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Catalyzing Job Creation andGrowth Through MSME

Development in the Deauville Partnership Countries

Volume 1: A Gap Analysis of Policy and Program Supportin Morocco and Tunisia

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Unemployment was a key factor fueling the

popular discontent leading to the 2011

revolutions in Egypt and Tunisia and the

transformational processes in Jordan, Libya,

Morocco, and Yemen. The transitions that these

countries have been going through since 2011

have compounded the problem, and they are

now in need, more than ever, of support to

create employment opportunities for all. They

need to foster home-grown sources of employment

and income generation, particularly by promoting

entrepreneurship and the development of

micro, small and medium enterprises (MSMEs),

a sector that comprises the majority of

enterprises in the Middle East and North Africa

region, in addition to being a major source of

private sector employment.

At their Summit in Deauville, France, in May

2011, the G8 countries made a commitment to

provide support for the political and economic

transformation of the Arab Countries in

Transition – Egypt, Jordan, Libya, Morocco,

Tunisia, and Yemen – through the launch of the

Deauville Partnership. Gulf countries Kuwait,

Qatar, Saudi Arabia, and the United Arab

Emirates, as well as Turkey, joined the Deauville

Partnership subsequently.

A group of 10 international financial institutions

(IFIs) supporting the Deauville Partnership

countries agreed in September 2011 to

establish an operational platform, with a flexible

non-bureaucratic structure, to coordinate

responses to the countries’ urgent needs.

The coordination platform is supported by a

secretariat, which was hosted by the North

Africa Department of the African Development

Bank during its inception phase from

September 2011 to September 2012. Against

this backdrop and on behalf of its IFI partners,

the Bank has prepared this report to lay

the ground for better provision and more

coordinated and strategic MSME support in

Deauville Partnership countries, with a

particular focus on MSMEs with the highest

employment-creation potential. The first volume

of the report addresses several knowledge

gaps in MSME development in the region.

To inform policy and project interventions, it

provides a detailed analysis of current

knowledge concerning the link between

MSME development and job creation. At the

request of Morocco and Tunisia, current MSME

development initiatives in those two countries

have been mapped to identify gaps and

provide pointers to where donors and

governments alike may intervene. The aims of

the study are to improve knowledge exchange

and coordination between Deauville Partners

and to increase support for MSME development

from both countries and donors. The study also

constitutes the groundwork for identifying

further joint operations and research, including

operations by the Deauville Partnership

countries themselves. As it also covers activities

Foreword

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by governments and bilateral donors, it will help

to streamline the different initiatives around

small and medium enterprises (SMEs) in the

region.

The second volume of the report focuses on

identification of good practices and success

stories in MSME support instruments and

programs in the region, profiling a selection of

these as examples for replication or adaptation

in other Deauville Partnership countries.

The African Development Bank has always

looked for multifaceted, innovative and efficient

ways of supporting SMEs. Recent initiatives

have included the African Guarantee Fund,

which provides partial guarantees, and other

important risk-sharing initiatives, such as the

growth-oriented women enterprises facilities.

Others initiatives include the provision of

dedicated lines of credit to financial

intermediaries for lending to SMEs, to improve

their access to finance, credit enhancement

schemes, and capacity-building activities.

The Bank will continue to collaborate with

development partners to ensure that, as we

provide support to the region, we integrate

the latest thinking on support to MSMEs in

our activities, especially in terms of creating

a meaningful environment for employment

generation.

Jacob Kolster,

Director, North Africa Regional Department

(ORNA)

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This report was prepared by Lois Stevenson,

Senior Consultant, North Africa Regional

Department (ORNA), African Development

Bank (AfDB), under the supervision of Florian

Theus (Economist, ORNA). Overall guidance

was provided by Jacob Kolster (Director,

ORNA). Petra Menander Ahman (former Head,

IFI Secretariat, ORNA) played an instrumental

role in the project’s initial coordination efforts with

other international financial institutions (IFIs).

Selim Guedouar (Consultant, ORNA) provided

valuable inputs on the initial listing of donor

initiatives in Tunisia and Morocco. Vincent Castel

(Chief Country Economist, ORNA) and Philippe

Trape (Principal Country Economist, ORNA)

provided comments on the current dynamics of

MSMEs respectively in Morocco and Tunisia.

The report also benefited from comments

by Thouraya Triki (Chief Country Economist,

ORNA), Yasser Ahmad (Portfolio Officer,

ORNA), Audrey Chouchane (Chief Economist,

Development Research Department), Mickaelle

Chauvin (Consultant, ORNA) for the Tunisia

section and Wadii Rais (Senior Financial Analyst,

ORNA) for the Morocco section. The report was

edited by Diana Saltarelli.

The project would not have been possible

without the support of the members of the IFI

platform. For initial coordination in the design

phase, the Deauville Partnership Working Group

on Small and Medium Enterprises (SMEs) played

an important role. The AfDB is also grateful for

the sharing of information, studies and projects

related to microenterprise and SME (MSME)

development in the region by our IFI partners

and the Organization for Economic Co-operation

and Development (OECD). The report also

benefited from the valuable comments of

Laurent Gonnet (Senior Private Sector Specialist,

World Bank), Rapti Goonesekere (Principal

Economist, International Finance Corporation,

Middle East and North Africa – MENA), Jorge

Galvez Mendez (Policy Analyst, Private Sector

Development, OECD), Alexander Boehmer

(Head, MENA Investment Programme, OECD),

Zahira El Marzouki (Principal Manager,

External Policy Coordination, European Bank for

Reconstruction and Development) and Monica

Carco (Head, Investment and Technology

Unit, United Nations Industrial Development

Organization).

The report also benefited greatly from the

comments and inputs received from the

Tunisian and Moroccan governments during the

Deauville Partnership SME workshops in June

2013 in Rabat, and April 2014 in Tunis, as well

as during the missions to Tunisia with Alaya

Bettaieb (former Secretary of State, Ministry of

International Cooperation) and Sadok Bejja

(General Director for Small and Medium

Enterprise Development, Ministry of Industry

and Technology) and to Morocco with Aicha

Bouanani (Ministry of Economy and Finance),

as well as Abdelkrim Belkadi, National Agency

Acknowledgements

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for the Promotion of Employment and Skills

(ANAPEC) and Houria Nadifi, National Agency

for the Promotion of Small and Medium

Enterprises (ANPME).

AfDB would also like to thank all those who were

available for meetings and interviews during the

missions to Morocco and Tunisia in November

2012. In Morocco, these include Manar Talhi,

Asmane Morine, Samya el Mousti (Association

of Women Entrepreneurs of Morocco – AFEM),

Francoise Giraudon (Moroccan Association of

Capital Investors – AMIC), Abdelkhalek Glillah

(Caisse Centrale de Garantie), Mohammed Rifi,

Aziz Slaoui, Nadia Feidji (Centre des Jeunes

Dirigeants d'Entreprises), Saad Hamoumi,

Rachid Ghafir (General Confederation of

Moroccan Enterprises – CGEM), Moustapha

Bidouj, Fidaa Fardous, Amina Sakioudi

(Fondation Banque Populaire pour le Micro-

Crédit), Hassan Charraf (Fondation Création

d'Entreprise, Banque Populaire), Mohamed

Abbad (INJAZ Al-Maghrib) and Abdelkrim

Farah (Jaida). In Tunisia, thanks go in particular

to Abdellatif Fakhfakh, Amel Ben Rahal

(Central Bank of Tunisia), Khalil Ammar,

Marouane Ouederni, Hamdi Ksaa (Bank for

Financing Small and Medium Enterprises -

BFPME), Mohamed Kaaniche (Banque

Tunisienne de Solidarité), Douja Gharbi

(Confédération des entreprises citoyennes de

Tunisie), Wafa Makhlouf Sayadi (Centre des

Jeunes Dirigeants d'Entreprise), Majdi Hassen

(Arab Institute of Business Leaders (IACE),

Richard Finke (Middle East Investment

Initiative), Khaled Ben Jennet, Yassine Ouassaifi

(TunInvest), Kamel Krimi (Tunisie Leasing).

This report was made possible by the

generous financial support of the Department

for International Development, United Kingdom.

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Table of Contents

i Forewordiii Acknowledgements

v Table of contents

vii Abbreviations

x Executive Summary

1 1. Background of the Study

1 1.1 Introduction

3 1.2 Purpose of the study

4 1.3 Methodological approach

4 1.4 Conceptual framework for mapping MSME support initiative

9 2. MSMEs and Job Creation – a Review of the Literature

9 2.1 The importance of MSME development

10 2.2 What are the job-creating impacts of MSMEs?

20 2.3 Implications for IFIs/ donors in Morocco and Tunisia

25 3. MSME Development Support in Morocco: A Gap Analysis

25 3.1 Challenges and development priorities for Morocco

27 3.2 Contribution of Moroccan MSMEs to job creation

34 3.3 Constraints to MSME sector development

40 3.4 Government action to address constraints

42 3.5 IFI/ donor support to the MSME sector

43 3.6 Gaps in MSME development support

49 3.7 Proposals for strengthening the MSME sector in Morocco

57 4. MSME Development Support in Tunisia: A Gap Analysis

57 4.1 Challenges and development priorities for Tunisia

60 4.2 Contribution of Tunisian MSMEs to job creation

68 4.3 Constraints to MSME sector development

76 4.4 Government actions to address constraints

79 4.5 IFI/ donor support to the MSME sector

80 4.6 Gaps in MSME development support

89 4.7 Proposals for strengthening the MSME sector in Tunisia

95 Annex 1: Morocco – Government actions in response to MSME sector priorities since 2011

106 Annex 2: Morocco – IFI/ donor support

118 Annex 3: Tunisia – Government actions in response to MSME sector priorities since 2011

121 Annex 4: Tunisia – IFI/ donor support

132 References

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List of tables

Table 3.1 Distribution of formal establishments and employment by establishment size, 2001/2002,

Morocco

Table 3.2 Working population by professional status, gender and residence, 2011, Morocco

Table 4.1 Distribution of private enterprises by employment size, 2006 and 2011, Tunisia

Table 4.2 Average employment size of Tunisian enterprises, 2011

Table 4.3 Dynamics of business entries and exits by enterprise size, 2006-2011, Tunisia

List of figures

Figure 3.1 Share of informal enterprises and their employment by enterprise (employment) size,

Morocco, 2009

Figure 3.2 Trends in self-employment share of all workers, Morocco, 2006-2012

Figure 3.3 Entrepreneurial activity rates by age group and gender, Morocco, 2009

Figure 3.4 Schematic of system of support for MSMEs, Morocco

Figure 3.5 Distribution of IFI/ donor funding by project category, Morocco, 2009

Figure 4.1 Share of employer-entreprises and employment by enterprise size, 2011, Tunisia

Figure 4.2 Employment trends of working adults, 2006-2012, Tunisia

Figure 4.3 Entrepreneurial activity rates of the Tunisian adult population, 2010 and 2012

Figure 4.4 Entrepreneurial perceptions of the adult population, 2010 and 2012, Tunisia

Figure 4.5 Schematic of MSME support system, Tunisia

Figure 4.6 Distribution of IFI/ donor funding by project category, Tunisia

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Abbreviations

African Development Bank

Agence Française de Développement/French Development Agency

Association des Femmes Chefs d’Entreprises du Maroc/ Association

of Women Entrepreneurs of Morocco

Association Marocaine des Investisseurs en Capital/ Moroccan Association

of Capital Investors

Agence Nationale pour la Promotion de l’Emploi et des Compétences/

National Agency for the Promotion of Employment and Skills

Agence Nationale pour l’Emploi et le Travail Indépendant/ National

Agency for Employment and Self-Employment

Agence Nationale pour la Promotion de la Petite et Moyenne Entreprise/

National Agency for the Promotion of Small and Medium Enterprises

Agence Nationale de Promotion de la Recherche Scientifique/ National

Agency for the Promotion of Scientific Research

Agence de Promotion de l'Industrie et de l’Innovation/ Agency for the

Promotion of Industry and Innovation

Association Tunisienne des Investisseurs en Capital/ Tunisian Association

of Capital Investors

Banque Centrale de Tunisie/Central Bank of Tunisia

Banque Centrale Populaire

Banque de Financement des Petites et Moyennes Entreprises/ Bank

for Financing Small and Medium Enterprises

Banque Tunisienne de Solidarité

Caisse Centrale de Garantie

Centre National pour la Recherche Scientifique et Technique/ National

Center for Scientific and Technical Research

Centres Régionaux d’Investissement/ Regional Investment Centers

Department for International Development (United Kingdom)

Direction Générale pour la Promotion des Petites et Moyennes Entreprises/

Directorate General for the Promotion of Small and Medium Enterprises

European Bank for Reconstruction and Development

European Investment Bank

Fondation Banque Populaire pour le Micro Crédit

AfDBAFDAFEM

AMIC

ANAPEC

ANETI

ANPME

ANPR

APII

ATIC

BCTBCPBFPME

BTSCCGCNRST

CRIDFIDDGPPME

EBRDEIBFBPMC

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FCEFNAM

FONAPRAM

FOPRODI

GEM GiZIACE

ICT IFCILOINDH

INS MADMCCMENAMFIMICNT

MNF MSME OECDORNAPAPPE

R&DRIITI

RMIE

RNERRME

Fondation Création d'Entreprise, Groupe Banque Populaire

Fédération Nationale des Associations de Microcrédit / National

Federation of Microcredit Associations

Fonds National de Promotion de l'Artisanat et des Petits Métiers/

National Fund for the Promotion of Handicrafts and Small

Workshops

Fonds de Promotion et de Décentralisation Industrielle/ Industrial

Promotion and Decentralization Fund

Global Entrepreneurship Monitor

Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH

Institut Arabe des Chefs d’Entreprises/ Arab Institute of Business

Leaders

Information and communications technology

International Finance Corporation

International Labour Organisation

Initiative Nationale pour le Développement Humain/ National

Initiative for Human Development

Institut National de la Statistique/ National Institute of Statistics

Moroccan dirhams

Millennium Challenge Corporation

Middle East and North Africa

Microfinance institution

Ministère de l’Industrie, du Commerce et des Nouvelles Technologies/

Ministry of Industry, Commerce and New Technologies

Morocco Numeric Fund

Micro, small and medium enterprise

Organisation for Economic Co-operation and Development

North Africa Regional Department, African Development Bank

Programme d’Accompagnement des Promoteurs des Petites

Entreprises/ Program for Mentoring Promoters of Small Enterprises

Research and development

Regime d’Incitation à l’Innovation dans les Technologies de l’Information/

Incentive Fund for Innovation in Information Technologies

Réseau Maroc Incubation et Essaimage/ Morocco Incubation

and Spin-off Network

Répertoire National des Entreprises/National Business Directory

Réseau Régional pour la Modernization des Entreprises/ Regional

Network for the Modernisation of Enterprises

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SDCSICAR

SMESOTUGARTNDUNIDOVATVSE

Swiss Agency for Development and Cooperation

Société d’investissement de capital à risque/ Capital Risk

Investment Company

Small and medium enterprise

Société Tunisienne de Garantie/ Tunisian Guarantee Company

Tunisian dinar

United Nations Industrial Development Organization

Value-added tax

Very small enterprise

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The Arab Spring had a negative

impact on the economic growth of

developing countries in the Middle East

and North Africa (MENA) region. Immediately

following the social uprisings in 2010

and 2011, real growth in GDP declined

significantly in many of these countries. In

the wake of the political, social and

economic upheaval, creating more and

better jobs, especially for youth, has

emerged as one of the most urgent

challenges facing the Arab world.

In response to the repercussions of the

Arab Spring and the resulting wave of

change in the MENA region, the G8

countries launched the Deauville Partnership

with Arab Countries in Transition at their

summit in Deauville, France, in May 2011.

At the G8 Finance Ministers’ meeting in

Marseille, France, in September 2011, ten

international financial institutions (IFIs) agreed

to set up an operational platform to facilitate

joint operations and maximize synergies

among institutions in the region. In this

context, the weakness of the private sector

and the vulnerability of micro, small and

medium enterprises (MSMEs), which

represent the majority of businesses in the

region, are key issues. The current study

was commissioned in order to find ways to

create greater employment opportunities

through MSME development in two

countries in the region, Morocco and

Tunisia.

Review of literature

A review of the literature on MSMEs and job

creation precedes the country analyses. This

review finds that MSMEs are an important

driving force for private sector development,

which is critical to sustainable economic

growth in developing economies, and

they contribute to rural stability, poverty

reductionand social inclusion. Although the

major barriers to entrepreneurship and

MSME development may differ somewhat

across countries, there is a great deal

of similarity in the challenges facing the

MSME sector in MENA countries. These

include burdensome and costly business

registration, taxation and regulatory

compliance systems; inadequate access to

market and business-related information;

weak linkages to supply chain opportunities;

low use of and access to up-to-date

technologies; and low levels of innovation

capacity.

The review concludes that, to increase

the survival rates of new enterprises,

interventions would best focus on improving

the general education level of the workforce

(and of potential entrepreneurs); improving

access to finance for new enterprises (such

Executive Summary

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as through loan guarantee schemes);

providing entrepreneurship training for

potential entrepreneurs; and providing post-

creation advisory, counseling, mentoring and

coaching services to start-up entrepreneurs

to upgrade their managerial capacity.

Lack of entrepreneurial skills is a key

constraint to start-up and survival rates in

MENA countries. There are few places

where aspiring entrepreneurs can learn

critical start-up skills – only 37 universities

in the MENA region offer courses in

entrepreneurship, only 17 have centers of

entrepreneurship, and only five offer majors

in entrepreneurship. The report highlights the

importance of fostering an entrepreneurial

culture, especially among young women

and men.

Gap analysis of MSME policy andprogram support in Morocco

The Moroccan economy is dominated by

sectors employing mostly low-skilled

workers with not enough job opportunities

for university graduates. The major

constraints to MSME development to be

addressed are: (i) inadequate access to

both credit and equity financing; (ii)

weaknesses in the capacity of MSMEs

(business management and financial skills);

(iii) lack of start-up knowledge and know-

how; (iv) weaknesses in provision of

services to MSMEs, particularly in delivery

of business development support; (v) lack

of innovation capacity of MSMEs; and

(vi) administrative and regulatory barriers

(business registration, competition).

Job creation is a key target of all national

and sector development strategies.

Strengthening the innovation ecosystem is

one of the Moroccan government’s

priorities, as is improving access to finance

for start-ups, innovative and growth small

and medium enterprises (SMEs), and very

small enterprises that have difficulty in

accessing bank financing. The government

launched new programs in 2011 to focus

on innovation support to SMEs, such as

the new Morocco Center for Innovation;

the Fund to Support Innovation; and

several other programs to support

innovative start-ups and the research and

development projects of established SMEs

(a full list appears in Annex 1).

Since 2001, IFI donor funding in Morocco

has amounted to about US$1.6 billion. Half

of this funding is focused on addressing

the MSME financing gap; 38% is devoted

to capacity building of the financial sector;

and the remaining share is allocated to non-

financial MSME support initiatives geared

to facilitating development of entrepreneurship

and start-ups, enhancing the capacity

of MSMEs through technical assistance,

supporting innovation, developing youth

employability and entrepreneurship skills,

and funding studies (Annex 2).

The lack of official data on the MSME

sector and critical statistics on entries,

exits, growth rates, job creation impacts by

size of enterprise, is a barrier to evidence-

based policies and programs. However,

the analysis found that IFIs/ donors could

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usefully focus on addressing the need for

more venture capital and business angel

investment in innovative start-ups and

early-stage enterprises, including

investments in the OCP Innovation Fund

for Agriculture and support to the Morocco

Numeric Fund targeting technology

start-ups and seed-stage enterprises in

the information and communications

technology sector.

To develop and strengthen the capacities

of MSMEs, donors could also (i) support

the government in implementation of

the National Strategy for the Promotion of

Very Small Enterprises; (ii) fund the

establishment of business support centers

that can provide coaching, mentoring, and

advisory services to MSMEs; and (iii)

provide technical assistance and funding

support for development of an SME

Observatory to address the lack of

comprehensive data on the MSME sector

in Morocco.

Gap analysis of MSME policy andprogram support in Tunisia

In 2011, MSMEs accounted for 99%

of Tunisian companies and nearly 80%

of employment in the private sector.

In general, MSMEs lack governance

structures and transparency. Weaknesses

were evident in the provision and

coordination of business support services

to MSMEs (e.g. incubators, business

centers, etc.).

The priorities of the government are

job creation, regional development,

accelerating private investment, human

capital development, and support for

innovation. Since the revolution of 2011,

it has taken a number of measures

to improve the economic and social

environment, some of which relate to

MSMEs: regulatory simplification, reform of

the financial sector to increase access to

finance, job creation in the handicraft

sector through entrepreneurship support,

improvement of the conditions for

investments in MSME procurement, and

launching of initiatives to promote

technological innovation (Annex 3).

Since 2011, donors/IFIs have invested

more than US$1 billion in projects

supporting the MSME sector in Tunisia.

The vast majority of projects focus on

access to finance, usually in the form

of credit lines (Annex 4). Non-financial

support projects (only 5.4% of the total

amount) facilitate the development of

entrepreneurship, support innovation,

improve the regulatory environment and

market access, and build capacity through

technical assistance. Donors could usefully

direct attention to this latter area.

The study found that the major constraints

to MSME creation and development in

Tunisia include a lack of equal opportunities

in terms of the regulatory and administrative

environment, covering a broad range of

areas, including barriers to entry, disparities

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in the treatment of offshore and onshore

enterprises, rigid labor laws and

regulations, high non-wage labor costs,

high levels of taxation, and anti-

competition practices in many sectors.

Other challenges include: low access to

financing; a low level of entrepreneurial

know-how and business management

skills, coupled with a weak culture of

entrepreneurship and innovation; a lack of

access to information and markets, which

is exacerbated for MSMEs in the interior

regions of the country; and in spite of an

elaborate system of business and financial

support mechanisms, weaknesses in the

provision and coordination of business

services to MSMEs, which creates

inefficiencies in responding to their needs

in a timely fashion.

The analysis concludes that the MSME

sector can be a big job creator, but it

needs further strengthening, capacity

building and regulatory openness to

achieve this goal. Fostering the creation of

new enterprises through entrepreneurship

promotion and support initiatives is a valid

job-creating strategy, but would require

wide-scale initiatives to support a large

number of start-ups, with education and

training, business planning support,

access to start-up financing, etc., and

post-creation support to improve

sustainability.

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1.1 Introduction

The Arab Spring has had a negative

impact on the economic growth of

developing countries in the Middle East

and North Africa (MENA) region.

Immediately following the social uprisings

in 2010 and 2011, real growth in GDP

declined significantly in many of these

countries. In the wake of the political,

social and economic upheaval, creating

more and better jobs, especially for youth,

is one of the most urgent challenges facing

the Arab world (WEF, 2012a). Labor force

growth in MENA continues to be among

the highest of any region of the world, with

new labor market entrants making up the

vast majority of the unemployed. In 2009,

the International Labour Organization (ILO)

cited World Bank projections that national

economies would have to grow annually by

6% to 8% just to maintain unemployment

rates existing before the Arab Spring (ILO,

2009), and this has not been occurring.

Weak private sector growth and the

vulnerability of the micro, small and

medium enterprise (MSME) sector are key

issues to be addressed. MSMEs make up

more than 90% of all private sector

enterprises in most MENA countries, but

the majority tends to be microenterprises

with no more than two or three workers

(Stevenson, 2010). Entrepreneurial activity

rates in the region vary across countries,

but are lower than in many other regions of

the world (OECD and IDRC, 2012). Many

MSMEs in MENA countries also operate in

the informal sector, where they have limited

opportunity for growth and creation of

formal jobs.

MENA leaders at a World Economic Forum

meeting in Turkey in June 2012 agreed

that a healthy business environment is the

key to MSME growth, one that encourages

new enterprises and supports existing

businesses. MSMEs in the MENA region

are held back by limited access to

technology, scarcity of capital, political

instability and poor governance (WEF,

This report presents findings from a comprehensive review and gap analysis of the post-2011 efforts ofthe Deauville Partnership members to address constraints to development and growth of micro, small andmedium enterprises (MSMEs) in Morocco and Tunisia and strengthen their role in job creation tomitigate the negative impacts of the Arab Spring. The study concludes each of the country sections withconcrete proposals to fill gaps in current policy and program support and to inform and guide futureDeauville Partnership actions.

1. Background of the study

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2012a). MENA leaders agreed that

policymakers should focus on encouraging

entrepreneurship and access to financing,

also recognizing that there are vast

differences across the region in information

infrastructure and systems for technological

entrepreneurship, such as capital, investors,

and education, and on helping to bring

scale and speed to the development

of nascent businesses. Further, they

concluded that failure to integrate women

in the workforce means the potential

contribution of billions of dollars in

economic activity is being forgone.

Developing strategies to generate decent

and productive jobs through the

promotion of sustainable enterprises is

thus an urgent challenge in the region. The

ILO report stresses that “job creation in

enterprises remains fundamental to

economic diversification and to raising

incomes and reducing poverty in the

region”. It also highlights the importance

of fostering an entrepreneurial culture,

especially among young women and men

(ILO, 2009).

In response to the repercussions of

the Arab Spring and the resulting wave

of change in the MENA region, ten

international financial institutions (IFIs)1

agreed, during the G8 Finance Ministers’

meeting in Marseille, France, 10

September 2011, to set up the Deauville

Partnership IFI Coordination Platform to

facilitate joint operations and maximize

synergies among institutions in the region.

The objectives of the platform, are (i)

information sharing and coordination of

activities among IFIs; (ii) proactive

identification of joint projects, policy and

analytical work; (iii) regular development of

knowledge products; and (iv) monitoring

and reporting on joint operations in the

region. The Deauville Partnership with Arab

countries in Transition was created at

the G8 Summit in May 2011 in France. It

aims to support democratic transition,

transparent governance, and inclusive

growth in the Arab countries in transition –

Egypt, Jordan, Libya, Morocco, Tunisia,

and Yemen.

The framework for engagement is built

around the need to create jobs, accelerate

growth, strengthen governance, and

ensure economic and social inclusion.

The Deauville Partnership Platform has

launched several important initiatives,

among these, the Private Sector

Development Initiative, led by the IFIs,

aimed at fostering a competitive private

sector, developing local capital markets,

addressing skills mismatches, and

1 The IFI coordination platform includes the African Development Bank, the Arab Fund for Economic and SocialDevelopment, the Arab Monetary Fund, the European Bank for Reconstruction and Development, the EuropeanInvestment Bank, the International Finance Corporation, the International Monetary Fund, the Islamic DevelopmentBank, the OPEC Fund for International Development, and the World Bank.

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providing technical assistance for public-

private partnerships.

A new MENA Transition Fund with an initial

targeted capitalization of US$250 million

has been created to complement other

bilateral and multilateral initiatives by

providing grants, technical assistance, and

exchanging best practices that can help

countries strengthen institutions critical to

economic and MSME development and

implement country-owned reforms. The

Fund is structured around four priorities:

• Investing in sustainable growth;

• Inclusive development and job

creation;

• Enhancing economic governance; and

• Competitiveness and integration.

1.2 Purpose of the study

This report presents findings from an

assessment of the potential gaps for

Deauville Partnership support in Morocco

and Tunisia, the two Partnership countries

requesting a full MSME sector analysis and

mapping exercise to identify future action

priorities to strengthen the sector and

propel its job-creating impacts.

The purpose of the study is to improve

knowledge exchange and coordination

among all Deauville Partnership partners,

including the governments and the IFIs/

donors, in the area of MSME development

support. As its scope covers mapping of all

partners’ current and pipeline projects, the

study will prepare the ground for better

provision and more coordinated and

strategic MSME support projects in

Morocco and Tunisia, by streamlining

the different initiatives around MSME

development, including across the various

Deauville Partnership pillars. Coordination of

IFI/ donor activities to support MSME

development will help reduce duplication

and overlaps and address gaps. The first

step in this process is being aware of the

activities of other IFIs/ donors in the field and

the extent to which these complement and

support government policy and program

needs and actions, and address the main

constraints to national MSME development.

The study has four components:

• Review of the recent literature on the

job-creating impacts of MSMEs;

• Analysis of the MSME ecosystems in

Morocco and Tunisia, including

identification of the major constraints to

MSME development;

• Mapping and analysis of current and

pipeline MSME support initiatives of

governments and IFIs/ donors in

Morocco and Tunisia, categorized by

objective, targeted beneficiaries, and

type of support; and

• Identification of good practices and

success stories in MSME support

instruments and programs in the

region, and profiling of a selection of

these as examples for replication or

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adaption in other Deauville Partnership

countries.

Volume I of this report presents the results

of the first three components, and outlines

recommendations for future projects and

initiatives to address identified gaps in

MSME development support. Volume II

examines good practices and success

stories identified in the study.

1.3 Methodological approach

The analysis of MSME development

constraints and priorities is based on a

review of analytical and other reports

together with input received during study

missions to Morocco and Tunisia in

November 2012 and May 2013. Data were

included up until mid-2013. During the

visits, meetings were held with thirty three

different organizations, including government

ministries/ agencies, financial institutions,

business associations, promoters of

entrepreneurship, and providers of

business development services to MSMEs

(see Acknowledgements section for list of

representatives).

The purpose of the meetings in Morocco

and Tunisia was to:

• Identify the main constraints to MSME

development in these countries, and

the priority actions to address these

constraints;

• Gather information to assist in the

mapping of current programs and

initiatives to support MSME

development; and

• Identify good practices in MSME

development initiatives within each

country and in other Deauville

Partnership countries for eventual

knowledge-sharing.

Information for much of the mapping of

current and pipeline IFI/ donor projects was

provided directly by the IFIs/ donors to the

AfDB Secretariat of the Deauville Partnership

Platform. Information for the mapping

of MSME development measures and

programs undertaken by the governments

in Morocco and Tunisia was collected from

stakeholders during the study missions

in November 2012, and supplemented

with web-based research and a review of

government and other documents.

1.4 Conceptual framework formapping MSME support initiatives

The framework for mapping and

categorization of MSME support initiatives

takes into consideration two variables: the

type of MSME being targeted, and the

type of support being provided. The

rationale for this approach is based on two

major premises:

a) To create a dynamic MSME sector, it is

important to foster a pipeline of new

entrepreneurs, and to create pathways

for development and growth of

enterprises of different sizes and in

various stages of growth; and

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b) To meet the needs of these different

segments of the MSME sector,

support programs (and facilities) are

best tailored to: respond to the specific

needs that will help potential

entrepreneurs make the transition to

start-up and then from start-up to

an employer-microenterprise; help

microenterprises evolve into small

enterprises, and small enterprises into

medium enterprises (a few of which

may become national champions); and

facilitate the development of more

rapidly growing firms.

It is increasingly acknowledged that

MSME development strategies and

support actions should recognize the

different challenges faced by entrepreneurs

and enterprises as they mature through the

business life cycle. The challenges facing

a nascent or start-up entrepreneur are

different from those facing a mature small

or medium enterprise that is ready to enter

the export market, just as those faced by

a microenterprise with fewer than five

workers are different from those for an

enterprise with more than 50 workers.

For example, a critical need for nascent

entrepreneurs might be entrepreneurial

training and know-how (how to identify a

higher potential business idea, how to

develop a business plan, etc.), whereas for

an SME that wants to explore the export

market, a critical need might be improving

the quality of the production process and

products to meet international standards.

Access to financing is likely to be a need

for all enterprises but the appropriate

measures will differ according to the

enterprise’s stage of development, for

example, seed grants and microloans for

start-ups, guarantees for micro and small

enterprises that lack collateral to access

commercial bank financing, and venture

capital for high-growth or higher-risk

technology-oriented enterprises. Thus, it

makes sense to structure MSME support

frameworks around the stages of

development and growth of the enterprise,

and the key market failures impeding the

access of new, emerging, and existing

MSMEs to finance, business support

services, markets, information, etc.

The framework notes the presence or

absence of initiatives targeting the

development of new entrepreneurs. It

recognizes that, to create a pipeline of new

enterprises, efforts are needed to strengthen

the culture of entrepreneurship. This would

include efforts to integrate entrepreneurship

into the education system, promote

entrepreneurship as an option for women

and young people, and structure incubation

environments. It also notes the existence

of projects to foster high growth potential

and innovative enterprises.

In addition, MSMEs operating in different

economic sectors may also have different

characteristics and needs and face

different challenges. Apart from a few

academic studies, questions related to this

are rarely explored in Deauville Partnership

countries.

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While the major barriers to entrepreneurship

and MSME development may differ

somewhat across countries, reports

and studies reveal a great deal

of similarity in the challenges facing

the MSME sector in MENA countries.

Stevenson (2010) identifies a number

of common barriers:

• Burdensome and costly business

registration, taxation and regulatory

compliance systems;

• Poor access to external debt and

equity financing;

• Inadequate access to market and

business-related information;

• Lack of entrepreneurial and business

management skills, marketing know-

how, and exporting skills;

• Inadequate access to management

skills development and advisory services;

• Limited access to export and

government procurement markets,

and weak linkages to supply chain

opportunities;

• Low use of and access to up-to-date

technologies;

• Low product/ production quality and

competitiveness;

• Difficulty in finding qualified and skilled

workers; and

• Low levels of innovation capacity.

In presentations made by Deauville

Partners at the Rome meeting in July

2012 (Chiquier, 2012), IFIs clustered the

major challenges facing MSMEs in the

Deauville Partnership countries into three

categories: (i) regulatory burden (lax legal

and regulatory frameworks, weak judicial

and legal systems, poor business

environment, and unequal treatment);

(ii) access to finance (collateral and

property registration issues, lack of

credit information systems, and limited

capacity of financial intermediaries); and

(iii) skills development (lack of enterprise

and management skills and difficulty in

finding skilled workers).

The fundamental requirement for job

growth is to remove the obstacles

that prevent it. The barriers facing the

development of MSMEs and their ability

to create more jobs are not being

adequately addressed in MENA countries.

Bank financing is accessed by only a tiny

percentage of MSMEs; the demand for

microfinance exceeds the supply; there

are inadequacies in the provision of

information, entrepreneurship education

and training programs, and management

development assistance; and support

mechanisms and assistance programs

are often fragmented.

Thus, in this study, the mapping of IFI/

donor and government MSME support

initiatives is sorted by the type of MSME

being targeted:

• Start-ups (and potential entrepreneurs);

• Microenterprises;

• SMEs; and

• High-growth potential and innovative

SMEs.

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…and by the type of support being

provided:

• Access to financing (e.g. microcredit,

bank credit, equity financing);

• Entrepreneurship development and

start-up support (e.g. entrepreneurship

education and training, start-up

advisory services, incubators);

• Development of the capacity of

MSMEs through technical assistance

(e.g. business advisory programs,

upgrading and quality programs);

• Access to markets (e.g. public

procurement, supply and value chain

linkages, exporting);

• Innovation capacity and support (e.g.

technopoles, technological and

research and development support,

innovation funds); and

• Administrative and regulatory reforms

(e.g. simplification of business

registration processes, reform of

financial markets, sector deregulation,

and elimination of anti-competitive

regulation).

In some cases, the support might be in

the form of initiatives to strengthen

related policy capacity or institutional

infrastructure. These actions are also

noted in the mapping.

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2.1 The importance of MSMEdevelopment

There is a vast literature on the role

of microenterprises and small and

medium enterprises in the economy.

