AN ARAB SPRING FOR ENTREPRENEURSHIP SME Advisors Stars of Business Summit Abu Dhabi – 5th December 2012

1. AN ARAB SPRING FOR ENTREPRENEURSHIPSME Advisors Stars of Business SummitAbu Dhabi – 5th December 2012 Salvatore Zecchini Chairman OECD WP SMEE

2. CURRENT TRENDS IN MENA COUNTRIES • Rapid change in economy and social spheres characterizes all the region • Wind of economic liberalization blowing • Ambitions and expectations of better living and more jobs are at all time high • But reality is not encouraging, because of slowdown in world economy and limited room for expansionary fiscal policies in MENA region.

6. Wide differences between oil exporters and oil importers in the MENA region • Oil exporting countries are benefiting from sustained oil prices, rising government spending and a positive business climate. • In oil importing countries, economic activity is still under the impact of social unrest, political and institutional uncertainty, declining external demand and steep oil prices.

7. What factors can lead to a sustained and general improvement of economic prospects? • Can entrepreneurship, start-ups and SMEs be the keys to renewed growth, particularly without having to add to fiscal imbalances?

8. To answer these core questionsaddress • 1) The constraints and weaknesses SMEs are facing in MENA countries; • 2) The government measures to support them; • 3) The shortcomings in their policies; • 4) The priority areas where governments should intervene decisively to fully exploit the potential of entrepreneurship.

9. Gvt goal is to leverage SMEs and entrepreneurship to spur job creation, investment , ec.diversification • In MENA region, such an approach is uncertain • It all depends on an “Arab Spring for Entrepreneurship” • It means a complete overhaul of the economic and financial systems, together with support policies for entrepreneurs • To this end, road ahead is still long because environment is far from being favourable to business activity

10. Ease of Doing Business indexby Word Bank According to WB “Ease of Doing Business” index, UAE rank has risen from 118th in year 2000 to 33th position in 2012 in world ranking. But major improvements are still needed in legal environment to provide certainty in business and credit relationships in business and credit relationships.

12. Economic environment for SMEs

14. Skilled labor is hard to find due to inadequate education and training

15. Some ICT indicators

16. More difficulties for SMEs than for large firms Source: S.Hertog, Benchmarking SME policies …

17. Problematic factors for doing business in MENA region

18. Problematic institutional environment

20. SMEs: Access to finance

21. SMEs’ main weaknesses • opacity about their conditions, • weak corporate governance, • inadequate management structures, • poor bookkeeping and accounting practices, • insufficient collateral

22. Difficult for SMEs to attract quality labor force • Jobs less secure than in public administration • Wages lower than in P.A. and large firms • Work conditions are less attractive • Labour market is heavily regulated and rigid As a result, workforce at SMEs is made out mainly of low skilled labor

23. Regulatory burden on enterprises

24. Government measures to support SMEs and entrepreneurship • Simplification of procedures to start a business • Diffusion of business incubators and business centres • Funding of industrial zones • Promotion of SME participation in value chains • Labor training programs • Promotion of links with universities and research centers • Financial assistance through tax preferences, grants, credit guarantees and subsidies, soft loans, “private equity” investment, incentives to banks to lend to SMEs, public procurement

25. Government policies shortcomings • Uneven use of policy tools and wide differences in policy commitment across MENA countries • Inadequate coordination in tool applications • Lack of coherence with different industrial policy measures • Inadequate targeting of measures with the consequence of room for benefits being captured by less competitive firms or well-connected entrepreneurs • Poor attention to the implementation and evaluation of outcomes

26. Under current policies, irrealistic to expect that SMEs and Entrepreneurship could lead the economic recovery • Hence, need of an “Arab Spring for Entrepreneurship” to overhaul the system • To this end, renewed efforts by both, Government and SMEs • Both have to take their share of responsibility to improve current conditions for business activity

27. Governments should focus on few critical priorities • SME financing impediments; • Shortage of technical and managerial skills which can match enterprises’ needs; • Easing the burden of regulation and bureaucracy to allow more business initiatives, higher competition and innovation. • No real policy alternatives for governments, but use all tools to customize policy mix to the specificity and intensity of SME problems in each country.

28. Easing access to finance is a priority and involves • Overcoming banks’ reluctance to lend to SMEs, • Fostering a broader recourse to equity investors, • Promoting leasing, factoring, hire-purchase, bond issuance for SMEs and other alternative funding means.

29. Few proposals on the instruments to be applied • An obligation to provide the lender with certified data on SME conditions; • A compulsory recording in a central register of all loans to enterprises, a register that can be accessed by all financial institutions; • A radical change in the system of collateral for financing (particularly, mortgages and foreclosures) through a reform of the legal and judicial system. • A special support to mutual credit guarantee schemes, since they imply a sharing of risk among participating firms and consequently a closer monitoring among themselves.

30. Upgrading skills and management capacity • Support should be tightly focused on the SMEs’ needs, • Be demand-driven and managed together with business associations, • Should leverage the national educational system, especially the technical universities and vocational training institutions through joint programs, incubators and voucher schemes. • Government funding of “internship programs” at universities and management institutes for small entrepreneurs, • Funding for “Hiring programs for new graduates”, • Programs to engage students for a work experience in small firms. • An active gender policy to bring the human capital represented by women to contribute to build a strong and competitive enterprise-based economy.

31. To unleash entrepreneurial spirits • By removing regulatory and bureaucratic obstacles to business creation and expansion in a competitive market. • It is not just a question of facilitating business entry, as gauged by WB indicators, but to make it easier for small firms to expand, invest, innovate and compete. • To this end, the EU Small Business Act is a model to be heeded, since it is bringing about a true revolution in the way governments shape their policy making at all levels.

32. In addition to the three priority actions, governments should provide good public services to SMEs, • such as information infrastructures, • efficient utilities, • functional industrial areas, • mentoring, • a level playing field in the marketplace • procurement practices that are favorable to SMEs.

33. SMEs have to do their part by • interacting among themselves with cooperative attitudes, • entering into networking arrangements, supply chains, innovation chains, • exploiting the synergies of business clusters • being transparent about their activities • investing in human resources, knowing that a skilled workforce is both a valuable asset for the enterprise and a prerequisite to lower the currently high unemployment, particularly among the young.

34. All these radical changes are at the core of a needed “Arab Spring for Entrepreneurship” But the true spirit of the “Arab Spring ” should also be reaffirmed in the economic domain, i.e. overhaul not just institutions, but people’s cultural attitudes. Social norms and a widespread culture currently take a tarnished view of entrepreneurship. No Arab Spring for the economy can succeed unless such attitudes are countered by all means by government, starting from education at school level.

35. Only an entrepreneurs-friendly culture throughout the entire society can really make entrepreneurship the driver of the long-sought-after economic and social progress.