Business & Money | Thursday 21 March, 2019 2:16 pm |

A recent report by Jadwa Investment confirmed Vision 2030’s focus on supporting small and medium sized enterprises (SMEs) as major contributors to the development and growth of the economy.

One of key objectives outlined in the Saudi Vision 2030 relates to raising the level of SME’s contribution to GDP. Specifically, the target refers to raising the current contribution of 20 percent of GDP to 35 percent by 2030.

 

According to the report, amongst the member countries of the Organization of Economic Cooperation and Development (OECD), SMEs account for approximately 99 percent of total enterprises, and provide the main source of employment, accounting for about 70 percent of jobs. In addition, SMEs are major contributors to value creation, generating between 50 and 60 percent of value-added in the OECD.

  

The report states that according to the General Authority for Statistics (GaStat), around 950 thousand SMEs are operating in the Kingdom at the end of 2017, with 88 percent of these enterprises classified as ‘micro’, employing between 1-5 employees. The same data shows that SMEs employed circa 1 million Saudis, and 3.7 million foreigners by the end of 2017, representing 32 percent of all Saudis, and 46 percent of all foreigners, in the labor market. Of the one million or so Saudis employed in SMEs, around 33 percent are employed in wholesale and retail SMEs, and 10 percent employed by SMEs operating in the manufacturing sector.

 

Moreover, the report shows that 41 percent of all Saudi workers in SMEs range between 26-35 years old, accounting for the largest share amongst all age groups, with a total of 411 thousand workers. In fact, the percentage of 26-35 year old working in SMEs is higher than in the overall labor market average, which suggests that SMEs have the potential to create a higher number of job opportunities for Saudi youth vis-vis other types of employers.   

 

As part of Vision 2030 goal to enable SMEs growth through reforms, the Small and Medium Enterprise Authority (Monsha’at) and the Local Content and Private Sector Development Unit (Namaa) announced four major initiatives to support SMEs in the Kingdom. Collectively, these initiatives aim to regulate and develop the private sector in general, while increasing SMEs’ contribution to the local economy, which are: reimbursing the government fees, indirect funding, raising the capital of Kafalah and the venture capital fund.   

 

The report also highlights the major obstacles and barriers currently facing SMEs according to GaStat’s latest SMEs survey for 2017. For instance, electricity tariffs seem to be a more significant barrier for micro enterprises than medium-size enterprises. Meanwhile, the availability of skilled labor is a more significant barrier for medium-size   enterprises than micro enterprises. The report details that although only 2 percent of SMEs in the Kingdom identified access to finance as a main barrier to start a business, a study by the IMF found that more than 50 percent of firms in MENA do not have access to credit, and 30 percent of these firms identify lack of access as a major constraint. 

 

The report also points out that raising the contribution of SMEs in the local economy is mentioned in several Vision Realization Programs. In a recently published update, the National Transformation Program listed a number of initiatives to improve SMEs contribution to the private sector. In particular, the Financial Sector Development Program pays particular attention to SMEs and outlines a whole number of initiatives, such as raising the share of SME loans as a percentage of total bank loans from 2 to 5 percent by 2020, raising the level of private equity and venture capital financing to SME funding, introducing FinTech companies to facilitate SME financing and expansion, and finally helping SMEs to get listed in the Nomu parallel market.

 

The Jadwa report concluded that the government is striving to create new sectors which contribute to the local economy in an effort to meet its goals of economic diversification. This provides ample opportunity for SMEs to grow in the local economy in sectors such as tourism, entertainment, technology and finance. The report also mentions that the new reforms and various initiatives to facilitate financing solutions for SMEs are expected to raise the contribution of SMEs in the local economy, especially with the high local demand and level of consumption derived from the large population in the Kingdom. In addition, and along with the structural changes in the labor market, many job opportunities can be found the SME sector, especially for the youth.