2020 International Monetary Fund WP/20/135 Working Paper Middle East and Central Ahead
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WP/20/135
Harnessing Digital Technologies to Promote SMEs and
Inclusive Growth in the MENAP Region
by Inutu Lukonga
IMF Working Papers describe research in progress by the author(s) and are published
to elicit comments and to encourage debate. The views expressed in IMF Working Papers
are those of the author(s) and do not necessarily represent the views of the IMF, its
Executive Board, or IMF management.
Harnessing Digital Technologies to Promote SMEs and
Inclusive Growth in the MENAP Region
by Inutu Lukonga
IMF Working Papers describe research in progress by the author(s) and are published
to elicit comments and to encourage debate. The views expressed in IMF Working Papers
are those of the author(s) and do not necessarily represent the views of the IMF, its
Executive Board, or IMF management.
© 2020 International Monetary Fund WP/20/135
IMF Working Paper
Middle East and Central Asia Department
Harnessing Digital Technologies to Promote SMEs and Inclusive Growth in the Middle
East, North Africa, Afghanistan and Pakistan (MENAP) Region
Prepared by Inutu Lukonga
Authorized for distribution by Bikas Joshi
July 2020
Abstract
Policy makers in the MENAP region have been formulating policies and designing
programs to develop small and medium sized enterprises (SMEs) with a view to create
jobs and achieve inclusive growth. But while the programs have helped increase the
number of enterprises, growth of SMEs continues to face barriers to growth. As a result,
microenterprises predominate and SMEs contribution to employment remains below
potential. Partial implementation of reforms explain some of the underperformance, but
frictions in strategy design also played an important role. Sustaining current reforms is,
therefore, not sufficient to achieve inclusive growth. Digital technologies have potential to
boost SMEs productivity and growth and economies are rapidly digitalizing, thus SMEs
need to embrace digital solutions to compete and survive. Therefore, for SMEs to be
effective engines of inclusive growth, a rethinking of the SME development strategy is
needed that makes SMEs’ digital transformation a priority.
JEL Classification Numbers: 053, 033, 031, L25, G24, G28, G53, G38, K24
Keywords: Digitalization, Digital Technologies, Inclusive Growth, MENAP Region.
Author’s E-Mail Address: ilukonga@imf.org
IMF Working Papers describe research in progress by the author(s) and are published to
elicit comments and to encourage debate. The views expressed in IMF Working Papers are
those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board,
or IMF management.
IMF Working Paper
Middle East and Central Asia Department
Harnessing Digital Technologies to Promote SMEs and Inclusive Growth in the Middle
East, North Africa, Afghanistan and Pakistan (MENAP) Region
Prepared by Inutu Lukonga
Authorized for distribution by Bikas Joshi
July 2020
Abstract
Policy makers in the MENAP region have been formulating policies and designing
programs to develop small and medium sized enterprises (SMEs) with a view to create
jobs and achieve inclusive growth. But while the programs have helped increase the
number of enterprises, growth of SMEs continues to face barriers to growth. As a result,
microenterprises predominate and SMEs contribution to employment remains below
potential. Partial implementation of reforms explain some of the underperformance, but
frictions in strategy design also played an important role. Sustaining current reforms is,
therefore, not sufficient to achieve inclusive growth. Digital technologies have potential to
boost SMEs productivity and growth and economies are rapidly digitalizing, thus SMEs
need to embrace digital solutions to compete and survive. Therefore, for SMEs to be
effective engines of inclusive growth, a rethinking of the SME development strategy is
needed that makes SMEs’ digital transformation a priority.
JEL Classification Numbers: 053, 033, 031, L25, G24, G28, G53, G38, K24
Keywords: Digitalization, Digital Technologies, Inclusive Growth, MENAP Region.
Author’s E-Mail Address: ilukonga@imf.org
IMF Working Papers describe research in progress by the author(s) and are published to
elicit comments and to encourage debate. The views expressed in IMF Working Papers are
those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board,
or IMF management.
