Date of Submission to Coordination Unit:
A. GENERAL INFORMATION
1. Activity Name
Jordan's SME Growth Programme 2013-20152. Requestor Information
Name:Ministry of Planning & International Cooperation / Title:MinisterOrganization and Address:Ministry of Planning & International Cooperation, P.O.Box 555 Amman 11118 Jordan
Telephone:+962 6 4644466/ 4649023 / Email:
3. Recipient Entity
Name:Jordan Enterprise Development Corporation JEDCO / Title:Eng. Yarub Qudah -Chief Executive OfficerOrganization and Address:Jordan Enterprise Development Corporation – P.O. Box 7704 Amman 11118 Jordan
Telephone:+ 962 6 5603507 Ext. 2062/2041 / Email:
4. ISASC Representative
Name:Julien SERRE / Title: FEMIP Trust Fund ManagerOrganization and Address: European Investment Bank
100 Boulevard Konrad Adenauer Luxembourg L 2950
Telephone: +52 621 339 175 / Email:
5. Type of Execution (check the applicable box)
√ / Type / Endorsements / Justification1. / Country-Execution / Attach written endorsement from designated ISA
√ / Joint Country/ISA-Execution / Attach written endorsement from designated ISA / Jordan/ JEDCO (the nationally mandated entrepreneurship, Startups and SME support institution) and EIB will build on their strong relationship of working jointly on promoting the development of SMEs. Given the expertise of EIB in the activities foreseen as well as EIB participation along other IFIs and private investors in SME dedicated funds for the MENA region, and expecting that growth SMEs benefitting from the Programme could receive investments from the existing or future investment funds to be supported by EIB along other investors, Jordan/JEDCO has decided that joint country and ISA execution was required with EIB.
EIB will be supporting Component 5 of the programme by ensuring the monitoring of a substantial deal flow to the existing SME funds for the MENA region (including the ones in which EIB participates).
ISA-Execution for Country / Attach written endorsement from designated ISA / (Provide justification for ISA-Execution)
ISA-Execution for Parliaments / Attach written endorsements from designated Ministry and ISA
6. Geographic Focus
x / Individual country (name of country):JordanRegional or multiple countries (list countries):NA
7. Amount Requested (USD)
Amount Requested for direct Project Activities:(of which Amount Requested for direct ISA-Executed Project Activities): / USD 3,650,000
(USD 190,000)
Amount Requested for ISA Indirect Costs:[1] / USD 200,000
Total Amount Requested: / USD 3,850,000
8. Expected Project Start, Closing and Final Disbursement Dates
Start Date: / September 16, 2013 / Closing Date: / September 15, 2015 / End Disbursement Date: / December 30, 20159. Pillar(s) to which Activity Responds
Pillar / Primary(One only) / Secondary
(All that apply) / Pillar / Primary
(One only) / Secondary
(All that apply)
Investing in Sustainable Growth. This could include such topics as innovation and technology policy, enhancing the business environment (including for small and medium-sized enterprises as well as for local and foreign investment promotion), competition policy, private sector development strategies, access to finance, addressing urban congestion and energy intensity. / √ / Enhancing Economic Governance. This could include areas such as transparency, anti-corruption and accountability policies, asset recovery, public financial management and oversight, public sector audit and evaluation, integrity, procurement reform, regulatory quality and administrative simplification, investor and consumer protection, access to economic data and information, management of environmental and social impacts, capacity building for local government and decentralization, support for the Open Government Partnership, creation of new and innovative government agencies related to new transitional reforms, reform of public service delivery in the social and infrastructure sectors, and sound banking systems. / x
Inclusive Development and Job Creation. This could include support of policies for integrating lagging regions, skills and labor market policies, increasing youth employability, enhancing female labor force participation, integrating people with disabilities, vocational training, pension reform, improving job conditions and regulations, financial inclusion, promoting equitable fiscal policies and social safety net reform. / x / Competitiveness and Integration. This could include such topics as logistics, behind-the-border regulatory convergence, trade strategy and negotiations, planning and facilitation of cross-border infrastructure, and promoting and facilitating infrastructure projects, particularly in the areas of urban infrastructure, transport, trade facilitation and private sector development. / x
B. STRATEGIC CONTEXT
10. Country and Sector Issues
Achieving sustained growth and reducing unemployment and poverty are the main development challenges in Jordan. Innovation support, entrepreneurship, start-ups and small and medium enterprises (SMEs) development are seen as critical players in addressing these national challenges and do contribute towards its sustainable solution.Role of MSME’s in Jordan Economy
