Micro and Small Household Enterprises in Egypt: Potential for Growth and Employment Generation

Micro and small enterprises (MSEs) comprise an important sector of the Egyptian economy and account for a substantial portion of employment outside the public sector in the wake of the 2008 financial crisis and the January 25th, 2011 revolution, it is therefore important to update analyses of trends in MSE development and assess the potential for growth in the sector. In this paper we examine changes in micro and small household enterprises across the 1998, 2006 and 2012 rounds of the Egypt Labor Market Panel Surveys (ELMPS), and present new data from the expanded ELMPS module on the financial status of household enterprises. Our findings indicate that substantial constraints to the growth of the MSE sector continue to exist, and may have been exacerbated by the difficult economic conditions prevailing in Egypt over recent years. The overall percentage of households reporting an enterprise has declined since 1998, particularly in rural areas and in Upper Egypt. The MSE sector also continues to be dominated by micro enterprises with fewer than five workers. A trend towards formalization of the MSE sector observed between 1998 and 2006 has been reversed, with the percentage of MSEs operating informally increasing slightly between 2006 and 2012. On average, informal enterprises report lower asset holdings, capital values and monthly revenues than formal ones. The large majority of household enterprises, whether formal or informal, are financed through personal sources, despite programs put in place to provide loans to MSEs. In this context, initiatives to support MSE start-ups and expansion need to be reinvigorated, including not only financing but also business training, and reforms to alleviate regulatory constraints and barriers to formality.