3
Table of Contents
Abstract ......................................................................................................................................2
I. Introduction ............................................................................................................................5
II. An Overview of The MENAP SME Landscape ...................................................................7
A. Structure of MENAP SMEs, Performance and Constraints to Growth ................................7
B. Policies and Programs to Promote SMEs............................................................................11
C. Evaluation of the Effectiveness of Support Policies for SMEs...........................................15
III. Digitalization of SMEs in MENAP—Overview, Opportunities and Trends.....................20
A. An Overview .......................................................................................................................20
B. Opportunities and Risks ......................................................................................................22
C. Trends in SMEs Digital Transformation.............................................................................24
D. The Digital Landscape and Constraints to SMEs’ Digitalization .......................................27
IV. Policy Options to Promote SMEs and Inclusive Growth in MENAP ...............................39
A. An Enabling Environment for Digitalization of SMEs.......................................................39
B. Financial Sector and Business Environment Reforms ........................................................42
Figures
1: Structure of SMEs..................................................................................................................7
2. Composition of SMEs by Business Sector and Markets .......................................................8
3. Trends in Startups ..................................................................................................................9
4. Factors Impeding SMEs Growth ...........................................................................................9
5. SMEs’ Credit Risks..............................................................................................................10
6. Initiatives to Enhance SMEs’ access to Finance..................................................................12
7. Policy Reforms to Ease the Process of Establishing Businesses .........................................13
8. Business Support Programs .................................................................................................14
9. Performance of SMEs ..........................................................................................................15
10. Factors Underpinning SMEs performance.........................................................................16
11. Selected Factors Impeding SMEs’ Access to Bank Finance .............................................17
12. Factors Constraining Funding from Non-Bank Financial Institutions ..............................18
13. Business Environment for Starting and Operating a Business ..........................................19
14. Pillars of a Digital Ecosystem for Enterprises ...................................................................22
15. Trends in Internet Adoption and Business Digitalization..................................................25
16. Web Presence and Cloud Adoption by SMEs ...................................................................25
17. E-Commerce Trends ..........................................................................................................26
18. The Digital Technology Start-up Ecosystem.....................................................................27
19. Access to Global Internet Infrastructure ............................................................................28
20. Entry barriers to the Telecom market ................................................................................29
21. ICT Infrastructures.............................................................................................................30
22. Access to Broadband Internet ............................................................................................31
Table of Contents
Abstract ......................................................................................................................................2
I. Introduction ............................................................................................................................5
II. An Overview of The MENAP SME Landscape ...................................................................7
A. Structure of MENAP SMEs, Performance and Constraints to Growth ................................7
B. Policies and Programs to Promote SMEs............................................................................11
C. Evaluation of the Effectiveness of Support Policies for SMEs...........................................15
III. Digitalization of SMEs in MENAP—Overview, Opportunities and Trends.....................20
A. An Overview .......................................................................................................................20
B. Opportunities and Risks ......................................................................................................22
C. Trends in SMEs Digital Transformation.............................................................................24
D. The Digital Landscape and Constraints to SMEs’ Digitalization .......................................27
IV. Policy Options to Promote SMEs and Inclusive Growth in MENAP ...............................39
A. An Enabling Environment for Digitalization of SMEs.......................................................39
B. Financial Sector and Business Environment Reforms ........................................................42
Figures
1: Structure of SMEs..................................................................................................................7
2. Composition of SMEs by Business Sector and Markets .......................................................8
3. Trends in Startups ..................................................................................................................9
4. Factors Impeding SMEs Growth ...........................................................................................9
5. SMEs’ Credit Risks..............................................................................................................10
6. Initiatives to Enhance SMEs’ access to Finance..................................................................12
7. Policy Reforms to Ease the Process of Establishing Businesses .........................................13
