SMEs and entrepreneurs are vital parts of local economies across Egypt, contributing to economic growth, job creation, income generation, and social inclusion. This chapter addresses spatial variations in SME and entrepreneurship activity and performance across Egypt, geographical differences in development conditions for SMEs and entrepreneurship in Egypt, key issues in Egypt and their implications for local SME and entrepreneurship policy, and the strengths and weaknesses of the local dimension of national policies. International learning models are identified from comparator countries, which inform a series of policy recommendations. The main conclusion is that there is potential substantively to improve SME and entrepreneurship policy in Egypt by developing and delivering a more decentralised and locally-sensitive approach.
SME and Entrepreneurship Policy in Egypt
Abstract
Conditions for SME and entrepreneurship development vary significantly within countries, as do the market opportunities and challenges that exist and the circumstances and characteristics of local SMEs and entrepreneurs. This geographical variation means that a one-size-fits-all approach to SME and entrepreneurship policy is rarely appropriate. By contrast, it is important for national and local policy makers to work effectively together to ensure that policy supports are sensitive and suitable to the needs of local SMEs and the characteristics of the local entrepreneurial ecosystem, as described in the following elements of the OECD Recommendation on SME and Entrepreneurship Policy:
Recommendation 1: Co-ordinating and aligning SME and entrepreneurship policy across government entities and levels through effective governance mechanisms and place based-approaches, in line with each country’s institutional setting, circumstances and needs.
Recommendation 3: Taking account of the diversity of SMEs and entrepreneurs throughout policy making, by assessing implications for different types of SMEs, entrepreneurs and self-employed, adopting policy relevant typologies and collecting granular data on SME and entrepreneur key features, performance and behaviour.
Recommendation 15: Strengthening entrepreneurial ecosystems at national and local level, including by developing networks and linkages along supply chains, between SMEs and with large firms, within and across sectors; and by enhancing SME access to and participation in public procurement.
This chapter examines the spatial variations in SME and entrepreneurship performance and characteristics in Egypt. It also assesses the effectiveness of current approaches to tailoring policies and programmes to local needs, identifying areas for improvement and presenting recommendations for the Egyptian government.
Across the governorates of Egypt, there are marked differences in SME and entrepreneurship activity, which demonstrates a need for a diversity of locally-tailored policy supports. The business population is skewed towards large urban population centres. According to the most recent economic census, the five governorates with the highest number of establishments (Cairo, Giza, Dakahliya, Alexandria and Sharqeia) were home to 46% of Egypt’s establishments in 2017 (Table 6.1). By contrast, the five governorates with the lowest number of establishments (South Sinai, North Sinai, New Valley, the Red Sea and Matrouh) accounted for just 2% of Egypt’s establishments. These governorates tend to be smaller population and rural centres. Importantly, these census data exclude much of the agricultural sector which accounts for a large proportion of employment in many rural governorates.
In general, SME and entrepreneurship across Egypt is dominated by micro-enterprises, often informal, with limited growth and job creation potential (Euro-Mediterranean Network of Economic Studies, 2017[1]). Indeed, Table 6.1 shows that establishments with less than 10 employees make up more than 95% of establishments in 24 out of Egypt’s 27 governorates. The share of establishments with less than 10 employees ranges from 93.0% in the Red Sea to 98.9% in Fayoum.
Significantly, a relatively high proportion of SMEs and entrepreneurs are based in the informal sector in Egypt. This is due to a variety of factors including a lack of knowledge about the benefits of formalisation, and fears about bureaucracy, complexity, and costs. Data from the 2017-18 economic census show that informality rates vary widely by governorate, with the share of unregistered establishments ranging from more than 66% in Kalyobiya, Giza, and Matrouh to less than 25% in South Sinai, the Red Sea, and New Valley (Figure 6.1). Again, the census data do not cover many agricultural enterprises, which will distort the estimates of informality rates, particularly in agricultural governorates. However, this spatial variation nonetheless demonstrates that the policy challenges of addressing informality and encouraging formalisation are geographically differentiated across Egypt.
Source: (CAPMAS, 2018[2])
Local SME and entrepreneurship development is strongly influenced by the wider context in which these businesses operate. This context is shaped by a variety of economic, social and demographic factors. The local economic situation determines the extent to which there are opportunities for new business creation and small business growth. For example, prosperous local economies where people have high levels of disposable income to spend on goods and service provide a better environment for SMEs to grow. Meanwhile, areas where people have higher levels of accumulated assets and wealth are likely to have a larger pool of people with the means to start new ventures, either through borrowing or internal financing. The demography of a local area determines the numbers of potential entrepreneurs, the availability of different skills in the workforce, and the nature and scale of demand in the local economy. Social circumstances and contexts are also critical. For example, high poverty rates can stimulate business creation as a coping strategy and way of earning of living, while societal attitudes towards entrepreneurship and business development can either encourage or suppress entrepreneurial activity.
In the Egyptian context, urban and rural variations are marked in the economic and social conditions and business environments for SMEs and entrepreneurs, especially between Cairo and other cities and remote rural and desert areas. This section describes some of the key differences in SME and entrepreneurship development conditions across Egypt.
Economic conditions
Distribution of economic activity
Economic activity is highly concentrated in Greater Cairo, which accounted for 42% of Egypt’s GDP in 2017/18. Greater Cairo’s position as the dominant centre of national economic activity makes it a hub for SME and entrepreneurship across Egypt. With that being said, the regional contribution of Greater Cairo to national GDP did edge down slightly between 2012/13 and 2017/18. Central Upper Egypt makes the smallest contribution to national GDP, with a GDP share of 2.0% in 2017/18 (Table 6.2).
Note: The economic regions comprise the following governorates: Greater Cairo (Cairo, Giza, Qalyubia), Alexandria (Beheira, Alexandria, Matruh), Delta (Gharbia, Menoufia, Kafr El Sheikh, Dakahliya, Damietta), Suez Canal (Suez, Ismailia, Sharqia, Port Said, North Sinai, South Sinai), Southern Upper Egypt (Aswan, Luxor, Sohag, Qena, Red Sea), Northern Upper Egypt (Fayoum, Beni Suef, Minya) and Central Upper Egypt (Asyut, New Valley). Government and economic body activities are not included in the value of regional GDP.
