The Role of Micro and Small Enterprises in Egypt’s Economic Transition

The success of Egypt’s transition to democracy will depend crucially on the ability of the democratically elected leadership to develop and implement a new economic vision that responds to the aspirations of the millions of youth who have so far been marginalized. Future growth needs to be much more inclusive than in the past. Therefore, encouraging youth entrepreneurship and the development of small businesses have to be central to any new growth strategy.

This paper focuses on the economic aspects of Egypt’s transition. It argues that while past economic policies (especially starting in 2004) achieved high growth and poverty reduction, they failed to be inclusive as they left millions of Egyptians trapped in lower middle-class status living on $2 to $4 a day and provided few opportunities for youth who felt economically and socially excluded. There was an increasing sense that the system was “unfair,” which explains the strong demands for social justice. Inclusive growth could be achieved by shifting away from a system of crony capitalism that favored large and established enterprises to one that focuses on developing small businesses and on creating more opportunities for young men and women. The paper uses enterprise surveys from 2003, 2008, 2010 and 2011 to describe the Egyptian micro and small enterprise (MSE) sector and identify key obstacles to its development. It concludes by proposing a two-pronged strategy for the expansion and modernization of the MSE sector: a macroeconomic and regulatory environment that is conducive to the development of MSEs, and specific interventions to support the sector and encourage young entrepreneurs.