FROM RESEARCH TO RESULTS

A synthesis of knowledge created through the SMEPol Project and its policy impacts

2000-2008

January 2008

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Acknowledgements This research synthesis report was compiled based on a review and analysis of all research studies conducted on behalf of, or by, the Small and Medium Enterprises Policy Development Project from 2000-2008, and their policy influences. In the preparation of this report, the efforts of the following people are gratefully acknowledged: Ms. Lois Stevenson, Senior SME Specialist, International Development Research Centre (IDRC) and SMEPol Project Coordinator; Mr. Mohamed Abdel Aziz, Manager of the SME Unit, Ministry of Finance; and Ms. Heba Helmy, SME Specialist, SME Unit, Ministry of Finance. Gratitude is also expressed to Mr. Samer Said, IT Specialist, SME Unit, Ministry of Finance, who designed the cover and layout for the report. Special thanks are extended to Dr. Eglal Rached and Ms. Susan Joekes, IDRC, and Ms. Eman Omran, Canadian International Development Agency (CIDA) for their useful comments on the first draft of the report.

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About the SMEPol Project Partners

The Egyptian Ministry of Finance plans, prepares and manages the Government of Egypt’s budget and public debt. This is carried out by preparing legislation, planning revenues and expenditures, managing and supervising the budgetary spending process and preparing a framework for economic policy and development. The development of Small and Medium Enterprises (SMEs) in Egypt is considered to be one of the most crucial components of the Government’s social and economic development agenda. This commitment is in alignment with the Government of Egypt’s economic policy that focuses on job creation through mobilization of the private sector in economic activity, allowing for market forces to prevail, and through investment promotion. The Ministry of Finance is exerting many efforts to develop the SME sector and boost its contribution towards the national economy. It is imperative to stress that no developmental effort will be successfully realized without collaboration and intertwining the efforts of all segments of society together with governmental and non-governmental organizations and the cooperation of these enterprises themselves.

The Canadian International Development Agency (CIDA) is Canada’s lead agency for development assistance. It has a mandate to support sustainable development in developing countries in order to reduce poverty and to contribute to a more secure, equitable, and prosperous world. CIDA’s priorities are poverty reduction, democratic governance, private sector development, health, basic education, equality between women and men, and environmental sustainability. Building on 30 years programming experience in Egypt, the current Country Development Programming Framework (CDPF) puts a renewed focus on supporting Egypt in its efforts to reduce poverty amongst the country's marginalized groups, in particular women and children/youth. Its primary mandate will be support for Basic Education and Small Business Development (SMEs) reflecting Canada and Egypt's agreement that CIDA resources will concentrate on helping to educate people and foster better employment opportunities. Gender Equality, Environmental Sustainability, Institutional Capacity Building, and Child Protection are integral, cross-cutting components, ensuring that the program under the new framework is targeted at those most in need.

5Almost half of CIDA-Egypt's spending is allocated to its SME program, including support for the Business Development Services Support Program and the Small and Medium Enterprises Policy Development Project.

The International Development Research Centre (IDRC) is a Canadian Crown Corporation legislated by an Act of Parliament in 1970. It works in close collaboration with researchers from the developing world in their search for the means to build healthier, more equitable, and more prosperous societies. Its specific mandate and objectives are to: strengthen and help to mobilize the local research capacity of developing countries; and foster and support the production, dissemination, and application of research results that lead to changed practices, technologies, policies and laws that promote sustainable and equitable development and poverty reduction. IDRC has four main research program areas: Innovation, Policy and Science; Social and Economic Policy; Information and Communications Technologies for Development; and Environment and Natural Resources Management, under which fall a number of other sub-programs including the Globalization, Growth and Poverty Program. IDRC has seven regional offices in developing parts of the world and supports many projects and initiatives in the Middle East and Africa. These include the Climate Change Adaptation in Africa Research and Capacity Development Program, the Knowledge Access in Rural Interconnected Areas Network, the Regional Water Demand Initiative, the Promoting Trade Services in the MENA Region Pilot Project, and the Small and Medium Enterprises Policy Development Project.

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Table of Contents

Acknowledgements ...........................................................................................3 About the SMEPol Project Partners.................................................................4 Introduction to the SMEPol Project .................................................................9 The Policy Development Process and Role of Research ............................11 Approaching the Research Challenge...........................................................13 Summarizing SMEPol Research Outputs.....................................................15 Making a Difference: From Research to Policy Action...............................19 Egypt’s MSME Research Capacity.................................................................24 The Impact: Creating a Better Business Environment................................26 Appendix: List of SMEPol Research and Studies........................................28

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Introduction to the SMEPol Project The Small and Medium Enterprise Policy Development Project (SMEPol) is an eight-year (2000-2008) initiative, developed as a partnership between the Government of Egypt, the Canadian International Development Agency (CIDA) and the International Development Research Centre (IDRC) to support Egypt’s transition toward a market economy by assisting the Government to improve the policy environment for micro, small and medium enterprise (MSME) development. The Project was developed based on a request from the Government of Egypt (GoE) for Canadian assistance that could support policy issues outlined in A Draft National Policy on Small and Medium Enterprise Development in Egypt (Ministry of Economy, 1998) and help provide the evidence base to lay the groundwork for favourable policy changes.