Source: CAPMAS
Sectoral focus of regional economies
There is a high degree of variation in economic structure within Egypt, with some governorates’ economies dominated by natural resource extraction or agriculture while others are service-sector driven (Table 6.3). The regional economies of Kafr El Sheikh, the New Valley and Beheira are based on agriculture, which accounts for around half of gross domestic product (GDP) in these governorates. Meanwhile, the regional economies of North Sinai and Matrouh are principally driven by the extraction and refinement of petroleum, which accounts for 77% and 72% of GDP in these governorates, respectively. Large urban centres are much more services driven. Indeed, in Cairo and Giza, the services sector accounts for 63% and 59% of GDP. Interestingly, these are the only two governorates where the services sector makes up more than half of the economy. In Suez, the manufacturing sector makes up 33% of economic output, which is the largest share among the Egyptian governorates.
Note: Services includes wholesale and retail trade; Communication; Information; Transportation and storage; Accommodation and food service activities; Real estate ownership; Business services; Education; Health; Other Services; and Financial Corporations.
Prosperity of regional economies
Economic prosperity and standards of living vary significantly across Egypt’s governorates (Table 6.4). South Sinai has a GDP per capita (EGP 530 779 per capita) that is more than double the next highest governorate (Port Said, at EGP 243 788 per capita). However, South Sinai also has the highest unemployment rate in Egypt (34%) and the one of the highest population shares (52%) living below the poverty line. These seemingly contradictory results can be explained by the relatively high levels of economic output generated by oil production around Abu Rudeis and coastal tourism. Such prosperity is highly unequally distributed, however, especially between the Bedouin and people in the Nile Valley. In addition, while sparsely populated, South Sinai has witnessed high levels of population growth over the last decade (Nicolas Pelham, 2012[4]).
Egypt’s poorest governorate is Sohag, which has a GDP per capita of EGP 19 416, 60% of the population living below the poverty line and an average monthly wage of EGP 2 061. Other relatively large population centres such as Qena and Minya also register low levels of GDP per capita and average monthly wages. The most impoverished governorate in Egypt is Assiut, where more than two-thirds (67%) of the population are below the poverty line. The governorate with the lowest poverty rate is Port Said, where 8% of the population are below the poverty line. This is also the governorate with the second highest GDP per capita, behind South Sinai.
As noted previously, the geographical variation in prosperity between governorates directly effects the prospects for SMEs and entrepreneurship in multiple ways. It also reveals the differentiated challenges for SME and entrepreneurship policy, which may include raising wages, increasing living standards and alleviating poverty, depending on potential and conditions in the local area.
Egypt’s national unemployment rate fell to an estimated 6.4% in 2022, which was the lowest on record (International Labour Organization, 2024[5]). However, despite these positive trends at the national level, the unemployment rate varies substantially across the governorates. In 2021, the highest unemployment rate was in South Sinai (33.6%), which was more than 20 times the figure in Qena, which was the governorate with the lowest unemployment rate (1.6%). Meanwhile, the capital Cairo had an unemployment rate of 13.7% in 2021. This compares to a national average figure of 7.4%. Higher levels of unemployment can act as both a drag and a driver of SME and entrepreneurship development. On the one hand, high unemployment reduces spending power and market opportunities. On the other hand, it can be a potential stimulus for SME and entrepreneurship development by spurring necessity entrepreneurship and increasing the availability of workers for businesses to hire.
Note: GDP 2020-21 data and prices and population 2022 data
Source: Ministry of Planning and Economic Development, CAPMAS, Source: Central Agency for Public Mobilization and Statistics, Results of the Economic Census 2017/18 cited in Ministry of Planning and Economic Development and UNDP (2021)
Demographics
The population of Egyptian governorates ranges from as the highest of 10.1 million people in the national capital Cairo to the lowest of 110 000 people in South Sinai (Table 6.5). Moreover, population growth is geographically concentrated in the largest urban centres and skewed towards a youthful age structure especially for males (Euro-Mediterranean Network of Economic Studies, 2017[1]). In common with other lower middle-income countries, rural to urban migration flows are significant (Abu Hatab, Mensah and Lagerkvist, 2022[6]). Typically, such movements are by the young, qualified, male, and ambitious seeking opportunities in larger urban centres. The places they leave struggle to encourage such people to stay locally and this reduces their resources for SME and entrepreneurship development. The population density also differs dramatically across the country, with 5 318 people per square kilometre in Kalyobiya in the Nile Delta regions to the north of Cairo to just 1 person per square kilometre in the expansion New Valley governorate.
Source: CAPMAS, United Nations Office for the Co-ordination of Humanitarian Affairs
Business environment
Spatial variations are evident across Egypt in the resources available for SMEs and entrepreneurs (Mansour, Sedita and Apa, 2018[7]). There are general difficulties and geographical differences in access to finance locally and regionally (Mansour et al., 2018[8]). Availability and costs of sites and premises also vary. For example, there are major challenges in some existing Industrial Zones (IZs) such as Dakahliya, where space constraints and rising land values are preventing existing SMEs in the IZs from expanding and new companies from locating in the IZs. Elsewhere, provision of sites and premises for SMEs and entrepreneurs are limited or non-existent. Business development services for SMEs and entrepreneurs are also unevenly provided across Egypt. Cairo is among the better served areas while remote and/or rural governorates have limited service availability and outreach (Mansour, Sedita and Apa, 2018[7]).
The World Bank’s Doing Business metrics provide further insights into regional differences in business development conditions (World Bank, 2014[9]). The top performers with respect to the ease of starting a business are Alexandria, Cairo, and Giza, while the worst performers are Aswan and Kharga (Table 6.6). This can be explained partially by the fact that in some governorates, such as Cairo, provisional and temporary licenses can be granted in advance of official licenses to enable entrepreneurs to begin trading, and efforts have been made to digitalise such services. Other regional differences in the ease of doing business across Egypt are illustrated in Table 6.6. Interestingly, despite the aforementioned geographical differences, the top three business environment constraints reported by SMEs are consistent across all parts of the country: tax rates, political instability, and corruption (World Bank, 2020[10]).