Among the most salient findings is

that MSMEs account for up to 50% of

GDP in developed countries. They are

an important driving force for private

sector development, which is critical

to sustainable economic growth in

developing economies, and contribute to

rural stability, poverty reduction, and social

inclusion. Collectively, MSMEs account for

a significant share of employment and are

often more likely than large enterprises to

create jobs for marginalized members of

the population, such as young workers,

women, and the unemployed, and in

rural parts of a country where there are

few employment alternatives. A strong

domestic MSME sector that can act as

suppliers to large enterprises is a positive

factor in governments’ efforts to attract

foreign direct investment. Furthermore, the

entry of new MSMEs in the marketplace

produces more competition, which can

lead both to more consumer choice and

lower prices and to increased productivity

at the sector level (by displacing inefficient

and uncompetitive firms).

A critical contribution of MSMEs is

employment and job creation. However,

there are many questions about the

precise nature of job creation by MSMEs:

• To what extent are MSMEs the major

private sector employers and job

creators?

• Are MSME sector jobs created

primarily from new enterprises entering

the market or from the growth and

expansion of established MSMEs?

• Do MSME job creation contributions

vary by age and size of the enterprises?

• What impact do fast-growing MSMEs

have on job creation in the sector?

• Are there sector differences in the job-

creation growth rates of MSMEs (i.e.

do some sectors have more potential

for employment growth than others)?

• What impacts the ability and capacity

of MSMEs to create jobs, and

particularly higher value-added and

“good” jobs?

• What types of interventions have the

largest job-creation impacts on

MSMEs?

Being able to answer these questions at

the country level requires access to

sophisticated data on MSME sector

dynamics, including the entry rate of new

2. MSMEs and Job Creation – A Review ofthe Literature

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enterprises, enterprise survival and growth

rates, and enterprise exit rates (closures,

bankruptcies). All of these data must be

available on enterprises by employment-

size class. National statistical offices

must also have the capacity and systems

to track the development of individual

enterprises on an annual and longitudinal

basis, which requires a single registration

system (for enterprises in all sectors),

and the ability to link internal government

data systems (e.g. tax files, employment

registration and social security files).

This capacity exists in many developed

countries, but is generally lacking in

developing countries.

In MENA countries, MSME-related data

are generally sparse: censuses are mostly

carried out only every five or ten years, with

the rare annual survey limited to the

industrial sector. Moreover, a large

percentage of MSMEs operate in the

informal sector and are therefore not

captured in official reporting systems

(Stevenson, 2010). At best, data may be

available to track the gross changes in

number of enterprises and their

employment, possibly by employment-size

category and sector (depending on the

country).

Concerning the two countries that are the

focus of this report, data on the job

creation dynamic are good in Tunisia

(Rijkers et al., 2013) but do not exist in

Morocco.

2.2 What are the job-creatingimpacts of MSMEs?

Are MSMEs the major private sector

employers and job creators?

Empirical evidence is mixed about whether

MSMEs or large firms create the most

jobs. In the United States, large firms (with

more than 500 employees) account for

about 50% of private sector employment

(Digler, 2013) while in Canada they

account for 36.3% (Industry Canada,

2012).

Across 27 countries of the European

Union, large enterprises (with 250 or more

workers) are responsible for 33% of all

enterprise employment (De Kok et al.,

2011). In Tunisia, large firms (with more

than 200 workers) account for only about

25% of employment (Rijkers et al., 2013).

A global study of 99 developing countries

confirms that the share of large-firm

employment is much smaller in low-

income countries, but with considerable

variance across countries (Ayyagari et al.,

2011). Based on these data, MSMEs

appear to be the major private sector

employers.

In developing countries, large firms make

a smaller contribution to employment than

in developed countries because they tend

to have a smaller average employment

size. For example, the average size of a

Tunisian large enterprise is about 500

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workers, whereas the average in the

European Union is more than 1,000

workers. However, large enterprises in

developing economies tend to grow, while

those in developed economies have

generally shown little net job growth over

the past few decades. That said, although

large enterprises, however defined, rarely

make up more than 0.2% of all private

enterprises in an economy, they make a

disproportionate contribution to the stock

of employment.

It is also noted that enterprises employing

only their owners make up a significant

number of all enterprises. In the United

States, 22.1 million of the 27.8 million

enterprises existing in 2010 were non-

employing firms (almost 80%) (Digler,

2013. In the European Union, 50% of

microenterprises and 45% of all

enterprises employ only the owners (De

Kok et al., 2011).

In Tunisia, according to the National

Institute of Statistics, more than 86% of

enterprises are non-employers, accounting

collectively for about 33% of total private

sector employment (INS, 2012). In

Morocco and Tunisia, MSMEs employ the

majority of private sector workers. So if

MSMEs are the major private sector

employers, are they also the major new job

creators? Much research continues to

examine this question.

Are start-ups and young firms or older

enterprises the major job creators?

Research on US job creation determines

that start-ups and surviving young

businesses are the most critical for job

creation and contribute disproportionately

to both gross and net job growth

(Haltiwanger et al., 2011).

A study of European Union employment

(De Kok et al., 2011) reinforces this

conclusion, finding that between 2004 and

2008, 20.7 million of the 20.9 million gross

job growth (99%) was due to new MSMEs

(less than five years old). The new

enterprises, which grew by adding jobs

during their first five years, more than

compensated for the job losses caused by

the decline or exit of other new enterprises.

In fact, about 85% of the new jobs created

during the five years were still in existence

after five years. Between 2002 and 2010,

MSMEs were responsible for 85% of all net

job creation, with the highest employment

growth rates in micro and small enterprises

(with fewer than 50 workers). A more

global study (Ayyagari et al., 2011) finds

that small firms (1-100 employees) and

young firms (no more than two years old)

generate the most new jobs (median of

86% of the new jobs), and have the

highest employment growth rates, a

finding that applied across country income

groups. On the other hand, these small

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and young firms do not necessarily

produce the highest productivity growth.

Analysis of MSME job creation effects over

the 1997–2010 period in Tunisia (Rijkers et

al., 2013) finds that, except for 2001, most

of the net job creation was in start-ups.

Without these new enterprises, net job

creation over the period would have

been negative. Furthermore, almost 75%

of net job creation involved one-person

enterprises. Self-employment is also a

major driver of job creation in Morocco, but

the lack of a longitudinal MSME statistical

database in that country makes a precise

analysis impossible.

Can start-ups be considered major job

creators given their low survival rates?

What causes them to thrive or fail?

Many researchers are critical of claims that

start-ups are responsible for significant job

creation because of the high failure rates

among new firms, making the jobs they

initially create highly vulnerable.

However, empirical evidence across

European Union countries (De Kok et al.,

2011) suggests that the direct impact of

firm births is about 3% of total enterprise

employment (8% in the case of

microenterprises) and that 50% of new

enterprises still exist after five years.

The phenomenon of births and deaths

in the European Union is typical of

microenterprises, very often enterprises

with no employees. Roughly half of the

start-ups and 30% of the deaths are

microenterprises with no employees (De

Kok et al., 2011: 47).

Nonetheless, start-ups and new enterprises

do have higher failure rates than more

mature and larger enterprises. This is

especially true in the first two to three years of

their existence (Cressy, 2012). Failure rates of

enterprises that survive their first five years

decline substantially thereafter. So one of

the key policy questions is What can be

done to help improve the survival probability

of start-ups in their first two to three years

of existence and mitigate failure?

New firms cease to operate for many

reasons: they cannot meet their financial

obligations; they are unprofitable; they are

not meeting the owner’s objectives; better

opportunities are presented to the owner;

and so on. Most closures are voluntary,

although a small proportion of exits are

forced through bankruptcy. Research

conducted by the Global Entrepreneurship

Monitor (GEM) reports that problems in

obtaining financing and lack of profitability

are the major reasons for business

discontinuance, but personal reasons

always weigh heavily in an entrepreneur’s

decision to leave the business (Roland

Xavier et al., 2013).

Cressy (2012) identifies the following

main determinants affecting the survival

of start-ups:

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• Human capital: Older entrepreneurs,

new entrepreneurs having previously

worked in the industry sector related to

the start-up, and more educated

entrepreneurs tend to have higher

survival rates. Having more education,

knowledge, know-how, experience

and networks with customers and

suppliers works in favor of survival.

• Opportunity motivation for the start-

up: Entrepreneurs who start the

business because they see an

opportunity in the market have higher

survival rates than necessity-driven

entrepreneurs who are motivated to

start a business as an alternative to

unemployment.

• Adequate financial capital: The initial

capitalization of an enterprise is critical

to its early survival and affects the

whole “failure” curve of the business.

Well-capitalized start-ups are more

likely to survive.

• Risk: Financial risk (i.e. high debt

ratios) is associated with higher failure

rates. In addition, larger start-ups (e.g.

enterprises started by entrepreneurial

teams and/ or with more employees at

the start-up point) tend to have higher

survival chances. Industry risk is another

considerartion: start-ups in high-risk

industries that are subject to fluctuations

in demand, prices, or rapid technological

changes have higher exit rates.

• Diversification: Small enterprises with

one product, one supplier, or one

major customer are more likely to fail

due to the high level of vulnerability.

Industry sector can also be a factor in

survival rates. The more competitive the

industry sector, the higher the failure rate

of new entries. Enterprises starting up in

infant industries tend to have higher

survival and growth opportunities.

In the case of Tunisia and Morocco, certain

analysts recommend promoting the entry

of relatively large start-ups because not

only would larger start-ups create more

jobs immediately, but they also appear

more likely to grow and create additional

jobs (Arouri et al., 2012). Moreover, larger

firms typically have higher labor productivity

and pay higher wages. However, this

conclusion should be viewed with caution,

placing emphasis on the word “relatively”

in terms of what “large” means.

The vast majority of all start-ups (globally)

are microenterprises, with very few new

firms starting with more than 20 employees.

So a “relatively large start-up” should be

interpreted more on the scale of one that

has five workers, rather than one or two,

and not one that has 50 or more workers.

What impact do fast-growing MSMEs

have on job creation in the sector?

Growth of existing MSMEs depends on a

number of factors: the motivation and

willingness of the entrepreneur to grow the

enterprise; the entrepreneur’s objectives

for being in business; skills of the

entrepreneur and his or her ability to seek

out new markets, develop new products/

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services, and diversify offerings; product/

service quality and ability to meet

international standards; access to know-

how on how to develop growth strategies

and manage a growth process; and

access to finance to capitalize growth.

Research finds that most enterprises

start small and stay small. However, the

MSMEs that grow rapidly make a

significantly disproportionate contribution

to job creation and are thus an important

target for policy and program support

(OECD, 2010). High-growth enterprises

generally comprise a small proportion of

all enterprises in any country, typically

between 4% and 6% based on the

employment growth criteria and up to 20%

when growth is measured by gains in

annual turnover. “Gazelles” (high-growth

enterprises within their first five years

of existence) are even less common,

making up less than 20% of high-growth

enterprises (OECD, 2010). Growth

enterprises are generally innovative, are

often started by entrepreneurs with a

university education, and are frequently

linked to sectors with a technological base

and global market opportunities.

An important policy consideration for

encouraging the growth of MSMEs is to

remove barriers to growth in the business

environment. However, this is unlikely to be

sufficient on its own to create the micro

level conditions to accelerate the growth

rate of more MSMEs. At the same time,

the specification of policy and program

instruments to support high-growth

MSMEs is different than for general

MSMEs, for example, providing venture

capital and seed funds rather than

microcredit, developing business

accelerators rather than general business

support centers, etc. Work carried out by

Endeavor, a non-profit organization with

programs in many developing countries

including Morocco, has confirmed the

impact of an entrepreneurship ecosystem

approach to supporting higher-potential

start-ups in achieving early and rapid

growth rates.

Do some sectors have more potential

for MSME employment growth than

others?

This question can be explored by looking

at firm entry rates by sector as well as at

sector development that might produce

large employment gains.

First of all, firm entry rates are seen to vary

across sectors. For example, a study in

the United States found that services

and retail/ wholesale trade sectors have

higher entry rates than found in goods

manufacturing; in fact, in durable goods

manufacturing, the entry rate is very low

(Haltiwanger et al., 2011). The same study

shows that patterns of exit are similar

across sectors, and in all sectors,

young businesses either grow fast or

they exit within five years. However, certain

sectors may be more conducive to the

emergence of high-growth enterprises.

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Typicalcandidates are industries that are

fairly new, where there are relatively many

underdeveloped opportunities for new

market leaders (Lilischkis, 2011).

The International Finance Corporation (IFC)

jobs study reports that consumer and

social services sectors create the largest

number of jobs. The barriers to entry are

often low in these sectors and they

tend to be very labor-intensive. The study

also indicates that firms in the services

sector have higher growth rates than

manufacturing firms. It reported that

growth in the services sector in North Africa

was stagnant over the 2000–2011 period,

while during the same time the rest of the

world experienced its highest employment

growth in services (average of 4% annually)

(IFC, 2013). This indicates that the services

sector may be underdeveloped in Tunisia

and Morocco. On the other hand, the

Middle East region saw an increase in

the share of industrial manufacturing

employment.

However, the IFC jobs study also suggests

that the agricultural sector should not be

overlooked for its job-creating potential,

pointing out, for example, that in Tunisia,

investing in the agricultural sector has

potential to create the largest number of

jobs due to forward linkages to the food

processing sector, as well as the potential

to maximize salaries and wages earned by

workers and to create the largest value-

added compared with investing the same

amount in other sectors (IFC, 2013).

The IFC study cites research indicating that

increasing agricultural productivity leads to

off-farm employment creation (enabling

farm labor to move to other sectors)

and creates demand for non-agricultural

goods and services; and further, that

measures such as improving agricultural

infrastructure, providing financing to

farmers, linking farmers to markets, and

strengthening value chains tend to have

positive effects on job creation. When

coupled with “green technologies”, growth

of the agricultural sector can have

important spillover effects by helping to

create jobs in related industries (e.g. jobs in

the fertilizer sector, development of food

markets, etc.).

At the same time, the IFC study cautions

that when determining which industries

have potential for creating the most jobs,

the value-added of those jobs must also

be a consideration. For example, some

sectors that create more jobs, such as

agriculture and retail/ wholesale trade,

produce the lowest value-added per

worker, in contrast to extractive industries,

which create few jobs, but higher

value-added; the implication being that

investment in more capital-intensive

industries is needed to improve the quality

of jobs created (IFC, 2013:17).

Evidence suggests that growth enterprises

can be found in all sectors and among

enterprises of all ages, although growth

rates tend to be faster in young firms than

in more mature firms. Targeting the growth

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of enterprises in certain sectors or

industries will ignore the growth potential

of firms in other sectors, which could

result in a loss to the economy. On the

other hand, infant and transformative

industry sectors, such as information

and communications technology (ICT),

environmental technology, and

biotechnology, present attractive options

for entrepreneurship and SME development.

One sees evidence of sector-based

targeting in both Morocco and Tunisia.

To facilitate the creation of jobs with better

“development” outcomes, the 2013 World

Development Report suggests that targeting

could be directed at (i) sectors with higher

rates of female employment, (ii) generation

of productivity gains in smallholder farming,

and (iii) sectors connected to global value

chains (World Bank, 2012a). The report

also points to the value of supporting

the development of SMEs in “tradable

sectors”, producing goods and services

that can be exported and imported, as jobs

in these sectors tend to be higher-waged

than those created in the low-skilled non-

tradable sectors. Furthermore, it suggests

that there are large development payoffs

from placing a premium on jobs that can be

formalized without making labor too costly,

jobs that reduce the divide between those

who benefit from formal institutions and

those who do not, and jobs in more skills-

intensive sectors. These job creation

priorities are of relevance to both the

Morocco and Tunisia contexts.

What impacts the ability and capacity of

MSMEs to create jobs, and particularly

higher value-added and “good” jobs?

Many researchers and economists argue

that the quality of jobs created is as

important as the quantity. In general, past

economic growth in the MENA region has

not resulted in the creation of sufficient

private sector jobs, and certainly not

“good jobs”. Most of the job creation has

been in the form of low-quality jobs in the

informal sector, characterized by poorer

working conditions and lower productivity

than formal private sector jobs (Gatti et

al., 2011). Thus, efforts to foster the

creation of “good jobs” cannot ignore the

informality issue.

A large number of MSMEs in the

developing MENA countries are informal,

not officially registered, paying taxes or

social charges. Informality is negatively

associated with GDP per capita, with

higher informality rates in lower-income

countries, and in particular countries where

the share of agricultural employment is

high relative to total employment (Gatti et

al., 2011). For example, an estimated 50%

to 60% of enterprises in Morocco are

believed to be operating informally and

80% of the labor force is not covered by

social security. At the same time, informal

employment appears to be lower in

MENA countries where the public sector

accounts for a third or more of total

employment.

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Informality is largely a private sector

response to exclusionary and restrictive

regulations that make compliance costly

for smaller enterprises. Levels tend to be

lower in countries with a business-friendly

regulatory regime, competition-enhancing

reforms, a comparatively light tax

burden, security of property rights, less

burdensome regulation of labor, and a

quality legal system (Pratap and Quentin,

2006). But informality can also be the result

of a lack of key business services and

information, low human capital (education

and skills levels), cultural and social

practices, and a paucity of formal

employment opportunities in rural areas.

MENA entrepreneurs consistently identify

high taxes as a constraint to formalization,

along with the high cost of business

registration and the complexity of

bureaucratic and administrative

requirements (Gatti et al., 2011). There is

also a large education gap between

managers of informal and formal

enterprises. Insufficient skills and

education, both of owners and workers,

are serious constraints to employment and

output growth in informal enterprises.

The reasons for informality will vary across

regions of the world, and evasion of taxes

and regulations is not always the primary

motive (DCED, 2009). A more liberal

position on the informality of enterprises is

to view it as a stepping stone to formality;

the informal enterprise experience allows

experimentation with entrepreneurship at a

relatively low cost and puts new

entrepreneurs on the development path

(Bennett, 2009). However, staying informal

comes with high costs. First of all, informal

enterprises have a low likelihood of growth

because of institutional constraints that

limit their capacity to grow, such as

complex bureaucratic procedures, high

labor taxes, and poor infrastructure, as well

as low access to formal credit, technology,

markets, and many of the business

development services offered through

government support programs (Angel-

Urdinola and Tanabe, 2012). Consequently,

informal enterprises are unable to exploit

economies of scale, connect to markets

and develop their know-how. Second, the

jobs created in informal enterprises are not

registered and workers are not covered by

social benefits, often because informal

enterprises cannot afford the high cost of

social security and other insurance

benefits. In addition, informal workers are

paid less than they would be for similar

work in the formal sector, have lower job

satisfaction, and in MENA countries, are

engaged in low productivity jobs more so

than in comparator countries, and face

important mobility barriers from informal to

formal employment (Gatti et al., 2011).

On the other hand, collectively, informal

enterprises account for a large number of

workers. Unable to find jobs in the formal

sector, many new entrants to the labor

force, even educated youth, will turn to the

informal sector to earn an income. In fact,

informality rates are high among workers

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in the 15-24 age group, whereas for worker

cohorts beyond the age of 24, informality

rates drop rapidly (Gatti et al., 2011).

Globally, women are three times more likely

than men to be hired informally, and much

more likely to be unpaid workers in family

enterprises (World Bank, 2010). Although

wages and benefits are much lower than

in the formal sector, informal jobs are an

alternative to unemployment, including the

option of starting an informal enterprise.

More inclusive growth processes will entail

coordination policies and actions to

improve the business environment, reduce

costs of formalization, reform labor market

regulations, and provide skills upgrading

interventions to enhance the productivity

of informal workers. In Tunisia, for example,

the centralized and rigid wage-setting

process may contribute significantly to

informality by establishing artificially high

minimum wages for certain occupations

and skills levels. Restrictive firing

regulations and large tax wedges on labor

also discourage formal hiring (Gatti et al.,

2011).

What type of project interventions

would better optimize job creation

outcomes in the MSME sector?

In general terms, there are two major

strategies for generating more jobs

through MSME development. The first is to

increase the pool of MSMEs by stimulating

the creation of more new enterprises. The

second is to enable higher survival, growth

and productivity rates within the existing

stock of MSMEs. In most cases, a

combination of both strategies is most

appropriate for maximizing job creation

outcomes.

The first strategy requires more focus on

promoting entrepreneurship; providing

education, orientation and training to raise

the level of entrepreneurial awareness,

knowledge and know-how; simplifying

registration and legal processes; and

ensuring that financing is available for start-

up activity.

The second strategy requires capacity

building (managerial, technical, etc.);

access to working capital and investment

financing; fair and competitive access to

markets; and support for upgrading the

quality of production processes and

products. Given the very high proportion of

microenterprises in the Moroccan and

Tunisian MSME sectors, effort would be

well placed to help them transition into

small enterprises, and also to enable more

small enterprises to grow into medium

enterprises.

Little is known about which interventions or

combinations of interventions are likely to be

the most effective and efficient in developing

the MSME sector and, in particular,

optimizing its job-creating impacts. This is a

dilemma for IFIs and donors, as well as for

governments, and requires more extensive

investigation, in particular, evaluation and

analysis of project efforts.

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IFC identifies four major obstacles to job

creation in private sector firms that can be

addressed by IFIs and donors: (i) weak

access to finance; (ii) poor infrastructure

development; (iii) inadequate skills and

training; and (iv) an unfavorable investment

climate, including labor regulations and

social protection (IFC, 2013). By analyzing

a cross-section of its project evaluations,

IFC has been able to make some

observations about the job-creating

impacts of donor and IFI interventions that

address those obstacles:

(i) Access to finance:

• With improved access to finance, firms

can expand their operations, which

can have a positive effect on the

number and quality of jobs created.

• Access to finance tends to have the

greatest effects on smaller firms.

• Combining advisory services with

financing tends to have an even more

positive effect on job creation.

• Access to microcredit creates jobs

through start-up activity and expansion

of established microenterprises, with a

greater effect in rural areas, where

microenterprises tend to be more

credit-constrained and underserved by

financial providers.

• Investments in services sectors in

urban areas and agricultural sectors in

rural areas tend to create the most jobs.

(ii) Infrastructure:

• There were positive job creation

effects from improving roads, power,

water, ports and telecommunications

infrastructure, but mostly indirect.

• ICTs have enormous potential to

improve productivity growth; MSMEs

using ICTs have higher labor productivity

and higher job growth, including jobs

for women and youth.

• With improved infrastructure, MSMEs

can expand their markets and improve

their efficiency and productivity, which

will lead to growth and additional

employment creation.

(iii) Skills and training:

• Managerial training (in the project

evaluations reviewed) was found to

have no impact on survival of the

business or on the number of

employees.

• Managerial training did have a positive

effect on business practices,

profitability and investments by the

business, which could lead to job

creation in the longer run.

(iv) Investment climate:

• Positive effects on jobs result mostly

from business entry/ registration

reform, investment promotion, and tax

simplification; simplification of business

licensing processes shows no impact

on jobs.

• These types of reforms tend to lead to

enhanced new firm creation rates,

which can have a positive effect on

employment.

• Competition policy reform can

stimulate growth and job creation by

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opening up new markets. This is an

important policy insight for actions in

both Morocco and Tunisia, but

particularly Tunisia.

Not mentioned in the IFC evaluation

studies is the impact of labor regulations

reform on employment in MSMEs, perhaps

because they did not review any projects

with this objective. The report also did

not address the issue of the impact of

regulatory simplification on the propensity

of informal firms to become formal,

although it did mention that lower costs

and a less time-consuming process of

business registration do encourage more

firms to register and operate in the formal

sector, and potentially stimulate more jobs

in the formal sector, which tend to be

better-quality jobs.

The IFC also reinforces the importance of

measuring the different kinds of job

creation effects of interventions:

• Direct jobs created in MSMEs as a

result of the project;

• Indirect jobs created in firms acting as

suppliers and distributors to assisted

MSMEs;

• Induced jobs created as a result of

rises in economic activity, e.g.

increases in direct/ indirect

employment, wages and value-added

per worker can produce greater

demand for products and services and

thus stimulate increased production

and more jobs; and

• Job losses, e.g. gains in one MSME

can lead to displacement or loss of

jobs in competitor-enterprises.

At the present time, project evaluations are

generally not rigorous enough to determine

which interventions under what country

conditions are most likely to create jobs

and which activities are most beneficial to

marginalized groups.

2.3 Implications for IFIs/ donorsin Morocco and Tunisia

Overall, the evidence uncovered in the

literature review suggests that job-creating

efforts in Morocco and Tunisia should

prioritize the creation of new firms and

support for young enterprises that are less

than five years of age. Although, in

aggregate, established firms (of all sizes)

are generally not net job creators (losing

more jobs from downsizing and exits than

from job growth), individual established

enterprises do grow and increase their

employment complement. To encourage

the growth of more enterprises, efforts

should be made to promote ease of entry,

and exit, and remove the obstacles to

growth. Early support for viable projects is

critical to help the start-up entrepreneurs

through the first few years of vulnerability.

Policies dealing with the factors behind

business survival will promote stronger and

more viable start-ups and MSMEs, and

help ensure the sustainability of any jobs

created at start-up as well as future

employment creation due to enhanced

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growth potential. IFIs/donors should

support government efforts to adopt such

policies.

To increase the survival rates of new

enterprises, interventions would best

focus on improving the general education

level of the workforce (and of potential

entrepreneurs); improving access to

finance for new enterprises (such as

through loan guarantee schemes);

providing entrepreneurship training for

would-be entrepreneurs; and providing

post-creation advisory, counseling,

mentoring and coaching services to

the start-up entrepreneurs to upgrade

their managerial capacity. Lack of

entrepreneurial skills is a key constraint

to start-up and survival rates in MENA

countries. There are few places where

aspiring entrepreneurs can learn critical

start-up skills – only 37 universities in

the MENA region offer courses in

entrepreneurship, only 17 have centers of

entrepreneurship, and only five offer majors

in entrepreneurship (WEF, 2012b).

Many new entrepreneurs start low-

potential enterprises in highly competitive

markets with low barriers to entry without

giving thought to how they can have a

strong competitive advantage vis-à-vis a

large number of already existing similar

enterprises. They often do not have the

awareness and skills to explore more

innovative business ideas. Programs that

provide training to aspiring entrepreneurs

on how to identify and evaluate higher

potential business opportunities would

have significant pay-offs.

More strategic and systematic efforts

are needed to target university students

and graduates with entrepreneurship

promotion and start-up support, including

entrepreneurship education and training,

business incubators, coaching and

mentoring, access to seed capital and

links to angel investors and formal

venture capital. These groups of potential

entrepreneurs have more human capital

and capacity to start growth enterprises.

Providing more start-ups and young

enterprises with early-stage growth

support (mentoring, coaching, access to

growth finance, etc.) has the potential to

accelerate the percentage that become

growth enterprises.

Focus should also be placed on removing

growth constraints faced by established

MSMEs (older than five years) and helping

them expand their markets through access

to global value chains, export markets,

market/ product development interventions,

and technology upgrading.

Unfortunately, the study of firm-level

evidence on job creation in Tunisia (Rijkers

et al., 2013) did not include a sector

analysis on the MSME sector data and

consequently could not draw conclusions

about which sectors produce the greatest

impact on employment growth. The IFC

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study makes an argument for targeting

the agricultural sector for productivity

improvements, and sectors that have

significant backward and forward linkages,

such as the food processing sector. A

report on microenterprises in Tunisia by the

Institut Arabe des Chefs d’Entreprises (Ben

Cheikh, 2011) suggests different sector

priorities depending on the governorate,

but also points to the potential for

supporting the new knowledge economy

sectors for the creation of higher value-

added jobs that can take advantage of

Tunisia’s high level of human capital and

educated youth population.

In Morocco, insufficient MSME sector data

are available to make any determination of

which sectors have the most job-creating

potential; however, the agricultural,

handicraft and tourism sectors are

important in terms of employment, and

there is potential for gains in productivity,

innovation and growth in these sectors

that will lead to sustainable jobs. There is

also opportunity in new sectors, such as

social media and IT, which may match the

interests and competencies of educated

Moroccans.

In order to create jobs with greater

“development spillovers,” IFIs/ donors

should focus on supporting MSME

development in growth potential that can

generate jobs on an inclusive basis,

including sectors that have greater

potential for employing women or in

which women have a higher likelihood of

engaging in their own entrepreneurial

activity (e.g. women-friendly industries/

sectors, such as handicrafts, garments,

services, etc.). This applies to both

Morocco and Tunisia.

The bottom line for IFIs/ donors is that

there may be significant job creation

benefits, in terms of both number of jobs

and quality of jobs, from interventions

targeting informal microenterprises with

the aim of assisting them in becoming

formal and enabling them to grow

through better access to skills upgrading

(managerial and technical), financing,

and markets (perhaps through cluster

initiatives). At the same time, this should

be combined with policy support to the

Tunisian and Moroccan governments

in undertaking the necessary regulatory

and labor market reforms to remove

disincentives to formalization and formal

hiring.

This section has provided some global

evidence regarding the job creation

impacts of MSMEs and drawn some

general implications for IFI/ donor

directions in Morocco and Tunisia.

However, the specific approach to MSME

development must take into account the

country context – its level of economic

development, its institutional infrastructure,

the specific structure and dynamics of its

MSME sector, and a number of other

elements. A one-size-fits-all approach to

MSME development at the country level

will be inappropriate. The approach must

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be tailored to a particular country’s needs

and individual complexities.

The next two sections of this report present

more detailed descriptions of the MSME

sector context in Morocco and Tunisia,

mapping and analysis of government and

IFI/ donor responses to the major MSME

challenges/ constraints in the post-Arab

Spring environment, and proposals

regarding future directions for IFI/ donor

interventions to remedy identified gaps.

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Going into the Arab Spring, Morocco

faced challenges similar to other

developing Middle East and North Africa

(MENA) countries. These included high

unemployment and poor job quality,

inequality, exclusionary practices that

benefited elites, and a public service

delivery system that partially failed to

deliver quality results. The response of the

Moroccan government to the aftermath of

the Arab Spring was to demonstrate a

willingness to work in a more participatory

and inclusive manner with the broad

understanding that to achieve real social

transformation requires two comprehensive

sets of reforms – one that covers equitable

growth and jobs, and the other around

more equitable service delivery and

governance. The most urgent priority is job

creation, particularly to create more

employment opportunities for Moroccan

youth. Development of micro, small and

medium enterprises (MSMEs) and

entrepreneurship is seen as a vehicle for

creating jobs and empowering youth with

the potential to generate employment at a

lower capital cost.

3.1 Challenges and developmentpriorities for Morocco

Morocco was not as adversely affected by

the Arab Spring as other of the Deauville

Partnership countries, particularly Egypt,

Tunisia, and Yemen. It did not experience a

fall in GDP growth in 2011 over 2010; in

fact GDP grew by 4.9% in 2011,

compared with 3.7% in 2010, and was

expected to reach over 5% in 2013,

according to the International Monetary

Fund’s World Economic Outlook

database.

The King of Morocco avoided the types

of upheaval in Tunisia and Egypt by

embracing the demands of protestors

for a real parliamentary democracy. After

increasing civil service wages, the King

formed a commission to propose and

draft revisions to the 1996 constitution to

guarantee good governance, human

rights, and protection of civil liberties, and

to provide serious mechanisms to protect

free and open market competition for

private initiatives. The new constitution,

which invests unprecedented (though less

than full) power in a civilian, democratically

elected government, won large support in

a national referendum in July 2011.

The provisions targeting Moroccan youth

are particularly striking. As background,

about 65% of Morocco’s population is

under 30 years of age, and young men

and women have difficulties in finding

steady employment, which has social, as

3. MSME Development Support in Morocco:A Gap Analysis

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well as economic implications. Ironically,

the more educated Moroccans are, the

more likely they are to be jobless.

Unemployed university graduates have

regularly staged demonstrations calling for

an open job market that does not simply

benefit those with family connections. The

new constitution seeks to address these

demands through the creation of a

consultative council on youth and

associative action, which would boost the

participation of young men and women in

the economic, cultural, and political life of

the country.

Despite gradual improvement of the

investment environment, Morocco is

still lagging far behind in strengthening

its institutional framework and governance

to ensure rapid development of the

private sector. Priority challenges include:

modernizing the judicial system, easing

MSMEs’ access to loans, and improving

flexibility in the labor market (AfDB,

2011a). In addition, despite the

significant progress made in infrastructure

development and transport services, high

logistic costs hamper the competitiveness

of the economy and private sector

development. There is still insufficient

diversification of the productive structure

of the economy and of the supply of

exportable goods and export-oriented

enterprises. Trade reforms are needed to

promote high value-added exports and

the emergence of new export sectors that

can enhance sources of economic growth

(AfDB, 2011a).

Unemployment is a major structural issue

for Morocco, with more than a million

unemployed individuals. Although the

official national unemployment rate in 2012

was 9%, unemployment is a greater

challenge in urban areas (13.4% compared

with only 4% in rural areas) and especially

among urban-based young people trying

to find their first job, young graduates,

women, and the socially marginalized.

(This is the reverse of the situation in

Tunisia where the unemployment situation

is more severe in rural areas.)

In 2012, the unemployment rate among

15- to 24-year-olds averaged 18.6%, and

up to 33.5% for those living in urban areas,

and for urban youth aged 25 to 34, it was

19.6% (HCP, 2013: 59-60). Young people

aged 15 to 24 make up almost 40% of the

total unemployed. Four out of five of the

unemployed live in urban areas; two out

of three 15- to 29-year-olds are jobless;

and one in four has a higher education

diploma. More than half of the unemployed

are first-time job-seekers. The 2012

African Economic Outlook report suggests

that the high youth unemployment in

Morocco is due to three factors: a lack of

entrepreneurial spirit, the deficit in job

creation, and the mismatch between the

needs of employers and the skills being

taught in the education and training

system (AfDB and OECD, 2012).

The national unemployment rate is only

marginally higher among women than men

(9.9% versus 8.7%), but the gender gap

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has been slowly widening since 2007,

when the unemployment rates were the

same for both men and women (at 9.8%).

The female unemployment rate rises to

20.62% in urban areas (compared with

11.5% for urban men and 1.9% for women

in rural areas (HCP, 2013: 61).

There is general consensus among

international organizations as well as in the

Moroccan government that one of the

national priorities is to create conditions

conducive to inclusive, sustainable and

employment-generating growth. Currently,

the economy is dominated by sectors

employing mostly low-skilled workers and

not enough job opportunities are being

created for university graduates, which is

of particular concern. Employment of

youth and new labor market entrants is

another national priority for Morocco.

Achieving this will require consolidating

macroeconomic stability and sustaining

growth financing sources; improving

governance of the economy; stimulating

a higher level of private investment;

accelerating diversification of the economy;

improving productivity and competitiveness

of Moroccan enterprises and the

management and transparency of

MSMEs; investing in human capital and

higher levels of research and development

(R&D); modernizing production facilities;

developing technology clusters, incubators

and related infrastructure to be able to

compete in an innovation-based global

economy; pursuing regionalization to

achieve a more balanced development

across Morocco’s regions; and deepening

public-private dialogue on sector strategies

and policies to guarantee their visibility and

internal coherence (AfDB, 2011a).

There is also general agreement that the

development of the MSME sector is a top

priority for creating more jobs and growing

the economy.

