Small- and Medium-Sized Enterprises (SMEs) account for over 80% of the enterprises in the Middle East and North Africa (MENA) region, and contribute a similarly high percentage of the region’s jobs. In comparison with larger firms, SMEs provide greater benefits to society in terms of job creation, and as a result, poverty alleviation.
Unfortunately, SMEs in the Arab world are too often hindered by a lack of access to three important requirements to grow and prosper—financing, business development services, and access to trade and capital markets. To help catalyze job creating industries in the region, Silatech partners with various investment platforms to provide SMEs with much-needed risk-sharing capital and business development services. To date, Silatech’s SME Unit has projects in Qatar, Tunisia, Morocco, Palestine and Egypt, with plans to extend to other countries in the region.
Silatech employs a three-pillar framework to give SMEs access to what they need to grow and thrive in today’s competitive global economy.
1. Access to Finance
Businesses need investment capital to grow. However, due to their perceived risk, SMEs in the Arab world face countless obstacles accessing capital from commercial banks. Lack of access to finance opportunities presents a serious problem for SMEs in the region.
To help bridge the finance gap, also referred to as the “missing middle,” Silatech’s SME Unit is developing partnerships with select country-level SME equity funds, with the goal of creating job opportunities for young Arabs by ensuring that SMEs have adequate financing to support their. Silatech focuses on countries with a healthy pool of SMEs, and on sectors and enterprises with the best potential for high growth and job creation. By providing seed and growth capital to invest together with our socially conscious equity fund partners, we work to open up access to finance for SMEs and spur the creation of sustainable, quality jobs.
2. Access to Business Development Services (BDS)
Access to capital alone is not enough for SME success, though. Financing needs to be accompanied by Business Development Services (BDS) that provide companies with the knowledge and tools they need to compete. In the Arab world, Business Development Services are minimal, and in many areas virtually nonexistent. Silatech’s SME Program works to alleviate this gap by providing SMEs with quality BDS.
Through its Innovation Management via Mentoring and Advisory (IMMA) program, Silatech provides Business Development Services to Small- and Medium-Sized Enterprises through a comprehensive 10-point system. The IMMA program is supported by Silatech’s first technical assistance facility (TAF).
3. Access to Markets
Access to finance and BDS is essential, but without access to regional markets, the growth potential of SMEs is constrained to their domestic markets. To help give SMEs access to the wider markets they need for long-term growth and expansion, Silatech is developing innovative new programs that will facilitate access to trade as well as junior capital markets.
Silatech’s SME Unit is developing a variety of initiatives to help give SMEs access to markets.
Qatar Exchange Venture Market
Silatech’s SME Unit is currently working closely with the Qatar Exchange (Qatar’s stock exchange) to qualify and list Small- and Medium-Sized Enterprises from across the Arab world on its recently-launched venture market. Expanding the scope of this initiative, Silatech is also working to facilitate cross-border investment through cross-listing SMEs at various junior stock exchanges within the region.
By forming sector-focused clusters of Silatech-funded SMEs—first on a national level and then across the MENA region—advantageous linkages can be built among complementary SMEs throughout the region. These SME Clusters will allow SMEs to benefit from mutual comparative advantages, and to gain access to new regional markets
Export Readiness Programs
Export Readiness Programs will provide guidance to SMEs regarding product design, productivity, and marketing for regional and international customers, as well as help them to establish their regional and international buyers’ database. By helping SMEs attain certified international standards, these Export Readiness Programs will thereby open up previously inaccessible regional and international markets for trade.
Investment in Equity Funding Platforms
Silatech collaborates with reputable public and private sector financial partners to invest in country-level SME equity funds in selected countries. So far, Morocco, Tunisia and Egypt have been countries of focus. Within each country, a diverse portfolio of SMEs in high growth industries receives investment designed to spur job creation.
Silatech’s approach to equity funding is to act not only as an investor, but also to play the role of a “social investor,” governing and mobilizing the funds to optimize the social and economic benefits delivered to each country. Once a track record of job creation, social and economic benefits is established, Silatech will then replicate its most impactful country level structures in regional models that will cover a wider geographical area, and serve the wider Arab world.
Over a five-year period (2011-2016), Silatech aims to unlock access to financing for over 200 SMEs across the Arab world, generating at least 15,000 sustainable jobs, and at least twice that number of indirect jobs.
