differences can affect the local capacity to innovate or even copy new business models in low value-added services trade activities, such as cafes or mobile phone outlets.
A further challenge for the local implementation of SME and entrepreneurship policies is the political economy of resource allocation. For instance, upgrading and moving SMEs and entrepreneurs into higher value-added economic activities may contribute to national economic objectives and growth, but it could favour the relatively more dynamic areas of the country. In less economically vibrant areas, instead, SMEs policies are less likely to be cost-effective, but there can be political reasons to sustain low value-added activities that generate job opportunities and incomes for local households. Striking a balance between national priorities and local social needs presents political trade-offs that hinder regional SMEs’ development.
Achieving inclusive and sustainable growth and balanced regional development is one of the key pillars of the National Sustainable Development Strategy: Egypt Vision 2030, which is based on the principle of “leaving no one or place behind”. This means that sustainable development must include all groups and places without any discrimination. In 2019, the Egyptian government, represented by the Ministry of Planning, Economic Development and International Cooperation, in partnership with the United Nations Population Fund (UNFPA), prepared a report to localise the sustainable development goals (SDGs) for each governorate, with a total of 27 reports covering all governorates. Targets were set at the governorate level for 32 SDG indicators, helping to ensure that local authorities can participate actively in the delivery of the SDGs based on their current situation. Levelling up economic activity across regions is also an objective of the national Decent Life initiative, which aims to develop the 1 400 poorest villages in 20 governorates. MSMEDA currently heads the employment committee within this initiative and contributes to activities to support local industry, stimulate the development of upper Egypt, and accommodate refuges, among other things.
Key for MSMEDA is ensuring that the local dimension of SME and entrepreneurship development is integrated into governorate strategies and plans and having mechanisms that give local areas the flexibility to design policies that are tailored to overcoming local business development challenges to contribute to the wider goals.
National government ministries and agencies commonly have governorate level offices and these can play a role in supporting the incorporation of local priorities and sensitivities in national policies by feeding back information to the central level, although this is currently not a major aspect of their activities.
Local responsiveness of SME and entrepreneurship policies can be achieved through more differentiation across MSMEDA regional offices
SME and entrepreneurship policy is largely formulated at the national level in Egypt. The MSME Law 152/2020 provides the national legal framework for policy with no reference to the geographical dimension. However, MSMEDA is one of the most important players in delivering financial and non-financial SME and entrepreneurship support programmes and it has structures that in principle enable local policy differentiation of its policy interventions in terms of their nature, mix and budgets. This reflects the fact that MSMEDA operates a network of 33 regional offices in the 27 governorates and sets up delivery agreements with each of them.
In practice MSMEDA’s SME and entrepreneurship interventions are currently relatively standardised across the regional offices, but there is potential for greater differentiation to address local conditions and potential. Regional office plans and targets are negotiated and agreed between the MSMEDA regional offices and the MSMEDA head office in Cairo. These plans are focused on the share of the national targets on specific programmes to be delivered in each place, with important elements reflecting the regional offices’ past delivery volumes and their population and economy size. Thus, the margins of manoeuvre for regional offices to vary their programme offer according to their judgements on local conditions and potential are currently limited but could be relatively easily changed.
Another constraint is that the capabilities of individual regional offices to deliver against national targets differs. Relatively more efficient regional offices are better positioned to negotiate larger budgets and different policy mixes with head office. Capacity building of regional office staff in economic strategy development could help weaker offices to both improve their performance and their ability to propose local adjustments to national policy targets.
To some extent, local flexibility is also held back by delays in the process of obtaining approval for deviations from plans. For instance, it can take some time to answer on a requested adaptation from a regional office. It would be beneficial to speed up these procedures to facilitate the process of making ongoing adjustments to plans to better reflect local circumstances.