Note: Cities and governorates ranked by score on ‘Ease of starting a new business’ (column 2)’.
Source: (World Bank, 2014[9])
This section discusses some of the main challenges for the design and implementation of SME and entrepreneurship policy at the local level:
Linking SMEs and entrepreneurship to local, regional and/or urban development. Currently, there are few geographical dimensions to the national policy objectives for SME and entrepreneurship development that are set out in key national strategies and plans such as the Egypt Vision 2030. Such geographical dimensions to national policy objectives could include an aim to further concentrate economic activities in Cairo in order national growth or, alternatively, to level up regional economies and achieve a more even distribution of economic activities and opportunities to reduce geographical inequalities across Egypt. In some instances, national SME and entrepreneurship programmes have included geographical targeting of specific kinds of places and the particular challenges they face. The national Decent Life initiative, for example, has prioritised working with the 1 400 poorest villages in 20 governorates across Egypt.
Macroeconomic challenges. The macroeconomic issues facing the country, which include high inflation, rising interest rates, and currency devaluation, have impacted SMEs and entrepreneurs in geographically uneven ways across Egypt. For example, the rising costs of energy and raw materials has had a particular impact on industrial SMEs, which are more prevalent in some governorates than others. More generally, the difficult economic situation has intensified the fragility of SME and entrepreneurial activities and threatened their resilience, increasing the challenges for local policy makers in providing appropriate and responsive support.
Establishing the objectives and targets of local SME and entrepreneurship development. It is important to establish what types of local SME and entrepreneurship activities policies are seeking to support, and to identify who, what, and where local policy interventions should be directed towards. Assisting low value-added economic activities can generate job opportunities and incomes for households which, in specific places and for some communities, are important objectives and contributions. Such entrepreneurs and micro- and small businesses may not want to grow, develop, or upgrade. This relative lack of qualitative development may not matter for people and communities in places with few other alternative job and income opportunities such as rural, remote, and desert areas. Indeed, SMEs and entrepreneurship in these places may be better focused and supported to produce socially useful innovations addressing unmet local social needs with appropriate technologies such as irrigation improvements and low-cost water filters. However, upgrading and moving SMEs and entrepreneurs into higher value-added economic activities are important too for some people and places given their potential to create higher productivity jobs, higher incomes, and higher living standards. Such improvements can contribute to national ambitions towards becoming an upper middle-income country and achieving its green transition and sustainable development goals. The different aims of policy translate into different kinds of policies, for example social innovation-oriented interventions may include capacity building and community engagement whereas upgrading could comprise support for research and development and technology adoption.. The overall role and objective of SME and entrepreneurship policy and its relationship to national and subnational development goals is important in helping local policymakers to decide which kinds of activities they use their limited resources to support and the kinds of services they develop and provide.
Reaching the informal economy. Numerous and relatively successful organic clusters are evident across Egypt – for example in agricultural and food products such as vegetables and dairy as well as in handicrafts such as handmade carpets – but the businesses and entrepreneurs are often geographically dispersed, lack training and licenses, and represent difficult targets for local policy support. High rates of informality therefore limit the support policymakers can provide to local SMEs and entrepreneurs. Lack of data and indicators can lead to poorly informed decision-making. Further, it has historically proved difficult for local policymakers to develop effective incentives to encourage formalisation, although the measures set out in the MSMEs Law could improve this situation. In addition, MSMEDA has recently worked with the UN-ILO to support the new national strategy on business formalisation.
Reaching all parts of the country. While Cairo is relatively well served for entrepreneurship programmes especially focused on educated youth and high-tech businesses (Ayman Ismail, Ahmed Tolba and Shima Barakat, 2016[11]), the potential and talent in cities and regions beyond the national capital remains relatively untapped and unevenly supported.
Taking into account local attitudes and perspectives. The culture and mindset of people towards business, entrepreneurship, and risk taking are geographically differentiated across Egypt. In some places, people prefer to work in the relatively large public sector because it provides a more stable income with more permanent and safer jobs relative to private sector employment, even though salaries are typically lower. There is a local dimension to this issue as people living in agricultural and rural areas demonstrate a particular reluctance to work in the private sector. The risks and uncertainties created by the difficult macro-economic conditions and cost of living pressures from high inflation are likely to have accentuated such local perceptions and behaviours.
Addressing skills gaps. Knowledge and skills gaps exist among SMEs and existing and potential entrepreneurs across Egypt. Uneven and often limited understanding exists of market gaps and business opportunities locally and further afield. Locally, this lack of knowledge has led to limited innovation in new business start-ups and replication of ideas, especially in service trade activities with low barriers to entry such as cafes, ice cream shops, and mobile phone outlets.
MSMEDA and its network of regional offices
SME and entrepreneurship policy is designed and formulated at the national level in Cairo, with the MSMEs Law 152/2020 providing the national legal framework for policy (see the Strategic Policy Framework chapter for further detail). The Micro, Small and Medium Enterprises Development Agency (MSMEDA) is the lead organisation responsible for SME and entrepreneurship policy. Its national head office is based in Cairo. There is no geographical dimension to the MSMEs Law, and SME and entrepreneurship policy is centralised and nationally-based and led.
MSMEDA has a network of 33 regional offices in the 27 governorates, which are responsible for delivering national SME and entrepreneurship policy (see Box 6.1). Of the more than 1 500 staff employed by MSMEDA, 550 (37%) are based in the regional offices. Larger governorates, including Alexandria, Cairo, and Giza, have more than one regional office branch. The Cairo regional office is MSMEDA’s largest regional office, and is organised around four sub-regions (north, south, east, and west) within Cairo. An advantage of this approach is that the regional offices provide a subnational structure for policy delivery and integrated provision of financial, non-financial and human and community development services that aim to improve the ecosystem for SMEs and entrepreneurs at the governorate level. Where evident, the regional offices’ capabilities to implement policy within the governorates appear strong and the communication and networking between the regional offices and their local development partners works well.
MSMEDA is constituted as a civil society organisation (CSO), which has enabled its regional offices to receive grants from international donor organisations unable or unwilling to provide funding for Egyptian government institutions. On the other hand, as a CSO, MSMEDA and its regional offices have less power or authority than national government ministries and receive no core funding from the national government.