This policy effort was linked to the government’s continuing reliance on MSMEs to generate a large share of the new jobs necessary to fight rising unemployment and in recognition of the difficulties faced by MSMEs in terms of the enabling environment within Egypt. The Project was intended to address some of the policy issues by working with the Ministry of Economy in two areas: 1) the establishment of a more coherent policy framework through short-term policy development, and 2) longer-term capacity building of the Ministry in supporting MSME development.

The Project began operations in June 2000 following the signing of a Memorandum of Understanding between the Government of Canada and the Government of the Arab Republic of Egypt in April 2000, and the signing of a Contribution Agreement between CIDA and IDRC. The project is implemented through the Egyptian Ministry of Finance (MoF) (the Government of Egypt implementing body) in cooperation with the Middle East Regional Office of IDRC (the Canadian Implementing Agency). The original Government of Egypt (GoE) partnering ministry was the Ministry of Economy. However, due to a series of changes in government and the reshuffling of ministries and ministerial responsibilities, responsibility for the SMEPol Project moved to the Ministry of Economy to the Ministry of Economy and Foreign Trade,

10 and then to the Ministry of Foreign Trade and finally to the Ministry of Finance. His Excellency Dr. Youssef Boutros Ghali has remained the responsible Minister for the Project throughout its duration.

The overall purpose of the Project was to support the GoE in the development of policies, legislation and regulations supporting MSME development, in particular to influence areas of policy related to the legal and regulatory environment – taxation, customs, procurement - and to improving the operating conditions for MSMEs in areas of financial and non-financial services. Given the critical challenges facing MSMEs, early action to improve the policy environment was essential. At the same time, however, the success of policy development efforts depended on the ability of the responsible Ministry to strengthen its in-house capacities, to improve access to outside sources of research and information, and to develop effective linkages with governmental and non-governmental stakeholders.

The framework to achieve the goals of the Project was comprised of four components:

1) Policy Component: the priority policy areas were identified through a consultative process with all stakeholders. These included: an update of the Draft National Policy; development of a definition for MSMEs; access to finance and procurement; an improved legal and regulatory environment; and other GoE priorities, such as export promotion, taxation for MSMEs, and entrepreneurship.

2) Research Component: studies in support of policy priorities under each policy area; normally including an examination of international experiences and an assessment of the local Egyptian context.

3) Capacity Building Component: an important part of the project consisted of long term training (English Language and Computer skills), short term training (in specific areas related to access to finance, business development services, etc.), and study tours (local and international) to build capacity of Ministry staff and other governmental and non-governmental stakeholders.

4) Networking Component: an essential part of effective policy development, the project invested in building networks with relevant MSME stakeholders in order to insure their involvement

11in the policy development process. This was done through seminars, conferences, workshops, and committees. In addition, awareness was created among the general public through the distribution of documents and research and the website: www.sme.gov.eg.

Policy development was the central axis of the Ministry and the SMEPol Project, around which other activities revolved. Training, research and networking activities were all designed to support the achievement of the Ministry’s policy development goals. However, formal adoption of policies, regulations or legislation would depend on a range of factors beyond the control of the project. Thus, the focus of the project was limited to the identification, analysis and presentation of options for possible action by the Ministry and other GoE entities. Similarly, the project was not intended to play a direct role in the implementation of policy initiatives – although it assisted the Ministry or other GoE entities in the development of plans for the implementation of particular initiatives. In the extension phase of the Project from August 2006 – January 31, 2008, policy implementation in a number of specific areas became a stronger focus.

The Policy Development Process and Role of Research Figure 1 describes the policy formulation process that the Ministry, through the SMEPol Project, developed and adopted. This process involves the generation of relevant and high-quality information and research, assimilation of the views of stakeholders at every stage, and the creation of a positive policy environment. The formulation of policies took a variety of forms including actual laws being developed and passed, Presidential or Ministerial Decrees, or Government announcements.

One of the useful products from the SMEPol Project is the publication, Procedures and Guidelines for the Policy Development Process: A Policy Formulation Manual (2003, 2005). This document, which lays out instruction on how to carry out the policy development process, positions research as an iterative element of the process, the main function of which is to generate the required knowledge and data for the formulation of options leading to informed evidence-based policy decisions.

12 Therefore, research is important at the beginning stage of policy

formulation to provide the background and detailed information for a proper diagnosis of the issues. At this stage, research is undertaken to assess the current situation, study the phenomenon under review, and using insights from the findings, to develop policy options. Of course, research is also an important tool during and at the end of the policy process, playing a role in evaluating the effectiveness of implemented policies in achieving their intended outcomes. In fact, evidence has the potential to influence the policymaking process at each of the policy stages.1 The Overseas Development Institute (ODI) has produced a body of work on evidence-based policy (i.e. policy informed by research), concluding from a number of case studies that policy which is based on systematic evidence is seen to produce better outcomes.2

Figure 1: Model of the Policy Development Process

This From Research to Results report emphasizes results from the Research Component of the SMEPol Project, which accounted for about one-fifth of total project investments, including costs for publication of research results.