3.2 Contribution of MoroccanMSMEs to job creation

Role of MSMEs in the Moroccan

economy

MSMEs are seen as the engine of growth

in the Moroccan economy. They reportedly

account for 93% of all active enterprises,

46% of employment, 38% of GDP (EBRD,

2012a), and an estimated 30% of exports

and 40% of private investment (European

Commission and OECD, 2008).

Number and size distribution of private

enterprises and their employment

contributions

There is very poor availability of up-to-date

data on the MSME sector, such as the

distribution of enterprises by sector, size

and employment, in part due to an

incomplete official definition of MSMEs.

The last economic census was carried

out in 2001/2002, and annual reports on

developments in the MSME sector,

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including data on entry and exit rates,

do not appear to exist. The 2001/2002

economic census recorded 750,900

non-agricultural establishments with both

a fixed business location and registration

in the tax system; that is, it included

only formal establishments. These

establishments employed 2,239,290

permanent workers, an average of 2.9

jobs per establishment. About 98% of the

establishments had fewer than 10 workers

and accounted for two-thirds of the jobs

(Table 3.1). Establishments with fewer than

four jobs accounted for 88% of the total

and almost half of the employment. There

were only a few establishments with

50 or more permanent workers (3,130 in

number), but they created employment

for about 24% of the permanent workers.

The National Survey of the Informal Sector

2006–2007 reported there were 1,550,274

informal (non-agricultural) production units,

a net increase of 320,000 since 1999

(27%), or the annual equivalent of 40,000

net units (HCP, 2009). Assuming a similar

Official MSME Definition, Morocco

The data available for this report reflect the official definition of SMEs set out in the 2002SME Charter. The Charter defined an SME asnot exceeding 200 employees and annual turnover of Moroccan Dirham (MAD) 75 millionor annual balance sheet assets not exceedingMAD 50 million. It did not provide a definitionfor a microenterprise or distinguish betweensmall and medium enterprises.

The Government has recently adopted a newdefinition of enterprises that no longer uses thenumber of employees or balance sheet assetsas criteria, but instead focuses solely on theannual turnover generated by an enterprise. Itestablishes the following enterprise sizes: • Microenterprise – turnover of less than

MAD 3 million• Small enterprise – turnover from MAD 3

million to 10 million• Medium enterprise – turnover from

MAD 10 million to 75 million

Table 3.1: Distribution of formal establishments and employment by establishmentsize, 2001/2002, Morocco

Source: Economic census 2001/2002, HCP 2004

Establishment size Distribution of establishments Distribution of employees

Fewer than 4 jobs 88.0% 48.5%

4-9 jobs 10.0% 17.7%

Subtotal 98.0% 66.2%

10-49 jobs 1.6% 9.8%

50 or more jobs 0.4% 24.0%

All establishments 100.0% 100.0%

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annual increase from 2007 to 2012 would

produce an estimate of 1,750,000 informal

enterprises. The word “informal” in the

context of the National Survey did not

necessarily mean that the units were not

registered. In fact, 18.6% of informal

enterprises were registered in the tax file.

There are considerable variances in the

percentage of informal enterprises registered

in the tax file: 23.7% of urban enterprises

compared with only 7% of rural enterprises;

42.8% of employers compared with only

15.5% of the independent self-employed;

and 47% of informal enterprises with four

or more workers, compared with only

13.4% of single-person enterprises.

Men-led informal enterprises were more

likely to be registered in the tax system

(19.9%) than woman-led units (only 7.4%).

Only 9.9% of the informal production units

were led by women, down from 12.4% in

1999, but interestingly, women led 28.8%

of the informal units operating in the

industrial sector. Young entrepreneurs

(under 35) accounted for 31% of the

enterprise owners, down from 35% in 1999.

Almost three-quarters of the informal

production units were single person

enterprises and only 2.8% employed four

or more persons (Figure 3.1). Although

the average employment size of informal

units was modest – only 1.4 people,

down slightly from 1.5 persons in 1999 – in

2007, informal enterprises collectively

provided permanent employment for

2,216,116 people (37.3% of non-agricultural

employment), representing a growth rate

of 16.5% over the employment level in

1999. Enterprises with fewer than four

workers were responsible for almost 90%

of the non-agricultural jobs created in the

informal sector; over half by one-person

enterprises.

. .

. .. .. .

Figure 3.1: Share of informal enterprises and their employment by enterprise(employment) size, Morocco, 2009

Source: Based on data in HCP 2009

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The informal sector employed 39.4% of all

men working in non-agricultural jobs and

accounted for 21% of women’s jobs.

However, only 16% of the jobs were

salaried. Informal units run by employers

with salaried workers represented only

11.4% of total informal production units

(about 177,000 units). Informal employer

units are more likely to be located in urban

centers, operate in the industrial sector

and have fixed premises. The informal

sector workforce has a relatively low level

of education. A third of the workers

surveyed in 2009 had no schooling, 40.7%

had primary education, 23% had a high

school education, and only 3% had a

higher education (HCP, 2009: 41). Overall,

56% of the working population with no

level of schooling worked in the informal

sector, while only 8.8% of the working

population with secondary or higher

education worked in the sector.

Self-employment trends

Morocco has a high level of self-

employment, with about a third of workers

engaged as self-employed individuals or

employers; 36.6% of working men and

16% of working women (HCP, 2011: 209).

The rate of self-employment, including the

independent self-employed and employers,

has increased from 27% in 2006 to 31.8%

in 2012 (Figure 3.2). Thus, about 3.3 million

working Moroccans were self-employed in

2012, up from 2.6 million in 2006, an

average annual increase of 4.7%. This

compares with a 1.6% annual growth in

the number of all workers.

The majority of the self-employed are

not very well educated. In 2012, about

three-quarters of the self-employed were

represented by Moroccans without an

education diploma; only 5% of the self-

employed had a university diploma. Working

university-educated Moroccans are much

more likely to be in salaried jobs (81.4%)

than in self-employment (14.7%), while

lower-educated Moroccans are more likely

to be self-employed (35.3%) than to be

employed in salaried jobs (only 32.7%)

(HCP, 2013: 35). What is interesting to

note, however, is that the self-employed

Moroccans with a university diploma are

much more likely to be employers. In 2012,

about 40% of the most highly educated

among the self-employed were employers,

compared with only 5% of the self-

employed without a diploma (i.e. 95% of this

group were one-person enterprises). So,

although university graduates account for

only 5% of all self-employed, they constitute

25% of the employers. Thus, it would

appear that the better-educated self-

employed Moroccans demonstrate superior

ability to create jobs for others. It should also

be noted that the share of employers among

all self-employed individuals is much lower

in Morocco compared with the average for

developing MENA countries in general of

27% (Stevenson, 2011).

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. . . . . . .

. . . . . . .. . . . . . .

Figure 3.2: Trends in self-employment share of all workers, Morocco, 2006-2012

Source: “Activité, emploi et chômage” annual reports, Haut Commissariat au Plan

The female share of self-employed workers

is very low: 14% of the independent self-

employed and only 7% of employers. Their

share of both categories declined slightly

in 2011 from 2010, which reflected

declines in their absolute numbers. Self-

employment among men has been

growing at a faster rate than among

women. It is obvious that efforts are

needed to increase women’s participation

in the labor force, their employment

opportunities, and their role in self-

employment activity. Such efforts could

have a significant impact on Morocco’s

economic growth potential.

Youth are also much less likely to be self-

employed/ employer (8% compared with

over 31% for all workers), as well as less

likely to have a salaried job (Table 3.2). The

dominant form of employment for young

workers is as an unpaid family helper.

Young women are two and half times less

likely than young men to be self-employed

and none are reported as employers.

Entrepreneurial activity rates

Morocco does not produce official

statistics on business entry rates. The

Moroccan Office for Industrial and

Commercial Property (OMPIC) does some

reporting on enterprise creation activity, but

does not relate these statistics to the

current stock of enterprises. The last

publicly available report is for the first

semester of 2010. A rough indication of

the level of entrepreneurial activity can be

gleaned from findings of the 2009 Global

Entrepreneurship Monitor (GEM) study in

Morocco (IDRC, 2010). The study

measures the percentage of the adult

population that is (i) actively involved in

trying to get a business started (nascent

entrepreneur), (ii) already owns a business

that is less than 42-months-old (young

business owner), or (iii) owns a business

that is more than 42-months-old

(established business owner).

The results reveal that Morocco has a

relatively high level of entrepreneurial

activity. In 2009, over 31% of the adult

population reported being involved in

entrepreneurial activity: 6.9% as a nascent

entrepreneur, 9.4% as the owner of a

young business, and 15.1% as the owner

of an established business. These rates

are much higher than for Tunisia, and

similar to the levels reported for the

adult population, for instance, in Lebanon.

Thus, Morocco is a high entrepreneurial

economy compared with others in the

developing MENA region.

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Professional statusAll workers 15-24 year old

workersUrban Rural National

M F Total M F Total M F Total M F Total

Salaried 60.2 80.5 64.2 30.7 5.5 22.4 46.9 33.5 43.4 42.5 25.2 37.1

Independent (self-employed) 28.0 11.8 24.9 40.4 17.6 32.9 33.6 15.5 28.8 9.3 3.7 7.8

Employers 4.6 1.6 4.0 1.0 0.0 0.7 3.0 0.6 2.4 0.2 0.0 0.2

Unpaid family workers and apprentices

4.1 5.1 4.3 25.8 76.2 42.4 13.9 49.6 23.3 46.6* 70.3 53.8

Member of a cooperative

2.9 0.7 2.4 2.1 0.6 1.6 2.5 0.6 2.0 1.1 0.4 0.9

Other 0.1 0.3 0.1 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.4 0.2

Total 100 100 100 100 100 100 100 100 100 100 100 100

Table 3.2: Working population by professional status, gender and residence, 2011, Morocco (in %)

Note: *4.3% of young men aged 15–24 are apprentices; only 0.7% of young women in the same age group

Source: Data for all workers from HCP 2011: 25. Data for the 15-24 age group from HCP 2012: 42

Extrapolating the survey results to the

whole population would suggest that an

estimated 5.8 million Moroccan adults

were engaged in one of the three phases

of entrepreneurial activity, indicating that

entrepreneurship is a way of life for many.

Of the 5.8 million, about 1.3 million adults,

in average teams of 1.36, were trying to

start new enterprises. If they all succeeded

in their efforts, which would be unlikely for

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.

.

.

.

.

.

.

.

.

.

.

.

.

..

Figure 3.3: Entrepreneurial activity rates by age group and gender, Morocco,2009

Source: Global Entrepreneurship Monitor (IDRC, 2010:112)

any number of reasons, it would result in

an estimated 955,000 new enterprises.

Figure 3.3 shows the total rate of

early-stage entrepreneurial activity (TEA)

(percentage of nascent entrepreneurs in

the adult population plus the percentage

of adults who own a young business) by

gender and age group. The rate for

Moroccan men is 1.7 times the rate for

women (19.9% compared with 11.7%);

indicating that women’s share of overall

early-stage entrepreneurial activity is 38%,

relatively high compared with their share in

other developing MENA countries in the

2009 GEM project. The highest TEA rate

by age is in the 25–34 age-group (20%).

Although the pattern is consistent with the

general pattern in other GEM countries,

unlike in many GEM countries, the total

early-stage entrepreneurial activity rate

does not decline as significantly in the

oldest age group. The largest gender gap

is in the 35-44 age group, where men are

1.9 times more likely than women to be

involved in early-stage entrepreneurial

activity.

Although Morocco has relatively high

early-stage entrepreneurial activity rates,

the early-stage ventures of Moroccan

entrepreneurs are more modest than in the

other GEM-MENA countries. They start

with smaller amounts of start-up capital,

create fewer average jobs per firm, exhibit

lower levels of innovativeness, and make

very low use of external professional

advice and counseling.

Policy implications

Unfortunately, subsequent GEM studies

were not carried out in Morocco, so it is

not possible to measure trends in

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entrepreneurial activity over time. However,

several policy implications arose from the

2009 study.

• First, GEM studies generally find that

early-stage entrepreneurial activity

rates rise with level of education. Not

only does this not happen in Morocco,

but the generally low overall education

level means that the majority of

enterprises are being started by

persons with lower levels of education.

While starting a business is a way to

create a livelihood and achieve a level

of independence, GEM studies also

find that growth aspirations are higher

among better-educated entrepreneurs.

To stimulate higher-potential ventures

in the long run, the Moroccan

government should strive to encourage

more entrepreneurial activity among

better-educated segments of the

population, as well as to continue

efforts to raise the overall education

level of the entire population.

• Second, although women’s participation

in entrepreneurial activity in Morocco is

relatively high compared with rates in

some of the GEM-MENA countries,

there is still a gender gap in the level

of confidence women have in their

abilities to start a business. To

strengthen the role of women in

entrepreneurial activity, dedicated

efforts to promote entrepreneurship

and impart the required knowledge

and skills should be considered.

• Third, the low incidence of start-up

training and use of professional experts

for advice is an issue worthy of further

exploration. The relevant ministries

should consider integrating

entrepreneurship training more broadly

in educational programs of secondary

schools and vocational institutes, and

universities should play a stronger role

in introducing students to the principles

and practices of entrepreneurship, and

teaching them how to recognize

business opportunities of a more

innovative nature. Although the early-

stage entrepreneurial activity rate

among students was low in Morocco,

about a third of students stated their

intention to start a business in the next

three years. Ensuring that more of

them are adequately prepared should

be a policy priority.

3.3 Constraints to MSME sectordevelopment

Although the MSME sector represents an

important part of the Moroccan economy,

it is fragile and vulnerable. There are an

insufficient number of new enterprises

created annually; the growth of MSMEs

remains weak; they exhibit weak

management skills, investment and

financing capacity, and representation in

export markets; and they lack the

resources to acquire technical and

management assistance (Royaume du

Maroc, 2009).

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The sector suffers from a number of

structural deficiencies. Most Moroccan

MSMEs are family-run, concentrated in low

value-added sectors, and poorly

diversified, with weak linkages to foreign

direct investment activities. A very large

proportion of MSMEs are microenterprises

with limited management skills, many of

which operate in the informal economy,

lacking both corporate governance and

record-keeping systems. More than 90%

of enterprises have less than MAD 50

million in annual turnover.

Both MSME owners and their workers

have low levels of education and skills. On

the whole, Moroccan MSMEs produce

low-quality products that are sold in local

markets generating little profit. This is

particularly the case for artisans. Only a

few master artisans have developed

prosperous enterprises and produce high-

quality products for export or tourist

markets (APP, 2011: 13). As a consequence,

the MSME sector is characterized by a

lack of competitiveness, poor productivity,

low capitalization, and underfunding

(European Commission and OECD, 2008).

Furthermore, the existence of monopolies,

cartels, and privileged interests hinders

the entry of new MSMEs and their growth

potential (OECD, 2012a: 5).

Interviews conducted during the study

visits to Morocco emphasized a number of

obstacles to MSME development:

• Inadequate access to both credit and

equity financing;

• Weaknesses in the capacity of MSMEs;

• Lack of start-up knowledge and know-

how;

• Weaknesses in provision of services to

MSMEs;

• Lack of innovation capacity of MSMEs;

• Administrative and regulatory barriers.

In addition, the lack of data and

information on the MSME sector and

absence of a national MSME development

strategy are key hindrances to effective

policy development in favor of MSME

development.

Access to financing

MSMEs have relatively poor access to

financing. This is particularly so for

start-ups, very small enterprises (VSEs),

enterprises run by women entrepreneurs,

and those run by young entrepreneurs

(who have difficulty accessing financing

even with government-backed guarantees).

Enterprises operating in the informal sector

are unable to access bank financing, and

in some cases have difficulty accessing

microcredit through the microcredit system

(APP, 2011: 21). To finance their start-ups,

56.4% of the informal enterprises surveyed

in the National Survey of the Informal

Sector 2006/2007 used mainly their

personal savings. Only 1.1% received

loans from a bank and 2.2% accessed

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microcredit. Women were more likely than

men to access microcredit: 4.7% of

women and only 1.9% of men. To finance

investment projects, 4.8% of the informal

enterprises indicated they used bank credit

and 2.2% used microcredit. Informal

enterprises with four or more employees

tended to make greater use of bank credit

(7.7% of this group). The 2009 GEM study

found that the capital requirements of new

start-ups were relatively modest. The

median start-up capital required was the

equivalent of only US$6,112. Almost half

of the start-ups (46.7%) required less than

US$5,000, 64% less than US$10,000,

and over 85% less than US$50,000

(IDRC, 2010). Just over half of the start-up

entrepreneurs were planning to self-

finance their ventures. Of the remainder,

about half were relying on immediate family

members to assist them, 25% on another

relative, and 31% on a friend or neighbor.

However, 27% were planning to rely on a

microfinance provider and 31% on a bank.

Microfinancing

Even though the Moroccan microcredit

system is one of the most developed in the

MENA region, microcredit loans barely

exceed 1% of the total bank credit, and the

volume of microcredit amounts to only

0.6% of GDP, which is low relative to

other countries. As a result of the serious

microfinance sector crisis in 2007 and the

large rise of non-performing loans in 2008

and 2009, the cash position of microcredit

associations declined sharply, along

with the number of microcredit borrowers.

In 2011, microcredit associations were

serving only around 869,000 clients

compared with 1,282,000 in 2007 (APP,

2011: 17). Estimates suggest that the

number of clients was closer to 900,000 in

2012, most of them informal enterprises.

Each microcredit client has an average of

1.2 full-time jobs, so microcredit clients are

responsible for creating about a million

jobs in Morocco.

Bank financing

A joint Union of Arab Banks/ World Bank

study reports that in 2010, bank loans to

SMEs represented 24% of all corporate

loans (loans to private businesses) in

Morocco, the highest proportion of bank

lending to SMEs in the 14 MENA countries

covered by the study (Rocha et al., 2011).

Most large banks in Morocco have

established SME units in their corporate

divisions and some have developed

products (e.g. leasing, working capital

loans, overdraft instruments) for VSEs

within their retail departments (World Bank,

2012b: 39). In fact, indications are that

about 40% of bank loans to SMEs are in

the form of lease financing (Rocha et al.,

2011).

On the other hand, Moroccan

stakeholders still insist that banks have

high collateral requirements that many

MSMEs cannot meet; lack knowledge of

how to assess the credit risk in lending to

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MSMEs, and thus perceive high risk; and

prefer to do lower-risk lending to large

companies and government. Banks

continue to be in need of training on how

to assess the risk of MSME loans, and on

the implementation of credit scoring and

other techniques to reduce the transaction

costs of smaller loans.

In parallel, the majority of MSMEs do not

keep financial records and lack the

capacity to develop bankable proposals

for external financing. To informants

interviewed during the study mission to

Morocco, this is a most severe constraint

to MSMEs in accessing bank financing.

Currently there are insufficient efforts to

build the capacity of MSMEs through

education, training, and other forms of

support to help upgrade their financial

literacy skills and record-keeping systems

so they are able to prepare more bankable

proposals.

Equity financing

The private equity system is relatively

developed in Morocco, more so in terms

of formal venture capital funds than

informal business angel networks. The

Moroccan Association of Capital Investors

(AMIC), formed in 2000, has 20 private

equity investment companies as members.

At the end of 2012, there were 36

investment funds, invested in 140

companies (AMIC, 2013). Cumulative

investments by these private equity funds

to the end of 2012 amounted to MAD 3.6

billion, with an average rate of return on

investments of 20%.

In 2012, AMIC members raised

MAD 1.898 billion in funds, a substantial

increase over the MAD 480 million raised

in 2011, increasing the cumulative total to

MAD 9.4 billion (AMIC, 2012). The increase

in 2012 was largely due to the addition of

new investment funds, including the SME

Growth Fund, the Capital North Africa

Venture Fund, and the Maghreb Private

Equity Fund III, all heavily invested in by the

Deauville Partnership international financial

institutions. Investments in 2012 amounted

to MAD 307 million (down from MAD 334

million in 2011), including new investments

in seven companies and reinvestments in

nine companies. The average investment

size was MAD 23 million, but AMIC reports

that transactions of more than MAD 50

million are rising sharply. MAD 3.9 billion is

still available for investment, suggesting a

lag time between the influx of new private

equity funds and the identification of

investment-worthy projects.

Moroccan stakeholders hold the view

that private equity funds have not

been supportive enough of SMEs or

of enterprises in the early-stages of

development (EBRD, 2012a: 19).

According to key informants, most start-

ups and early-stage SMEs in Morocco

would more typically be seeking

investment amounts of MAD 3–4 million.

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Business angel networks, networks of

informal investors, are a nascent but

emerging concept in Morocco that should

be further encouraged.

Weaknesses in start-up knowledge and

know-how and MSME capacity

A number of informants interviewed during

the study mission stressed that the key

barrier to MSMEs’ access to financing is

the lack of ability of the entrepreneurs and

the quality of their business ideas. Thus,

entrepreneurship training is essential to

enable start-ups and existing MSMEs

to develop good business plans, and

effectively communicate their proposals to

banks or equity funds. Research studies

also confirm that human capital factors

play a large role in explaining the provision

of bank finance to an enterprise, and

that governments should focus more on

the provision of training to would-be

entrepreneurs (Cressy, 2012).

Business support organizations working

with young people in Morocco also

indicate that the spirit of entrepreneurship

is weak. Although Moroccan youth are

perceived to lack entrepreneurial spirit,

Morocco is one of the few Arab countries

where a majority in the 15–29 age

group state that they would prefer to be

self-employed than to work for the

government (41% versus a 26% average

in the Arab League) (Silatech, 2009).

On the other hand, young people lack

knowledge of how to become an

entrepreneur and start a business, and

are often unaware of this option as a

career/ employment opportunity. They are

largely unexposed to the concept of

entrepreneurship in the education system

and when introduced to the option of

starting a business, lack innovative

start-up ideas.

Many Moroccan stakeholders express

the view that more needs to be done to

develop an entrepreneurial spirit among

youth, and to provide them with

adequate entrepreneurship education,

preparation, training, coaching, start-up

and post-creation support, and access to

financing. At the same time, labor laws

must be put in place to favor the creation

of jobs by, for example, amending the

Labor Code to influence changes in

attitudes regarding preferences for public

sector work.

To overcome weaknesses in management

skills and structures, and to help MSMEs

improve their performance and access

financing, there is a need for early stage

MSMEs to be accompanied by advisors/

coaches/ mentors. This appears to be a

large gap in program and service provision

at present, as emphasized by several

informants. Access to support programs is

more problematic in the rural areas of the

country.

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Deficit in innovation and innovation

capacity

Morocco invests very little in R&D - 0.8%

of GDP compared with an average of

2.26% of GDP for Organisation for

Economic Co-operation and Developmnet

(OECD) countries. This poor performance

can mainly be attributed to the weak

contribution of the private sector, which

amounts to about 0.13% of GDP versus

0.67% of GDP by the public sector. The

private sector share of R&D investment is

only 12%, compared with a share of 45%

in Mexico, 67% in the United States, and

70% in China (CGEM, 2012). One reason

for the low R&D contribution of the private

sector is the limited accessibility to external

financing for the funding of innovation

activity and the lack of availability of risk

capital to support the emergence of

innovative start-ups.

Weaknesses in the provision and

coordination of support services to

MSMEs

A number of informants interviewed

during the study mission were critical of

existing public infrastructure to support

entrepreneurship and MSME development.

Their comments related to inadequate

delivery of coaching and mentoring

support to entrepreneurs in the start-up

and post-creation phases (e.g. first two

years of business operation); inadequate

functioning of much of the business

support infrastructure (e.g. incubators,

clusters, innovation system, poor start-up

rates from the government’s youth

entrepreneurship programs, etc.); and lack

of coordination of support mechanisms

and programs to ensure that MSMEs are

benefiting and that the priority needs of the

sector are being met.

They noted, for example, that the

incubators in Morocco are in need of

operational and service standards and

performance metrics. Incubator managers

need to be selected on the basis of a

minimum set of qualifications, which

should include relevant experience working

with start-ups. The governance structures

of business accelerators are weak. Various

support programs appear to be

underfunded, restricting their ability to

increase the number of MSME clients they

can work with.

Need for further administrative and

regulatory reform

Although a number of business reforms

have been undertaken, the business

environment remains cumbersome to

entrepreneurs in many areas. MSMEs are

still deterred by the weak quality and

lack of predictability of the regulatory

environment for business transactions,

particularly the discretionary way in which

many regulations are implemented by

different public officials. There are still a

number of complexities associated with

registering a business, which results in a

high level of informality among MSMEs.

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One of the questions centers on the extent

to which the high level of informality is

linked to a lack of access to formal

markets due to the dominant position of

state-owned and larger enterprises in the

domestic marketplace.

3.4 Government action toaddress constraints

Government priorities and MSME

support and programs

The priorities of the Moroccan government

are set out in several national strategy

documents. Considered together, these

priorities appear to fall into eight

categories:

• Fostering job creation;

• Upgrading the productivity and

competitiveness of MSMEs;

• Promoting entrepreneurship development

and enterprise creation;

• Enhancing the level of innovation and

technological development of MSMEs;

• Increasing access to finance for start-

ups, innovative and growth SMEs,

VSEs, and SMEs that have difficulty in

accessing bank financing;

• Increasing SMEs’ access to domestic

and export markets;

• Improving the business environment;

• Reducing the level of informality among

enterprises.

National system of institutional MSME

support

The development of SMEs has been a

priority interest of the government since

the late 1990s. This culminated in adoption

of the SME Charter in 2002, but there has

not been a national MSME development

strategy laying out a cohesive, comprehensive

and strategic approach to developing the

entire sector. In 2012, the government did

release a National Strategy for the

Promotion of Microenterprises, which is

specific to enterprises with annual turnover

of less than MAD 3 million.

The SME Charter provides for the

establishment of the National Agency

for the Promotion of Small and Medium

Enterprises (ANPME), the role of which

is to coordinate the delivery of SME

programs and services, and to elaborate a

program of technical assistance for the

creation, promotion and competitive

modernization of SMEs. However, on the

whole, MSME development appears to

be treated more as a horizontal issue

with responsibility for different policy and

program elements dispersed among

many government ministries and agencies,

and integrated as one of the priorities

across many other sectoral plans and

strategies. Consequently, not only are

several ministries involved in delivering

support to MSMEs, but there are also

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assorted special government agencies that

provide program and financial support.

Figure 3.4 presents a schematic of the

major components of the MSME support

system. In a somewhat fragmented

manner, the various entities and programs

focus on meeting the needs of enterprises

of different sizes at various stages of

development, including start-ups and

microenterprises.

Details of government action in support of

MSMEs can be found in Annex 1.

MSME Development Infrastructure

16 Regional Investment Centers (CRIs)

Regional Committees for the Creation of Enterprises (CRPCEs) – launched by the FBFCE and the CRIs

Regional Network for the Modernization of Enterprises (RRME) – ANPME-led, 7 locations

Moukawalati Young Entrepreneurs Programme windows

900 SME consultants in ANPME’s database

Réseau Maroc Incubation et Essaimage (RMIE) – network of 13 business incubators, business accelerators and technology innovation centers assisting in the creation of innovative enterprises

Technology parks

Start-up and Business Development Support

National Agency for the Promotion of Small and Medium Enterprises (ANPME) – Moussanada programme – support programme for women entrepreneurs

National Agency for the Promotion of Employment and Skills (ANAPEC) – start-up programmes for unemployed young graduates

Banque Populaire Fondation de Création d’Entreprise (BPFCE) – entrepreneurship promotion, start-up support – windows in 15 regions

Ministry of Foreign Trade, MarocExport – Export Synergia Programme, and Maroc Export Plus

National Initiative for Human Development (INDH) – Income-Generating Activities Project as one component

Association of Women Entrepreneurs of Morocco (AFEM) – 6 branches, operates 4 business incubators for women

INJAZ Al-Maghrib – delivers entrepreneurship education programs in the school system

Maisons du Jeune Entrepreneur (Fondation du Jeune Entrepreneur) – assistance for start-ups

Centre des Jeunes Dirigeants (CJD) – training platform, networking, idea sharing among young leaders

Financing

Caisse Centrale de Garantie (CCG)

JAÏDA– a government-owned loan guarantee company for microfinance

13 Microcredit associations, organized under the umbrella of the National Federation of Microcredit Associations (FNAM)

Fondation Banque Populaire pour le Micro-Crédit (FBPME)

Banque Centrale Populaire – primary bank for lending to MSMEs

Crédit Agricole du Maroc (start-up loans, microcredit and expansion loans for agribusinesses)

National Agency for the Promotion of Small and Medium Enterprises (ANPME) – Moussanada IT, Imtiaz programs

Moroccan Association of Capital Investors (AMIC) – 1,721 private equity firm members

Morocco Numeric Fund (MNF) – seed capital for technology start-ups

OCP Innovation Fund for Agriculture – venture capital for innovative early-stage enterprises in the agriculture and agri-business sectors

SME Growth Fund – early stage investment fund

Innovation Support

Morocco Innovation Centre

Moroccan Association for Research and Development

Réseau de Centres d’Informations Technologiques (TISC) a network promoting ICT use among SMEs

INNOV’ACT – VSEs and SMEs – INTILAK Programme (innovative start-ups and early-stage enterprises with high potential); TATWIR Programme (innovative SMEs); Technological Services Network Programme (innovative projects of SME consortia)

Moroccan Network for the Diffusion of Technology

Maroc Numeric Cluster – launched in 2011 in Casablanca to stimulate innovation projects

Figure 3.4: Schematic of system of support for MSMEs, Morocco

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3.5 IFI/ donor support to theMSME sector

A review of the inventory of IFI/ donor

funding in Morocco provided by the

African Development Bank (AfDB) reveals

projects amounting to the equivalent of

about US$1.6 billion dollars2, although it

must be noted that the funding amount

for some of the initiatives was not

provided so could not be included in the

total estimate. With the exception of the

Millennium Challenge Corporation (MCC)

grant under the Morocco Compact,

these are projects that were approved in

either 2011 or 2012. The MCC project,

launched in 2007, ended in September

2013. It included five major project

components amounting to US$618 million

of net grant funding in support of the

primary industry and handicrafts sectors,

where many microenterprises and informal

enterprises are concentrated, plus an

Enterprise Skills Project and a Financial

Services Project.

Just over half of the IFI/ donor funding

for MSME-related initiatives in Morocco

captured in the mapping of current

and pipeline projects is focused on

addressing the MSME financing gap –

about US$817.8 million (Figure 3.5). Of

this amount, almost 38% is dedicated to

capacity building of the financial sector

(the AfDB Financial Sector Development

Support Program – Phase II, and the

MCC Financial Services Project).

The remaining US$816.6 million

was allocated to non-financial MSME

support initiatives geared to facilitating

development of entrepreneurship and

start-ups; enhancing the capacity of

MSMEs through technical assistance

(includes three projects under the

Morocco Compact); supporting innovation;

developing youth employability and

entrepreneurship skills; and funding

studies. About two-thirds of the funding

in this category is for developing the

capacity of MSMEs (mostly VSEs),

accounted for by the large scale of the

MCC projects.

Full details of IFI/Donor funding can be

found in Annex 2.

2 All projects in Euro were converted to US$ using the current exchange rate of 1 Euro = USD 1.30064 (9 March2012).

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3.6 Gaps in MSME developmentsupport

Summary of major constraints to

MSME development and actions taken

to date

The major constraints to MSME development

in Morocco are:

• Inadequate access to credit and

equity financing and limited ability of

MSMEs to prepare bankable proposals;

• Weaknesses in start-up knowledge

and know-how and MSME capacity;

• A deficit in innovation and innovation

capacity;

• Administrative and regulatory obstacles

that continue to result in a high level of

informality, as well as insufficient

market openness for private sector

MSMEs; and,

• Weaknesses in the provision and

coordination of support services to

MSMEs, despite a relatively elaborate

system of business and financial

support mechanisms being in place.

The result of these constraints is an

enterprise structure overly dominated by

informal microenterprises (with fewer than

five workers) and concentrated in

traditional, low value-added sectors of

activity, with low growth in formal job

creation, low innovation and export

activity. Given the very high proportion of

microenterprises in the Moroccan MSME

sector, effort would be well placed to

foster stronger start-ups and help existing

microenterprises transition into small

Microfinanceprojects;4.0%

Funding to supportloan guarantees;

6.1%

Loans to banks for on-lending to MSMEs;

4.7%

Capital participationBCP; 12.5%

Financial sectorcapacity building;

18.9%

Investments in privateequity funds;

3.8%

Support forentrepreneurshipdevelopment and

start-up;2.6%

Development ofMSME capacity

through technicalassistance;

33.5%

Administrative andregulatory reforms;

5.9%

Innovationinfrastructure support;

8.0%

Economic studies0.02%

Figure 3.5: Distribution of IFI/ donor funding by project category, Morocco 2009

Source: Global Entrepreneurship Monitor (IDRC, 2010:112)

Total-NonfinancialMSME

SupportProjects,

$816.6

TotalMSME

FinnacingProjects,

$817.8

(USD millions)

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enterprises, and more small enterprises to

grow into medium enterprises. Both the

government and IFI/ donor initiatives are

responding to these priorities to one degree

or other, except regarding weaknesses in

the provision and coordination of support

services to MSME.

Since 2011, the major focus of the

government has covered:

• Simplification of business start-up

procedures, adoption of a unique

business identifier for enterprises, and

reductions in the cost of creating a

limited liability company;

• Introduction of temporary measures

to encourage the large number of

informal enterprises to become formal

(but with modest effect);

• Drafting (and approving) of a set of

laws modifying the Competition Law

and giving stronger investigative and

enforcement authority to the Competition

Council (to be implemented);

• Improvements to the regulatory

framework for microcredit, recapitalization

of the microcredit system, and launch

of new MSME guarantee products,

including for VSEs, and women-owned

start-ups;

• Launching of new equity funds to

foster the growth of innovative early-

stage start-ups, and the growth of

SMEs in agriculture, ICT and value-

added sectors;

• Continuing support for the business

creation activities of young entrepreneurs

and low-income individuals in rural

areas through National Initiative for

Human Development (INDH) (although

with only a few hundred of each

supported each year);

• Improved support for VSEs through

launch of a national strategy, and

implementation of reforms to encourage

informal firms to become formal;

• Increased funding support for ANPMEs’

SME upgrading and modernization

programs to expand the number of

beneficiaries, and establishing a new

program to build capacity of SMEs in

lean manufacturing;

• Launching of a number of new

programs to encourage SMEs to

undertake R&D and innovation projects;

• Amendments to the 2007 Procurement

Law to include provision for allocating

20% of the total value of public

procurement contracts to SMEs; and

• Support for the development of export

consortia to accelerate the export

activity of SMEs.

The focus of IFI/ donors has been

primarily on:

• Recapitalization of microcredit

associations, loans to the banking

sector for relending to SMEs, funding

of a new SME guarantee facility, and

investments in three private equity

funds targeting early-stage and

growth-potential SMEs;

• Technical assistance to strengthen

and build capacity of the financial

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sector, including microcredit

associations, banks and capital

markets;

• Support for several entrepreneurship

and enterprises skills projects, primarily

targeting young (unemployed or low-

skilled) entrepreneurs or high-impact

potential start-ups and early-stage

enterprises;

• Capacity building of micro and small

enterprises in rural regions in crafts,

fisheries, and agricultural sectors

(although these projects came to an

end in 2013), and training and

technical assistance to improve the

productivity of entrepreneurs in the

olive sector;

• Support for the construction of

innovation infrastructure (technology

parks), but no projects to specifically

build the innovation capacity of SMEs

or improve the innovation ecosystem; and

• Technical assistance to the government

to leverage the ongoing reforms to

simplify the regulatory environment and

reduce obstacles to SMEs.