8. Business Support Programs .................................................................................................14
9. Performance of SMEs ..........................................................................................................15
10. Factors Underpinning SMEs performance.........................................................................16
11. Selected Factors Impeding SMEs’ Access to Bank Finance .............................................17
12. Factors Constraining Funding from Non-Bank Financial Institutions ..............................18
13. Business Environment for Starting and Operating a Business ..........................................19
14. Pillars of a Digital Ecosystem for Enterprises ...................................................................22
15. Trends in Internet Adoption and Business Digitalization..................................................25
16. Web Presence and Cloud Adoption by SMEs ...................................................................25
17. E-Commerce Trends ..........................................................................................................26
18. The Digital Technology Start-up Ecosystem.....................................................................27
19. Access to Global Internet Infrastructure ............................................................................28
20. Entry barriers to the Telecom market ................................................................................29
21. ICT Infrastructures.............................................................................................................30
22. Access to Broadband Internet ............................................................................................31
4
23. Internet Speed ....................................................................................................................32
24. Broadband Prices ...............................................................................................................33
25. ICT Digital Skills...............................................................................................................34
26. Digital Payment Infrastructure and Financial Services .....................................................35
27. Factors Constraining E-Commerce Development .............................................................36
28. ICT Usage Gap ..................................................................................................................37
29. Consumer Readiness..........................................................................................................38
30. Payment Methods...............................................................................................................39
Appendices
1. Digital Technologies and the Potential Benefits they Present .............................................44
References................................................................................................................................45
23. Internet Speed ....................................................................................................................32
24. Broadband Prices ...............................................................................................................33
25. ICT Digital Skills...............................................................................................................34
26. Digital Payment Infrastructure and Financial Services .....................................................35
27. Factors Constraining E-Commerce Development .............................................................36
28. ICT Usage Gap ..................................................................................................................37
29. Consumer Readiness..........................................................................................................38
30. Payment Methods...............................................................................................................39
Appendices
1. Digital Technologies and the Potential Benefits they Present .............................................44
References................................................................................................................................45
5
I. INTRODUCTION
Development of micro, small and medium-sized enterprises (SMEs) has become the
centerpiece of strategies to achieve inclusive growth in the Middle East, North Africa,
Afghanistan and Pakistan (MENAP) region. Countries across the region, in varying degrees,
face high youth unemployment rates, declining capacity of the public sector to absorb new
labor entrants, lower and volatile oil prices, and widening income disparities. Against this
backdrop, policymakers have been designing strategies to catalyze the growth of SMEs and
startups with a view to create jobs and ensure that growth is inclusive. In commodity
dependent economies, development of SMEs is being pursued to help diversify economies.
Strategies to promote the development of SMEs in MENAP have sought to be
comprehensive by easing barriers to entry, growth and exit of businesses. To facilitate entry,
many countries tried to improve the business climate by reducing the time and costs of
starting businesses, including through the establishment of one stop shops and online
platforms as well as reducing capital requirements (World Bank 2019). To promote the
growth of the SME sector, policy makers created incentives to enhance access to finance by
creating incentives for banks to lend to SMEs and to develop non-bank funding sources.
Several countries modernized their insolvency regimes to facilitate corporate restructuring
and provide legal certainty to lenders regarding enforceability of their claims in bankruptcy.
More recently, there has been a push to promote innovation and entrepreneurship and to
establish dedicated institutions for the development of SMEs.
But despite the multitude of incentives, SMEs in MENAP continue to face barriers to growth,
and their contribution to employment trails other regions. SMEs continue to experience
challenges accessing finance and the business and regulatory environment has not been
sufficiently enabling. The enterprises also face internal constraints related to talent gaps and
weak managerial capacities (Saleem 2017). These constraints are manifesting in a
concentration of SMEs in activities that require low resources, in terms of capital, skills and
financing and in the predominance of microenterprises that generate limited employment
opportunities, are low paying and low value adding. Educated youths, therefore, prefer to
take up jobs in the public sector and large corporations that offer better salaries and benefits.
