Chapter 4. Nurturing start-ups and SME growth
This chapter focuses on three specific factors that can be significant drivers of private sector development in the context of MED economies: the availability and accessibility of business development services, the ease of access to public procurement opportunities for SMEs, and measures to promote SME internationalisation, notably through exports.
Overall, this interim assessment finds a large number of programmes and initiatives but very little evidence of their results. This could suggest 1) that these initiatives have effectively remained declarations of intent without clear strategies for SMEs to benefit; 2) that linking actions to results has been a weak exercise, with no evidence available on the extent to which SMEs have benefited from the many initiatives in these three policy areas; or 3) a combination of both.
This interim assessment puts forward the following actions for MED economies:
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Consolidate and disseminate comprehensive information about SME and entrepreneurship support programmes provided by different institutions (government agencies, private sector providers, donors, etc.).
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Publish the results of these inventories and make them easily available for their beneficiaries through simple means such as brochures and through comprehensive mechanisms such as SME Observatories.
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Implement e-procurement systems and track the extent to which specific measures have actually benefited SMEs (e.g. splitting tenders into lots, easing procurement conditions, providing down payments, etc.). Procurement observatories could be a useful tool for assessing the effectiveness of these measures. They could be linked with SME Observatories.
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Better link export promotion strategies with concrete measures for SMEs to benefit from these strategies, and better track whether exports or trade in general (exports and imports) actually increase, and to what extent these results end up benefitting SMEs (e.g. access to cheaper and better-quality inputs or greater access to markets).
The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
Despite the differences in definitions applied across economies, SMEs constitute the overwhelming majority of enterprises, account for important shares of total employment and contribute to total value added and trade. However, to fully capture the role of SMEs as engines of wealth and job creation requires a dynamic perspective: what matters most for economic dynamism is not the number and size of firms per se, but the rates of firm creation, survival, growth and exit – that is to say, the entrepreneurial performance of economies (OECD, 2013).
Certainly, the entrepreneurial performance of an economy depends on many factors, ranging from macroeconomic stability to the quality of the education system and the competition framework. This chapter focuses on three factors that can be significant drivers of private sector development in the context of MED economies characterised by low levels of formal enterprise creation and the dominance of the state in the economy: 1) the availability and accessibility of business development services, 2) the ease of access to public procurement opportunities for SMEs, and 3) measures to promote SME internationalisation, notably through exports.
This interim assessment finds that a number of measures and initiatives have been undertaken in the three areas analysed in this chapter (see Table 4.1). However, although there are now several providers of business development services (BDS), little information on their offerings has been made available to SMEs. Similarly, although governments have made many efforts to facilitate access to public procurement for SMEs, concrete information on the results is scarce. Finally, despite ongoing initiatives to facilitate exports and access to new markets, the results in terms of SME creation and growth remain unclear.
SMEs and entrepreneurs could be better informed on the large and expanding availability of business development services.
Business development services (BDS) have the potential to improve the functioning and competitiveness of companies across a wide range of activities. BDS consist of the provision of specialised external advice and expertise on a temporary basis to supplement internal resources and capacities. The availability of a diverse and competitive market for BDS is a basic requirement for the development of a healthy entrepreneurial fabric, allowing firms to obtain guidance, engage in capacity building, and assess and improve their performance.
The BDS market is very diverse across the MED region, with public, private, and non-governmental organisations (NGOs) and other actors supplying services for women and young entrepreneurs; micro firms; and manufacturing, industrial and services firms, etc. Given this diversity, it is important to make information easily accessible for entrepreneurs and SMEs.
Progress since 2014
This interim assessment finds an expanding offer of BDS across the MED region, with the continuous active participation of government and private actors, as well as NGOs. Services are diverse and target many types of beneficiaries, from young and women entrepreneurs to industrial SMEs.
