The headline of a recent article in this newspaper caught my eye: “Saudization blues: 212,000 SMEs closed down in 2 years.” Now, having been a newspaper editor for 19 years I know full well the need to create catchy headlines to draw-in readers. But perhaps this one went a little too far. After all, can we really blame the difficulty of young Saudi entrepreneurs in getting work visas for foreigners as the sole cause of the demise of over 200,000 small and medium enterprises (SMEs) that closed over the past two years in Saudi Arabia? I don’t think so.
It is a well-known fact that newly-opened retail businesses such as shops and restaurants are notoriously difficult to turn a profit, as they are extremely competitive segments of the market, and that two-thirds of them will fail within the first two years of operation. And they fail because of many reasons, but usually because of a lack of capital to tide them over from their loss-making days to greener days when they finally start making a profit. This is true in advanced economies like the United States and Europe, as well as in Saudi Arabia. The other big problem that SMEs face around the world is that of poor financing options offered to them by local banks. Fahd Al-Hamzi, a young Saudi businessman, told Arab News that Saudi SMEs are facing financing difficulties and that Saudi banks are imposing difficult conditions to grant them loans. In the eyes of banks, smaller companies are viewed as bigger risks and they therefore are more reluctant to lend them money, and demand more guarantees from SMEs in order to extend them loans. This is where the Saudi government needs to step in and set up a special fund that would guarantee and back-up loans to SMEs, that way Saudi banks would be prepared to offer much more financing to budding Saudi entrepreneurs.
Now, it is true that the Ministry of Labor’s Saudization program has cut down dramatically on the number of work visas issued for foreigners every year. This is something that all businessmen in the Kingdom have long been complaining about. In a sense, they have become hooked on cheap, foreign labor, refusing to pay more for Saudi labor, which they like to claim is not as qualified or as ready to work. But this issue gets mixed up with that of foreigners, usually Indians, Pakistanis, and Yemenis who run and own small grocery shops, repair and mechanic shops, while all remaining on paper at least the property of Saudis to whom they pay monthly fees for the privilege of using their identities. This cover-up business is of course currently illegal, but the government should consider legalizing it and allow qualified foreigners to own small businesses. By doing so, they would be legalizing a situation that has been going for a long time.
As for Saudis who own small to medium companies, the government should allow them to hire foreigners as reasonably needed, but they should also encourage them to hire young Saudis starting out in the job market. I would go out of my way to use the services of a small Saudi company if it were dynamic, enthusiastic, innovative and friendly. Most of the smaller Saudi-owned companies that I have come across in Jeddah are run by women involved in the food or clothing business, and they are exceptionally dynamic and service-oriented. Perhaps this is because as women they have found themselves locked out of the traditional business world, so they feel they have to try harder and offer better and more convenient services than their male counterparts. Here in Brazil we are always charmed when a foreigner opens a small business, because they are a rarity here. Likewise in Saudi Arabia, young Saudi entrepreneurs could capitalize on the Saudiness of their business in order to grow. I know I would be charmed by a computer maintenance service staffed entirely by competent and efficient Saudis who spoke both Arabic and English.
Finally, the government has to streamline the bureaucratic paperwork that it takes to open a new business in the Kingdom. It currently takes 191 days and 30 procedures to set up a business, which is more than a half a year! How can we dream of being competitive with so much red tape that gobbles up our time and tests our patience?
— The writer is a Saudi journalist based in Brazil.