The COVID-19 pandemic has added to the challenges that SMEs in MENAP face and
threatens to accentuate already elevated levels of unemployment in the region. The sectors in
which the SMEs are concentrated are also the ones that have been badly hit by measures to
contain the spread of the virus—such as trade, tourism, and transportation. As most SMEs
have also not digitalized their business model, the “great lockdown” has brought operations
of many SMEs to a sudden standstill. With microenterprises predominating the SME sector,
The author would like to thank Oluremi Akin-Olugbade, Kate Nguyen, Gohar Abajyan, Tatiana Pecherkina for
technical support, and Mwanza Nkusu, Debbie Chungu, Herve Tourpe, Nadine Schwarz, Ender Emre, Masaru
Itatani, David Rozumek and Heedon Kang (IMF) for the insightful and helpful comments on the draft. The
report also benefited from discussions with Natalija Gelvanovska-Garcia, Rogy Michel and Carlo Maria
Rossotto as well as participants in the MENA seminar series (World Bank).
I. INTRODUCTION
Development of micro, small and medium-sized enterprises (SMEs) has become the
centerpiece of strategies to achieve inclusive growth in the Middle East, North Africa,
Afghanistan and Pakistan (MENAP) region. Countries across the region, in varying degrees,
face high youth unemployment rates, declining capacity of the public sector to absorb new
labor entrants, lower and volatile oil prices, and widening income disparities. Against this
backdrop, policymakers have been designing strategies to catalyze the growth of SMEs and
startups with a view to create jobs and ensure that growth is inclusive. In commodity
dependent economies, development of SMEs is being pursued to help diversify economies.
Strategies to promote the development of SMEs in MENAP have sought to be
comprehensive by easing barriers to entry, growth and exit of businesses. To facilitate entry,
many countries tried to improve the business climate by reducing the time and costs of
starting businesses, including through the establishment of one stop shops and online
platforms as well as reducing capital requirements (World Bank 2019). To promote the
growth of the SME sector, policy makers created incentives to enhance access to finance by
creating incentives for banks to lend to SMEs and to develop non-bank funding sources.
Several countries modernized their insolvency regimes to facilitate corporate restructuring
and provide legal certainty to lenders regarding enforceability of their claims in bankruptcy.
More recently, there has been a push to promote innovation and entrepreneurship and to
establish dedicated institutions for the development of SMEs.
But despite the multitude of incentives, SMEs in MENAP continue to face barriers to growth,
and their contribution to employment trails other regions. SMEs continue to experience
challenges accessing finance and the business and regulatory environment has not been
sufficiently enabling. The enterprises also face internal constraints related to talent gaps and
weak managerial capacities (Saleem 2017). These constraints are manifesting in a
concentration of SMEs in activities that require low resources, in terms of capital, skills and
financing and in the predominance of microenterprises that generate limited employment
opportunities, are low paying and low value adding. Educated youths, therefore, prefer to
take up jobs in the public sector and large corporations that offer better salaries and benefits.
The COVID-19 pandemic has added to the challenges that SMEs in MENAP face and
threatens to accentuate already elevated levels of unemployment in the region. The sectors in
which the SMEs are concentrated are also the ones that have been badly hit by measures to
contain the spread of the virus—such as trade, tourism, and transportation. As most SMEs
have also not digitalized their business model, the “great lockdown” has brought operations
of many SMEs to a sudden standstill. With microenterprises predominating the SME sector,
The author would like to thank Oluremi Akin-Olugbade, Kate Nguyen, Gohar Abajyan, Tatiana Pecherkina for
technical support, and Mwanza Nkusu, Debbie Chungu, Herve Tourpe, Nadine Schwarz, Ender Emre, Masaru
Itatani, David Rozumek and Heedon Kang (IMF) for the insightful and helpful comments on the draft. The
report also benefited from discussions with Natalija Gelvanovska-Garcia, Rogy Michel and Carlo Maria
Rossotto as well as participants in the MENA seminar series (World Bank).
6
the level of cashflows are unlikely to withstand substantial periods of business disruptions. In
addition, since SMEs are the predominant form of business in MENAP and significant
contributors to employment, a weakening of the SMEs productive capacity has potential to
significantly increase unemployment.