Using a One-Stop Shop delivery model, the MSMEDA regional offices provide three main types of services:
Financial services: These aim to improve the local financing environment for SMEs and entrepreneurs. Interest payments on loans from borrowers are also a revenue source for MSMEDA regional offices and help sustain their revolving funds disbursing future loans. Three types of funding programme are utilised locally:
Micro-credit which involves supporting CSOs such as community associations which in turn support local entrepreneurs.
Direct loans (for formal micro, small and medium-sized projects.
Redirections to local banks and non-banking financial institutions under existing agreements to finance small enterprises). These services aim to provide rapid decisions based on business feasibility and financial studies, and offer competitive interest rates compared to those available commercially from banks and non-banking financial institutions
Non-financial services: These comprise programmes to support the initiation and development of SME and entrepreneurship activities. The more general supports include seminars, workshops, and awareness raising campaigns on entrepreneurship. These activities typically target groups such as the disabled, women, and youth, and also certain sectors including the digital and green industries. Initial diagnostic services are also provided for prospective entrepreneurs to assess the feasibility of their business idea and their financial needs, identify appropriate support, and signpost to relevant service providers. For existing SMEs and entrepreneurs, there are programmes offering advice, support, and training for accessing finance, and exporting. MSMEDA has recently established a new export department to support SMEs. There are also initiatives for business promotion and marketing, including trade exhibitions and fairs in Egypt and internationally. There are also supports provided for business development and upgrading, such as agricultural governorates developing complementary food processing activities and exporting. Specific programmes have also been developed to support the implementation of the public procurement provisions in the MSMEs Law by helping individual businesses bid for public contracts and bringing together SMEs to collaborate on bids. More technical programmes cover issues relating to licensing and permits, land, sites and premises, and engineering and technology support.
Human and community development services: These services are focused on responding to community needs and providing social accountability. They are organised around three pillars: labour-intensive infrastructure, community development, and youth employment and employability. Furthermore, through their operations (e.g., supplying water and waste water networks, maintaining existing service buildings such as health centres, and paving new roads and maintaining existing rural roads to increase market mobility), community infrastructure projects also play a very significant role in providing the foundations for SME and entrepreneurship development. The services include geographical targeting, for example focusing on places to alleviate poverty and create short-term and permanent employment opportunities for youth. These programmes connect to women’s empowerment and environmental protection agendas.
A five-stage model is used to differentiate services, based on the development stage of the enterprise or project supported: enterprise idea, initiation, establishment and licensing, financing, and marketing. Service provision is free to users, although MSMEDA is considering charging to generate a revenue stream and contribution to income generation.
The financial, non-financial, and human and community development services are delivered by the MSMEDA regional offices with their local development partners. The nature of these partnerships differs by governorate. Generally, they can include: the regional governorate, banks, business associations, chambers of commerce, co-operatives, CSOs, further education colleges, the regional offices of other government departments, the Industrial Development Authority, international donor organisations, sports associations, unions, universities, and youth centres.
MSMEDA regional offices are key partners working with regional governorates and promoting civil society and community and human development. The local tailoring of national SME and entrepreneurship policies by MSMEDA’s regional offices often intersects with local social development. In the large rural, border, and sparsely populated governorate of South Sinai, for example, the MSMEDA regional office has supported the acquisition of identity papers for the Bedouin community as a first step towards engagement and appropriate service provision and helped local businesses to aggregate demand and reduce costs for goods transportation to urban markets. Elsewhere, in El Minya, field staff visits to rural villages have sought to assess needs and support women’s empowerment.
Tailoring of national programmes to local needs and conditions
MSMEDA has an operational plan for the implementation of the National SMEs and Entrepreneurship Strategy. This general plan is translated into specific plans, targets and budgets for MSMEDA’s 33 regional offices according to local conditions and needs, with inputs from the regional offices. In this way, there is scope for small modifications in the delivery of the national strategy to ensure its effective implementation taking into account the local context. These adjustments may be based on the geography and location of the regional office (urban, suburban, rural etc.), the size of the population services, assessments of the level and type of local service needs, and previous years’ performance.
The system therefore recognises that every regional office will have its own specificities and it allows regional offices some degree of local adaptation and tailoring of national programmes and in who they co-operate and collaborate with locally amongst their local development partners. The benefit of this approach is that it allows the regional offices, which are generally staffed by citizens from the governorate, to tap into their local knowledge and networks and familiarity with the culture of their governorate. For example, some regional offices have been working to identify how they can support specific development issues in their regions and target specific locally-important sectors such as glass decoration in Dakahliya, textiles in Mansoura, and berries and dairy in Ismailia. Other local and place-based initiatives are focused on so-called ‘producer villages’, where over 85% people work in a single sector such as handicraft, olive oil, vegetables, fruit, and fisheries in Al Fayoum, and tourism in South Sinai.
Box 6.2 presents the Mashrouy programme, which is a good example of a national programme that has been tailored by MSMEDA’s regional offices.
Introduced in 2015, the Mashrouy national programme – ‘my project’ in Arabic – aims to increase economic empowerment and create jobs and incomes. This national programme has been tailored by MSMEDA’s regional offices and local partners especially banks. As a community development programme, it has been used by local actors specifically to target particular groups that face barriers to accessing micro-finance from conventional channels including women, youth, and individuals with special needs. The programme also serves as a tool to formalise businesses by making licensing a condition for loans. In collaboration with the Ministry of Planning, Economic Development and International Co-operation and Federation of Egyptian Industry, for example, the programme funded the ‘Your Business in Your Village’ project to provide business premises for micro- and small manufacturing businesses in a pilot initiative in Al Fayuom.
Prior to 2023, while there were allowances for some local tailoring of national policies by the MSMEDA regional offices, the scope of these permitted adjustments was relatively limited, and SME and entrepreneurship policy was largely top-down and centralised. Regional office plans and targets were negotiated and agreed with the MSMEDA head office in Cairo, and changes to these plans had to be proposed and agreed in advance with the MSMEDA head office. This procedure introduced delays and inflexibilities in responding to changing local needs. For example, it could take a long time to receive an answer on a requested adaptation from a regional office, especially if the change required some research and consideration by the MSMEDA head office. Capacity limits at the MSMEDA head office and regional offices constrained attempts to speed this process up.