1 Sophie Sutcliffe and Julius Court (2005), “Evidence-Based Policymaking: What is it? How does it work? What relevance for developing countries?”, Overseas Development Institute, London. 2 Julius Court and John Young (2003), “Bridging Research and Policy: Insights from 50 Case Studies”, ODI Working Paper 213, Overseas Development Institute, London.

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Approaching the Research Challenge One of the principle outcomes for the original SMEPol Project was stated as: “The knowledge and information base available to [the Ministry] on M/SME development issues has been improved”. To achieve this outcome, the Project financed research on MSME-related issues, providing research-based evidence for SMEPol and indirectly strengthening non-government capacity for research in this area. Government capacity to perform “in-house” research was not targeted as a goal of the project. It instead focused on developing the “structures” for effective policy formulation, the premise being that this would ensure effective utilization of research in the future, have a stronger impact on increasing future demand for research from government, and provide a sustainable benefit to in-country research capacity. IDRCs expertise and input, in particular, ensured that ideas and processes of research and evidence use were more established as part of government practices.

Project partners agreed that the agenda of policy issues would become the core of SMEPol research. These core issues were identified in Policy Issues for the Development of the Small & Medium Enterprise Sector (Ministry of Economy and Foreign Trade, 2001) as: updating the general policy framework; operationally defining MSMEs; increased accessibility of MSMEs to government procurement and to finance; and regulatory reform (i.e. reduced cost of compliance with regulations dealing with enterprise establishment, operations and growth).

The predominant focus of SMEPol studies has been strategically targeted and applied, practical research with the intent to influence the already identified priority policy directions and actions. The primary purpose was to identify the barriers to SME development and growth, assess the Egyptian contextual environment, and examine good practice approaches of governments in developing and developed countries that might be appropriate for adaptation and application in Egypt.

SMEPol’s approach to the research was systematic. In each thematic area, the research strategy began with a background scoping study that included identification of key policy issues. This then led to additional research on specific policy dimensions. During 2000 and 2001, the Project commissioned background studies on existing Egyptian MSME data sources, international experiences of 8 countries in arriving at

14 MSME definitions, the institutional set-up for MSME support in Egypt, and the status of MSME financing. In 2002, they tackled background studies on procurement reforms in favour of MSMEs, the legal and regulatory framework, and credit scoring and credit bureaus as vehicles for increasing MSME accessibility to financing. They also commissioned international experience studies on government policies and processes for MSMEs (8 countries), on development of MSME policy information systems (6 countries), and on MSME export development (8 countries). In 2003, they conducted more research on the Egyptian context for MSME data sources and definitions, and carried out a major study on MSME public awareness issues. In 2004, the work on data sources and definitions was completed, and follow-on research to background studies were undertaken on export programs (export financing and trading houses), and financing options (leasing, venture capital, and credit and credit guarantee schemes). The Project also completed the update to the draft SME policy under the theme “SMEs and competitiveness”.

In 2005, major follow-up studies were carried out on the legal and regulatory framework, including detailed studies on SMEs and taxation, the procedures required for the establishment and operation of MSMEs, and for registration of property. The Project also developed an SME Export Strategy. In 2007, the Project pursued studies on implementation of the SME procurement regime, the specifics of establishing a SME-targeted venture capital fund, an update on changes in the legal and regulatory framework, and studies on women and growth-oriented entrepreneurs, environment issues and MSMEs, and engendering MSME policies. They also partnered with other donors on a large-scale study assessing the impact of microfinance in Egypt.

Early in 2002, the Project established a Research and Policy Advisory Committee chaired by IDRC and comprised of members drawn from the research, banking and SME communities. The Committee’s mandate was to provide strategic and specific advice to Project officials on the research component of the Project, particularly, the research agenda and priorities, and to comment on the methodological soundness and quality standard of research funded by the Project. It met several times between 2002 and 2004, and provided important guidance during the formulation of the updated SME policy

15framework and release of the SME Competitiveness Strategy in 2005, as well as on the conceptual design of a MSME database.

In addition, Committee members provided critical input to consultants and researchers involved in the studies on venture capital, leasing and credit guarantees. During this time, much capacity was built inside the SMEPol Unit to manage research contracts, provide input on draft studies and ensure that study recommendations were practical and implementable.

The Project used a combination of academic researchers and consulting companies to perform the research, in most cases, through competitive tendering processes in response to Requests for Proposals.

Summarizing SMEPol Research Outputs The SMEPol Project produced over 3,700 pages of knowledge on MSME-related issues in 39 policy-oriented research studies and reports. In addition, two profiles of MSMEs in Egypt (2003, 2005) were prepared and published, as well as two reports outlining SME policy issues and directions: Policy Issues for the Development of the Small & Medium Enterprise Sector (Ministry of Economy and Foreign Trade, 2001), and the major strategy document, Enhancing Competitiveness for SMEs in Egypt: General Framework and Action Plan (Ministry of Finance, 2004). A list of the studies and reports is included in the Appendix.

