Egyptians Are Divided Over Move to Help Small Business

WALK down any street in Cairo. Everywhere tucked into small crevices and cubbyholes there are people working. There is the man seated at his sewing machine in a shop so small he is almost buried by his materials. In a tiny room next door, the shoemaker shapes leather to a wooden model while his assistant cuts the heels. The furniture gilder across the street covers newly made chairs and sofas in gold, with his finished products hanging from the rafters.

These are the small entrepreneurs of Egypt, an increasingly important sector of the economy, as the government attempts to move toward a freer market. This is also a group targeted by the World Bank's Social Fund for assistance to help the poor survive the hardship created by International Monetary Fund (IMF) reforms.

"It's one good way Egypt can expand the economy and the private sector and give a better life to people at the bottom end of the ladder," said Greg Huger, director for trade and investment at the United States Agency for International Development (AID).

Controversy has arisen, however, over whether this money could be put to more effective use.

"If you concentrate on small businessmen, that means you are choosing a fragment of what we call the poor," said Kareema Korayem, an economics professor at Al-Azhar University. "They do not represent the large segment of the poor."

After three and a half years of negotiations, Egypt finally signed an agreement with the IMF in May. Besides bringing millions of dollars in aid and rescheduling billions in debt, this accord also means price and tax increases, tough measures for the population to absorb.

The Social Fund, still in the planning and financing stages, hopes to begin operations this September with $500 million available to help the vulnerable groups survive these reforms.

There are an estimated 300,000 small and micro (even smaller) businesses in Egypt, workshops of one to 15 employees making a variety of products, including clothes, leatherware, wood, metal, and plastic products. These are men and women who took matters into their own hands and started businesses when Egypt's soaring population of 56 million (increasing by 1 million every eight months) and its faltering economy made jobs rare.

Coming from a socioeconomic class that did not frequent the neighborhood bank, many of these people could not take out loans, and were frequently forced to borrow from suppliers who charged exorbitant interest rates, as high as 10 percent per month, according to engineer Nabil Elshamy, executive director of a small and micro enterprise project in Alexandria.

In the last few years the Egyptian government, AID, and other groups began programs to make it easier for these people to get money at lower interest rates.

One such project in Alexandria, financed by AID and managed by the Alexandria Businessmen's Association, has made over 3,000 loans with a repayment rate of 99.24 percent.

While no one questions the need for small entrepreneurs to receive assistance, some say more attention should be given to the poorer segments of Egyptian society.

Ms. Korayem suggests defining the poor as those people without jobs, living below the poverty line. "These are the segments who should really be compensated for the negative impact of structural adjustment," she says.

She suggests allowing them to buy essential commodities at lower prices, or exempting farmers owning less than two acres of land from paying taxes.

Ibrahim El Issawi, an economist with the Institute of National Planning, suggests the fund promote productive investment activities, including building new factories, expanding agricultural land, or financing transportation.

The Social Fund targeted projects like the small and micro enterprise project for assistance because they are already established systems that create jobs and have the potential of being self-sustaining, according to Sohair Habib, a Fund administrator. Being a five-year program, the Social Fund needs to disburse money quickly, and also serve the most effective use possible.

Other programs include financing labor-intensive projects with the private sector in rubbish collection or pavement and gutter repair and improving unused equipment such as the public bus system.