Conclusions of the MENA-OECD Working Group on SME and Entrepreneurship Policy 2024
MENA-OECD SME Working Group SME and Entrepreneurship Policy
Empowering SMEs in MENA: Navigating digital and green transitions, access to finance and formalisation
The 13th meeting of the Working Group was organised in cooperation with its two co-Chairs, Mr Kamel Hendaoui, Director General of the General Directorate for the Promotion of SMEs, at the Ministry of Industry, Energy and Mines of Tunisia, and Ms Ludovica Agro, Former General Director of the Italian Agency for Territorial Cohesion. The meeting benefited from the support of the Egyptian Micro, Small and Medium Enterprises Development Agency (MSMEDA), whose Executive Director, Mr Bassel Rahmy, delivered opening remarks.
The Working Group discussed key issues to enhance SME performance and the SME and entrepreneurial ecosystem, considering the current the current regional and global situation as well as emerging trends that could impact the long-term competitiveness and sustainability of the business sector. While the agenda featured sessions dedicated respectively to access to finance, transition to formality, green and digital transitions, and public-private dialogue as a practice to make policy making more fitting, discussions during the two-day meeting confirmed the cross-cutting nature of the issues and the importance of keeping a holistic approach to identify suitable policy solutions.
The 2025 renewal of the MENA-OECD Competitiveness Programme presents a valuable opportunity to update and expand the focus areas of the MENA-OECD Working Group on SME Policy and Entrepreneurship. Based on feedback received during the meeting, the following points are proposed:
The Working Group would prioritise strengthening the connections between the region's efforts to address financial gaps hindering private sector growth and the challenges posed by the informal economy and the digital and green transitions.
Building on the emphasis participants placed on skill development and upgrading for a thriving regional business ecosystem, the Working Group would prioritise integrating skills development more effectively into its work programme for the upcoming mandate.
Moreover, the Working Group will reinforce the promotion of cross-border partnerships between economic actors across the MENA region and OECD countries, to enhance the integration of SMEs in the regional economy. For this, platforms such as the MENA – OECD Business Advisory Board will be further leveraged.
Finally, responding to the call for expanded use and development of applied data and policy tools, the Working Group would leverage existing initiatives and policy tools that proved effective, like the OECD D4SME and the SME Financial Scoreboard, and would consider resuming the MENA SME Policy Index to further support regional efforts to improve the business environment in the region.
Access to finance for entrepreneurs
A significant barrier to effective financial resource utilisation among MENA entrepreneurs is inadequate financial literacy. Initiatives to improve financial knowledge are essential to empower entrepreneurs in making informed financial decisions.
Participants discussed the challenge of securing adequate financing for entrepreneurs in the MENA region. It was noted that financial literacy among entrepreneurs is often insufficient across SMEs in the region, hindering their ability to effectively utilise available financial resources. To address this, initiatives aimed at enhancing awareness and financial knowledge are essential. Participants also highlighted the need to support women-led businesses and women entrepreneurs with specific financial inclusion programmes aiming at closing the financial gap.
The Working Group noted the role policy makers can play to incentivise private financial institutions to support early-stage ventures through favourable regulatory frameworks and collaborative initiatives. Participants welcomed leveraging the support of public institutions to promote SME access to finance, yet called for a careful management to ensure these institutions complement rather than compete with private banks. Notable examples of good practices included the creation of the Saudi SME Bank, which intends to support the contribution of the SME sector to GDP from 20% to 35% by 2030.
The meeting also addressed the burgeoning field of Fintech, identifying key challenges such as establishing a risk registry for borrowers and ensuring secure communication with lenders. A multi-faceted approach involving regulatory improvements, the introduction of regulatory sandboxes in countries like the UAE, capacity building, and innovative financial solutions was recommended to foster a robust financial ecosystem for MENA entrepreneurs.
Median growth rate of outstanding loans to SMEs by country group
Formalisation of business and labour in the MENA Region
Business and labour formalisation are critical for sustainable economic development. Countries need to advance their understanding and monitoring of informal employment and businesses through improved data collection, analysis, and policy interventions that target the informal sector.
Defining and measuring the informal economy to effectively address its implications remains a major challenge; the ILO Recommendation 204 concerning the Transition from the Informal to the Formal Economy and subsequent ILO work provide guidance on the matter of definitions and measures. Morocco’s experience of applying alternative methods, such as the currency demand approach or multiple indicators multiple causes approach, was evoked as a good example of measuring efforts at the country level.
Participants underscored the necessity of focusing policy approaches on incentives for formalisation, addressing taxation and social security. Participants agreed that a well-structured tax system can reduce the burden on small enterprises and encourage their transition to the formal sector. Simplifying tax procedures and providing tax relief for newly formalised businesses can serve as significant incentives.
Participants also agreed on the positive potential impact of integrating informal businesses into the social security system, to ensure access to essential benefits such as healthcare and pensions, which may not only improve worker welfare but also enhances business stability and growth. Examples of implemented incentive mechanisms included Egypt’s temporary tax exemptions for small businesses and the development of the Egyptian National Formalisation Strategy, that will be integrated in the country’s National SME Strategy, highlighted as a case in point. Such measures are seen crucial in creating a business environment where formalisation is seen as beneficial and attainable.
Promoting a culture of formality was also deemed essential, with governments playing a central role in fostering this mindset among the population. Policy programmes and schemes for vocational training and skills development were recognised as vital tools for encouraging formal employment and business practices.
Public-Private Dialogue Initiatives for SME and entrepreneurship promotion
Effective PPD requires commitment from both sides, transparency, and a structured approach to ensure that the voices of SMEs are included in the process, and their needs addressed.