Researchers and consultants engaged by SMEPol analyzed the business environment and existing policies in order to pinpoint clear and specific actions for making improvements in the areas of: how to create a general framework for SME development, improve SME access to financial services, increase government procurement from SMEs, reform regulations to make it easier and less costly for SMEs to establish and operate businesses, and remove obstacles to SME exports. Each study concluded with recommendations for action-oriented reforms, while also taking into account issues related to gender equality, environment and child labour as cross-cutting themes, where relevant. They included both assessments of the Egyptian environment and analysis of international good practices. Researchers also examined the capacity of Egyptian-based institutions to implement measures to promote MSME development and growth.

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SMEPol research themes and number of studies 1) SME policy approaches and institutional set-ups - 2 2) MSME data needs, sources, and reporting - 3 3) Operational MSME definitions – 3 4) MSME financing needs and approaches – 10 5) MSME procurement reform – 4 6) Legal and regulatory issues affecting MSMEs – 7 7) MSME export development – 3 8) Entrepreneurship–related studies - 3 9) Gender issues in MSME policy – 1 10) Environment and MSME policy - 1 11) SME employment and working conditions – 1 12) Public awareness of MSME issues - 1

The studies used a diversity of research methods, both quantitative and qualitative in nature. In addition to international case studies, they employed focus groups and workshops with MSMEs and relevant stakeholders; interviews with government officials, MSME service providers and financial institutions/ intermediaries; and MSME surveys and case studies to identify common constraints and learn more about their behaviours and experiences related to the research themes. Special case studies were completed on the experiences of women entrepreneurs and growth-oriented SMEs.

Key studies, such as those to develop an operational definition of MSMEs, used highly consultative and participatory methods involving representative working groups and consensus-building stakeholder meetings. In some cases, action research was employed. For example, when estimating the time and costs of completing certain transactions with government authorities, such as registering a business and obtaining an operating license, the researchers sent “mystery shoppers” into the field to document their actual experiences.

Over seventy percent of the studies included an examination of international experiences and good practices in a total of fifty-six developed and developing countries. These practices covered policy issues related to: operational definitions for MSMEs; the application of

17leasing and venture capital programs within the MSME market; credit-scoring, credit bureaus, and credit guarantee schemes; export financing for MSMEs; community investment initiatives; effective use of public procurement schemes to support MSME development; MSME-sensitive taxation regimes; reform methods to streamline laws, regulations and procedures governing the establishment, operation and exit of MSMEs, as well as the registration of property; the application of Regulatory Impact Assessment (RIA) regimes; strategies for MSME export development and promotion of trading houses; the implementation of university-based entrepreneurship centers linked to venture capital schemes; and policies and programs geared to increasing the role of women in MSMEs and entrepreneurial activity. From these examinations, researchers and consultants identified lessons learned that were integrated into their policy recommendations and action plan proposals for the GoE. The most frequently referenced countries were Canada, the US, the UK and India.

Countries whose experiences were most frequently reviewed Canada 22 Turkey 8

US 15 South Africa 8 UK 14 South Korea 7

India 13 EU 6 Mexico 9 China 5

A number of common themes have been reinforced in the findings and conclusions from the various SMEPol research studies, such as the importance of:

1) inter-ministerial policy structures and supportive institutional set-ups

2) a unified MSME definition 3) higher quality, more comprehensive, and more regularly collected

data on the dimensions of the MSME sector 4) diversification of sources and types of financing targeted to

MSMEs 5) further simplification and reduction of legislative and regulatory

regimes affecting MSMEs, e.g. business registration and licensing,

18 property registration, taxation, procurement access, customs and export processes, etc.

6) knowledge about the barriers affecting the formalization and growth processes of individual MSMEs

7) knowledge and understanding of the factors contributing to an entrepreneurial culture and the entrepreneurial orientations of young people, university graduates, women, etc.

Although it is evident that the SMEPol Project commissioned very little formal empirical research on MSMEs (most of the research studies at best included a small survey sample of MSMEs or focus groups with 8-20 MSMEs), the Project has been able to take advantage of the research outputs from the academic community, for example, the Center for Economic & Financial Research & Studies at Cairo University, the Social Research Centre at the American University in Cairo, the Egyptian Center for Economic Studies, and specifically, the large 5,000 sample MSME Survey conducted by the Economic Research Forum (ERF) in 2003-04. The results of this survey and database formed the basis of SMEPol’s 2005 update of the Profile of M/SMEs in Egypt.

SMEPol’s focus on evidence-based policy development has been complemented by work to share research results, promote dialogue among stakeholders, provide training, and improve research tools. For most of the research studies, SMEPol organized stakeholder workshops so researchers could communicate their findings and receive feedback on their conclusions, recommendations and proposed action plans. When finalized, various print and electronic versions of the research studies were published to raise awareness of the issues and create a common focal point for discussing policy remedies. Many of the studies have been published for broad distribution and made available on the Project website, www.sme.gov.eg, which has had 50,000 visitors since March 2005.

