The Regulatory Environment Lessons Learned: CIDA Program in Egypt

1. The Regulatory Environment Lessons Learned: CIDA Program in Egypt Support to Entrepreneurship: Start-ups & Existing

2. Regulatory Reform MSE Law 141, 2004, was passed to provide the legal basis for the promotion of MSEs, including designating the Social Fund for Development (SFD) as the co-ordinating agency for the GoE. CIDA’s contribution to the Law: 10% of government procurement to SMEs (Access to markets for entrepreneurs). One stop shop model (Reduce regulatory burden & cost for entrepreneurs to get a license to start & expand their business) Lessons Learned: Easier to work at local level then roll it up to the national level. One Stop Shop started at one governorate as a pilot then when adopted by the Egyptian government was expanded to all other governorates through the SME Law.

3. Regulatory Reform Lessons Learned: Demonstration model introduced to new concepts: Governmental officials can be service oriented when there is a proper system and a good incentive scheme. Introduced and linked fees for service in order to achieve sustainability Entrepreneurs are willing to pay fees for service when there are transparent and consistent procedures in place Demonstration model helped get the buy in of an influential champion (Prime Minister), which resulted in being incorporated in the SME law

4. Strategy Formulation CIDA’s Experience with three different strategies to support MSME development: • By champion • By mandate • By support • By champion: Enhancing Competitiveness of SMEs in Egypt “General Framework and Action Plan” LL: Not enough to have champion without mandate Focus was on the strategy not the process Lack of consultation from the beginning affected its implementation

5. Strategy Formulation • By mandate: MSE national strategy –Social Fund for Development (SFD) – CIDA provided TA to develop the strategy LL: We were too ambitions, It takes time to change attitudes and mind sets • Tried to promote the concept that SMEs are not charitable group but economic group that needs to be mainstreamed into the economy. • Tried to promote the competitiveness concept even for MSEs (value chain, cluster development, export readiness, promote entrepreneurship in education) • Tried to promote the concept that coordination is not control and each entity can have an important role to play • Tried to promote the concept that it is not an institutional strategy but a GoE strategy • Tried to promote the concept of involving stakeholders from day one, including MSEs. • Tried to promote the concept that the product is the process and not the strategy Need a champion with authority and that has the mandate

6. Strategy Formulation 3. By support: Provide TA to implement strategy- General Authority For Investment (GAFI)- SMI strategy for “Enterprise Egypt” (work in progress) LL: They have the mandate, and the champion They consulted different donors based on their expertise, ILO, EU, and CIDA CIDA experience in BDS provision and the development of several working models (BDS service provision and BDS facilitation), NGOs, private sector and government institutions Coordination with SFD through avoiding overlapping and providing complementary interventions.

7. Activating existing laws and Decrees One Stop Shop concept in SME Law 141: Model has been replicated and modified by GoE, and other donors,..etc. CIDA modified model with a money back guarantee policy LL: Replication occurred due to the results, research and dissemination of information 10 % government procurement for SMEs in Law 141 Work with the supply (MSMEs) and demand side (government organizations), awareness at all levels, and demonstrated a working model in the field LL: Lack of awareness of this provision in the existing Law by the government agencies and SMEs Lack of capacity of implementation by the government and by SMEs to access the service It is not about introducing new laws but we have to examine existing laws and try to activate and implement them

8. Activating existing laws and Decrees The Central Bank of Egypt issued decree no. 2008/2408 which officially endorsed the SME Unit at the Egyptian Banking Institute (training and technical provision for banks in Egypt) to facilitate SME access to finance. LL: CIDA influenced the decree and provided the capacity building needed to operationalize it, by working on the demand and the supply side Selected two banks to demonstrate how the model works (down scaling and up scaling) Influential champion helped promote the concept

9. Supportive Systems CIDA piloted different models for developing supportive systems for MSMEs: Microfinance-occupational health and safety- upgrade equipment to reduce hazards to the working children (potential entrepreneurs) + skills training & entrepreneurship game. Financial and non financial services provision to MSME start ups to increase the survival rate, competitiveness and business growth (accompaniment for entrepreneurs). Donor coordination to maximize the use of funds and efforts. Target group marginalized areas & marginalized citizens (women & youth) Capacity building CIDA’s work methodology

10. Supportive Systems LL: • Business Development Services is not promoted enough and needs to be integrated with the financial services • Private sector and civil society organizations can have a positive role in BDS provision and facilitation • Promotion of human rights can be done through a business lens • Children’s work, if we can not completely stop it, then we could help them become future entrepreneurs provided they are able to work safely and continue formal and non-formal education

11. Key message for BPEP Conference Summary of CIDA’s experience: Egypt suffers from excess public servants (7 million) and despite the changes in laws, regulations and policies pertaining to creating a friendly business environment, they do not translate into workable actions, it stops before the implementation phase. Reasons: rule of law, property rights, corruption, lack of transparency in the policy process itself (entrepreneurs are not included in the process) and lack of capacity. What is needed: capacity building and real players who could induce change and work with them 2009 World Bank Report: “From Privilege to Competition, Unlocking Private-led Growth in MENA” Key finding: “ For many countries in the region, the main problem is not reforming more rules and regulations but improving their implementation”

12. More enabling environment for entrepreneurship and enterprise establishment, operation and growth ( Egypt SME national strategy) Motivate more Egyptians to value entrepreneurship as a career alternative by implementing a National Entrepreneurship Promotion Initiative. Identify and promote areas of the economy where growth opportunities exist. Expand Innovation infrastructure. Implement national entrepreneurship education, orientation, and young entrepreneurs support programs Foster more effective linkages between universities, the R&D environment and private sector MSEs.

13. More enabling environment for entrepreneurship and enterprise establishment, operation and growth Simplify the legal and regulatory framework for MSEs and reduce their compliance burden Simplify the rules and procedures for business termination (closure) and bankruptcy to international good practice to reduce the “costs of failure” and enable affected MSE owners to start a new enterprise. Ease the regulatory regime to encourage more formal employment in MSEs, including amendments to the Labor Law to ease restrictions on the laying off or firing of formal workers, and amendments to the Social Security system to allow more flexible application in the case of MSEs. Integrate entrepreneurship and MSE management training modules in vocational and technical training programs.