Formulation of a Regional SME Support Program and a Grant Matching Fund

Executive Summary

This study aims to propose mechanisms to support small and medium enterprises (SMEs) to apply the mechanics of cumulation of origin, where this goal will be reached through two phases; the first one, as addressed in this report, aims to identify opportunities for cumulation of origin and study the current needs of SMEs to take advantage of these opportunities, study the available support mechanisms in the present and determine gaps and thereby target these gaps in supporting mechanisms that will be proposed in the second phase of this project.

I.                   PHASE I- IDENTIFICATION OF SME NEEDS

For the purpose of identifying opportunities of cumulation of origin the study team execute the following activities:

·         Review sectoral studies that have been conducted previously in (textiles and clothing, autos and auto parts, leather and footwear) sectors to determine potentials of cumulation of origin.

·         Review the overall intra trade between Agadir countries and their exports to the EU to identify other priority sectors that have the potential of cumulation of origin.

·         Set a commercial matrix for each sector according to the priority of this sector, which determine imports and exports volume between Agadir countries and their shares of the EU market and the growth rate of trade exchange between them for each product.

·         Identify opportunities for cumulation of origin that will encourage exports between Agadir countries in order to support export to EU.

It can be concluded from the above that most accumulation of origin opportunities that have been identified need to promote the intra- trade and the volume of exports to the EU and to expand the industrial base by attracting capital and domestic and foreign investment and developing and diversifying the products.

 

In order to promote intra-Agadir integration, member countries need to increase intra-trade and exports between them and remove the barriers to integration, mainly represented by the lack of information exchange on the available opportunities, in addition to the lack of alignment of their quality standards with those of the EU.

 

Also, links between companies of Agadir countries need to be supported by improving the capacity of SMEs to enable them to supply large companies with the products which are currently imported from outside the Agadir region.

 

It should also be noted that the study team interviewed the main exporters, leaders of sectors with higher priorities, representatives of SME support agencies and technical assistance programs, representatives of financial institutions, equity experts and fund managers in addition to the donor's representatives.

 

In addition, field visits were made and an in-depth survey of a representative sample of more than 10 SMEs from each Agadir country was conducted in order to assess their capacity to promote intra-trade between Agadir member countries and export to the EU and to identify SME needs in terms of technical assistance and financial support;

 

Based on the above analysis the Consultant come up with the following recommendations:

1.       Setting up a digital platform providing:

ü  Information about the nature of Agadir Agreement, opportunities of cumulation of origin for developing intra-trade and export to the EU

ü  A virtual market through which partnerships between companies in Agadir member states and also with their counterparts in the EU can be developed; and

ü   A discussion forum for all relevant stakeholders in Agadir countries for alleviating trade facilitation and business environment issues

2.       Current potential opportunities for accumulation of origin

One of the main conclusions of the analysis is that the opportunities to benefit from the accumulation of origin through the Agadir Agreement are currently limited, mainly due to similarity of the level of production process complexity and the limited technical technologies used in all Agadir countries and in most sectors.

It should be noted that the current opportunities exist in the sectors of fish processing, food processing, juice concentrates, knitted fabrics, soft woven fabrics and wet blue leather. However, these industries are relatively small and require more investment to achieve returns on a large scale.

3.       Future potential opportunities for accumulation of origin should focus on creating medium and long term profitable and complementary opportunities, which would raise the added value of Agadir industries and diversify their products; and

4.        Designing a regional technical assistance program that aims to develop Agadir links and focus on integration and development activities, such as research and development, quality improvement and access to markets.

5.       Aligning Agadir’s legal framework and quality infrastructure with the European Union

Aligning Agadir’s legal framework and quality infrastructure with the European Union covers all levels of the manufacturing chain, enforcing food safety policies of some sectors and implementing quality control policies across the manufacturing chain. Therefore:

ü  It is necessary to adopt EU legislation with respect to food labelling, biological hazards, additives, flavourings, contaminated packaging and food contact packaging materials. It is also necessary to promote a food safety culture among SMEs and help them to implement a quality assurance system in accordance with food safety standards ISO 22000. Adopting the EU system will contribute to upgrading the performance of the prepared food sector in Agadir countries, which would double the export volume in case of achieving mutual recognition and removing technical barriers to trade between the EU and Agadir countries;

ü   In the automotive industry, the complete technical compatibility of specifications of Agadir products of cars and trailers with the European Community Whole Vehicle Type Approval (ECWVTA) is a prerequisite to developing exports to the EU, which implies reducing product development costs and simplifying approval procedures;

ü  All Agadir countries should abide by the 1958 Agreement of the UN Economic Commission for Europe (UNECE), as amended in 1998, and the 1998 UN Global Agreement on international technical harmonization in the motor vehicle sector, which would allow benefiting from all opportunities offered by the global market;

ü  Agadir countries should comply with the EU vehicle safety standards, including complying with the Electronic Stability Control Systems and tiers and braking systems, in addition to Euro 5 and Euro 6 emission limits;

ü  Conforming to the universally-adopted Worldwide Responsible Accredited Production (WRAP) standards would help recognize the manufacturers in Agadir countries as producers committed to the legal and humanitarian standards for employment, leading to increased export growth;

ü  There is also a need to provide assistance for auto parts manufacturers in Agadir member states to enable them to receive ISO/TS 16949 certification, which would help them to align their products with the European quality standards and increase their exports of these products;