The research conducted by the project is generally deemed by the various stakeholders as high quality and policy-relevant.” ( ODI, 20063)

3 “Independent Evaluation of the SMEPol Project: Impact, Lessons Learned and Options for Replication,” Overseas Development Institute, March 2006.

19Recommendations for policy reforms emanating from the research

studies were made directly to the Minister of Finance, in many cases, through four inter-ministerial policy committees established by Ministerial decree for the purpose of reviewing the specific recommendations of key studies and framing policy actions. “SMEPol has been instrumental in raising awareness regarding SMEs and keeping the issue on the agenda in policymaking circles in Egypt – and among international organizations. This has happened through workshops, private briefings, open and inclusive channels of communication, and publication of research. While there are many others who work on this issue, and the issue would receive some attention anyway, there is no doubt that SMEPol has deepened and broadened the significance given to SME issues.” (ODI, 2006)

Making a Difference: From Research to Policy Action One of the core roles of research was to influence policy changes. Several variables impact on how effectively that role is performed: quality of the research, timeliness, and most importantly the presence of appropriate mechanisms for implementing recommendations arising from the research. The Project met these challenges on a multitude of levels. The design of SMEPol’s approach ensured the quality of research, involvement of key stakeholders in the initial and subsequent phases of the policy process, and success in situating MSME policy issues within the GoEs overall reform agenda in support private sector development. A key example of this was witnessed in 2004 when the GoE formally adopted the SMEPol strategy document: Enhancing Competitiveness of SMEs in Egypt: General Framework and Action Plan. This framework addressed the problem of sorting out the broad parameters of how to promote the growth of SMEs, given the large number of actors in the field of SME development in Egypt and the largely scattered, uncoordinated and isolated efforts. The strategy also detailed concrete measures, that when implemented, would help SMEs become competitive in the global marketplace.

The institutional framework needed to implement the strategy’s Action Plan was established through a Ministerial decree from the Minister of Finance. In 2004, the resulting inter-ministerial SME policy committee, chaired by the Ministry of Finance, began its mandate of discussing policy implementation of the Competitiveness framework and strategy. Subsequently, three additional inter-ministerial policy

20 committees were decreed to deal with recommendations from research studies on the regulatory environment (the Formalization Committee), procurement (the Procurement Committee) and venture capital (the Venture Capital Committee) and to determine how best to implement policy reforms.

The SMEPol Project can point to a number of positive impacts from research conducted over the past eight years. Some concrete examples of this are illustrated below. It is important to stress that although these policy changes were influenced by SMEPol-initiated research the actual implementation of policy changes were only made possible with the efforts of concerned entities within and outside of the government.

“SMEPol has had clear and substantial success in influencing the strategies and formal policy documents at a ministerial level. The project’s conceptualisation of policy issues was viewed as excellent. Policy documents also effectively developed plans / identified mechanisms for implementation.” (ODI, 2006)

Research outcomes

Operational MSME definition

• The definition for “micro and small enterprises” used in the Small and Micro Enterprise Law (141/2004) was directly influenced by SMEPol research to reach consensus on an operational definition for MSME (“MSME Definition Study: Part II”, 2004).

• Outputs from the same study informed the definition for “small and medium enterprises” adopted by the SMEPol Project.

MSME financing needs

• The study on credit scoring and credit bureaus (May 2002) initiated stakeholder discussion on the issue of reducing MSME credit risk, which contributed indirectly to the establishment of “I-Score”, the first credit scoring company to work in Egypt.

• Output from the study, Research Study on Credit and Credit Guarantees (2004) led to development and publication of the Credit Policies Manual (2006) which provided guidelines for lending practices to MSMEs, covering such topics as credit-scoring of loan applications, loan size and interest rate determinations, loan

21reporting, and staff training and incentives. This Manual was distributed to many financial institutions in Egypt to raise awareness of the nuances of dealing with the MSME market.

• The leasing study (2004) led directly to clarification in the Sales Tax Law with respect to taxation treatment of leasing transactions, the establishment of a Policy Advocacy Department responsible for leasing issues in the General Authority for Investment (GAFI), and procedural amendments to the Leasing Law in 2006 to reduce the time of registering a leasing company.

• The study on the application of venture capital within the SME sector (2004) and the feasibility study on establishment of private equity and venture capital funds (2007) have resulted in the Prime Minister’s approval to proceed with establishing a Fund of Funds to stimulate an increase in risk capital targeting promising existing SMEs and high-growth potential early-stage start-ups.

• Results from these studies on venture capital, together with outputs from the SME competitiveness study (2004) were used in the preparatory work for establishment of the SME Stock Exchange: NILEX.

• Results of the microfinance impact study (2008) will provide insight and guidelines to Microfinance Institutions (MFIs), donors, and policymakers on how to more effectively design microfinance initiatives to meet the needs of micro and small enterprises and enhance its impact on poverty reduction, enterprise development, and improved livelihoods of low-income Egyptians.

MSME procurement reform

• The 2002 study, Procurement Reform Program Supporting SME Development in Egypt – A Background Study, provided influential input to the formulation of the Small and Micro Enterprise Law 141/2004 and its provision for 10 percent of public procurement contracts to be awarded to micro and small enterprises.

