Empowering SMEs role is key for growth

Updated 09 November 2013
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Empowering SMEs role is key for growth

The commitment of Custodian of the Two Holy Mosques King Abdullah to empower small and medium enterprises (SMEs) by incorporating the concept of knowledge-based economy seems to have come at a time when Saudi Arabia is showing its readiness to facilitate all national and foreign stakeholders interested in trade and investment.
Meanwhile, the Kingdom’s commitment to the role of SMEs is quite significant in the context of what some international observers speculate that the Kingdom within the next 30 years will receive lesser oil income than ever.
So, the empowerment of SMEs is the best strategy to avoid the worst.
Almost for a century, Saudi Arabia has been enjoying abundant income from oil and gas exports and so the development of skilled SMEs is urgently needed to be incorporated. The Kingdom’s policy toward the empowerment of SMEs in Saudi Arabia is in line with its national program, which has been done since the nonoil products generate income which is gradually increasing every year.
In order to anticipate the worst situation, the role of SMEs must be fully guarded to maintain the growth of the Saudi economy.
The participation of SMEs, it is believed, will make Saudi Arabia more prosperous.
Meanwhile the political will of the Kingdom is clear; the implementation of this will be facilitated by establishing more sources that are crucial to support this concept. One of the most crucial sources is the establishment of more economic centers within the nations facilitating their connectivity and hence distribution of products and services among regions and even among the continents.
For Saudi Arabia, the availability of sources of connectivity seems well-designed and prepared. Projects such as the economic cities seem to be good models to sustain the concept of knowledge-based economy, which will accommodate SMEs develop their business.
The implementation of projects will be a success if they are guided by reliable and professional agencies. The Kingdom also has formed the Economic Cities Agencies (ECA) to encourage the sustainable economic activities, which are expected to generate the welfare around the regions.
The challenges are still there when the available skilled human resources lack technical knowledge. It may be an obstacle, which in fact can easily found in the Saudi society. In this context, Saudi needs a lesson learned from other countries. This preparation is very crucial to learn how not to depend on oil products. Saudi Arabia has never faced any economic crisis, but it is a fact that for both the citizens and expatriates the cost of living in the Kingdom is increasing, especially for the basic needs such as food and housing.
In the case of Indonesia, the role of SMEs is positively acknowledged by Indonesian economic observers.
The Indonesian economy continues to grow, which is why it enjoys the status as a member of Group 20 (G20) like Saudi Arabia. Indonesia is seen as a country that can generate income for all its people, giving them a chance to establish business activities in every sector. With the 5 percent to 6 percent growth during the last five years, Indonesia seems to be stronger than ever, especially when the crisis struck Indonesia in 1998-1999. More surprisingly, the reason why the Indonesian economy moves on even after the crisis is due to the vital role of SMEs.
The Bank of Indonesia as the central bank noted that about 99 percent of Indonesia’s national economy is by the SMEs.
This sector has contributed 56 percent to the Brutto National Product/GDP and the SME sector has accounted for at least 97 percent jobs.
Learning from the situation, the Indonesian government has strengthened its policy to support the SMEs by giving them a chance to participate in bids for government projects. The government has also legislated to legalize the role of the SMEs.
Under this legislation, the Indonesian government has formed a special cell to handle the tasks related to the “Ekonomi Kerakyatan” under the Ministry of Cooperation and SMEs.
In this context, Indonesia is optimistic to protect the main sectors, which in fact play the role of a main contributor of the SMEs in fields like agriculture, fishing, plantation and forestry. These sectors have given abundance of resources to related stakeholders in developing their business. The role of SMEs in various regions is supported by establishing the regional or central economies or markets.
Though Indonesia is known as an agricultural country, its forests surrounded by water are full of resources; however, there seems to be an obstacle that may hinder the development of these sectors, namely the connectivity between the point of production to the point of user or consumer.
Realizing how important this sector is, Indonesia has a sustainable program to eliminate or at least reduce the dependence on imports that undermine the innovative measures of our business communities.
As the Indonesian vice president stated in his opening remarks of Jakarta International Exhibition Centre (JIEC) on Oct. 16, 2013, the government encourages building the connectivity infrastructure of harbors, airports, roads, and railways for easing the transportation from one region to another.
The government also has emphasized its commitment to curb corrupt practices that may push up the cost of doing business.
For Saudi Arabia, Indonesia is a country that its people have made a big contribution to the Kingdom’s economy as much for the economy of their home country.
Thus, the Kingdom could take additional measures to adopt the kind of strategy Indonesia has adopted to develop its SMEs.
Meanwhile, both countries could learn from the experience of each other about the role of SMEs in furthering their respective national economies.
In this context, both countries which, in fact, have a Joint Commission on Economic and Technical Matters can study and benefit from each other, especially in boosting their SMEs.
This year, the Kingdom is scheduled to host the 10th Joint Commission, following the previous (9th JC) held in Bali, Indonesia.
Both countries, who are members of G20, can strengthen bilateral cooperation, especially in the economic and technical sectors. Such a move will not only benefit both countries but also their respective regions.
For this step, both countries are encouraged to study the issues related to the development of SMEs, and the construction and management of connectivity and become the model of cooperation.