Monitoring and evaluation should be considered as an important tool for local policy development, enabling planning ahead on what interventions are needed based on an assessment of local needs and information on what has been working well in terms of activities and impacts. To date, there is good emphasis on programme monitoring in terms of expenditures and activities at the regional office level, but much more limited information is available on programmes’ outcomes and impacts.
Going forward, increasing the autonomy and resources of MSMEDA and its regional offices is necessary to enhance location-sensitive delivery of SME and entrepreneurship policy.
One specific area where stronger regional structures could foster national strategies is FDI-SME linkages. Although some MSMEDA regional offices are supporting large firm-SME matchmaking, they seldom involve foreign investors because this does not fall within their role and mandate. Local knowledge and contacts can be better leveraged to identify FDI potentially interested in local supply chain development and to match with and upgrade suitable local partner SMEs.
Policy recommendations
Increase the number of branches, resources, and staff working within MSMEDA’s regional offices. This increase in staff should be accompanied by training, particularly in the application of diagnostic skills to better understand the needs of local SMEs and entrepreneurs. Many of such services are in use internationally, for example Enterprise Ireland’s Innovation Diagnostic Tool that aims to identify weaknesses in SME innovation management capacity and potential responses guided by the ISO 56000 Series of guidance standards on Innovation Management.
Introduce and evaluate a pilot capacity building programme to support less developed regional offices to improve their capabilities in supporting local SMEs and entrepreneurs.
Assign focal points for the Central Sector for Policies and Legislation in MSMEDA’s regional offices to build local capacities to support the tailoring of national programmes and, over time, local policy design.
Improve monitoring and evaluation of the activities of MSMEDA’s regional offices, engaging guidance and advice from international monitoring and evaluation good practice to move from a monitoring-oriented counting of inputs, outputs, and activities towards more evaluative assessments of outcomes and impacts. International good practice examples include the UK government’s ‘What Works Network’ that aims to improve the way evidence is used in policy making.
Strengthen the engagement and collaboration of MSMEDA’s regional offices with local development partners, including regional government actors, business associations, universities, colleges and other business development services providers. This could be facilitated by mapping regional entrepreneurial ecosystems. Numerous good practice approaches are available, for example the Deutsche Gesellschaft für Internationale Zusammenarbeit’s (GIZ) guide.
Increase the staff and resources of the governorate level offices of the national government ministries and agencies, in order to support the development of a more decentralised and locally-sensitive approach, facilitate better co-ordination at governorate and national levels, and strengthen feedback channels to national ministries.
Foster innovation hubs and incubators that connect SMEs with research institutions.
Digital infrastructure and basic digital skills are good
SMEs can benefit from digitalisation in supply chain optimisation, inventory management, collaboration with suppliers and partners, and customer engagement (OECD, 2021[33]). In addition, the use of online platforms, e-commerce, and digital marketing enhances SMEs’ access to larger domestic and international markets. Moreover, social media, online reviews, and customer relationship management (CRM) systems allow SMEs to understand customer preferences, and consequently tailor their offerings, and provide personalised or differentiated goods and services.
Overall, the digitisation agenda is well advanced in Egypt. Egypt ranked 73rd out of 131 countries in 2022 on the Network Readiness Index, a composite index combining measures of internet speed, firm-level technology absorption, government online services, and businesses’ internet usage (Portulans Institute and World Information Technology Services, 2023[34]). This performance is above most other countries in the MENA region. About 70% of the population used the internet in 2021, in line with the upper-middle income country average. Egypt also boasts a mobile phone penetration rate of 94.2%. As shown in Figure 1.7, the numbers of mobile and mobile internet and USB modem subscriptions continue to grow.
Egypt’s fixed and mobile broadband connection download speeds are also relatively advanced. With a median speed of up to 47 Megabits per second, mobile connections are faster than in most other North African countries (Ookla, 2023[35]). This is an important advantage of Egypt’s digital base, as fast and reliable connections are essential to enabling the uptake of advanced tools, such as cloud services (OECD, Forthcoming[36]).
