Why Small Businesses in the MENA Region Struggle to Scale Despite Access to Finance

A study by Bank Al-Maghrib covering nearly 19,000 businesses in the MENA region shows that a lack of financing only partially explains the slow growth of small businesses. The companies that are progressing are those that invest in their internal capabilities. However, their progress remains significantly hampered by instability, bureaucratic red tape, and unpredictable regulations in the MENA region.

Why do so many businesses in developing countries remain small, vulnerable, and eventually reach a plateau after a few years, if they haven’t disappeared altogether? This question has been a recurring theme in economic debates for a long time. A recent working paper, authored by Hicham Doghmi and Kamal Lahlou and published by Bank Al-Maghrib, offers a more nuanced perspective. No, it’s not simply a matter of insufficient funding.

The document entitled “Missing firm growth in developing countries: A firm-level analysis” reveals that the problem is broader, more structural, and sometimes even more political. Using data from nearly 19,000 companies in 11 countries across the MENA region, including Morocco, the authors examine what truly enables a company to grow, hire, and invest. But they also consider what hinders it, sometimes permanently.

MENA region: Small businesses grow faster… up to a point

The first observation they share is that small businesses and startups often exhibit faster growth rates than large, established organizations. A smaller base allows for rapid, sometimes spectacular, progress, whereas large groups advance more slowly, due to inertia or complexity. But this dynamism masks a real fragility.

Small businesses in the MENA region are also the most vulnerable to shocks. They have less cash, fewer banking networks, less negotiating power, and less room for strategic error. A market downturn or a payment delay can be enough to destabilize the entire operation. In other words, while small size can be an initial advantage, it almost never guarantees long-term success.

One of the most interesting findings of the report is that companies that achieve sustainable growth are generally those that accumulate concrete capabilities: investing, training, exporting, digitizing, improving their processes, introducing new products, or modernizing their organization. This may seem obvious, but it’s worth reiterating.

Growth is not a spontaneous phenomenon. It is built in successive layers: modern tools, stronger management, continuous learning, improved customer relations, productivity gains, and expansion into new markets. A company that invests in R&D, structures its production, trains its teams, or develops its digital presence automatically increases its chances of growth. Not through mere announcements, but because it becomes more competitive, more adaptable, and often more resilient.

Political instability, a major and often underestimated obstacle in the MENA region

Among all the obstacles studied (taxation, corruption, energy, justice, land, transportation, and informal competition), one factor consistently emerges: political instability. When the environment becomes unpredictable, businesses postpone their decisions. They hire less, invest less, and narrow their horizons. And innovation takes a back seat to daily emergencies. Business leaders can manage high taxes, cumbersome procedures, or aggressive competition.

What they struggle with, however, is the constant uncertainty in the MENA region. The lack of visibility undermines even the best-prepared strategies and often leads to defensive caution rather than expansion.

The report does, however, confirm one essential point: access to bank financing supports growth. Companies with loans, lines of credit, or bank facilities grow faster than those without. Nothing revolutionary on the surface. Without financing, it’s difficult to buy machinery, recruit staff, open a new site, manage a tight operating cycle, or expand into export markets.

Credit remains an essential fuel for entrepreneurial development. But the study qualifies a widespread belief: simply injecting money is not enough. If the environment remains unstable, bureaucratic, or unproductive, credit is a poor substitute for structural obstacles. It can help businesses survive, but it doesn’t always enable them to scale up.

In short, capital helps get started, but it doesn’t replace a functioning system. Another key takeaway from this report is that businesses in the MENA region thrive in countries where rules are clear, administration is more efficient, and governance is more credible. This includes very concrete elements: reasonable timeframes, consistent procedures, an understandable tax framework, less punitive regulations, predictable public decisions, and faster arbitration. All of these factors carry significant weight in the real-world operations of a business.

Conversely, when administrative costs rise, managers devote their energy to circumventing friction rather than developing their business. An economy can lose a great deal without any visible crisis, simply through slowness, fragmentation, and accumulated bureaucratic fatigue.

What this says for Morocco:

For Morocco, the interpretation is quite clear. The issue is not simply about creating more businesses, nor just about financing SMEs. The real challenge is to foster the emergence of companies capable of scaling up, exporting more, and consolidating their productivity. This requires several conditions: stability, easy access to credit, genuine simplification, improved managerial skills, technology transfer, an export-oriented culture, support for applied innovation, and faster administrative processes. And the country has already begun some of these initiatives.

More broadly, the main deficit facing businesses in developing countries is not solely financial. It is systemic. In other words, businesses don’t just lack money. They primarily lack stable, credible, and technologically advanced ecosystems that allow them to grow.

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(Featured image by SOCIAL.CUT via Unsplash)

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First published in LES ECO.ma. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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