Monday,17 June, 2019
Current issue | Issue 1338, (30 March - 5 April 2017)
Monday,17 June, 2019
Issue 1338, (30 March - 5 April 2017)

Ahram Weekly

Opportunities for SMEs

Last year’s floatation of the Egyptian pound has created challenges as well as opportunities for small- and medium-sized businesses

Opportunities for SMEs
Opportunities for SMEs

Like many other sectors in Egypt, the country’s small- and medium-sized enterprises (SMEs) have been affected by the Central Bank of Egypt’s (CBE) decision to float the Egyptian pound late last year, which saw it slide to LE18 to the dollar compared to LE8.8 before the floatation.

This meant an increase in expenditure and consequently in the value of loans for SMEs, said Soha Suleiman, executive vice chairman of the Banque du Caire. However, these things could be mitigated through partnerships, she said.

“The current situation should encourage young people to enter partnerships in order to start their businesses together instead of starting them alone. We want to encourage a culture of partnerships,” Suleiman said during a conference on SMEs in Cairo this week.

She added that the privileges given to SMEs through the CBE’s initiatives to support such businesses could help them to mitigate any negative effects of the floatation of the pound.

In January 2016, the CBE launched a programme to finance 350,000 SMEs with LE200 billion through the banks over the course of four years, at a declining interest rate of five per cent. The CBE has also directed the banks to increase the rate of loans directed to the sector to 20 per cent of their total portfolios.

The initiatives have come in the light of government plans to boost production, create jobs and achieve sustainable development through supporting SMEs.

Suleiman said that the floatation of the currency had increased production costs and therefore the prices of final products, affecting their competitiveness in the market amidst declining demand.

This emphasised the importance of technical assistance and services provided for SMEs that could help them carry out feasibility studies to mitigate such effects by better understanding demand, marketing and exports, she said.

The positive side of the floatation, according to Suleiman, is that it will increase the competitiveness of Egyptian products aboard, boosting the country’s exports. She added that soaring prices at home had prompted consumers to opt for Egyptian products.

SMEs could benefit from the state’s current direction of substituting imports with local production, and SMEs could work as “feeding industries that produce raw materials for big companies,” said Sahar Al-Damati, deputy managing director at the Emirates NBD Bank.

She said that floating the pound had been “positive” for SMEs, as they would benefit from the availability of foreign currency in the banks. After the floatation, foreign currency started to flow back into the banks as it had earlier been circulating in the informal system to make use of the difference between the dollar’s official rate and its rate on the parallel market.

Al-Damati said that SMEs should not have problems accessing finance from the banks. Though financing would cost more, she said, it would get cheaper by the end of the year as the pound is expected to strengthen against the dollar.

She added that following the floatation, many international financial institutions, such as the International Finance Corporation (IFC), had offered more funding to SMEs.

CBE Governer Tarek Amer said that some 16,000 companies had benefited from the CBE’s initiative launched last year, expecting the number to increase in the coming period.

Mounir Al-Zahid, chairman of Banque du Caire, said that the banks’ objectives had changed and that competition was no longer confined to financing big corporations.

A World Bank study published in 2015 said that SMEs play a major role in most economies, particularly in developing countries.

Formal SMEs contribute up to 45 per cent of total employment and up to 33 per cent of national income in emerging economies, it said. These numbers are significantly higher when informal SMEs are included.

In Egypt, SMEs represent around 80 per cent of the economy, the majority of them operating in the informal sector.

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