Small enterprise sector development to promote the right to work

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"Developing the small enterprise sector to promote the right to work."

Policy Paper

Issued it

Public Policy Analysis and Human Rights Unit

Affiliate Foundation

Maat for Peace, Development and Human Rights (Egypt)

Under a project

The Universal Periodic Review as a Tool to Improve Public Policies during the Transition

March 23, 2016

“This release was implemented with the help of the European Union. The content of this publication is the responsibility of the Maat Foundation for Peace, Development and Human Rights and can in no way be considered a reflection of the vision of the European Union.

Introduction:

Small enterprises are seen as a basis for economic development in many countries of the world, due to considerations of their flexibility, ease of establishment and low costs, and small enterprises can play a major role in increasing growth rates in the Egyptian economy at the present time, thus eliminating unemployment and promoting the right to work as one The basic rights of the Egyptian citizen.

Within the framework of the Public Policy Analysis Unit at the Maat Foundation for Peace, Development and Human Rights with regard to the recommendations that were made to Egypt in light of the universal periodic review, the Egyptian government's position on the recommendation and in light of the institution’s implementation of the project The Universal Periodic Review as a Tool to Improve Public Policies During the Transition Period, Which is implemented by the Foundation with funding from the European Union during 2016-2017, comes a paper Towards the development of the small enterprises sector to promote the right to work.

The paper deals with several basic points: In the beginning comes the introductory framework for small projects, then after that comes the legislative and legal framework for small projects, in addition to the characteristics of small projects. The paper also deals with the reality of small enterprises in Egypt, and the position of the government discourse on small enterprises, and then comes the most prominent challenges facing the small enterprises sector in Egypt, and finally, the paper presents several recommendations for the advancement of the small enterprises sector in Egypt.

Small business concept

There is a clear difference in the concept of "small enterprise" between one country and another, and in general there are a set of factors that make the state adopt a specific concept for small enterprises, and the most important of these factors are the economic potential and social conditions, the components and nature of production factors, the quality of the existing traditional craft industries. Qualifying the workforce, wage rates and income levels, and other economic and social factors that determine the features and nature of the industries in them. A project that is considered small in an economically developed country may be considered a large project in another developing country, and even within one country, the size of the project may differ according to the stage of growth that it is going through, and even according to the purpose of the project classification process, is it purely statistical or for reasons related to financing .

Many efforts have been made to define the small project, and many criteria such as (the number of employees, sales volume, and the amount of assets) have been used to define what is meant by small projects, but there are several concepts that generally stem from the desire of the decision-maker that is often affected by the environment of economic policies and policies. Aimed at achieving a developmental or social goal.

The United Nations Industrial Development Organization defines small enterprises as “those projects that are managed by a single owner and take full responsibility for their strategic and short dimensions, and the number of workers in them ranges between 10 - 50 workers. The World Bank describes enterprises with fewer than 10 workers as large or micro enterprises, in which between 10 and 50 workers are employed in small enterprises, and those in which there are between 50 and 100 workers in medium enterprises.

Small and medium enterprises constitute approximately 90% of establishments worldwide with employment rates ranging between (50 %-60 %) of the world's workforce[1]

In Egypt, a small enterprise is intended according to the Small Enterprise Development Law No. 141 of 2004, as “every company or individual establishment that engages in a productive, commercial or service economic activity and its paid-up capital is not less than fifty thousand pounds and does not exceed one million pounds, and the number of its employees does not exceed fifty workers. And by micro-enterprise, we mean every company or individual establishment that carries out a production, service, or commercial activity whose paid-up capital is less than fifty thousand pounds.[2].

The legal and legal framework regulating small projects

Small and medium enterprises operate in Egypt through a “constitutional and legal” legislative framework, and the context of “international obligations” rights. The legislative and legal framework within which small enterprises operate can be classified into several levels:

  • The first level: the constitutional framework: The Egyptian Constitutional Committee emphasized in a number of constitutional articles support for work in general[3]And the commitment of the state through the economic system to achieve sustainable development and social justice in the country[4] In addition, the constitution stipulates the importance of the state stimulating the private sector to fulfill its social responsibilities[5]. The Egyptian constitution also directly emphasized the importance of the state giving special attention to medium, small and micro enterprises in all fields, as well as working to organize and rehabilitate the informal sector [6].
  • The second level: the legal framework: Small enterprises are subject to Law No. 141 of 2004 regarding the development of small enterprises, as this law defines the definition of medium enterprises, small enterprises, and micro enterprises, and defines how to establish both of them, and how to deal with local and foreign entities, and it also talks about how to obtain Appropriate financing for both small and micro enterprises, and includes the incentives and facilities available for these projects. Law No. 141 of 2014 regulates the activity of microfinance, and this law considers microfinance to be all financing for productive, service, or commercial economic purposes, not exceeding one hundred thousand pounds, and it is permissible by a decision of the Prime Minister in accordance with economic conditions and market requirements to increase the maximum limit without Exceeds 5% per year. It also opens the door for civil institutions and private companies to practice this activity after obtaining a license from the Capital Market Authority, and it also sets conditions related to the technical and administrative competence of companies that guarantee their good management of financing and their follow-up of projects, and the law has established an effective and flexible regulatory and supervisory mechanism at the same time to control the finite financing activity. Smallness of associations and civil institutions.
  • The third level: the human rights framework: The Universal Declaration of Human Rights states that “everyone has the right to work, and he has the freedom to choose him on just and favorable conditions, and he has the right to protection from unemployment.”[7]As for the universal periodic review that Egypt was subjected to in 2014, a number of countries made some recommendations that were approved by the Egyptian government regarding work to eliminate the unemployment problem, as South Africa, Tajikistan, Bhutan, Equatorial Guinea, and Oman demanded the state The Egyptian government will make more efforts to reduce unemployment in the short and long term, in consultation with various bodies, entities and the private sector, and given the large and important role of small enterprises in eliminating and reducing unemployment, the Egyptian state must, in light of international obligations, provide all support to small enterprises in order to undertake In turn, reduce unemployment rates and eliminate them.

Characteristics and advantages of small enterprises:

Small enterprises are characterized by many characteristics and characteristics that make them more appropriate to the economic situation of the countries in which they arise, and the most important of these characteristics are the following: -[8]

  • Ease of establishment: Due to the low capital cost of starting the activity, the ease of its formation procedures and the low establishment expenses.
  • Independence and flexibility in management: The management of most small businesses is concentrated in the person of their owner or owners.
  • Adaptation to changes permanently and continuously: In particular, responding with regard to meeting the desires and tastes of consumers, unlike large organizations that have difficulty changing their production plans, programs and lines.
  • Production Quality: Due to the dependence of small enterprises on specific specialized fields of work, their production is often characterized by accuracy and quality, because work in small enterprises depends on craftsmanship and designing production according to consumers' tastes and their changes in the short term.
  • Geographical spread: These projects are considered a means of spreading industrial development geographically through its geographical spread.
  • Shorter capital recovery period for the investor: These projects are characterized by high sales turnover, which enables them to overcome the long payback period of the invested capital, and thus reduces the risk of individual investment in them.

The reality of small enterprises in Egypt:

Small enterprises in Egypt are counting on a major role in achieving economic and social development, addressing the problem of unemployment and weak foreign investments, and there is interest in these projects at the level of political discourse, but it has not been significantly reflected in the legislative and procedural contexts.

Small and medium industrial enterprises represent about 90 % of the total industrial sector projects, employ about two-thirds of the workforce, and contribute 40% to the gross national product. If we add micro-projects for small and medium enterprises, we find that there are more than 2.5 million projects representing about 99% of non-agricultural private sector projects and contribute to 80% of the gross domestic product and cover about 90% of capital formation and absorb about 75% of job opportunities, and annually enter 39 A new project area of production[9].

Also, the small enterprises alone represent 87% of the volume of industrial projects compared to 11% of medium projects, and they represent about 13% of the value of industrial production compared to 46% of medium projects. Its contribution to total Egyptian exports reaches 4%, which confirms the untapped potential of small industries in Egypt, which play a decisive role in increasing Egyptian exports.[10].

Government discourse and small enterprises:

In light of the large and important role of small and medium enterprises in the national economy, whether through contributing to the country's gross national product, or providing job opportunities and eliminating the unemployment problem, the government has addressed this issue in its successive speech, stressing the importance of small enterprises and its endeavor to provide all support and assistance to them. In order to overcome the obstacles and challenges that limit its economic role, as President “Abdel Fattah El-Sisi”, more than once affirmed his support for small and medium enterprises, and his assignment to the Central Bank to implement a comprehensive program to support small and medium enterprises, and allocate 20% percentage of all loans over the course of The next four years are in favor of these projects, and he also stressed that the government is working in all directions to support and support these projects, and this is done through several ministries such as planning, local development, trade and industry, and social solidarity.