IMMA 10-Point System
The Innovation Management via Mentoring and Advisory (IMMA) program is a 10-point menu of business development services made available to SMEs; it includes business planning , various capacity building services, back office services, and a number of “Access to Market” services. Within the IMMA program, an SME begins with the assessment phase, where the SME’s current position against industry competitors is benchmarked and analyzed. An action plan using the 10-point system is then tailored to improve the SME’s performance. Finally, an annual audit phase allows the SME to monitor progress as it implements the suggested improvements.
Technical Assistance Facility (TAF)
SMEs need Business Development Services (BDS) to improve productivity and quality, but too often are unable to afford them. To help break this finance trap, Silatech has established an innovative Technical Assistance Facility (TAF). The TAF enables cash-strapped SMEs access to multi-year, interest free subordinated debt to finance their BDS needs. So far operating only in Palestine, the Fund is a pilot program that will test the concept’s effectiveness and help to define an optimal structure before we move on to implement it across the region.
Regional Angel Investment Network
In an effort to spur entrepreneurship in Qatar and the region by providing access to startup finance, Silatech and the Bedaya Center are establishing a regional “angel investment network.” Set to launch in fall 2012, the network will match start-up and early stage entrepreneurs with influential, high-net-worth individuals positioned to become “business angels.” The platform will originally be based out of Qatar, and will ultimately expand to include other countries within the region as well. By giving priority to the “knowledge economy” sector, the platform is expected to help spur the development of an entrepreneurial ecosystem in Qatar, and eventually the wider Arab world.
Silatech’s SME PU is leading the initiative and acting as an institutional angel, supporting the model with a “seed fund” that will serve entrepreneurs and lay a strong foundation for the model’s future implementation throughout the region. The network itself is by various educational and awareness programs directed towards entrepreneurs and prospective “business angels,” helping to influence the local culture and mindset to become more supportive of entrepreneurs and SMEs.
Project Name: MarocInvest PME Croissance Fund
Inception date: March 2013
Current status: Implementation phase
Expected outcomes: The creation of more than 5,000 job opportunities over 10 years, through the SMEs that the fund will finance and support
Countries covered: Morocco
Description: This is a country level fund, with Silatech acting as a co-investor along with other public and private co-investors. The fund will invest equity and quasi-equity in SMEs established in Morocco that have innovative business models or provide innovative products and services.
Project Name: TunInvest Croissance FCPR Fund
Inception date: January 2013
Current status: Implementation phase
Expected outcomes: The creation of more than 2,500 job opportunities over 12 years, through the SMEs that the fund will finance and support
Countries covered: Tunisia
Description: This is a country level fund, with Silatech acting as a co-investor along with other public and private co-investors. The fund will invest equity and quasi-equity in SMEs established in Tunisia that have innovative business models or provide innovative products and services.
Project Name: Technical Assistance Facility (pilot program)
Inception date: Early 2013
Current status: Structuring phase
Expected outcomes: The pilot phase of the TAF is expected to serve up to 40 SMEs in Palestine over a 6-year period, creating over 300 direct jobs in the process. Upon successful implementation of the pilot, the TAF may be expanded for regional application.
Partner(s): Siraj Fund Management
Countries covered: Palestine, regional (after pilot)
Description: The TAF was developed to facilitate the access of SMEs in Palestine to the services of the IMMA Program through a 3-year, interest-free, subordinated debt. SMEs in Palestine can therefore benefit from the comprehensive capacity building services included in the 10-point system of the IMMA Program.
Project Name: Sila Angel Investment Network
Inception date: October 2012
Current status: Operational
Expected outcomes: This regional angel investment network is expected to mobilize investment opportunities for up to 18 startups by the end of 2013, contributing to the knowledge economy sector of Qatar and spurring interest in and awareness of the angel investment model. Upon successful implementation of the pilot in Qatar, the network will be upscaled to the regional level.
Partner(s): Enterprise Qatar (EQ), Qatar Development Bank (QDB), Bedaya Center (Founding Partners); Qatar Foundation (Knowledge Partner)
Countries covered: Qatar, regional (after pilot)
Description: The Sila Angel Investment Network is an initiative that aims to match entrepreneurs from across the MENA region with “business angels” to provide them with startup and growth capital. The program also includes various educational and awareness programs for entrepreneurs and prospective business angels.