Middle East & North Africa development of smes exports through virtual market places

Alignment with the Transition Fund Objectives

Support to policy, institutional changes and structural transformation

31. 
    The proposed project will support the policy changes that have been adopted in the aftermath of the Arab Spring. Trade and globalization have no doubt resulted in increased jobs and wealth in Tunisia Morocco and Jordan, but up until now it has only been the few largest players who have been able to take full advantage of globalization. If a small business wishes to participate in the global economy it is largely relegated to providing an intermediate product to a large multi-national supply process. The three countries intend to create the enabling environment that would put SMEs on a same footing as large companies. Access to VMPs would be one of the pillars of this new strategy to the extent that they are a parallel model for trade as they enable businesses of all sizes to trade directly with buyers around the world. A technology enabled small business can maintain a local presence and contribute to its local economy while increasing its revenue by reaching out to a global customer base. As mentioned in the prior section, Morocco, Jordan and Tunisia engaged in a new Export Development Policies aiming at deepening access to foreign markets for their firms. These policies include new exporters (export-ready SMEs) and new channels (such as Virtual Market Places VMPs) in addition to the traditional trade promotion tools (such as organization of trade fairs).
    

32. 
    The proposed project will also support the institutional changes that result from the new policies. Because these new policies involves the resolution of number of bottlenecks such as e-payment, logistics, regulatory environment, access to finance and export guarantees, quality control, etc., the three countries plan to implement (or have already implemented in the case of Tunisia) inter-ministerial committees.
    

33. 
    The project is designed as a pilot aiming at validating the new export development policies⁹. Approximately 600 SMEs will benefit from this project. The impact of this pilot will be measured through indicators such as percentage of increase of export activities among the beneficiary SMEs. Moreover, the countries will assess the efficiency of each of the components and make adjustments (if needed) before scaling up the project to a wider range of SMEs. SMEs will be selected according to criteria detailed later in the concept note. After the pilot phase, the project can be scaled up following the same process of selection and coaching to satisfy the high demand already identified during field missions organized as part of the preparatory phase.
    

34. 
    The proposed project will directly support Morocco, Jordan and Tunisia (or one country) new policies. In particular, it will support their effort i) to promote new exporters (SMEs) through VMPs as new exporting channel and ii) to tackle the various issues that impede the deepening of access to foreign markets (through the support to their inter-ministerial committees).
    

Alignment with fund objectives

35. 
    The higher-level objectives to which the project contributes are aligned with three of the Transition Fund Objectives: i) Competitiveness and integration and ii) Inclusive development and iii) job creation.
    

36. 
    Integration and Competitiveness. E-commerce is a fundamental strategy to fast-track trade integration and VMPs are relevant to integrate SMEs into international markets. In concrete terms, the VMPs will enable beneficiary SMEs to have a business link to buyers from all over the world. In general, the participation in e-commerce has a positive impact in the internal organization, innovation, and business information. Through this project, which focuses on the access to global markets through Virtual Market Places, it is expected that beneficiary SMEs will implement new strategies and adopt new business models which will improve their competitiveness and enable them to penetrate new markets using business intelligence that will be supported by the project as well. (See sub-component 3.2). Recent findings¹⁰ show that the potential gains from increasingly moving to online trading world are substantial exporters and importers of all sizes, in particular in developing countries. E-commerce helps sellers and buyers overcome traditional trade impediments and makes distance less relevant for online sellers with a positive impact on trade flows. Integrating SMEs from the MENA region in electronic commerce platforms will increase competitiveness of these companies and generate benefits regardless of their location. In general, new sellers using marketplaces capture market shares faster than in the offline world. Traditional trade patterns, related to geographical closeness, specific trade agreements or colonial heritages are overcome. In terms of integration, online sellers sell to more countries than offline sellers¹¹. This in itself guarantees the sustainability of the project since SMEs will have incentives to either continue using this tool or, in view of other online SMEs success, more firms will innovate and upgrade their skills to enter online trading tools.
    

37. 
    Inclusive Development and Job Creation. By enabling over a thousand SMEs in transition countries to reach out to buyers worldwide, the project will generate new business opportunities, translating into accelerated growth and further job creation. Beyond the direct impact, job creation will also derive from the development of value-chain businesses that gravitate around exporting SMEs (logistic, shipping, export consultancy, insurance, finance, etc.). Since the project has a special focus on youth and women, through the profiling of SMEs with potential, it will facilitate the access of non-favored segments of the population into international markets. Overall, studies show that the increase digitization of the economy, including indicators such as the ability of users to incorporate digital services into their business, fuels a 0.75 percentage point growth in GDP per capita¹². If digitization increases by 10 point, it leads to a 1.02 drop in the unemployment rate (worldwide figures). The effect is larger in emerging markets. In addition, growing trade volumes using online systems reduce transactions costs, increasing net revenues for the sellers and allowing for the allocation of the benefits into the improvement of process, capabilities, and employment at firm level.
    

5.