Adaptive political economy of the Egyptian small and medium enterprises (SMEs)

The under-representation of the Egyptian small and medium-sized enterprises (SMEs), despite their higher productivity and efficiency compared with the micro-enterprises and large, politically connected firms, is attributed to the bureaucratic inefficiencies, crony capitalism, corruption and resource misallocation. However, these explanations overlook how SMEs overcome structural challenges to be resilient under various predicaments, be it political, economic or financial. This paper addresses the resilience of the Egyptian SMEs through a conceptual framework that delineates how top-down, variable-based policies fail to explain the ongoing Egyptian business ecosystem. The conceptual framework and the adaptive political economy approach highlight that international financial institutions ignore the sociological aspect (culture, tradition, formal and informal practices of conducting business) of Egyptian firms and solely focus on market liberalisation. In contrast to structuralist, variable-based explanations rooted in the neoliberal order, this paper adopts a configurational approach – aimed at identifying sufficient and necessary conditions whose combined presence may explain a particular outcome – arguing that SME development in Egypt hinges on entrepreneurs’ adaptive capacity to devise integrated strategies for overcoming growth barriers. The paper’s novelty lies in the perspective that considers structural reforms of international financial institutions and the configurational approach of the proposed framework as complementary rather than preferring one over the other.