Overall, the region could improve the ease of access to information on these services, including from the simple creation and distribution of flyers or prospects to the establishment of comprehensive web portals:
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Jordan continues to have a diversified and extensive market for BDS. Some of the most important and active organisations in this regard include the Jordan Enterprise Development Corporation (JEDCO), the Business Development Centre, several NGOs and private service providers, and the Business Associations and Chambers of Industry and Commerce. Information about these support services is scattered across a large number of sources, but the SME Observatory has a mandate to centralise this information.
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Lebanon continues to have a rich market for BDS, with a diverse range of actors from the public and private sectors as well as civil society. New initiatives have also been introduced, such as the MSME TA Facility, which aims to expand BDS in such areas as product innovation, monitoring and evaluation of services. To increase the amount of information available on BDS and other support measures, the Ministry of Economy has published the guidebook What’s in Lebanon for SMEs 2017.
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BDS providers in PA reflect a diversified and rich network of public, private and donor-funded institutions. The SME division under the Ministry of National Economy facilitates access to information on the multitude of business development services and providers available.
Morocco’s SME agency has restructured the offer of BDS to target different types of SMEs and created a special programme for self-entrepreneurs:
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In Morocco BDS continue to be highly diversified, with a solid presence of both public and private providers. Morocco SME has restructured its support programmes in line with its strategic lines of work. Two main programmes, Istitmar Croissance and Tahfiz, support efforts by micro-enterprises to invest and modernise their systems. Support for SMEs is channelled through Imtiaz Croissance, which co-finances investment projects, and Moussanada, which funds technical assistance services. One of the most important improvements has been the introduction of the statut de l’auto-entrepreneur (auto-entrepreneur status), which creates incentives and support measures seeking to promote entrepreneurship. Launched in 2015, the system has a target of 20 000 beneficiaries per year and is seen as an innovative initiative to reduce Morocco’s informal economy.
In Algeria and Egypt, most BDS providers are public institutions, whereas in Israel BDS centres are managed privately and in Tunisia there is a large presence of private organisations and NGOs:
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Algeria has a less diversified market for BDS compared to its regional peers. Through the National Upgrading Programme, managed by the SME Agency (ANDPME), the government continues to be the main actor providing support to industrial firms, in line with the general economic strategy in the country. Furthermore, the PME II programme, which provided assistance to SMEs with growth potential in 2014, is no longer operational.
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Egypt has a relatively diversified market for BDS, although the main actors continue to be governmental bodies such as the new micro, small and medium-sized enterprises agency (MSMEDA) and the Bedaya Centre for Entrepreneurship and SME Development. That said, recent donor-driven initiatives have focused on encouraging and facilitating SME access to BDS while supporting the expansion of these services across the country.
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Israel’s SMEs enjoy a broad and competitive BDS market, which has continued to improve over the last years. The Small Business Development Centres (MAOF) have expanded from 26 to 40 since 2014. These publicly funded, privately managed centres provide subsidised and tailor-made services while also acting as one-stop shops that give access to other government support schemes.
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Tunisia has a diverse source of BDS and players in this domain, including the Agency for the Promotion of Industry and Innovation, the Business Centres of the Ministry of Industry and a number of business incubators. Civil society organisations are also active in this field. For instance, the Institut Tunisien pour la Démocratie et le Développement (ITDD) supports young entrepreneurs develop business plans and reaching out to public institutions. Information on available services is available, although scattered in several websites.
For further action
The region could improve access to information on the variety of BDS on offer. This could be done through a number of measures ranging from leaflets (already available in Lebanon) to SME Observatories (not yet fully available but being developed in Jordan and Morocco).
E-procurement could be further promoted to facilitate the participation of SMEs.
On average, public procurement contracts account for about 18% of GDP in the MENA region (OECD, 2016). This represents a considerable source of revenue that, if used properly, could strongly contribute to the development of SMEs. Nevertheless, SMEs could be excluded from public procurement due to the unaffordable size of the average public contract, complex administrative processes and highly-selective prequalification requirements. In addition, SMEs face information gaps and lack the capacity to complete required documents, further reducing the firms’ chances in public competitions. As a result, only major firms tend to compete for public contracts.