More recently, however, there has been a shift in focus within MSMEDA, with a stronger focus on decentralising management. While the head office in Cairo still plays a crucial role, regional offices now have more autonomy to make decisions and adjustments that align better with local needs. There has been a concerted effort to streamline processes and reduce delays, making the system more flexible and responsive to urgent requests, in contrast to the previous, more rigid, and centralised structure. This has enhanced the decentralisation with respect to SME and entrepreneurship policy (Table 6.7).
Capacity of MSMEDA regional offices
The effectiveness of the current system depends upon the capability and capacity of the MSMEDA regional offices to analyse and understand their local situations, needs, and opportunities for SMEs and entrepreneurship. This capability and capacity are geographically differentiated across Egypt. The current system affords the MSMEDA regional offices only relatively limited autonomy, resources, and incentives. While the more capable regional offices with greater capacity are able to make strong cases for the potential growth, expansion, and/or upgrading of their services to increase their targets and budgets to address local needs, the weaker regional offices are less well placed to develop and improve.
The importance of the strategic vision of the regional office director was mentioned during stakeholder discussions. However, the ability to articulate and pursue this vision is dependent on the region and culture of the particular governorate and, in general, appears to be limited. In addition, the planning horizon for the MSMEDA regional offices is annual, whereas a 3-5 year horizon would be helpful for developing a strategic vision for SME and entrepreneurship development in the relevant governorate, with a corresponding plan to achieve it. Another issue is that, beyond the MSMEDA national head office level, there appears to be limited usage of ideas such as regional entrepreneurial ecosystems as frameworks for organising and conceptualising local SME and entrepreneurship policy.
Geographical differences exist in the capability, capacity, and resources of the MSMEDA regional offices. The regional offices are assessed according to a three-fold classification based upon their size, staff capacity, and portfolio of services, from the highest A to the lowest C. Sixteen regional offices are in category A (Table 6.8). Regional offices are evaluated periodically based on their performance which can result in staffing changes for poorly performing offices. Good practices are shared between regional offices within their geographical zones.
Source: MSMEDA
Regional office performance varies geographically for several related reasons. Economic situations, sectoral structures, and investment opportunities are different in each governorate. The effectiveness of the regional office depends upon the knowledge, skills, experience, and proactivity of their director, manager, and staff especially on leadership and communication and willingness to change and implement the General Law 152. Relations between the regional offices and the national head office are geographically differentiated, with some more dependent on direction from the head office within the centralised system. Each regional office has different sets of local development partners and types and levels of engagement, collaboration, and inputs from them for policy delivery. Strong co-ordination and information sharing has helped identification of service provision gaps and the development of tailored programmes to address the gaps. For example, specialised technical support provision for sectors important to each regional office such as agriculture in South Sinai and handicraft sectors in Al Fayoum.
Increasing the autonomy and resources of MSMEDA and its regional offices is a key change needed to facilitate the move towards a more locally-sensitive, decentralised, and bottom-up approach to local SME and entrepreneurship policy. This would enhance the ability of MSMEDA regional offices to articulate a strategic vision and differentiate their strategies and targets to better match the needs of people and businesses in their local areas and improve the effectiveness of their service delivery. More specifically, MSMEDA regional offices could use the concept of the regional entrepreneurial ecosystem to guide their activities, for example by:
Identifying duplication and gaps in the provision of local advice, support and infrastructure.
Tailoring national programmes better to address regional needs.
Exploring greater selectivity, prioritisation, and targeting in support provision.
Complementing cluster-based policies
Building networks such as rural SMEs and entrepreneurs connections to urban opportunities.
Supporting knowledge exchange and sharing
Strengthening monitoring and evaluation.
Stronger regional offices with more autonomy and resources in a more decentralised system will increase their self-sufficiency and reduce their dependence and demands upon the MSMEDA head office.
As a starting point, a pilot capacity building programme could be developed to work with the most able and willing MSMEDA regional offices and match stronger performers with weaker performers to support less developed offices to start the improvement process. Another key action is to increase the number of branches, resources, and staff working within the governorates to deliver SME and entrepreneurship policy. More staff able to reach out and work with local communities in more areas can identify needs and provide appropriate support. This increase in staff needs to be accompanied by training, in particular diagnostic skills to understand local SME and entrepreneur needs and potential.
MSMEDA has established a new Central Sector for Policies and Legislation, with responsibility for all functions related to the co-ordination of MSMEs system and for policy development and assessments. This is a vital change to support the enhanced autonomy and resources for MSMEDA. There is potential for the new sector to have multiple and complementary roles, including:
Research, analysis and intelligence gathering
Data clearing house especially for information from local development partners
Strategy and policy development
Monitoring and evaluation.
A future step that would be of benefit is to establish a pilot scheme for regional offices to develop their own research, analysis, intelligence gathering, and policy making capacities to support local tailoring of national programmes and, over time, local policy design. Initially, this additional capacity might be set up at the larger scale regional zones – north, south, east, and west – in which the regional offices are organised. This change is key to strengthening the role of the MSMEDA regional offices in addressing local SME and entrepreneurial potential within their regions, for example supporting the related diversification of existing sectoral activities and strengths concentrated in their areas. It will also help the MSMEDA regional offices move towards a quality-based rather than quantity-based approach to support provision, with greater selectivity including supporting people and places locally with strong potential, connecting to local cluster development and FDI linkage programmes, and addressing barriers to local SME and entrepreneurship development in places with weaker or less potential.
Co-ordination between government entities and other ecosystem actors
The effectiveness of the current system also relies upon co-ordination between multiple national government ministries at the centre including those responsible for environment, investment, industry, planning and local development. Centralisation, working in ministerial silos, and lack of co-ordination means each have their own regulations and internal procedures, and contracts and funding are subject to delays. Overlaps and duplications between national government ministries in relation to SME and entrepreneurship policy creates a complex and confusing system for MSMEDA, its regional offices, and individual business owners and entrepreneurs to try to navigate. Mapping clusters of economic activities across Egypt, for example, is being undertaken by several national ministries as well as MSMEDA. Licensing responsibilities are split between different national ministries.
