New business models often originate from entrepreneur-created enterprises and the successful ones not only catalyze economic development and diversification, but they also go on to create significant new employment opportunities. In the US for example, between 1980 and 2005, forty million new jobs were created by businesses that were less than five years old. Indeed one can say that most large corporations began life as SMEs.In the case of growth markets like Saudi Arabia, SMEs are especially vital to economic growth and social stability given that they represent a much higher proportion of business activity in general. It is perhaps less about innovation and new business models and more about the evolution of traditional segments of the economy, such as health care, education and logistics. Lacking the liquidity and efficiency of more developed markets, a growth-oriented economy may support multiple players in a given field, with the winners — and losers — only being defined after the influence of extraneous factors such as FDI inflow, private equity activity or a strategic consolidator. This is borne out in statistics that see over 90 percent of all enterprises in the Middle East and North Africa (MENA) region falling into the SME category.In Saudi Arabia, SMEs similarly are a critical segment of the economy and make up 90 percent of all businesses in the Kingdom. As the Saudi Arabian economy is currently not home to market dominating multinational corporations that can soak up the increasing numbers entering the workforce, the role of SMEs is especially important. With unemployment numbers at 10.5 percent and youth unemployment at as much as 28 percent in the country, entrepreneurship and the SME segment in particular must shoulder the burden of job creation.The good news is that with historic investment in most sectors at a relatively low level, there is significant opportunity to support the SME segment at this critical phase. Operationally well-managed SMEs that have, through structural constraints, been denied the requisite financial and strategic stimuli to produce more goods and services, offer arguably the best investment opportunity in the region today. With their business models proven, often under difficult circumstances, and with demographic forces that provide a ready — and well-trained — workforce on the one hand and abundant consumers on the other, smart money is able to unlock enormous pent-up demand for capital and thus create value.From a government’s perspective, the benefits of a thriving SME sector are clear. In addition to employment creation and GDP growth, the SME segment provides the means to address structural issues in local economies including economic diversification and much needed innovation in a fast evolving globalized marketplace. Underlying this positive thesis, however, is the worry that much needed and readily available productivity enhancing technology is bad for job growth. But this concern is overly simplistic and misses the statistical fact that employment growth has followed productivity growth in emerging markets the world over. Just ask the Chinese, who have created over 200 million new jobs over the last two decades.To date, as with other economies in this part of the world, Saudi Arabia’s SME sector has not been able to realize its full potential. SMEs continue to suffer from a number of underlying weaknesses, which hamper their ability to take full advantage of the opening of the market economy and the increasingly accessible global marketplace for goods and services. It seems that many SME businesses are in a “low-growth trap” — dealing in traditional forms of production and unable to climb up the technology ladder. The reasons are familiar, including, limited access to institutional capital and too much red tape impeding easy start-up and operational ramp-up. Private equity and venture capital were until recently virtually non-existent and obtaining of a typical small business loan from a bank is often just not possible in practice, with requirements for personal guarantees and collateral creating disproportionate risk-sharing. There is broad acknowledgment that Saudi Arabia has entrepreneurial and intellectual talent in abundance and with a population of nearly 28 million there is no shortage of consumers for products and services of all kinds. What is missing most is greater access to finance and particularly long-term capital in the form of private equity. — Hossam Y. Radwan is country head of Abraaj Capital Saudi Arabia and Tom Speechley is the chief executive officer of Riyada Enterprise Development