The SME Phenomenon: While It Is Tempting to Concentrate on the Progress of the Region's High Rollers, Traditionally It Has Been the Small and Medium-Sized Companies That Have Been the Engines Driving Economic Development and Change in the Arab World

By Smith, Pamela Ann; Siddiqi, Moin | The Middle East, March 2010 | Go to article overview

The SME Phenomenon: While It Is Tempting to Concentrate on the Progress of the Region's High Rollers, Traditionally It Has Been the Small and Medium-Sized Companies That Have Been the Engines Driving Economic Development and Change in the Arab World


Smith, Pamela Ann, Siddiqi, Moin, The Middle East


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In Brussels, the "buzz word" is "SMEs"--shorthand for "small and medium-sized enterprises". Whether it's in Eastern Europe, the Middle East or the Mediterranean, the EU's latest thinking focuses on the importance of such firms in creating employment, fostering innovation and helping to develop impoverished regions.

Behind the scenes, Brussels also hopes that by encouraging such firms--many of them family-owned--to link into the supply chains and resource networks of Europe's larger corporations, SMEs in the Middle East and North Africa (MENA) can help Europe to stay competitive with India, China and other emerging market countries, where companies benefit from cheaper labour, lower taxes and exchange rates, and less regulation, as well as a surfeit of educated graduates.

The EU's latest initiatives for SMEs are part of Brussels' efforts to revive the Union for the Mediterranean, also known as 'Euromed', first proposed in July 2008 by French president Nicolas Sarkozy. Since then, at German chancellor Angela Merkel's insistence, it has been expanded to include all 27 members of the EU, including those in northern Europe. It now joins the EU with 16 other states in the southern and eastern Mediterranean, including Turkey, Cyprus, and Israel as well as the Arab Levant, Egypt and North Africa. Altogether, it has a total population of some 750m.

In 2009, progress slowed due to the financial crisis in the US and Europe. The Arab countries, led by Egypt, also sought a firmer commitment from the EU to end the Israeli blockade of Gaza and the Israeli government's expansion of settlements in Jerusalem and the West Bank.

In November, a relaunch of the Union was announced following negotiations with the EU's Arab partners. While formal commitments to rein in Israel are still lacking, Arab officials were impressed by Brussels' determination to pursue radical economic and financial reforms that could benefit its Mediterranean partners as well as other neighbouring countries such as Jordan, Iraq, Sudan and the Yemen. Spain's assumption of the EU Presidency in January has also given Euromed a new sense of mission. A summit of the heads of its 43 member states is now scheduled to take place in Barcelona in June 2010.

Growing opportunities

In addition to promoting SMEs, the priority measures agreed in November include programmes to reduce pollution in the Mediterranean, the establishment of new sea and land "highways" across the 43 countries, a Mediterranean solar energy plan, and new initiatives to combat both natural and manmade disasters. Identifying specific projects country by country and raising funds from private, as well as public, sources is seen as vital to the realisation of these goals which, in the longer term, are aimed at a comprehensive free-trade zone throughout the Euromed region.

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Formally known as the Mediterranean Business Development Initiative (MBDI), the programme to promote SMEs in the Union aims to tackle a series of what it calls "specific weaknesses, threats, strengths and opportunities" in this sector. The most important, it says, is the continuing lack of access to funding, particularly for micro, as well as small to medium-sized enterprises. In the case of the Maghreb countries, EU officials say, only about 45% of the population in Morocco, 42% in Tunisia and just 30% in Algeria have access to basic financial services. These figures, they add, are far below the level which exists in the developed countries.

As part of the MBDI programme, the Luxembourg-based European Investment Bank (EIB) is currently financing a study by the Spanish and Italian governments aimed at improving credit facilities for MSMEs (micro, small and medium-sized enterprises), expanding the financial sectors in their countries and improving capital markets. Banking the remittances sent home by nationals of Arab Mediterranean countries working, for example, in the Gulf states, rather than workers and their families keeping them in cash, would go a long way, EU officials say, to enabling local and regional banks to provide more funds for small business expansion. …

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