The Cabinet also affirmed on several occasions that the government attaches great importance to supporting small and medium enterprises, and considers them "strategic projects", as they contribute to the employment of young people and create job opportunities for them in a way that contributes to eliminating the problem of unemployment, especially in the governorates of Upper Egypt and in the border governorates. In addition, the Minister of Trade and Industry emphasized that small and medium enterprises are a major engine for achieving development and engaging youth and women in them, as well as a means to bring about a balance in interest in marginalized areas, and that the government has participated in launching and implementing projects such as “The Hands Project and the Go Project”. In order to motivate young people to participate in these projects, and by following up on the statements and assurances of the officials at the head of the executive authority, it is evident that there is great support and strong direction on the part of the government to advance the small and medium enterprises sector and overcome the challenges and obstacles facing it, within the framework of the state's development plans.

Challenges facing small enterprises:

The small enterprises sector in Egypt faces many challenges that hinder the sector from fulfilling its role in promoting and raising the rates of economic development in the country, and among the most prominent of these challenges are the following:

First: legislative and procedural challenges

  • The reality of small enterprises has exceeded its legal definition contained in Law 141 of 2004, which stipulates that “the capital of small enterprises should not exceed one million pounds,” and thus this definition is not appropriate to the current situation (the financial limit for this type of projects is not appropriate).
  • The lack of adequate legal framework that protects Egyptian industries, as the current laws do not guarantee protection for Egyptian products and put them in fierce competition with imported products, bearing in mind that the small enterprises sector is the main producer of these products, as well as the increasing competition between products of small enterprises and products imported from abroad due to the increase in customs. Imposed on production requirements imported from abroad than imposed on final products.
  • The lack of a set of legislations regulating the small enterprises sector, especially with regard to the existence of legal incentives to work within the framework of the formal economy, which led to the presence of a large number of small enterprises operating in an informal setting (there are estimates that reach the size of the informal sector to 65% of economic establishments).

Second: Administrative Challenges:

  • The absence of the political body (the ministry) or the regulatory body that is concerned with small enterprises, managing and organizing their situations and supporting them.
  • Small enterprises face great difficulty in dealing with administrative authorities to obtain licenses and approvals, as project owners are forced to go to more than one party to obtain industrial and environmental approvals and to fulfill industrial security and occupational safety procedures, as well as the approvals of the relevant ministries and utility bodies other than the commercial registry and tax authorities, and often The requests of these bodies are contradictory and consume great time, effort and costs, and the project owner is forced to pay a bribe in most cases.
  • The small enterprises sector faces great difficulties in obtaining lands and units in the industrial zones to establish these industries, and their high prices, if available, contribute to the increasing burdens facing small enterprises.
  • Lack of technical support institutions for small enterprises (institutions that provide services for feasibility studies, market research and specialized technical studies).

Third: Financial Challenges:

  • Small enterprises face great difficulties in obtaining the adequate amount of financing commensurate with their requirements, and the high percentage of clients ’contribution to financing these projects, making these projects primarily based on individuals.
  • Small enterprises face great difficulties in cases of wanting to obtain loans to start them, as the difficulty of the required procedures and documents, the high interest rates on loans, and the exaggeration of some banks in requesting guarantees, especially financial, in-kind and real estate guarantees, which precludes starting many projects.
  • The decrease in the number of banks interested in financing small projects in various governorates, and the Social Fund for Development has only 30 branches in the governorates, which is a major obstacle to starting many small projects, especially in the border governorates.
  • The lack of willingness by banks to finance innovative projects, especially technological projects.

How to promote the small enterprises sector:

First: Legislative Recommendations:

  • The issuance of a new law on small enterprises in line with the current situation, and the formulation of various concepts related to small, medium, and micro enterprises, in a way that contributes to determining the meaning of those concepts, their role in the national economy, the authorities responsible for dealing with them, and how to obtain financing for these projects, Given that the multiplicity of laws contributes to dispersion and the inability to grow in this sector.
  • Paying attention to anti-dumping and smuggling laws and policies to protect Egyptian products, in a way that contributes to limiting the spread of foreign products in the market and their competition with Egyptian small industries.
  • Adjustment of customs tariffs on production inputs required for small enterprises.