The institutional framework locally within governorates can lack clarity in the duties and responsibilities of key institutions and their local co-operation and co-ordination. General Law 152 has provided some clarity and incentives but there remains an implementation gap between the legal and administrative reform and practice on the ground. This gap varies across Egypt. Regional governorate and MSMEDA regional office relationships differ geographically. Some governorates are supportive of the MSMEDA regional office and implementation of General Law 152, while others are less supportive and can therefore impede its implementation. The relationship between the governorate and MSMEDA depends on the governor and the elected members. Some regional governorates request more services and offices from MSMEDA, for example in Cairo. Institutions and authorities overlap in some areas, for example responsibility for land allocation in IZs. In addition, there is still no local government tier in Egypt within the governorates currently due to deliberation over electoral law at the national parliamentary level (Ahmad Saleh, 2018[13]).
It is crucial to recognise that even the strengthened MSMEDA regional offices and branches cannot operate alone in delivering the more decentralised and locally-sensitive SME and entrepreneurship policy across Egypt. Collaborating with local development partners within regional entrepreneurial ecosystems remains vital. Building connections and aligning, co-ordinating, and synchronising regional office and local development partner activities at the local level are key. Within the regional entrepreneurial ecosystems, MSMEDA regional offices can become coordinators and facilitators rather than sole providers of services and work with key local anchor institutions the regional governorate, business associations, universities, and other business development services providers. Mapping and visualising regional entrepreneurial ecosystems can make them more visible and legible to participant organisations and more accessible and navigable for SMEs and existing and potential entrepreneurs.
Monitoring and evaluation
MSMEDA relies on three mechanisms for monitoring and evaluating: i). monitoring conducted by its regional offices, ii). monitoring by an external company or association on the use and benefits of MSMEDA’s financial and non-financial services, and iii). analyses conducted by third-parties on the impact of service delivery. Monitoring and evaluation of MSMEDA regional office activities are largely focused on documenting inputs, activities, and outputs rather than assessing outcomes and impacts. There is a wide variety of programmes being delivered and both MSMEDA head office and the regional offices lack monitoring and evaluation capacity, resulting in a shortage of evidence on local programme impacts. Currently, there are relatively small monitoring and evaluation units within each of the central sectors in the MSMEDA head office in Cairo. Regional offices submit monitoring reports monthly and quarterly to MSMEDA head office. These reports are assessed in terms of actual versus planned achievements and deviations from plan and targets. They include, for example, the overall value of loans disbursed and their breakdown by gender, new start-up and existing businesses, sector, and location, and loan performance in terms of repayment arrears and defaults. Field staff monitor and follow up with projects, for example ensuring payments are occurring and activity is happening as well as identifying further support needs and interventions if required.
While such monitoring activity is important and feeds into the annual planning cycle for MSMEDA’s head office and the regional offices, there is a need to establish the causal impacts of policy interventions on targeted outcomes in the medium and longer-term, such as business survival or growth. This can be achieved through the adoption of reliable evaluation studies, which should leverage guidance and advice from international monitoring and evaluation good practice. Such an approach is key in moving from a monitoring-oriented counting of inputs, outputs, and activities towards more evaluative assessment of outcomes and impacts. Earlier assessments of MSMEDA’s activities have also highlighted this issue (UNDP, 2019[14]). The new Central Sector for Policies and Legislation can support activities in this area, for example by drawing upon international practice in measuring and assessing regional entrepreneurial ecosystems (Bell-Masterson and Stangler, 2015[15]). Progressing digitalisation will also support monitoring and evaluation capacities, for example by providing real time data for internal management information systems to support effective monitoring and building the evidence base for later evaluation.
Targeting of supports provided by MSMEDA regional offices
There is scope for the MSMEDA regional offices to increase their selectivity in the provision of support services to SMEs and entrepreneurs. While approaches vary between offices, in general, a demand-led and reactive approach appears to be taken whereby services are provided to whichever SMEs and entrepreneurs happen to engage with the MSMEDA regional offices and/or their local development partners. Echoing earlier evaluations of MSMEDA’s activities (UNDP, 2019[14]), there is continued scope for greater selection, prioritisation, and targeting of specific types of SMEs and entrepreneurs deemed important locally. The current rationale appears to be to help all people and all industries that come forward in the hope that some will survive and/or grow. This has been a quantity rather than quality-based approach which risks missing opportunities for more effective allocation of scarce resources and locally appropriate service provision and development. The approach may end up supporting low value added and unsustainable business ventures with little chance of achieving continued viability and bearing the risk of potentially undercutting and displacing existing producers in the short-term. Scarce resources may be allocated in a more locally effective and productive way with greater selectivity, prioritisation, and targeting. Potential exists where available local entrepreneurs and SMEs with financial resources can be supported towards investing in sectors deemed appropriate for development locally. Without greater autonomy and resources, it is not clear how a MSMEDA regional office could develop, expand, and/or upgrade their services in any move towards this more quality-based approach.
In recognition of these challenges, MSMEDA has already started, with guidance from its Board of Directors, targeting specific sectors with a focus on quality alongside quantity. The priority sectors include industrial and agricultural production, as well as information technology. A major goal is to boost the exports of projects in these sectors, in addition to integrating the informal sector into the formal one. This shift aligns with the need for greater selectivity in the support offered to SMEs and entrepreneurs, as mentioned in earlier evaluations of MSMEDA's activities. A more targeted and strategic approach, focusing on sectors with high growth potential, is crucial for maximising the impact of limited resources and fostering sustainable development.
Box 6.3 presents the approach to promoting women entrepreneurship among the Bedouin in South Sinai, which is an example of a good practice approach for the local targeting of specific groups.
Women entrepreneurs in the Bedouin community in South Sinai face barriers to their empowerment and wider roles in economy and society in this nomadic and traditionally conservative community. The reluctance of male heads of families to let women work outside the home or travel limited their entrepreneurial potential. The MSMEDA regional office and local partners created a programme to encourage and help Bedouin women producers to develop projects and participate in domestic trade fairs in Cairo and international fairs in France, Morocco, and Saudi Arabia to promote and market their products. The project was formulated and adapted to address particular local conditions. The long-term aim of the programme is to change attitudes and mindsets towards women’s entrepreneurship and economic and social contributions. Women participating in the programme are now being trained to become trainers to extend the programme throughout the South Sinai region.