Micro, small and medium enterprises (MSMEs) today are positioned as the backbone and vanguard of the modern enterprise sector in Jordan. The 2011 General Economic Establishments Census revealed that MSMEs represent 98% of Jordanian enterprises, 66% of which have less than 19 employees; employ 70% of the total labor force employed by the private sector; produce outputs that contribute 40% towards national GDP, and account for 45% of total exports. The total number of operating enterprises is 165,879, of which 135 are non-Jordanian owned, 45.8% are located in Amman, 16.7% in Irbid and 14.8% in Zarqa (main economically active Governorates in Jordan). In terms of company legal form, the number of individuals - owned (sole proprietorship) enterprises is 135,904 making up 86.7% of the total number of enterprises, followed by the joint-liability establishment at 8.9%. The percentage of enterprises employing less than 5 workers is 91.5% of the total number of enterprises, while enterprises that employ more than 20 workers accounted for 1.9%. Enterprises with an income of less than JD 5,000 accounted for 35.2% of the total number of enterprises, while those with an income more than JD 500,000 constituted 1.4%. This reveals that Jordan continues to have a dearth of enterprises with over 50 employees, making it a nation of very small enterprises.
MSMEs present the propelling force of economic modernization and growth at large and are an important sector that needs to continue being adequately factored into policy making and programme implementation in every national private sector development policy. The growth potential of the sector and its critical role in all productive sectors, distribution and value chains can only be underscored. The development of MSMEs is increasingly recognized as important to the economic, social and human development of Jordan and a clear priority of the government. Supporting MSMEs is identified in the National Agenda 2006-2015 as one of the elements of a holistic approach to stimulate economic development and improve social welfare and security.The Executive Development Plan 2011-2013 states “empowering and building the capacity of MSMEs” and “stimulating new start-ups” as short-term objectives for enhancing the competitiveness of the national economy, noting that the challenge is to increase investments in high-valued sectors in order to create more job opportunities. The Plan set targets for increasing the share of MSMEs in gross domestic product (GDP) to 40% by 2013, from a baseline of 30% of GDP in 2009 (in line with the stated aim in the National Agenda 2006-2015 to increase the MSME share of GDP to 47% by 2017); and for increasing the ratio of the workforce employed in MSMEs to 76% by 2013, from a baseline of 70% in 2009.The 2011 General Economic Establishments Census revealed that MSMEs have reached the 40% target contribution to GDP before 2013 and efforts are now focused on achieving the targeted 47% contribution sought by 2017.
Although MSMEs are not deliberately proclaimed and used by the Government (until recently) as a direct tool to contribute towards poverty reduction; their role as a medium for employment creation and creating a source of income had always been acknowledged. MSME development is a tool for alleviating some of the economic and social disparities between the various regions of Jordan. The government’s goal is to reduce development discrepancies between governorates and municipalities by increasing the available financing opportunities for micro and small enterprises, especially in the poorest regions, and encouraging the private sector and non-governmental organisations (NGOs) to set up development and productive investment projects that will increase employment opportunities for women and the unemployed, expanding the number of Development Zones to 10 by 2013, channelling more funds through the Agricultural Credit Corporation and implementing the Governorates Development Fund are among strategic actions.
Jordan is also facing other critical demands in terms of improving the productivity and competitiveness of its MSMEs to compete in international markets through innovation, upgrading, modernisation, and accelerating investment and economic growth. Actions are needed to address weaknesses in the institutional and business environment framework, the position of Jordanian products in world markets, and the basic infrastructure which supports industrial, technological, touristic and agricultural investments.
Macro and micro level actions are needed to strengthen the MSME sector. Macro level requires political and macroeconomic stability, clear and transparent regulations, secure property rights, rule of law, andstable and well-functioning financial markets. Micro level actions include MSME development agencies and programmes in parallel with efforts to improve the policy, legal and regulatory environment in which MSMEs operate.