For SMEs to be the engines of inclusive growth, a re-thinking of SME development
strategies is needed that puts digitalization at the center of reforms.2 Empirical studies show
that technology can enhance operational efficiencies, innovation, access to international
markets and overall productivity, thereby promote enterprise growth (Accenture 2016,
OECD 2017, WTO 2019). Digital innovations can also help unlock funding for SMEs,
improve government efficiencies and integrate women in the labor force. The “great
lockdown” has demonstrated how digital technologies can facilitate business continuity and
enhance resilience to shocks. But more critical, digital technologies are rapidly transforming
consumer expectations, thus SMEs need to adapt to remain competitive in the digital
economy.
This study aims to identify the policy mix that can enable MENAP SMEs to leverage digital
technologies to boost growth and promote inclusive growth. The analysis addresses four
principal questions:
• Why did strategies to promote the development of SMEs in MENAP have a limited
impact on their growth and employment creation in the region?
• Can digital technologies usher in a new era of resilience, growth and quality employment
generation among SMEs?
• How digitalized are MENAP SMEs and what constraints do they face in digitalizing their
businesses?
• What policy mix can enable SMEs to leverage digital technologies to boost their growth
and achieve inclusive growth, and what role should the government play?
The study applies benchmarking techniques and gap analysis to assess the performance of
MENAP SMEs and identify needed policies. The review covers 21 of the 24 countries that
make up the MENAP region.3 Data on SME demographics for MENAP countries are
currently scanty and do not permit econometric testing of the causes of SMEs’
underperformance, thus the assessment of the impact of policies implemented to promote
SMEs is largely qualitative. The analysis is based on both primary and secondary data
sources from central bank reports, presentations by senior government officials, World Bank
2 Digitalization is the use of data, digital technologies and interconnections to create business or change existing
activities.
3 The three countries not covered include Syria, Libya and West Bank and Gaza (WBG).
the level of cashflows are unlikely to withstand substantial periods of business disruptions. In
addition, since SMEs are the predominant form of business in MENAP and significant
contributors to employment, a weakening of the SMEs productive capacity has potential to
significantly increase unemployment.
For SMEs to be the engines of inclusive growth, a re-thinking of SME development
strategies is needed that puts digitalization at the center of reforms.2 Empirical studies show
that technology can enhance operational efficiencies, innovation, access to international
markets and overall productivity, thereby promote enterprise growth (Accenture 2016,
OECD 2017, WTO 2019). Digital innovations can also help unlock funding for SMEs,
improve government efficiencies and integrate women in the labor force. The “great
lockdown” has demonstrated how digital technologies can facilitate business continuity and
enhance resilience to shocks. But more critical, digital technologies are rapidly transforming
consumer expectations, thus SMEs need to adapt to remain competitive in the digital
economy.
This study aims to identify the policy mix that can enable MENAP SMEs to leverage digital
technologies to boost growth and promote inclusive growth. The analysis addresses four
principal questions:
• Why did strategies to promote the development of SMEs in MENAP have a limited
impact on their growth and employment creation in the region?
• Can digital technologies usher in a new era of resilience, growth and quality employment
generation among SMEs?
• How digitalized are MENAP SMEs and what constraints do they face in digitalizing their
businesses?
• What policy mix can enable SMEs to leverage digital technologies to boost their growth
and achieve inclusive growth, and what role should the government play?
The study applies benchmarking techniques and gap analysis to assess the performance of
MENAP SMEs and identify needed policies. The review covers 21 of the 24 countries that
make up the MENAP region.3 Data on SME demographics for MENAP countries are
currently scanty and do not permit econometric testing of the causes of SMEs’
underperformance, thus the assessment of the impact of policies implemented to promote
SMEs is largely qualitative. The analysis is based on both primary and secondary data
sources from central bank reports, presentations by senior government officials, World Bank
2 Digitalization is the use of data, digital technologies and interconnections to create business or change existing
activities.
3 The three countries not covered include Syria, Libya and West Bank and Gaza (WBG).
7
enterprise surveys and other studies, as well as information obtained through seminars at the
IMF, World Bank and regional bodies in the MENA region.
