National Economic Development Board NEDB National SMEs Programme

1. National Economic Development Board NEDBNational SMEs Programme Developing a sustainable SMEs sector in an oil-producing country Ramadan S. Almorhag

2. Ramadan S. Almorhag, National Programme for SMEs Tripoli, Libya B.Sc industrial Engineering – Windsor, Canada B.Sc Computer Science – Wolfville, Canada murhag@gmail.com

3. Objective .. • The main objective of this presentation is to share Libya’s experience in establishing and sustaining a National programme for small and medium-sized enterprises, aiming to diversify the economy and develop an entrepreneurship culture. • The presentation will focus on the formidable challenges facing Libya as an oil-producing country caused partly by the side effects of having abundant resources and the country's effort to cope with the problem of unemployment and the restructuring of the economy.

4. Area: • 1,759,540 sq km • Population: • 5,300,000 capita

5. NATIONAL ECONOMIC INDICATORS • GDP$88.83 billion. • GDP - per capita $14,400 • Labor force: 1.64 million (2008 est.) • Actual work force: (1,748,000) • Unemployment rate 13.5% • Labor force - by occupation: • Agriculture: 18% • Industry: 23% • Services: 59% • Informal sector: ≈ 40%

6. 33.1 The recovery in oil prices has the Libyan economy a substantial boost . . +26% 2007 USD* GDP at current prices LYD billion 64.1 billion +6% GDP at constant prices 2002 LYD billion 2002 03 04 05 06 2007 * Converted at the 31/12/2007 exchange rate of USD 1 = LYD 1.2239 Source: Global Insight (WMM) Source: “Libya country profile 2005” – Economist intelligence unit

7. Libya – an Arab nation with ready access to Europe and Africa • Libya is a gateway to the Middle East and North African (MENA) region, which has: • Over 300 million Arabic speakers • GDP of over USD 500 billion • Libya is a major participant in the African Union • 3½ hours to London • 1 hour to Tunis

8. 1970–1990 1990s 2000s 2006 ASpects of reform – the banking sector .. 2007 … • All the Libyan banks are nationalized • In 1993 the government introduces a law allowing the establishment of private sector banks • In 2002 Libya started considering to privatize some of the country’s banks; as of 2006, today the private sector owns minority stakes in Sahara Bank and Wahda Bank • In January and August 2006, the government declares interest in attracting foreign banks to Libya • Sale of minority stakes in publicly owned commercial banks to international financial institutions • In 1996 the Bank of Commerce and Development is the first privately owned bank offering conventional retail and corporate banking services • Under the new banking law, passed in 2005, foreign banks can operate in Libya • Central Bank of Libya develops financial sector development road map Source: Economist intelligence unit; “Libyan Banking System” Rating Developments – May 2002; press

9. Economy – An overview • Libya's economy has long been state-controlled, and in the past five years, some progress has made on economic reforms as part of a broader campaign to reintegrate the country into the International fold.. • Most of the economic activities have existed in what is known as the informal sector (shadow economy).

10. Historical Overview • First appearance of the concept - “informal sector” - in 1972when ILO issued a report on Kenya. • During the 70s and 80s, the common interpretation was: “informal sector” would be a transitory phenomenon, and economic progress would help the informal workers move into the formal sector. • “Dilemma” in early 90s – whether the international community should promote the informal sector as a provider of employment and incomes or seek to extend regulation and social protection to it. (+)

11. Defining “Informal Economy” 1. Unregistered economic activities which contribute to the officially calculated (or observed) Gross National Product 2. Those activities which are not recorded in the national income accounts 3. Income-generation activities which take place outside of the formal regulatory framework 4. Units engaged in the production of goods or services with the primary objective of generating employment and incomes to the persons concerned 5. Units in small unregistered enterprises, both employers and employees, as well as self-employed persons who work in their own or family businesses

12. Underlying causes of the Shadow Economy .. • Unfriendly business environment • High tax rates • Lack of incentives • Instability of regulations • Week ICT infrastructure • Ineffective trade unions • Corruption

13. Aspects of the informal economy • sector neither taxed nor monitored by a government • Not included in the government's national income accounting. • Enterprises typically operating on a small scale with a low level of organization, • Low and uncertain wages, and no social welfare and security. • Sector does not come under the government tax, regulatory and supervisory roles. • Evades the government tax, regulatory and supervisory roles • Informal sector classification: Rural informal sector, urban informal sector and black economic • Consists of small-scale, self-employed activities (with or without hired workers). • Activities are conducted without proper recognition from the authorities. • Source (ILO, 2002).

