Today we stand on the threshold of major changes in the global economy, the world around us is increasingly becoming an integrated market for goods and services; nations are becoming more and more competitive as they come to terms with the need to develop their private sector; and as the private sector becomes the true engine of economic growth, the critical role of small and medium enterprises (SME’s) is beginning to attract the attention of policy makers and legislators worldwide.
As Saudi Arabia stands on the threshold of its accession to the World Trade Organization (WTO), the first and foremost challenge facing our economy today — even more important than foreign direct investment, and more important than privatization and liberation — is the creation of a strong framework that can nurture the creation and the development of SME’s.
SMEs in Saudi Arabia are the main source of private sector investment. They are a diverse group of businesses usually operating in the service, trade, and manufacturing sectors. They form more than 90 percent of private enterprises Kingdomwide. They are the primary source for creating jobs; alleviating poverty; fostering technological innovation; developing new products and services; encouraging entrepreneurial culture; and are expected to contribute more than 50 percent of total industrial production in the near future. They are the only means by which the Saudi economy can diversify itself.
Despite their strategic and economic importance, the state of SME’s in Saudi Arabia leaves much to be said. SMEs lack that primary tools that enable them to grow and prosper. They lack funds and credit options; they operate in an unfriendly business environment; they are handicapped by extreme regulation; and they function without the availability of basic statistics and data needed to ensure sound business decisions.
Solutions can not be brought on without government intervention and support. And government intervention and support cannot succeed without the active participation of the private sector including commercial banks, large enterprises, business service providers and other relevant stakeholders. A much needed public-private partnership must take shape if SME’s are to be empowered. The government will have to face the challenge of persuading the private sector to buy-in on their intervention measures, and in turn the private sector will have to work hard in championing the measures suggested.
An example of such an intervention is for the government to institutionalize a general policy that dictates a systematic approach on how to support and develop SME’s in the Kingdom. This policy must contain a practical working framework that is simple and doable, and that spells out the roles and responsibilities of its key players. It must be user friendly so as not to leave any room for speculation, and it should provide checklist of how regulatory procedures must be dealt with.
The first issue the policy must address is the creation of a general fund and credit facility. Finance plays a major role in the development of SMEs. The role of government would be to either convince banks to increase their lending power to this sector, or it can establish special funds to facilitate loans and credit guarantees, or both. True, certain funds already exist, but the regulations governing the credit processes are lengthy and the beneficiaries to these funds are few.
The second issue to be addressed in the policy is the creation of an official authority to oversee their development. Something like the Saudi Arabian General Investment Authority (SAGIA) instead, it would be called the Saudi Arabian SME Development Authority (SASMEDA).
Such an authority would be the one-stop-shop that caters to all the administrative and regulatory issues that SME’s currently have to deal with. By creating this Authority to simplify regulation and to facilitate licensing as well as other procedures like property registration and labor issues, SME’s will have more time on their hands to take care of their core business instead of spending it on routine administrative work that requires them to commute from one ministry to another in order to get a simple job done. The critical factor here is to decentralize existing systems while providing absolute executive power to this authority to resolve all regulatory administrative issues.
And finally, the policy should include the establishment of a national association for SME’s with the purpose of providing its members with state-of-the-art technical, managerial and marketing support. Other services should include legal counseling, accounting services, financial consultations, assistance in developing economic feasibility studies, research and information gathering services, training workshops as well as general awareness in all of the above.
True empowerment can only be achieved when SME’s have the right policies, systems, tools and framework in place. Once these elements are set, it is the up to the SME’s to take responsibility for growing their businesses and expanding national employment.
— (Fatin Yousef Bundagji, [email protected], is director of Women Empowerment & Research at the Jeddah Chamber of Commerce & Industry.)