sector in multiple countries in the Arab world highlights the difficulty of enterprises to enter into a relatively closed formal private sector. These were symptoms of a discriminatory business environment that prevents firm entry or exit and hence distorts the competitive process of “creative destruction” (firms’ entry and exit), which motivates productivity growth and innovation. This has been evident in the relatively low number of registered firms per capita and the high age of firms by international comparisons. In a recent field survey in Egypt, employers, findings indicate that they tend to be more profitable in the trade sector and have higher probability to remain informal in the manufacturing sector (Abd El-Fattah 2012). Moreover, the nonconductive business environment has prevented start-ups from entering the market and hindered the expansion of existing firms. This has led to a growing young population confronted with the lack of job and entrepreneurship opportunities. All this has more severely affected women.

Small and medium enterprises (SMEs) suffer disproportionately from the burdensome business climate. Although SMEs contribute significantly to Gross Domestic Product (GDP) and are a major source of private sector employment in the region, they often lack access to the type of business development and financial services that they need to start-up, operate and grow. Among the major challenges facing the SME sector are non-conducive legal and regulatory frameworks as well as weak judicial and legal systems. In many countries SMEs are confronted with regulatory burdens which have constrained their development and hindered their potential to create private-sector jobs and entrepreneurship opportunities. The large, well-established firms operate in a limited competition regime while SMEs strive to survive. Most Arab countries also suffer from the lack of effective and well enforced competition and consumer protection policies. This requires countries in the region to level the playing field so that marginalized or discouraged enterprises and entrepreneurs can compete fairly with large enterprises.

The recent political and economic developments in the region not only raised various challenges but also enhanced prospects for change and an appetite for reforms. Addressing these challenges and building on the opportunities to create greater economic dynamism and inclusion at this critical time is essential. With huge popular expectations, the authorities are keen on finding best practice solutions to the substantial challenges facing regional economies. Leaders will need to proceed with designing reforms to meet the demands for expanded opportunity. There is a momentum for change and reform that needs to be taken advantage of. Policymakers are looking for effective tools and levers to stimulate job creation, and inclusive economic growth.

# **III. LITERATURE REVIEW ON EMPLOYMENT AND JOB CREATION DYNAMICS**

There is a growing body of empirical literature that supported the fact that small firms employ a large share of workers and create most jobs in developing economies. This positioned SMEs development as a key priority for authorities. Recent research confirms that small firms are important contributors to total employment and job creation. Fast-growing SMEs are essential generators of new employment in developed as well as developing economies. Data of firm dynamics in developing economics suggests that aggregate productivity and growth is held back to an important degree by constraints that affect SMEs more.

Policies to support SME’s spanned developing measures to improve the business regulatory and legal environment, build the capacity of institutions, and enhance access to finance for SMEs. SME development for job creation has become an even higher priority since the recent uprisings in some of the Arab countries.

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