• Subsequent studies in 2007 will inform the General Authority for Government Services (GAGS) on more effective implementation of the procurement provision in the Law.

22 Legal and regulatory issues affecting MSMEs

• Since 2004, considerable attention has been paid by the GoE to regulatory reform in favour of a more conducive environment for private sector development. The effects of this can be seen in the country’s rising economic performance and dramatically improved rankings in the World Bank’s Doing Business 2008 report. SMEPol, through its research studies, has been successful in bringing issues pertaining to the reduction of regulatory burden on MSMEs to the fore. These studies have affected laws, regulations, and initiatives targeting MSMEs.

• The study “Streamlining the Regulatory Procedures for SMEs: the One Stop Shop Model” (2002), based on the experience of CIDA in the governorate of Dakahlia, was used as a baseline study for replication of the model by the Social Fund for Development (and provided for in the SME Law 141/2004), in addition to the One-Stop Shop (OSS) approach implemented by GAFI.

• Three extensive SMEPol studies have been carried out to list and analyze all of the laws and regulations that MSMEs have to abide by in order to do business, and to identify needed amendments/deletions to reduce the time and cost of compliance (2000, 2004, 2007). Following the sharing of these reports and their recommendations with key partners and stakeholders, many reforms have been implemented (e.g. reduction of the minimum capital required for limited liability companies from EGP 50,000 to EGP 1,000; shortening of the timeframe for issuance of the taxation card; automation of the commercial registry in GAFI’s OSS; reduction of real estate registration fees; and introduction of voluntary liquidation in the bankruptcy system). The 2007 study reported that the number of days required to register a limited liability company has decreased from 40 days in 2000 to 15 days in 2007 and the associated costs reduced by over 60 percent.

• The study “A tax system for MSMEs: international models and recommendations” (2005) had a direct influence on the enacted new tax law, which included an article allowing for special tax provisions for MSMEs.

23• Output from the technical study, Streamlining the Egyptian Laws,

Regulations and Procedures Governing SMEs Establishment, Operation, Export and Exit (2005) was used to develop the M/SME Government Service Guide (2007) which has been made widely available to MSMEs through government offices, the SFD, the Taxation Authority and other MSME service providing agencies. This Guide (in Arabic) lists all of the steps required to establish and operate an enterprise, what to do, where to go and how to access assistance, and responds to expressed needs of MSMEs for this type of information.

MSME export development

• From 2004 to 2007, average tariff rates have decreased from 14.6 percent to 9 percent and reductions have occurred in the number of days for export clearance from 27 to 15 days, including a decrease in the number of required documents. Although these reforms improve the exporting environment for all enterprises, they were identified as specific barriers to SME exporting activity in SMEPol studies.

Other impacts

• In direct response to recommendations of the July 2003 public awareness study, SMEPol launched a series of regional workshops where MSMEs, MSME service providers and local and national government officials came together to exchange information on changes in government policies and programs and ongoing MSMEs’ needs. In total, 20 workshops were held in various governorates from 2003 to 2007, reaching over 3,500 Egyptians.

• A number of the SMEPol studies, particularly ones that completed an assessment of MSME data sources (conducted in 2000, later updated in 2003 and 2007), the laws, regulations and procedures governing the establishment, operation and exit of enterprises (first conducted in 2001 and later updated in 2004 and 2007), and the public awareness study (completed in 2003) can be used as important baseline studies to track progress and improvements over time.

24 Apart from the influence that SMEPol research studies have had on

government policy actions and initiatives, they have also provided valuable input to other donors, non-government organizations (NGOs) and the private sector. SMEPol studies have been used as inputs for reform initiatives and programs developed by other ministries and donors, and are frequently used as reference sources for other reports and documents including donor Country Assessment Reports. SMEPol has become the “first-stop shop” for knowledge about and on the MSME sector.

Egypt’s MSME Research Capacity One of the challenges moving forward will be to encourage more capacity for and interest in conducting MSME research by the Egyptian academic community. In April 2007, the SMEPol Project co-hosted a workshop on SME research with the Economic Research Forum (ERF) to address this issue. The objectives of the workshop were to: i) discuss emerging research themes and questions based on international experience, ii) assess knowledge gaps/deficiencies regarding MSMEs and entrepreneurs in Egypt, iii) facilitate dialogue between researchers and the donor and policymaking communities, and iv) identify research priorities leading to an action agenda.

Workshop delegates agreed that the base for research on MSMEs in the country is relatively limited, with only a modest amount of available MSME-related data, which makes tracking of longitudinal changes in the sector performance virtually impossible. They also agreed that there are insufficient empirical studies of the behaviour and characteristics of entrepreneurs and of economic activity sectors; a lack of studies on the effects of government regulation and how specific incentives encourage or constrain SME development; few assessments of MSME programs, institutions, and policy initiatives; an inability to easily access existing research and data; and weaknesses in the research community regarding the packaging of research-grounded policy proposals to government.

Other reasons for the underdevelopment of the SME research area in Egypt were attributed to the lack of incentives for researchers in the more traditional academic disciplines to move into this area of investigation; few research institutes dedicated to the study of MSMEs and entrepreneurs; and a lack of dedicated funding sources.