There were no projects oriented towards

supporting SMEs’ access to export

markets or enabling SMEs to successfully

access the public procurement market,

areas where there are potential gaps for

supported projects. With the ending of the

MCC project, there are also no projects

supporting the integration of SMEs in

supply chains.

Specific gaps

The conceptual framework for mapping of

government and IFI/ donor initiatives is

structured around the principle of

addressing the priority needs of MSMEs at

their different stages of development: pre-

start-up, start-up, micro and VSEs, SMEs,

and innovative growth-oriented SMEs.

A number of gaps have been identified in

terms of enhancing the role of MSMEs in

the economy and their job-creating impact.

Access to finance

MSMEs would benefit from increased

availability of funding mechanisms and

access to financing, including access to

angel funds and venture capital. The

following actions are suggested:

• In terms of microcredit, the ceiling on

loans is still low, leaving gaps between

the maximum amount available from

the microcredit associations and the

minimum amounts generally available

from banks. This could be addressed

by further reform of the Microcredit

Law to increase the ceiling on the

loan amount from MAD 50,000 to

MAD 100,000. Reaching the target of

3 million microcredit clients by 2012

would have required further capitalization

and lending capacity of the microcredit

associations.

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The microcredit associations are also a

vehicle for assisting clients to become

formal and progress. This could be

achieved by building their capacity to

provide training in management and

financial skills, and post-loan advisory

and coaching support along with

microcredit.

• With respect to the banking sector,

further training of bankers is needed

on how to address the MSME market,

including through the use of

appropriate risk assessment tools

and special SME windows.

• Banks still experience information

asymmetries in dealing with SMEs

because of the inadequate coverage of

the population in the private Credit

Bureau. Even with training of bankers

and improved credit information,

MSMEs face obstacles in meeting the

collateral demands for bank loans. In

this regard, expansion of the Caisse

Centrale de garantie (CCG) guarantee

system would be very helpful,

particularly in providing guarantees for

start-ups, young entrepreneurs and

women, who have even more difficulty

in accessing bank financing. The

financial skills of MSMEs need to be

strengthened to enable them to access

financing more effectively, as does their

knowledge about the forms of service

and support available, including

information on the guarantee system

and products, and on use of private

equity as a financing source.

• Although the private equity available for

SMEs has expanded considerably

since 2011, investment/ equity funds

targeting start-ups and early-stage

enterprises with investment needs of

under MAD 4 million are underdeveloped,

and there is not enough investment

targeting innovative enterprises,

particularly in the pre-commercialization

stage of R&D projects. Both of these

issues require more focus. The

emergence of business angel networks

is very nascent, the further development

of which could help address the start-

up and early-stage development of

promising SMEs. Changes to the law

governing venture capital and private

equity investors are needed to create a

more favorable environment for this

activity.

These initiatives would require a combination

of additional influxes of capital to increase

the supply of available financing, policy

attention, and development and delivery of

training and capacity-building programs.

Entrepreneurship support and MSME

capacity building

There is an urgent need to meet the

challenge of youth unemployment in order to

maintain social cohesion – this will require

a national program for large-scale youth

employment. One of the solutions

proposed by the government is to facilitate

self-employment and business creation

among young people. However, this

solution is thwarted by the nature of

training systems that do not sufficiently

encourage entrepreneurship and a

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preference among university graduates to

work for the government (i.e. weak

entrepreneurial spirit). This warrants a

strong promotional campaign, and more

expansive and intensive entrepreneurship

support efforts by government and IFIs/

donors.

More needs to be done to promote a

culture of entrepreneurship and personal

initiative among Moroccan youth by

integrating entrepreneurship in the education

and training systems, encouraging young

people to start their own enterprises, and

subsequently supporting them in their

start-up efforts, including with offers of

financing. Given the very large proportion

of the under-30 age group in the Moroccan

population, this is the group from which

future entrepreneurial growth will emerge. If

nothing is done to promote a stronger

culture of entrepreneurship among youth

and to develop their entrepreneurial

know-how at an earlier age, Morocco

will continue to have an MSME sector

characterized by low management skills

and limited capacity for innovation and

growth.

IFI/ donor support for entrepreneurship

and business creation projects in Morocco

is limited at the present time. There are

only a few projects and they are for the

most part on a rather small scale. On the

other hand, there are some promising

Moroccan initiatives that could be scaled

up with IFI/ donor funding.

Development and upgrading of MSME

capacity for enhanced productivity

and competitiveness

Stakeholders have stressed the lack of

management capacity of MSMEs as a

constraint both to their growth and to the

development of the sector. The MCC

projects, under the Morocco Compact,

and the Italian Cooperation-funded

Olive Entrepreneurs Project, both sector-

oriented projects, are the major IFI/

donor-funded projects with elements to

improve the productive capacity of

MSMEs. Both projects were initiated prior

to 2011. Various government programs

exist, but the number of MSME

beneficiaries is somewhat limited, and

often smaller enterprises are not sufficiently

targeted. Now that the first Morocco

Compact has ended, there is a lack of IFI/

donor support for building the quality,

management and productive capacity of

MSMEs.

Innovation capacity of MSMEs

Enhancing the level of innovation and

technological development of MSMEs is

one the government’s top economic

priorities. This is needed in order to drive

the economy into higher value activities,

create higher-quality jobs, and spur

productivity and competitiveness.

However, only one donor project identified

in the inventory of IFI/ donor-funded

projects was directly associated with

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innovation support: the European

Investment Bank loan to the government

for expansion of technology parks in

Morocco. Once the seven technology

parks are constructed and ready for

operation, they will contribute greatly to the

innovation structure in the country, but will

not be fully utilized if efforts are not made at

the same time to build the innovative

capacity of local enterprises and

entrepreneurs, and create a culture

whereby SMEs are linked more closely to

the innovation network.

Access to markets

Much could be done to improve MSMEs’

access to markets. One of the current

barriers to greater access is the weak

capacity of most micro and small

enterprises. Investing in projects to

improve their capacity – management,

systems, production, and marketing – is

needed to bring their quality and

standards to a level where they can take

advantage of supply chain, value chain,

and exporting opportunities.

One of the immediate gaps to be

addressed is enabling MSMEs to take

advantage of the potential market

opportunity provided by the government’s

recent policy initiative to allocate up to

20% of public procurement contracts to

MSMEs. The government could benefit

from technical support in implementing

the MSME procurement law to facilitate

achievement of the 20% quota allocation.

Further improvements to the administrative

and regulatory environment

Accelerated and more effective

approaches are needed to encourage

MSMEs to become formal so they are

better able to take advantage of growth

opportunities (e.g. access markets, access

finance, etc.) and create formal jobs.

Implementing the proposed auto-

entrepreneur regime will serve to legitimize

a large number of the self-employed, but

this must be accompanied by further

incentives to motivate all informal MSMEs

to become formal (as outlined in the National

Strategy for the Promotion of VSEs).

Improving effectiveness of the provision

and coordination of support services to

MSMEs

There are a number of weaknesses in

the effectiveness and performance

of the business support system in

Morocco, due to lack of resourcing,

quality of service provision, or reach. Of

particular note is the system of business

incubators and accelerators, which is not

operating to international performance

standards. There is a need to implement

a program to improve the effectiveness

and performance of these institutions

(e.g. setting performance targets,

strengthening the capacities of

incubator managers and staff to provide

advisory services to the start-up

entrepreneurs, establishing coaching

services, etc.).

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Inadequate data on the MSME sector

Although not directly related to providing

support services to entrepreneurs and

MSMEs, there is a persistent lack of official

data on the MSME sector to inform policy

and monitor the impact of support

programs and initiatives. The development

of an SME Observatory project, strongly

advocated by local stakeholders, could

address this gap. The SME Observatory

would collect information on MSMEs and

report regularly on critical statistics to

monitor the performance of the sector in

terms of entries, exits, growth rates,

employment creation (by size of enterprise),

etc. This will address the need for

comprehensive and timely statistics and

information to better inform policy and

program developments.

3.7 Proposals for strengtheningthe MSME sector in Morocco

From the analysis, a number of specific

priority actions are proposed for consideration

by IFIs/ donors.

Access to financing

IFI/ donor support should include the

following:

a) Increased funding to support the

National Federation of Microcredit

Associations’ (FNAM’s) objectives to

reach three million microcredit clients

by 2022 (creating two million additional

jobs) which, according to FNAM

officials, would bring Morocco more in

line with international benchmarks.

b) Support for implementation of the

strategy, in line with the National

Microfinance Strategy, received

favorable consideration by the

Deauville Partnership MENA Transition

Fund in May 2013.

c) Additional funding to increase the

capacity of the CCG to offer

guarantees for SME loans and equity

investments in SMEs; provide support

to private equity and venture capital

investors in assessing files from start-

ups and early-stage SMEs (to reduce

the cost of due diligence and risk

evaluation on smaller investments); and

play a larger role in helping banks

adjust their lending practices to be able

to do more lending to SMEs (i.e.

setting up new structures, using credit-

scoring systems, and training bank

staff). In addition, expanded reach of

CCG guarantee programs in rural

areas could be facilitated by helping to

fund the establishment and staffing of

more regional offices (only two exist at

present).

d) Creation of regional funds dedicated to

financing MSMEs, specifically:

• A fund specializing in providing

“seed grants” to micro and small

enterprises to fill the gap between

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microcredit limits and access to bank

financing. Such a fund could also

support more innovative enterprises

and provide a source of funding for

the unemployed young graduates with

Moukawalati projects, in view of their

difficulty in accessing bank financing

for their start-up projects, even with the

CCG guarantees.

• A “business angels” project to

encourage the formation of business

angel groups and provide incentives to

encourage business angel investors.

This should include linkages to the

Association of Women Entrepreneurs

of Morocco (AFEM) business incubators

for women entrepreneurs.

e) Addressing the need for more venture

capital and business angel investing in

innovative start-ups and early-stage

enterprises. There are still few funds

dedicated to investing in this stage of

an enterprise’s development with

amounts of less than MAD 10 million.

In conjunction with this, there is the

need for a project providing technical

assistance to “ready” SMEs for

external investment (e.g. management,

transparency and governance issues).

This would entail a program to educate

and train entrepreneurs on how to

access private equity and also to train

institutional investors on how to

approach investing in SMEs. AMIC

has recently developed guidelines for

entrepreneurs and investors that could

be used as the basis for education and

training initiatives.

Entrepreneurship development, start-

up and post-creation support

There is an opportunity for IFIs/ donors to

make a significant contribution in expanding

the reach of entrepreneurship promotion

and enterprise creation projects, including

post-creation coaching and mentoring

support, in order to strengthen the culture

of entrepreneurship, build the capacity of

the next generation of competent

entrepreneurs (which will lead to stronger

start-ups), and improve the survivability of

start-ups and their job creation prospects.

The following proposals should be

considered as priorities:

a) Expansion of the INJAZ Al-Maghrib

Program. Project support to the

program would enable it to deliver

Entrepreneurship Masterclass courses

and the Company Program to students in

more schools, colleges, and universities;

b) Support for the Maisons du Jeune

Entrepreneur. With additional funding,

the Fondation du Jeune Entrepreneur

could speed up the creation of its

centers in more regions in the

country, thereby assisting more young

entrepreneurs in starting a new

enterprise. A project could also include

a seed capital fund to provide

graduating entrepreneurs access to

capital to start up their enterprise, an

important measure since currently

more than half of Moroccan start-ups

are refused bank loans;

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c) Expansion of the Fondation Creation

d’Entreprise programme targeting

young entrepreneurs. Established by

the Groupe Banque Populaire in 1991,

the non-profit foundation has an

established track record, innovative

approaches, extensive partner networks,

and could quickly scale up its activities

for young entrepreneurs with additional

funding.

d) Support for programs and initiatives

supporting the development of women

entrepreneurs. This may be an untapped

opportunity area for IFI/ donor support

given the low rate of participation of

women as entrepreneurs in the country,

the general lack of specific program

support for their development, and

global evidence demonstrating the

economic impact of increasing women’s

participation in business ownership.

IFIs/ donors could consider:

• Funding the expansion of AFEM’s

business incubators for women. A outline

project presented to the Deauville

Partnership meeting in Rabat on June

19, 2013 proposed three-year funding to

establish three new business incubators

for women, in Agadir, Marrakech, and

Tangier, and to provide operational

funding support for three existing

business incubators for women, in

Casablanca, El Jadida and Rabat. The

estimated budget for the three new

incubators is MAD 8.56 million and

MAD 5.25 million for sustainability of

the three existing ones (total of

MAD 13.8 million, or approximately

US$1.6 million); and

• Supporting a project to promote

entrepreneurship as an opportunity for

women (e.g. road shows, promotional

campaigns, orientation workshops),

establish “windows” as points of

service for emerging women

entrepreneurs to provide assistance

with developing business ideas and

business plans, and offer counseling,

mentoring and coaching to women

through the start-up and early-stage

post-creation processes.

e) Strengthening CJD Morocco.

Providing addition funding to the

Moroccan branch of the Centre des

Jeunes Dirigeants network would

allow it to expand its activities aimed

at strengthening the capacity of young

entrepreneurs and promoting

entrepreneurship.


capacity for enhanced productivity and

competitiveness

IFIs/ donors should consider the following

proposals:

a) In light of the recent launch of the

National Strategy for the Promotion of

VSEs, technical support could be

provided to the government to assist in

the implementation of the strategy

and some of its components. Besides

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better access to financial instruments,

the strategy aims to improve the

managerial and organizational capacity

of VSEs so as to improve their

productivity and growth potential.

Additional funding and technical

support from the IFIs/ donors could

make it possible for the regional

support systems to provide tailored

forms of coaching, advisory and

program support, in order to develop

the capacities of VSEs in the localities

where they live;

b) Funding could also be directed to the

establishment of business support

centers that can provide coaching,

mentoring, and advisory services to

MSMEs, independent of whether they

are participating in a government-

supported program. This would enable

more MSMEs to access the coaching,

advisory and technical support seen by

stakeholders as so essential to their

improved performance;

c) In 2011, the Ministry of Industry,

Commerce and New Technologies

launched the Initiative Marocaine

d’Amelioration as a pilot program to

accelerate the competitiveness of

SMEs by supporting the implementation

of lean management and manufacturing

practices. The targets are medium

enterprises with turnover of at least

MAD 50 million and SMEs with

turnover of less than MAD 50 million,

but with at least 50 workers and

involved in exporting. Significant

productivity gains can generally be made

by implementing lean manufacturing

methods and it is unfortunate that

SMEs with fewer than 50 workers are

not eligible for the program. IFIs/ donors

could examine the willingness of the

government to widen the eligibility

criteria to include smaller enterprises

and provide incremental funding to

include a cohort of smaller enterprises

in the program to realize a greater

impact.

d) Based on the positive outcomes from

the first year of the Bouskoura model

plant and the results of the feasibility

studies for additional model plants,

IFIs/ donors could support the

government’s plans to expand the

model plant concept in Agadir, Fez,

and Tangier.


technological development of MSMEs

The incubator system is not functioning

very efficiently or effectively. Improvements

are needed in the operation of business

incubators and business accelerators

(as noted above), and in the quality of

innovative projects proposed for funding

National Center for Scientific and Technical

Research (CNRST)/ Morocco Incubation

and Spin-off Network (RMIE). Capacity-

building support to professionalize

incubator management (e.g. qualifications

and training of staff, resourcing, minimum

range of services to be provided, standards

for incubator operation, etc.) would be

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beneficial. This is an area where an

IFI/ donor-funded project could add value

given the potential of incubator systems

for generating higher-potential start-ups

and jobs.

Support is also needed for the

development of a system that will more

easily facilitate linkages between MSMEs

and research and technical centers.

In European countries, an innovation

voucher system has met with considerable

success. Innovation vouchers were first

piloted as a concept by the Dutch

government in 2000 and are now in use by

governments in more than 20 European

countries. The aim of the voucher scheme

is to provide a flexible and “easy to access”

instrument to encourage MSMEs to seek

professional assistance in solving a

technical problem that will lead to

innovation. Because of its simplicity, the

innovation voucher scheme can be easily

adopted by countries, provided that

small firms have a minimum “absorptive

capacity” towards university research, and

that universities and public research

institutions are willing to cooperate with

firms in the MSME sector. Such a system

in Morocco could be complementary to

the goals and objectives of the Morocco

Innovative Initiative.

Improving MSMEs’ access to markets

No specific projects supporting MSMEs’

access to markets were noted in the

inventory of current and pipeline IFI/ donor

projects. Access to markets can be

interpreted rather broadly, but generally

relates to access to export markets. In the

case of Morocco, it also relates to MSMEs’

access to public procurement markets and

to their greater integration into supply

chains. These are areas where IFIs/ donors

could consider project support:

a) In the context of the recent

amendment to the procurement law

setting aside 20% of the value of all

government procurement contracts to

MSMEs, IFIs/ donors could provide

technical support for implementation

of the procurement policy. Based on

lessons learned in other countries, the

government will have to make other

adjustments in procurement procedures

to ensure that MSMEs can benefit

from the new provisions of the law.

Experiences in other countries reinforce

the need to conduct awareness

sessions among MSMEs on the

market opportunities in accessing

public procurement contracts, provide

information on the procurement

processes, and implement business

support initiatives to help MSMEs

upgrade the quality of their products to

meet the standards of procurement

specifications. This may be an important

area of support for IFIs/ donors in

Morocco because of the positive

impact it can have on increasing

markets for MSMEs and enhancing

their growth potential, including for

creating new jobs; and

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b) Regarding access to export markets,

technical assistance could be provided

to the Ministry of Foreign Trade, in

particular in relation to the tools and

platforms for business intelligence on

industries and target external markets

to support companies and professional

associations with data and business

opportunities in target markets.

Administrative and regulatory reform

IFIs/ donors could consider the following

proposals:

a) Given the large informal sector in

Morocco, funding and technical support

could be provided to the government

to launch an initiative to help informal

enterprises become formal. This may

require a major campaign to create

awareness among informal enterprises

of the benefits of taking the first step in

the transition to formal status by

registering for the professional tax

(“patente”), the government’s amnesty

policy and the simplified systems for

VAT calculations, etc. This is an

important initiative because informal

enterprises cannot take advantage of

many other government programs,

and are unable to access formal

financing, except through the microcredit

system;

b) Technical assistance could also be

provided to the government in

implementing the auto-entrepreneur

regime. The estimated budget for

implementation of the new regime is

EUR 3.76 million. The timeline for launch

of the new law is 2015; and

c) Technical assistance would also

be useful in supporting the reform

of Law 41-05 on venture capital

investment funds so that venture

capital companies and investment

funds could enjoy equal treatment

and more incentives would be

created for private investors.

Other proposals for consideration

In general, as emphasized in the Near-

Term Plan for SME Development in

Morocco, there appear to be problems in

terms of resources available to support

government actions and build synergies

among the various programs, particularly

in the areas of skills and innovation.

Improvements are also needed in the

MSME support structure, which is

perceived by stakeholders as lacking

coordination and, in some cases, not

functioning efficiently and effectively.

There is a notable lack of data on the

MSME sector, a weakness that could

be addressed by supporting the

development of an SME Observatory.

The government and key stakeholders

would benefit from technical and funding

assistance to develop and implement

this project, and continue to urge

support for such a project from the

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Deauville Partnership IFIs/ donors. It

could be beneficial for IFIs/ donors to

support this as part of a regional project,

since Deauville Partnership countries

in general are in need of an SME

Observatory.

Finally, stakeholders indicated strong

support for the idea of Deauville

Partnership-supporting platforms for

exchanges among countries and

international experts, to share broader

experiences and create awareness of

different MSME support systems, including

approaches to providing complementary

support for MSMEs (i.e. regional SME

forums).

In terms of which segments of the MSME

sector to target, priority should be given to

new start-ups (including investing in the

development of entrepreneurship education,

orientation, and training and coaching

initiatives), VSEs in traditional and modern

sectors (in line with the new National

Strategy on the Promotion of VSEs), and

innovative start-ups and SMEs in IT and

technology-based sectors.

It is difficult to make definite

recommendations about which sectors

have the greatest job-creating potential for

MSMEs without access to comprehensive

and up-to-date MSME sector data, which is

largely lacking in Morocco. However, the

agricultural, handicraft and tourism sectors

are very important in terms of employment

and there is potential for gains in productivity,

innovation, and growth in these sectors

that will lead to sustainable jobs. There

are also opportunities in new economic

sectors, such as in social media, that may

match the interests and competencies of

educated Moroccans.

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4. MSME Development Support in Tunisia: AGap Analysis

4.1 Challenges and developmentpriorities for Tunisia

Tunisia faces a number of development

challenges, specifically, high unemployment,

regional disparities and inequities, low

private investment, and slow progress in

moving from a low value-added, low-

cost economy to a higher value-added

knowledge-intensive economy.

Job creation

The most pressing challenge facing

Tunisia is high unemployment. This is

largely a function of a weak private

sector that has not been growing fast

enough to keep pace with labor force

increases and to absorb the growing

numbers of new university graduates

and women entering the labor market.

Nor has it been able to create jobs for

people in less developed regions (Achy,

2011).

Unemployment rates rose from 13% in

2010 to almost 19% in 2011, settling at

15.7% in the third tri-semester of 2013.

Unemployment rates are much higher for

women (22.5%) than for men (13.1%)

(Lamont, 2012). Women in the labor

force were particularly hard hit by the

impact of the Arab Spring in Tunisia. This

widened the unemployment gender

gap, from an 8.0 percentage point gap

in 2010 to a gap of 9.4 percentage

points in 2013. For women with a

secondary or higher level of education,

the unemployment gap with men of

similar education was 20.4 percentage

points in 2013 (23.1% for men and

43.5% for women), meaning that

educated women are even more heavily

penalized in the labor market.

Youth unemployment is a serious issue.

In 2011, the unemployment rate in the

15–24 age group was almost 44%, rising

dramatically from an already high level of

almost 30% in 2010 (ONEQ, 2012). Also,

the higher the level of education, the

higher the unemployment rate. In 2013,

over a third of labor force participants

with secondary or higher education were

unemployed, compared with about 12%

of those with only primary education

(ONEQ, 2012). In the interior regions, the

unemployment rate of graduates ranges

from 31% to 45% (Ministry of Finance,

2011). The number of post-secondary

graduates entering the labor force is

growing at 9% to 10% a year, compared

with a 2% rise in the working population

(AfDB and OECD, 2012). The issue

of high unemployment is therefore

expected to continue into the

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foreseeable future unless adjustments

are made in labor market demand.

At the same time, as Lamont (2012)

points out, graduates lack market-

relevant skills and have limited access to

internship programs or other ways to

learn practical skills. One result is that

the average university graduate is

unemployed for 28 months, which is nine

months longer than non-university

graduates facing unemployment. Of the

60,000 new graduates from universities

and research institutes entering the job

market in 2010, fewer than 35,000

obtained jobs (Achy, 2011).

The government has implemented active

labor market policies, but these have not

addressed the real distortions – low level

of private investment, limited demand for

skilled labor, an education system in

need of reform, and the dominant role of

informal networks in providing access to

job opportunities (Achy, 2011). Only 25%

of the unemployed take advantage of

active labor market programs, resulting

in a high average cost per beneficiary.

Labor regulation restrictions on the hiring

and firing of workers and high social

security costs for employees (almost

20% of the wage bill) are also serious

impediments to job growth (AfDB et al.,

2013).

An external assessment concludes that

the most promising sectors for job

creation and the intensive use of human

capital are agriculture, mining, tourism,

manufacturing, and services (Achy,

2011).

Regional disparities

Tunisia’s three largest cities and centers

of growth – Tunis, Sfax, and Sousse –

are all coastal cities, and account for

85% of the country’s GDP (World Bank,

2012d). The benefits of this growth have

not spilled over to the interior regions and

have not led to improved public services

and opportunities in disadvantaged

areas. The result has been disparities in

the following areas:

• Regional disparities in unemployment:

Unemployment rates tend to be

higher than the national average in

the North-West and the South-East,

lower than the national average in the

North-East and considerably lower in

the Center-East (ADE, 2011). Interior

regions have the highest unemployment

rates, fewer opportunities, less

private investment, and inadequate

infrastructure to support new business

(Lamont, 2012). Three-quarters of

non-agricultural jobs are in the

coastal regions (AfDB, 2011b).

• Regional disparities in private and

public investment: Between 2007

and 2009, the average private

investment per 1,000 inhabitants was

TND 465.9; by governorate, this

varied from TND 738.9 per 1,000

in the North-East, to TND 537.4

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per 1,000 in the South-East, to

TND 528.3 per 1,000 in the Center-

East, to TND 496.6 per 1,000 in Grand

Tunis, to less than TND 250 per

1,000 in the Center-West and the

North-West (ADE, 2011). Two-thirds

of public investment managed by the

central government has, in the past,

been allocated to coastal regions

(Achy, 2011).

• Regional disparities in enterprise

density (number of enterprises per

1,000 inhabitants): In 2010, this

ranged from 43 per 1,000 in the

South-East and the South-West,

41.7 per 1,000 in the North-West, to

89.3 per 1,000 in Grand Tunis (ADE,

2011). The interior regions (North-

West, Center-West, and the South)

have 30% of the population and only

8% of the formal enterprises in the

country. About 60% of the population

and 90% of the formal enterprises

are in Tunis, and the Center-East and

North-East regions (Achy, 2011).

• Regional disparities in the growth

of enterprises: Between 2005 and

2010, the overall increase in number

of enterprises was 25.1%, but this

varied from 30.5% in Grand Tunis to

only 18.7% in Center-East, 15.7% in

the North-West, and 15.3% in the

South-East (ADE, 2011).

In April 2011, the government’s budget

dedicated 75% of its regional development

allocation to the marginalized interior

regions in an effort to reduce regional

disparities and equalize access to

opportunities, including a special investment

budget for infrastructure. However, there

was a low level of budget implementation.

The government also offered tax relief to

businesses locating in the interior regions

and exemption from salary taxes for

an initial period of up to five years;

information on the success of these

policy initiatives is not readily available.

Low level of private investment

The environment for the private sector is

not favorable. Political uncertainty is a

major factor. Foreign direct investment

declined dramatically in 2011. Private

sector investment is about 15% of GDP,

compared with over 25% of GDP in high-

growth economies (Achy, 2011). The

highly preferential policy of the pre-2011

government to encourage development

of the offshore sector (exporting enterprises)

through the use of fiscal advantages,

simplified regulatory requirements and

competitive wages, put the “onshore”

domestic private sector at a disadvantage

(World Bank, 2012d). Faced with non-

tariff barriers, limits on foreign investment,

and monopoly rights, entire segments of

the domestic economy were not open to

trade and competition. In addition, rigid

labor market regulations and high social

security charges discouraged the hiring

of workers, especially under employment

contracts.

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Transitioning to a higher value-added

knowledge-intensive economy

The government has stressed its

objective to move Tunisia from a low

value-added, low-cost economy to a

higher value-added, knowledge-intensive

economy capable of creating higher

value-added jobs (Ministry of Finance,

2011). Over the past few years, it has

invested heavily in the higher education

system to improve the education level

of the population. These policies have

generated a rapid increase in the number

of higher education graduates expecting

to work in higher-value areas of activity.

However, insufficient policy attention has

been paid to encouraging higher-valued

areas of economic activity. On the

contrary, Tunisia has been competing

globally on the basis of low value-added

products and competitive wage rates.

In addition, not enough has been done

to foster technology transfer and

innovation-related commercial activity to

boost productivity, including in the area

of agricultural production.

The transition government set the

objective of increasing the level of public

investment in research and development

(R&D) from 1.25% of GDP (2011

baseline) to 1.75% of GDP by 2016. In

the Jasmin Plan 2012–2016, a budget of

TND 10 billion was allocated to bolster

innovation and R&D, and for investment

in human capital, to facilitate the

transition to a knowledge economy. This

was to include speeding up of the

Investment Fund program and

establishing the National Initiative for

Industrial and Technological Development

to bolster the technological content of

the Tunisian economy and build human

capital in science and technology.

In conclusion, the challenge for Tunisia is

to enable faster private sector-led growth

and job creation (while still providing

adequate job security) and foster higher

levels of value-added and innovation to

match the investment in higher education.

Development of the micro, small and

medium enterprise (MSME) sector is an

important avenue for addressing these

challenges and creating jobs.

4.2 Contribution of TunisianMSMEs to job creation

MSMEs are crucial to the Tunisian

economy. They make up over 99% of all

private enterprises and account for

about 80% of enterprise employment

(using less than 200-employee firms as

the cut-off).

The number of private sector enterprises

has been growing at an average annual

rate of 3.9%, with the highest growth in

the number of enterprises that employ

only the owner, and the lowest growth in

enterprises with 200 or more workers.

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In fact, one-person enterprises account

for more than 86% of all enterprises and

34% of private enterprise jobs. From

2006 to 2011, they were responsible

for 41% of the net job gains in private

enterprise employment. The largest

portion of this job gain was from self-

employment business start-ups, which

accounted for about 95% of the

annual average of 20,000 new enterprise

entrants, while job creation from

incumbent firms was weak, with very

few firms changing size classes even

over long periods of time. When only

employer enterprises are taken into

consideration, private sector job growth

has been coming primarily from large

enterprises and offshore enterprises.

Since 2010, data show a decline in the

number of self-employed persons (and

the self-employment rate), a decline in

the already low proportion of the adult

population actively trying to start a

business (nascent entrepreneurs), and

fewer adults reporting that they see

“good opportunities to start a business

in the next six months.” These results are

indicative of the worsened economic

environment and its impact on the

orientation of Tunisians towards

entrepreneurship. A healthy inflow of new

entrepreneurs and enterprises is necessary

to create economic dynamism, renewal

and innovation in the economy, and to

create jobs to replace those lost due to

exiting and downsizing enterprises.

Thus, it is important to ignite a stronger

entrepreneurial spirit in Tunisia and

kick-start the emergence of a new

generation of informed, knowledgeable

and supported entrepreneurs who are

capable of identifying higher-potential

business opportunities, and have

access to the financial and non-financial

resources to develop and grow their

businesses.

Official Definitions of MSMEs, Tunisia

The National Institute of Statistics, through the National Business Directory, reports onMSMEs using the following categories:

• Microenterprise — fewer than 6 workers

• Small enterprise — 6 to 49 workers• Medium enterprise — 50 to 199

workers• Large enterprise — 200 and more

workers

At the same time, Bulletin 2588, issued on 3May 2006 by the Council of Financial Markets,defines SMEs as enterprises having no morethan 300 employees and TND 4 million of net fixed assets. This is the definition used bysome of the government’s key MSME supportprograms. It is not a very precise definition as it does not distinguish between “micro”,“small” and “medium” enterprises. The lack ofan official and comprehensive definition ofMSMEs has been cited by various stakeholdersas a major barrier to designing appropriate development policies and programs.

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Number of private enterprises and net

growth trends

According to the National Business

Directory (RNE), there were 602,222

private enterprises in Tunisia in 2011, a

net increase of about 98,000 since 2006

(Table 4.1). More than 86% of private

enterprises had no salaried workers;

and almost 97% were microenterprises

with fewer than six workers. Only 2.5%

were small enterprises (6-49 employees),

0.43% medium enterprises (50–199

employees), and a mere 0.14% had 200

or more employees. This suggests that

the MSME sector is extremely small in

scale and highly vulnerable.

From 2006 to 2011, the number of private

enterprises increased by almost 20%,

or at an annual average of 3.9%.

Microenterprises increased by that rate,

but growth was lower for small enterprises

(3.2%); medium enterprises (2.8%),

and large enterprises (1.6%). In fact,

microenterprises accounted for 97.5% of

the net increase in the number of private

enterprises. This was the result of a start-

up rate of between 9% and 10% a year,

and an average exit rate of 6% (which

increased to 8.2% in 2011). Growth in the

number of enterprises was static between

2010 and 2011, one of the adverse effects

of the declining economic environment

following the Arab Spring.

Table 4.1: Distribution of private enterprises by employment size, 2006 and 2011, Tunisia

Source: Répertoire National des Entreprises, INS (2012)

Employmentsize (number ofworkers)

2006 2011

Numberof enter-prises

Distribution Number ofenter-prises

Distribution Growth2006-2011

Averageannualgrowth

0 434.988 86.3% 522.96 86.6% 20.2% 4.0%

1-2 39.720 7.9% 45.196 7.7% 13.8% 2.8%

3-5 13.645 2.7% 15.693 2.6% 15.0% 3.0%

Subtotal (micro) 488.353 96.9% 583.849 96.9% 19.5% 3.9%

6-9 5.480 1.1% 6.352 1.1% 15.9% 3.2%

10-19 4.352 0.9% 5.066 0.8% 16.4% 3.3%

20-49 3.008 0.6% 3.473 0.6% 15.5% 3.1%

Subtotal (small) 12.840 2.6% 14.891 2.5% 16.0% 3.2%

50-99 1.409 0.3% 1.627 0.27% 15.5% 3.1%

100-199 936 0.2% 1.049 0.16% 12.1% 2.4%

Subtotal(medium)

2.345 0.5% 2.676 0.43% 14.1% 2.8%

>=200 746 0.15% 806 0.14% 8.0% 1.6%

Total 504.284 100% 602.222 100% 19.4% 3.9%

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Enterprise employment

According to the RNE, enterprises with

at least one employee accounted for

978,828 jobs in 2011, up 126,120 jobs

over 2006 (with an average annual

increase of about 3%). However, if one

includes the jobs created by and for the

owners of one-person enterprises (i.e. the

522,960 enterprises with “0” workers), the

total number of people working in private

enterprises would rise to 1.5 million. The

National Population and Employment

Survey carried out by the National Institute

of Statistics (INS) found that 3,155 million

persons were employed in 2011. Therefore,

47.6% of all workers were employed in

private enterprises. Just over a third of

these private enterprise jobs (34.8%) were

accounted for by the non-employing

enterprises and 65% by the employing

enterprises. In 2011, large enterprises

made up only 0.6% of all private employer-

enterprises, but produced over 40% of

the jobs in private employer-enterprises

(Figure 4.1). Employer-microenterprises

accounted for about 42% of all private

employer-enterprises, but generated

only a little more than 10% of the jobs.

Small enterprises represented about

10% of the employer-enterprises

and 22% of the jobs; and medium

enterprises, only 1.8% of all private

employer enterprises, but 26.5% of

the jobs.

The average number of employees in

small private employer-enterprises is

12.3, with a range of 1.7 workers in

microenterprises and 14.5 workers in

small enterprises to nearly 500 in large

enterprises (Table 4.2). Overall, with the

exception of the large enterprises, the

average number of employees per

employer-enterprise in 2011 has not

changed since 2006. In other words,

the large enterprises are getting bigger,

medium enterprises have become a bit

smaller and micro and small enterprises

have remained the same.

