TECHNICAL ASSISTANCE

XII - Support for small/medium-sized enterprise development/Empretec

Context and rationale

The Palestinian economy is dominated by micro, small and medium-sized family- owned enterprises exhibiting a high sole proprietorship ratio of 90 per cent in 1997. Microenterprises employing fewer than five people constitute the majority, accounting for 91 per cent of registered enterprises in 1997 (70,000 out of 77,000 enterprises). The number of small enterprises employing 5-9 persons was 6350, while medium-sized enterprises employing 20-50 persons did not exceed 650. Around 90 per cent of the enterprises are involved in labour intensive manufacturing activities, including food and beverages, furniture, footwear, textiles and apparel, fabricated construction materials, and motor vehicle parts and accessories. In the services sector, the largest subsectors in terms of employment and value-added contribution are education, health and social work, real estate, rental and business activities, hotels and restaurants.

While the limited size of the domestic market necessitates active participation in international trade, most of the enterprises are ill equipped to compete in regional and global markets. They suffer from a paucity of managerial skills and exhibit low levels of gross capital formation (both absolute and per labour input) that are inadequate to cover the depreciation in capital stocks, causing a chronic deficit in net investments and preventing them from improving their technological capabilities. Meanwhile, the declining terms of trade for labour-intensive products poses increasing challenges for Palestinian enterprises that have succeeded in establishing a presence in international markets.

Despite their potential for generating new employment opportunities and strengthening export-oriented activities, SMEs are marginalized from development strategies, while the impact of donor-funded programmes has been limited by the lack of adequate coordination.

In 1999, the PA requested that it be included in UNCTAD's integrated programme for promoting SME development (Empretec). Taking into account ongoing donor-funded programmes targeting the sector, a project proposal was prepared in close consultation with the PA under which UNCTAD/Med 2000 will be responsible for executing the programme over a period of two years in cooperation with a Palestinian counterpart institution that will be hosting the Empretec programme.


Objectives

To establish a sustainable institutional set-up that would mobilize and channel critical business support services to SMEs while avoiding isolated interventions and piecemeal approaches. The project also seeks to help entrepreneurs enter into strategic alliances with financial institutions.

Main activities

A preparatory phase focusing on conceptualizing and designing a tailor-made, functional Empretec programme for the Palestinian territory over a period of six months. The Palestinian SMEs' needs were thoroughly assessed before identifying a local counterpart for implementing the programme and designing a funding strategy.

Phase I is the implementation phase, including:

1. Establishment of an institutional framework, which will include the following:
   
   

   • Installation of an Empretec Business Support Centre;
     
   • Recruitment and training of staff;
     
   • Creation of an Empretec entrepreneur association;
     
   • Formation of a Management Advisory Committee;
     
   • Development of an institutional network of service providers;
     
   • Creation of mechanisms to foster public-private sector dialogue.
     
     

2. Elaboration of a national training and support capacity:
   
   

   • Translation, adaptation and customization of all training materials/tools into Arabic;
     

   • Identification and training of two Palestinian trainers in English and Arabic;
     
   • Transfer of selection and interview methodology to local institutions;
     
   • Training of local staff in business support mechanisms, as well as over 100 entrepreneurs and managers of SMEs with growth and innovation potential, and two national/regional trainers;
     
   • Identification and installation of follow-up modules;
     
   • Development of mechanisms to access project financing for project beneficiaries;
     
   • Negotiation of cooperation agreements with other local institutions.
     
     
3. Provision of support services to selected entrepreneurs and enterprises, including:
   
   
   • Conduct of the entrepreneurship workshop;
     
   • Business plan analysis and preparation;
     
   • Provision of specialized follow-up services;
     
   • Referral of entrepreneurs to other support programmes;
     
   • Assistance in the negotiation of project finance;
     
   • Facilitation of business partnerships.
     
     

4. Integration of Empretec Palestine into the regional and international network of Empretec programmes through:
   
   

   • Staff participation in annual Empretec directors' and trainers' meetings;
     
   • Inclusion of Palestinian entrepreneurs in Empretec database;
     
   • Establishment of contacts between Empretec Business Associations;
     
   • Joint organization of training and business partnering activities in the region;
     
   • Organization of regional training activities.

Special cooperation is envisaged with the Palestinian Federation of Industries (PFI) to recruit programme beneficiaries and to access sector-specific technical support. Empretec Palestine will also closely coordinate activities with UNIDO's industrial upgrading programme, located in the PFI. Furthermore, UNIDO is providing Empretec with its business monitoring software, and UNCTAD and UNIDO have agreed to jointly develop a programme concept to support the development of SMEs in selected industrial subsectors (possible Phase II). With regard to accessing specific technical follow-up services, Empretec has already established close contacts with the Market Access Programme (MAP) of the United States Agency for International Development (USAID) to facilitate the referral of clientele between the two programmes.

A small functional Management Advisory Committee (MAC), composed of a coalition of selected local public and private stakeholders in SME development in the Palestinian territory, will oversee project implementation and ensure that Empretec Palestine becomes a sustaining support structure by the end of the international funding cycle. The presence of representatives of local support structures will rationalize activities and strengthen integrated interventions in SME development. It could also strengthen public-private sector interaction and influence the PA in the formulation of SME policies and laws. With the help of support staff, a small team of highly qualified staff, headed by a local Programme Director, will select, train and assist potential entrepreneurs in all aspects of business creation.

At the end of this phase, the Empretec activities will be consolidated and expanded within the operational budget of the Palestinian counterpart institution in order to consolidate and expand the Empretec programme.

During Phase II, a second office and service structure will be established in Gaza, depending on resource availabilities.

Status

With seed-funding of US$ 300,000 from the Government of Italy within the context of the Med 2000 Programme, the Phase I activities were due to begin in 2000 following the selection of the Palestinian Banking Corporation (PBC), which will contribute US$ 100,000 in kind to the project.

After the Palestinian economic crisis in 2000, SMEs were hard hit by the deteriorating living conditions, with enterprises experiencing a liquidity crunch, reducing output and laying off employees, or being pushed out of the market. The SMEs deteriorating conditions were further aggravated by the lack of financial leverage, as commercial banks tightened their already conservative lending policies. This highlighted the urgent need to fully address the requirements of SMEs' long-term development. Project activities continued with the establishment of a national training and support capacity center in the PBC, whereby a business center was created within the Corporate Advisory Unit (CAP) to operate the programme and integrate it into the regional and international Empretec network. The center consists of a director and a business counselor who attended a training workshop that was held in Amman, Jordan to provide Empretec staff with the needed skills for selecting potential Empretecos and organizing training workshops for participants. To coordinate the programme's activities with other ongoing donor funded programmes targeting Palestinian SMEs, a Management Advisory Committee (MAC) was established to bring together private and public stakeholders who are directly involved in developing the SME sector. MAC is also charged with the responsibility of building a local institutional capacity to ensure the programme's sustainability beyond the international funding cycle.