There is a broadening consensus among development experts in both the first world and the third that small businesses are a vital part of the economy and should be promoted. But is this happening in Egypt or are we going in the opposite direction? Dr. Cross, Assistant Professor of Sociology at the American University in Cairo and an expert on the small business sector, takes a look at this question through interviews with men and women who own workshops or do homework in working class neighborhoods of Cairo.
We often think of modernity in terms of scale, where more and bigger is usually better. Supermarkets, factories, discount emporiums, chain restaurants; these are the signs of a "modern" economy geared to the mass production of goods and services for the convenience of a modern middle class. With the economic reforms of recent years, many people have seen improvement in terms of the number of new McDonald's restaurants or Alfa supermarkets available to us as consumers. Economic policy-makers point perhaps more to the opening of large factories that can mass produce for the domestic or foreign market.
But such places still seem far away when walking through one of Cairo's many popular neighborhoods. The Gamaleyya, a traditional area directly behind Khan Il Khallili and at the heart of Islamic Cairo, immediately seems to make clear to the most casual observer that Egypt's economy is predominantly made up of small, decidedly un-"modern" enterprises. The neighborhood's "supermarkets" are at best the size of a one-car garage. To leave the main street is to find oneself watching an old woman sorting rags, or walking in a hellish alleyway where a half-dozen metal workshops belch out smoke and create a cacophony of loud noises--metal being ground, pounded, rolled, molded, all in different ways in each shop--while ill-clothes boys and young men sweat over their labors and their elders sit and drink coffee and smoke in groups of three or four. Or perhaps down streets where cobblers cut leather or imitation leather, sew them into shoes, and mold them over wooden shoe presses, all in clear view of anybody walking by their shops.
We might be tempted to think of these small businesses as simply part of Egypt's traditional past, scheduled to be replaced with large modern businesses as Egypt's economy progresses and modernizes. But is this true? Up until a few decades ago, most academics in the social sciences and policy makers would have agreed with this assessment. Size was seen as the best guarantor of obtaining efficiencies of scale, and even leftists agreed that large firms were more likely to provide workers with opportunities to obtain better working conditions through industrial action.
But this perspective began to weaken in the 1970s as it became apparent that third world nations were trapped in a circle of stagnation. Domestic markets were often not large enough to support large-scale industries and, despite low wages, many such countries were unable to compete effectively in the international economy.
Small businesses then began to be seen as a way of absorbing excess labor demand, as population growth and urbanization led to vast increases in the urban labor market that could not be absorbed by the sluggish modern sector of the economy.
Finally, in the late 1980s a number of experts began to argue that small businesses could in fact become more than just a way of dealing with the unemployment problem. Particularly in the light of increasingly open trade in the international market, economists began to argue that small businesses, because of their lower capital overhead and greater flexibility, could in fact be more competitive than large businesses in many areas outside of heavy industry. They could target niche markets, provide short-orders, and adjust their marketing patterns all far more easily than factories and large commercial enterprises that required years of planning and heavy initial investment before production could even begin. "Flexible specialization"--the ability of small businesses to specialize in specific production or service needs while retaining flexibility at the business and sectoral level--is now seen as the key to progress.
In other words, they argue that small businesses are no longer simply a quaint tradition that got in the way of modernization, they are a potential lever on the future. These authors point to the development of Northern Italy, Hong Kong and Taiwan as examples of countries whose economic progress has been intimately related to government support of myriad small workshops and businesses that are able to produce both for the domestic and the international markets.
But despite this change, largely accepted by both development agencies and economic experts within the government in Egypt, government policy still emphasizes the growth of large-scale firms, both domestic and multi- national, with a series of incentive packages and free enterprise zones designed to meet the needs of those sophisticated enough to use them and large enough to take advantage of them.
Despite some credit programs sponsored by the Egyptian Social Fund, USAID and limited small business projects carried out by development agencies such as Care International or the Foundation for International Training, the fact is that the Egyptian government is doing almost nothing to help small businesses survive and grow. In fact, it is doing far less than it used to do.
Since the 1950s the government encouraged the formation of cooperatives of small workshops that were able to provide a range of services with the objective of stimulating the sector. For example, in order to allow workshops to compete with the large-scale public and private sector, the cooperatives were given raw materials at subsidized prices and were able to sell their products through state-owned retail outlets.
Now, with subsidies slashed across the board and state- owned enterprises threatened with privatisation, that support is largely gone, and nothing else has emerged to take its place. "They feel left out, without attention," comments Norbert Eber of Freidrich Ebert Stiftung, a German development foundation that has worked with Egyptian cooperatives for 20 years
His colleague, Ahmed El Gannady notes that this has created a crisis in the cooperative sector, which relied on its ability to distribute government subsidies in order to attract members among workshop owners. Some have been able to adapt by providing new services, such as marketing, but many have simply become hollow shells.
