RIYADH, 8 March 2004 — Small and medium-sized enterprises (SMEs) in the Kingdom are expected to play a significant role in the local economy but face enormous problems. Lack of a proper support system tops the list, according to a position paper by the Saudi Arabian General Investment Authority (SAGIA).
“The SME sector in Saudi Arabia at present is not playing its role due to lack of support systems and lack of authority responsible for SME support, although it is estimated to represent the largest sector in the Kingdom,” SAGIA said.
Local SMEs contribute about 14 percent of industrial production — in most industrial countries they contribute over 80 percent. They also utilize about 35 percent of the industrial energy consumption, contributing about eight percent to the total value of industrial exports, according to the Seventh Development Plan.
Growth of SMEs is hampered by various factors, chiefly lack of funds.
“A shortage of paid-up capital and credit makes SMEs vulnerable to fluctuation in supply and demand.” Financial institutions are often reluctant to provide the necessary funds for the establishment and operation of their enterprises,” SAGIA said.
They also lack skilled human resources. As a result, that Saudi industries have become dependent on foreign manpower. In the case of small enterprises, which have only between one and nine workers, the percentage of Saudization is only two percent. In short, almost everything is wrong with local SMEs: Price, quality, and marketing efforts.
“There is restriction in the size and area of markets to which they have ready access due to low quality, high prices and inadequate marketing skills,” SAGIA said. Moreover, SMEs lack modern technology, and experience constant problems with cost and raw materials purchase. The result is that they cannot be competitive.
Then there is a lack of information on the production technology caused by weak human resources and fund shortages. All this means that they are not likely to attract much foreign investment.
SAGIA says there is therefore an urgent need for specific government help.
“We need a clear-cut government policy and special incentives for SME development. The government assistance and supports are indispensable for SME growth. In the Seventh Development Plan, the government policy for SMEs was too general, “ SAGIA said.
It added that the government should provide assistance for SMEs including management and marketing skills, technology upgrading, financial assistance, human resource training and special incentives such as tax reduction.
The National Committee for SMEs should also be mobilized.
Formed in 2001, “this committee proposed several recommendations on SME supports in the last one-and-a-half years but nothing was implemented. The progress of this committee is rather slow because of the nature of challenging nature of its task,” SAGIA said.
SAGIA also proposed financial support system. At present there are limited loan services for SMEs by SIDF and Saudi Credit Bank.
SAGIA wants a nationwide association to bring SMEs in the Kingdom together, separate from the chambers of commerce and industry.
The association will provide member-SMEs with know-how and management expertise and marketing skills, technical supports, legal and accounting consultations, assistance in economic feasibility studies, provision of information and research activities, human resource training and various seminars and workshops — everything SAGIA says they are bad at now. Only then, the authority believes, will the Kingdom’s SMEs be able to play anything approaching the vital role they have in other economies.