Change of rate of internet broadband users in Egypt 2017 – 2021
Egypt’s public sector has also made significant strides in adopting digital technologies. In 2022, Egypt was categorised as a “Group A” country in the World Bank's GovTech Maturity Index, which indicates a high level of digital maturity in government services (The World Bank, 2023[38]).
One more element contributing to Egypt’s healthy ICT environment is the relatively strong penetration of basic digital skills. More than 75% of the occupations listed on LinkedIn Egypt report the utilisation of digital literacy skills, implying that a substantial proportion of professionals possess essential digital competencies (Zhu, 2019[39]).
Future priorities are addressing advanced skills, affordability, and regional divides
In Egypt, more sophisticated digital skills in frontier technologies such as AI, robotics, genetic engineering, cloud computing, cybersecurity, nanotechnology and data science are only in line with those of other developing countries. According to LinkedIn data, large gaps in the availability of these skills separate OECD countries and less developed economies (Zhu, 2019[39]). Highly skilled individuals often leave Egypt to find better opportunities elsewhere, especially in Gulf countries. SMEs thus struggle to find personnel with the skills needed to engage with these advanced technologies and transform their business models.
Another factor holding SMEs’ digitalisation back is the affordability of advanced ICT services and hardware. For instance, the fees charged by cloud service providers are too high for the average Egyptian SME. At the same time, well-known difficulties in access to capital limit SMEs’ investments in hardware and software, and training of their workforce in digital skills.
Regional digital divides further restrain the digitalisation of SMEs in areas where ICT infrastructure is less developed. Whereas in urban areas, about 86% of people used the internet in 2020, this share was only 60% in rural Egypt. Similarly, the geographical coverage of mobile 4G+ broadband networks and fixed fibre optic broadband access are not homogeneous across the country (ITU, 2020[40]).
Digital innovation hubs could play a role in reducing these regional divides. Innovation hubs connect players in the digital ecosystem and provide accessible and high-speed broadband connection to SMEs. These centres can also serve as information and resource centres for SMEs in rural areas, providing access to mentoring, funding opportunities, digital tools, training programmes, and resources for business development, such as diagnostic tools (European Commission, 2023[41]).
The use of e-commerce and social media among smaller Egyptian SMEs can be further expanded
The government could also promote the further use of e-commerce platforms by MSMEs. Egypt has the potential to become an important e-commerce player in the region, yet, according to 2019 data, it was ranked 102nd out of 152 countries on the B2C E-Commerce Index, behind Tunisia (70th), Jordan (87th) and Morocco (95th) (UNCTAD, 2019[42]).
The use of social media among SMEs and entrepreneurs is growing but has not yet reached its potential. To date, social media are used by 70% of Egyptian firms with more than 250 employees but only by approximately 40% of firms with 10-49 employees (Figure 1.8).
Note: “Survey of ICT usage in government and public sector enterprises,” conducted by the Ministry of Communications and Information Technology (MCIT) in co-operation with the Central Agency for Government and Public Mobilization and Statistics (CAPMAS), 2019-2020
Digital marketing and social media advertising services are often too expensive for SMEs and entrepreneurs. This is a problem that SMEs face even in OECD countries, where 74% of businesses express the need for financial support to facilitate their entry into the online marketplace (OECD, 2023[44]), but it is even more challenging an issue in Egyptian context.
Other more structural issues that should be addressed to develop e-commerce faster are the large size of the informal economy – which uses cash rather than digital payment systems – and the uneven access to internet across the country. Despite relatively good ICT readiness, a significant part of the population is still unbanked and unconnected. Resolving these bottlenecks is important for generalising SME digitalisation.
Policy recommendations
Establish a national SME digitalisation strategy that can provide a comprehensive roadmap for SMEs in Egypt to embrace digital technologies effectively.
Enhance SME access to high quality and affordable broadband internet and data centres.
Improve collaboration with non-government bodies such as Chambers of Commerce, sector associations and private sector actors in the SME ecosystem.
