Saudization blues: 212,000 SMEs closed down in 2 years

Young Saudi business leaders have appealed to the government and the private sector for more support because they say about 212,000 small and medium enterprises (SME) have had to close up shop over the past two years for various reasons including tough Saudization regulations, lack of finance and lengthy bureaucratic procedures.
These entrepreneurs believe that they can revolutionize the SME sector given proper opportunities and support, including attracting foreign investment, developing a culture of productivity in society and tapping the country’s other resources, thus increasing the Kingdom’s nonoil exports.
They have called on chambers across the Kingdom to establish special committees for young entrepreneurs, resolve obstacles facing them and create a suitable atmosphere for their active participation in boosting the economy. They believe that if Saudis can grow the SME sector, this would help reduce remittances by expatriate workers.
According to one report, there are about 1.05 million SMEs in the Kingdom. Among them about 21,000 very small firms and 191,000 small firms have left the market over the past two years, one entrepreneur said, adding that the Kingdom’s SME sector declined by 10 percent in 2013.
“Finance is one of the major problems facing young entrepreneurs,” said Fahd Al-Hamzi, a member of the national committee for young businessmen at the Council of Saudi Chambers. “Finance is essential for the implementation of any business project,” he said, adding that Saudi banks were imposing difficult conditions to get loans. He urged local banks to open special sections for SMEs.
Speaking about bureaucratic practices, Al-Hamzi said: “According to a World Bank, report Saudis are required to complete 30 procedures in 191 days to open a business. This means it takes 6.5 days to complete every procedure.”
In the WB’s ease of doing business index, Saudi Arabia is ranked 49th overall out of 189 countries, and 109th with regard to government procedures. “This shows government procedures are killing projects and the enthusiasm of entrepreneurs.”
He said many Saudi entrepreneurs have found quicker and better services outside the Kingdom. “So the government should facilitate procedures to encourage entrepreneurs and SMEs.”
Al-Hamzi said Saudization has impacted negatively on SMEs because it takes a long time to get recruitment visas. “In my opinion, there is more harm than benefits from Saudization. In most cases, Saudis are employed in this sector just for Saudization purposes and not to develop businesses,” he said.
Al-Hamzi said many SMEs have suffered heavy losses because they did not get enough foreign workers, and had to spend unnecessarily on rents and salaries. He urged the ministry to speed up the visa-issuing system. “I know that many entrepreneurs have shut up shop because they did not get enough visas,” he said.
Abdul Rahman Al-Muaibed, another young entrepreneur, said under current conditions, a businessperson takes a year to start an enterprise, even a grocery shop, because of difficult Saudization and licensing conditions. He called on the government to speed up licensing procedures for SMEs.
Mohammed Al-Rabiah, also a young businessman, said most government officials who offer support for SMEs at seminars do the opposite when they return to their offices. “The Commerce Ministry issues commercial registrations in 48 hours through its website but you have to wait months to get visas from the Labor Ministry.”
He said the ministry’s Saudization programs have killed many Saudis’ investment ideas. He urged ministries to learn from the best practices of Saudi Aramco, Saudi Basic Industries Corporation and the Royal Commission for Jubail and Yanbu. Al-Rabiah urged big companies such as Aramco to allocate some of its projects to SMEs.
Abdul Aziz Al-Barrak said imposing Saudization on the SME sector would only harm businesses because most Saudis do not want to work for SMEs because of the low pay.
Economist Ali Bukhamseen said the number of SMEs have fallen over the past few years as a result of various problems, and urged the government and banks to provide extensive support for the sector. This would encourage young Saudi entrepreneurs to run such small businesses and reduce remittances by expatriates, he said.