ü  Agadir countries should conclude Agreements on Conformity Assessment and Acceptance of Industrial Products (ACAAs) with the EU, which are mutual recognition agreements based on the alignment of the legislative system and infrastructure in each Agadir country with those of the EU. These mutual recognition agreements include the conditions of accepting tests, reports, exams and conformity marks determined by conformity assessment committees;

ü  For the purpose of aligning Agadir countries’ legislative system and infrastructure with those of the EU, institutional support should be given to certification authorities. Also, support should be given to ensure the quality of infrastructure and quality of technical assistance aimed at ensuring harmonization with and implementation of EU regulations on industrial product standards. Electrical and electronic sectors are the most concerned sectors with this;

ü  Also, SMEs will need training and support to obtain the CE mark for product standards. CE marking is a declaration by the manufacturer, importer, or the institution which was the first to launch the product in the market that the product meets all quality standards, by signing the quality conformance; and

ü  Encouraging continuous coordination among the institutions responsible for foreign trade, banking, transportation and insurance, in addition to providing information concerning the companies’ ability to find solutions and the degree of alignment with the policies and laws in Agadir countries.

 

6.       The need of aligning the business environment, the legal and institutional framework with that of the EU particularly with regard:

ü  trade facilitation, port services and transport;

ü  Business start-up regulations and procedures;

ü  Availability of advanced support services and high-quality vocational training; Private sector and SME development and financing institutions;

ü  Availability of PPP dialogue advocating private sector interests and facilitating the adoption of policies encouraging positive discrimination in favour of SMEs

 

II.                PHASE2-Formulation of the Agadir SME Support Program

 

The Consultant formulates the Agadir SME Support Program in accordance with the EU Technical Assistance rules.

 

The General Project Objective is to strengthen the export capacity of SMEs to enable intra-trade and economic integration between Agadir countries and increase their exports to the EU.

 

The specific objectives of the Agadir SME Support Program are:

ü    Develop links for accumulation of origin between companies in Agadir countries.

ü    Improve the ability of SMEs to access Agadir countries’ markets and the EU market.

ü    Enhance the quality of SME products in order to align quality standards and requirements in Agadir member states with those in the EU.

ü    Financial support to SMEs

1.                  The  Agadir Backward Linkage Program

Goal

The scheme of Agadir Links aims to support SMEs in the Agadir region to develop their ability to link with other firms in Agadir countries, by supplying input production to finished goods manufacturers, therefore benefiting from the accumulation of origin when exporting to the EU.

 

Objectives

Agadir Backward Linkage Program aims to help companies to:

1.        Identify opportunities for accumulation of origin with other companies in Agadir countries;

2.       Support companies to achieve accumulation of origin by providing support to transport operations;

3.       Support companies to achieve accumulation of origin by providing support to manufacturing operations;

4.       Support companies to participate in buyers-sellers meetings;

5.       Develop an action plan to support suppliers to meet the buyers’ needs by improving the quality of their products and identifying areas of improvement;   

6.       Determine the technical and financial support required to implement the action plan; and

7.       Other support mechanisms which help to achieve accumulation of origin.

 

2.                  Access to Markets Scheme

Establishing Agadir’s Access to Markets component aims to provide support enhancing the capacity of SMEs to implement marketing strategies and market their products at a global level, in addition to identifying and penetrating Agadir’s targeted markets.

 

This component aims to help SMEs to:

1.       Work towards building export clusters and export associations in Agadir countries;

2.       Design marketing and export plans;

3.       Design new products;

4.       Conduct market studies, including detailed analysis of the market and competitors, identifying potential importers and distributors and facilitating partnerships with targeted customers; 

5.       Participate in buyers-sellers meetings and trade fairs and events. This component will help SMEs in preparing samples and promotional materials for marketing purposes and following up trade missions which lead to signing partnership agreements;

6.       This component will also provide the necessary tools and plans to promote the accumulation of origin in the four countries; and

7.       Coordinate visits to large companies to transfer their experiences to SMEs by adopting mechanisms that ensure mutual benefit for both parties.

 

3.                  Quality Improvement Scheme

This component will help companies in obtaining quality certificates to enable them to comply with the EU rules and regulations. It will also help SMEs in obtaining quality certificates such as Good Manufacturing Practices (GMP), ISO 22000, ISO / technical specification 16949 and CE Mark.

 

4.                  Loan Guarantees and Financial Support Scheme

This component aims to guarantee investment loans and short-term loans to finance the working capital required to implement export contracts, in addition, to introducing SMEs to the best ways to obtain funding.

 

5.                  FORMULATION OF  A GRANT MATCHING FUND

The Consultant formulates a Grant Matching Fund for implementing the Agadir SME Support Program in accordance with the EU Technical Assistance rules.

Accordingly, we review the technical methods and means to implement the program, which are the basis of the administrative and technical provisions for this project; the project activities are subject to the grant procedures described in the contract procedures by a third party in the EU contract procedures, chapter 6.

 Therefore, these methods are also the basis of the funding agreement, when it is approved.

 

 

III.             Formulation of  Project’s Organization Structure  Management and Budget

The Consultant carried out the following:

ü  Identified the Companies Eligible for Grants from Agadir SME Support Program and determined the number of SMEs and the services that will be supported by Agadir SME Support Program   

ü   Elaborated on the Organizational Structure of the Agadir SME Support Program at the regional and country levels                        

ü  Determined needed Required Staff and Consultants             

ü  Time Frame for the Program Implementation         

ü  Logical Framework                   

Budget and the Current Costs of the Management