The national strategy for the development of organic clusters aims to enable private sector enterprises, academic institutions and service providers at the local level to mobilise economic potential and develop regionally and internationally competitive poles of activity (Entrust, 2018[16]). The strategy and policies are based around three economic pillars – research, innovation and technology transfer, specialised skills development, and access to finance – and three cross-cutting themes – governance, gender equity, and legal and regulatory reform. The clusters can include both local SMEs and entrepreneurs and established larger businesses. The roll-out and delivery of the strategy at the governorate level is uneven, generally at an early stage of development, and is reliant upon MSMEDA’s regional offices working effectively with their local development partners (Fatma Abdelaziz et al., 2018[17]). Some of MSMEDA’s regional offices are combining support for all types of projects and sectors with targeted support for organic local clusters, while others are attempting to identify transformative industries to contribute to a positive step change in local economic fortunes. Reflecting the lack of selectivity of the demand-led and quantity-based approach noted previously, other regional offices are merely assisting the available projects in the local services and trade sectors that reach out for support.
Local economic structures and conditions have an important influence on the strategies, plans, and activities of MSMEDA’s regional offices. Those in agriculture-based governorates will, for example, necessarily be dealing with SMEs and entrepreneurs operating in this sector. Questions exist of how to formulate local cluster support programmes with services centred on places to work with and upgrade these existing sectoral strengths, develop localised clusters and scale them up, and/or attract and embed other – related or unrelated – economic activities, and link clusters to wider local economic and social development. There is potential to build upon and better connect and co-ordinate the MSMEDA and Ministry of Investment and Foreign Trade and Ministry of Planning, Economic Development and International Co-operation’s cluster mapping.
Box 6.4 describes South Africa’s policy approach to supporting SMEs in the clothing and textiles sectors, which are also important industries in many parts of Egypt.
Description of approach
The clothing and textiles industry is an important sector in South Africa, formally employing nearly 100 000 people in manufacturing. The sector forms part of the national Industrial Policy Action Plans and the Department of Trade, Industry and Competition’s Clothing Textile Footwear and Leather (CTFL) master plan. Local clusters in the Cape and KwaZulu-Natal are growing and upgrading but face sustainability challenges (Kaplinsky and Morris 2019). In response, the Innovative Business Practices and Economic Models in the Textile Value Chain (InTex) project aims to increase knowledge, provide training, support business model transformation, and improve data access and impact assessment of socio-economic and environmental impacts among both SMEs and policymakers. The project seeks to increase SMEs’ engagement with the concepts of resource efficiency, life cycle models, circularity, and eco-innovation in the clothing and textiles value chain. The project is being implemented by the United Nations Environment Programme and is funded by the European Union (EU).
Success factors
Interim evaluation of the project has identified the importance of the tailored support for SMEs, the need for increased access to environmental, lifecycle and socio-economic data, and robust procedures to identify and engage with technical intermediaries and SME beneficiaries to ensure high ambition and impact (Chaidas 2023). Further key factors include collaboration with technical intermediaries in South Africa with a specialised focus. For example, the Centre for African Resource Efficiency and Sustainability supports SMEs in sustainability tools and skills, while the National Cleaner Production Centre of South Africa advises SMEs on resource efficiency and cleaner production models that help to reduce costs. International connections to project partners in Kenya and Tunisia provide further opportunities for knowledge and experience sharing.
Problems and responses
The central challenge has been shifting SME business models and the orientation of policy support frameworks from high volume, low value-added and disposable products focused on meeting demand for ‘fast fashion’ in developed country markets towards lower volume, higher value-added and longer lasting products. Central to the project is introducing SMEs to concepts such as eco-innovation, product environmental footprint, and circularity, alongside the provision of practical tools, training and technical advice to assist selected SMEs to introduce and adapt these ideas. The aim is to overcome any potential reluctance of businesses or entrepreneurs to attempt such transformation by demonstrating the benefits for SMEs in terms of the resilience, flexibility and competitiveness created by adapting to new market trends more concerned with social and environmental sustainability. The target of 10 assisted companies will be developed into case studies and training and capacity building activities to share the impacts and encourage further SME uptake.
Relevance for Egypt
Clothing and textiles are important economic sectors in Egypt. Egyptian SMEs in these sectors face the same challenges of economic, social and environmental upgrading as well as market development (especially for export) as those in South Africa. There is a need in Egypt to disseminate more widely across the clothing and textiles sector the experiences of SMEs involved in multinational value chains and exporting, for example to EU markets. This example connects directly to MSMEDA’s contributions to the green transition in its joint project with UNDP.
Source: https://www.unep.org/intex
National and local policies to link Foreign Direct Investment (FDI) to SMEs and entrepreneurship are currently limited but are being considered. By utilising their local knowledge and contacts to identify potential FDI firms and potential partner SMEs in their governorates and by designing and implementing appropriate linkage mechanisms, MSMEDA’s regional offices have a potentially key role to play in this area. Other important policy actors are the Ministry of Investment and Foreign Trade and Ministry of Planning, Economic Development and International Co-operation, who could distribute their investment mapping and develop a more systematic programme for connecting SMEs and entrepreneurs with supply chain opportunities in larger international as well as domestic firms. Some MSMEDA regional offices are already supporting matchmaking and networking between smaller and larger businesses (for example, through co-operations between milk and cheese producers and quarry and cement factor linkages in El Minya), although these initiatives do not necessarily involve foreign investors. An obstacle that exists currently is that the difficult macroeconomic conditions in Egypt have undermined business confidence and led to capital flight, meaning that FDI attraction is currently a challenge. This situation limits the potential linkages for local SMEs and entrepreneurs. Box 6.5 shows Malaysia’s policy experience in stimulating linkages between FDI and local SMEs.
