by Dorsey Lockhart
Jordan’s economy has long been categorized as one dominated by micro and small firms. This causes it to grow more slowly than economies with higher numbers of large firms. Yet the question of how to inspire firm growth is conspicuously missing from the debate on how to improve competitiveness in Jordan.
According to Jordan Chamber of Industry 2014 figures, entities employing more than 100 workers account for approximately 0.4 percent of registered firms; while medium firms account for 1.4 per cent, and small firms account for 6.7 per cent. Micro firms, which employ between one and four workers, account for a disproportionate 91.5 percent of registered firms.
Small is Not Beautiful
Since the European debt crisis in 2009, the view that a preponderance of small firms is an obstacle to growth has become a guiding principle within economic growth circles. Indeed, the evidence is mounting.
A March 2012 article in The Economist entitled ‘Decline and Small’ assertively made the case for big business above small and medium sized enterprises (SMEs). With a subtitle ‘small firms are a big problem for Europe’s periphery,’ the article argued that a bias towards small firms limits productivity growth. A similar article entitled ‘Small is not beautiful’ stressed that for all of their political [and cultural] appeal, small firms are less productive, offer lower wages, and pay less taxes than large ones.
According to this logic, economies that are dominated by small firms often grow more slowly than economies with higher numbers of large firms. The productivity of Eurozone firms with more than 250 workers outstrips the productivity of firms with fewer than 20 workers by almost 50 per cent. In Greece, Italy and Portugal — three economies whose growth is hampered by slow productivity and loss of competitiveness — firms employing 250 or more workers account for less than half the share of manufacturing jobs compared to neighbouring Germany.
Identifying Jordanian Micro, Small and Medium Enterprises with Growth Potential
The question of how to inspire firm growth in Jordan is one that deserves more attention. Policy makers recognize SMEs as the fabric of the Jordanian economy and have centered efforts to ignite long-term growth on credit facilities and other platforms designed to provide financial and technical support. This approach should continue, but would be fortified with a concerted effort to identify those micro, small, and medium enterprises that have the potential to grow.
At present, the strategy for improving competitiveness is largely centered on the creation of new businesses — through incubators, accelerators, and other facilities that provide finance to start-ups. This approach has produced notable results, yet would be complemented by an effort to incubate existing businesses of all sizes whose products and services are competitive, but whose management lacks a clear roadmap or finance for expansion.
Instructive Initiatives Worldwide
There is an instructive group of parallel initiatives that have been undertaken in other markets to help SMEs grow. Romania has developed multi-sectoral clusters that support innovation, while Canada’s International Trade Assistance programmes provide assistance to companies who want to export. Australia also provides export market development grants that help SMEs cover export costs.
These initiatives need not be limited to government programs. In Great Britain, Inspire, an outfit dedicated to helping SMEs in the UK’s South West scale up, works in partnership with private sector actors to provide high growth businesses with grants, seminars, and networking opportunities. In the United States, the National Center for the Middle Market, a research organization founded by GE Capital and the Ohio State University School of Business, provides critical data, analysis, and insights to accelerate growth, increase competitiveness and create jobs within the middle market segment of the American economy. In Spain, Cre100do, a program managed by a partnership between private sector and government entities, has set out to incubate 100 medium sized companies through workshops and mentoring.
Research and Regulation
Initiatives should not be solely programmatic, but also research-oriented. According to estimates, the informal market in Jordan may be equivalent to 40 percent of GDP. As part of the drive to reduce informality, research efforts seeking to understand firms’ reluctance to formalize are effective for boosting business registration, in combination with steps to streamline the process and associated costs.
Fostering a consciousness around boosting the growth potential of Jordan’s existing firms will be a first step towards helping micro firms become small, small firms become medium, and medium firms become large.
Dorsey Lockhart is a Senior researcher in the WANA Institute’s Human Security Economics team, focusing on Syrian refugee economic empowerment.
The opinions expressed in this article do not necessarily reflect those of Al Bawaba.