The study is organized as follows: Section II provides an overview of the landscape for
SMEs in MENAP, covering their structure, performance and impediments to growth. This
section also reviews the policies that have been implemented by various countries to promote
SMEs growth and evaluates their effectiveness. Section III discusses the benefits of SMEs
adopting digital technologies, analyses digitalization trends in MENAP SMEs, and identifies
factors hampering the digital transformation of SMEs. Section IV summarizes the findings
and identifies policy strategies to enable SMEs to leverage digital technologies to boost their
growth and employment creation, thereby facilitate inclusive growth.
II. AN OVERVIEW OF THE MENAP SME LANDSCAPE
A. Structure of MENAP SMEs, Performance and Constraints to Growth
As with other regions, SMEs are the predominant form of businesses in MENAP and are
significant contributors to GDP and employment. SMEs, on average, account for over 90
percent of total businesses (Figure 1). The share of employment accounted for by SMEs
ranges from the low teens in Algeria to more than 50 percent in several countries (Bahrain,
UAE, Iran, Jordan, Lebanon, Egypt, Pakistan, Tunisia) while SMEs’ contributions to GDP
range from a low of 10 percent in Qatar to more than 70 percent in some of the oil-importing
countries (Egypt, Tunisia, Yemen). The significance of SMEs in MENAP economies is even
greater when the informal sector is considered (Saleem 2017).
Figure 1: Structure of SMEs
enterprise surveys and other studies, as well as information obtained through seminars at the
IMF, World Bank and regional bodies in the MENA region.
The study is organized as follows: Section II provides an overview of the landscape for
SMEs in MENAP, covering their structure, performance and impediments to growth. This
section also reviews the policies that have been implemented by various countries to promote
SMEs growth and evaluates their effectiveness. Section III discusses the benefits of SMEs
adopting digital technologies, analyses digitalization trends in MENAP SMEs, and identifies
factors hampering the digital transformation of SMEs. Section IV summarizes the findings
and identifies policy strategies to enable SMEs to leverage digital technologies to boost their
growth and employment creation, thereby facilitate inclusive growth.
II. AN OVERVIEW OF THE MENAP SME LANDSCAPE
A. Structure of MENAP SMEs, Performance and Constraints to Growth
As with other regions, SMEs are the predominant form of businesses in MENAP and are
significant contributors to GDP and employment. SMEs, on average, account for over 90
percent of total businesses (Figure 1). The share of employment accounted for by SMEs
ranges from the low teens in Algeria to more than 50 percent in several countries (Bahrain,
UAE, Iran, Jordan, Lebanon, Egypt, Pakistan, Tunisia) while SMEs’ contributions to GDP
range from a low of 10 percent in Qatar to more than 70 percent in some of the oil-importing
countries (Egypt, Tunisia, Yemen). The significance of SMEs in MENAP economies is even
greater when the informal sector is considered (Saleem 2017).
Figure 1: Structure of SMEs
8
SMEs are a heterogeneous group that operate in a variety of sectors.4 The business activities
range from single artisans with few or no paid employees to high-growth firms offering
innovative goods, services, and business models that target local, national or international
markets. In most MENAP countries, SMEs are concentrated in the service sector such as
trade, retail distribution, and simple contracting (Figure 2). These sectors are characterized
by low entry costs and resource requirements, but they are also low value-adding and low
paying. The SMEs mostly focus on the domestic market and participation in global value
chains (GVC) is still very low (WTO 2019).
Figure 2. Composition of SMEs by Business Sector and Markets
The number and scale of startups is growing rapidly, but activities are concentrated in a few
countries.5 Investments in startups increased at a compound annual growth rate of 22.5
percent between 2015 and 2019 and the number of startups worth over US$100 million also
increased (Magnit 2019). The activities are, however, geographically concentrated, with eight
countries (Bahrain, Egypt, Jordan, Lebanon, Oman, Saudi Arabia, Tunisia, and UAE)
accounting for over 85 percent of all startups and the UAE alone accounting for a third of the
activities (Figure 3). Developmental strategies that emphasize entrepreneurship, innovation,
diversification and increased funding contributed to the rapid growth, while government
support and international interest helped actualize the growth. But while the startups are
creating employment opportunities, the magnitudes have not been sufficient to significantly
reduce unemployment levels among the youth (WAMDA 2016).