Establish digital innovation hubs across the country to provide rural areas with reliable and high-speed broadband connection, provide access to digital tools and training programmes on digital skills, and resources for business development such as diagnostic tools.
Provide targeted support for SMEs in their early stages of digitalisation through support to develop digital skills and business development services. This can be achieved through the implementation of training programmes, workshops, and capacity building initiatives aimed at bridging the skills gap and fostering a digital culture.
Provide incentives for traditional SMEs to digitalise, including financial support programmes (digital vouchers) and tax incentives. Pilot a financial support programme to encourage SMEs to undertake advanced SME digitalisation projects. Provide targeted financial assistance to SMEs that are pursuing digitalisation initiatives with a higher level of risk or complexity compared to traditional projects, e.g. projects that involve emerging technologies, innovative business models, or significant changes to operational processes.
Develop a more coordinated and coherent effort on fostering ecommerce and digital trade, including removing regulatory barriers for SMEs selling online, improving access to finance for ecommerce and increasing the awareness of programmes to enable SMEs to sell online.
To ensure wider adoption of Industry 4.0 and Agro 4.0 technologies, extend digitalisation support (e.g. training and investment support and institutions for technology diffusion) to firms across all sectors of the economy and strengthen the elements of digitalisation support within existing business development services and supports.
Fintech could improve SMEs’ access to finance
Fintech describes any technology that delivers financial services through software, including, online banking, mobile payment apps and cryptocurrency (US Chamber of Commerce, 2020[45]). Fintech solutions can ease the financing constraints of MSMEs and entrepreneurs in several ways:
The automation of services such as client onboarding, credit analysis, due diligence and payment collection can lead to faster and more cost-effective client acquisition, credit provision and monitoring.
The digitalisation of sales, purchasing, billing and consumer engagement can improve the productivity and performance of SMEs while also creating a digital footprint that financial institutions can use to better assess the credit risks of small clients and develop tailored financial products.
Fintech can offer a wider range of new funding solutions for SMEs such as peer-to-peer lending platforms, crowdfunding, tokenised assets, and digital versions of factoring services (ADB, 2019[15]).
Data, analytics, and algorithms based on artificial intelligence can make it easier for banks to assess the credit worthiness of SMEs and verify information provided in financing applications, reducing collateral requirements and shortening credit processing and approval times.
Technologies such as blockchain can be particularly useful for Islamic finance by improving the transparency and traceability of assets and cashflows (IMF, 2020[46]).
Fintech is growing rapidly in Egypt
Egypt’s fintech sector is a new but rapidly growing sector, as measured for example by the number of fintech and fintech-enabled start-ups (Figure 1.9), which has increased by 5.5 times from 32 in 2017 to 177 in 2022 (Central Bank of Egypt, 2023[47]). Today, Egypt is one of the largest fintech markets in the MENA region, second only to United Arab Emirates, and accounting for 14% of fintech solutions in the region (CGAP, 2020[48]).
Note: The figure refers to enterprises classified as fintech and fintech enabled start-ups
Egypt’s fintech sector is dominated by two major sub-sectors: payments and remittances (36%) and lending and financing (11%), while business administration, personal finance, “insuretech”, and “investtech” are less developed (Central Bank of Egypt, 2022[50]). Due to regulatory and operational constraints, most fintech solutions are currently business-to-business (B2B) and business-to-business-to-customer (B2B2C) solutions, with fewer business-to-customer solutions (B2C) (CGAP, 2020[48]).
The use of digital payments is also increasing and thus enabling the growth of the fintech sector. In a 2022 survey, 88% of Egyptians reported having used at least one digital payment method in the previous year, including smartphone mobile wallets (35%), money transfer applications (27%) and QR codes (24%), and over 60% of Egyptian consumers feel safe using digital applications for sending money through their mobile phones (Mastercard, 2022[51]).