Figure 4.1: Share of employer-enterprises and employment by enterprise size,2011, Tunisia

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

1-2 3-5 6-9

10-19 20-49 50-99

100-199 >=200

Size

of e

nter

pris

e by

em

ploy

men

t ca

tego

ry

1-2 3-5 6-9 10-19 20-49 50-99 100-199 >=200 Share of employment 4.9% 5.5% 4.4% 6.8% 10.8% 11.6% 14.9% 41.1%

Share of employer-enterprises 30.9% 10.7% 4.3% 3.5% 2.4% 1.1% 0.7% 0.6%

Source: Based on data from the National Business Directory (INS, 2012)

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Onshore private enterprises accounted

for about two-thirds of private employer-

enterprise employment in 2011, and

offshore (exporting) enterprises for the

remaining third. This means that the

2,800 or so offshore enterprises in

2011 employed 334,038 workers, or an

average of about 120 workers per

enterprise. Since 2006, the share of

employment in offshore enterprises has

increased from 30% to 34%, and jobs in

offshore enterprises have accounted for

two-thirds of the increase in employer-

enterprise employment over the five-year

period. They have experienced an annual

job growth of over 6.4%, compared with

a 1.5% annual job increase in on-shore

employer-enterprises.

Thus, private sector job growth in

employer-enterprises has been coming

primarily from large enterprises and

offshore enterprises. However, when all

private enterprise employment between

2006 and 2011 is considered, both from

non-employing and employer-enterprises,

employer-enterprises were responsible

for 59% of the job gains (126,120 net

jobs) and non-employing enterprises for

41% of the gains (87,972 net jobs). Thus,

the phenomenon of self-employment

contributes very significantly to job

creation.

RNE data show that an average of about

51,000 new enterprises have entered the

market annually since 2006 and about

31,000 have exited the market annually,

producing a net increase of about

20,000 enterprises per year (Table 4.3).

Almost 95% of these new entries are

enterprises with no employees. On the

other hand, over 95% of the exiting

enterprises are also enterprises with

no employees. The highest number of

exiting enterprises in the past ten years

Table 4.2: Average employment size of Tunisian enterprises, 2011

Source: Based on data from the National Business Directory (INS, 2012)

Enterprise size(number of workers)

Average employer-enterprise size(number of employees)

Enterprise size(number of workers)

Average employer-enterprise size(number of employees)

1-2 1.1 50-99 69.9

3-5 3.4 100-199 139.1

Subtotal (micro) 1.7 Subtotal (medium) 97.0

6-9 6.8 >=200 498.8

10-19 13.1

20-49 30.5

Subtotal (small) 14.5 Total 12.3

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occurred in 2011, when 48,746

enterprises closed. This is likely a direct

result of the social and economic

upheaval caused by the Arab Spring,

although this instability did not appear to

affect the number of new entries, which

reached over 53,000 in 2011 (compared

with 52,821 in 2010).

Enterprise size(number of employees)

Entries Exits

Annual averagenumber of new entries (2006-11)

Share ofentries

Annual averagenumber of exitingenterprises (2006-11)

Share ofexits

0 48,440 94.3% 29,275 95.4%

1-2 2,245 4.4% 992 3.2%

3-5 378 0.735% 228 0.74%

6-9 127 0.25% 66 0.21%

10-19 81 0.158% 49 0.16%

20-49 56 0.109% 35 0.114%

50-99 25 0.05% 18 0.06%

100-199 10 0.02% 10 0.03%

200 and more 8 0.016% 9 0.03%

Total 51 370 100% 30 681 100%

Table 4.3: Dynamics of business entries and exits by enterprise size, 2006-2011,Tunisia

Source: National Business Directory (INS, 2012)

Self-employment trends

Almost a quarter of working Tunisian

adults are self-employed (819,100 in the

third tri-semester of 2013). The self-

employment share of total employment

has been relatively stable over the

past six years, but declined by a full

percentage point in 2011, when the

number of self-employed adults dropped

by 7.5% over 2010 (Figure 4.2). It

bounced back by about 1.8% in 2012;

overall, however, the number of self-

employed declined by 5.9% between

2010 and 2012. In contrast, the number

of salaried workers took only a small dip

in 2011 of 0.6%, but quickly recovered

in 2012, primarily due to the

government’s response to create more

public sector jobs. From 2006 to 2010,

growth in the number of self-employed

workers averaged 3.2% a year,

compared with growth of 2.3% in overall

employment.

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Entrepreneurial activity rates

Surveys conducted by the Global

Entrepreneurship Monitor (GEM) provide

a picture of the level of entrepreneurial

activity in the 18–64 adult age group in

Tunisia. These surveys in 2010 and 2012

reveal a decline in the rate of reported

entrepreneurial activity (Figure 4.3). The

rate of nascent entrepreneurial activity

(percentage of adults actively trying to

start a business) remained almost the

same over the period, although it was

already much lower relative to other

countries at Tunisia’s level of economic

development; but the rate of ownership

of a young business declined from 4.4%

in 2010 to about 2% in 2012, suggesting

that many adults trying to get a business

started did not actually succeed. The

rate of ownership of an established

business (of more than 42 months old)

dropped considerably, from 9% to about

4%. Of the 30 efficiency-driven countries

participating in the 2012 GEM research,

Tunisia had the second lowest early-

stage entrepreneurial activity rate (5%),

next to Russia.

Figure 4.2: Employment trends of working adults, 2006-2012, Tunisia

Source: Annual data from the National Survey on Population and Employment, INS

0 500 1000 1500 2000 2500 3000

2006 2007 2008 2009 2010 2011 2012

2006 2007 2008 2009 2010 2011 2012 Self-employed 746 757 796 803 840 776 791

Salaried worker 2049 2144 2187 2209 2245 2232 2295

Family helper 208 179 145 159 191 145 147

Non-declared 3 6 28 29 1 2 1

Total (000s)

3234 3155 3277 3199 3155 3085 3005

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Although a relatively high percentage of

Tunisian adults perceive that they have

the knowledge, skills and experience

required to start a business, and report

a relatively low fear of failure compared

with adults in most other GEM countries,

a much lower percentage perceive that

there are good opportunities available

for starting a business (Figure 4.4). This

latter perception worsened in 2012.

Figure 4.3: Entrepreneurial activity rates of the Tunisian adult population, 2010 and 2012

Source: GEM data (Kelley et al., 2011; Roland Xavier et al., 2013)

2010 2012 Nascent entrepreneurial rate 1.7% 2%

Young business ownership rate 4.4% 2%

Established business ownership rate 9.0% 4%

0.0%

3.0%

6.0%

9.0% %

of t

he a

dult

popu

latio

n (1

8-64

)

Figure 4.4: Entrepreneurial perceptions of the adult population,2010 and 2012, Tunisia

Source: GEM data ((Kelley et al., 2011; Roland Xavier et al., 2013)

See good opportunties to start a business in the

next six months

Have the knowledge, skills and experience

required to start a business

Fear of failure would prevent me from

starting a business

Intend to start a business in next three

years

2010 38% 53% 23% 24%

2012 33% 62% 15% 22%

0% 10% 20% 30% 40% 50% 60% 70%

% o

f the

adu

lt po

pula

tion

(18-

64)

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4.3 Constraints to MSMEsector development

Structural deficiencies

Data on the MSME sector reveal a

number of structural deficiencies,

notably, the predominance of

microenterprises (enterprises with fewer

than six workers) and the weight of a

large informal sector that employs 50%

to 60% of the current labor force. The

majority of enterprises are very small,

family-owned (with simple management

structures), operate in traditional sectors,

and lack strategic management ability.

Lack of equal treatment for MSMEs

Significant barriers exist to the entry of new

enterprises and the growth of established

ones, particularly onshore enterprises

(see Achy, 2011; AfDB, 2012; Brisson

and Krontiris, 2012; Chekir and Menard,

2012; EBRD, 2012b; Erdle, 2011;

Lamont, 2012; World Bank and IFC,

2012). These include:

• Uncompetitive and monopolistic

business practices;

• Government control over critical

markets (e.g. agribusiness, services

sector, commercial sectors) and a

high level of public ownership or

control of productive sectors (e.g.

fertilizers, mining, construction

materials, telecommunications, energy,

transportation, banking);

• Limited openness to private

investment in the services sector;

• Many regulatory restrictions with

respect to the scope and scale of

onshore MSMEs;

• Requirement for domestic (onshore)

enterprises to obtain many government

authorizations to enter certain markets

(e.g. construction, infrastructure,

communications, culture, education,

publishing, food processing, many

commercial sectors);

• Targeting of most government

incentive schemes to encourage

investment and export activity to

offshore companies, including several

tax incentives for the offshore

companies (equally proposed to

Tunisians and non-Tunisians); and

• High levels of taxation (ILO, 2011)

and a burdensome regulatory

environment (e.g. time and cost of

starting a business) that discourage

business start-ups or push them into

the informal sector, while rigid labor

laws and regulations discourage the

creation of new jobs.

Lack of access to financing

Lack of access to financing is a major

barrier to MSME development in

Tunisia, hindering the start up and

expansion of MSMEs, as well as

their modernization and productivity

upgrading. All of the financial markets

are underdeveloped, there is uneven

access to financing options in the

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underdeveloped interior regions, and

the system of accessing public

financing schemes is overly complex

and administratively difficult.

In addition, Tunisia lacks some of the

institutional mechanisms necessary for

the efficient allocation of credit, such as a

proper credit information system and

collateral registries. The public credit

bureau in the Central Bank of Tunisia

(BCT) covers only 28.8% of the adult

population (World Bank and IFC, 2012),

which is actually much better coverage

than in most Middle East and North

Africa (MENA) countries, but has been

unsuccessful in its efforts to collect

financial information from enterprises.

Thus, financial institutions have difficulty

in assessing the risk of borrowers. Under

the current definition of “excessive

interest rates” imposed by the BCT (i.e.

very low maximum authorized interest

rates), banks find it difficult to lend

profitably to SMEs, which also prevents

development of SME banking. The lack

of collateral registries leads banks to

impose high collateral requirements in

order to compensate for the possibilities

that borrowers may have pledged the

same assets to other lenders.

On the demand side, MSMEs do not

have good access to information about

available financing sources and options.

An equally serious constraint is that very

few MSMEs keep financial records, and

fewer still have their financial statements

certified by an external auditor. Because

audited financial statements are generally

of good quality and reliable, World Bank

studies suggest that they would increase

the probability of securing a loan;

however, auditing costs may also be a

barrier to MSMEs. In cases where

MSMEs do not have audited statements,

the presence of a well-functioning credit

bureau would help provide banks with

the credit and behavioral profiles of

MSMEs. Furthermore, many MSMEs

lack the capacity to develop bankable

proposals for external financing.

Consequently, MSMEs depend on self-

financing or money from family and

friends, which greatly restricts their

growth and job creation potential.

Although there are various public

financial instruments, new entrepreneurs

cannot easily access these because

public funds are often managed by

banks, which apply the same evaluation

criteria as they do with traditional

clientele (UN-ECA, n.d).

Women entrepreneurs have more

difficulty than men in accessing

financing. Restrictions on women’s

ownership of property and inheritance –

property and land ownership tends to be

in a male relative’s name – have a

negative impact on women’s ability to

offer collateral for bank loans (EBRD,

2012b). Young entrepreneurs have

difficulty in accessing financing because

they lack credit histories, track records

and financial know-how.

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Microcredit

The microfinance market is underdeveloped

and underserved, although undergoing

dramatic transformation with the new

Microfinance Law that was passed in

2011 and creation of a new supervisory

body. Up until this point, the sector has

lacked the appropriate governance

structures, proper accounting and

prudential regulation (AfDB and

OECD, 2012), issues that need to

be strengthened under the new

microfinance law.

Banque Tunisienne de Solidarité (BTS) (a

public institution) and Enda Inter-Arabe

(an NGO) are the major microcredit

providers in the country. At the end of

February 2013, Enda Inter-Arabe had

214,164 active clients and a loan

portfolio of TND 138 million (average loan

of TND 644 per active client). The BTS

targets unemployed people with a

business idea, and persons with a higher

education or vocational training diploma.

Over 80% of loans are for start-ups, and

about 30% of clients are women. BTS

credit is capped at TND 25,000 for

graduates of vocational training, and

TND 100,000 for higher education

graduates. Funds are primarily intended

for the purchase of equipment and

materials, in which case funds are

released directly to suppliers. For

working capital, financing is limited to

15% of the project costs.

The BTS also finances the microcredit

activity of more than 280 local and very

small microcredit associations. These

associations have limited capabilities, no

economies of scale, and an average

client base of fewer than 900.

Thus, the microcredit associations

system is not a sustainable model for

microcredit in its present structure.

Together, the BTS, the microcredit

associations and Enda Inter-Arabe have

about 400,000 clients, but, according

to recent studies, market demand is

estimated to be closer to 1.5 million

(ILO, 2011). Until very recently, the ceiling

on microcredit loans was capped at

TND 5,000 (about US$3,000), which is

helpful to unbanked start-ups and

microenterprises (many of which are in

the informal sector), but not sufficient to

enable a microenterprise to expand

greatly. Access to microcredit is uneven

across the regions, with the density

of microcredit borrowers per 100

inhabitants ranging from less than one to

more than five (Ministère des Finances,

2011). In 2010, women were reported to

account for 71% of Enda’s microcredit

clients and 45% of the microcredit

associations’ client base (Ministère des

Finances, 2011: 34).

The BTS does not have a sustainable

funding base (i.e., it is largely dependent

on injections of donor funding for

relending to microenterprises). A limitation

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of the BTS as a source of financing is

that entrepreneurs are required to

contribute 20% to 25% of the project’s

capital cost in order to qualify for loan

assistance, which is difficult for young

entrepreneurs and microenterprises.

Thus, the BTS is not functioning properly

as a provider of seed capital to help get

enterprises started (Lamont, 2012).

Although Enda Inter-Arabe is a major

NGO delivering microcredit in Tunisia, it

also suffers from insufficient capitalization

to meet the demand for microfinance.

On the positive side, microcredit access

in Tunisia does contribute to job creation.

En masse, one stable job is associated

with every eight microenterprises

with microfinance, so 160,000 active

microfinance clients would produce

20,000 stable jobs (ILO, 2011).

Bank financing

MSMEs are vastly underrepresented in

bank financing, and banks have not

adapted to their needs, constraints, and

realities. According to a study by the

World Bank in 2011, only about 15% of

the commercial loan portfolio of Tunisian

banks is directed to MSMEs (Rocha et

al., 2011). Banks have high collateral

requirements that many MSMEs cannot

meet (generally demanding mortgage

collateral); perceive high risk in lending to

MSMEs; lack knowledge of how to

assess credit risk in lending to MSMEs;

and prefer to lend to large companies

and government (EBRD, 2011). In order

to increase the amount of bank lending

to MSMEs, banks need to be supported

with technical assistance and capacity

building on how to build and manage an

SME portfolio. Although the BCT has

made it mandatory for banks to establish

a dedicated SME unit, few of them have

actually invested in capacity building

(e.g. training of their loans officers,

implementing credit assessment

technologies, performing sectoral and

economic studies) to improve their ability

to lend to SMEs.

Interest rate policies are also a deterrent

to SME lending. The BCT has long

established a maximum limit on lending

interest rates, which results in several

undesirable effects: the cap excludes

otherwise viable companies, mostly

MSMEs, that do not have collateral (so

banks cannot price these “risks”

accordingly); and loans with longer

maturity dates carry more or less the

same pricing as short-term loans.

Removing or revising the “excessive

interest rates” law/ regulation could

dramatically boost MSME lending

without extra financial costs to the

government or to donors, because it

would provide more incentive for the

commercial banks to pursue the MSME

market. At the same time, there is the

issue of public banks distorting the

market for private commercial banks by

pushing down interest rates in order to

compete for business. Lower margins

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make lending to MSMEs even more

unattractive to commercial banks.

To help address the difficulties of MSMEs

in obtaining loans from the banking

sector and meeting collateral

requirements, the government has

established the Banque de Financement

des Petites et Moyennes Entreprises

(BFPME) and implemented loan

guarantee programs (the National

Guarantee Fund) and the Tunisian

Guarantee Company (SOTUGAR).

Equity financing

Several actors are involved in the private

equity market in Tunisia. The largest of

these are the capital risk investment

companies (SICARs), established by the

government in 1998 to fill the equity gap

for SMEs. SICARs were to encourage

the emergence of a new generation of

enterprising and competent entrepreneurs,

stimulate research efforts and regional

development, promote technology and

innovation in key economic sectors, and

support Tunisian SMEs participating in

the government’s upgrading programs.

The 43 SICARs in the country are a

source of equity financing for start-ups

and existing SMEs that helps improve

their balance sheets to secure debt

financing. In fact, entrepreneurs applying

for financing from the BFPME are

normally required to first secure some

equity financing from a SICAR. However,

the Tunisian regulatory framework

subjects equity investors to strict legal

and fiscal constraints in their decision-

making process, making them behave

more as marginal investors rather than

as true private equity partners (GIZ,

2013). Many SICARs are subsidiaries of

banks and function more like banks than

equity partners.

Besides the SICARs, there are only a few

private equity funds in Tunisia providing

start-up and innovation seed and

venture capital. These include TunInvest,

CAPITALease Seed Fund, and Alternative

Capital Partners.

According to reports from the Tunisian

Association of Capital Investors (ATIC),

338 investments were approved in

2012, totaling investments of TND 155.2

million. Of these, 218 projects were

realized in the amount of TND 109.6

million (an average investment of

TND 503,000). Half of the investments

were made to new businesses (33% of

the investment amount) and half to

enterprises with high growth potential in

the development phase (67% of the

investment amount) (ATIC, 2013). The

volume of activity was down significantly

in 2012, compared with 2011 (11%

fewer approvals and a 45% drop in

investment amounts). The banking

SICARs are the most active investors,

accounting for 58% of the investment

activity in 2012. The private equity

companies accounted for 27% of the

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activity. One of the criticisms of the

banking SICARs is that they lack the

capacity (or incentive) to provide advisory

and mentoring support to their clients,

which is standard practice in true private

equity firms. The private equity market

remains underdeveloped with a limited

product range and investor base (EBRD,

2011), although ATIC reported that, in

2012, TND 1.2 million worth of liquidity

in investment firms was still searching for

investment opportunities (GIZ, 2013).

One of the challenges is identifying good

projects; another is the weak culture of

entrepreneurship and capital investment

(ATIC, 2013).

Invested companies appear to be strong

job creators. The 218 invested SMEs in

2012 were associated with more than

11,000 jobs.

Low level of entrepreneurial know-

how and business management skills;

weak culture of entrepreneurship and

innovation

Not only do potential entrepreneurs and

MSMEs lack the necessary financing for

their ventures, but many also lack the

necessary skills, training opportunities

and information (ILO, 2011). In general,

MSMEs lack governance structures and

transparency. Only a small percentage

of micro and small enterprises keep

accounting records and have the

capacity to develop creditworthy

financing requests. Young entrepreneurs

do not know how to develop business

plans and are not equipped to assess

the feasibility and viability of their project

ideas. SME owners lack strategic

perspectives and do not recognize the

value of seeking professional advice and

counseling. Entrepreneurs need more

training and knowledge on how to

identify good business opportunities and

develop good business plans, and more

capacity building in basic business

management, strategic planning, and

growth management skills.

Tunisian stakeholders and several

international organizations stress that a

weak entrepreneurship culture is a

barrier to Tunisia’s development (ILO,

2011). The lack of economic freedom

inhibited the spirit of entrepreneurship

and thwarted growth ambitions and

possibilities. Evidence of a weak

entrepreneurial culture can be found in

the preference of Tunisian youth for

public sector employment. According

to data from the GEM studies, the

adult population is not pursuing

entrepreneurship nearly to the extent that

might be expected for a country at

Tunisia’s economic development. This

might be related to the fact that, as

stated earlier, the Tunisian adult

population does not “see good

opportunities for starting a business in

the next six months” (only 33% in 2012)

to the extent of adults in other efficiency-

driven economies (average of 41% of

adults) (Roland Xavier et al., 2013). In

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GEM studies, Tunisia has consistently

fared relatively less well than most

GEM countries on the entrepreneurial

framework condition related to cultural,

social norms and society support for

entrepreneurship.

Lack of access to information and

markets

MSMEs lack access to information about

market opportunities, growth sectors,

cluster activities, etc. that is needed to

make informed investment decisions.

This type of information is not readily

available in Tunisia so entrepreneurs and

SME owners struggle to identify and

pursue market opportunities.

Tunisia has a small domestic market so it

is essential to promote the exporting

activity of MSMEs. However, there is an

inadequate dissemination of information

about markets to MSMEs, including about

export markets (EBRD, 2012b). On the

other hand, Tunisian SMEs have limited

capacity to access export markets because

they are unable to meet international

quality and standards requirements. This

has become even more pressing since the

coming into force of the customs union

with the European Union in 2008.

There is a low level of integration of MSMEs

into the supply chains of large enterprises

and multinationals. These underdeveloped

value chains are more pronounced in

agribusiness and are a major concern

for export-oriented SMEs, as is the lack

of wholesale markets in agricultural

and food value-chains. Inadequate

infrastructure (transportation routes,

communications networks) also makes

it difficult for SMEs in underdeveloped

regions to access markets.

Public procurement contracts are a large

potential market for SMEs. However,

despite a decreed allocation of 20%

of the value of public procurement

contracts to be awarded to SMEs, the

current allocation to SMEs is only about

7%. This indicates that other issues

are hindering SME access to public

procurement. These may include: (i) a

lack of communication to SMEs about

procurement opportunities; (ii) a lack of

orientation and training for SMEs on

the process of bidding on procurement

tenders; (iii) complexities in tendering

processes that need to be simplified for

SMEs; (iv) inattention to the importance of

debundling large procurement tenders

into smaller tender lots that are more

appropriate for SMEs; (v) lack of a

system for certifying SME suppliers; (vi)

insufficiently trained government officials

who do not understand the nuances of

targeting SME suppliers in procurement

processes; (vii) absence of an enabling

e-government access to tendering

information/ processes, etc. Based on

international experience, addressing

these common constraints will make

public procurement more accessible to

SMEs.

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Weaknesses in the provision and

coordination of business support

services to MSMEs

Almost all of the stakeholders

interviewed during the study mission to

Tunisia mentioned inefficiencies in the

provision and coordination of business

support services to MSMEs. In fact, this

was the most frequently mentioned

constraint to MSME development.

Although there are a large number of

government-operated MSME support

bodies and programs, the system is not

viewed as functioning effectively or

efficiently to meet the needs of MSMEs.

This applies to the SICAR system, the

BFPME, the business accelerators, the

technology parks, the business centers,

and other government programs.

One set of comments has to do with the

poor coordination and collaboration in

the MSME support system (for example,

the lack of coordination of the financial

mechanisms), which creates high

transactions costs for MSMEs and

delays lending decisions for months.

The financial instruments are not well

linked to other support mechanisms,

and neither are universities, R&D and

markets.

Another set of comments relates to the

level of resourcing, competence, and

service provision of many of the support

bodies. Although the government

operates business centers in each of the

governorates, these are not well

resourced (sometimes only one staff

member). Since 2005, these centers

have only supported about 3,100

individuals and have been criticized as

dealing mostly with new entrepreneurs at

the business idea stage and much less

with micro and small enterprises in their

fragile early stages.

Business incubators and business

accelerators are relatively well distributed

across the country, with good physical

spaces, but are viewed as weak in the

range and quality of incubation services,

including the provision of coaching and

advisory services.

Some incubator staff lack the skills and

training necessary to support business

success; incubator staff are often

recruited from among new graduates

with no professional working experience,

and limited capacity to advise start-up

entrepreneurs; and many incubators

stand empty with inadequate equipment

and/ or intermittent network connectivity.

The government invested in these

facilities but provides them with

inadequate core funding for operations.

Most of the incubators are not focused

on innovative projects and lack sufficient

competence to be able to assess

innovation projects (WIKI Start Up,

2012). The result is that despite use of a

promising national incubator model, the

incubators have struggled to produce

the expected impacts. In addition, the

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metrics used to measure incubator

performance are inappropriate (e.g.

occupancy rates and number of foreign

visitors, rather than enterprises spun out

of the incubators, jobs created, etc.)

(Brisson and Krontiris, 2012). The

technology parks were described as

“empty boxes”, many lacking even

basic amenities, such as cafes. Not

much management support is being

provided to MSMEs, and they are grossly

underrepresented as beneficiaries of

many industrial support programs (Erdle,

2011). A report and assessment by the

European Bank for Reconstruction and

Development (EBRD, 2011 and 2012b)

underscore problems in the sector.

Subsidies and other MSME support

programs are too fragmented to be

useful. The range of consultancy services

to MSMEs is limited, and growth of

the sector has been dependent on the

availability of donor-funded business

development services programs.

Moreover, locally available technical

skills and know-how are inadequate in

the areas of applied, strategic and

operational management consultancies,

and most consultancy companies

providing accounting, legal and technical

services are located in the main cities

and not accessible to SMEs in the

regions. Although there are a number

of private sector associations and

federations active in the field, they too

lack integration and coordination.

4.4 Government actions toaddress constraints

Government priorities and MSME

support and programs

Post-2011, the interim government’s

main priorities were laid out in the

Jasmine Plan 2012–2016 (Ministry of

Finance, 2011). These encompassed job

creation, regional development (to boost

investment in inland regions and reduce

regional disparities), accelerated private

investment, human capital development,

and innovation support. The Plan

acknowledged that the key to

accelerating job creation is fostering a

business environment in which

entrepreneurs can easily start companies,

spread innovation and spur economic

activity.

Before discussing the government’s

post-2010 actions in response to the

aftermath of the Arab Spring, it is useful

to review pre-existing MSME support

structures and programs. An array of

government bodies provide support

to new entrepreneurs and MSMEs

(including financing, entrepreneurship

and business management training,

advice and guidance, incubation,

acceleration, innovation and technology

support.), and an extensive network of

business support organizations has been

in place for a few years (Figure 4.5).

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This MSME support structure looks

impressive, but, in practice, there are a

number of overlapping mandates, some

of the institutions are not functioning

effectively and efficiently, and the criteria

for accessing programs can be

complicated and cumbersome for

entrepreneurs and MSMEs.

Financing

6 regional offices/ 20 branches of the Banque de Financement des Petites et Moyennes Entreprises (BFPME), a bank specifically servicing SMEs.

24 regional branches of the Banque Tunisienne de Solidarité (BTS) – microcredit access

43 capital risk investment companies (SICARs) – equity funding for SMEs

Incentive Fund for Innovation in Information Technologies (RIITI) – venture capital fund for start-ups and SMEs in software, digital content, information technology solutions

National Fund for the Promotion of Handicrafts and Small Workshops (FONAPRAM) – repayable grant for SMEs in handicrafts and small workshops

Industrial Promotion and Decentralization Fund (FOPRODI) – reimbursable subsidies to new start-ups and SMEs in manufacturing, handicrafts, and some services to industry for studies, land/ buildings, and technological investments

Tunisian Guarantee Company (SOTUGAR) – loan and equity guarantees

National Guarantee Fund (FNG) – guarantees bank loans extended under other government programmes, such as, SICARs, FONAPRAM, and FOPRODI (including to SMEs in primary sectors)

Enda Inter-Arabe (non-government microcredit institution)

11 leasing companies (private)

SAGES Capital – government seed capital fund for R&D spin-offs

TunInvest Finance Group and other private equity funds

Carthage Business Angels (first association of angel investors in Tunisia)

Start-up and business development support

Agency for the Promotion of Industry and Innovation (APII) – 24 regional offices

5 business incubators SME support centers Documentation and information center

Stages d’Initiation et d’Adaptation pour la Création d’Entreprise (SIACE) – programme to prepare potential entrepreneurs for starting a business (ANETI)

Programme for Mentoring Promoters of Small Enterprises) (PAPPE) – new programme in 2011 (ANETI)

Regional Programme for the Development of Handicrafts (2011-2016) – Ministry of Trade and Handicrafts

Programme National d’Assistance au Recours au Marche Financier (PNARMF) – a programme to help SMEs improve their financial structure and competence to prepare for entry into the Alternative Stock Exchange

Compulsory entrepreneurship modules taught within all undergraduate courses that are applied or professional in nature, except in architecture, medicine and pharmacy

INJAZ Al-Arab (Tunisia) – a non-profit organization that targets students and youth with entrepreneurship education and skills development programmes

Wiki Start Up – the first private incubator in Tunisia)

Start’Act business accelerator (Carthage Business Angels and Wiki Start Up)

Microsoft BizSpark Enterprise Support Programme, a public-private partnership

MSME support infrastructure

15 one-stop shops

24 business centers, launched in 2005

29 business accelerators/business incubators (mostly located in universities and technoparks)

“Espace d’entreprendre” – governorate offices within the National Agency for Employment and Self-Employment (ANETI) that provide assistance to jobless workers wanting to start a microenterprise.

Network of assistance to help with business creation (e.g. 50 accounting experts, 24 regional coaches, 50 university professors, 20 banks and 43 SICARs)

Innovation support

National Initiative for Industrial and Technological Development

8 technical centers

10 technopoles

2 competitiveness clusters

Microsoft Innovation Center

National Agency for the Promotion of Scientific Research (ANPR)

Figure 4.5: Schematic of MSME support system, Tunisia

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The primary responsibility for MSME

development in the industrial sectors

rests with the Directorate General for

the Promotion of Small and Medium

Enterprises (DGPPME) in the Ministry

of Industry and Technology. Inside the

Ministry, the Agency for the Promotion

of Industry and Innovation (APII) is

responsible for simplified administrative

procedures in matters of business

incorporation, registration, and licensing;

creating favorable conditions for

investment; providing information

and support to entrepreneurs and

enterprises; promoting entrepreneurship;

and executing the main industrial

modernization programs and central

actions in SME support programs. APII

established entities that provide specific

services to new entrepreneurs and to

microenterprises and SMEs. It is also

responsible for the national system of

business accelerators and the network

of business centers in each region.

The Ministry of Trade and Handicrafts

plays a role in promoting MSME

development in handicrafts and small

workshop sectors. The Ministry of

Vocational Training and Employment,

via the national employment agency,

ANETI, is active in providing support

to unemployed young people who

are motivated to start their own

microenterprises through initiatives such

as SIACE (an internship program for

new entrepreneurs), PAPPE, and the

“Espaces d’Entreprendre” business

promotion centers. There are also a

number of programs geared to upgrading

the competitiveness of SMEs (including

Mise à Niveau, the National Quality

Program, and the Regional Program for

the Development of Handicrafts).

However, these government support

structures and programs are not evenly

distributed across Tunisia’s regions, with

less coverage found in the interior regions.

Moreover, their effectiveness is, in many

cases, questioned by stakeholders as

noted earlier. And, despite specific

support schemes for start-ups and SMEs

– training, export promotion, SME

upgrading, international trade training,

information portals for SMEs – for

whatever reasons, these have not been

effective in spurring entrepreneurship and

innovation (ILO, 2011).

The government has a number of MSME

funding programs covering microcredit,

SME financing, guarantee schemes and

equity funds, but many challenges

remain. Tunisian MSMEs remain largely

self-financed; there are rigidities in

access to the BTS (equity requirements

that are too high for young entrepreneurs

and microenterprises) and BFPME

programs (complex and time-consuming

process); and the degree of effectiveness

of the system of SME guarantees is

unclear.

A critical assessment of the government

financing schemes, including the BTS

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and the BFPME, reported many

deficiencies in the operation of these

programs (Chahed, 2011). For example,

only 37% of micro and small enterprises

contacting the BTS receive credit; and

only 25% of the SMEs contacting the

BFPME obtain a credit agreement. There

is low awareness among MSMEs of the

financing programs; there are often long

delays in receiving a financing decision;

and the credit/ capital participation

projects are often overly monitored.

More details of government programs

can be found in Annex 3.

4.5 IFI/ donor support to theMSME sector

A review of the inventory of IFI/ donor-

funded projects in Tunisia reveals

projects amounting to the equivalent of

US$1.019 billion dollars (see Figure 4.6).

The vast majority of the funding for

MSME-related initiatives (94.6%) is

focused on addressing the MSME

financing gap, amounting to US$964.6

million. Nearly 60% of the funding for

MSME financing initiatives is in the form

of lines of credit to banks for on-lending

to MSMEs.

The remaining 5.4% of IFI/ donor

funding (US$54.6 million) is allocated to

non-financial MSME support initiatives to

facilitate development of entrepreneurship

and start-ups; support innovation;

improve the regulatory environment;

improve SMEs’ access to markets;

enhance the capacity of MSMEs

through technical assistance; and

fund studies. More than half of this is

dedicated to supporting entrepreneurship

development and start-up projects,

which also incorporate some

employability initiatives for unemployed

youth. Details of IFI/ donor programs are

given in Annex 4.

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4.6 Gaps in MSME developmentsupport

Summary of major constraints to

MSME creation and development and

actions taken to date

As noted, the major constraints to MSME

creation and development in Tunisia are:

• Lack of equal opportunities in terms

of the regulatory and administrative

environment, covering a broad range

of areas, including barriers to entry,

disparities in the treatment of offshore

and onshore enterprises, rigid labor

laws and regulations, high non-wage

labor costs, high levels of taxation,

and anti-competition practices in

many sectors;

• Low access to financing;

• Low level of entrepreneurial know-

how and business management

skills, coupled with a weak culture of

entrepreneurship and innovation;

• Lack of access to information and

markets, which is exacerbated for

MSMEs in the interior regions of the

country;

• Weaknesses in the provision and

coordination of business services to

MSMEs (despite an elaborate system

of business and financial support

mechanisms), which creates

Lines of credit to beused by banks for on-lending

to MSMEs,58.6%Equity participation in

Amen Bank, 4.7%

Loan guaranteefacilities,

7.9%

Investment in privateequity funds,

7.3%

Sharia compliantloan programme,

2.9%

Microcredit projects,12.3%

Financial sectorcapacity building,

1.0%

Support forentrepreneurship

development and start-ups,2.9%

Innovation capacity/support,

0.9%Regulatory reform

support,0.5%

SMEs access tomarkets,

0.8%Economic studies,

0,04%

Development ofMSME capacity through

technical assistance,0.2%

Total – MSME financial projects, USD 964.6 million (94.6%)

Total – Non-financial MSME projects, USD 54.6 million (5.4%)

Figure 4.6: Distribution of IFI/ donor funding by project category, Tunisia

Notes: All projects in Euro were converted to United States dollars using the exchange rate of 1 Euro = USD 1.30064(9 March 2013). The funding amount for some of the initiatives was not provided so could not be included in the totalestimate.

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inefficiencies in responding to their

needs in a timely fashion.

These constraints constitute the major

barriers to the start-up of new

enterprises and growth of onshore

MSMEs, leading to an enterprise

structure overly dominated by

microenterprises (with fewer than six

workers), and concentrated in traditional,

low value-added sectors of activity, low

growth in formal job creation, weakness

in the governance and management of

MSMEs, and a low level of innovation

and exporting activity among onshore

enterprises. These constraints apply to

the national MSME sector, but even

more so to the underdeveloped interior

regions of the country, where there is less

access to opportunities, markets, and

financial and business support services.

These constraints are the backdrop for

establishing priorities for remedial action.