Description of approach
As an emergent industrialising country from the 1970s, the Malaysian government sought to attract foreign direct investment (FDI) and link its business opportunities to local SMEs (UNCTAD, 2011[18]). Following the international model of improving the investment climate through strategic FDI attraction, strengthening absorptive capacity and introducing specific linkage policies, Malaysia has taken a systematic approach that has evolved over time (GRIPS Development Forum, n.d.[19]). The Vendor Development Programme (VDP) was Malaysia’s initial FDI-SME linkage programme, which was succeeded by the Industrial Linkage Programme (ILP) in 1997. This programme focused on cluster-based development and deepening FDI procurement from local as well as non-local SMEs. Having successfully supported FDI-SME linkages for several decades, Malaysia now emphasises the creation of innovative SMEs, many of which have FDI connections.
Success factors
Key success factors include attracting a critical mass of FDI in specialised clusters to generate opportunities for local suppliers, identifying and placing local sourcing requirements with anchor firms (e.g. Proton, the national car company), building the capacity and accrediting local SMEs to meet FDI supplier standards, and creating effective selection and matching mechanisms to support FDI-SME linkage development. Furthermore, a lead agency – the Small and Medium Industry Development Corporation (SMIDEC) – was assigned to integrate business matching and SME capacity building. SMIDEC worked closely with the Malaysian Investment Development Authority, the agency responsible for FDI attraction. Affiliation with Japan’s Ministry of International Trade and Industry also provided key knowledge, skills and experience.
Problems and responses
Each policy has encountered challenges that have prompted the evolution of the approach. Several FDI firms were reluctant to participate in the VDP due to the low technical capability of local firms, necessitating further capacity building efforts. The ILP targeted SMEs in selected sectors and strengthened SME capacity building support through fiscal incentives and technical assistance grants for lead FDI firms and expanded support packages for local SMEs. These support packages covered technology development, skills upgrading, and export and market development through a Global Supplier Programme.
Relevance for Egypt
Malaysia’s experience in the early stages of its industrialisation and FDI attraction is highly relevant. Egypt is at a relatively early stage of seeking to attract FDI and has many domestic SMEs in manufacturing looking for new and growing markets. Malaysia’s approach demonstrates the importance of policy co-ordination between FDI attraction and SME capacity development, a sustained and evolving approach to addressing challenges, and the potential to leverage FDI-SME linkage programmes.
Disbursements via direct lending and support to micro and small enterprises provides an indication of the geographical differences in policy delivery and resource allocation of MSMEDA’s regional offices. In 2022, Menia had the highest value of disbursements out of the Egyptian governorates, followed by Bani Souwaif and Sohag (Table 6.9). However, on a per capita basis, SMEs in South Sinai received by far the greatest support from MSMEDA’s regional offices. Indeed, the disbursement per capita in 2022 (EGP 894) in South Sinai was more than twice as high as in any other governorate.
MSMEDA’s latest accomplishment report states that women-led projects account for 45% of MSMEDA’s portfolio. Table 6.9 shows that in all governorates, the majority of disbursements were directed to men in 2022. However, the share of disbursements directed towards women ranges widely from 15% in North Sinai and 18% in Matrouh to 47% in Port Said and 48% in the New Valley. Meanwhile, the share of disbursements channelled to those aged less than 36 years old ranged from 23% in Cairo to 44% in Bani Souwaif.
Note: Disbursements values include direct lending and supports to micro and small enterprises. Youth is up to age 35 years.
Source: MSMEDA (2022)
The size of Egypt and its geographical structure are important characteristics for local SME and entrepreneurship policy. Cairo is a dominant capital city in economic and population terms. Governorates that are long physical distances from Cairo and other large cities find it harder to do business due to their relatively small local markets and high transportation costs. Meanwhile, social and climactic conditions also vary widely across the country, with implications for SME and entrepreneurship development. For example, the presence of illiterate and nomadic communities in South Saini and desert regions limits the range of viable economic activities in these areas.
Such varied geographical conditions warrant a locally-sensitive policy approach. SME and entrepreneurship policy in Egypt historically has had a centralised and top-down approach with only limited tailoring to particular local conditions and opportunities. This centralised management system reduced autonomy and flexibility locally and introduced delays. It also was reliant upon effective policy implementation at the governorate level, which is uneven, and co-ordination between national government ministries, which is lacking. MSMEDA’s regional offices had relatively limited autonomy, resources, and incentives to understand and formulate SME and entrepreneurship policies that were matched to addressing the needs of people and businesses their areas. Moreover, once their plans, targets, and budgets were agreed, local adaptations had to be authorised by MSMEDA head office in Cairo. However, MSMEDA’s approach has evolved significantly in recent years and there is now a renewed focus on achieving greater decentralisation in the design and delivery of SME and entrepreneurship policy.
Potential exists significantly to improve SME and entrepreneurship policy in Egypt by developing and delivering a more decentralised and locally-sensitive approach. The greater local differentiation of policy can provide a clear focus and help to identify and prioritise particular assets, conditions, and constraints for SMEs and entrepreneurs in particular places. This can be achieved through providing more autonomy and resources to MSMEDA’s regional offices. However, the government should avoid imposing immediate requirements for the highly centralised national ministries to decentralise more of their powers and resources, which might be impractical and unrealistic and not solve the problem of lack of capacity and resources at the local level. Instead, over time as MSMEDA’s regional offices and other actors in the regional entrepreneurial ecosystems evolve and demonstrate their effectiveness, national ministries should become more confident about decentralising the roles of policy implementation and, eventually, policy development. The new organisational strategy for MSMEDA currently in development provides a timely opportunity to address numerous of the strategic and operational issues raised in this review.
More broadly, greater recognition is needed of the multiple contributions that local SMEs and entrepreneurs can make to national development, achievement of green transition and sustainable development goals, and moving towards becoming an upper middle-income country. Across Egypt, SMEs and entrepreneurs can contribute to economic growth, industrialisation, expanding the private sector, import substitution, jobs, incomes, economic opportunities for particular groups especially women and youth, and broader wellbeing. Greater national recognition and emphasis will enable better decisions about which kinds of SMEs and entrepreneurs to support and in which kinds of places, making policy more attuned to local differences, needs, and aspirations across Egypt.
Key recommendations
Moving from the currently national, centralised, and top-down national system towards incorporating a more decentralised, bottom-up, and locally-sensitive approach underpins the following 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 service 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.
References
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