SME Support Project (2nd LOC to NBE)
- Référence: P-EG-HAB-010
- Date d’approbation: 12/10/2005
- Date de début: 12/12/2006
- Date d'évaluation: 06/09/2004
- Statut: En coursOnGo
- Agence d'implémentation: National Bank of Egypt
- Emplacement: Egypt
The proposed LOC, in the amount of US$150 million, will provide long-term funding to NBE for on lending to viable industrial enterprises in the country. By so doing, the project would assist in bridging the maturity gap between the demand for long-term loans, and the available deposits in the financial system to provide such loans. The loan would be provided to NBE in foreign currency (US$), with repayment in the same currency. The NBE could however, at its discretion, on-lend part of the LOC resources to eligible enterprises in local currency if it is satisfied that the resulting foreign exchange risk will be adequately mitigated.
The objective of the LOC is to assist the development of the industrial and tourism sectors in Egypt by providing financial resources to NBE for on lending as medium and long-term loans to viable investment projects in these sectors, with focus on SMEs. By providing long-term foreign currency funding to NBE, the LOC will have the subsidiary objective of addressing one of the major constraints of the financial sector in Egypt, that of the lack of long-term investment capital.
LOC II will seek to build on the achievements of LOC I. The project will seek to provide financial resources to NBE for the financing of viable investment projects in the industrial, tourism and services sectors of the Egyptian economy. The industrial and tourism sectors in Egypt have traditionally been strong. The two sectors combined contributes significantly to job creation and foreign exchange earnings for the country. However, of recent, there has been a gradual erosion of the country's competitiveness in these vital sectors. While this is due to several reasons, a critical one among them is the severely limited access of industrialists and private entrepreneurs to long-term capital resources that can meet their fixed investments and working capital needs on a sustainable basis. LOC I attempted to ameliorate this problem by providing medium to long-term funding to over 80 industrial and tourism enterprises. The current project is to build on the achievements of LOC I in this area. The NBE, as the biggest commercial bank in Egypt with a network of over 350 branches covering the whole country, is uniquely placed to improve the outreach of financial resources to industrialists, particularly SMEs, in all parts of the country. The provision of financial resources to NBE under the proposed LOC is therefore in support of the Government of Egypt's socio-economic development objectives. The resources of the LOC will enable NBE to provide medium to long-term credits required to create new production capacities, increase the capacity utilization of existing enterprises, and generally improve the efficiency of the Egyptian economy.
1.1 The proposed LOC will provide competitively priced long-term funding to NBE for on-lending to viable investment projects in Egypt. The structure of the Egyptian financial sector is such that an overwhelming proportion of the funding available to banks is in the form of short-term customer deposits. In order to minimize their maturity mismatches, banks have tended to lend these funds also on short-term basis, mainly to finance trading activities. By providing long-term funds, the proposed LOC will address the funding weakness of the financial sector, thereby addressing one of the major constraints faced by banks in being able to provide long-term investment lending.
1.2 Furthermore, the availability of long-term investment funds will help to address some of the structural weaknesses of the Egyptian economy. It will assist in shifting investment activities from trading to productive sectors, thereby providing more impetus to the manufacturing sector. The subprojects to be financed from the LOC will assist in creating employment, foreign exchange earnings, as well as the development of local entrepreneurship and technical skills. The subprojects will generate government revenue (value-added tax, income tax and corporation tax) and revenue for the country's utilities (telecom, power and water). They will also contribute to the alleviation of poverty through utilization of local raw materials, which are produced in the rural areas, especially the agro-processing sub-projects.
2.1 The small-scale sector of industrial production are usually more adapted to rural and suburban zones, and the promotion of these enterprises leads to the development of these zones, thereby providing income sources to the rural poor. Small and medium investments also have the ability to take advantage of small raw material supply sources, such as in agriculture, which might otherwise not have a market outlet. Thus, by supporting the growth and development of small and medium investments, the proposed project will contribute to the development of rural industries, thereby assisting poverty alleviation among the rural poor.
2.2 Women are also better represented among small and medium-sized businesses than large projects. The proposed project is expected to provide resources to women-owned businesses.
AMMAR Tarek Saleh Mostafa - PIFD