Tips for managing the risks facing your small or medium-sized business in Egypt
Colonel David Sanders started Kentucky Fried Chicken (KFC) in 1952 as a small roadside fried chicken restaurant in the US county of Kentucky, eventually owning more than 20,000 locations worldwide.
Michael Dell founded Dell as a college student with an initial capital of $1,000.
Dan and Frank Carney started Pizza Hut in 1958 with a $600 bank loan. Today, the number of Pizza Hut branches worldwide exceeds 18,000.
Steve Jobs invested in Apple with $1,350. Since then, it has become a revolutionary company in the technology industry.
In Egypt, in 1963, Mahmoud Al-Arabi, owner of the Toshiba Al-Arabi factories, founded his company with a capital of 5,000 EGP.
It is clear how important small and medium enterprises are for a national economy, as they are considered one of the pillars of the Egyptian economy. This sector is currently receiving a lot of attention from the state due to its great importance in stimulating economic growth, creating employment opportunities and achieving sustainable development.
Medium, small and micro enterprises (MSMEs) in Egypt account for 98% of private sector activity and contribute approximately 43% of the country’s GDP. The country has about 3.4 million small businesses, 2,200 medium-sized and 217,000 micro-enterprises.
Certainly, the importance of supporting this sector is to achieve several objectives. According to Egypt’s Vision 2030, MSMEs in Egypt play a major role in achieving economic and social development to meet the needs of the local market for Egyptian products, in addition to reducing the import rate and increasing the exports in certain sectors.
Sustaining the growth rates of the country is closely linked to the growth rate of these businesses, however, there are many challenges and barriers that stop many of these MSMEs.
In fact, it has been found that around 70% of MSMEs cannot survive in the market for long and a very small number of them can stay in the market for more than five years. Admittedly, this negative impact has repercussions on the country’s growth rates. It is certain that maintaining the continuity of these companies on the market and helping them to face and cope with these various risks will lead to a reduction in the failure rates of these companies and to their exit from the market, and therefore to a doubling of the rates. desired growth of the country.
How to Reduce MSME Exit Rates in the Egyptian Market
The lack of data regarding the reasons for the failure of these companies in the Egyptian market makes it difficult to develop fast and precise solutions adapted to the nature of the Egyptian economy to reduce or limit these rates and ensure the sustainability of the company. on the market. .
Adopting a risk-based approach enables MSMEs to boldly pursue their goals in a safer environment with a clearer vision for the future. It also allows them to prepare for obstacles and risks which allows them to develop appropriate solutions to deal with them. This is in no way an invitation to carelessness or resourcefulness. It is about acting when opportunities arise based on a full assessment of all the 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 capacities of companies to face and bear many business risks due to their size, finances, administrative practices or marketing, many of these companies cannot face the risks to which they are exposed and quickly withdraw from the market.
The importance of risk management for MSMEs lies in motivating those in charge of managing these businesses to think about the future, to form a clear vision and to identify the risks that the business may face. due to the rapid changes taking place in the outer and outer world. internal business environment. Here, the importance of speed of response in dealing with these variables becomes clear in a way that positively reflects the business, achieves its goals, and prolongs its survival.
The objective of risk management in MSMEs in Egypt
The objective of risk management is to monitor and manage current and future business risks and establish plans to reduce the risks a business may be exposed to in order to achieve its objectives.
Therefore, the value of the firm increases whenever there is an assurance that it can overcome the risks it is exposed to and bear certain losses from time to time without failure. Thus, risk management is an important aspect of management.
It is apparent from the above that there is an urgent need to strengthen and improve risk management competence as it has a positive impact on the sustainability of these MSMEs and hence on the growth rate of the national economy. Therefore, I suggest the following:
- Increase awareness and culture of the importance of risk management for MSME owners and managers.
- Establish specialized offices or institutions such as audit offices and inspection experts to develop risk management programs for MSMEs in line with the economic and social environment in Egypt.
- Allow risk management offices – such as financial audit offices and inspection experts – to provide standard reports and templates for risks faced by MSMEs in Egypt.
- A risk management report should be one of the documents required to grant any MSME a loan from any bank or financial institution.
- It is very important to collect data from all MSMEs that have left the market and the risks that led to it in order to develop solutions that can benefit MSMEs still in operation.
* Reda Fathy is an insurance consultant with the Egyptian Financial Supervisory Authority, former Chairman and CEO of Mohandes Insurance Co. and Holder of an MBA and a DPA.
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