Progress since 2014
Several economies have introduced measures to facilitate SME access to public procurement, such as splitting tenders into lots, introducing penalties for late payments, eliminating participation fees for some procurement contracts, etc. These measures are positive, but the use of e-procurement is still limited. The establishment of electronic procedures for public procurement can significantly increase the participation of small firms.
Although there is much room to increase the use of e-procurement in the region, economies like Israel, Jordan, and Tunisia are working to improve already existing e-procurement systems or introduce new ones:
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Israel is developing with several pilot e-procurement platforms like Menorah or Zohar to consult and apply for tenders.
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Jordan is developing an e-procurement system in collaboration with the Korean International Co-operation Agency and will create a centralised system for procuring entities and bidders and suppliers. New procurement regulations have been adopted and an oversight structure for the public procurement system has been established.
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Tunisia already had an e-procurement system, but an ongoing project was launched in 2016 to reform electronic public procurement procedures. As a first step, Decree No. 1039, 2014, replaced all previous related legislation. Tunisia has also taken several measures to promote the participation of SMEs, such as making information on opportunities easily available, assessing penalties on late payments and mandating a period of at least 30 days for bid submission from the date a notice is published.
Several MED economies have reviewed the legal framework for public procurement:
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Egypt adopted a new Law on Public Procurement in 2016, further advancing transparency in public procurement (EBRD, 2017). The new law reduces by 50% the guarantee bond required from SMEs during the application to a public tender. An official portal is dedicated to public procurement at the national level, which allows all companies to access information on public tenders.1 MSMEDA and the Authority for Government Services are expected to sign a protocol to facilitate SME access to public procurement.
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Israel in 2016 amended the Mandatory Tender Law and the Mandatory Tender Regulations to prevent the exclusion of SMEs from public contracts. The Government Procurement Administration (GPA) of the Ministry of Finance publishes centralised tenders and disseminates codes and regulations on public procurement. Local authorities, however, have their own rules and their regulations and do not need to abide by the GPA, although there are ongoing efforts to align local and central processes (procurement by schools, for example, is under municipal responsibility).
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PA approved a Procurement Law of 2014. According to the consultations for this interim assessment, the Law is open and transparent and has a website with information.
Other countries have introduced various measures to encourage SME participation in public procurement opportunities:
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In Algeria a special decree of 2015 foresees subcontracting for firms winning contracts, increasing SMEs’ chances to participate in the market indirectly as suppliers to other firms. There is no data regarding the impact of this measure. Algeria does not yet have an e-procurement system.
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In Lebanon some measures have been taken to increase the amount of information on public procurement opportunities online and in newspapers. Draft laws are under discussion for the modernisation of the procurement system.
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Morocco has simplified procedures related to the justification of technical criteria; introduced a cash advance for bid-winning SMEs; and created a unique identifier which facilitates accessing the financial information of the company.
For further action
All MED economies have made efforts to facilitate the participation of SMEs in public procurement. However, none has in place a comprehensive mechanism for monitoring the participation of firms engaged in public contracts. MED economies could therefore consider the introduction of procurement observatories. Several MED economies – namely Algeria, Lebanon and PA – could also benefit from the introduction of e-procurement mechanisms.
Some efforts have been made to promote exports and access to markets, but the links to SME policy remain weak in most cases.
Many factors determine the export potential/performance of a given company, and not all of them are (or should be) influenced by public policies. For instance, the sector in which an enterprise operates can be a key determinant of its international orientation. The size of the domestic market and the level of sophistication of a business are other important determinants. However, policies should be aimed at removing barriers and facilitating access to international markets for those companies with export potential and ambitions.
Progress since 2014
This interim assessment finds several initiatives aimed at increasing exports and market diversification, including the adoption of export strategies and the signature of new agreements. However, the concrete links to SME internationalisation and facts and figures on increased international business remain absent, except for Israel and Morocco.
Algeria, Egypt and PA have adopted new strategies to promote exports:
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Algeria is developing a National Export Promotion Strategy (as reported by the Agency for the Promotion of Foreign Trade) that will seek to eliminate administrative and technical barriers to international trade.