25 A survey of workshop participants conducted prior to the workshop suggested that some areas of knowledge about MSMEs are more developed than others. Specifically, they indicated more knowledge is needed about: 1) patterns of innovation in MSMEs and how this can be enhanced; 2) the integration of MSMEs into the economy (e.g. supply chains); 3) the role of Islamic financing in bridging the financing gap for MSMEs; 4) demographic trends in the growth and performance of the MSME sector over time; and 5) the impact of entrepreneurial growth on Egypt’s economic activity. Several research priorities were identified as being critical to pursue and it was deemed beneficial to spend more time assessing and defining some of these areas for a future research agenda. In spite of research deficiencies and barriers, delegates accepted that there is an opportunity to build on the existing base of data and research and to expand into new areas of discovery and analysis. Delegates made several suggestions to address existing gaps.4 Among these were:

• Establish a clearing house for all MSME research in Egypt. • Create mechanisms for better dissemination of research (e.g.

Egyptian journal for MSME research; more web publications). • More research collaboration and better integration of researchers

and policymakers to reduce currently fragmented efforts. • Setting up a network of policymakers, researchers and service

providers to meet regularly to discuss research needs, priorities, and plans to address them. Specific interest was expressed in forming an affiliate of the International Council for Small Business (ICSB) as a mechanism for doing this as well as for coordinating research efforts, and establishing links with ICSB members in other parts of the world.

• Adoption of a more multi-dimensional approach to MSME research.

• Improving the quantity and quality of government data on MSMEs.

4 “Proceedings of the ‘SME/Entrepreneurship Research Challenges in Egypt’ Workshop”, hosted by the SMEPol Project/Ministry of Finance and Economic Research Forum, Cairo, April 12, 2007 (www.sme.gov.eg).

26 • Formulating a research program on SME firm growth (e.g., how

do they grow, why do they grow, what do they need to grow?), plus pursue research in a number of additional areas, such as more comprehensive sector studies; systematic analysis of policy options; impact assessments of laws, regulations and support programs on MSMEs; the role of business associations; institutional arrangements for SME policy development,; knowledge-based entrepreneurship; diffusion of good practices and the scaling up of successful demonstration projects; among others.

• Exploiting opportunities for greater use of ERF’s MSME database as a rich potential source of analysis, including funding for updated panel surveys as a way of generating ongoing longitudinal data on behaviour of the sector.

• Exploring the feasibility of developing an Egyptian Observatory on MSMEs, based on the successful European model.

• Exploring the European Network for Social and Economic Research as a model for funding MSME research and thus creating demand within the research community for doing research on priority policy issues.

• Offering training to Egyptian researchers on research methodologies and statistical/sampling techniques.

The Impact: Creating a Better Business Environment The impact of the SMEPol Project will be measured by how well it achieves against the outcomes set for the Project. These are framed in terms of influencing a more favourable policy environment. Whether SMEPol’s activities will lead to a better business environment depends on a number of factors outside of the Project’s control, such as general economic conditions, international market developments, and the actions of other stakeholders, including financial institutions and donors. Having said that, the independent evaluation commissioned by IDRC in 2006 concluded the following:

27“SMEPOL has succeeded in piloting a dramatically new policy development process, including use of research and consultation. Use of research was increased and embedded, with non-traditional solutions developed through comprehensive and technical studies. Mechanisms (including workshops and conferences) were developed to aid a widespread consultative process, including dissemination of information, which has become familiar to ministry actors. The MSME policy development climate is generally considered much more open than at the start of SMEPOL.” (ODI, 2006)

The generation of knowledge through research and its dissemination to government policymakers and external stakeholder groups has been a pillar behind SMEPol’s achievements. Going forward it will be important to stimulate more broad-based interest in MSME research from the academic community and to address some of the research gaps identified by stakeholders in the April 2007 SME Research Workshop. It will also be important to maintain the GoE commitment to carrying out research to underpin an evidence-based policy development approach. In the meantime, research outputs from the SMEPol Project will undoubtedly continue to influence ongoing policy reforms.

28

Appendix: List of SMEPol Research and Studies Policy

“Institutional Set-Up Study” (Confidential), Ministry of Economy and Foreign Trade/ Development Unit, October 2000.

Policy Issues for the Development of the Small & Medium Enterprise Sector, Ministry of Economy & Foreign Trade/ In-House, March 2001.

International Experiences in Governmental Policies and Processes for SMEs – A Comparative Analysis, Ministry of Foreign Trade/ Growth Connections, May 2002.

Enhancing Competitiveness for SMEs in Egypt: General Framework and Action Plan, Ministry of Finance/ Entrust Development & Management Consultants, November 2004.

MSME Definition and Data Issues “Review and assessment of data sources on MSMEs”, Magued Osman, August 2000. The Study of an Operational Definition for M/SMEs in Egypt – International

Experiences, Ministry of Foreign Trade/ George Lerchs, September 2001. “Interim Report on Operationally Defining the micro, small and medium

enterprise sector in Egypt (Part 1)”, Economic Research Forum (ERF). “MSME Definition Study: Part II”, Ministry of Foreign Trade/ Economic

Research Forum (ERF), January 2004. “Proposed Scheme for an Egyptian M/SME Policy Information System, Part 1:

Survey of M/SMEs Information System & Portals in Selected Countries”, Fiani & Partners, June 2002.