Both government and supporting IFI/

donor initiatives are responding to these

priorities to some extent. Since 2011, the

government focus has been on:

• Carrying out business formalities

reform, reforming the investment and

competition frameworks to open up

more sectors to competition and

level the playing field for onshore

enterprises, and improving the

regulatory framework and environment

to deal with market failures in the

allocation of financing to MSMEs;

• Reforming the microfinance sector;

• Establishing new forms of investment

funds and mechanisms to stimulate

private sector investment in the

regions, and providing tax relief to

SME investors and venture capital

companies:

• Putting more emphasis on improving

supports for MSME development in

the interior regions;

• Strengthening the legal framework for

the allocation of public procurement

to SMEs; and

• Investing in new structures and

initiatives to foster innovation and

promote technological development.

The focus of IFI/ donors has been

primarily on providing access to

financing, with relatively modest

allocations to building entrepreneurial

capacity and skills, fostering innovation,

and strengthening the management

capacity of MSMEs – an issue that

should be addressed in the coming

periods. In summary:

• The bulk of actions have been

directed to improving the supply of

credit to MSMEs through loans for

microcredit, lines of credit to the

banking sector, and new guarantee

facilities;

• Some relatively small pilot initiatives

have been launched to develop

entrepreneurship and foster start-ups

in the interior regions, with a priority

on unemployed educated youth

(particularly higher education graduates);

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• A few projects have been funded to

assist the government in implementing

legal and regulatory reforms to

improve the environment for MSME

development, including financial

sector reform;

• There are isolated projects to support

the export development of SMEs,

improve access to quality business

development services, upgrade value

chains to facilitate market access,

and support innovative SMEs in the

ICT and mechanical, electrical and

electronics sectors.

Specific gaps

Gaps in the following specific areas have

been identified for boosting the role of

MSMEs in the economy. Although there

are other priorities, such as improving the

employability skills of youth by investing

in training and internship programs to

provide students with marketable skills

when they enter the labor market, and

developing public-private sector

cooperation to ensure graduates have

the skills needed by employers, in

particular, middle management skills,

these are not specific to MSME

development and are not prioritized in

the list of actions to reduce constraints

to MSME development.

Regulatory environment for MSMEs

Donors are already supporting key

government regulatory reform initiatives

(including the business formalities,

financial sector, and public procurement

regulatory reforms). This should

accelerate the reform processes, but

greater support is still needed for the

government’s efforts in other areas

affecting MSME development. One of

the most important gaps to address is

the inequality of treatment of domestic,

onshore MSMEs compared with offshore

enterprises. Of special urgency is the

introduction of a coherent national policy

that aims to develop the onshore sector

as well as the offshore sector by

rebalancing the incentive schemes to

create opportunities for onshore enterprises.

Insufficient reform has taken place in

reducing barriers to entry for new

enterprises through regulatory and anti-

monopoly/ competition law reform. To

foster higher levels of entrepreneurial

activity, removing barriers to entry and

creating a healthy environment for

competition in domestic and export

markets are essential. Currently,

uncompetitive markets (monopolistic

and oligopolistic practices, too much

government ownership and control of

enterprises in key sectors, too much

regulation of which sectors and

economic activities entrepreneurs can

engage in) are providing adverse

incentives for enterprises to start at all or

to grow once in the market. This is one of

the binding constraints to Tunisia’s

growth and needs to be addressed

(AfDB et al., 2013).

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Although it is a sensitive issue, labor

regulations are impeding the creation of

formal jobs in the MSME sector

(restrictions on hiring and dismissals,

high social charges on labor) and need

to be reformed. It is hoped that the new

national employment strategy, under

development, will address some of the

major constraints to formal hiring at the

private sector/ MSME level to encourage

more job creation.

Access to MSME financing

Financing needs to be expanded with

more focus on improving the demand

side. This is possibly not the most

important focus for IFI/ donor support,

given the already heavy emphasis on

access to financing in the basket of

current projects.

Microcredit availability

The new Microfinance Law should

improve and broaden access to

microcredit (raising the ceiling on the loan

cap, allowing private providers to enter

the market), but the density of

microcredit borrowers varies widely

across Tunisia’s regions and the BCT’s

interest rate policies create a barrier to

sound and sustainable development of

the sector. To strengthen the provision of

sustainable microfinance and improve its

functioning, Tunisia would likely benefit

from consolidation of the network of

microcredit associations.

MSMEs’ access to bank financing

Although the BCT mandates that banks

establish dedicated SME units (which

few of them do), and IFIs/ donors have

made significant credit lines available to

banks for relending to MSMEs, the BCT’s

interest rate policies deter the banks

from scaling down from their corporate

banking business to SME loans. In

addition to instilling more competition in

the banking sector, stronger incentives

are needed to encourage banks to lend

to MSMEs. IFIs/ donors have provided

funding to establish two new MSME

guarantee facilities, but these efforts are

nascent and will take some time to

produce impacts. On the demand side

of bank lending, there is a need to

enhance the financial skills of MSMEs so

they are better able to support loan and

equity requests with proper accounts

and business plans. The government

has no initiatives in this regard, but

components of certain of the IFI/ donor

projects aim to provide such capacity

building. Larger-scale projects would be

beneficial to improve the capacity of

MSMEs to attract bank financing.

Private equity investments

Tunisia is relatively active in this area

through the network of SICARs.

However, there are only a few “true”

private venture capital funds, some of

which IFIs/ donors are supporting.

Greater efforts are needed to build a

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culture of equity investing, including

improving the know-how of equity

investors and SMEs.

Most IFI/ donor support in Tunisia is

focused on the supply side of MSME

financing, with the major instrument

being lines of credit to financial

institutions, primarily banks, for on-lending

to SMEs. This raises four potential

issues:

First, it will be important to implement

monitoring systems to track the impact

of the SME credit lines on the short-,

medium- and long-term lending behavior

of banks and to ensure that the credit

lines are being used to finance the SMEs

most in need.

Second, while providing lines of credit to

banks for on-lending to MSMEs is a

relatively efficient way for IFIs/ donors to

support SME development efforts, and

does address a major MSME constraint,

there may be major advantages to

better coordinated efforts among IFIs

and donors to reduce the potential of

overreliance on one instrument and

overemphasis on one MSME constraint

at the expense of other critical MSME

constraints, such as improving access

to export markets and supply chains,

and developing innovation capacity.

Third, in addition to lines of credit to

increase the amount of lending to

MSMEs, further reforms are needed to

address regulatory framework issues,

such as implementation of a well-

functioning (private) credit bureau,

review of the “excessive interest rate”

law/ regulation with a view to removing/

revising it such that MSME lending will

not be constrained; and implementation

of an improved governance structure

for the microfinance sector. A private

credit bureau could be fully financed

by the private sector (banks, leasing

companies, MFIs, retailers); and once

experienced, it can have a tremendous

positive impact on MSMEs’ access to

finance by providing banks with the

credit and behavioral profiles of MSMEs

that do not have reliable financial

statements.

Fourth, not much attention is being paid

to improving the demand side of SMEs’

access to financing. An important area of

weakness is the limited capacity of SMEs

to prepare bankable loan requests,

pointing to the need for capacity-building

programs to support MSMEs in

developing financial literacy, and the

competence to keep accounts and

prepare bankable loan requests. Further

IFI/ donor support for such capacity-

building efforts should be considered.

Improving the level of entrepreneurial

know-how/ skills to foster business

(and job) creation

There is a need for broader-scale and

more aggressive actions to change the

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mindset of young people about the

opportunities of entrepreneurship as an

alternative to public sector employment,

as well as to develop their entrepreneurial

skills. The government has made only a

few specific efforts to address the weak

culture of entrepreneurship and actively

promote entrepreneurship, especially

among young people and women, and

for new growth sectors (e.g. ICT). This

would include developing entrepreneurial

talent through further integration of

entrepreneurship curriculum in the

education system and more integrated

and comprehensive support to aspiring

young entrepreneurs. The major

government effort since 2011 has been

directed to the regional handicrafts

sector.

IFIs/ donors are supporting a number of

projects to stimulate entrepreneurship

and business creation activity, with a

primary focus on youth in the

underdeveloped and marginalized

interior regions. However, most of these

projects are small in scale, in terms of the

numbers of young people/ aspiring

entrepreneurs/ existing MSMEs to be

reached, and there is little coordination

of the various activities to maximize their

development impact. As these were

largely developed as quick responses to

the aftermath of the Arab Spring

revolution and the need to support job

creation and opportunities for young

people, the projects were not formulated

as part of any kind of coordinated IFI/

donor master plan. As pilot projects

experimenting with different approaches,

they can be valuable, but in the future, a

more coordinated approach is needed to

scale up the most promising initiatives

and achieve expanded reach.

Further support to build the capacity,

quality, productivity, and competitiveness

of MSMEs

Given the large share of (informal)

microenterprises in the MSME sector,

particularly one-person enterprises, there

is a need to provide stronger support to

help leverage their future growth. At

present, there are inadequate efforts to

help informal microenterprises move into

the formal sector, microenterprises to

grow into small enterprises, and small

enterprises to grow into larger enterprises.

Such positive trends could be encouraged

by providing microenterprises with better

access to training and to information on

markets and entrepreneurial/ business

opportunities, and by expanding initiatives

geared to improving their management

and production capacity. MSMEs

appear to be largely ignored in the

Tunisian government’s upgrading and

modernization programs, as beneficiaries

of these programs are often the larger

enterprises. Since 99.5% of Tunisian

enterprises fall into the smaller size

categories (of fewer than 50 workers),

initiatives to upgrade their capacity,

modernization and quality should be

given greater emphasis, with a special

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focus on the 98% of enterprises with

fewer than 10 workers. This could be an

area for more concerted attention by

IFIs/ donors in the future.

More attention to building the

innovation capacity of MSMEs

The government has a priority objective

of structural reform to transition Tunisia

to a knowledge- and innovation-based

economy, yet there are many

weaknesses in the innovation system.

SMEs need to be encouraged to invest

in innovative activity and innovation

management through the provision of a

safer business environment and easier

access to information. The teaching of

innovation should become a priority in

the education system. More specialized

investment instruments should be

developed to finance innovation projects.

Improvements are needed in the

functioning of technoparks and the

business incubation system, as well as

an increased focus on incubators for

manufacturing enterprises, especially in

the interior regions. Legal reforms are

required for the protection of intellectual

property.

Few IFI/ donor initiatives are addressing

the need to build the innovative capacity

of MSMEs. This could be achieved

through more initiatives that provide

incentives for SMEs to engage in R&D

around new product/ technology

development, especially in sectors with

high growth potential (e.g. renewable

energies, environmental technologies,

ICT, multimedia, etc.). It would also be

necessary to foster linkages between

SMEs and research and technological

institutes, and to provide financial

assistance to help move new product/

technological ideas to prototype and

commercialization phases.

Enhanced support to improve

MSMEs’ access to markets

Integrating MSMEs into the supply

chains of larger enterprises and sector

value chains, in both traditional sectors

(such as agribusiness) and knowledge

economy sectors, is an important

mechanism for building market access.

Yet, as shown in Box 4.5 (Annexe 4), the

only strategic initiative on the part of

the government and the IFIs/ donors

to achieve this is the EUR 5 million

United Nations Industrial Development

Organization (UNIDO)/Swiss Agency for

Development and Cooperation (SDC)

project on value chain development in

the agro-food sector in the regions.

Projects with this objective are important

for helping MSMEs develop their

markets (and thus for creating jobs), but

also for improving enterprises’ production

capabilities and quality. This is a gap that

could be much better addressed by IFIs/

donors in the future.

There is also not much focus in IFI/ donor

initiatives on promoting access of

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MSMEs to export markets. Providing

special supports for Tunisian SMEs to

facilitate their exporting efforts should be

a priority for consideration for upcoming

IFI/ donor project investments. This

might include technical assistance to the

government in developing an export

diversification strategy that promotes

diversification of products and export

markets, and shifts from a model based

on low value-added, unskilled labor-

intensive industries to one based on

improving the value-added content of

Tunisian exports and providing support

for value-added industries that can

absorb skilled labor (Achy, 2011). Also

needed are programs to build the export

capacity and export “readiness” of

MSMEs, in addition to further efforts to

disseminate export-oriented information

to MSMEs and reduce barriers to export

markets for domestic MSMEs.

In addition, improvements are needed

in public procurement processes to

achieve the allocation of 20% of the

value of public procurement contracts

to MSMEs.


Although reform efforts are under way,

regulatory complexities, together with

insufficient enforcement and monitoring

of anti-monopoly competition, are

creating barriers to entry for new

enterprises. A rebalancing of the

incentive structure is urgently required to

encourage the development of onshore

enterprises as well as offshore enterprises.

Reforms to the Labor Code are also

needed to reduce the regulatory barriers

to employment creation (restrictions

on hiring and dismissals, high labor

taxes).

Building the capacity and quality of

entrepreneurship and MSME support

organizations and structures

Addressing the unemployment problem

by increasing the number of business

start-ups was a priority of the

government’s previous Five-Year Plan

(2007–2011), and a number of supporting

institutions were created solely for this

purpose. However, these institutions

are not well equipped or adequately

resourced, and they are only weakly

networked with each other. Capacity

building of these entrepreneurship support

facilities (e.g. business incubators,

business centers, etc.) is needed to

reinforce their institutional and technical

competence so that they are better

enabled to provide services to emerging

entrepreneurs’ start-ups. This is one area

where IFI/ donor support could be

instrumental, and yet is not profiled in

current IFI/ donor initiatives.

A concrete example is support for

strengthening the management and

operation of business incubators

through upgrading, training, and

professionalization, which has been

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specifically pointed out as a need and

which could have large job-creating

potential. Improving the functioning and

resourcing of the network of business

centers is also needed, for example,

through initiatives to build capacity of

staff to ensure that they are able to

respond effectively to the information and

counseling needs of MSMEs, including

new start-ups, and provide a consistent

quality of services.

Although there are a large number of

industrial and business parks in Tunisia,

very few industrial zones have a

functioning management system, which

is negatively affecting the level of private

investment and the willingness of

entrepreneurs to become involved in the

self-management associations set up at

each site. Deutsche Gesellschaft für

Internationale Zusammenarbeit GmbH

(GIZ) and UNIDO have been working on

improving the operational aspects of

industrial parks, but more effort is needed

to build the management capacity of

industrial zones and establish linkages

among industrial zone managers for the

exchange of experience and information.

A critical factor in scaling up promising

entrepreneurship/ business creation

projects is identification of a strong

delivery partner. Tunisia does not have

indigenous organizations with a mandate

to foster entrepreneurship and business

creation, such as the Banque Populaire’s

Fondation Création d’Entreprise in

Morocco, or to coordinate programs for

young entrepreneurs at the national/

regional level. This gap in the Tunisian

support structure needs attention.

Absence of a cohesive national

policy/ strategy for entrepreneurship/

MSME development

The Ministry of Industry and Technology

includes coverage of SMEs in its

industrial strategy (focus on industrial

and service SMEs in selected sectors),

and the Ministry of Trade and Handcrafts

has a development policy/ program for

the crafts sector, but there is no specific

national MSME policy/ strategy that

covers the entire MSME landscape and

that also addresses the need for more

entrepreneurial activity (e.g. start-ups

and high-growth potential start-ups). To

guide policy actions geared to improving

the MSME sector and enterprises within

it, it would also be useful to adopt

a common definition for micro, small,

and medium enterprises. Not having

a common MSME definition poses a

number of challes in creating a cohesive

approach to developing the various

segments of the MSME sector.

There does not appear to be any form

of inter-ministerial mechanism for

dealing with entrepreneurship and

MSME development policy issues and

coordinating remedial actions on a

horizontal basis. Such mechanisms often

exist in other countries.

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In addition, governments in other

countries often establish coordinated

mechanisms for soliciting widespread

input from entrepreneurs and MSMEs on

policy needs and issues (e.g. an advisory

council on MSMEs), thus providing a

vehicle for continuous and regular policy

dialogue. Again, this does not appear to

exist in Tunisia.

The need for a national entrepreneurship/

MSME policy and strategy and for more

effective coordination of MSME support

programs and services (and their

providers) extends also to strengthening

coordination, or even merging of some of

the facilities that provide SME financing.

None of the IFI/ donor actions appears

to be directed to supporting the government

to develop a more coordinated structure

for MSME policy development, design

and implementation or for the development

of a national policy or strategy.

4.7 Proposals for strengtheningthe MSME sector in Tunisia

There are no quick fixes to the job

creation dilemma, possibly apart from

massive public works projects. The

MSME sector can be a big job creator,

but in the Tunisian case, it needs further

strengthening, capacity building and

regulatory openness to achieve this goal,

support for which should be immediately

provided. Fostering the start-up of new

enterprises through entrepreneurship

promotion and support initiatives is a

valid job-creating strategy, but new

enterprises create two or three jobs on

average, so there would have to be

wide-scale initiatives to support a large

number of start-ups (with education and

training, business planning support,

coaching/ mentoring, access to start-up

financing, etc.), including with post-

creation support to improve their

sustainability. For example, if 10% of the

200,000 or so unemployed university

graduates were encouraged and supported

in starting their own businesses, it would

result in up to 20,000 new businesses

and up to 40,000 jobs.

Current IFI/ donor initiatives focus

primarily on improving the supply of

financing, which is sorely needed, but, in

the future, a broader range of projects

should be supported. The following

paragraphs propose a number of priority

actions for consideration.

Support for entrepreneurship

development and start-ups

There are three major proposals for

future IFI/ donor action on support

for entrepreneurship development and

start-up activity:

• Develop a more coordinated and

integrated approach to supporting

entrepreneurship development and

business creation/ start-up activity.

To this end, it is recommended that

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an IFI/ donor working group be

formed on entrepreneurship

development in Tunisia with

representation from the various IFIs

and donors that are funding related

initiatives, as listed in Box 4.7

(Annex 4). The purpose of the

working group would be to

coordinate their various activities and

seek opportunities for more

collaborative efforts.

• Consider the medium- and long-term

sustainability of initiatives. The medium-

to long-term sustainability of the

initiatives, post IFI/ donor funding

support, is also a critical consideration.

One option may be linking delivery of

some of the initiatives with existing

government-supported and NGO-led

entrepreneurship development

mechanisms and structures, such as

the business incubators program or

regional business development

organizations, although this would

certainly require capacity-building

efforts to improve the effectiveness

and efficiency of most of these

entities.

• Provide technical assistance to the

Ministry of Higher Education and

Scientific Research to formulate

a strategy for implementing

recommendations of the Organization

for Economic Co-operation and

Development (OECD). (2012b) report

on entrepreneurship education in

Tunisian universities.

Nurturing a new breed of Tunisian

entrepreneurs with the knowledge, skills,

and technical know-how to start

promising, innovative new ventures with

higher growth potential is critical to

Tunisia’s future economic development.

The first step in this process is to

integrate the entrepreneurship curriculum

and extracurricular activities more fully in

the education system.

This is increasingly becoming a policy

priority of entrepreneurship and MSME

development efforts in developed and

developing countries. Not only is it a

factor in fostering a stronger

entrepreneurial culture, but it is critical to

building the entrepreneurial capacity and

ability to fuel the next generation of

entrepreneurs and innovators.

An IFI/ donor-supported initiative could

pay particular attention to building

mechanisms to foster stronger linkages

between the higher educational

institutions and external entrepreneurship/

business support providers, including

with business incubators; funding the

creation of mentoring programs for

graduate entrepreneurs; supporting the

development of venture capital and

business angel funds targeted to high-

potential businesses started by

graduates; and setting up a national

entrepreneurship education resource

center and an observatory for pedagogical

practices in entrepreneurship.

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Access to financing

One of the most important initiatives for

the future would be providing capacity-

building support to improve both the

supply side and demand side of MSME

access to financing. In the first instance,

technical assistance should be provided

to build the capacity of the banking sector

in MSME lending practices, promote the

use of risk assessment tools, etc. In the

second instance, initiatives should be

supported to increase the financial literacy

of MSMEs and their ability to prepare

bankable financing requests.

One idea to be further explored is to

propose a standard training plan

targeting future business leaders, with a

focus on the foundations and best

practices in financial management as

well as a clear understanding of banking

mechanisms. This training would help in

developing the required competencies

for improved management, negotiation,

anticipation, and budget preparation.

Second, IFIs/ donors should focus more

on addressing the unmet demand for

microcredit on the one side, and the gap

in specialized equity funds to support

innovative start-ups and SMEs coming

out of R&D commercialization, on the

other. Contributing to the capitalization of

the new “TunInvest Croissance FCPR

Fund” for start-ups and early-stage Tunisian

enterprises would also help fill the gap

for smaller, early-stage investments.

Support to build the capacity of micro

and small enterprises through upgrading

and modernization programs

Given the high proportion of

microenterprises in the economy and

the very low level of transition of micro

and small enterprises into the next

employment size class, concerted efforts

are needed to build the competence and

capacity of these firms to grow and

create jobs. Thus, it is recommended

that IFI/ donor-funded projects should

focus on addressing the upgrading and

modernization needs of micro and smaller

enterprises. Placing more emphasis on

building the capacity of these enterprises

is critical in order to stimulate higher job

creation and productivity improvements,

given evidence that most Tunisian micro

and small enterprises remain small

(Rijkers et al., 2013).

Support for innovation capacity

building of the MSME sector

Support for building the innovation

capacity of MSMEs and the

commercialization of R&D spin-offs is

low on the list of currently supported

IFI/ donor projects. The proposal is to

provide technical and funding support

for implementation of the government’s

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National Initiative for Industrial and

Technological Development and to

national R&D and innovation programs to

ensure that MSMEs are benefiting.

Also for consideration is funding of a

pre-commercialization seed fund to help

finance enterprises in the pre-start-up

stage with proof-of-concept and

prototype development activities and

their subsequent commercialization.

This would facilitate the emergence of

more innovative start-ups and spin-offs

from R&D. Assisting with improving

the effectiveness of the ten current

technoparks, and the expansion of

technoparks to more regions, could also

be of great value, depending on the

supporting innovation infrastructure in

regions where they do not currently exist.

Support to build capacity of

entrepreneurship and MSME support

organizations and structures

Supporting a project to reinforce the

institutional capacity and technical

competence of government

organizations that are providing

services to emerging entrepreneurs and

start-ups is an area where IFI/ donor

role could be instrumental. Such a

project would focus on strengthening

the management and operation of

business incubators/ accelerators, and

improving the functioning and

resourcing of the network of business

centers and employment agencies.


Providing technical assistance to the

government to develop tougher anti-

monopoly regulation is also essential, as

well as opening more sectors of the

economy for the entry of private

enterprises, removing other regulatory

and procedural barriers to entry, and

creating a healthy environment for

competition in domestic and export

markets.

It is also recommended that an analysis

be made of the feasibility of setting up a

mechanism to draw business people

from the informal to the formal sector.

This mechanism should emphasize

confidence in administrative and

regulatory reforms.

Support for development of an

integrated national MSME policy/

strategy

IFIs/ donors should provide technical

assistance to the government in

developing a national entrepreneurship/

MSME development policy and strategy

that will provide overarching direction to

address MSME constraints and create

more opportunities for new businesses

to be created, and established MSMEs

to grow. The strategy would also identify

a horizontal coordination mechanism

for government support to the MSME

sector, including a mechanism for

ongoing consultation with the MSME

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sector on policy and business support

priorities.

The need for a national entrepreneurship/

MSME policy and strategy and for more

effective coordination of MSME support

programs and services (and their

providers) extends also to strengthening

coordination, or even merging some

of the facilities that provide SME financing.

While development of a national policy/

strategy will not produce jobs in the short

term (which is the goal of many of the

IFI/ donor-funded initiatives), proper

policy mechanisms will ultimately lead to

a more strategic approach to addressing

MSME and entrepreneurship development

constraints with longer-term impacts on

development and growth of the sector,

including jobs.

In terms of target groups, focus

should be on developing potential

entrepreneurs, facilitating (stronger) start-

ups, enhancing the capacity of

microenterprises, strengthening SMEs

(especially in the interior regions), and

supporting high growth potential and

innovative SMEs.

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The government has taken a number

of initiatives to improve access to

financing. These cover microcredit, bank

guarantees, and equity financing, as well

as government grant schemes.

Microcredit

Following the crash of the microcredit

sector in 2007–2008, the Ministry of

Economy and Finance, in concert with

the Bank Al Maghrib, took measures to

improve the regulatory framework for

microcredit, and strengthen the

governance and management

information and monitoring systems of

microcredit associations – in 2012, there

were 13 microcredit associations in

Morocco, the majority of them rather

small, with the largest three dominating

the market with 80% of microcredit

clients. It tightened credit policies and

processes to avoid cross-lending and

secure liquidity for the sector, and

collaborated with the National Federation

of Microcredit Associations (FNAM) to

consolidate the sector.

The government secured US$46 million

from the Millennium Challenge Account

to recapitalize the microcredit

associations and provide technical

assistance to strengthen their internal

control systems. The largest microcredit

associations have been integrated into

the credit bureau in an effort to improve

their credit analysis. The government

also created the Fonds de Financement

des Organismes de Microfinance au

Maroc (JAÏDA), as a subsidiary of the

Caisse de Depôts et de Gestion, to

provide technical support and credit lines

to microcredit associations, to reduce

their liquidity constraints and expand the

quality and quantity of their lending

activity. In 2009, the government

received a line of credit from the African

Development Bank (AfDB) to reform the

financial sector in general, and to put

more effective and efficient management

systems in place, so the microfinance

system could have better control and

regulatory systems for monitoring risk

(Financial Sector Development Support

Program – Phase 1).

Based on studies of the sector, including

surveys of microcredit clients, JAÏDA

now has a number of initiatives in place

to help diversify microcredit products

and services, and to provide a set of

financial services to meet the future

needs of microcredit clients. These

include collaborating with the Postal

Bank to reach a larger segment of the

population, and implementing “mobile

Annex 1: Morocco – Government actions in response to MSME sector priorities since 2011

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banking” that will enable clients to use

their mobile phones and debit cards to

access financing. There are also efforts

(supported by the Financial Services

Project grant from the Millennium

Challenge Corporation – MCC) to

provide “mobile windows” (100

microcredit vehicles) so the microcredit

associations are better able to serve

microcredit clients in rural areas.

The Fondation Banque Populaire pour le

Micro-Crédit (FBPMC), created in 2000

(and recently renamed Attawfiq Micro-

Finance), is the social arm of the Banque

Centrale Populaire (BCP), and one of the

main policy instruments for direct delivery

of microcredit to low-income micro

and small enterprises. It is the largest

microcredit provider in Morocco, with

354 branches and offices, and about a

third of the microcredit clients and loan

volume. The majority of its loans are

granted through the solidarity group

lending methodology, but it also provides

individual loans to formal micro and

small enterprises. In addition, it provides

management and financial literacy

training, technical assistance, and

marketing support to its clients. The

FBPMC has recently strengthened its

position in the high-potential segment of

very small exterprises (VSEs) and has

also set up the Boudour Seed Fund, a

loan program to support start-ups by

Moroccans in the 18–30 age group.

The aim of the new FNAM strategy is to

reach three million microcredit clients by

2022, creating two million additional

jobs, which, according to FNAM officials,

would bring Morocco more in line with

international benchmarks. The government

has agreed to the strategy targets and

pursued a successful proposal from the

Deauville Partnership MENA Transition

Fund to implement the strategy.

Facilitating MSME access to bank

financing

To help micro, small and medium

enterprises (MSMEs) access financing,

the government provides credit

guarantees to banks to mitigate the

risk of lending to MSMEs. The credit

guarantee system is channeled through

the Caisse Centrale de Garantie (CCG),

a 100% government-owned loan

guarantee company that provides

60% to 85% guarantees for bank

loans extended to qualifying MSMEs.

These guarantees may not exceed

MAD 10 million, and the combined

guarantees of a borrower may not

exceed MAD 15 million, which ensures

that the guarantees are used by MSMEs.

The CCG is an important policy initiative

of the government, and during the global

economic crisis played a role as a

countercyclical instrument for MSMEs,

especially exporters, enabling them to

overcome their financial difficulties.

Following the launch of the government’s

new strategy to restructure and strengthen

the National Guarantee System in 2009,

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the CCG has completely overhauled

its product line and introduced new

guarantee products designed to meet

the financial needs of MSMEs according

to their life cycle. The CCG now offers

several MSME guarantee products

responding to MSMEs at the various

phases of development, including the

borrowing needs of start-ups and

emerging enterprises in the first three

years of operation, the medium- and

long-term borrowing needs of more

established SMEs (in business for more

than three years), and the equity capital

needs of SMEs. It also revised the

guarantee parameters to reflect

international best practices (e.g. capital

allowances, commissions, simplification

and harmonization of eligibility criteria),

and adopted credit risk assessment

tools and simplifying procedures in order

to speed up all processes, including the

processing of claims.

Changes in the structure, safeguards

regime, and product lines have had a

significant impact on the volume of

guarantees. The amount of CCG

commitments to MSME loans almost

doubled between 2008 and 2009 (fueled

mainly by the working capital loan

guarantees). However, it did not help to

broaden the base of recipient firms. In

fact, the number of annual guarantees

issued was virtually flat between 2008

and 2010, while the average size of

guarantees increased. In March 2013,

the CCG launched a guarantee product

specifically targeting start-ups owned

solely by one woman or several women

(with an 80% guarantee on loans up to

MAD 1 million). This product is intended

to make loan guarantees more available

to women entrepreneurs with limited

collateral.

The CCG’s outstanding portfolio

consists of more than 5,000 guaranteed

loans (MAD 5 billion). In 2012, the CCG

guaranteed 1,017 loans to 960 clients,

with a guaranteed loan value of MAD 1.6

billion. According to the Ministry of

Economy and Finance, these guarantees

leveraged about MAD 2 billion of bank

financing. On the surface of it, just over

1,000 guaranteed loans a year appears

rather modest, given the size of the

Moroccan MSME sector. For example, in

Canada, with an SME population of

about two million, the government SME

loan guarantee program backs about

7,500 loans a year. With an efficient

guarantee system and adequate

reserves, there is likely potential to

substantially increase the number of

guaranteed loans and further leverage

growth in the level of bank lending to

MSMEs in Morocco.

Equity financing

The government has been supporting

the development of equity funds to meet

the capital needs of start-ups, early-

stage and growth SMEs. Of particular

note are the Morocco Numeric Fund, the

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OCP Innovation Fund for Agriculture, and

the SME Growth Fund, although the

government is encouraging the

development of new public-private

investment funds.

The Morocco Numeric Fund was

launched in 2010 by the Ministry of

Industry, Commerce and New

Technologies (MICNT) within the

framework of “Maroc Numeric 2013”, to

provide seed capital to start-ups and

early-stage enterprises developing new

technology-based and IT projects, and

facing difficulty in accessing financing

to implement the initial phase of their

projects. The MAD 100 million fund

makes investments of MAD 1 million to

5 million, which can go up to MAD 8 million

per enterprise if there is a second round

of investment. This is the first equity

fund specifically targeting technology

start-ups, and it fills the gap for equity

investments of less than MAD 10 million,

which are often too small for institutional

investors and too large for business

angels. This fund is innovative in that

the MICNT has also encouraged the

formation of a Morocco Numeric Fund

Club of Business Angels to invest

alongside the Morocco Numeric Fund

and to bring their expertise to the

management of the invested start-ups.

By the end of 2011, the fund had made

seven investments.

The OCP Innovation Fund for Agriculture

was launched in 2011 within the

framework of the Green Morocco Plan

to provide venture and growth capital

for innovative early-stage and growth

companies in the agriculture and agri-

business sectors. It is a MAD 200 million

fund that makes investments in the

range of MAD 2.5 million to 10 million.

The government aims to increase the

fund size to MAD 1.2 billion and to invest

in 40 projects over four years, generating

more than 1,000 jobs.

A more recent government initiative is the

SME Growth Fund, launched in 2012.

This fund was initiated by the MICNT to

encourage equity investments in growth-

potential Moroccan SMEs with revenue

of less than MAD 100 million and in

need of capital. The fund, structured as

a public-private partnership, will make

individual investments of between

MAD 10 million and 40 million. The

MICNT invested MAD 175 million to

start the fund, which is managed by

MarocInvest. It has attracted an

investment of EUR 3 million from the

French Development Agency/ Promotion

and Participation Company for Economic

Cooperation (PROPARCO), and EUR

5 million from the European Investment

Bank. The goal is to increase the fund

size to EUR 35–40 million.

The CCG has also recently introduced a

guarantee product, the Damane Capital

Risque, which guarantees 50% of the

SME equity or quasi-equity investments

of qualified private equity investors (60%

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for innovative projects), up to a maximum

of MAD 5 million (equivalent of about

US$600,000). The CCG proposes that

the guarantee system can be used to

encourage scaling-down of private

equity/ venture capital investment by

guaranteeing a share of the investment.

It also proposes that the CCG could

share some of the due diligence/ risk

evaluation expenses. In fact, key

informants at the CCG indicate that they

would like to launch an equity fund

association that would provide support

to private equity/ venture capital funds in

assessing investment files.

In addition, the Moroccan Association of

Capital Investors (AMIC) is starting to

produce specialized training to private

equity investors, which is also a big issue

in Morocco and should be supported.

Entrepreneurship development, start-

up and post-creation support

The government continues to offer self-

employment and microenterprise training

programs to encourage Moroccans to

start their own businesses and create

jobs. One of the most prominent policy

initiatives is the Moukawalati Young

Entrepreneurs Program, a national

entrepreneurship program targeting

unemployed young graduates. Launched

in 2006 and implemented by the National

Agency for the Promotion of Employment

and Skills (ANAPEC), the Moukawalati

program provides start-up training and

a year’s worth of follow-up coaching

support to unemployed young people

(20–45 years of age) willing to establish a

microenterprise that creates jobs for at

least three workers. The target is to create

10,000 new microenterprises (from 2009).

From 2007 to 2012, a total of 4,793

Moukawalati microenterprises were

created (with some 12,000 jobs), ranging

from about 700 to 1,000 a year;

however, the young entrepreneurs still

have difficulties obtaining bank financing

for their ventures. Of the 878 new

microenterprises created in 2011, only

166 (19%) received bank financing;

the remainder self-financed (70%) or

received funding support from the National

Initiative for Human Development (INDH)

(10%) (BAM, 2011).

With part of the MCC grant (under the

Enterprise Skills Project of the Morocco

Compact), the National Agency for the

Promotion of small and Medium

Entreprise (ANPME) launched the Young

Enterprise Support Program. Through

this program, it offered post-start-up

diagnostic support and personalized

external expertise to new businesses

created from the Moukawalati program

from 2011 to 2013, in an effort to

improve the survival and growth rates

of these new enterprises. However, the

MCC decided to discontinue their

support for this program component

after the initial pilot with 400 of the

Moukawalati enterprises.

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Incubating enterprises can receive

funding from the Morocco Incubation

and Spin-off Network of up to

MAD 230,000 for innovative projects (to

cover the cost of studies, expertise,

prototypes, travel, etc.), as well as

coaching, access to scientific and

technical information, and access to a

large network of experts, partners and

investors. However, in 2012, only 12

incubating projects received funding

from the National Center for Scientific

and Technical Research (CNRST). The

Center could have supported up to 20

projects with its budget allocation, but

lacked submission of good projects

deemed innovative enough. A Morocco

Incubation and Spin-off Network report

in September 2011 indicated that a total

of only 84 project proposals had been

submitted to the 13 member incubators,

and, of these, 40 projects were accepted

for incubation. Of these 40 projects, 12

enterprises were still in the incubators,

10 had successfully left the incubators,

and 18 projects had been abandoned.

