Small Enterprises in the Middle East and North Africa Face Risks and Rewards in the Public Market

For many medium to small companies, winning a government contract can mean steady business and a path to growth.

It should usually be a cause for celebration.

Not so for Shirzad. Celebration quickly turned into anxiety in the face of long delays in payment.

Shirzad works in the Kurdistan Region of Iraq (KRG), where public budgets are stretched thin from coping with the flow of refugees as a result of recent instability.

It has made it hard for the local government to pay its bills on time.

A larger firm might have been able to weather the delays. Shirzad, however, still had to meet his company’s payroll without many other sources of revenue. His company doesn’t have the same kind of nest egg as those of a larger company to cover the salaries.

It’s the kind of situation that can lead to bankruptcy, and one of the reasons why small to medium enterprises (SMEs) often cannot afford to bid for government contracts.

Other obstacles are equally as daunting for smaller firms.

For instance, some Middle East and North Africa (MENA) governments require very large down payments for bidders on public contracts that discourage small companies like Shirzad’s from participating. 

Others have instituted very stringent requirements on who is able to bid that make it difficult for small firms to compete.  And oftentimes, small businesses are less aware of where to find out about the opportunities in the first place.

So even when there are formal laws in place to support SME bids, the firms still find themselves at a distinct disadvantage.

Some of the challenges, however, lie with the small businesses themselves.

Lacking the prior experience in doing business with the government like the large and well-connected companies, SMEs often do not know how to prepare a proposal that could win, or how to set a competitive price. Many do not know where to find adequate information about the laws and procedures that govern the process. And in other cases, small businesses may not be aware of their own rights, as well as their integrity obligations, when it comes to doing business with the government.

World Bank Governance Practice Manager Yolanda Tayler explained, “Even though SMEs represent between 80 to 90% of formal sector enterprises in MENA, they are often not aware of the potential that the public market offers to them. In Iraq, for instance, over US$51 billion is spent through public procurement. Yet, the smaller enterprises are not benefiting from their fair share of that spending.”

To address these issues, the World Bank is working with governments, training institutions, and the private sector in eight countries to reach out to SMEs and expose them to tools and methods that will help them to compete in the public market. In sum, over 70 trainings will have taken place by the end of June, 2015, under a landmark regional program funded by the MSME Facility of the Arab World Initiative.

In KRG, the Kurdistan Contractors Union has collaborated with the Ministry of Planning to execute 10 workshops across four cities, targeting 250 SMEs.

In Egypt, the General Authority for Government Services has partnered with a training institute to execute 18 workshops in 16 different cities, employing impressive reach and scope to share information and knowledge with new suppliers in all corners of the countries.

In Lebanon, the Institute of Finance has put together an impressive program in partnership with a private business school. The launch of the program in March was covered by 10 local newspapers and 4 TV channels. Lebanon’s program will also feature an impact evaluation component, to track how successful the participating companies are in actually winning bids.

In Djibouti, the Chamber of Commerce is coordinating with the National Commission on Government Procurement to deliver six workshops.

In the Palestinian Territories, the High Council of Public Procurement Policies has elected to partner with Birzeit University to disseminate twelve sessions for local companies.

By approaching the problem with a market focus, the hope is that new firms can become reliable government suppliers and provide a real boost to the national economies. To date, the program has trained over 700 small businesses across 21 cities in 7 countries.  

This is not just a chance for businesses like Shirzad’s to access new opportunities. It’s also an important way for the public sector to improve its image and relationship with the private sector, to promote better value for taxpayer money, and to contribute to job growth.