Macroeconomic policy in the Kingdom has successfully prioritized stability and sustainability.

Coupled with strong regulation, it has enabled the country to withstand a major international economic storm with considerable resilience, leaving it one of a dwindling number of bright spots in the global economy.

More recently, a number of new policy initiatives have focused on important area such as housing and sustainable job creation for the Kingdom’s rapidly growing population.

A particularly attractive opportunity for Saudi Arabia exists in the area of fostering entrepreneurship.

The Saudi authorities, as well as a growing number of private sector entities, have recognized this through various initiatives designed to stimulate the creation of SMEs, above all through subsidized and guaranteed credit.

Nonetheless, the room for growth in terms of support structures and funding is tremendous.

A comparison of the situation in Saudi Arabia with that of mature Western economies highlights the potential that unleashing this entrepreneurial talent can have for Saudi Arabia’s economic growth and job creation.

Speaking at the CNBC Arabiya MENA Private Equity Summit 2011 in Dubai recently, Jarmo Kotilaine, chief economist of the National Commercial Bank, said that “perhaps the greatest economic opportunity for Saudi Arabia going forward involves building a bridge between the country’s enormous wealth of financial capital and its rapidly growing and increasingly well qualified pool of human capital. Effectively matching the two through targeted measures can lend a major impetus to the growth and diversification of the country’s economy.”

In the European Union, companies classified as small and medium-sized enterprises account for a remarkable two-thirds of total employment.

Their GDP contribution is close to 60 percent.

The two figures are estimated to be around 50 percent in the US. By contrast, while SMEs in Saudi Arabia are numerically significant, their economic weight lags behind some of their regional peers, not to mention the West.

While the available estimates vary somewhat, it appears that businesses with less than 100 employees make up some 95 percent of the total number of companies in Saudi Arabia.

However, they account for a significantly lower proportion of approximately 40 percent of all jobs in the Kingdom.

Their GDP contribution is estimated to be even less, some 28 percent.

The situation in the rest of the GCC region is largely analogous.

The “SME gap” vis-à-vis Western economies highlights a number of important challenges.

The Saudi SME sphere is very heavily dominated by small micro enterprises and the mechanisms for company growth are still far less developed than in Europe, the US, or indeed a number of emerging economies.

An estimated three-quarters of Saudi SMEs are engaged in relatively low value-added activities such as trading and construction.

Their operations, mirroring the situation across the GCC region, have tended to rely heavily on relatively low-cost and often low-efficiency expatriate labor.

Only a fairly small proportion of these companies are growth-oriented, innovative players.

It is clear that matching the Western levels of SME development and growth represents important opportunity for job creation, diversification, and innovation.

While the availability of funds for SME creation has improved, important challenges remain in terms of access to information and advice, as well as the kinds of management and other skills that enable successful companies to embark on a growth trajectory.

In the words of Kotilaine, “the global experience has clearly demonstrated the value that private equity can play in combining financial capital with management expertise and supporting company growth.”

Problematically, the venture capital and private equity industry in the Gulf region has been hit hard by the crisis at a critical early stage in its development.

Only a handful of deals have taken place in recent years, even though the industry can point to a certain number of impressive success stories.

Redoubled efforts are hence needed to more effectively channel both financial and human capital into fostering entrepreneurship and company growth.

Success in this regard is likely to hinge in important ways on efforts to stimulate the development of private equity.

Such initiatives have in many successful cases around the world involved public sector institutions as well as combinations between public and private players.