These results are not very impressive,

given the output one might expect

from an incubation system. One of

the challenges is that a number of the

incubators are located in universities and

managed by professors on a part-time

basis, with very little activity taking place

over the summer holiday months.


capacity through technical assistance

The government has a number of

programs geared to upgrading the

productivity and competitiveness of

MSMEs. These include the Infitah IT

Project launched in 2011 to encourage

VSEs to integrate the use of computers

and IT into their operations; the

Moussanada program launched in 2009

by the ANPME to subsidize the costs of

consultancy services to help SMEs

modernize, improve their quality and

productivity, accelerate their use of

technologies, and improve their technical

and managerial competence; and a

2011 Initiative Marocaine d’Amélioration

programme supporting the implementation

of lean manufacturing practices as a way

to accelerate the competitiveness of

industrial SMEs.

These programs cater to different groups

of enterprises: the Infitah IT project is

targeted to VSEs; the Moussanada

program, to SMEs with at least two years

of operation and turnover of less than

MAD 175 million; and the Initiative

Marocaine d’Amélioration program, to

both smaller enterprises with turnover of

less than MAD 50 million employing

more than 50 employees, and to

medium enterprises with turnover of

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MAD 50 million to MAD 1 billion in

strategic sectors (automotive, aeronautics/

space, textiles and leather, electronics,

mechanical, and food).

The Infitah IT project aimed to support

10,000 VSEs with the IT package by

2013; the Moussanada program targets

700 SMEs a year; and the Initiative

Marocaine d’Amélioration program plans

to train of 800 companies by 2016 (200

a year).


technological development of MSMEs

Several initiatives that have been

undertaken achieve the government’s

priority of enhancing the level of

innovation and technological development

of SMEs. Among these are the

Moussanada IT program (ANPME)

(launched in 2012); the Infitah IT program

(launched in 2011); establishment of the

Moroccan Center for Innovation; creation

of innovation funds to meet the needs of

innovative enterprises at all stage of the

innovation process; setting up of the

MNF, a seed capital fund for IT start-ups

and early-stage companies facing

difficulty in accessing financing to

implement the initial phase of their

project; establishment of Technopark

Rabat, modeled on the Casablanca

Technopark; and the creation of the

Cluster IT to foster the emergence of

innovative projects and high value-added

niches of excellence.

The Morocco Innovation Initiative, led

by the MICNT in collaboration with the

Ministry of Higher Education, Scientific

Research and Professional Training, was

launched in 2009. The objectives are to

forge a knowledge-based and high

value-added economy, make innovation

a key driver of business competitiveness,

enhance research and developmnet

(R&D) in universities, and generate

industrial and intellectual property.

In 2011, the Moroccan Center for

Innovation was established to implement

the Morocco Innovation Initiative and

serve as a one-stop shop to manage,

promote, and support innovative

projects with the goal of fostering

innovation, job creation, and a culture of

entrepreneurship. It was given a budget

of MAD 450 million over three years.

Three funds to support innovation were

launched in 2011 to support the

financing of innovation projects in the

industrial sector, ICTs and advanced

technologies, including innovative start-

ups with high potential:

• INTILAK for innovative start-ups and

SMEs that have been in operation for

no more than two years;

• TATWIR for enterprises that have

been in business for at least two

years; and

• The Technological Service Network

support program for innovation and

technological development, for SMEs

that have been in business for at

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least two years, and whose turnover

does not exceed MAD 50 million.

To promote the mobilization of innovation

talent and create a culture of innovation,

the government created the Moroccan

Innovation Club, a network platform that

brings together researchers, universities,

business leaders, and developers of

innovative projects to exchange

information and create working and

research groups to advance innovative

projects.

The INNOV’ACT program is an initiative

of the Moroccan Association for

Research and Development, whose

mission is to initiate, promote and

stimulate innovation and R&D in

Moroccan firms in the productive

sector. The program, in its second phase

(2011–2015), is co-financed by the

Higher Education Ministry. Its objectives

are to: promote R&D activities and the

implementation of R&D structures within

SMEs, stimulate tighter collaboration

between research structures

(laboratories or technical centers) around

research projects, and promote

recruitment of researchers (university

graduates) by the enterprises that will

carry out the research projects. It

provides technical support and financing,

in the form of grants, for R&D and

innovation projects. The program is open

to VSEs, SMEs, and enterprise groups

(minimum of two collaborating SMEs), in

business for at least two years. The first

phase of the program was carried out

from 2005 to 2009. An evaluation

conduced in 2009 found several positive

impacts of the program on beneficiary

enterprises in terms of organization

(creation of new internal structures for

R&D, commercialization or production of

new products), job creation (recruitment

of researchers for permanent positions,

new jobs for marketing), competitiveness

and industrial capacity (increases in

production volume, productivity,

turnover, and new markets, better

product/ service quality, creation of new

products/ services, etc.), behavior (intent

to file a patent, to publish the results of

the project, etc.), and technology transfer

activities.

Finally, in 2011 the National

Telecommunications Regulatory Agency

created the Soft Center, an R&D

program that aims to produce innovative

software drawing on academic expertise.

Soft Center offers a range of support to

innovation in terms of support services,

technology infrastructure, and services

to national and international players in

the field of information technology.

Access to markets

From 2003 to 2010, the Ministry of

Foreign Trade offered the Export

Consortia Support scheme to encourage

the formation of export consortia

among SMEs. Initially supported by the

United Nations Industrial Development

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Organization and Italian Cooperation, the

scheme co-funded promotional activities

of export consortia during their first three

years of operation. Maroc Export offers

export consortia members a preferential

rate for participation at trade fairs and

commercial missions. The Moroccan

Export Insurance Company has

established a preferential premium for

insurance policies issued to export

consortia and offers them wide coverage

for trade fair participation. ANPME

subsidizes consulting costs for group-

based modernization and upgrading

activities. By 2011, some 21 export

consortia had been legally formalized,

covering nine different sectors in ten

cities of the country, and involving

120 exporting SMEs employing 18,000

people.

Based on the success of this project, in

2011, the Ministry of Foreign Trade,

together with the Ministry of Economy

and Finance and Maroc Export,

launched the follow-on Export Synergia

Program with funding of MAD 120 million.

The objective is to stimulate the

operation of 55 export consortia by

2015. Each new consortium (consisting

of at least five SMEs with exporting

capacity), will be supported with up to

MAD 1.5 million to cover the costs of

forming the consortium, formulating a

development strategy, and undertaking

international promotion and marketing

activity. Moroccan authorities see export

consortia as an excellent tool for

upgrading and modernizing SMEs, as

well as for expanding Moroccan

exports.

In addition, the recent amendment to the

2007 Procurement Law specifying that

20% of the total value of public

procurement contracts is to be awarded

to SMEs, is a vehicle for increasing

markets for SMEs. On this point, the

government will have to develop a

system for determining how much

procurement is currently awarded to

SMEs (according to the formal SME

definitions) and implement a tracking

system to monitor the volume of

procurement awards going to SMEs.

The General Confederation of Moroccan

Enterprises (CGEM) has expressed

concerns about the capacity of SMEs

to benefit from this law without

accompanying actions of the government

to simplify the tendering and submission

processes and to reduce complex

requirements that would prevent

SMEs from participating favorably in bid

requests.

Experiences in other countries reinforce

the need to conduct awareness sessions

among SMEs of the market opportunities

in accessing public procurement

contracts, provide information to SMEs

on procurement processes, and

implement business support initiatives to

help SMEs upgrade the quality of their

products to meet the standards of

procurement specifications.

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In some countries, the government also

offers special financing programs to

help SMEs with the working capital

requirements of filling a procurement

contract. This may be an important area

of support for the Deauville Partnership

IFIs/ donors in Morocco.


The government has undertaken a

number of initiatives to improve the

regulatory environment for private

business. In May 2011, it published a

decree that considerably simplified

business start-up procedures,

eliminating half of the six procedures for

starting a business and abolishing the

minimum capital requirement for

establishing a new limited liability

company. The government also eased

the administrative burden of paying taxes

for firms by enabling electronic filing and

payment of corporate income tax and

value-added tax, systems that are now

used by the majority of taxpayers.

Furthermore, the government has

moved to a common enterprise identifier

system that will facilitate the sharing

of company information between

administrations and agencies, and

reduce the paper burden on MSMEs.

To address issues of competition policy

reform, in 2012, the government

approved a set of laws modifying the

Competition and Freedom of Pricing

Law. The new law gives power and

authority to the Competition Council to

investigate and sanction monopolistic

behavior, mergers and collusion, a role it

has not had in the past.

Since 2011, a number of efforts have

been made to increase the level of

enterprise formality. The Finance Law

2011 introduced major incentives to

encourage microenterprises to become

formal and to advance VSEs. These

included a reduction of the income tax

rate from 30% to 15% for businesses with

after-tax income equal to or less than

MAD 3 million, as long as the beneficiaries

committed to creating at least one job

each year for three years, starting from the

year of corporate tax liability (BAM, 2011);

extending for two years (2011 and 2012)

tax relief for MSMEs with a turnover below

MAD 50 million (excluding value-added

tax – VAT); and simplifying the system of

VAT payments. In addition, the Ministry of

Economy and Finance introduced a

temporary amnesty (for 2011 and 2012)

to encourage informal enterprises to

register for the professional tax (“patente”)

as the first step in the transition to formal

status. In 2011, 6,449 enterprises

formerly operating in the informal sector

declared themselves and registered for

professional tax (World Bank, 2012c).

Through various measures, the National

Strategy for the Promotion of VSEs aims

to bring 73,000 informal VSEs annually

into the formal system (MAEG, 2011).

This is to include radical simplification of

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the regulatory and fiscal regime for VSEs,

the establishment of governorate-level

support centers for VSEs, and provisions

for upgrading and counseling/ advisory

support for VSEs.

The most recent reform effort is to

implement an auto-entrepreneur regime,

based on the successful auto-

entrepreneur scheme launched in France

in 2008, with the aim of significantly

increasing the number of registered self-

employed individuals as a trampoline for

growth and a stepping stone for the self-

employed who want to grow to achieve

SME status.

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Access to MSME finance

As noted earlier, slightly

more than half of

international financial

institutions (IFIs)/ donor

initiatives are seeking to

address barriers to micro,

small and medium

enterprises’ (MSMEs’)

access to financing. This is

directed to strengthening the supply of

microcredit, financing MSMEs through

banks and equity funds, and enhancing

the capacity, efficiency, and effectiveness

of the financial system (see Box 2.1). The

initiatives include grants and loans to

financing entities. Morocco has also

received one of the first project approvals

from the new Middle East and North

Africa (MENA) Transition Fund – funding

from the World Bank for the Microfinance

Development Project to support the

roll-out of the National Microfinance

Strategy.

Annex 2: Morocco – IFI/ donor support

Microfinanceprojects,

$66.1 Funding tosupport loan guarantees,

$100.0

Loans to banksfor on-lending

to MSMEs,$76.0

Capitalparticipation inBCP, $204.0

Financialsector capacity

building$309.0

Investment inprivate equityfunds, $62.7

Distribution of IFI/ donor funds (USD millions)

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Box 2.1: MSME financing projects supported by IFIs/ donors, Morocco

Microcredit lending:

• European Investment Bank (EIB): Unsecured loan to Fondation pour le Développement Local et le Partenariat for FONDEP Micro-Crédit (EUR 4 million, signed in July 2013) to help finance microcredit activity over the next few years, covering both the growth of existing portfolio clients and the launch of new products.

• French Development Agency (AFD) – Promotion and Participation Company for Economic Cooperation (PROPARCO): Loan to the Fondation Banque Populaire pour le Micro-Crédit (EUR 10 million, starting in 2011) to strengthen the bank’s equity.

• International Finance Corporation (IFC): Partial credit guarantee facility to the Fondation pour le Développement Local et le Partenariat (FONDEP) (US$9 milllion, signed in 2012) to enable FONDEP Micro-Crédit to raise up to MAD 210 million (US$27 million equivalent) in local currency senior debt financing from the Moroccan banking sector for relending to microcredit clients; guarantee will cover up to 50% of the value of credit lines extended by local commercial banks (partially covering the principal and interest payments for a period of up to five years).

• Italian Cooperation: Soft loan and grant (EUR 7 million) to support microcredit lending of the microcredit associations and provide technical assistance to less advanced microcredit associations.

• Millennium Challenge Corporation (MCC): Financing Services Project, 2007–2013, included grant of US$29.6 million to JAÏDA for financing of microcredit associations, of which US$6 million was used for purchase of vehicles to serve as mobile credit windows to better reach rural clients.

• World Bank/ MENA Transition Fund: Microfinance Development Project, 2013–2017 (US$4.9 million), to support roll-out of the National Microfinance Strategy: capacity building of the National Federation of Microcredit Associations (FNAM) and individual microcredit associations, strengthening of the legal, regulatory and governance framework of the microfinance sector, and strengthening and diversification of funding, including building a market infrastructure to facilitate microentrepreneurs’ access to markets.

SME lending through the banking system:

• AFD/ EIB/ IFC / OPEC Fund for International Development (OFID): Mediterranean SME Guarantee Facility (US$50 million for Morocco of the US$200 million for the regional project – signed October 2012 to provide guarantees for local banks to expand lending to SMEs).

• Arab Fund for Economic and Social Development: Loan (US$50 million, 2012) to the Banque Centrale Populaire for relending to SMEs.

• European Bank for Reconstruction and Development (EBRD): Loan (EUR 20 million) to the Societé Générale Marocaine de Banques for relending to SMEs.

• IFC: Capital investment (US$204 million) in Banque Central Populaire to support the bank’s SME lending policy.

• World Bank/IFC: Partial Loan Guarantee Program, through the Caisse Centrale de Garantie (CCG) (US$50 million, 2012–2017) to scale up the CCG’s existing guarantee products and facilitate access to bank credit for start-ups and women-owned businesses.

Equity financing projects:

• African Development Bank (AfDB): Maghreb Private Equity Fund (MPEF) III (about EUR 7 million for Morocco) – 35% of the EUR 20 million invested in the regional fund, 2011.

• AFD – PROPARCO: SME Growth Fund (MarocInvest) (EUR 3 million, 2012).

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• EIB: (i) SME Growth Fund (MarocInvest) (EUR 5 million, 2011) targeting high growth potential SMEs with turnover of less than MAD 100 million; and(ii) Capital North Africa Venture (CNAV) Fund II (EUR 10 million, 2011) targeting mid-market SMEs with turnover of more than MAD 100 million.

• EBRD: MPEF III – estimated EUR 7 million for Morocco (about 35% of the EUR 20 million invested in the regional fund), 2012.

• IFC:(i) CNAV Fund II (EUR 10 million, committed in 2013) targeting investments in mid-sized companies with growth and job potential; and (ii) MPEF III (approximately US$7.6 million for Morocco (about 35%* of the US$21.7 million invested in the regional fund, 2012) targeting equity investments of EUR 4 million to EUR 10 million in SMEs with potential to be regional players. Fund managed by TunInvest.

• Overseas Private Investment Corporation: MPEF III (about EUR 18.375 million for Morocco) – about 35% of the US$52.5 million invested in the regional fund, 2011.

Financial sector reform and capacity building:

• AfDB: Financial Sector Development Support Program – Phase II (EUR 224 million) which includes capacity building of capital markets and banking sectors.

• MCC: Financial Services Project (of the US$43.7 million grant, about US$14 million) allocated to strengthen and build capacity (governance and management) of the microcredit associations. The remainder flowed through JAÏDA to finance microcredit associations as indicated above.

*Note: According to information obtained from officials at TunInvest during interviews in Tunisia in November 2012,between 30% and 40% of the Maghreb Private Equity Fund III will be invested in Moroccan enterprises. Therefore aproportion of 35% was used to calculate the amount of IFI/donor funding that would find its way into MoroccanSMEs.

Insufficient information was provided in

the African Development Bank (AfDB)

inventory of IFI/ donor projects to

determine the extent of any increase in

MSME lending as a result of the financial

assistance to financial institutions. Such

information would ideally be required to

determine the impact of this IFI/ donor

support. However, it appears to be very

important to rebuild the lending capacity

of the microcredit associations to enable

them to serve the microcredit needs in

Morocco, and regain and surpass their

2007–2008 client levels.

Although about 24% of bank financing to

enterprises in Morocco is reportedly

allocated to SMEs (which is more than in

other MENA countries), the five largest

banks, including the Banque Centrale

Populaire (BCP), supply about 80% of

the lending to SMEs (Rocha et al., 2011).

The allocation of US$50 million to

Morocco from the Mediterranean

SME Guarantee Facility will provide

incremental funds to guarantee bank

loans for MSMEs, and the US$50 million

World Bank/ International Finance

Corporation (IFC) Partial Loan Guarantee

Program delivered through the Caisse

Centrale de Garantie (CCG), will address

financing needs of micro and small

enterprises that are ignored by the

banking system due to lack of collateral,

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specifically start-ups and MSMEs owned

by women. Half of this Partial Loan

Guarantee Program will be used to

support the CCG’s relatively new

guarantee products, such as the

Damane Créa for start-ups and the

Damane Express for very small

enterprises (VSEs). The expected impact

of the Mediterranean SME Guarantee

Facility in Morocco is provision of

guarantees for 8,750 SMEs and

leveraging of US$200 million of bank

lending; the number of jobs to be

created as a result of the improved

access to bank financing is expected to

be 37,500 (an average of 4.3 jobs per

assisted SME).

Investments in the three equity funds,

which target different market segments,

make up about 7.7% of the IFI/ donor

funding for financing projects. The SME

Growth Fund, launched by the the

Ministry of Industry, Commerce and

New Technologies and managed by

MarocInvest, is a new fund that is

primarily targeting high value-added and

promising SMEs in the development

phase with turnover of less than MAD

100 million. The Capital North Africa

Ventures Fund II targets established mid-

market SMEs with sales in excess of

MAD 100 million. The MPEF Fund III

targets SMEs with potential to become

regional players.

There still appears to be a gap in the

provision of seed and very early-stage

investments for Moroccan SMEs, i.e.

investments of less than MAD 10 million,

which is an area that IFIs/ donors may

want to address in the coming period.

Access to entrepreneurship development

and start-up support

The main focus of IFI/ donor projects to

stimulate entrepreneurship and start-ups

(accounting for 5.2% of the funding for

projects in the non-financial MSME

support category) is directed to

creating employment opportunities for

unemployed youth, especially young

graduates. Apart from the Millennium

Challenge Corporation (MCC). Enterprise

Skills Project and the Youth at Work

project funded by the Canadian

International Development Agency,

these tend to be rather small projects,

although all address the need to build

the capacity of young people to

become entrepreneurs with sustainable

enterprises through entrepreneurial and

business plan training and/ or post-

creation coaching, some more directly

than others (Box 2.2). Only the AfDB

project to support young agricultural

entrepreneurs has a specific sectoral

(and rural) focus aiming to create

160 new microenterprises, although

the Japan International Cooperation

Agency/United Nations Development

Programme project has a focus on five

“green” jobs sectors, with the goal of

creating 10 new “green businesses”

within a year and developing a pipeline

of 100 more. The new MENA Transition

Fund project, Strengthening Micro-

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Entrepreneurship for Disadvantaged

Youth, is addressing the less-educated

youth market, a segment not well served

by a number of entrepreneurship support

programs that cater to young graduates.

The United States Agency for International

Development (USAID)-funded Endeavor

Global operation is the only one that

specifically targets start-ups with high

growth potential. These projects align

with government priorities and strategies

to create employment for youth and to

promote entrepreneurship and business

creation.

Box 2.2: Entrepreneurship and business start-up support projects funded by IFIs/ donors, Morocco

• African Development Bank: Technical Assistance for the Promotion of Young Agricultural Entrepreneurs (EUR 572,000, 2012) to provide training and technical assistance to young unemployed graduates in rural areas to support them in starting enterprises in the agriculture and agribusiness sectors; aims to create 160 microenterprises.

• Canadian International Development Agency: Youth at Work! Partnership for the Employment of Young Men and Women in Morocco Project (CAD 8.15 million 2012–2016) implemented by the International Labour Organization, to strengthen education and skills training programs so young people can obtain the necessary skills to secure jobs and start new businesses. The goal is to help close to 85,000 young women and men secure jobs; 40,000 to be trained in entrepreneurship so they can develop the knowledge and skills needed to start their own enterprises.

• Japan international Cooperation Agency (through the United Nations Development Programme):Youth Employment Strategy Green (YES Green) (US$1 million, March 2012 – February2013) under the framework of the Youth Employment Generation Program in Arab Transition Countries. The project involves training of youth on specific “green jobs” sectors (e.g. renewable energy, energy efficiency in buildings, ecotourism, integrated water management, and waste management).

• MENA Transition Fund (World Bank): Strengthening Micro-Entrepreneurship for Disadvantaged Youth in the Informal Sector (US$5.5 million grant approved in February 2013) to provide low-skilled youth with first-time access to business skills, mentoring, and financial services; will run from 2013 to 2017; implemented by the Ministry of Youth and Sports.

• Millennium Challenge Corporation: (i) Enterprise Skills Project (US$27 million grant 2007–2013) to provide post-creation support for entrepreneurs who started enterprises from National Agency for the Promotion of Employment and Skills (ANAPEC) Moukawalati Young Entrepreneurs Program and income-generating activities under the National Initiative for Human Development (INDH); also to help build government capacity to better manage the selection and training processes for the entrepreneurs; and (ii) Grant to fund the activities of the Partnership for a New Beginning: North Africa Partnership for Economic Opportunity in Morocco (2012) – to help create a culture of entrepreneurship and a network of advice for entrepreneurs, with a special emphasis on young entrepreneurs and job training for youth.

• United States Agency for International Development (USAID): (US$100,000) grant to Endeavor Global to start an operation in Morocco (2012) focusing on high impact potential start-ups and early-stage enterprises.

• USAID/United States Department of State:Global Entrepreneurship Program (2012) – to spur development of an entrepreneurial ecosystem, targeting potential and existing entrepreneurs with an emphasis on young people.

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IFI/ donor support for entrepreneurship

and enterprise creation projects could be

expanded in light of the increasing focus

on entrepreneurship development in

Morocco and the rather modest reach of

both government and private sector

initiatives.

From 2007 to 2012, the government’s

Moukawalati Young Entrepreneurs

Program created an average of 765

microenterprises annually, peaking in

2010 with 1,029 start-ups. More than

3,400 income-generating activities were

created in Phase I of the National Institute

for Human Development (INDH) (2006–

2010), but this averages only 680 per

year. These two projects were credited

with the generation of about 52,000 jobs,

but this amounts to an average of only

about 10,000 jobs annually. There are

limited data on the rejection rate of

applicants to these programs, but in the

case of the Moukawalati Program, it is

significant. One of the reasons for the

high rejection rate is the perceived lack of

suitability or readiness of the unemployed

young graduates for admission to the

program; however, there may be options

for working with the group of rejected

applicants to help them develop the

suitability/readiness profile to be accepted

(e.g. orientation sessions, education

programs, opportunity identification

workshops, etc.). On the other hand, the

Moukawalati Program may have budget

limitations that prevent it from expanding

the program beyond a certain scale. The

government also supports a network of

incubators that, from existing evidence,

are not incubating a large number of

start-ups. There are a few noteworthy

initiatives that are not currently IFI/ donor-

supported, but might have potential for

scaling up with IFI/ donor support:

• The Association of Women

Entrepreneurs of Morocco (AFEM)

operates four business incubators for

women entrepreneurs, in Casablanca

(26 incubator spaces), Rabat (seven

spaces), El Jadida (four spaces), and

Tangier, and is currently in the

process of trying to establish business

incubators for women in Fez and

Marrakech. The beneficiaries stay in

the incubator program for 18–24

months and receive post-incubation

support once they leave. From 2006–

2012, 70 enterprises graduated from

the incubators, but the Rabat and El

Jadida incubators are very recent. As

of July 2013, 85 women entrepreneurs

were involved in the pre-incubation

and incubation phases of three

incubator locations. AFEM has

produced an operational guide

for the establishment of AFEM

incubators, which is based on

international good practices and

lessons learned from their experience

with the Casablanca and Rabat

incubators (AFEM, 2012). Given that

there are few initiatives in Morocco

focusing on the development of

women’s entrepreneurship, support

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to the AFEM business incubators for

women project would hold great

promise.

• The Groupe Banque Populaire’s

Fondation Création d’Entreprise

(FCE) is a significant player in the

promotion of entrepreneurship and

appears to have very good models

for stimulating entrepreneurship

and start-ups, both among young

graduates in Morocco and Moroccans

living abroad. The core target group

consists of potential entrepreneurs in

the 20–45 age group with a university

degree or professional training. The

FCE offers training, education,

information, and advice through 15

“windows” across Morocco. The

windows provide pre-start-up support

(workshops, seminars, entrepreneurial

and management training, help with

business plans), start-up support

(e.g. help with the legal aspects of

registration formalities), and post-

start-up support for the first two

years of operation, including offers of

management training, technical

expertise, coaching, and on-site

follow-up visits. Through an

“innovative project idea” competition

each year, the FCE selects 30 projects

from each of their branch locations

to provide six months’ worth of

pre-creation assistance to the

budding entrepreneurs, including all

of the training and information

needed to turn their project ideas into

enterprises. This gives them a pool of

450 possible start-ups with which to

work.

• In 2009, the FCE launched the

Investisseurs Marocains du Monde,

a new program to create awareness

among the diaspora of the business

opportunities in Morocco, and help

them to set up new enterprises inside

the country. An average of five jobs is

created in every FCE-supported

start-up. From 2005 to 2012, the

FCE worked with young entrepreneurs

who created 1,700 new enterprises

and 7,800 jobs (average of 4.6 jobs).

The average investment per

enterprise is MAD 597,000 (twice

that for the Moroccans living abroad),

and attract an average of MAD 364,000

in financing. For the year ending

June 2012, FCE had supported

the creation of 108 local enterprises,

and Moroccans living abroad had

supported the creation of 16 (total of

124 against a target for the year of

200). With support from IFIs/ donors,

the FCE could expand its efforts and

make a bigger contribution to job

creation and enterprise development.

• Maisons du Jeune Entrepreneur is

an initiative launched in late 2010 by

the Fondation du Jeune Entrepreneur

with the objective of creating

employment opportunities for youth,

especially in rural areas, by promoting

self-employment and entrepreneurship.

The foundation has developed an

innovative methodology and system

of support that will have new

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enterprises up and running within

124 days, including the phase of

selecting the potential young

entrepreneurs. The Maisons du

Jeune Entrepreneur provide information,

orientation, counseling and support;

entrepreneurship training; assistance

with development of a business plan;

support to the young entrepreneurs

in their approach to banks; facilitation

of the start-up process; post-creation

support and cycles of management

training; and opportunities to

participate in networking events. In

the first year (2011), 150 new

enterprises were created out of 301

projects selected for support and

274 that finalized business plans. The

objective for 2013 was to launch 10

new Maisons du Jeune Entrepreneur

in rural areas and support the

creation of 720 new enterprises that

will generate MAD 180 million in

investment and 2,800 jobs (average

of four jobs per enterprise). The

annual operating cost of a Maison du

Jeune Entrepreneur is between

MAD 800,000 and MAD 1 million. With

additional funding from donors and

supporters, the Fondation du Jeune

Entrepreneur could expand the

number of units and accelerate the

number of start-ups and jobs created.

• INJAZ-Al Maghreb, affiliated with

the global Junior Achievement

Program, started in Morocco in late

2007. Its objective is to stimulate the

spirit of entrepreneurship, create a

new generation of entrepreneurs,

and advance the integration of

entrepreneurship education in

schools and universities. The target

is high school and university

students. INJAZ delivers business-

related training programs in schools

and colleges, two of which are

directly related to developing

entrepreneurship awareness and

skills (Entrepreneurship Masterclass)

and starting and managing a junior

business (Company Program). In

2011–2012, some 2,000 students in

four cities were involved in starting

and operating 80 junior companies.

In total, 5,500 students were reached

with INJAZ training programs,

delivered by 144 volunteer advisors

in concert with teachers.

INJAZ has also worked with universities

to develop entrepreneurship modules

for use in classroom teaching. In 2012,

one of these modules was delivered

as a compulsory course to 600 third-

year undergraduate students at

Hassan II University Casablanca, and

the goal is to support 120 students

to initiate a new company each year.

Based on the success of this pilot, in

2012, INJAZ signed agreements with

a number of other universities to

deliver entrepreneurship curriculums

to Masters and third-year students.

From 2007/08 to 2010/11, INJAZ

reached over 11,000 students; it set

a goal of reaching 10,500 students in

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2013/14, up from 6,508 in 2012/13,

with the majority targeted for

participation in the Entrepreneurship

Masterclass and Company Program.

By 2016/17, the goal is to have

reached an aggregate of 72,000

Moroccan youth from every city/

region and to be delivering programs

to 15,000 students each year. Currently,

INJAZ programs operate in 100 schools

in Casablanca, Rabat and Tangier

(there are 9,000 schools in Morocco)

and will need sponsorship support to

execute its expansion plan.

• The Centre des Jeunes Dirigeants

(CJD) is a global network of

associations of young entrepreneurs

set up in France in 1938, and

operating in Morocco since 2001.

CJD Morocco offers various services

to enable entrepreneurs and executives

to take on leadership roles, experiment

with new practices, discuss similar

concerns confidentially, and be part

of a friendly network.

Development and upgrading of

MSME capacity through technical

assistance

There are only a few IFI/ donor-funded

projects geared to improving the

management and productivity

performance of MSMEs (Box 2.3),

although because of their sheer size,

these account for more than two-thirds

of the funding for non-financial MSME

support projects and about a third of total

project funding. The most prevalent of

these are funded through the significant

grant from the MCC. Morocco Compact

that began implementation in 2007 and

ended in 2013. These projects have a

strong sectoral orientation. The Morocco

Compact projects were focused on

the primary sectors (agriculture and

fisheries) and the crafts sector; the

Italian Cooperation project supports

entrepreneurs in the olives sector; and the


Development (EBRD) Small Business

Support Project is targeting sectors with

growth potential (e.g. agribusiness,

textiles, ICT, engineering and electrical).

These represent sectors supported by the

government’s national strategies to

modernize and enhance productivity of

the agricultural sector (Green Morocco

Plan), the crafts sector (e.g. Artisanat

Maroc Vision, 2015), and the fisheries

sector (Ibhar Program), or the promising

growth sectors identified in the National

Emergence Pact. With the exception

of the EBRD project, these projects

emphasize development of rural

enterprises.

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Innovation support

Although enhancing the level of innovation

and technology development of MSMEs

and building the capacity for more

innovative enterprises are priorities of the

Moroccan government, the inventory of

current and pipeline IFI/ donor-funded

projects includes only one initiative,

a European Investment Bank (EIB)

loan to MEDZ (a subsidiary of CDG

Développement, in turn a branch office

of the Caisse de Dépôt et de Gestion) for

expansion of technology parks in Morocco

(Box 2.4). This project was mounted by

the government within the framework of

the National Industrial Emergence Pact

2009–2015 and caters to the training and

R&D needs of Moroccan companies as

well as fostering their development (and

incubation) and competitiveness. Building

seven new technology parks in Morocco’s

regions will substantially increase the

available infrastructure for innovation and

technological development, making

these facilities available outside the major

centers of Casablanca and Rabat.

However, it will take some time for these

facilities to be ready for operation.

In the meantime, there should be

complementary projects to build the

capacity of the surrounding business

communities to make effective use of the

new technology parks.

Box 2.3: MSME capacity building through IFI/ donor-funded technicalassistance, Morocco

• European Bank for Reconstruction and Development: Small Business Support (SBS) (contribution of EUR 2.07 million, 2012). The Enterprise Growth Program and Business Advisory Service, managed by the SBS team, are essential components of the EBRD transition toolkit, promoting good management practices in SMEs by making business advisory services available on a cost-sharing basis, introducing international best practice, and helping to develop a sustainable local consultancy market.

• Italian Cooperation: Olive Entrepreneurs Project (grant of EUR 850,000 over 2011–2014) to provide training and technical assistance to improve the productivity of olive-entrepreneurs.

• Millennium Challenge Corporation:(i) Artisan and Fez Medina Project (grant of US$94 million over 2007–2013) to provide training (functional literacy, entrepreneurial know-how, professional development skills) and technical assistance to improve the productivity and growth potential of traditional artisans, including a component for women artisans; (ii) Fruit Tree Productivity Project (grant of US$328 million over 2007–2013) to stimulate growth of the agricultural sector by supporting farmers to diversify into higher value-added crops (e.g. dates, figs, almonds, and olives) and improve their manufacturing and management practices; and(iii) Small-Scale Fisheries Project (grant of US$125 million over 2007–2013) to improve the productivity and livelihoods of mobile fish vendors and smal-scale fishers, the quality of their products, and facilities supporting the small-scale fisheries (wholesale markets, fish landing sites, port facilities, etc.).

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The government is implementing a

number of programs to provide

innovation and technological support

to MSMEs (e.g. INTILAK, TATWIR

and INNOV’ACT programs) and to

encourage them to pursue innovation

and research and development (R&D)-

related projects. However, the take-up of

these programs has been quite limited.

There could be a number of reasons for

this (e.g. lack of sufficient communication

to MSMEs about their availability, limited

program budgets, etc.), but another

reason may be a low level of general

innovativeness of MSMEs and their

lack of capacity to develop R&D and

innovative projects. New projects

oriented to building the innovation

potential and absorptive capacity of

MSMEs may be an area where IFI/ donor

support could add significant value.

Access to markets

There were no specific IFI/ donor-funded

projects in the Deauville Partnership

inventory provided by the AfDB supporting

initiatives to increase MSMEs’ access to

markets, although components of the

MCC Morocco Compact project were

helping to integrate microenterprises in

the crafts and fruit tree sectors into

supply chains. IFIs and donors do not

have current projects to support SMEs’

access to export markets or to enable

SMEs to access the public procurement

market, areas where there are potential

gaps for supported projects.

Support for administrative and

regulatory reform

There were a number of pre-2011 donor

initiatives to support the government’s

regulatory and administrative reform

efforts. For example, USAID provided

technical assistance to the government

in designing the Enterprise Unique

Identifier that was intended to simplify

interactions between private enterprises

and government authorities. In the post-

2011 context, the World Bank is the

major supporter of administrative and

regulatory reforms having a direct impact

on MSMEs through the 2013 Economic

Competitiveness Support Program (Box 2.5).

Box 2.4: Innovation support projects funded by IFIs/ donors, Morocco

• European Investment Bank: Loan to MEDZ for expansion of Technology Parks in Morocco

(EUR 100 million 2012) for construction of seven new technology parks in Kénitra, Agadir,

Nouasser, Oujda, Rabat-Salé, Meknès and Berjane. The total cost of the project is MAD 3

billion (close to EUR 300 million). The agreement was signed in October 2012 so it will be some

time before the parks are operational.

