Enhancing the Role of SMEs in the Arab World—Some Key Considerations

Policy Papers, December 13, 2019

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Small and medium-sized enterprises (SMEs) are a cornerstone of Arab economies, accounting for over 90 percent of all businesses and providing a major source of new job creation.
Governments across the Arab World recognize the important role that SMEs can play in delivering higher and more inclusive growth and have placed SME development at the center of growth and jobs strategies to meet the needs of young populations.
Authorities have initiated policy interventions and schemes to support SME development, but progress so far has been patchy, and more comprehensive policy action is needed.
Fostering vibrant and competitive SMEs that contribute to employment opportunities and high value-added output requires various stakeholders to deliver on a broad range of factors.

Access to finance: Gaps in SME access to finance constrain SME growth and scaling.
Business environment: Regulatory and institutional barriers limit firm formation, formalization, and competitiveness.
Human capital and infrastructure: Skills mismatches and infrastructure shortfalls hinder SME productivity and ability to move into higher value-added activities.
Mindset and ecosystem: Promotion of an entrepreneurial mindset and supportive ecosystems is necessary to encourage innovation and dynamism among SMEs.

Adopt a holistic policy approach that addresses multiple, interrelated constraints rather than isolated interventions.
Improve access to finance for SMEs through targeted financial instruments and broader financial inclusion measures.
Create an enabling business environment by streamlining regulations, reducing administrative burdens, and strengthening institutions that support SME development.
Upgrade human capital through education and training aligned with market needs to raise SME productivity and absorptive capacity.
Invest in infrastructure that supports SME operations and market access.
Promote an entrepreneurial mindset and ecosystem to foster firm dynamism, innovation, and higher value-added activity.