14. The monitor Group study • There hasn't been extensive work done on the Libyan economy and perhaps the most notable study was done by the Monitor group, headed by Prof. Michael Porter in the year 2006, in fact, this study will serve as the basis for this presentation. • The Monitor group has pored over the Libyan economy and mapped out a strategy for the next decade, focusing on energy, tourism, trade, and construction. • The challenge remains to begin making real changes that support the private sector and improve the business environment. • The country's energy industry, which employs around 50,000 people, or 3% of the workforce, accounts for nearly all of Libya's estimated $45 billion to $50 billion in export revenues, which are used to subsidize a massive public sector, that employs some 51% of Libya's workforce, including hundreds of thousands of people in make-work jobs. Source: http://www.businessweek.com

15. The monitor Group study • Aside from the oil sector; however, population growth (at around 1.86% per year) and high unemployment (around 13.5%) means the need for diversification of the economy remains great. Expansion of the non-oil economy and job creation will depend on forging ahead with the economic reform program and increasing the attractiveness of Libya for non-hydrocarbon companies to invest in. The IMF noted the continuation of current policies, characterized by uncoordinated reform measures, are likely to result in subdued economic growth over the medium term. In recent years, non-oil sector growth has mainly been driven by fiscal stimulus which is unsustainable without comprehensive structural reforms. Along with the dependence of the economy on the hydrocarbon sector, the economy suffers from decades of centralized management. Increasing the management capability of the government remains vital.

16. Monitor Group Study • Study conducted in Oct/ 2006 • Sample size = 532 businesses • Micro 62% • Small = 20% • Medium =16% • Large = 2%

17. (NEDB) • As an implementation of the Monitor Group Strategy, the National Economic Development Board (NEDB) was established in the year 2007, based on the Singapore model. • . The mandate of the NEDB is to improve the livelihood of Libyans by leveraging greater opportunities for work and growth, as well as creating a partnership between the public and private sectors (PPP). • Diversify Sources of income by developing a suitable business environment, that encourages investment and creates a competitive edge ..

18. NEDB Initiatives … • NEDB has devised a host of initiatives to attain the set forth goals and objectives, working in close partnership with government bodies and private-sector companies, to create a conducive business environment, in order to attract foreign investment as well as encouraging the strong development of the local economy, hence, allowing integration into the international stream. • One of the main initiatives of (NEDB) is the National Programme for small & Medium Enterprises.

19. SME’s Programme Target Areas .. • Oil and Gas Sector. • Building and construction. • Tourism. • Technology. • Marine. • Transit Trade.

20. SME’s History in Libya The Agriculture Bank 1960 The Development Bank 1980 The Rural bank 2002 The Employability Fund 2006 The National SMEs Programme 2007

21. Libyan SME’s Strategy • Vision: Making Libya the best place in the region to start and grow a business. • Mission: Enabling the Libyan Economy to be competitive in the International Market through Entrepreneurship Development, Business Incubation, Innovation and Technology Transfer

22. LIBYAN DEFINITION OF SMEs

23. Sl. No. Country % of SMEs in total businesses % of Persons employed by SMEs in total businesses % of Turn-over Generated by SMEs in total businesses 1. United Kingdom 99.8 55.4 45.4 2. Switzerland 99.7 71.4 N.A. 3. Australia 88.0 51.0 43.9 4. Europe 99.8 66.4 54.6 5. USA 92.3 46.0 52.0 6. Libya 95.0% 11% 4.5 World-wide Contribution of SMEs Source: GLOBAL PROJECTS & SERVICES (P) LTD.

