Global Arab Network | Revving Arab World Job Engines by Getting Entrepreneurs a Fair Shot at the Money

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Revving Arab World Job Engines by Getting Entrepreneurs a Fair Shot at the Money

Global Arab Network - - Reda Darwish

Thursday, 14 July 2011 23:59

Revving_Arab_World_Job_Engines_by_Getting_Entrepreneurs_a_Fair_Shot_at_the_Money

Global Arab Network - A World Bank Group team was hard at work on putting together a financing facility for micro, small and medium enterprises (MSMEs) before the Arab Spring. But with the facility’s first loan to Tunisia this week aimed at boosting private sector entrepreneurs at thesmaller end of the business spectrum, the team has the satisfaction of good timing.

“It is indeed the huge MSMEsector across the Middle East and North Africa that can and must be the engine for accelerating growth and in so doing drive that all-important factor: job creation.” So says Shamshad Akhtar, vice president for the region at the World Bank. The facility has been a gleam in her eye from the outset, based in a firmconviction that enterprise access to finance and knowhow has proven globally tobe a critical path to inclusive economic growth for millions of people. As thechallenges of openness and opportunity recast history across the region in itsstreets and squares, the emphasis on creating employment and entrepreneurship opportunities has never been more urgent.

As elsewhere in the world, the MSME sector in the Middle East and North Africa (MENA) is where significantnumbers of people make (or could make) their livelihoods. For example businesses employing up to 100 people make up well over 90 percent of all enterprises in economies such as Tunisia, Egypt, Jordan and Morocco. But the constraints are sharply felt. Bank lending to MSMEs is lowest in the world along with Sub Saharan Africa, and only 10 percent of MENA enterprises finance their investment expenditures with bank loans. Smaller players are starved forcapital and growth in output, and job creation hits a ceiling.

Another obstacle for many businesses in MENA has been crony capitalism that too often favors the few andthe connected while excluding the energies of millions of entrepreneurs whocould thrive on a more level playing field. The World Bank captured this vividly in the 2009 report "From Privilege to Competition." Examining some of the seemingly straight forward numbers quoted in the report reveals a shockingly sclerotic system: the average MENA firm at 19 years of age is twice as old asfirms in Central Asia which average 10.5 years. MENA managers, in a region where young people dominate the demographics, are also some of the oldest. Managers of MENA manufacturing firms have, on average, 14 years of experience. Compare that to East Asia where it is half that at 7 years. The report pointed to the dominance of a fewolder and select firms in economies suggesting that connections have been more important to success than innovation. In short potential dynamism in the market is locked up and energetic young entrepreneurs effectively locked out.

In addition, banks in MENA are effectively losing business to all these missed opportunities,and would like to expand MSME lending from the current low of 8 percent on average of their total loan portfolios, by a factor of almost 3, to 21 percent. To do this they need proper and supportive legal and regulatory frameworks in which to operate with some comfort. Banksand other financial institutions also need financing, risk-sharing andtechnical support. The MSME facility will provide a comprehensive package of financing and technical assistance to create a more favorable environment for banks to expand MSME lending. For MSMEs the facility will offer the capacity building they need to position themselves as more credit worthy to banks and capable of the financial reporting required.

The World Bank MSME facility and International Finance Corporation SME facility are expected to attract over $500 million from regional partners (including the African Development Bank) and donors over the next five years. The World Bank has launched the MSME Facility with an initial $100 million Adaptable Program Loan which provides a structure for rolling out country-level financial intermediary loans across the MENA region. These country level loans can include a line of credit component and a contingent credit component, so that the most appropriate instrument can be applied in each market. In the case of the $50 million loan made to Tunisia this week, theimmediate need in that country’s MSME sector is liquidity, with support forpolicy and legal reforms to sustain increases in MSME finance.

There isalso a joint World Bank-IFC technical assistance component with an Advisory Services center in Cairo working to scale up technical assistance support in policyand legal reforms for governments, to financial institutions, and to MSMEs themselves. This will be supported by around $20 million over five years to provide the necessary underpinning for the facility to do its work.

“It’s a three-fold approach really,” says Doug Pearce, team leader for the facility at the World Bank. "Governments need to do their part to create the environment to level theplaying field with policy and regulation. Commercial banks need to feelcomfortable enough to open their doors to borrowers in whom they’ve had littlefaith or interest before, using new lending technologies that enable them toserve a much greater number of MSMEs at minimal cost and risk. And those MSME borrowers need to walk into banks knowing what to ask for, and able to presentcredible information on their business and financing needs."

It is in this environment that investment can begin to flow to build the business to grow the jobs to employ the people eager to find the opportunities. (World Bank)

Global Arab Network

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