8 - 14 February 2001
Issue No.520
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Al-Ahram Weekly On-line 8 - 14 February 2001 Issue No.520 |
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Massive potential, minimal dividends
Controversy has recently intensified over whether the Social Fund for Development (SFD) has succeeded in attaining the objective for which it was established, namely, to create jobs and thereby offset the negative effects resulting from economic reform and structural adjustment. The fund's mandate was to have been achieved through the provision of loans to be used to establish small and medium enterprises.
But rather than giving budding entrepreneurs a start on the path to prosperity, participation in SFD programmes has saddled many of them with debts they are unable to repay. This situation recently induced Prime Minister Atef Ebeid to hold a meeting with SFD Secretary-General Hussein El-Gammal which was attended by 21 of the fund's beneficiaries, who spoke of difficulties in repaying their loans.
Following this meeting, Ebeid announced that an additional grace period of six months to one year would be granted to participants in the SFD scheme.
But apart from this immediate remedy, the strategy by which the SFD has been operating needs to be reviewed in light of Ebeid's announcement this week that 50,000 to 60,000 small and medium enterprises must be established annually to sustain economic growth.
Central, in this regard, is dealing with the problem of defaulting on loans at a more fundamental level. Although failure to make good on loans has been exacerbated by the recession, this phenomenon should also be attributed to the manner in which the SFD administers credit. Loans are only given at high interest rates -- sometimes reaching as much as 10 per cent. And credit is often extended in the absence of feasibility studies showing, at the very least, some assessment of a project's viability.
Sadly, the consequences for those who have been unable to repay their loans, mostly young people with limited means, have been dire, with some even facing the threat of imprisonment.
All of this means that there needs to be better coordination with the banks through which the SFD's loans are provided. This is needed in determining the terms of repayment and to devise insurance schemes to protect investors against future risks which could compromise their projects.
A re-examination of the SFD's policies is also warranted in view of the extensive criticism directed at the organisation for failing to allocate resources in a way that generates growth. Although the SFD has at its disposal substantial sums provided by international donors -- well over LE1 billion to be given in grants and soft loans -- dividends from these are relatively minor.
Criticism has also been directed at the SFD for involving itself in areas outside of its jurisdiction, such as the funding of infrastructure projects in villages and governorates, which El-Gammal says was done at the request of donor countries themselves.
This is an obvious dissipation of assets. Management of funds in accordance with the organisation's mandate would necessitate that funds be directed towards productive activities, allowing the money to create dividends in the wider economy.
The SFD enjoys an extensive network of ties with international donors and has facilitated numerous seminars, conferences and ambitious "networking programmes" in which entrepreneurs are flown to other countries to "learn" from foreign counterparts. But all of these activities, which require considerable financial and organisational resources, seem to have done little to facilitate the achievement of the SFD's mandate.
This situation is all the more worrisome with the discovery that the SFD -- in effect -- has no comprehensive plan to train small and medium entrepreneurs in the administrative and marketing tactics needed to sustain their activities. More serious is the fact that there is no comprehensive strategy for the administration of Egypt's small and medium enterprise sector by which the SFD coordinates with the ministries of the economy, industry and finance to invigorate the sector to become the strong and productive basis for export-oriented industry.
Egypt's small and medium enterprises constitute over 90 per cent of industrial and commercial activity. But many of these need technological upgrading and a reorienting of their productive activities to enable them, for instance, to operate as feeder industries catering to larger industrial enterprises.
The SFD cannot operate as an island unto itself. Just as a more stringent monitoring of its policies is in order, a more comprehensive vision is needed for its management.
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