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Big players could benefit from funding smaller start-ups

Despite an abundance of liquidity, smaller firms more often than not left out of the investment loop — “big players” — are not interested in investing in companies worth less than LE 50 million, said Hassan El-Khitab, managing director North Africa for the Carlyle Group. Leaders from the private and development sectors convened on Oct. …


Despite an abundance of liquidity, smaller firms more often than not left out of the investment loop — “big players” — are not interested in investing in companies worth less than LE 50 million, said Hassan El-Khitab, managing director North Africa for the Carlyle Group.

Leaders from the private and development sectors convened on Oct. 20 at the second Euro-Mediterranean Conference to discuss donor funding, banking and novel financial instruments.

The inability of micro, small and medium enterprises (MSMEs) to access critical funding to drive their businesses forward was the overriding theme. “Every country has made SME support a top priority, and Egypt needs to do the same,” El-Khitab said.

Mohamed Farid, vice chairman of the Egyptian Exchange, pointed out that SMEs play a vital function of the economy, as in the end they lead to higher growth, which in turn leads to high living standards for a country.

Supporting this contention, Christophe Malherbe of Jordan Enterprise Development Corporation, pointed out in his presentation that in France, 80 percent of government investments are targeted toward SMEs worth less than €50 million, while that is not the case in the Middle East and North Africa (MENA) region.

El-Khitab added that if venture capital and private equity are not injected into SMEs, a serious opportunity for economic growth will be “missed.”

Basel Hussein Roshdy, CEO and general manager of Nile Capital and IT Ventures, added to concerns, stating, “Funds are being created, but no action is being taken.” Only 10–15 percent of SMEs have access to financing in the MENA region, while this figure is significantly higher for larger firms, attaining around 36 percent.

In El-Khitab’s view, 10 more major funds are needed that focus on MSMEs, adding that the extra support needed to get such ambitions off the ground could be found in public-private partnerships.

As well, Roshdy opined that more venture capital and private equity funds for MSMEs need to increase their focus on riskier funding opportunities.

Farid said that, in his opinion, part of the problem the sector is facing is the low awareness on the part of fund mangers about opportunities, adding that this stems from the a lack of transparency within MSMEs. This lack of transparency leaves potential investors wary.

Rym Ayadi, head of research at the Center for European Policy Studies, highlighted that despite the MENA region’s luring of €56 billion in foreign direct investment (FDI), the total FDI pie for developing countries sits at around €500 billion, signifying that more can be done. Both international donors and policy makers are now beginning to recognize that MSMEs “are at the center of Mediterranean development,” she added.

Against this backdrop, the Europeans, especially the French, are keen to create a Euro-Mediterranean co-development bank.

She mentioned that it would be possible for such a project to come to fruition in the coming months, but given the lengthy decision-making procedure — which would require an agreement of all 27 European Union member states — the realization of such a project could take years.

In Egypt, Farid noted that the Egyptian stock exchange launched the Nilex, the first and only exchange in the region specializing in SMEs, which should be a new avenue through which small firms can raise capital.

He added that in order to facilitate the listing of companies on the new exchange, requirements were relaxed and the disclosure requirements were on par with larger firms, which are considered to be less risky investments than smaller SMEs.

Roshdy added that given that SMEs have limited access to external financing, they therefore represent a major opportunity for private equity and venture capital firms.

 

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Trade Minister Rachid Mohamed Rachid speaks at the conference.

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