Second: Administrative Recommendations:

  • Establishing a national body concerned with supporting and organizing the small enterprises sector, whose task is to license projects, support project owners in front of lending bodies, grant licenses and official approvals through the one-stop-shop mechanism, as well as provide technical support, and it is possible to consider restructuring the Social Fund for Development to play this role. Or separate the financing process from the regulation and support process.
  • Work to facilitate registration and licensing procedures, environmental approvals, occupational safety requirements and spatial requirements, and work to reduce the costs of procedures, and ensure access to sufficient information regarding this sector to promote it.
  • Establishing project incubators to support the initiators of the owners of new projects and those who lack the financial and administrative resources to establish their projects, especially innovative projects such as technological projects.
  • Work to facilitate obtaining lands and units in industrial zones to establish small industries at reduced prices, and to provide infrastructure in those areas to encourage small enterprises to move to them. In this regard, it is proposed to define a fixed percentage within each industrial zone for the benefit of owners of small enterprises, and to establish their own industrial zones in areas Close to and adjacent to urban areas.

Third: Funding Recommendations:

  • Encouraging banks to finance small projects at lower interest rates and for relatively longer periods.
  • Giving small enterprises financial benefits as tax exemptions on profits.
  • Work on showing flexibility in requesting guarantees, especially financial, in-kind and real estate guarantees, and raising the maximum loan rates to suit the costs of small projects.
  • Work to provide various financing outlets for small projects in various governorates, either through different banks, or by providing branches of the Social Fund for Development in various governorates, especially in the border governorates.
[1] Bank of Alexandria, Small and Medium Enterprises ... The Growth Engine of the Egyptian Economy, July 2015
[2] Law No. 141 of 2004, Chapter One “Definitions”Article 1, 2.
[3]The Constitution of 2014, Chapter Two "The Basic Constituents of Society"Chapter I “Social Fundamentals”, Article 12, states: “Work is a right, a duty, and an honor guaranteed by the state, and no citizen may be obligated to work forcibly, except by virtue of a law, and to perform public service for a specified period, for a fee, and without prejudice to the basic rights of those charged with work.” .
[4]The Constitution of 2014, Chapter Two “The Basic Constituents of Society”, The first chapter, “Economic fundamentals,” Article 27, states: “The economic system aims to achieve prosperity in the country through sustainable development and social justice, in a way that guarantees raising the real growth of the national economy, raising the standard of living, increasing job opportunities, reducing unemployment rates and eliminating poverty. “.
[5]:Constitution of 2014, Chapter Two "The Basic Constituents of Society"Chapter one “Economic fundamentals”, Article 28, states “economic productive, service, and informational activities are essential components of the national economy, and the state commits to protecting it, increasing its competitiveness, providing an attractive environment for investment, and working to increase production, encourage exports, and regulate import. The state pays special attention to medium, small and micro enterprises in all fields, and works on organizing and rehabilitating the informal sector.
[6]The Constitution of 2014, Chapter Two "The Basic Constituents of Society"Chapter one, “Economic fundamentals,” Article 36, states: “The state shall stimulate the private sector to fulfill its social responsibility in serving the national economy and society.”
[7] The Universal Declaration of Human Rights, Article 23, states: “Paragraph 1”Every person has the right to work, and has the freedom to choose it on just and satisfactory conditions. He also has the right to protection from unemployment. ”Paragraph 2“ Everyone, without any discrimination, has the right to equal pay for work. ”Paragraph 3:“ Everyone who works has the right to just and satisfactory wages that guarantee him His family has an existence worthy of human dignity, and, if necessary, other means of social protection may be added to it. ”Paragraph 4,“ Every person has the right to establish and join unions to protect his interest. ”
 [8]Hussein Abdul-Muttalib Al-Asraj, Small and Medium Enterprises and their Role in Employment in Arab Countries, Microfinance Gateway, available at: http://goo.gl/s4Qz4U
[9]: Bank of Alexandria, previous reference                                                                                                                                                                                   
[10]: Ahmed Maher, Small industries in Egypt and their role in the repercussions of the global crisisAvailable at:
http://digital.ahram.org.eg/articles.aspx?Serial=97585&eid=52

 

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