For some business owners, it is just as well. El Gannady points out that many cooperatives were inefficient and heavily politicized, and, like the agricultural cooperatives, they were historically used to control workshop owners as much as to help them. But even so, the presence of large numbers of workshops in areas where cooperatives were active indicates that they played an important role in keeping the small business sector alive.
Ahmed, a successful cobbler in the Bab El Sharreyya district who didn't want to use his real name, expressed his contempt for the old cooperative system with a sneer. "Socialism is no good--capitalism is much better," he said as he checked and stacked men's leather shoes preparatory to shipping. Around him his two sons and five employees were busy at work putting the soles on a large order of shoes, and he said that he had two other workshops where the cutting and sewing was handled.
But despite his success, with regular sales to stores throughout Egypt, Ahmed also refrained from dealing with the formal banking sector. While he had considered at one time applying for a loan from the National Development Bank's small business loan program funded by USAID, he had balked at the paperwork that, he noted sarcastically, cost him more time than it was worth. "It slowed down my work. I prefer to get credit from the market."
Instead, he relies upon the network of credit and trust- based exchanges that have become prevalent in his industry, buying and selling on credit, and living effectively on the margins.
Down the street, the Gamal brothers are not as successful. While they share Ahmed's negative view of the cooperatives, they do not share the same positive view of the market. "Ten to 15 years ago the coops were good, but after that they became controlled by the large workshops," Hassan, the eldest brother, complains. Today, he says they are at the mercy of the larger merchants and retail stores.
As we talk, an assistant is cutting imitation leather into strips for decorating shoes, but there is little work. Hassan takes care of the cutting, while another brother does the sewing and a third finishes the shoes by molding them and fixing on the soles. Their equipment consists of a sewing machine, a work bench and shoe molds.
"When I sell a pair of shoes to a store, the problem is that I only get a small percentage right away. The rest I have to wait for--up to six months or a year." The only good time is usually around coptic or Moslem festivals, when demand for shoes goes up, and it is during Ramadan when business picks up enough that they can actually fully collect what they are owed and liquidate their own debts--a sort of grand accounting of the years proceeds.
The cooperatives used to provide regular work because they sold their stock to the state-owned Bata company. But that has dried up in the last four or five years. Now, they may sell a few pairs through the cooperative's store, but they have to wait to be paid even longer than for other stores. They can also sell through merchants, but generally these pay slightly less than the retail stores to cover their own costs, and still do not pay immediately.
"The problem is that the bigger workshops have all the advantages. They can get easier credit and they can afford to wait longer to be paid." Hassan had also looked into loans provided by the government's Social Fund, but had decided against them. "You have to start making monthly payments, and I still won't be paid yet. And I need money for my workers and to buy more raw materials. It doesn't help."
Another cobbler on the same street illustrated the heavy dependence on credit by pointing to a score of shoe boxes hanging on the wall. "I still owe money for the leather on those, but the guy won't get paid until I get paid." He also worked with his brother, between them cutting the leather and finishing the shoes, which were sent out to be sewn in a separate workshop.
Working on credit is also a vital aspect of life for metal workshops in the Gamaleyya district. The area used to be known for its large number of aluminium workshops clustered around a core of smelters, but the smelters were forced to moved to Manshiet El Nasr during the late 70s and most of the workshops had to diversify later as the cost of aluminium went up.
"The problem here is that there is no money going around. The market is dead, so everyone works on credit," Magdi explained as two assistants formed aluminium bowls into lamp fixtures.
Much more than the cobblers, here each workshop tends to be highly specialized, meaning that a single product may go through a number of different workshops during the production process, like a factory line chopped up into little pieces. The workshops tend to be open to the street and smoke and noise issue forth from them constantly. In the small alleyway we are seated in, six workshops perform six different processes. One is constantly rolling metal sheets to make them thin enough for working. Another specialised in preparing the metal sheets into shapes that can later be finely molded by other workshops. Others works at producing different types of final products.
But while they may work together, each workshop owner is fiercely jealous of his own independence--and his own clients. "We might be friends here, but we don't want anyone to steal our clients or find out our prices. If they do, that would end the friendship," Magdi notes.
Mohammed, a neighboring workshop owner, explained that, like the cobblers, they also had problems with loan programs. The National Development Bank had offered to provide loans and other services, but after he got the loan, they didn't provide any other assistance, so he didn't get a second loan. He can get loans elsewhere, but one advantage of the informal credit system in comparison to the micro-loan programs run by banks and the social fund is that they are as flexible as the social relations they are built on.
The basic problem, Magdi pointed out, isn't credit but the market itself. Without marketing channels, and without the time and experience themselves to go out and seek out new markets, they are limited to personal contacts with merchants and suppliers that are built up over time and on trust.
"Here, trust is everything. If a merchant thinks that you have the money to pay them back, but you are just fooling around with them, they will cut you off immediately. Word will get around, and you won't be able to find any work," he explained.