Discussions on public-private dialogue (PPD) centred on how the existing PPD initiatives implemented by MENA countries are supporting SME and entrepreneurship development in the MENA region. The First Vice President of BUSINESSMED, Mr Tarek Tawfik, led the discussion providing a national and regional perspective on ongoing PPD initiatives and engagement dynamics. There was wide agreement on the benefits of PPD for designing effective policy solutions; indeed, the dialogue facilitates mutual understanding and cooperation between the public and private sectors, leading to more informed and impactful policies.
However, different views were expressed by delegates concerning the ability of existing PPD processes to regularly involve all categories of enterprises in the business population and to adequately reflect their diverse and specific instances.
The session underscored the importance of enhancing public-private dialogues as standing platforms for dialogue, backed by robust institutional frameworks. The MENA-OECD Business Advisory Board and the OECD-led PPD methodology for private sector development were highlighted as valuable instruments to this end.
Greening of SMEs and impact of Green Transformation on SMEs
Supportive policies and incentives are crucial for shaping the business landscape for SMEs in the MENA region amidst energy and climate challenges. Integrating sustainable practices into SME operations is essential, offering both environmental benefits and opportunities for business resilience.
The meeting debated how SMEs can integrate sustainable practices into their regular operations. At the same time, greening SMEs was recognised as central to achieving environmental sustainability goals. Collaboration between SMEs and larger companies on green innovation projects was highlighted as a crucial strategy for accelerating the green transition. Governments can encourage cooperation on transition through grants, subsidies, and policy incentives. The SME Climate Hub implemented by the United Arab Emirates (UAE) was cited as an effective model for fostering collaboration and integration of SMEs in the global efforts to mitigate and adapt to climate change.
Importantly, participants noted the green transition reliance on an upskilled workforce; thus, initiatives to support skills development in small firms are essential. Policymakers were urged to create frameworks that facilitate these initiatives to enable the adoption of green technologies and practices in all businesses independently of their size. The meeting also discussed the importance of establishing green certification programmes for SMEs to enhance their marketability and competitiveness.
The Digital Transition for SMEs in the MENA Region
The digital revolution and the digital transformation of SMEs in the MENA region offer significant opportunities for enhancing competitiveness and accessing new markets.
Existing policies and initiatives supporting digital transformation such as the Digital Egypt Initiative, were highlighted as models to follow, with a call for more comprehensive strategies at regional level. Participants discussed the potential of e-commerce platforms to provide SMEs with greater market access and the importance of cybersecurity measures to protect digital enterprises.
Key obstacles, such as limited digital literacy and infrastructure, were identified. Participants concurred that fostering public-private collaborations in this area would help to create an ecosystem conducive to digitalisation.
The meeting emphasised the importance of addressing the digital divide to ensure all SMEs can benefit from digital transformation. Recommendations from the OECD D4SME Initiative (Digital for SMEs - OECD Digital for SMEs Global Initiative) include enhancing digital skills, improving access to digital tools, and ensuring a just transition for workers affected by automation of production processes.
Source: OECD D4SME 2023 survey
The important role of international collaboration, exchange of best practices for mutual learning and capacity building in fostering a thriving ecosystem for businesses in the MENA region. The Working Group recognised the mutual benefits of shared learning and collaboration between MENA and OECD countries and called for enhanced regional cooperation within MENA to design and promote innovative policy frameworks that can improve the business environment for SMEs and entrepreneurs. To that aim, several participating countries expressed interest in relaunching the SME Policy Index for the MENA region.
Access to finance remains a critical obstacle to business creation, formalisation, women’s economic empowerment, growth, green and digital transitions. The meeting agreed that a sensitive approach to financing involves diversifying the offer to serve the different financial needs of the heterogeneous population of small enterprises; designing effective regulation for Fintech, to realise the potential of Fintech and ensure at the same time consumer protection; and investing in financial literacy and awareness of available financial tools and existing programmes and initiatives.
There are different reasons why informality persists in several MENA countries. If policy measures that simplify and reduce administrative and fiscal burdens were recognised as crucial, the meeting stressed the importance of investing in training and skills development to encourage transition from informality and facilitate formalisation, with cooperation between the public and private sectors to identify the emerging needs for skills and competencies and enable the match between demand and offer of labour.
Investing in skills and training can address at the same times issues related to the diversification of the economy but also to the rights to decent working conditions for all and to creating opportunities of quality jobs for young people.
The success of the green transition relies on a skilled workforce. Initiatives to support skills development in small firms are essential. Establishing green certification programmes can then enhance SME marketability and competitiveness.
For the digital transition to be beneficial to all, policies and initiatives to accompany the transition need to take a comprehensive and inclusive approach. Lessons from the OECD Digital for SMEs Global Initiative (D4SME) highlighted the importance of ensuring a just transition for workers affected by automation and other changes brought about by digital transformation. Moreover, targeted policies should as well increase awareness, resources, and expertise to enable SMEs assess their digital risk exposure and implement appropriate prevention and remediation measures.
Effective PPD requires a structured approach, transparency, and commitment from both the private and public sectors. Establishing regular platforms for dialogue, already a reality in many countries across the region, supported by robust institutional frameworks, ensures that the voices of SMEs are heard, and their needs addressed. Moreover, a cultural change should be encouraged to make the dialogue “pervasive”, which means creating opportunities of dialogue between the public and private sectors in different setting and forms that can be more or less structured depending on the specific context. What matters is that this dialogue exists, as it is crucial for developing policies that are implementable and effective.