Cash-dominance, digital financial literacy, and workforce skills gaps should be addressed to achieve full potential
The role of fintech in supporting MSME and entrepreneurship development in Egypt could be reinforced by measures that further increase the use of digital payments across the country. In 2022, 95% of Egyptians still made everyday payments and received salaries in cash, and 30% did not know what mobile wallets are. In addition, informality also causes merchants not to accept electronic payments, resulting in only about 18% of retail payments at SME merchants being made electronically (World Bank, 2020[52]).
Financial literacy could also be improved, especially in some segments of the population. Recent data show that 22% of people are not aware of basic financial products such as loans or savings accounts (IFC, 2022[16]), and women’s usage of digital payments is 12% lower than men’s.
Digital skills also need to be strengthened overall to enable the growth of fintech. In 2021, approximately 45% of fintech companies identified “difficulties accessing talent” as a major operational challenge (Central Bank of Egypt, 2022[50]). Digital skills gaps also affect the demand for fintech companies’ products and services. Few MSMEs and entrepreneurs are aware of or use fintech solutions.
Major policy reforms are reinforcing Egypt’s fintech sector
The development of the fintech sector is a key priority for the Central Bank of Egypt (CBE) and the Financial Regulatory Authority (FRA). Indeed, in 2019, the CBE launched its Fintech and Innovation Strategy and established a dedicated department for fintech and innovation.
The recently proposed Fintech Act regulates robo-advisory, nano-finance, insuretech, and tech-enabled consumer finance. The Law designates the FRA as the regulator of all non-banking fintech activities. Accordingly, the FRA is established as the sole entity that can license and regulate non-banking fintech companies. The Law also sets out standards for transparency, governance and the protection of consumer rights (MAGNiTT and ITIDA, 2022[53]). The FRA has further issued several regulations for fintech with respect to IT governance, electronic know-your-customer, digital signatures, e-contracts, e-registers, and outsourcing services. In addition, the FRA facilitates the establishment and licensing of financial institutions to practice non-banking financing activities such as microfinance, SME finance and consumer financing, leasing and factoring. The CBE and the FRA are also currently working on issuing new laws to regulate alternative finance activities, including peer-to-peer lending, crowdfunding platforms, ROSCAs, and digital savings. In addition, the government has recently passed the Egyptian Banking Law, which includes provisions to promote financial innovation, and new regulations that cover mobile payments, e-money, and digital remittances.
Another domain where Egypt is progressing is Open Banking, which is the use of API technology to allow banks’ clients to share their financial data with third-party financial services providers – including fintech companies – remotely and safely. In 2022, the CBE launched a new open banking system that enables immediate transfers and payments between account holders and participating banks, while the Cybersecurity Law of 2018 and the Consumer Finance Law of 2020 defined the contours of a new open banking law.
A further innovation has been the establishment of regulatory sandboxes, which provide a live testing environment for fintech businesses before they enter the market. The CBE’s regulatory sandbox was launched in 2019, and is open to start-ups, established institutions, and registered fintech providers, including international participants. The sandbox operates in cohorts with specific start dates (Central Bank of Egypt, 2022[50]). The 2019 cohort, for example, focused on innovations for e-Know Your Customer (KYC) and the remote opening of mobile wallet accounts. Meanwhile, 2020’s cohort was open-themed and 2023’s was on lending-based crowdfunding (Cambridge Centre for Alternative Finance, 2021[54]).
Two more instruments introduced by the CBE to foster fintech in Egypt are a dedicated Fintech Fund and a Fintech and Innovation Hub. The Fintech Fund Nclude is led by three commercial banks (Banque Misr, National Bank of Egypt, and Banque du Caire), in co-operation with the Egyptian Banks Company (EBC), the E-finance Investment Group and Mastercard. The fund aspires to become the largest fintech fund in the MENA region with a target capital of USD 150 million dedicated to supporting early and growth stage fintech start-ups (Central Bank of Egypt, 2023[55]).
