Lack of funds hinder Saudi scale-ups

Saudi Arabia has had an underdeveloped private equity and venture capital market compared to other countries in the region and banks remain wary of lending to businesses. (Getty Images)
Updated 12 December 2018
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Lack of funds hinder Saudi scale-ups

  • SMEs with proven business models that are on the verge of rapid growth often struggle due to a lack of financing options in the Kingdom
  • The Saudi government is offering entrepreneurs subsidized licenses to set up businesses as well as providing scale-ups with mentorship programs

LONDON: Small-to-medium-sized companies (SMEs) in Saudi Arabia looking to take the next step in the growth of their businesses often struggle due to a lack of funding options in the Kingdom, a report found.
Saudi Arabia has an underdeveloped private equity and venture capital market compared to other countries in the region and the banks remain wary of lending to these so-called “scale-up” businesses, according to research published on Tuesday by consultancy Strategy& and Endeavor — an entrepreneur mentorship provider based in New York.
Scale-ups are defined as SMEs with proven business models on the verge of a phase of rapid growth in revenue or staff numbers. Typically they account for 5 percent of a country’s SMEs, the report said.
Saudi Arabia was ranked “below average” on a “scale-up readiness” index compiled by the two consultancies that aim to assess how supportive the business environment is for smaller companies on the precipice of growth throughout the Middle East and North Africa.
The UAE was judged as the leading country in the region for scale-ups, according to the index.
Small scale-up firms in Saudi Arabia face a further challenge of attracting talent to work for them due to the reluctance of Saudi nationals to give up the healthy salaries and security of working for the public sector, the report said. This means these companies have to employ expensive expatriate employees.
The Kingdom is starting to improve the environment for scale-up businesses, said Mahmoud Makki, partner with Strategy&, Middle East. “The government of Saudi Arabia is pursuing reforms that aim to benefit scale-ups and catalyze the entire entrepreneurship ecosystem,” he said.
Reforms include the creation of a “one-stop-shop” portal to help entrepreneurs find out about regulations and how to launch new businesses.
The Saudi government is offering entrepreneurs subsidized licenses to set up businesses as well as providing scale-ups with mentorship programs. The Kingdom’s ministry of economy and planning is working on a new strategy called the “National Champions Program” that aims to help scale-up firms access export markets.
The research sets out recommendations for the region’s governments, advising them to help scale-ups access larger companies by subsidizing the purchase of goods from scale-ups.
Smaller businesses also need access to clear and transparent regulations and better technological infrastructure to bring down the costs of setting up.
“Focusing on scale-ups as a distinct segment with its unique needs will definitely create a more vibrant eco-system and accordingly expedite economic growth and the pace of innovation in the Kingdom of Saudi Arabia and the region,” said Amr Goussous, partner with PwC ME.


Davos Diary: An evening in the life of WEF, from Brexit to biodiversity

Updated 15 min 5 sec ago
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Davos Diary: An evening in the life of WEF, from Brexit to biodiversity

  • An absent Theresa May was the star of the show at WEF last year, before the Brexit debacle took such a serious turn
  • Sir David Attenborough was present to spread the word about climate change, which is one of the hot topics of Davos 2019

DAVOS: The Belvedere hotel was buzzing with rumor on the eve of the formal opening day of Davos 2019, and most of it centered on British Prime Minister Theresa May. Will she? Won’t she?
The UK leader has apparently withdrawn from this year’s World Economic Forum (WEF) meeting. She is one of a number of big-hitters who have decided their services are needed at home, in the face of populist “crises” ravaging the US and Europe.
In the Belvedere, the reason for May’s absence was apparent from the first step in the door. There, in the main lobby amid all the corporate branding for the banks and consulting firms that make the hotel their home base for the duration of Davos, flew the Union flag of the UK along with the slogan “Free Trade is GREAT Britain and Northern Ireland.”
Very in-your-face, but it was hard to work out exactly who had hung it there. Was it a Brexiteer, anxious to promote the idea that after withdrawal from the EU, the UK would be free to trade with the rest of the world? Or was it a member of the Remain camp, pushing the line that Britain within the EU would be free to trade with the 27 other member of the customs union?
There were other conspiracy theories being spun around. It was a greeting flag, it was said, to welcome May on what would be a surprise visit after all. British business leaders — marginally more anti- than pro-Brexit — are due to hold their annual Davos lunch event on Thursday.
Some recalled that May was the star of the show there last year, before the Brexit debacle took such a serious turn. Maybe she would want to reprise that triumph? Such is the hectic pace at which rumor spreads in Davos that I heard the same notion being put around later in the day as hard fact. We shall see, but if it happens, you read it here first.
After the excitement of the Belvedere, the agenda moved to the Hilton hotel, back within the ring of steel that surrounds the main WEF congress hall. That was the venue for the welcome bash thrown by the WEF media team, which is always a “must attend” event. Even more so this year because the guest speaker was the distinguished British broadcaster and naturalist Sir David Attenborough. The nonagenarian TV supremo — maker and voiceover to the “Planet” series of nature programs on the BBC — was in Davos to spread the word about climate change, which is one of the hot topics of Davos 2019.
Adrian Monck, the WEF’s head of public and social engagement and a former broadcaster himself, introduced Sir David with the words: “It’s not often you get to hear from a TV legend, but I don’t want to get into my TV career now,” drawing a few laughs around the room.
Sir David’s message on climate change and biodiversity destruction was rather more serious. “There are people here in Davos with enormous power, some who have more power than national states.
I want to tell them that we know what the matter is and we know what we can do to fix it,” he said.
He hopes his new documentary series “Our Planet,” which will air on Netflix, will help change perceptions, especially among climate change deniers. Sir David resisted the chance to criticize President Donald Trump, maybe the denier-in-chief, but he did say: “It is easy to say the problem does not exist, so we need bold action and bravery.”

  • Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai