Colonel David Sanders started Kentucky Fried Chicken (KFC) in 1952 as a small restaurant selling fried chicken on the side of the road in the American county of Kentucky, eventually becoming the owner of more than 20,000 branches in the world.
Michael Dell founded Dell while he was a student in university with an initial capital of $1,000.
Dan and Frank Carney started Pizza Hut in 1958 with a bank loan of $600. Nowadays, the number of Pizza Hut branches around the world is exceeds 18,000.
Steve Jobs invested in Apple with $1,350. Since then, it’s become a revolutionary company in the tech industry.
In Egypt, in 1963, Mahmoud Al-Arabi — the owner of Toshiba Al-Arabi’s factories — founded his company with a capital of EGP 5,000.
It is clear how important small and medium enterprises are to a national economy, as they are considered one of the pillars of the Egyptian economy. This sector is currently receiving much attention from the state because of its great importance in driving economic growth, creating job opportunities, and achieving sustainable development.
Medium, small, and micro enterprises (MSMEs) in Egypt account for 98% of the private sector’s activity and contribute about 43% of the country’s GDP. The country has about 3.4 million small enterprises, 2,200 medium ones, and 217,000 micro businesses.
Certainly, the importance of supporting this sector is to achieve several goals. According to Egypt’s 2030 Vision, MSMEs in Egypt play a major role in achieving economic and social development to meet the needs of the local market of Egyptian products, in addition to reducing the imports rate and increasing the exports in some sectors.
Maintaining the country’s growth rates is closely related to the growth rate of these businesses, however, there are many challenges and obstacles that stop many of these MSMEs.
In fact, it has been found that about 70% of MSMEs cannot survive for a long time in the market, and that a very small number of them can remain in the market for more than five years. Certainly, this negative impact reflects on the country’s growth rates. It is certain that maintaining the continuity of these companies in the market and helping them face and deal with these various risks will lead to a decrease in the failure rates of these companies and their exit from the market, and thus double the desired growth rates of the country.
How to reduce the exit rates of MSMEs in the Egyptian market
The lack of data regarding the reasons behind the failure of these businesses in the Egyptian market leads to difficulty in developing quick and accurate solutions that suit the nature of the Egyptian economy to reduce or limit these rates and ensure the sustainability of the company in the market.
Taking an approach based on risk management enables MSMEs to pursue their goals boldly in a safer environment with a clearer vision for the future. It also allows them to prepare for obstacles and risks that enable them to develop appropriate solutions to confront them. This is in no way an invitation to recklessness or gambling with resources. It is about taking action when opportunities present themselves based on a comprehensive assessment of all circumstances. And this is an integral part of risk management
The importance of risk management and the growth of MSMEs in Egypt
Given the limited the capabilities of the companies to confront and bear many business risks as a result of their size, finances, administrative practices, or marketing, many of these companies cannot face the risks they are exposed to and soon exit from the market.
The importance of risk management for MSMEs lies in motivating those in charge of managing these companies to think about the future, form a clear vision, and identify the risks that the company may face as a result of the rapid changes that occur in the external and internal environment of the company. Here, the importance of the speed of response in dealing with these variables becomes clear in a way that reflects on the company positively and achieves its goals and prolong its survival.
The objective of risk management in MSMEs in Egypt
The objective of risk management is to monitor and manage the current and future risks of the company and to set plans to reduce the risks that a company may be exposed to in order to achieve its goals.
Therefore, the company’s value increases whenever there is an assurance that it can overcome the risks it is exposed to and bear some losses from time to time without failing. Thus, risk management is an important aspect of management.
It is clear from the above that there is an urgent need to strengthen and enhance the skill of risk management because it has a positive impact on the continuity of these MSMEs and thus on the growth rate of the national economy. Therefore, I suggest the following:
- Increasing awareness and culture of the importance of risk management to the owners of MSMEs and those in charge of management.
- Establishing specialised offices or institutions such as auditing offices and inspection experts to develop programmes in risk management for MSMEs in accordance with the economic and social environment in Egypt.
- Licensing risk management offices — such as financial audit offices and inspection experts — to provide reports and standard models for the risks faced by MSMEs in Egypt.
- A risk management report must be one of the requested documents to grant any MSMEs a loan from any bank or financial institutions.
- It is very important to collect data from any MSMEs that have exited the market and the risks that led to this in order to develop solutions that can benefit MSMEs still in business.
* Reda Fathy is an Insurance Consultant at the Egyptian Financial Supervisory Authority, a former chairperson and managing director at Mohandes Insurance Co. and an MBA and DPA holder.
