From Survival to Resilience: Determinants of MSE Innovation and Growth under External Crises

In the bustling economies of the developing world, a vast network of tiny businesses forms the backbone of daily life. These micro and small enterprises, often run from a single room or a street corner, are the primary source of jobs for millions of people. They are the first step for many who seek to earn a living, absorbing labor that might otherwise have nowhere to go. For decades, economists have viewed these small firms as essential for keeping communities stable and reducing poverty. However, a persistent puzzle has remained: while these businesses are everywhere and employ a huge portion of the workforce, they contribute surprisingly little to the overall wealth of their nations. They keep people employed, but they rarely grow into the kind of powerful, innovative companies that drive national economic progress. This gap between the sheer number of small businesses and their limited economic impact becomes even more critical when the world faces sudden shocks, such as pandemics or trade disruptions, which test whether these firms can survive and adapt or simply fade away.

A new study by researcher Raed Atef investigates exactly why this gap exists and what it would take to bridge it. Focusing on three countries in North Africa and the Middle East—Egypt, Jordan, and Morocco—the research looks at how these small businesses are faring under the pressure of external crises. The study moves beyond the idea that a single factor, like having more money or better schools, is enough to fix the problem. Instead, it treats the economy as a complex system where different parts must work together. The researcher gathered data from major international organizations to see how three specific elements interact: the quality of government rules and institutions, the skills and education of the workforce, and the ability of businesses to get loans and financial support. By looking at these factors not in isolation but as a connected group, the study aims to understand what allows a small, struggling business to transform into a resilient, growing enterprise.

The data reveals a stark reality about the current state of these economies. In Egypt, Jordan, and Morocco, these small businesses employ between 48 and 55 percent of the total workforce. Yet, despite employing nearly half of all workers, they contribute only 15 to 19 percent to the countries' total economic output. This means that while these firms are excellent at creating jobs, they are not generating much value or wealth. The average income for a worker in one of these small businesses is significantly lower than the national average, hovering around 4,200 to 4,900 US dollars a year, compared to national averages of 9,000 to 10,200 dollars. This suggests that most of these businesses are stuck in a cycle of survival, doing just enough to keep their doors open, rather than expanding or innovating.

When the researcher analyzed what drives change, the findings pointed to a specific hierarchy of needs. The most powerful force for transforming a small business was found to be access to money. The study shows that when these firms can get loans or financial support, they are much more likely to invest in new ideas, adopt better technology, and expand their markets. This financial access acts as the strongest engine for growth, far outpacing other factors when considered on its own. However, the study also discovered that money alone is not a magic bullet. The effectiveness of financial resources depends heavily on the environment in which they are used. If the government rules are unclear or if the workforce lacks the necessary skills, the money often fails to produce the desired results.

This leads to the study's most important insight: transformation happens through the alignment of different systems. The research found that the quality of government institutions acts as a multiplier. When a country has strong, reliable rules and support systems, the impact of both education and financial access is significantly amplified. For instance, having a skilled worker is valuable, but that skill only translates into innovation if the business operates in a stable environment where they can apply it. Similarly, having a loan is useful, but it leads to real growth only if the government ensures that the money can be used effectively without being lost to corruption or bureaucratic hurdles. The study suggests that trying to fix just one of these areas—like building schools without improving banking access, or offering loans without fixing government regulations—will yield only limited success.

The research challenges the common belief that small businesses fail simply because the owners lack talent or because they are too poor to start. Instead, it argues that the problem is structural. The systems that support these businesses are often disconnected. A business might have a skilled owner and a good idea, but without access to credit, it cannot grow. Or it might have money, but if the regulations are too complex, it cannot use that money to innovate. The study concludes that for these small enterprises to move from mere survival to genuine resilience and growth, policies must be coordinated. Governments, banks, and educational institutions need to work in sync. Only when financial resources, human skills, and institutional support are aligned can these small businesses break out of their low-growth cycle and become the engines of economic development that the region needs.