SMEs in both developed and emerging economies play the most crucial role in promoting economic growth and development through effective utilization of resources and promoting entrepreneurial talents and job opportunities. Saudi Arabia is no exception and since the Saudi Vision 2030 was launched in 2016, the contribution of the small and medium-sized enterprises (SMEs) to Saudi Arabia’s gross domestic product (GDP) has grown by 45% against the original plan for increasing SME contribution to GDP from 20% to 35%.
A new Government agency was also established in 2016 as SME Authority (SMEA or Monshhat) for supporting, nurturing and developing small businesses and startups that have launched a set of initiatives for the ease of doing business in Saudi Arabia and include reimbursing government taxes paid during the first three years of operation, covering business risks of SMEs for financial institutions, providing money to the investing companies for low-cost SME funding and venture capital funding.
Over the last five years, the number of SMEs under the Vision rose from 447,000 to 614,000 in 2020. The SMEs’ share of bank loans also got closer to the target of 11% by 2025 effectively rising from 2% to 8% and acting as evidence of much new company formation in Saudi Arabia.
In a recent survey of the SME confidence index in the MENA region, Mastercard revealed Saudi Arabia to have the highest percentage (57%) of optimistic SMEs with a 50% SME population projecting business and revenue growth over the next twelve months after experiencing unprecedented economic upheaval caused by the covid pandemic. 83% of Saudi SMEs were found to be projecting that the revenue would either grow or hold steady shortly. Access to data, digitalization and skills have been cited as the key drivers for growth by the leading global payments and technology companies.
With the loosening of a tight set of restrictions imposed by circuit breakers to reverse the tide of the covid pandemic, economic normalcy has started being restored in many parts of world geographies including Saudi Arabia and helped raise hopes for a brighter economic future amongst the SMEs.
“Small and medium-sized businesses are vital to the Saudi economy as it diversifies and grows. Through the most difficult days of the pandemic, SMEs continued to press ahead, and it is encouraging to see the renewed optimism and confidence in this sector today.
While 62% of the respondents reported Private sector partnerships as the main reason for future business growth, 55% of SMEs cited government-led initiatives as the major growth driver.
In Saudi Arabia, 99% of Private sector companies fall under the ‘SME’ category employing less than 249 employees and earning less than SAR 200 million as revenue. Though the economic output of SMEs doesn’t match that of big corporations like Saudi Aramco, they employ the largest Saudi population and keep the economy running. Most of the SMEs in the KSA maintained steady growth over the years and promoted employment opportunities in the country. Institute of National Entrepreneurship Initiative (NEI) described SMEs as the backbone of Saudi’s economy.
King Salman bin Abdulaziz and Crown Prince Mohammad Bin Salman, with their visionary leadership, led the country’s economic growth and prosperity through Saudi Vision 2030 with continuous government support and initiatives to the SME sector through a variety of reform programmes. Economic diversification and reduced dependence on oil are at the core of the country’s 2030 vision with a primary focus on enhancing local SMEs’ capability.
Significant resources have been allocated by the Saudi government for enhancing the role of SMEs in the economy in recent years. In 2020 itself, an economic package worth 13 billion USD was announced for SMEs 2020 to mitigate the covid virus-induced financial crisis caused by reduced cash flows. The Kingdom has set a target of a 25% increase in GDP contribution for the private sectors.
The government has also made a considerable investment to promote SME funding through Sovereign Wealth Fund PIF with several initiatives like Jada investment for providing funds to SMEs through investment in private equity and venture capital funds and contribute 2.29 billion USD to the country’s GDP by 2027.
The SME sector in Saudi Arabia is considered as the pulse of the Kingdom’s economy and enhancing overall economic prosperity through employment generation, local capabilities boost up, ensuring business competitiveness and economic diversification.
