Comparative analysis: Size of companies and productivity factors in the Mediterranean

5240734-7820680Productivity improves the economic growth of a country; it contributes to the decrease of unemployment and to the reduction of poverty. However, its impact varies by country, the size of the company, and the business sectors. The Euro-Mediterranean Forum of Economic Science Institutes (FEMISE), has carried out an analysis comparing the countries of the Middle East and North Africa.

Did you know that increased competition stimulates productivity? States encouraging a competitive environment will receive the benefits from it. To be convinced by this argument, it suffices to analyse the productivity development of the companies in states where the private sector has been put in charge.

To stay competitive, the companies are compelled to decrease their costs and commercialise the products to correspond to the clients’ expectations. Competition stimulates innovation. The companies must develop new products to keep and gain parts of the market. Ultimately, those less capable of keeping up with the requirements, will find themselves ejected from the market.

The Palestine Economic Policy Research Institute (MAS) has, in the framework of the FEMISE report FEM35-07, conducted a comparative study of productivity factors in the countries of the Middle East and North Africa. The document analyses productivity factors of companies in three countries (Egypt, Morocco and Palestine), and compare them to companies located in Belgium, Malta and Poland.

“This paper highlighted to policy makers that “enforcement of competition, improving access to finance, and launching effective export strategies, are the main vehicles for productivity driven SMEs success”, explains Samir Abdullah, Director of Palestine Economic Policy Research Institute (MAS).

Enhance competition, access to finance and export strategy

The analysis highlights four critical factors: the age of the company, the share of its sales to export, the competitive environment and the technological development. These elements affect the general factor productivity. However, the report highlights the fact that the impact of these criteria depends on the size of the business. Thus, the competition stimulates the SMEs more than the big companies.

Other elements affect the global productivity of the companies, like managing skills, information technology, and training. The ability of states to bring capital is equally a decisive criterion, such as their ability to reduce the administrative burdens. One study conducted in 2007 on the 15 countries of the European Union shows that a decrease of 0,25% of administrative burdens will lead to an increase of GDP of 0,9% from now to 2025!

“Within the same activity sector, the productivity of the small and medium-sized companies is weaker than that in the big businesses”, the report underlines. The latter generally hold a research and development service out of reach of the SMEs.

They benefit from facilities that the SMEs do not have, in order to access international markets, hence the need to promote strategies for export and initiate strong actions of promotion, marketing and lobbying.

Photo: AMDI, Econostrum

Article by Nathalie Bureau du Colombier, Econostrum. Registration for the Econostrum newsletter