4 There is no universally agreed definition of SMEs and many MENAP countries follow more than one
definition of SMEs based on the number of employees, turnover, value of sales or assets, though the number of
employees is the most commonly applied parameter. SMEs vary in scale and are typically classified into three
categories of micro, small and medium.
5 A unicorn is a privately held startup company valued at over $1 billion.The sectoral structure is skewed towards simple contracting and trading SMEs share in exports is mostly low...
operations
0
20
40
60
80
100
BHR IRN EGY MAR PAK JOR QAT UAE
SMEs exports in total exports SMEs Share in
Exporting Firms
SMES Contribution to Exports
(Contribution to Exports/Share of SMEs Exporting)
0
20
40
60
80
100
BHR KWT OMN QAT SAU UAE DZA IRQ JOR LBN EGY MAR PAK TUN
High Income Upper Middle Income Lower Middle Income
SME Distribution by Sector Per Country
(Percentage Share)
Manufacturing Trade Construction Services Other
Sources: World Bank and official publications.
Note: Data labels use International Organization for Standardization (ISO) codes. Sources: Various National Reports.
Note: Data labels use International Organization for Standardization (ISO) codes.
SMEs are a heterogeneous group that operate in a variety of sectors.4 The business activities
range from single artisans with few or no paid employees to high-growth firms offering
innovative goods, services, and business models that target local, national or international
markets. In most MENAP countries, SMEs are concentrated in the service sector such as
trade, retail distribution, and simple contracting (Figure 2). These sectors are characterized
by low entry costs and resource requirements, but they are also low value-adding and low
paying. The SMEs mostly focus on the domestic market and participation in global value
chains (GVC) is still very low (WTO 2019).
Figure 2. Composition of SMEs by Business Sector and Markets
The number and scale of startups is growing rapidly, but activities are concentrated in a few
countries.5 Investments in startups increased at a compound annual growth rate of 22.5
percent between 2015 and 2019 and the number of startups worth over US$100 million also
increased (Magnit 2019). The activities are, however, geographically concentrated, with eight
countries (Bahrain, Egypt, Jordan, Lebanon, Oman, Saudi Arabia, Tunisia, and UAE)
accounting for over 85 percent of all startups and the UAE alone accounting for a third of the
activities (Figure 3). Developmental strategies that emphasize entrepreneurship, innovation,
diversification and increased funding contributed to the rapid growth, while government
support and international interest helped actualize the growth. But while the startups are
creating employment opportunities, the magnitudes have not been sufficient to significantly
reduce unemployment levels among the youth (WAMDA 2016).
4 There is no universally agreed definition of SMEs and many MENAP countries follow more than one
definition of SMEs based on the number of employees, turnover, value of sales or assets, though the number of
employees is the most commonly applied parameter. SMEs vary in scale and are typically classified into three
categories of micro, small and medium.
5 A unicorn is a privately held startup company valued at over $1 billion.The sectoral structure is skewed towards simple contracting and trading SMEs share in exports is mostly low...
operations
0
20
40
60
80
100
BHR IRN EGY MAR PAK JOR QAT UAE
SMEs exports in total exports SMEs Share in
Exporting Firms
SMES Contribution to Exports
(Contribution to Exports/Share of SMEs Exporting)
0
20
40
60
80
100
BHR KWT OMN QAT SAU UAE DZA IRQ JOR LBN EGY MAR PAK TUN
High Income Upper Middle Income Lower Middle Income
SME Distribution by Sector Per Country
(Percentage Share)
Manufacturing Trade Construction Services Other
Sources: World Bank and official publications.
Note: Data labels use International Organization for Standardization (ISO) codes. Sources: Various National Reports.
Note: Data labels use International Organization for Standardization (ISO) codes.
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