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This Development Policy Loan to the

government provides support in three

areas: improving the investment

environment; strengthening economic

governance; and furthering trade policy

reform and trade facilitation. The

components having the greatest impact

on the MSME sector and the entry and

operation of new enterprises (which

constitute about 60% of the total policy

loan) focus on:

• Abolishing the mandatory minimum

capital requirement for establishment

of a limited liability company;

• Reducing discretionary room and

arbitrariness on the part of public

officials in implementing administrative

procedures by standardizing and

simplifying a set of 20 priority

administrative procedures applicable

to businesses;

• Strengthening administrative

information sharing among agencies

interacting with enterprises;

• Reducing delays in payments to

SMEs in commercial transactions

(which has been an issue of long

standing with the working capital

finances of SMEs); and

• Reducing monopolistic behavior by

strengthening the competition legal

framework and the Competition

Council.

The technical assistance associated with

this loan will support policy reforms that

the government has already initiated but

has been unable either to fully implement

or effectively operationalize.

Box 2.5: Administrative and regulatory reform support projects funded byIFIs/ donors, Morocco

• World Bank/ International Bank of Reconstruction and Development: First Economic

Competitiveness Support Program Development Policy Loan (US$96 million – 60% of the

US$160,000 loan, 2013) for components directly related to leveraging the government’s

ongoing reforms to improve the investment climate for SMEs by: reducing barriers to entry and

red tape facing private enterprises when starting operations; strengthening the competition

framework and the Competition Council to reduce unfair competition facing SMEs; and improving

on the lack of predictability in the implementation of rules and regulations by public officials.

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Since the 2011 revolution, the

government has taken a number of

actions to ameliorate conditions in the

economic and social environment. Some

of these efforts have been aimed at

improving the environment for micro,

small and medium enterprises (MSME)

development: simplifications in the

regulatory environment; financial sector

reform and increased provision of access

to financing; efforts to create regional

jobs in the handicrafts sector by

supporting entrepreneurship and

enterprise development; creating

more favorable conditions for MSMEs

to participate in public procurement

processes; and launching initiatives to

foster technological innovation. While

some progress has been made, political

instability and social unrest have been

seriously impeding factors.

Improving the regulatory environment

for private enterprises

In May 2011, the government, in order

to reduce regulatory and administrative

costs, launched the “Reform of Business

Formalities” pilot project to review and,

where possible, eliminate or simplify

more than 440 tax and customs

formalities/ procedures. Four committees

involving nine ministries were established

in August 2011 to be responsible for

implementing the project. Based on the

positive experience with this pilot, the

government issued a decree in August

2012 to extend the same “guillotine”

approach to all business formalities

related to private investment.

Implementation of a regulatory impact

assessment regime is also planned. Prior

to 2012, the government had achieved

a 90% reduction in the number of

required business licenses.

To boost the private equity industry and

make it an essential component of

economic development and a lever for

growth, the government issued new

legislation on capital investment (Decree-

Laws 2011–99 and 2011–100) in

October 2011. These laws imposed a

new legal and fiscal framework to

broaden the scope of investment

activities, which should provide more

flexibility and incentives for private

investors. In 2012, the government also

embarked on an ambitious program to

reform the investment framework. This

will involve developing a new investment

policy/ strategy, revising the investment

code, and creating an investment

council. The new investment code will

provide improved market access to

restricted sectors and address the

Annex 3: Tunisia – Government actions in responseto MSME sector priorities since 2011

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disparities between onshore and

offshore regimes by leveling the playing

field and fostering greater integration of

the Tunisian economy.

Facilitating access to financing

In 2011, the government undertook a

reform of the financial system to improve

the governance of public banks and their

human capital, deal with non-performing

loans, and make public banks more

competitive with private banks. It also

overhauled the regulatory framework

pertaining to microfinance (Decree-Law

2011–117) and private equity to

accelerate the impact on direct and

indirect job creation. In addition, it

strengthened all government MSME

funds (the Banque Tunisienne de

Solidarité, the Bank for Financing Small

and Medium Enterprises, the National

Fund for the Promotion of Handicrafts

and Small Workshops, the Industrial

Promotion and Decentralization Fund,

the capital risk investment companies)

to help third-level graduates obtain

start-up financing without a personal

guarantee, and to extend technical

support and monitoring to clients

throughout the concept development

and start-up cycles (AfDB and OECD,

2012).

In October 2011, the Ministry of Finance

published the government`s new vision

for the microfinance sector, which raised

the ceiling on microcredit loans to

TND 20,000, broadened the scope of

microcredit to encompass microfinance

(e.g. deposit-taking, microinsurance,

non-financial services) and opened the

field to new types of actors that will,

in the medium term, lead to several

private companies developing Tunisian

microcredit/ finance services (Ministère

des Finances, 2011). Under the

Microcredit Law of 1999, only public

institutions and NGOs could be licensed

to deliver microcredit. The 2011

Microfinance Act provides the regulatory

and institutional framework for a

sustainable, demand-driven microfinance

sector, including creation of a new

supervisory body to license and

supervise microfinance institutions, as

well as to encourage compliance with

international standards of practice.

In September 2011, the government

created the Caisse des Depôts et de

Consignations, a new form of public

financial institution to address market

failures in the financing of large

infrastructure projects that promote

industrial zones and foster the creation

of SMEs in the interior. One of

the financial institution’s roles is to

launch government-sponsored equity

and mezzanine funds and credit

enhancement schemes, specifically

designed for early-stage support to

SMEs.

The government is also offering tax relief

to external investors (SME investors and

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venture capital companies investing in

SMEs) to strengthen the equity of SMEs.

Providing entrepreneurship and

MSME development support to

address regional disparities

The Ministry of Trade and Handicrafts

launched the Regional Program for the

Development of Handicrafts, 2011-

2016, a pilot initiative to create jobs

(including for new graduates) and

improve livelihoods in underdeveloped

regions. The program’s objectives are to

leverage the potential of the crafts sector

in economic development, stimulate

entrepreneurship and the creation and

development of enterprises, strengthen

the institutional framework to support

crafts of the region, and develop

opportunities for marketing of regional

handicrafts.

Strengthening access to markets

In an effort to improve SMEs’ access to

public procurement markets, the

government issued a decree in 2011

(Decree no. 2011–623) to strengthen

the legal framework for allocation of

government procurement contracts to

SMEs (previously laid out in Decree no.

2002–3158). The 2002 Decree had

stipulated that 20% of the total value of

public procurement would be set aside

for SMEs, but at most SME participation

reached only 7% of the value of

procurement contracts.

The 2011 Decree stipulates that

favorable financial conditions are to be

provided to SMEs to facilitate their

participation in tenders. This includes, for

SMEs under five years of age, exemption

of provisional bonds and of the

mandatory advance of 20% of the

contract. Information on the impact of

the 2011 Decree on SMEs’ participation

in public procurement processes is not

readily available. Export support has

been mainly directed to offshore

enterprises through use of tax incentives,

and this does not seem to have changed

much since the 2011 revolution.

Increasing innovation capacity/

support projects

The vision of the government is to

transform Tunisia into a knowledge-

based economy with higher-value

content. The objective of the new

national industrial strategy is to increase

the percentage of high knowledge

content in production from 25% (2009)

to 50% by 2016. This will require

a dramatic increase in the transfer

of knowledge and technology from

universities and research institutes to

private sector SMEs. According to a

2012 WIKI Start Up report, there are

15,000 researchers and 670 research

units in Tunisia, but still there are

major deficiencies in the system for

encouraging research-based spin-offs

and the commercialization of research

and development.

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Access to MSME finance

The vast majority of

international financial

institutions (IFI)/ donor

initiatives address barriers

to micro, small and

medium enterprises’

(MSMEs’) access to

financing. These include

injections of loan funds into

the Banque Tunisienne de Solidarité

(BTS) and Enda Inter-Arabe, an NGO, to

increase their capacity to extend

microcredit; funding for the new

MicroCred Tunisie; lines of credit to

banks for on-lending to MSMEs,

including credit lines to SMEs to

purchase goods from France or Italy; an

equity injection in the Amen Bank; an

Islamic SME fund to be administered by

the Bank for Financing Small and

Medium Enterprises (BFPME); two

new SME credit guarantee facilities;

and investments in two equity funds

(see summary in Box 4.1). In addition

there are five projects geared towards

improving the regulatory environment

for microfinance institutions, building

financial sector capacity, and developing

new financial products and service

offerings.

Almost 60% of the financing initiatives

are credit lines to banks to facilitate a

higher level of bank lending to MSMEs

(totaling almost US$600 million). In the

medium term, one of the outcomes

should be improved attitudes of bankers

towards SME lending.

However, it is also important to consider

other barriers to MSME lending, such as

the use of appropriate credit-scoring

mechanisms to assess risk, and the

capacity of MSMEs to prepare bankable

loan requests.

A much smaller proportion of the IFI/

donor MSME financing portfolio is

directed to increasing the amount of

available microcredit – the equivalent of

US$125 million, or about 12.3% of the

funding for financing initiatives – some of

Annex 4: Tunisia – IFI/ donor support

Lines of credit to beused by banks for

on-lending to MSMEs, $597.5

Equity participationin Amen Bank, $48.0

Loan guarantee facilities, $80.0

Investment in private equityfunds, $74.3

Sharia compliantloan programme,

$30.0

Micro-credit project, $125.0

Financial sectorcapacity building,

$9.8

Distribution of IFI/ donor funding (USD millions)

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which is specifically allocated for new

microcredit products and services to

fund start-ups by young entrepreneurs

(e.g. the Islamic Development Bank loan

channeled to the BTS and the Swiss

Agency for Development and Cooperation

(SDC) grant to Enda Inter-Arabe). This

contribution to the pool of Tunisia’s

available microcredit will help to address

the country’s underserved potential

market. In response to recent changes

to the Microfinance Law, it is noted that

several international microfinance

institutions (such as MicroCred Tunisia,

and Advans SA) are emerging, with

heavy support from the European Union

and various multilateral and bilateral

donors, to secure licenses to operate as

microfinance companies in Tunisia. As

these materialize over the medium term,

the microfinance landscape is expected

to change dramatically.

Box 4.1. MSME financing projects supported by donor/ IFIs, Tunisia

Microcredit lending:

• Arab Fund for Economic and Social Development (AFESD): loan to the government for the Banque Tunisienne de Solidarité (US$50 million, 2012-2014) to fund small private sector projects, to generate jobs and increase the pace of production and export of goods and services.

• European Investment Bank (EIB): local currency loan to Enda Inter-Arabe (Enda III Project) (EUR 4 million, starting in 2011) to finance expansion of Enda Inter-Arabe’s microcredit lending activity.

• European Union: establishment of MicroCred Tunisie (EUR 1.8 million subsidy, 2013), financing agreement with France-based MicroCred Group to establish a subsidiary in Tunisia to provide small loans to individuals and micro and small enterprises that have been excluded from the formal banking system, and to provide coaching for entrepreneurs in conceptualizing and launching their businesses; aims to reach 250,000 microcredit beneficiaries in first year (60% in underdeveloped interior regions).

• French Development Agency (AFD): loan to Enda Inter-Arabe (EUR 2 million, eight-year line of credit from 2013) to help Enda improve its loan coverage in rural areas, particularly underserved farming enterprises and agribusinesses.

• International Finance Corporation (IFC): loan to Enda Inter-Arabe (Enda II Project) (US$6.18 million, five-year line of credit from 2012) to increase outreach of Enda lending activities to micro and small enterprises.

• Islamic Development Bank (IsDB): loan to the government for the Banque Tunisienne de Solidarité (US$50 million, 2012) to increase lending to university graduates who want to start small projects (“Yes-tu” program), with priority on interior regions and enterprises in the dairy sector; and to support the BTS in developing Islamic financial products.

• KFW Development Bank: SANAD Fund for MSMEs loan to Enda Inter-Arabe (US$6 million, 2013-2017) to help Enda expand into the disadvantaged rural areas of Tunisia, increase its product offerings for young entrepreneurs, and strengthen its current microfinance activities.

• Swiss Confederation: local currency grant to Enda Inter-Arabe (about US$2.7 million, 2011) to launch the “Bidaya” loan product targeting 18- to 40-year olds who want to start a business, as a vehicle for reducing unemployment and creating jobs.

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SME lending through the banking system:

• African Development Bank (AfDB): SME line of credit to the Central Bank of Tunisia (through MSME Facility) (US$50 million, 2011-2016) to facilitate access to credit for SMEs in all 24 governorates (loans between TND 50,000 and TND 1.5 million through commercial banks).

• AFESD: loan to Banque de Financement des Petites et Moyennes Enterprises (US$30 million, 2012) to contribute to the financing of SMEs.

• EIB/ Facility for Euro-Mediterranean Investment and Partnership: Tunisia IV Global Loan (EUR 100 million), a credit line to be extended to Tunisian banks and leasing companies for SME lending.

• French Treasury Office: SME credit lines (EUR 40 million, 2012) to finance the purchase of goods from France.

• German government: line of credit (EUR 51.5 million) for SME lending.• IFC: Equity investment in Amen Bank (US$5.63 million, invested June 2013) to support an

increase in the Bank’s SME lending operations, make more bank financing accessible to SMEs, contribute to job creation in SME-client enterprises and provide capacity building on corporate governance and risk management.

• IsDB: Theemar Investment Fund (US$30 million, launched in February 2012), Sharia-compliant financing for SMEs concentrating on growth capital for relatively new businesses.

• Italian Cooperation: (i) SME soft loans for SMEs and start-ups (EUR 73 million, 2011); and (ii) SME credit line open (EUR 95 million, 2013) to facilitate purchases by Tunisian SMEs of technicalequipment and services of Italian origin under the Commodity Aid Program.

• Swiss Agency for Development and Cooperation (SDC): Swiss Fund for support and financingof SMEs in priority governorates (Kasserine, Sidi Bouzid, Le Kef and Médenine), implemented in partnership with the Banque de Financement des Petites et Moyennes Entreprises; also crosses over to entrepreneurship support (amount for actual financing of start-ups and SMEs not identified).

• World Bank: SME line of credit to the Central Bank of Tunisia (through the MSME Facility) (US$50 million, 2011-2016) to facilitate access to credit for SMEs in all 24 governorates (loans between TND 50,000 to TND 1.5 million through commercial banks).

Loan guarantee projects:

• AFD, EIB, IFC, and OPEC Fund for International Development: Mediterranean SME Guarantee Facility (US$30 million allocated to Tunisia out of US$200 million facility, starting in Tunisia in 2014) to guarantee local bank lending to SMEs.

• Overseas Private Investment Corporation (OPIC): Tunisia Credit Guarantee Facility (US$50 million, 2012) to guarantee bank loans made to SMEs with priority given to Tunisian franchisees and SMEs in the franchise value chain; implemented by the Middle East Investment Initiative.

Equity financing projects:

• AfDB: Maghreb Private Equity Fund III ( ̴ EUR 7 million for Tunisia [ ̴ 35% of the EUR 20 million invested in the regional fund], 2011).

• European Bank for Reconstruction and Development: Maghreb Private Equity Fund III (about EUR 7 million for Tunisia [about 35% of the EUR 20 million invested in the regional fund], 2012)* targeting equity investments of EUR 4 million to EUR 10 million in SMEs with potential to be regional players.

• IFC: Maghreb Private Equity Fund III (estimated US$7.6 million for Tunisia [about 35% of the US$21.7 million invested in the regional fund], 2012).

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• OPIC: Maghreb Private Equity Fund III (about EUR 18.375 million for Tunisia [about 35% of the US$52.5 million invested in the regional fund], 2011).

• Promotion et Participation pour le Cooperation Economique (PROPARCO): Maghreb Private Equity II (estimated EUR 3.5 million for Tunisia [about 5% of the EUR 10 million invested in the regional fund, 2011) for equity investing, coaching on strategy and financial management for SMEs and partnership development.

• United States Agency for International Development: Tunisian-American Enterprise Fund (US$20 million of initial capitalization, authorized in February 2012; launched in July 2013) will invest in SME projects and foster investment ties between American and Tunisian businesses.

Financial sector reform and capacity building:

• Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH (GiZ): promotion of the Microfinance Sector project (2012-2015) to advise the Minister of Finance in its role as regulator, supervisor and decision-maker with regard to the microfinance sector: covers implementation and development of the national microfinance strategy, establishing a supervisory authority, and improving the regulatory and institutional framework (i.e. credit information system for sharing customer data, microfinance observatory) – no contribution amount indicated.

• EIB/ Facility for Euro-Mediterranean Investment and Partnership: MicroMed Tunisia (EUR 4 million, 2012-2017) to improve the microfinance regulatory environment, build capacity among microfinance institutions so they grow responsibly, increase transparency of the sector, and facilitate the development of inclusive financial products (especially those designed for young entrepreneurs).

• Islamic Corporation for Private Sector Development: technical cooperation fund (EUR 168,630) to help the Bank for Financing Small and Medium Enterprises develop its service offerings, particularly the introduction of new Islamic banking products and services aimed at Tunisian SMEs.

• Middle East Partnership Institute: support to the financial sector through the Financial Services Volunteer Corps (US$1.8 million, 2011-2013) to increase bank lending to SMEs, develop the venture capital sector, and improve the legal and regulatory environment for financing entrepreneurs.

• World Bank/ IFC: MSME Technical Assistance Facility project (US$2.6 million, 2012-2015) to improve the enabling environment for access to finance (public credit registry, revision of regulation on excessive interest rates, corporate governance of microfinance institutions) and provide advisory services to financial institutions (SME banking, microfinance institutions, non-banking services); part of this funding amount (not disclosed) will be allocated to building capacity of SMEs (support and training through networks, mentoring and incubator-type services.

Note: *According to information obtained from officials at TunInvest during interviews in Tunisia in November 2012,between 30% and 40% of the Maghreb Private Equity Fund III will be invested in Tunisian enterprises. Therefore aproportion of 35% was used to calculate the amount of IFI/donor funding that would find its way into Tunisian SMEs.

The Islamic Development Bank’s Theemar

Investment Fund is well placed, given

research findings indicating that 30% of

SMEs do not seek external financing

because of the absence of Islamic

financing options. It is also timely, since the

government is advancing a proposal to

create a law that will facilitate the creation

of a more coherent legal framework to

support Islamic financing. The objective is

to develop more Islamic banking in the

country, and to make Islamic financial

products and services more competitive in

the market (e.g. by eliminating double

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taxation on transactions between the

Islamic financer and the asset provider and

between the financer and the SME client).

On the equity side, only 7.7% of the

value of financing projects is focused on

contributions to private equity funds

(about US$74 million). While the overall

demand for equity funds has not been

quantified, the private equity market in

Tunisia is underdeveloped. Consideration

should be given to allocating more

IFI/ donor funding to these types of

projects, while at the same time

addressing a gap in specialized funds to

support innovative start-ups and SMEs

coming out of the commercialization

of research and development. Such

funds could be directed at innovative

enterprises focusing on knowledge-

based, higher value-added sectors, such

as in information and communications

technology (ICT), the mechanical,

electrical and electronics sector,

biomedical applications, etc.

While there are a number of new initiatives

to support access to finance, access

to small loans for starting businesses

coupled with advisory, mentoring, and

monitoring services are rarely available,

although Enda Inter-Arabe’s new Bidaya

(launching) loan program for young

entrepreneurs is complemented with

pre-loan and post-loan counseling and

mentoring, as is BTS’s new “Yes-tu”

project for young microentrepreneurs.

The BFPME has a mandate to provide

advisory services to its loan clients but is

not able to perform this function well due

to a lack of resources. The follow-up

monitoring of loan clients can be a key

factor in their successful growth. The

capacity of financial institutions to provide

this service on a proactive basis should be

further supported in Tunisia.

Entrepreneurship development and

start-up support

Only about 3% of total IFI/ donor support

is targeted for Tunisian entrepreneurship

development and start-up support

(the equivalent of US$29.5 million). The

target for most of these initiatives is

unemployed, educated young people

(university and diploma graduates).

Some initiatives focus on supporting

a very limited number of promising

MSMEs and start-ups, and others focus

on improving access to entrepreneurship

development support services in selected

impoverished and underdeveloped interior

regions of Tunisia (see Box 4.2).

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Box 4.2. Entrepreneurship and business start-up support projects fundedby IFIs/ donors, Tunisia

• African Development Bank (AfDB), Department for International Development (DFID)(United Kingdom), and others: Souk At-Tanmia Pilot Project (EUR 1 million, 2012-2014), targeting young aspiring entrepreneurs in all regions but with a focus on underdeveloped regions.

• DFID, AfDB, the French Development Agency, and Arab partners: Mercy Corps Program “Tunisia Works – Tounis Takhdem! Employment and Entrepreneurship Support for Tunisian Youth” (US$3.2 million, 2012-2015), targeting students from tertiary education and vocational training, unemployed graduates and microentrepreneurs in the governorates of Gafsa, Kasserine,Médenine, and Tataouine, and improving access to appropriate financial products and business support services.

• German government: Mentoring and Microfinance Program (EUR 1.5 million), targeting new entrepreneurs with mentoring programs to develop ideas and access financing; part of program is to establish a regulatory authority for MFIs, help implement the national microfinance strategy, and improve its regulatory framework conditions.

• Islamic Development Bank (IsDB)/ MENA Transition Fund: Strengthening the Employability of Youth during Tunisia’s Transition to a Green Economy Project (US$4.42 million; approved July 2013) to review youth employment issues and challenges; develop and implement youth professional development projects in the green jobs market through training, eco-experience, mentoring, green business creation, and financial support; and build the capacity of employability and employment advisors. About 20% of the project is directed to green business creation. Implemented by the IsDB and the the Organisation for Economic Co-operation and Development with BTS.

• Italian Cooperation and the United Nations Industrial Development Organization (UNIDO): Youth Employment and Green Entrepreneurship Project (EUR 1.2 million, 2012-2015) to promote the creation and development of “green” manufacturing enterprises and to train young people in entrepreneurship in the governorates of Gafsa, Kairouan, Kasserine, Le Kef, and Sidi Bouzid (implemented by UNIDO).

• Italian Cooperation, the United States Agency for International Development (USAID), Hewlett-Packard Company (HP), with UNIDO: HP Learning Initiative for Entrepreneurs (HP-LIFE) (US$3.3 million, 2012), targeting students, aspiring young entrepreneurs, established microenterprises that want to improve their operations through the use of ICT in the governorates of Kairouan, Kasserine, Le Kef, and Sidi Bouzid; capacity building to improve the quality of services provided by local institutions to young entrepreneurs and develop enterprises with high-employment potential. Increased contribution from Italian Cooperation in 2013 to extend the project to Gafsa and Jenjouba.

• Swiss Agency for Development and Cooperation: Swiss Initiative for Employment and Rural Micro and Small Enterprises (I-SEMER Program) (US$7.8 million, 2011-2015), targeting unemployedpersons under 40 who want to start or expand a business, with an emphasis on young graduates and women, and promoting the creation of rural SMEs in Kasserine, Le Kef, Médenine,and Sidi Bouzid.

• United States Department of State: Global Entrepreneurship Program-Tunisia, targeting development of young entrepreneurs through mentoring and business plan competitions.

• United States government: Youth Entrepreneurship and Employability Program (US$3.8 million, 2012-2014), targeting young Tunisians and university students.

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Most of these projects are small in scale

in terms of the numbers of beneficiaries

(young entrepreneurs, SME owners) to

be reached. The Souk At-Tanmia Pilot

Project supported by African Development

Bank (AfDB), the Department for

International Development (DFID) and

others has had a large-scale reach

through its promotion efforts and call for

business idea proposals (5,000 entries,

with 2,000 business idea submissions),

however, it selected only 71 projects in

the 2012 competitive phase. The Islamic

Development Bank/MENA Transition

Fund Green Economy Project is

targeting 850 young people for “green

jobs” training and the creation of 50

clean-tech start-ups. The United States-

Middle East Partnership Initiative’s

Women’s Enterprise for Sustainability

Program intends to train 1,200 women

entrepreneurs in business development.

On the other hand, the Swiss Agency

for Development and Cooperation’s

(SDC) I-SEMER Program promoting

rural SMEs expects to create 10,000

jobs for young people; the Mercy

Corps Tunisia Works - Tounis Takhdem!

Project, financed by DFID, AfDB and

others, expects to train 3,500 young

Tunisians (but facilitate only 125

youth-led start-ups with job-creating

potential); the US government’s Youth

Entrepreneurship and Employability

Program expects to train and provide

start-up assistance to more than 4,500

young Tunisians, and entrepreneurship

training to an additional 500 university

students; and the HP-LIFE project,

financed by Italian Cooperation, the

United States Agency for International

Development (USAID), Hewlett Packard,

with the United Nations Industrial

Development Organization (UNIDO),

expects to reach 10,000 aspiring and

existing entrepreneurs. For other initiatives,

information on expected impacts was

not available.

• United States-Middle East Partnership Initiative:

(i) Partners for Tunisian Economic Development (US$200,000, 2012), targeting entrepreneurshipdevelopment among unemployed educated youth in 10 underserved interior regions of Tunisia, and using American and Tunisian MBA students to identify business opportunities/ entrepreneurialprojects, the best of which will be pushed forward with assistance from the Arab Institute of Business Leaders (IACE);(ii) Rural Business Development Organizations Project (US$2 million), capacity building to develop management skills of rural business organizations to become catalysts for entrepreneurship and employment; and(iii) Women’s Enterprise for Sustainability (WES) Program (2012-2014), capacity building of women’s organizations to provide training in entrepreneurship, leadership and ICT skills to help women entrepreneurs develop their businesses.

• World Bank/ International Finance Corporation: MSME Technical Assistance Facility project (2012-2015) – one component of the project involves building capacity of SMEs (support and training) through networks, mentoring and incubator-type services (no further details provided.

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Innovation capacity/ support projects

Support for building the innovation

capacity of SMEs is an area where there

does not appear to be much IFI/ donor

emphasis. Only about 1% of overall IFI/

donor funding is supporting innovation

capacity initiatives (see Box 4.3). The

two projects identified each have a

sector focus: the Sousse Mechatronics

Cluster project, financed by the French

Development Agency, is supporting

SMEs in the mechanical, electrical

and electronics sectors, important

export generators for Tunisia; and the

USAID-funded ICT Competitiveness

Project is targeting new enterprises and

SMEs in the ICT sector. Both projects

also aim to expand export market

opportunities.

In addition to the IFI/ donor projects directly

funding innovation support, the French

Development Agency (AFD) provided EUR

15 million in 2011 to help finance the

building of the National School of

Engineering in Bizerte, which will develop

human capital to foster innovation. The

school will graduate 400 engineers a year.

In 2011, the European Union provided

EUR 65 million for the Support Project to

the Research and Innovation System. This

project aims to reinforce the potential of

science and technology in economic

development, support technology transfer,

promote innovation and technology

in enterprises, and facilitate network

exchanges for scientific cooperation and

partnership with the European Union.

Regulatory reform support

Much more needs to be done to improve

the regulatory environment for private

enterprises, particularly MSMEs, which

suffer more from regulatory complexities

and costs. The inventory of IFI/ donor-

funded projects revealed three initiatives

totaling US$5 million (see Box 4.4), each

responding to an area of government

reform.

Box 4.3. Innovation Support Projects Funded by IFIs/ Donors, Tunisia

• French Development Agency: Sousse Mechatronics Cluster (EUR 750,000 grant, 2012-2014)

to support SMEs in the mechanical, electrical and electronics sectors.

• United States Agency for International Development: Information Communications Technology

(ICT) Competitiveness Project (US$8 million), targeting start-ups and SMEs in ICT sector.

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Initiatives supporting MSMEs’ access

to markets

Four IFI/ donor projects directed at

improving MSMEs’ access to markets

were identified in the inventory mapping

(Box 4.5). These totaled about US$8.4

million (less than 1% of the total value of

the mapped IFI/ donor-funded projects).

Two IFI/ donor initiatives are supporting

MSMEs and exporting – USAID’s

US$1.2 million SME capacity-building

initiative, and the United States Embassy

in Tunisia’s US$200,000 project to help

the Ministry of Trade and Handicrafts

to develop an export support strategy

and provide export-related support to

handicrafts producers. This is certainly a

critical issue because SMEs can make

a significant contribution to increasing

the export volume of a country. However,

SMEs often need assistance in

accessing export-related information,

developing an export strategy as part

of their growth objectives, preparing

themselves for meeting the international

requirements for product standards and

quality (a major objective of the Mise à

Niveau Program), and making contacts

in potential international markets.

Supporting the export readiness and

development of SMEs may be an area

where further IFI/donor support would

be beneficial in Tunisia. Integrating

MSMEs into the supply chains of large

enterprises and sector value chains is

another important avenue for facilitating

their access to markets. This is the

objective of the UNIDO/ SDC regional

project to upgrade value chains of

typical products, the greatest emphasis

being placed on Tunisian producers

in the agribusiness and traditional

sectors.

Box 4.4. Regulatory reform support projects funded by IFIs/ donors,Tunisia

• International Finance Corporation and Swiss State Secretariat for Economic Affairs:

Reform of Business Formalities Project (US$1.5 million, 2012-2014) to reduce time and cost of

doing business, especially for SMEs, through a review of all business formalities and their

elimination or simplification.

• United States-Middle East Partnership Initiative: (i) Commercial Law and Development

Program (US$2 million, 2012) to improve the MSME regulatory environment and the Franchising

Law; and (ii) Financial Sector and Regulatory Reform (US$1.5 million, 2012-2014), technical

assistance to Central Bank on financial stability issues.

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Development of MSME capacity

through technical assistance

Four IFI/ donor-funded initiatives aim to

improve the capacity of MSMEs to

develop their businesses (Box 4.6). The


Development program is promoting

good management practices; the United

Nations Environment Programme’s

GRECO initiative emphasizes green

competiveness; USAID places emphasis

on export diversification; the European

Bank for Reconstruction and

Development program provides a

business advisory service. Generally, there

is lack of IFI/ donor initiatives to support

the upgrading of SMEs. This may be

related to the fact that the government

has a long-standing upgrading program

in place, the Mise à Niveau Program,

which has been traditionally funded

through the European Union. However,

some studies and reports indicate that the

Mise à Niveau Program is more likely to

benefit larger firms and may not be

adequately serving the needs of smaller

enterprises. This may be an area for

considerably more attention by IFIs/

donors in the coming period.

Box 4.5. MSME market access support projects funded by IFIs/ donors,Tunisia

• United Nations Industrial Development Organization/ Swiss Agency for Development and

Cooperation: Upgrading value chains and facilitating market access project (US$5 million for

Tunisia from an approximately US$6 million regional project to improve socioeconomic conditions

of producers of typical products in Tunisia, Morocco and Egypt by upgrading value chains and

facilitating market access.

• United States Agency for International Development – SME Capacity-Building Project

(US$1.2 million, 2012-2014) to support SMEs as exporters (diagnostic and facilitation services).

• United States Embassy in Tunis – Export support strategy (US$200,000, 2012-2013) to

support the Ministry of Trade and Handicrafts in developing an export support strategy and to

provide counseling and other export support-related activity to Tunisian handicrafts producers

to help them access US markets.

• United States–Middle East Partnership Initiative – Public Procurement and Regulatory

Reform (US$2 million, 2012-2014) to support Tunisia’s Public Procurement Project by helping

adjust governance and compliance requirements to enable SMEs to participate in government

procurement.

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Economic and entrepreneurship-relevant

studies

The mapping of IFI/ donor-funded

initiatives revealed three economic

studies projects that will be

useful to inform policy actions

(Box 4.7).

Box 4.6. MSME capacity building and development projects funded byIFIs/ donors, Tunisia

• European Bank for Reconstruction and Development (EBRD): Small Business Support (SBS)

Programme (EUR 1.5 million, 2012); the Enterprise Growth Program and Business Advisory

Service, managed by the SBS team, are essential components of the EBRD transition toolkit,

promoting good management practices in SMEs by making advisory services available on a

cost-sharing basis, introducing international best practice, and helping to develop a sustainable

local consultancy market.

• United Nations Environment Programme: GRECO Initiative to encourage implementation

of “green competitiveness” and cleaner production systems in production-oriented SMEs

(launched in 2009).

• United States Agency for International Development: Tunisia SME Initiative 2012-2014,

aiming to support the growth of SMEs, diversify exports, and promote broad-based economic

growth. The initiative has two major components: the Tunisian-American Export Coaching

Program focusing on the textiles and clothing, tourism, agro-food, and business consulting

services sectors (partnering with the Ministry of Trade and Handicrafts); and training based on

the American small business development center (SBDC) model in Tunisia, which will help

Tunisia establish SBDCs to support business owners and entrepreneurs.

• World Bank (on behalf of the Japan Social Development Fund): Conditional Grants for Youth

Self-Employment (US$420,000, 2012-2014); component 3 of the larger (US$2.78 million)

project “Emergency Grant to Support Young Rural Tunisians Affected by Multiple Shocks”;

targeting up to 400 young microentrepreneurs who have been working as self-employed, both

in the formal and informal sector; conditional grants of about US$l,000 to cover costs of

equipment, training and individual coaching/ mentoring by senior entrepreneurs, plus group

mentoring, which will allow trainees to network with their peers and other business leaders.

Box 4.7. Economic and entrepreneurship-related studies funded byIFIs/ donors, Tunisia

• European Investment Bank, Facility for Euro-Mediterranean Investment and Partnership

Trust Fund: Study on the challenges of competitiveness and employment in Tunisia’s democratic

transition (EUR 200,000; 2011) to produce a roadmap to improve competitiveness.

• Organisation for Economic Co-operation and Development/ Deutsche Gesellschaft

für Technische Zusammenarbeit (GTZ – now GIZ): – Study on skills and competences for

entrepreneurship in Tunisia (EUR 60,000; 2012) to assess entrepreneurship education practices

in higher educational institutions

• United Nations Industrial Development Organization – Report on Youth Productive

Employment through Entrepreneurship Development in the Arab Region: state of the art of

interventions in Egypt and Tunisia (US$30,000; 2012).

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Achy, Lahcen (2011). “Tunisia’s Economic Challenges”, The Carnegie Papers, Carnegie

Middle East Center. Beirut: Carnegie Endowment for International Peace.

ADE (Aide à la Décision Économique) (2011). “Les défis de la compétitivité et de l’emploi

dans le cadre de la transition démocratique en Tunisie”, Rapport de phase 2, Volume

II: Annexes : Rapport, Lettre de Marché N°TA2011013 TN FTF. Louvain-La-Neuve,

Belgium: ADE.

AfDB (African Development Bank) (2011a). “Morocco: Country Strategy Paper 2012-

2016”. Tunis: AfDB.

AfDB (2011b). “The Revolution in Tunisia: Economic Challenges and Prospects”,

Economic Brief. Tunis: AfDB.

AfDB (2012). “Tunisia: Economic and Social Challenges Beyond the Revolution”. Tunis:

African Development Bank Group.

AfDB, MDRP (Regional Development and Planning Ministry) and the MCC (Millennium

Challenge Corporation) (2013). “Towards a New Economic Model for Identifying

Tunisia’s Binding Constraints to Broad-Based Growth”, A joint study by the African

Development Bank, the Government of Tunisia, and the Government of the United

States, Tunis.

AfDB and OECD (Organisation for Economic Co-operation and Development) (2012).

2012 African Economic Outlook. Paris: OECD Development Centre.

AFEM (Association des femmes chefs d’entreprises du Maroc) (2012). “Guide de

modélisation de l’incubateur: Guide Opérationnel de la Mise en Oeuvre des Incubateurs

d’Èntreprises de l’AFEM”. Casablanca: AFEM.

AMIC (Association Marocaine des Investisseurs en Capital) (2012). Annuaire des

Membres 2012/2013. Casablanca: AMIC.

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