To address the multiplicity and interaction of factors that underpins the growth and competitiveness of MSMEs, a more coherent, holistic and integrated approach to their development is currently being undertaken by the Government and will be reflected in the National Entrepreneurship and MSME Development Strategy (2013-2017). The Strategy will seek to address challenges resultant from the impact of globalisation of production and opening of domestic markets, as they can have an adverse effect on the structure of the MSME sector, with MSMEs losing ground in terms of competitiveness and leading to a predominance of micro-scale and necessity-driven, “survivalist enterprises” in the structure of the economy. To a great extent, this has been happening in Jordan.
The Current Status of the MSME Sector
The first major observation is that the density of MSMEs (25.6 per 1,000 inhabitants) in Jordan is low compared to the global average and for a country at Jordan’s level of economic development.
Secondly, an analysis of MSME sector trends reveals very slow growth in the net stock of non-agricultural enterprises over the past five years – an annual average increase of only 1.3% from 2006 to 2011. Net growth in the number of enterprises is the end product of a dynamic that reflects the entry of new businesses (start-ups) and the survival rates of new and existing businesses. Unfortunately, due to the lack of relevant statistical data on this dynamic in Jordan, it is not possible to assess the underlying factors in the slow growth rate in the stock of enterprises. However, it is noted that the net growth in number of enterprises was lowest for those with 1-4 employees (annual average of just over 1%). On the other hand, the net stock of enterprises with 10-19 employees, 20-49 employees and more than 100 workers has increased by an average of about 4% a year in each of the size categories. This could indicate a slower rate of new business start-ups (since it might be assumed that start-ups generally fall in the 1-4 employee enterprise category) and/or the movement of enterprises from one size class to another. Furthermore, growth in the net stock of enterprises slowed considerably in the second half of the decade, compared to the 2000-2005 period, a trend that would be threatening to Jordan’s future growth if it was to continue.
Thirdly, employment in non-agricultural private enterprises grew by an annual average of 2% from 2005 to 2010, again at a much slower growth than during the 2000-2005 period (annual average of 6.5%). This is also a trend of concern. The share of employment in enterprises with 100 or more employees has been increasing while the share of employment from enterprises with fewer than 50 employees has been shrinking. However, the end result is that the average firm size has increased from 3.9 employees in 2000 to 4.6 employees in 2010.
Fourthly, over the 2000-2011 period, the number of self-employed persons increased by an annual average of 1.3%, again at a very slow rate. Overall, self-employment rates have dropped from 17.1% of employment in 2000 to 15.2% in 2011 and the actual number of self-employed persons has been on the decline since 2009. This suggests that self-employment is growing at a slower pace than that of overall employment. Women make up less than 5% of self-employed persons, which is exceedingly low compared to their participation in self-employment activity in other countries. However, over the past ten years, although their numbers are very small, Jordanian women have been becoming self-employed at more than three times the rate of men, suggesting that self-employment is becoming a more attractive employment option for Jordanian women.
Fifthly, the prevalence rate of early-stage entrepreneurs in the adult population (percentage of adults in the process of trying to start a business combined with the percentage of adults who own a young business of no more than 42 months old) is lower than might be theoretically expected for a country at its level of development. This suggests room for boosting entrepreneurship promotion efforts.
Constraints to entrepreneurship and MSME development
Although MSMEs are dominant in Jordan, their small size distribution, particularly the dominance of enterprises with fewer than five workers, places them at a disadvantage relative to large enterprises. They have fewer internal resources and less capacity to innovate and compete in global markets. They suffer from a lack of management skills, financing, and technology that limits their survival and growth potential. The majority of MSMEs focus on the production of traditional, low value-added goods with mediocre quality, serving local markets, and competing on the basis of price. Very few have the capacity to export and/or compete in international markets. The vast majority do not have any quality control systems in place or follow quality control procedures that are in compliance with international quality certification systems. They do not invest heavily in technologies that will add value to their products and overall economic performance, and exhibit low levels of technology utilisation.
Apart from internal constraints, the ability of MSMEs to function effectively is also impacted by external factors. These include the markets in which they operate (e.g. entry barriers, competition); policies, laws and regulations affecting business activities, which do not sufficiently consider the impact on smaller enterprises in their development and implementation; and the organisational and institutional arrangements surrounding the enterprise (e.g. business support entities and services, financial mechanisms, etc.), with an uneven availability of these supports at the regional level.