Large workshops and factories take up more and more of the market because of their access to marketing, and their ability to extend credit, and leave them competing over a smaller and smaller share every year. "I can produce cheaper than the factories can, but they will still get the orders, because they can wait longer to be paid. The merchants don't care about the price--they just pass it on to the buyer and it doesn't affect them because even if it takes longer to sell, they don't have to pay for it until its sold," Magdi added.
While they are all members of the metal workers cooperative, they rarely benefit from it. Magdi noted that he could get cheaper raw materials through the coop, but he would have to make a large order, so he generally buys on the local market. "I pay my dues, but they just subsidize the big workshops that can benefit from it."
Women will almost never be seen in such a workshop setting in the highly patriarchal environment of the artisan crafts. But this does not mean that they do not also have self-employment opportunities in Egypt. Cultural bias against women working outside the home is particularly strong among the poor, which makes self-employment both a more desirable option than factory work but also more limited. In fact, what makes it desirable is also what makes it limited: the fact that they can work inside their homes and thus retain the ideal of taking care of the children and husband. This limits them usually to home-work--sewing clothes or assembling simple objects that are "put-out" by factories, merchants or retail stores.
Sara is unmarried, but looks much older than her 19 years. Her mother died, and she became the surrogate mother for her younger brothers and sisters, and started to sew in order to supplement the meagre earning of her elderly and often sick father. She bought a sewing machine with money that she saved through participating in a gamaeyya, a rotating credit fund which friends and neighbors establish, each one paying an agreed amount each month or week and then taking turns collecting the entire amount.
But her family is very traditional, and she says that she cannot go outside her neighborhood to try to get orders. "You can't go or you don't want to go?" I ask. "Nobody goes," she says, bypassing the question, "It isn't possible." As a result, she only gets a few orders a month from her equally impoverished neighbors. The one good period every year is August, because an American aid agency with a service committee in the area--Plan International-- provides work to local women sewers making school uniforms which are then sold at a fraction of their cost. She is paid LE1.75 per uniform, which adds up to over LE100- -a fortune for her--if she gets a large enough order.
Other women from the same neighborhood--Ezbet El Kheiralla --do go outside, which is essential to obtain orders from stores or factories. Heba, for example, works with a store in the Ataba area, making shirts and pants. She bought her sewing machine from her aunt, after learning the trade at an income-generation project that has since closed down. Her aunt also introduced her to the store, and she is hesitant to approach others by herself.
As a result, her earnings are also very seasonal. She gets steady work in August and September as the school year starts, but then it starts to fall off until after December she gets hardly any work. As a result, what with the need to pay for repairs on her sewing machine, she still hasn't paid it off yet, although she has had it for over a year. Luckily, her aunt has been flexible and has not insisted on payment.
But Om Sayed, an older woman whose children have grown up, is able to be much more aggressive in looking for work. Since each store or factory tends to be seasonal in terms of putting out work, she moves between different stores and factories as the year progresses, looking for new ones in the Ataba area when necessary.
Like the workshop owners, these women tend to be competitive and secretive about their clients, and only very close friends and relatives might tell each other about the stores they work with for fear that other women might take away what little income they have.
Also, establishing trust with their clients is equally important. Since they are provided the materials by the shop owners, these individuals have to trust the women first of all not to simply abscond with the material and secondly to use it well. Typically, when a woman approaches a store for the first time, or is asked to do a type of garment they haven't done before, they will be asked to make a sample.
But unlike the workshop owners, they are heavily dependent on the stores to provide them materials and thus are limited to working at a piece rate that means that they can rarely earn much more than 10LE a day. Plus, except for women such as Om Sayed who are older and thus have less social pressure to avoid contact with strangers outside the area, they are limited even in the number of clients they can have and the amount of work they can therefore generate.
Can such "businesses" become one of the bases of national development in Egypt as scholars argue they did in Taiwan, Hong Kong and Northern Italy? Certainly, there are many challenges that must be met first: stagnant marketing channels, ageing equipment, poor work conditions. In central areas where labor is plentiful and where the limited marketing channels are more developed, they have problems getting adequate work areas and even more with local authorities who want to decongest such areas by getting rid of industry.
Instead, the government has developed new factory cities, and some of these are reserved for small businessmen. But the artisans of the center prefer to go elsewhere. Even though the government provides tax relief for up to 10 years, as one workshop owner comments, "You go there and everyone is just sitting around. There are no markets for us there."
And while micro-loan programs are now available through the Social Fund, the National Development Bank and a number of other programs, these programs frequently don't meet the actual needs of workshop owners, primarily because they are not flexible enough to fit into the traditional marketing channels that workshop owners are involved with.
Above all, the government of Egypt still has no coherent policy towards the small and micro business sector. With its attention diverted by plans for privatization and attempts to attract businesses into new industrial parks outside of congested urban areas, small businesses that cannot easily fit into these schemes are being left out of policy planning.
In the meantime, while it may make macro-economic sense to eliminate the system of subsidizing workshops through the cooperative system, by failing to develop alternative support mechanisms for the sector, small workshops, the skills of their owners, and their potential for the future growth of Egypt may simply be allowed to wither away.