“Conceptual Design for an M/SME Database in Egypt”, Fiani & Partners, July 2003. Profile of M/SMEs in Egypt (2003), Ministry of Foreign Trade, March 2003. “Profile of M/SMEs in Egypt: Update Report (2005)”, Ministry of

Finance/EQI, October 2005. SME Financing Issues

“Status of M/SME Financing in Egypt,” Ministry of Economy & Foreign Trade, March 2001.

A Background Paper Relative to Increased Accessibility of Finance for M/SMEs: Credit Scoring and Credit Bureaus, Ministry of Foreign Trade/ George Penfold and David Pinel, May 2002.

Research on SME Access to Export Finance in Egypt, Ministry of Finance/ ERF, April 2004.

29Community Investment Initiatives and M/SME Development: A Comparative

Review of International Experiences and Promising Practice with Potential Application to the Egyptian Context, Ministry of Foreign Trade/ H. J. Gerein & Associates, July 2003.

“Community Investment Initiatives and M/SME Development”, Ministry of Foreign Trade/ EQI, August 2003.

The Application of Leasing within the Small & Medium Enterprises Sector, Ministry of Finance/ FinBi - Finance & Banking Consultants International, July 2004.

The Application of Venture Capital within the Small and Medium Enterprises Sector, Ministry of Finance/ FinBi-Finance and Banking Consultants International, July 2004.

Research Study on Credit and Credit Guarantees, Ministry of Finance/ EQI, November 2004.

“Feasibility Study on Establishment of Private Equity, Turnaround and Venture Capital Funds”, AIT, March 2007.

“National Impact and Market Study of Microfinance in Egypt”, PlanetFinance, Ministry of Finance, SMEPol, IDRC, CIDA, GTZ, AgaKhan, and SFD, January 2008.

SME Procurement “Developing a Procurement Reform Program Supporting SME Development

in Egypt – A Background Study”, Ministry of Foreign Trade/ SMEPol, March 2002.

“Development of Government Procurement Bidding Documents for Micro, Small and Medium Enterprises (MSMEs) in Egypt”, Makary Consulting, November 2007.

“Government of Egypt: M/SME Procurement Tracking Report”, Byron Marketing Inc., December 2007.

Legal and Regulatory Issues Streamlining the Regulatory Procedures for Small and Medium Enterprises “The

One Stop Shop Model”, Ministry of Foreign Trade. March 2002. Legal and Regulatory Framework Governing SMEs Establishment, Operation, and

Growth, Ministry of Finance/ Makary Consultants, September 2002. “A Tax System for Micro, Small and Medium Enterprises (MSMEs):

International Models and Recommendations”, Ministry of Finance/ Megacom, March 2005.

30 Streamlining the Egyptian Laws, Regulations and Procedures Governing SMEs

Establishment, Operation, Export and Exit, Ministry of Finance/ Megacom, September 2005.

Research Study on Streamlining the Egyptian Laws, Regulations and Procedures Governing Registration of Property, Ministry of Finance/ MegaCom, September 2005.

Research Study on Incorporation of Regulatory Impact Assessment within the Egyptian Business Regulatory Environment, Ministry of Finance/ Megacom, November 2007.

“Updating the Research Study on Streamlining the Egyptian Laws, Regulations and Procedures Governing SMEs' Establishment, Operation, Growth and Exit: Update and Recommendations”, Megacom, December 2007.

Export Promotion Issues International Experience in M/SME Export Development, Ministry of Foreign

Trade/ Dr. Jan Fedorowicz, December 2002. Promoting Trading Houses in Egypt, Ministry of Foreign Trade/ Dr. Jan

Fedorowicz, May 2004. “An Export Strategy for Small and Medium Enterprises”, Ministry of Foreign

Trade/ Alia El Mahdi, October 2005. Entrepreneurship

Egyptian Women Entrepreneurs: Profiles of Success, Ministry of Finance/ SMEPol, March 2007.

The Path to Growth: Experiences of Egyptian Entrepreneurs, Ministry of Finance/ SMEPol, January 2008.

“Encouraging Innovative SMEs: Role of Entrepreneurship Centers”, TTS Lead Consulting, forthcoming, January 2008.

Gender “Towards Gender-Sensitive SME Policy in Egypt”, AFICS/ EQI, October 2007.

Environment A Study on Environment as an Aspect of M/SME Policy Development in Egypt,

Ministry of Finance/ Megacom, October 2007. Other

“Public Awareness Assessment for Small and Medium Enterprise (M/SME) Policy Development”, Ministry of Foreign Trade/ Makary Consulting and Rada Research & Public Relations Co., July 2003

“Employment Status of SMEs in Qena, Sohag, and Beni Suez Governorates”, El Mobadara in collaboration with SMEPol, January 2004.