- Moehammad Amar Ma’ruf is counselor for economic affairs at the Consulate General of the Republic of Indonesia, Jeddah. These are his personal views.


Market unsure over Shire's backing of $64 billion Takeda bid

Updated 25 April 2018
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Market unsure over Shire's backing of $64 billion Takeda bid

  • Takeda shares fell 7 percent on news of possible deal.
  • Combined company would have its primary listing in Tokyo and also offer American Depository Receipts

Rare disease specialist Shire has announced it was willing to recommend a sweetened $64 billion offer from Japan’s Takeda Pharmaceutical Co. to shareholders, in what would be the biggest acquisition of a drug company this year.
But shares in Takeda extended recent losses, tumbling 7 percent as investors fretted over its ability to buy a company twice its size, raising doubts about whether Shire shareholders will accept a bid that is 56 percent in new Takeda shares.
The stock slide — 18 percent since the news of a possible bid broke — makes the cash-and-share deal less appealing to Shire shareholders, some of whom may be reluctant or unable to hold Takeda shares.
“While this offer represents a solid improvement over Takeda’s third bid (38 percent cash), we still wonder if it is enough to satisfy Shire shareholders,” said Jefferies analyst David Steinberg.
Shire shares slipped 0.8 percent to 39 pounds by 0850 GMT, well below Takeda’s 49 pounds offer, signalling skepticism about the deal as Takeda’s falling stock price erodes the bid’s $64 billion headline value.
Without a deal, Shire shares could fall back to mid-March levels of 30-32 pounds, pressuring management to find other ways to realize value. Prior to Takeda’s approach, Shire was already considering divestments and a split in its operations.
It is now four weeks since Takeda first revealed it was considering a bid and the absence of firm interest from rivals means investors see only a low chance of an interloper emerging.
The latest development, first reported by Reuters, comes after London-listed Shire rejected four previous offers from Takeda.
The fifth offer is worth 49.01 pounds per share, comprised of 27.26 pounds per share in new Takeda shares and 21.75 pounds per share in cash. That represents a 4.3 percent premium to Takeda’s fourth proposal on April 20 and an 11.4 percent premium to its first approach on March 29.
Shire, a member of Britain’s benchmark FTSE 100 stock index, said its board agreed to extend a Wednesday regulatory deadline to May 8 so Takeda can conduct more due diligence and firm up its bid. Shire added the deadline may be extended further if needed.
Any deal is subject to the resolution of several issues, including completion of due diligence by Shire on Takeda, the Dublin-based company said.
A deal would significantly boost Takeda’s position in gastrointestinal disorders, neuroscience, and rare diseases, including a blockbuster haemophilia franchise.
If successful, it would be the largest overseas acquisition by a Japanese company and propel Takeda, led by Frenchman Christophe Weber, into the top ranks of global drugmakers.
Weber, who became Takeda’s first non-Japanese CEO in 2015, has said publicly it was looking for acquisitions to reduce its exposure to a mature Japanese pharmaceutical market.

FINANCIAL STRETCH
The combined company would have its primary listing in Tokyo and also offer American Depository Receipts — a move that would give Shire investors an opportunity to cash out more easily.
But the transaction would be a huge financial stretch, and Takeda investors have been skeptical about the merits of a Shire deal, given the size of the potential purchase and concerns that a large share issue will be needed to fund it.
Moody’s said the deal would pile up debt and hit Takeda’s credit ratings. “This huge acquisition bodes a spike in leverage that could result in a multi-notch downgrade,” said analyst Yukiko Asanuma.
Ambitious cost cutting is also seen as necessary to make the deal pay, and the uncertainties facing an enlarged group would spell a big change in the investment case for holding Takeda.
“Takeda’s shares have been valued for their stability and relatively high dividend,” said Daiwa Securities analyst Kazuaki Hashiguchi, adding this made them attractive even to investors without specialist knowledge of the drug sector.
Takeda, now worth $33 billion by market value, had 466.5 billion yen ($4.3 billion) in cash and short-term investments as of the end of December. It said yesterday it intended to maintain its dividend policy and investment-grade credit rating following the deal.
Dealmaking has surged in the drug industry this year as large players look to improve their pipelines. A Takeda-Shire transaction would be by far the biggest.
Shire has long been seen as a likely takeover target.
Botox-maker Allergan Plc said last week it was considering making a rival offer, only to scrap it hours later due to pushback from shareholders. Shire was also nearly bought by US drugmaker AbbVie Inc. in 2014, until US tax rule changes caused the deal to fall apart.
Shire traces its roots back to 1986, when it began as a seller of calcium supplements to treat osteoporosis, operating from an office above a shop in Hampshire, southern England. Since then, it has grown rapidly through acquisitions to generate revenues of about $15.2 billion last year.
But it has been under pressure in the past 12 months due to greater competition from generic drugs and debt from its $32 billion acquisition of Baxalta in 2016, a widely criticized deal.
It announced last week a sale of its oncology business to unlisted French drugmaker Servier for $2.4 billion.