The Fintech and Innovation Hub is a 2022 initiative by the CBE to develop a unified platform for fintech innovation by bringing together fintech start-ups, financial institutions, regulators, technology and service providers, and investors. It also provides co-working and office spaces, conference rooms, and auditoriums in Cairo to host fintech start-ups from Egypt and across the region (Central Bank of Egypt, 2023[56]). The Fintech Egypt Portal was launched in 2019, and acts as a complementary online gateway for the hub, through unifying fintech companies and facilitating matchmaking between different stakeholders.
The government has also introduced measures to promote digital payments which are key to generating data for fintech. The Egypt Cashless Transaction Law, which has been in effect since 2021, requires that public entities and private entities exceeding a specified size threshold pay salaries, loans, donations, subsidies, rent or land expenses, governmental payments, and insurance premiums by digital means. Failure to comply results in a fine of 2-10% of the total value of the cash payment (capped at EGP 1 million). Digital payments are also promoted through the Meeza card, which is available to any Egyptian with a national ID and access to a bank branch. The Egyptian government has also introduced the farmer smart card for the agricultural sector (IFC, 2022[57]).
The improvements introduced in Egypt’s fintech regulations have been strong, but they have not yet resolved all the regulatory gaps. In particular, there are certain areas that are still not regulated, meaning that companies that wish to operate in these fields cannot obtain operating licenses. The CBE and the FRA are currently working on issuing new laws to regulate some of these alternative finance activities, including peer-to-peer lending, crowdfunding platforms, ROSCAs, and digital savings. Additionally, ROSCAs and lending-based crowdfunding, are currently being tested in the CBE's regulatory sandbox.
Open banking also has considerable untapped potential. The establishment of a national payment infrastructure through Instapay provides an important basis for open banking. However, it is important to ensure the competitiveness of the open banking environment and reduce delays in the issuance of APIs for financial institutions and fintech companies wishing to operate in the business-to-consumer (B2C) space.
Policy recommendations
Improving the regulatory and policy environment for fintech companies
Develop a National Fintech Strategy to underpin the comprehensive reform agenda in the sector.
Implement tiered regulatory and licensing procedures for fintech companies to facilitate market entry and reduce the regulatory burden for smaller financing providers.
Implement a cohort-free model of the regulatory sandbox or otherwise open more cohorts to enable a greater number and a more diverse set of solutions to gain access to the Sandbox services, including ideas at earlier stages of development.
Ensure complementarity between the CBE sandbox and the newly-established FRA sandbox.
Create a regulatory framework for revenue-based financing and other financing solutions that fintech companies can tap into to close the financing gap for MSMEs and entrepreneurs.
Foster the digital payments ecosystem
Provide incentives, such as cashback or discount programmes, for the use and acceptance of digital payments among consumers and merchants, including mobile wallets.
Provide incentives for digital payment of utility bills through, for example: cashback or discounts, waiving of processing fees, awards for consumers, and tax incentives for utility companies.
Provide digital financial literacy training or education programmes, particularly for women and SMEs.
Foster a conducive business environment for Fintech companies wishing to operate in the B2C space
Provide incentives (e.g. tax breaks or regulatory exemptions) for financial institutions that partner with fintech companies.
Promote more competition in the B2C space and issuance of APIs for financial institutions and fintech companies wishing to provide financial services to SMEs.
Support fintech education and skills
Upgrade the digital skills of the existing workforce through trainings, such as ICT bootcamps, possibly provided in collaboration with the private sector.
Strengthen the quality of STEM education and encourage more students, especially women, to pursue STEM education.
References
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← 1. The term MSME refers to Micro, Small and Medium Sized Enterprises whereas the term SME refers to Small and Medium Sized Enterprises. However, micro enterprises are included within the standard definition of SME used by the OECD. Hence there is no technical difference between SME and MSME. The term MSME is sometimes used to emphasise the micro size band but the MSME and SME terms are interchangeable in this report.