SMEs: The backbone of the Saudi non-oil economy
We all rely on small businesses in our daily lives, yet many of us may not realize their true impact. Whether it’s the local coffee shop you visit every morning, the parts manufacturer that employs a member of your family or the accountancy firm that helps you manage your finances, small businesses help to shape our cities and regions.
SMEs are important to all economies around the world and will specifically play a major role in the non-oil-reliant Saudi economy. SMEs contribute to the economy by generating employment opportunities for the Saudi people and fostering economic empowerment for the youth and women. This will help in achieving the Vision 2030 goals of decreasing unemployment from 11.6 percent to 7 percent and increasing female participation in the workforce from 22 percent to 30 percent. SMEs allow us to explore new areas of innovation and graduate new champions, while also enabling national entrepreneurs by building strengthened supply chains and increased competitiveness.
In the OECD area, SMEs are the predominant form of enterprise, accounting for approximately 99 percent of all firms. They also provide the main source of employment, creating about 70 percent of jobs on average, and are major contributors to value creation.
Another of the Saudi Vision 2030 goals is to make SMEs a key driver of the Kingdom’s economic development. The Vision aims to raise the contribution of SMEs from the current 20 percent of GDP to 35 percent by facilitating access to funding and encouraging financial institutions to allocate up to 20 percent of overall loans to them from the current 5 percent.
The Saudi government has already taken some steps to paving the way to a stronger role in the economy for SMEs. One of the important actions in supporting these companies is the establishment of the General Authority for SMEs (Monshaat), which aims to increase the contribution of such businesses in the economy. Monshaat aspires to contribute to innovation, facilitate funding and create jobs for Saudi males and females.
The PIF, the Kingdom’s sovereign wealth fund, has also supported the sector by setting up a SR4 billion fund ($1 billion) that will give SMEs access to capital. The “fund of funds,” as it is known, will invest in venture capital and private equity funds targeting the SME sector.
SMEs are a nursery for the larger firms of the future: More and more large businesses started as SMEs before they grew large. SMEs are the next and most important step up for expanding microenterprises — they contribute directly and often significantly to aggregate savings and investment for any nation, especially Saudi Arabia.
• Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.