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Egypt has developed three interlinked strategies involving the promotion of exports: an industrial strategy, an export development strategy and an export strategy to Africa.
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PA has continued advancing in this policy area, in particular through the adoption of the National Export Strategy and the establishment of a public-private Export Council.
Other economies have introduced various measures such as financing programmes for SMEs (Israel), agreements with the EU on rules of origin (Jordan), and digitalisation of trade procedures (Morocco):
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Israel has implemented a number of new initiatives. This includes the Foreign Trade Administration’s “Smart Money” programme for SMEs, which provides training and loans for marketing consulting services. Other example is Shalev programme which provides loans to micro firms so they can develop marketing activities, business planning and training.
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Jordan has undertaken various initiatives in this area, notably in co-operation with the European Union (EU). The most salient one is the simplification of the rules of origin set out in the EU-Jordan Association Agreement in order to incentivise integration of Syrian workforce in Jordan. But by July 2017 some estimates reported that only eight firms had been deemed to meet the conditions and just two of them actually benefit from it.
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Morocco has advanced towards a more internationalised environment for SMEs. A relevant improvement has been the implementation of PortNet, a virtual platform to deal with the formalities of foreign trade in ports. Morocco aims to reach the total digitalisation of foreign trade procedures by 2020.
Fewer measures have been introduced in Lebanon and Tunisia:
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Lebanon registers little progress in this area. A number of initiatives for SME internationalisation have been introduced over the past few years, although without a clear holistic or coherent framework. The Integrated Vision for the Lebanese Industrial Sector 2025 includes a section on increasing industrial exports with a series of actions in this area and responsible parties. The export promotion agency has not been established and there is no export promotion strategy.
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Tunisia has undertaken several efforts in this area over the past few years with the technical support of multilateral bodies. Tunisia also joined the Europe Enterprise Network.
For further action
All MED economies have made efforts towards export promotion and market access. However, only rarely are these efforts clearly linked to SME internationalisation. Although export strategies and agreements have often included aspects related to SME internationalisation, the link to concrete actions and results is almost absent.
The way forward
Supporting enterprise creation and growth through BDS and better access to public procurement and international markets is an important policy area that most MED economies have addressed through a large number of programmes and initiatives. However, this interim assessment finds very little evidence in terms of actual results. This could suggest 1) that these initiatives have remained in declarations of intent without clear strategies for SMEs to benefit; 2) that linking actions to results has been a weak exercise, with no evidence available on the extent to which SMEs have benefited from the many initiatives in these policy areas; or 3) a combination of both.
More concretely, this interim assessment puts forward the following actions for MED economies:
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Consolidate and disseminate comprehensive information about SME and entrepreneurship support programmes provided by different institutions (e.g. government agencies, private sector providers, donors).
-
Publish the results of these inventories and make them easily available for their beneficiaries through simple means such as brochures and through comprehensive mechanisms such as SME Observatories.
-
Implement e-procurement systems and track the extent to which specific measures have actually benefited SMEs (splitting up tenders, easing procurement conditions, providing down payments, etc.). Procurement observatories could be a useful tool for assessing the effectiveness of these measures, and could be linked with SME Observatories.
-
Better link export-promotion strategies with concrete measures for SMEs to benefit from these strategies, and better track whether exports or trade in general (exports and imports) actually increase – and to what extent these results end up benefitting SMEs (e.g. access to cheaper and better quality inputs, greater access to markets).
Bibliography
EBRD (European Bank for Reconstruction and Development) (2017), Egypt country strategy report, EBRD, London.
OECD (2016), Stocktaking Report on MENA Public Procurement Systems, OECD Publishing, Paris, https://www.oecd.org/governance/ethics/Stocktaking_MENA_Public_Procurement_Systems.pdf.
OECD/IDRC (2013), New Entrepreneurs and High Performance Enterprises in the Middle East and North Africa, Competitiveness and Private Sector Development, OECD Publishing, Paris, https://doi.org/10.1787/9789264179196-en.