24. Objectives of the SME’s Programme: Establishing of National Strategy for SME’s Support and Development. Promotion of entrepreneurship culture and self-dependency. Promotion of innovation culture in society through the development of Libyan knowledge economy. Promotion of QMS Culture to create competitive values of SME’s.

25. Achieving good Social Development through Strengthening • the role of women in the national economy. • Achieving Regional Development by proper utilization of • Natural Resources and creating alternative income sources. • - Sustaining Economic and Social Security. • - Increase the role of private sector in economic development • and creation of new job opportunities (PPP).

26. Libyan SME’s SWOT Analysis

27. Established Incubators Tripoli Business Incubator Benghazi Business Incubator Sebha Business Incubator INCUBATOR NETORK ICT Incubator Agr-Bio Incubator People with Disability Incubator Women Economic Empowerment Center Marine Cluster

28. Achievements .. • Capacity Development Programmes in 8 cities TOT: ( 50 Trainers ) • Capacity Development Programmes in 8 cities for entrepreneurs ( 475 Trainees) • University Workshops • Media campaigns • Feasibility Studies ( 204 Projects )

29. Challenges facing the Libyan SMEs Programme Lack of: • Effective financing instruments ( venture capital, lease to own etc. ) • Industrial zones • Incentives, tax breaks • Investment map • Data resources ( raw materials, markets, trends, vendors etc. ) • IP Laws

30. The Predicament .. Challenges to employment, development and growth The Dutch disease • Discovery of off-shore oil and gas in late 1950s. • Resulting upswing in exports of natural gas led to appreciation of Dutch currency. • This hurt other exports for a while and threatened of the advent of a de-industrialization era. • The problem proved short-lived, But the name remained ..

31. Though oil revenue when managed well, can educate and create jobs; it also carries risks. Rarely have developing countries used oil money to improve the lives of the majority of citizens or bring economic growth. More often, oil revenues have caused crippling economic distortions. • This seems to be a general pattern. • of 65 natural resource abundant countries 1970-1998, only four had • Investment of more than 25% of GDP • Per capita GNP growth of more than 4% per year • They are: Botswana, Indonesia, Malaysia, Thailand

32. The problem is not the existence of natural wealth as such ... • but rather the failure to avert the dangers that accompany the gifts of nature • Nigeria has been stagnant since independence in 1960: No growth • Per capita growth 1965-1998 • Iran and Venezuela: -1% per year • Libya: -2% • Iraq and Kuwait: -3% • Qatar: -6%

33. Interlude: A quick look at OPEC Nigeria has been stagnant since independence in 1960: No growth Per capita growth 1965-1998 Iran and Venezuela: -1% per year Libya: -2% Iraq and Kuwait: -3% Qatar: -6% Why?

34. informal sector types • The two types of informal sector activities can be described as follows: • 1. Coping strategies (survival activities): casual jobs, temporary jobs, unpaid jobs, subsistence agriculture, multiple job holding; • 2. Unofficial earning strategies (illegality in business): • 2.1. Unofficial business activities: tax evasion, avoidance of labor regulation and other government or institutional regulations, no registration of the company; • 2.2. Underground activities: crime, corruption - activities not registered by statistical offices.

35. Recommendations .. • Investment mapping ( taking into account, natural resources and population) • Macro policies ( Physical, Monetary) • Micro ( bottle necks, finance schemes, marketing) • Developing basic knowledge capital improving control and transparency of business

36. Recommendations • Establishing organization, strategy and policies needed to develop SME’s. •   Promotion of Entrepreneurship culture and self-dependency through • Educational, Training and Media Awareness. • Developing better regulation for business environment, supported by through building • strong partnership between Public and Private sector (PPP) • Creating an active network of Business Centers, and • Business Incubators for Technology & Innovation. Improving access to finance for SME’s businesses, • including Micro Financing system and Venture-Capital, • with the creation of Loan & Investment Guarantee Fund. • Building an International Network. • Creating a suitable infrastructure (Industrial zones, Technology and Business Parks). • Setup of a National SME’s Data Bank.

37. “The biggest space in the world is the space for improvement!”

38. Looking forward to your Support … Looking forward to your Support … نماء